BackImmelt is putting his own stamp on Welch’s GE
Company's move to sell off most of its finance unit will dismantle one of the major initiatives of the Welch years
Premium
Jeffrey R. Immelt, chief executive of General Electric, was speaking at Stanford Business School a few years ago when a student asked him pointedly: How tough was it to be the next act at GE after the celebrated two-decade tenure of Jack Welch?
It is a subject Immelt mostly avoids, and at first he deflected the question with a joke, advising the students to plan their careers so that their predecessors are failures. But after a pause, he offered his real answer.
“The trick, if you follow someone famous, is that you have got to drive change every day without ever pretending anything was ever wrong," Immelt said. “It takes confidence and it takes time."
It has taken a long time indeed for Immelt, who succeeded Welch as chairman and chief executive in 2001. But GE’s announcement on Friday that it plans to sell off most of its big finance unit, GE Capital, punctuates the transformation of the company under Immelt.
It has been a lengthy and often humbling corporate journey animated by the recognition that GE’s real strength lies in industrial engineering rather than financial engineering.
The move will also dismantle one of the major strategic initiatives of the Welch years, the creation of a sprawling financial institution inside a corporate industrial icon.
“Jeff Immelt will have totally remade GE," said Vijay Govindarajan, a professor at the Tuck School of Business at Dartmouth College, who has studied GE and consulted for it. “It’s a different company for a different time."
In style and temperament, Immelt and Welch are remarkable contrasts.
Immelt, a 6-foot-4 former football lineman at Dartmouth, is an informal man whose outward manner is easygoing. Welch, a 5-foot-7 dynamo, is a coiled spring given to rapid-fire speech. “There could not be two more different people," Govindarajan noted.
Welch presided over a 20-year span of business deregulation, rising global competition in manufacturing, and the ascent of the Wall Street-led finance economy.
He moved quickly, before GE was really threatened. His tactics were widely copied, and he delivered an extraordinary run of profit growth, making him one of the most admired corporate executives of his generation. (His pop-culture profile was heightened when he was held up as a role model by the fictional network executive Jack Donaghy on 30 Rock, on which Welch made a cameo appearance.)
Immelt has not had that kind of tenure. He took over GE just a few days before the 11 September, 2001 terrorist attacks, and the economic aftershock hit GE’s aviation, power generation and reinsurance businesses hard. Later, the financial crisis proved an even greater long-term setback.
“What Welch was able to do was quickly put his stamp on the company, but Immelt inherited a tougher problem," said David B. Yoffie, a professor at the Harvard Business School. “It’s been a slow, long slog."
Under Welch, and even afterwards, the finance business was a moneymaker, accounting for half of GE’s profits in some years.
But since the financial crisis hit in 2008, GE has been steadily paring back its finance arm, whose portfolio had swelled to include ventures like owning office buildings in suburban Chicago and consumer lending in Japan.
By 2018, GE plans to get less than 10% of its profit from GE Capital, and more than 90% of earnings from its industrial products and services. And GE’s finance business will be mainly confined to lending to GE customers who are buying its industrial machinery like jet engines, power generators, medical imaging machines and oil field equipment.
“Where GE is going to end up is back to the future," said Noel M. Tichy, a professor at the Ross School of Business at the University of Michigan, referring to the origins of the company’s finance arm, which offered credit to buy GE products, including household appliances in the Depression.
Tichy, who once headed GE’s management training centre in Crotonville, New York, said Immelt’s strategy was the latest version of a historical pattern for the company. “GE has morphed its corporate portfolio to the environment, and generally successfully," he said. “That’s a key reason it has survived and thrived over the years, when other industrial companies have not."
GE is returning to its roots with a vengeance, and what had been a steady retreat from the finance business is becoming a sprint within a few years.
Immelt and his team explained on Friday that they saw a “window of opportunity" with financial buyers with deep pockets, like private equity firms, lining up.
Immelt said “the timing is really right to do this" and called it a “seller’s market". Presumably, the potential buyers think otherwise and believe their asset purchases from GE Capital will prove handsomely profitable.
Yet GE is motivated more by strategy than by trying to fine-tune the timing of individual asset sales.
The company, Immelt observed last week, had ridden GE Capital both up and down over the years. But the current move, he said, is about investing the company’s management and financial resources in “our leading high-tech industrial businesses".
The management team’s goal, Immelt said, is to have investors and others “see GE as an industrial company" and one with “more growth, more focus and less risk".
GE’s corporate resilience, management experts say, owes a lot to its capability to train executive talent. “Markets shift all the time, but GE’s leadership engine is strong, and it has picked successors pretty well—and not necessarily predictable choices," said Michael Useem, director of the Center for Leadership and Change Management at the Wharton School of the University of Pennsylvania.
Welch himself was a striking departure from his predecessor, Reginald H. Jones, who ran GE from 1972 to 1981. Jones was a dapper industrial statesman, mending and forging ties with government. He was a champion of strategic planning, building up that capability at corporate headquarters to guide investment decisions and to control GE’s diverse industrial businesses worldwide.
Welch dismantled the planning department of his predecessor, eliminated layers of corporate hierarchy and shed thousands of workers, earning him the nickname Neutron Jack.
For Welch, the tough action was done in pursuit of improved corporate performance and to fend off the challenge of Asian rivals, mainly from Japan in the 1980s.
His diversification moves into finance and broadcasting with NBC were partly to give GE ballast, adding businesses that faced little, if any, foreign competition.
Speaking at Stanford in 2010, Immelt reflected on the different circumstances that he and Welch faced and the limits of the past as a guide to the future in management. “I learned a lot from Jack, and I think Jack was a great CEO," Immelt said.
But he went on to say that the present was as different from 1997, towards the end of Welch’s tenure, as the present was from 1927.
“There’s no comparison to the worlds we are in," Immelt said. “You do it your way, you keep your mouth shut, and you let your own pathway work." ©2015/The New York Times
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
