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.Skip to next paragraph
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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.