After leaving GE, Jeffrey Immelt stated in 2018: "The notion of plugging financial services and industrial companies together, maybe it was a good idea at a point in time, but it is a uniquely bad idea now.2 To what is Immelt referring? Why does he think this is a bad idea? Do you agree? Why, or why not?

 

Answer:

Yes, I agree with Immelt’s reference of plugging of financial services and industrial companies together to be a bad idea. The reason for that is the plugging of financial services and industrial companies leads to the development of a conglomerate due to which the company’s focus and attention would be diversified to two businesses at once. This would also lead to extensive allocation of resources to multiple businesses and these resources could be overworked or exaggerated for usage in both the industries. Besides, the financial services industry is subject to extensive regulations where the companies have to abide by multiple reporting and audit requirements by the central banks now and then. This results in the consumption of resources for tasks or jobs that are unproductive or non value added jobs which results in excessive expenditure for these companies. If the companies are plugged together, the total cash flows of the company would be constrained where despite having funds, the company will not be able to use or consume it because it would be tied up in reporting and regulatory requirements by multiple regulatory authorities. Hence, the plugging of the two business models is not a good idea at this point in time.