GE’s John Flannery lacks ‘vision, strategy along with passion’ to rebuild company-commentary

Throughout the twentieth century, business schools heralded General Electric (GE) as America’s most iconic company. which set the standards in leadership, organization, along with effective management processes. The company delivered remarkable results over its storied history, evidenced by its stature as the only original component of the Dow Jones industrial average still on the list.

Today GE can be becoming a shadow of its former self.

On November 13, brand-new CEO John Flannery announced the shrinking of GE’s holdings to three businesses – aviation, health care along with energy along with power – while shedding such legacy businesses as lighting along with locomotives. Flannery also declared a 50 percent dividend cut, only the third in GE’s history – which one coming when the economy can be strong. Even by spinning off $20 billion in assets, GE apparently can’t move fast enough to preserve the dividends which millions of retired Americans depend upon to maintain their standard of living.

In describing these dramatic cutbacks, Flannery failed to shed any light on the end of GE’s tunnel. Disappointed investors drove GE stock down yet another 13 percent inside the two succeeding days, bringing the cumulative decline to 40 percent since Flannery was announced on June 12, 2017 as successor to former CEO Jeff Immelt. Credit activist investor Nelson Peltz along with his partner Ed Garden (right now a GE board member) for blowing the whistle earlier which year, accelerating the CEO transition through Immelt to Flannery.

The legacy of Jack Welch

The contrast of GE circa 2017 with “The House which Jack (Welch) Built” could not be greater. Since its peak in 2000, GE’s $410 billion market capitalization has shrunk to $156 billion, down $254 billion (62 percent). During his twenty years at the helm, Welch increased GE’s market value twenty-eight times, creating GE America’s most valuable corporation. He expanded GE through internal growth along with acquisitions, especially in GE Capital, as GE hit every quarter while investing for the long-term. For these results Fortune Magazine named him “Manager of the Century.”

Welch followed a long line of fabled CEOs which includes Charles Coffin (1892-1922), Ralph Cordiner (1950-1963), along with Reginald Jones (1972-1981). He moved aggressively as soon as he took over in 1981 to remake GE with his own imprint – even though which meant undoing predecessor Jones’s legacy. Recognizing GE needed to be much leaner along with faster-moving to compete globally inside the 21st Century, Welch slashed its bloated corporate staff, cut several layers of management, along with radically changed GE’s cumbersome processes to accelerate decision creating – enabling GE to move in front of major global competitors like Siemens, Phillips along with Mitsubishi.

Under his leadership, GE was recognized for its disciplined execution, Six Sigma quality along with cost control, along with leadership excellence at all levels, built around its in-house training center at Crotonville. GE was known as a leadership factory which developed great leaders for its own ranks along with beyond – training the CEOs of Honeywell, Boeing, ABB, Medtronic, along with numerous additional companies. Myriad business school cases were written to document the underlying reasons for GE’s success. Welch immortalized his accomplishments in his books, Jack: Straight through the Gut along with Winning.

Welch can be not without his critics, especially after the recent declines. Numerous observers correctly criticize the dependence he created on GE Capital, which accounted for nearly half of GE’s business by the end of his reign. nevertheless Welch left GE having a strong balance sheet along with abundant cash flow to adapt to any difficulties encountered.

The Immelt years

The task to correct GE’s overreliance on GE Capital fell to Immelt. He understood the issues, nevertheless failed to act in his first seven years – violating Welch’s maxim which brand-new CEOs are judged by their decisions in their first ninety days. When financial markets crashed in 2008, GE’s balance sheet along with cash flow were so drained which Immelt had to phone President George W. Bush along with ask for a line of credit to keep the company afloat.

Yet Immelt still hesitated, not completing the final sale of GE Capital to Wells Fargo until 2016, fifteen years after Welch retired. What additional CEO gets fifteen years to make desperately needed improvements? How did GE invest the proceeds? By buying back $50 billion in stock at high prices, thus diminishing its balance sheet just as its competitors were bulging with cash.

Where was the GE board during these long years of value destruction? Was which asleep, or did management fail to shed light on its difficulties? right now Flannery can be remaking the GE board, cutting which through 18 to 12 members, along with adding three brand-new board members with industry expertise. The sighs of “finally,” are drowned out by the cries of, “what took so long?”

What business can be GE in?

GE’s deep problem today can be which which doesn’t know what business which can be in. There can be no central purpose which unites its disparate businesses, or enables them to be greater than the sum of its parts. Even GE’s three remaining businesses – aviation, health care, along with energy along with power – bear little relationship to each additional. As CNBC’s Steve Liesmann noted after Flannery’s announcements, why not go all the way along with split GE into three separate companies, thereby eliminating the corporate staff along with associated corporate costs?

Barring a strategy for revitalization along with dominance of its global markets, GE can be destined to become an industrial holding company which buys along with sells businesses during market cycles along with whose only mission can be creating money. Surely which will not inspire its customers, employees or shareholders. Meanwhile, GE may fall further behind competitors with clarity of mission along with strategy like Boeing, Honeywell, United Technologies, along with Johnson & Johnson.

If anyone ever needed convincing which leadership matters, GE’s example provides the proof. Welch was an exceptional leader whose track record can be not diminished by the company’s steady decline after he retired. Immelt was a talented manager who erred by overly-emulating his predecessor’s style when he more appropriately needed to emulate his urgency. In Immelt’s early years he lacked the courage to make bold moves, along with the discipline to achieve consistent execution.

In fairness to Flannery, the jury can be still out as he gets started off. Thus far, he has given every indication which he can be a pure financial manager who lacks vision, strategy, along with passion to rebuild GE as a mission-driven, values-centered company. While Flannery may achieve modest improvement in GE’s numbers, he has not demonstrated he can restore its soul.

Commentary by Bill George, a senior fellow at Harvard Business School, former Chairman & CEO of Medtronic, along with the author of “Discover Your True North.” Follow him on Twitter @Bill_George.

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