C a s e 13
How Do
You Solve a Problem Like General Electric?*
The appointment of Larry Culp as the chairman and CEO of the
General Electric Company (GE) on October 1, 2018, was a clear indication of the
seriousness of the
problems that had engulfed the company. Culp was the first
outsider to lead GE ni its 126-year history-each of GE’s ten previous chief
executives had been a career man-
ager at the company.
GE was America’s greatest industrial corporation. Its
innovations, that ranged from light bulbs to electric locomotives and from to
jet engines and medical imaging, had powered the US economy and US living
standards for the entire 20th century. For decades GE had been the bluest of
blue-chip stocks, supported by GEs’ growing rev- enues and profits and reliable
dividends. In the first 10 years of Fortune’s ranking of the world’s most
admired companies (1998-2007), GE topped the list seven times. GES management
principles and systems had formed the template for the management structures
and processes of large corporations throughout the world.
Between the retirement of its last long-serving CEO, Jef
Immelt, on June 12, 2017, • and the appointment of Larry Culp (previously CEO
of Danaher Corporation) on October 1, 2018, GE’s reputation for managerial
excellence was shattered by a $23 bilion write-down in the value
of its power division assets, $15 billion of charges arising
from insurance companies it had sold 12 years previously,
and revelations concerning dubious accounting practices. Its share price
declined by 61%, its dividend was halved, and GE was dismissed from the Dow
Jones Industrial Index after 1 years of continuous membership. (Figure 1 shows
GE’s share price.)
During his first 30 months at the helm, Culp sought to
stabilize GE. This involved replacing board members and senior executives,
accelerating hte divestments started by predecessors Flannery and Immelt, and
raising operational efficiency through a program of lean production.
By early 2021, these measures were producing results.
Despite the devastating impact of the COVID-19 pandemic (especially on the
Aviation division), GE reported positive profits and free cash flows for 2020
(se Table 1). Yet, these signs of progress did little to resolve the big
questions concerning GE’s future.
The GE that Culp had inherited was the product of over a
century of continuous development. Its structure of separate business divisions
integrated by a corporate headquarters reflected a business model that had been
refined by successive CEOs. The corporate center created value through the use
of acquisitions and disposals 1o reshape the business portfolio, exploiting
synergies between the businesses, enhancing business performance through
corporate systems for strategic and financial control, developing executives,
and fostering innovation.
The system that GE created provided a management model for
large companies, not just in the United States, but throughout the world. Its
most celebrated chief exec- utive, Jack Welch (“The most successful CEO of
the 20th century”) had established a status
amongst managers similar to that of Warren Buffet among
investors. He even founded the Jack Welch Management Institute to disseminate
his management philos- ophy through a specially designed MBA program.
The collapse in GE’s performance and reputation that
accompanied the final years of Welch’s successor as
CEO, Jeff Immelt, produced a range of diagnoses
among investment analysts and business journalists. These
diagnoses allocated blame among three sets of factors: external forces,
misjudgment by senior executives (Immelt in particular), and the
obsolescence of the GE management system.
Culp’s emphasis on incremental and operational improvement
raised questions over his broader vision for GE.
Should GE continue as a diversified, capital-intensive,
technology-based manufacturing company, or should it split up either partially
or com- pletely? If it was to continue as a diversified, multibusiness company,
should it retain its multidivisional structure with centralized corporate
functions and a high degree of top-down intervention, or should it move to an
alternative structure? If an alternative structure was appropriate, should
it be a looser, more decentralized structure such as that
employed by Danaher or Berkshire Hathaway, or a tighter and more integrated
structure such as that of ExxonMobil or Procter & Gamble?
The History of GE
GE was created in 1892 from the merger between Thomas
Edison’s Electric Light Company with the Thomas Houston Company, Its business
was based upon exploit-
ing Edison’s patents related to electricity generation and
distribution, light bulbs, and electric motors. Throughout the 20th century, GE
was not only one of the world’s big- gest industrial corporations but also
“a model of management-a laboratory studied by business schools and raided
by other companies seeking skilled executives.” Each of GE’s chief
executives contributed to the development of GE’s management system, and, for
several of them, these
developments diffused well beyond GE’s corporate boundaries.
Among those who shaped corporate strategy thinking and practice:
• Charles Coffin (1892-1922) married Edison’s industrial
research and development laboratory to a business system capable of turning
scientific dis covery into marketable products. The innovations emanating from
the R&D lab oratories of large corporations such as AT&T, Siemens,
BASP, IBM, and DuPont were major drivers of industrial development during the
20th century.
• Ralph Cordiner (1950-1963) assisted by Peter Drucker,
established GE’s
Cro- tonville management development institute and
decentralized GE’s operational management to 120 departmental general managers.
The reconciliation of oper- ational decentralization with corporate control
within the diversified industrial company was the key feature of the
multidivisional structure that became the dominant organizational form among
large companies during the latter half of the 20th century.
• Fred Borsch (1963-1972) devised GEs’ corporate planning
system based on strategic business units and incorporated the portfolio
management techniques developed with BCG and McKinsey &Co. This became a
model for other
diver-
sified corporations.
• Reg Jones (1972-1981) integrated strategic planning with
financial control to
create a comprehensive system for the corporate headquarters
to manage its businesses.
• Jack Welch (1982-2001) was responsible for reenergizing GE
through combat- ting bureaucratic inertia and introducing a rigorous and
demanding performance management system based on stretch targets and powerful
incentives. Welch stripped out layers of hierarchy and spearheaded initiatives
designed to root
out complacency and to drive change. His
“rank-and-yank” system of firing
the lowest-performing 10% of managers each year, ensured
intensity of moti- vation and commitment. Welch reformulated GE’s business
portfolio through
exiting low-growth extractive and manufacturing businesses,
and by expanding services-financial services especially. By the time he
retired, GE was “a bank disguised as an industrial conglomerate.”‘
Welch’s status as “the greatest man- ager of the 20th century”
(according to Fortune magazine) rested on his impact beyond GE. According to
the Economist, he “helped jolt America Inc out of the complacent
1970s” and “transformed American capitalism.””
• Jeff Immelt (2001-2017) sought to return GE to its
manufacturing roots through divesting its financial service and entertainment
businesses and increasing integration among the industrial businesses through
sharing know-how, increasing global presence, exploiting synergies in sales and
marketing, and deploying digital technologies. However, as we shall see,
failures in executing the strategy were instrumental in precipitating the
crisis of 2017-2020.
GE’s Corporate Strategy and Management System
The Business Portfolio
Diversification formed the core of GE’s corporate strategy
throughout its history. Its origins lie in the flood of inventions from Thomas
Edison’s lab and was fueled by
cash flows searching for new investment opportunities. GE’s
innovations in organization and
strategy was driven by the management needs of such a vast
and complex enterprise. However, by the 1990s, diversification had become
unfashionable and a dominant theme in strategic thinking was “core
business focus.” Indeed, many diversified corpo rations were being
dismembered -either through leveraged buyouts or voluntarily as boards of
directors sought to release value and escape the “conglomerate
discount.” GE had resisted the dominant trend toward refocusing; it had
always viewed its diversified portfolio of businesses as a source of stability
and strength. At the outset of his tenure as CEO, Jef Immelt declared:
“The GE portfolio was put together for a purpose-to deliver earnings
growth through every economic cycle. We’re constantly managing these cycles in
a business where the sum exceeds the parts.” Thirteen years later, his
views were little changed: “Diversity provides strength through disruptive
events and commodity cycles,” thereby constituting a key “source of
value from a multi- business company. This commitment to risk spreading through
diversification would appear to reflect GE’s desire for independence from
external capital markets.
GE’s diversification also allowed it to adjust its portfolio
to changing opportunities
for growth and value creation. Jack Welch had reconstituted
GE’s business portfolio by exiting low-growth, commodity businesses and
building a financial services colossus.
Jeff Immelt’s restructuring of GE’s portfolio was guided by
the potential offered yb three global trends:
• Economic development, especially in emerging markets,
would require massive investments in infrastructure
including
energy, water, and
transportation
• Environmental degradation through global warming and,
water scarcity, and conservation would require new technologies and business
innovations.
• Demographic trends especially aging-would create
increasing demand for healthcare.
The outcome was to recreate GE as an infrastructure
company—a diversified cor-
poration directed toward global needs for aviation, rail
transportation, power gen- eration and distribution, oil and gas production,
and medical hardware. During his
16-year tenure, Immelt reconfigured GE by acquiring
infrastructure-related companies and divesting consumer and financial service
businesses. Table 2 shows GE’s principal acquisitions and divestitures during
2004-2020.
The rationale of exiting slow-growing, low-margin sectors to
exploit the growth and profit opportunities of more attractive industries was
sound. The risk, however, was that, first, GE’s corporate executives would be
no better than the stock market in iden- tifying the attractive industries of
tomorrow and, second, the costs of acquisition and divestment would dissipate
the returns from such a strategy. The Economist’s Schum- peter column was
skeptical of the effectiveness of portfolio management in creating value:
“The cost of churning capital in predictable ways can be significant . . .
GE has paid a multiple of 13 times gross operating profits for the businesses
it has bought and
got 9 times for those it sold. Some nine-tenths of its
industrial capital is now comprised of goodwill, or the premium that a firm
paid above book value for its acquisitions. ” Moreover, for portfolio
management to work well, corporate management must be willing to exit
businesses whose long-term prospects are deteriorating This is easier for a
private equity firm than for a diversified industrial corporation where
long-established businesses are likely to be protected by sentimental
attachment and entrenched political power. A feature of Immelt’s leadership was
the length of time it took to exit from financial services and domestic
appliances.
Shrinking GE Capital was a massive challenge given its size
and contribution to GE’s profitability, Despite Immelt’s commitment to
downsizing GE Capital, it continued to
grow during 2001-2007. In 2006 and 2007, GE Capital
accounted for almost half of GES’
total net profit (up from 25% in 2001). Only after the
financial crisis of 2008-2009 did GE take drastic action to divest financial
services. The designation of GE. Capital as a “systemicaly important
financial institution” ni 2013, which raised its capital reserve
requirements, eliminated any competitive advantages it had derived from being a
non- bank supplier of financial services. By 2021, GE Capital retained only
*vertical finan- cial businesses-those linked to GE’s core industrial businesses,
such as GE. Capital Aviation Services
(GECAS).
Figure 2 shows the changes to GE’s divisional structure
between 2015 and 2021. Table 3shows these sectors’ financial performance, while
Exhibit 1describes
their business activities.
Exploiting Synergies
Both Jack Welch and Jeff Immelt were adamant that GE was not
a conglomerate. For Immelt:
GE is a multi-business growth company bound together by
common operating sys- tems and initiatives, and a common culture with strong
values. Because of these shared systems, processes and values, the whole of GE
is greater than the sum of its parts.’
For Welch, the essence of “integrated diversity,”
was the frictionless transfer of best practices and know-how across GE. His
vision of a “boundary-less” company was directed to this. Immelt’s
efforts to exploit linkages among GE’s different businesses
focused on building structures and systems to facilitate the
creation and sharing of knowledge. This included a network of eight Global
Research Centers to develop technologies with applications to multiple
businesses. These technologies included
molecular imaging and diagnostics, nanotechnology, energy
conversion, advanced propulsion, sustainable energy, and security technologies.
Priority was given to estab- lishing GEs’ leadership ni the
“internet-of-things”—the application of machine learning and
artificial intelligence to the flow of continuous data from embedded sensors in
jet
engines, locomotives, oil and gas equipment, medical
diagnostic, electricity generators, and GE’s other hardware in order to manage
maintenance schedules, optimize fuel
consumption, prevent accidents, and automate other
processes. EXHIBIT 1
General Electric’s business segments, January 2021, GE Power
is the world’s biggest supplier of equipment and supporting services for
generating and distributing electricity and is GEs’ biggest segment with 83,500
employees. It is composed of two divisions:
• Gas Power offers gas turbines for utilities,
independent power producers, and industrial applications.
• Power Portfolio offers steam power boilers, genera-
tors, steam turbines, and air quality control systems. It
also provides motors, generators, automation, control equipment, and drives for
energy-intensive
industries such as marine, oil and gas, mining, rail,
metals, test systems, and water. Its joint ventures
with Hitachi provide plant, fuel, and support for nuclear
power generation.
Between 2017 and 2020, GE Power cut employment from 83,500
to 34,000 as it adjusted to excess capacity
and intense price competition. GE
Renewable Energy , Onshore Wind provides smart, modular
turbines and
services that use digital infrastructure to optimize wind
farm performance. Grid Solutions Equipment and Services equips power utilities
and industries worldwide to bring
power reliably and efficiently from generation to final
consumers.
• Hydro Solutions provides design, management, construction,
installation, maintenance, and opera-
tion of hydropower plants.
• Offshore Wind provides equipment and services for
offshore wind farms, including Haliade-X, the world’s most
powerful offshore wind turbine.
• Hybrid Solutions integrates storage and renewable energy
generation sources. GE Aviation is the world’s leading supplier of commercial
and military aircraft engines plus avionics systems and
support services. CFM International, a joint venture with
Safran of France, produces the LEAP engine. In response
to the COVID-19 pandemic, Aviation cut its workforce from
50,000 to 40,000 during 2020.
GE Healthcare comprises: E Capital provides financial
services to support GEs industrial businesses and their customers in developed
and emerging markets. These include.
• GE Capital Aviation Services, which leases aircraft.
• Energy Financial Services, which provides financial and
underwriting capabilities for power and renew-
able energy.
• Working Capital Solutions, which purchasesEG Industrial
customer receivables.
• Insurance-the residue of GE Capitals insurance business
was reinsurance felated to long term care
policies. The liabilities from these policies requiredEC to
cover a $17 billion shortfall ni its reserves ni 2017, GE Healthcare comprises:
• Healthcare Systems, the world’s leading supplier of
diagnostic imaging systems using X-rays, digital
Pharmaceutical Diagnostics provides imaging agents for the
detection, diagnosis, and management of disease, and systems for patient
monitoring, infant incubation, respiratory care, anesthesia, and cellular
and gene therapy.
However, despite top management’s evangelism of GE as a
“digital industrial” company and massive R&D expenditure at GE
Digital, Predix was beset by software problems, including inability to handle
the vast data streams generated
by GE’s MRI scanners, jet engines, and gas turbines. In
February 2018, Immelt’s successor, Flannery announced a narrowing of GE’s
Digital’s focus. His successor, Larry Culp, proceeded
to sell part of Digital and appointed a new CEO to turn
around the remainder of the business.
Additive
printing (also known as 3D printing) was another area of
technology that GE viewed as applicable across al its businesses. By
2020, GE Additive was a world leader in developing and
supplying metal additive manufacturing machines for use in aerospace, medical,
and automotive manufacture.
GE also sought to exploit cross-business synergies in sales
and marketing. GE bun- dled products and support services to offer tailored
“customer solutions.” In the case of a new hospital development, for
example, there might be opportunities not just for medical equipment but also
for lighting, backup generators, and financing. Such opportunities were
particularly important internationally where GE’s “Company-to-
Country” strategy aimed to build relationships with host governments across
multiple infrastructure development projects. In 2012, GE announced that
“Nigeria should be our next billion-dollar country.”10
The GE Management System
GE’s ability to resist the dominant trend toward core
business focus rested upon its much- acclaimed management system through which
GE enhanced the performance of the businesses it owned. This management system
was a product of over a century of con- tinuous development. It was so deeply
embedded within GE’s culture that it was integral to GE’s identity and world
view. At the core of this management system was its approach
to management development-its “talent machine”-and
its system of performance management. Both had been refined, reinforced, and
revigorated by Jack Welch.
GE’s commitment to leadership development was indicated by
its reliance on inter- nally developed senior executives. Its effectiveness in
developing leaders had given it the status of a “CEO
factory” —former GE managers have been appointed to lead major companies
throughout the world-including Boeing, 3M, Home Depot, Honeywell, and ABB.
According to Welch:
Our true “core competency” today is not
manufacturing or services, but the global recruiting and nurturing of the
world’s best people and the cultivation in them of an insatiable desire to
learn, to stretch and to do things better every day.”
Key components of its management development system were
GEs’ corporate uni- versity at Crotonville, New York, and its “Session
C”
system for tracking managers’ performance, planning their
careers, and formulating
succession plans for every management position at GE from
department heads upward.
GE’s performance management system was based heavily on
objective, quantitative performance measures. Managers were set demanding
performance targets, then given strong incentives for their attainment. Under
Welch, bonuses became bigger and
more discriminating, while stock options were extended from
the top echelon into middle management. Equally, underperformance became more
rigorously penalized: “A company that
bets its future on its
people must remove that lower 10% and keep ,
removing it every year – always raising the bar of
performance,” declared Welch.” Central to Welch’s management
philosophy was the need for constant pressure on managers to uproot complacency
and drive change: “If the rate of change on the outside exceeds the rate
of change on the inside, the end is near.”‘3
Under Immelt, the performance management system was adapted,
first, to take account of managers’ widening scope
of responsibility (“Our managers have
to work cross-function, cross-region, cross-company’*) and,
second, to nurture and reward the “growth traits” required for GE
managers ot become successful “growth leaders.” Inevi- tably, GEs’
performance management process became increasingly complex. Diagnosing GE’s
Problems
Analyses of what had gone wrong at GE abounded. Most of
these centered around two sets of factors, first, the leadership of Jef Immelt
during the 16 years prior to his retirement on June 12, 2017 and, second, the
strategy, structure, and management sys- tems of GE.
JeffImmelt
One of Jack Welch’s smartest decisions was to retire when he
did. Immelt took over
as chairman and CEO a few days before September 11, 2001:
“On my second day as chairman, aplane I lease, with engines I built,
crashed into a building I insure, and it was covered by a network I own,”
he later reflected.SI During the decade that followed,
GEs’ business was impacted by the bear market of 2001-2002,
the invasions of Afghani- stan and Iraq, and the financial crisis of 2008.
Apart from these external challenges, Immelt’s tenure was blighted by missteps
of his own making:
• Ill-judged acquisitions. Several commentators pointed to
GE overpaying for the companies it acquired. The principal evidence of this
related to Alstom.
During the long delay in gaining approval for the
acquisition, the market for power-generating equipment took a downturn, and GE
was forced to offer more concessions
to Alstom
and the
French government. Hence, by the
time the acquisition closed, Alstom was worth considerably
less than the price GE was paying. Timing was also amiss for several of GEs’
acquisitions ni oilfield
services: Dresser, Wellstream, John Wood, and Lufkin were
all bought when oil prices were booming. Similarly, with financial service
businesses: GE Capital
made massive investments in commercial real estate during
2007-just before the financial crisis.’ Scott Davis of Melius Research
estimated that GE’s total
return on Immelt’s acquisitions was less than half of what
GE would have earned by simply investing in stock index mutual funds.’ The
Economist esti-
mated that GE was paying much more for the businesses it
bought than what it received for those it sold.”
• Overoptimism. GE’s failure to guard itself against risk
and pay adequate
attention to early warning signs has been interpreted by
some GE-watchers
as symptoms of top management’s overconfidence and reckless
optimism. According to some current and former GE executives, Immelt and his
top dep- uties engaged in “success theater” —htey “projected an
optimism about GEs’, businesses and its future that didn’t always match the
reality
of its operations
or its markets.”” In particular, during 2017, when
signs of flagging sales and mounting
inventory were emerging at GE Power, Immelt was slow in
acknowl- edging the problems. Such optimism and the urge to project success
contributed to Immelt’s willingness to overpay for the acquisitions and his
propensity 10 allow his enthusiasm for future possibilities to dominate his
appreciation pre- sent realities (as in the case of GE Digital).
• Failures in financial management. During the 21st century,
GE lost its reputa-
tion for financial conservatism along with its triple-A
credit rating. At the core
of concerns over its financial management was an erratic
approach to cash-flow management. The financial crisis was, of course,
unexpected, but
the fact that GE was forced to obtain $3 billion in
emergency funding from Warren Buffett’s
Berkshire Hathaway Inc. and $139 billion in loan guarantees
from the federal goverment points to lack of awareness of
the risks inherent in GE Capital. GE’s
stock buyback program was particularly ill-judged: in the
three years prior to the dividend cut in 2017, GE spent $49 billion on buying
its own stock at a time when free cash flows from industrial businesses failed
to cover GE’s dividend.”
• Dubious accounting practices. GE’s slow responses to
emerging problems can be partly attributed to its accounting practices. These
had been designed to impress Wall Street but may also have insulated management
from the real- ities of GE’s business performance. Under Jack Welch’s
leadership, GE Capital became a valuable tool for managing GE’s quarterly
earnings: “Unlike a factory, GE Capital’s highly liquid assets could be
bought or sold at the ends of quar- ters to ensure the smoothly-rising earnings
that investors loved.”” Dubious accounting practices also surfaced in
GE’s industrial businesses-these mal- practices were motivated by the pressure
on divisional executives to achieve their budgeted sales and profits. For
example,
GE Power recorded profits from its sales of upgrades to its
customers’ existing gas turbines, but without taking account of the impact of
these upgrades on reducing future service revenues.2 It also booked as current
profits the anticipated returns from
extending cus- tomers’ service contracts.23
The GE Model of the Diversified Industrial Corporation
Underlying the debate over Immelt’s qualities and
limitations as a chief executive was the issue of whether GE’s corporate
strategy and
its much-vaulted management system were appropriate to the
business environment of the 21st century.
As already discussed, GE’s corporate strategy and management
system created value from three main sources: from managing the business
portfolio, from exploit- ing synergies from sharing resources and transferring
capabilities between the busi- nesses, and from the performance enhancing
effects of the GE management system.
Yet, each of these sources of value seemed to be more
elusive in the 21st than in the
20th
century,
In terms of portfolio management, the internationalization
of capital markets and the increasing role played by private equity had
increased the efficiency of financial
markets, making it increasingly difficult to create value
through acquisitions and divest-
ments. Certainly, GE’s acquisitions and divestments during
the 21st century gave little indication of GE’s top management having superior
foresight to that of the stock market. The synergies from sharing resources and
capabilities among GE’s different busi- nesses are difficult-if not
impossible-to quantify. GE pointed to substantial bene- fits from sharing
technology— especially turbine technology between Aviation, Power, and Renewables.
In other areas, however, these synergies were difficult to access in
practice-for example, the benefits from cross-selling between GE divisions.
Moreover,
ti appeared that, through strategic alliances and informal
collaborations, separate com- panies were becoming increasingly adept at
sharing technology.
GE also
derived economies from
the centralized
provision
of support
functions such as finance, HR, shareholder relations, and
research. However, such economies were ofiset by the tendency for the divisions
to duplicate corporate functions and by the tendency for these functions to
expand under their own momentum. nI 2014, the CFO had observed: “We have
got $3 billion of costs at corporate that si not allo- cated to the
businesses.” At the beginning of 2021, corporate functions (together with
development units such as Digital and Additive) accounted for about 11,000 of
GE’s total employment (down from 28,500 ni 2017).
The biggest questions relate to the effectiveness of the GE
management system ni improving the performance of the businesses. The
effectiveness of GEs’ “talent machine” rests upon the assumption that
general
management capability si not context specific, and
it can be enriched by rotating managers through different
functions and different types of business. Similarly, the ability of the
corporate headquarters to boost the performance of the constituent businesses
depended upon the ability of corporate executives to under- stand the needs and
the determinants of performance among those businesses.
The evidence of the Immelt era casts doubt on the extent of
top management’s familiarity with the financial and operational details of the
businesses they headed. This was particularly evident at GE Capital, which was
GEs’ primary engine of growth for both Welch and Immelt. Yet
neither was fuly cognizant of the risks inherent in thist diversified financial
services behemoth or of
the difficulties of applying a managemen system developed
for industrial businesses to financial services. So too with some of
the divisional leaders. Steve Bolze, head of GE Power
2005-2017, was prone to unre- alistic, overoptimistic growth forecasts and a
willingness to massage results ni order to
boost quarterly profits.
GE’s metrics-based, performance management system also began
to unravel during
the 21st century. The system was designed to meet the needs
of the industrial businesses rather than financial services. Moreover, these
industrial businesses became more com-
plex as they transitioned from supplying equipment to
providing “customer solutions”: customized packages of hardware and
services. As a result, there was growing poten-
tial for “gaming the system”—meeting performance
targets by manipulations and ruses that did not reflect
improvements to underwriting performance.
Even fi the performance management system had remained as
robust as it was dur- ing the 1980s and 1990s, ti was clear that performance
metrics were not the sole drivers of resource allocation and strategic
decisions. These were strongly impacted by power politics, interpersonal
relationships of friendship and hostility, and executive preferences.
The Future of General Electric
After Immelt’s resignation ni June 2017, both of GEs
subsequent CEOs, John Flannery
(June 2017-September 2018) and Lary Culp (October 2018-),
were preoccupied with
managing the crisis precipitated by excess debt, dwindling
cash flows, overcapacity , at GE Power, $15 billion in liabilities arising from
GE’s insurance unit, write-downs in the balance sheet values of previous
acquisitions, and continuing allegations over , board member.
During 2018-2020, Culp accelerated the turnaround measures
introduced by Flan- nery. These included top management changes including
restructuring the board of directors), cost cutting, and the sale or spin-off
of businesses—notably GE Oil & Gas (Baker Hughes), Transportation,
Lighting, and BioPharma—in order to pay off debt. In 2020, the COVID-19 crisis
necessitated further crisis measures-notably a drastic downsizing of GE
Aviation.
In addition, Culp initiated internal management changes. The
priority was to improve operational performance. To achieve this, Culp devolved
responsibility from corporate to the businesses and applied Danaher’s lean
production principles (based upon those originally developed at Toyota) to
“examine processes and continually improve them by solving problems at
their root cause.”? Changes in the GE culture involved chang- ing
managers’ values: “In 2020, we committed ourselves to the leadership
behaviors of humility, transparency, and focus.”26
Culp also outlined a strategic vision for GE: “We’re
focused on three important opportunities-the energy transition to drive
decarbonization, precision medicine that personalizes diagnoses and treatments,
and a future of smarter and more efficient flight.”” The implication
being that power generation, medical diagnosis, and aviation would continue to
be GE’s core businesses. However, the form that the new GE would take remained
unclear.
Flannery’s
plan had been to spin off GE Healthcare, leaving GE with
three major divisions-Power, Renewables, and Aviation-all of which shared
turbine technology. Following the sale of GE Healthcare’s BioPharma business
and its aviation leasing business, Culp had given no indication of further
divestments.
Equally,
he had given no indication of his preferences for
restructuring GE. The lean production system he introduced was similar to that
he had developed at Danaher. If Danaher was to provide the model for GE, then
this would likely involve the disman- tling of GE’s divisions in favor of a
large number of smaller business units, each with profit
and loss responsibility. Danaher comprised over 100
businesses that were clus- tered in four main areas (life sciences,
diagnostics, dental, water quality, and product identification) but not
integrated into large divisions like GE.28
A more fragmented structure had also been adopted by Siemens
AG, whose background and profile were similar to those of GE. It was founded in
the late 19th century, and its biggest businesses were power generation systems
including wind power), medical equipment, and industrial automation. However,
unlike GE, Siemens had moved toward greater decentralization rather than GE’s
path of closer integration. Its CEO, Joe Kaeser, described the Siemens model as
a “fleet of ships” with divisions becoming semiautonomous and
separately listed. Siemens’ medical equipment unit,
Healthineers, its renewables division, Gamesa, and its gas
and power division have each been spun out as separately listed
companies.” Like GE, Siemens’ had suffered from a sharp reduction in world
demand for gas turbines; however, the fall in reve- nues and profits in its
power division were much less than that experienced by GE. During the three
years to March 1, 2021, Siemens’ share price increased by 53%; GE’s fell by
56%.
