GE goes light-years beyond the light bulb
GENERAL ELECTRIC is being broadly hailed as one of the best-managed American companies, a model for US companies trying to survive in the global marketplace. It is also a company going through a dramatic metamorphosis. For decades GE was synonymous with old-line manufacturing businesses that made myriad products - from locomotives to dishwashers, jet engines to toasters. But when foreign goods began to eat up many US manufacturers' markets in the 1970s, GE took radical action.
It got out of some traditional businesses, such as small appliances, and dumped those that just did not fit, such as mining. Shedding much of its old-line past, GE has been virtually reinvented in the past six years by its energetic chairman, John (Jack) Welch Jr.
The intense Mr. Welch is frequently described as a ``dynamo,'' sometimes throwing off business ideas faster than he can write them down or describe them to others. But Welch is more than just a good idea man; he is a hands-on manager with a vision. It was in 1983 that Welch introduced his idea of GE as three interlocked circles (manufacturing, technology, services) representing each of 15 main businesses at or near the top of their markets.
``In this slower growth environment of the '80s, the winners will be those who insist upon being No. 1 or No. 2 in every business they are in,'' Welch told analysts in 1981.
``The managements and companies in the '80s that hang on to losers for whatever reason won't be around in 1990,'' he continued. ``We believe this central idea - being No. 1 or No. 2 - will give us a set of businesses which will be unique in the world business equation at the end of this decade.''
To achieve his goals, Welch has the advantage of being unafraid of doing whatever tough or unpopular things it takes to make his company more competitive. So far, no missteps
When Welch assumed control of the company in 1980, the United States and GE were bucking the worst recession since the 1930s. His first move after touring the entire company was to begin ``destaffing'' the GE bureacracy and eliminating unproductive operations.
From 1981 to 1986, Welch closed 73 plants and facilities, reducing GE's work force by more than 100,000 employees. In all, 232 business or product lines were sold for $5.9 billion. But at the same time that cuts were being made, GE was also investing some $14 billion in factory automation and other capital improvements. It turned its Erie locomotive works into an automated showcase, though the market for locomotives has remained sluggish.
As Welch forced GE to shed businesses, he and his staff were busy picking targets for the fast-growth, high-tech, financial-services-oriented giant he hoped to build. So far, GE has snapped up 338 businesses for just over $11 billion, including Employers Reinsurance, Kidder, Peabody & Co., and, biggest of all, RCA Corporation. Already strong in financial services, GE's addition of Kidder and Employers Reinsurance has made General Electric Credit Corporation a powerhouse.
``So far he [Welch] and GE seem to have done things right,'' says H.P. Smith, an analyst with the Smith Barney, Harris Upham brokerage in New York. ``They haven't made any missteps.''
One of most well-timed of Welch's efforts was last year's acquisition of RCA, which catapulted GE from 10th largest US corporation to third largest, with an asset value of about $47 billion. It trails only Exxon ($57 billion) and IBM ($87 billion).
``If you look at what that company looked like in 1982 or 1976 and compare it with what it is now, you really realize what an incredible job Welch hadone,'' another securities analyst says. ``It used to be the only thing you'd talk about with GE was turbines, big heavy capital equipment.
``Welch saw the light and saw those areas of business were going to decline, that the economy was going to shift away from an industrial-based economy to one predicated upon growth industries that might be smaller in total size.'' Ready for another big one
Recent news stories have suggested that GE has taken on the stripes of a corporate raider and is willing to buy a company, then dismember it to obtain its most valuable pieces, selling off the rest. GE officials agree they are prepared to acquire another RCA-size company if it has the right strategic fit and can be had at a good value.
``We're very comfortable with a big, not a small, a big new business,'' says Dennis Dammerman, GE's chief financial officer. ``We'd like to take a company where there is management strength and management depth to run our business. Are we ready to do another acquisition? The answer is, of course, yes.''
With the purchase of RCA, the National Broadcasting Company (wholly owned by RCA) found a home under the GE umbrella. The acquisition brought the total GE work force to 359,000.
GE has eliminated tens of thousands of jobs since the RCA purchase. Analysts say the total number of workers may shrink further as Welch makes more cuts in RCA. One thing is sure, there will be no return to the sometimes lumbering GE of the past.
Welch is trying hard to catalyze entrepreneurship within what has been a strait-laced, traditional corporate bureaucracy. In doing so, he hopes to create a new corporate culture that values innovation more, is more productive, and lets good ideas bubble up to the top.
In tandem with entrepreneurship, Welch wants his employees to be good stewards of the business.
``Stewardship is an obligation,'' Welch has said. ``It's not some noblesse oblige attitude where people can work at 45 to 50 percent of capacity or believe they have lifetime employment. Stewardship is working at 100 percent to 150 percent.''
Management experts who have followed Welch's efforts say he has won a fair number of converts within the company to his view of what GE must do to be world competitive in 1990. But they also say there are significant numbers of people in the middle of the organization who still have mixed feeling about Welch's shake-up.
``Welch has to convince them that that's the kind of organization that they want to work for,'' says Mary Anne Devanna, director of executive programs at Columbia University's Graduate School of Business. ``Basically, the kinds of people that go to work for GE historically are not entrepreneurs or enormous risk-takers. You don't go to work for a GE or IBM because you're a risk taker.'' Even flops are praised
Welch also wants to keep investing in new ideas even during tough economic times. One way to do this is to allow division managers flexibility in making sales goals. If managers are able to revise sales targets downward on occasion, this should keep them from immediately trying to cut costs by cutting new ideas.
To keep entrepreneurship cooking, management is also trying to demonstrate that well-thought-out innovations are great, even when they flop.
For example, GE spent $300 million to automate the company's aged Erie, Pa., locomotive plant. It gained an efficient factory, but the market for locomotives didn't develop as projected. GE's Mr. Dammerman says that the market shift could not have been predicted and that the manager in charge is still ``doing a great job.''
Welch himself has admitted making a few gaffes. The high-tech sector (including CAD/CAM and factory automation) that he had targeted for high growth have been laggards.
While stock analysts uniformly applaud Welch, they also note that thus far the steady growth in earnings has come mainly from slashing costs, cutting payroll, and acquiring new businesses - not from large sales increases in core businesses. Several analysts say it will be more acquisitions that fuel earnings growth while the $36 billion company gets reoriented in the next few years.
``What he's trying to do is create a culture where you can make a mistake and not die for it - and I think that's positive,'' says Ms. Devanna. ``The other side of that culture is one where obviously you can't do that too often. It's great to create that role model, but the truth of the matter is that most of the time you have to be hitting the targets.''
Within GE, freedom to innovate offers problems as well as opportunities.
``Many of the changes [in planning] have been excellent,'' one manager told Harvard Business School researchers in a 1984 study. ``But we are relying almost totally on people. That's fine until some of those people make big mistakes. Then we may miss not having those systematic plans.''