I) GE (starts in 1878)
One example of how to successfully use the S-curve concept is the approach used by GE under Jack Welsh. Jack Welch was CEO from 1981 - 2001, ie pre GFC
In the 1960s it had profitless growth. Initially he
- reduced hierarchy from 9 to 4 levels
- replaced 12 of 14 business heads
- reduced staff from around 400,000 (1980) to 292,000 (1989); as a result is nicknamed "Neutron Jack", ie like a neutron bomb, he "destroyed" staff but kept assets in place
- focus on killing the competition
- focus on services as good cash flow compared with products, eg acquired around US $15 b. in Japan
- opportunistic with GE seeing crisis as opportunities, eg after Mexican Peso crisis (1995) buys 16 businesses.
Their vision:
"the most competitive enterprise in the world"
Furthermore, Jack Welch wanted GE
"...to operate with the speed, informality, and open communication of a corner store..."
Jack Welch as quoted by Jack Welch et al, 2005
In the 1960s GE had profitless growth.
In the 1970s, GE started to move away from businesses, such as TV sets, small appliances, air conditioners, etc which were becoming more commoditized, towards manufacturing high-value technology products or services. Quality, costs and services were not good enough in the commodity business in the face of increasing competitors, ie Japan; these businesses were suffering from declining margins.
Jack Welch was CEO from 1981 - 2001, ie pre GFC. Initially he
- reduced hierarchy from 9 to 4 levels
- replaced 12 of 14 business heads
- reduced staff from around 400,000 (1980) to 292,000 (1989); as a result is nicknamed "Neutron Jack", ie like a neutron bomb, he "destroyed" staff but kept assets in place
- focus on killing the competition
- focus on services as good cash flow compared with products, eg acquired around US $15 b. in Japan
- opportunistic with GE seeing crisis as opportunities, eg after Mexican Peso crisis (1995) buys 16 businesses
He stated that businesses, not organisations, are global
Furthermore, GE Capital demonstrated that it was easier to make money in the financial services where there were
"...no union factories, no foreign competition and plenty of interesting, creative ways to offer customers differentiated products and services..."
Jack Welch et al, 2005
The new businesses he invested in included media (RCA, NBC, etc), and high-technology products in power, medical, aircraft engine and locomotive businesses
The underlying belief was
"...commoditisation is evil and people are everything..."
Jack Welch et al, 2005
Furthermore, best practices need to be continually adaptive and improved, ie innovative; otherwise they will not provide any sustainable competitive advantage as competitors can copy best practices
To achieve this optimisation, different strategies were used to continually "kick start" or reinvent GE. Under Welch, these strategies were based on the S-curve concept and revolved around 5 initiatives:
i) differentiation (both businesses and staff)
ii) globalisation
iii) services
iv) 6 sigma
v) E-business
Some examples of strategies:
- no. 1 or 2 in the marketplace within eighteen months or got rid of, ie be number 1 or 2, "fix, sell, or close" strategy. This helps to differentiate between performing and under-performing businesses and/or products/services, which varied from the long-held practice in GE of 'sprinkling a little money everywhere', as every business unit received something irrespective of the need or worth
- globalisation and boundaryless behaviour, ie an idea can come from anywhere
- change in emphasis from products to products-plus-service (this is linked with large investments in technology that have short payback periods, such as 1 to 2 years)
- upgraded leadership training at Crotonville
- six Sigma quality programs (see Volume 4)
- E business (it relies on speed and focuses on the cost savings aspect, such as streamlining internal processes, rather than marketing, such as strengthening brands, etc. E business was linked with digitisation. Furthermore, at GE it involved "reverse mentoring" with young computer nerds mentoring senior management on how to use the Internet, etc).
"...E business initiative led to many new ways of doing business. Plastics use electronic sensors in the storage silos of some of its major customers. They automatically alert GE warehouses when material levels drop, triggering a new order via the Internet to replenish the product. GE capital is using the Net to monitor the daily flow of cash in and out of a loan customer's income statement. The business knows instantly when the customer might be short, reducing the potential for losses. Most GE business leaders now have digital cockpits on their computer screens that update in real-time all the important data to help them manage their businesses.....E business is the only activity......seeing where targets set only 30 days earlier can look ridiculous 30 days later because the learning curve is so steep "That workflow to digitisation would create huge savings......30 percent of our total overhead expenses" E business improved many jobs.......30 to 35 percent of a salesperson's face time is spent with the customer. Salespeople spend too much time on administrating, expediting orders, arguing over receivables, and finding late shipments. The Internet can do all this more efficiently. We're increasing the face time salespeople have with customers, transforming their roles from order takers and expediters to true consultants......E business became part of the DNA of the company "see it as a way to reinvent and transform GE..."
Jack Welch as quoted by Jack Welch et al, 2001
- only 10% of business from core markets (reversal of the first way to reinvent GE - see first dot point. This aimed to expand the definition of industry, change mindsets and discover new opportunities for growth. For example, you could imagine if you are in the chair manufacturing industry, this could be enlarged to cover all furniture)
- produce 20 to 30% intellectual-content sales, ie look for ways to sell information to the organisation's customers
- "no back office", ie need to digitise or outsource the parts of business that do not deal directly with customers and use "digital cockpits" that let managers track the fundamentals of the business in real time. Remember:
"... your back room is somebody else's front room..."
Peter Drucker as quoted by Jack Welch et al, 2001
The next lot of measures introduced by Jeff Immelt (he replaced Jack Welch as Chairman & CEO in 2001); Jack Welch was focusing on USA market and Jeff Immelt's approach is driven by global markets, ie
"...he globalised the US-centric business with new low-cost products suited to developing Asia and put big bets on industrial infrastructure and a shift to the low carbon economy....his focus on energy, technology and health infrastructure..."
Peter Roberts, 2010
Under Jeff Immelt
- "70/70/70" policy, ie 70% of its staff are outsourced, 70% of outsourcing is offshore and, of that, 70% is located in India.
- over 60% of GE's revenue is coming from emerging markets, such as China, India and Eastern Europe (in 2001 70% of GE's business was in USA). Aiming for 10 % growth targets in "BRIC" countries plus resource countries serving those emerging markets.
- exited media, plastics, security and insurance while increasing involvement in oil and gas business (like in Australia) plus skewing focus to "climate change" goods and service (eco-imagination) to handle the carbon-constrained future. As a result, 25% of GE's turnover comes from super-efficient jet engines, hybrid railway locomotives and energy (wind, gas & nuclear). Since the GFC, increasing importance of industrial side of its business (oil & gas, power & water, health & transport)
- decentralised decision-making to globalise the firm, ie
"...When I got home, I just blew the place up......we made a massive resource shift to the regions, we completely changed the decision-making dynamics..."
Jeff Immelt as quoted by Peter Roberts, 2013
(NB The last 4 are measures introduced by Jeff Immelt (he replaced Jack Welch as Chairman & CEO in 2001); Jack Welch was focusing on USA market and Jeff Immelt's approach is driven by global markets, ie
"...he globalised the US-centric business with new low-cost products suited to developing Asia and put big bets on industrial infrastructure and a shift to the low carbon economy....his focus on energy, technology and health infrastructure..."
Peter Roberts, 2010
In his 20 year period as head of GE, Jack Welch increased GE's profit from US$ 1.6 to 10.7 billion. While Jeff Immelt has not maintained the same growth rate, it needs to be acknowledged that times are different, ie the Global Financial Crisis started in 2008.)
Owing to all the changes made in GE, its sources of revenue had moved from manufacturing to more financial-based sources. Thus, in 1999 Fortune Magazine reclassified GE from electrical equipment to a diverse financial services organisation in its industry listing in the Fortune 500
It is worth remembering the vision that Jack Welch had for GE in 1981
"...the most competitive enterprise on earth. My objective was to put a small company spirit in a big company body, to build an organisation out of an old-line industrial company that would be more high-spirited, more adaptable, and more agile than companies that are one-fifth our size. I said then that I wanted to create a company where people dare to try new things - where people feel assured in knowing that only the limits of creativity and drive, their own standards of personal excellence, will be the ceiling on how far and how fast they move..."
Jack Welch as quoted by Jack Welch et al, 2001
Remember: Jack Welch was initially nicknamed "neutron Jack" owing to the number of staff that were dismissed or left GE early in his time as CEO. Yet later on he was able to soften this image and loss this nickname!!!!! Not many CEOs are able to shake-off or change their initial image and reputation
The keys to GE's future success are an ability to change direction unabashedly, to performance-manage its staff
i) ability to change direction unabashedly
"...Most people inside GE learn from the past but have a healthy disrespect for history......they have an ability to live in a moment and not be burdened by a past which is extremely important..."
Jeff Immelt as quoted by Geoffrey Colvin, 2005
"...it's hard to find any other organisation that so enthusiastically destroys its own creations. Copper created an organisational structure based on functions; Ralph Cordiner (CEO, 1950 -63), broke it into pieces. He got GE into computers, and then Fred Borch (CEO, 1963 - 72) bailed out. Reg Jones (CEO, 1972 - 81) established a layer of senior executives and bought a coal-mining company; Jack Welch (1981 - 2001) abolished the layer and sold the mines. Welsh built up the insurance business; Immett offloaded it. Immett is putting his own stamp on the company by re-emphasising its scientific research labs and long-dormant marketing function. The result is GE's seamless, constant reinvention of itself...."
Geoffrey Colvin, 2005
As a result it is the only organisation still in business of the original 12 that made up the Dow Jones industrial average starting in 1896
ii) ability to performance-manage its staff
"...most companies, frankly, don't have the stomach to give frequent, rigorous evaluations - and to fire those who need to be fired..."
Dan Mudd as quoted by Geoffrey Colvin, 2005
"...GE is really a meritocracy..."
Shelly Lazarus as quoted by Geoffrey Colvin, 2005
GE personnel are required
"...to spend a huge amount of their time on human resources processes - recruiting, reviewing, tracking, training, mentoring, succession planning. When I was at GE, I spent over half my time on people-related issues. When you get the best people, you don't have to worry as much about the execution, because they make it happen. Another secret that keeps GE ticking is the culture of lifelong learning at the personal level and the concept of always try to make everything better at the business level. The philosophy is that there is an infinite capacity to improve..."
Larry Johnston as quoted by Geoffrey Colvin, 2005
Current GE's growth strategy is based on 5 pillars
i) technological leadership (including innovation)*i
ii) services acceleration
iii) enduring customer relationships
iv) resource allocation
v) globalisation
Notes
i) increasing focus on this pillar by reviewing business's engineering pipeline, organisational structure of its engineering function and evaluating the potential of engineering talent. This has resulted in increasing technology-orientated managers' representation in senior roles
NB These pillars have less to do with strategic planning and more to do with attracting, recruiting, developing and deploying the right people to drive the pillars.
· GE sold its Appliances and Lighting division (David Welch et al 2014). This division started the early 20th-century with electric light first invented by co-founder Thomas Edison; now it produces white good items like dishwashers, refrigerators, cooktops, clothes washers, etc. Despite this generating more than US$8.5 m. sales in 2013 and generating around 6% of the company's total revenue, it does not fit into the organisation's strategy of being a leader and/or for growth potential and/or global focus. Recently it has sold its plastic business, real estate holdings, stakes in foreign banks and NBCU Universal.
· At the same time (2013) it has made purchases in the oil and gas market
How times have changed!!!
During Jeff Immelt's time at the top job, GE tried to make itself a platform for industrial digital analytics. It became too expensive.
New CEO and chairman of GE (Larry Culp, 2019) is aiming to reinvent the company by focusing on 4 areas, ie power, renewable energy, aviation and health care. Culp replaces John Flannery who survived only around a year after replacing Jeff Immelt.
GE's market capitalisation was
"...US$ 600 billion in 2000 and is now worth US$ 98 billion..."
Tony Boyd 2019g
In its heyday GE was the glamour boy, ie
"...In 2000, GE was, for the fourth straight year, awarded Fortunes "Most Admired Company in America" , and, for the third time, the "World's Most Respected Company" by the Financial Times..."
Tony Boyd 2019g
Some reasons for its demise include
- focusing on continual improvement of processes (including process efficiency and accountability like how to generate another dollar by getting a lower cost-sourcing deal done in India or China to produce the same products) rather than exploring whether its different businesses/products were sustainable, ie at one stage it was in 27 different businesses.
- assuming that the American way of business was applicable worldwide, ie cultural mismatch
- misreading changes and shifts in the economy, ie tech and virtual economy shift (including digitalisation, AI, etc) and only using technology as a cost saving activity, change from product to services, etc
- focus on winning business at all cost, ie initially businesses must be number 1 in their industry
- CEO Jack Welch focused on
"... major issues in each business, knowledge of customers, cash holdings and external environment. Meanwhile, the world was changing without the company realising. We never asked why are we in these product lines to begin with?..."
Clive Cowdery as quoted by Tony Boyd 2019g
- living in the shadow of a successful CEO (Jack Welch was idolised as the epitome of a successful CEO who had turned GE into the world's largest hedge fund operating inside the world's largest engineering and manufacturing business. Thus it was hard to dismantle what was thought to be a successful way of doing business but the world had changed from the 1980s & 1990s, ie technology, globalisation, diversification, etc)
- financial services business (GE Capital) was the trigger for GE's decline, illustrated during the global financial crisis. GE Capital was, in fact, a giant unregulated bank.
GE
"...is an object lesson in how even the mightiest companies can fall victim to bad management, black swan events and the unforgiving nature of the stockmarket......The markets move in unpredictable ways..."
David Gelles, 2021