Sunday, June 5, 2016

Is G.E. Coherent?

In “The Coherence Premium,” Lainwand and Mainardi assert that “coherent” companies, or those that focus on their core competencies, are the ones that do the best over time. For generations, G.E. was known for their highly skilled managers, and their consistently large annual growth. Until they weren’t.

Like so many other companies, G.E. got caught up in the never-ending chase of profits and shareholder dividends. They invested heavily in insurance, investments, loans, and even a subprime mortgage lender. In CEO Jeff Immelt’s words, “G.E. was seduced by the lure of rapid-fire money-making unencumbered by the long-range planning, costs and headaches that go into producing heavy-duty material goods.” They strayed from their core competencies, and nearly brought G.E. to its knees.

Though Immelt developed a recovery strategy that returned to the company’s roots, he expanded into new sectors, and found value in the company’s diversity.

So, is it possible for a company that produces everything from television to trains to be coherent?

In short, yes. Immelt identified G.E.’s size and diversity as strengths, and his strategy revolved around returning to the company’s 132 year history of industrial innovation and excellent service. He backed up his vision with increased spending in research & development, as well as increasing service contracts for installed G.E. hardware and equipment. Their core competencies are not sector specific, as in the case of Pfizer or Coke. Rather, they have developed an excellence in managing innovation, service, and seeking the right information from customers. In new sectors, Immelt acquired companies, not just for their patents, but for their expertise. When he acquired Amersham, for example, he put their CEO in charge of GE Health to show that he sees the people of Amersham as assets. He integrated acquisitions into the company and applied G.E.’s excellence in innovation and service to those business units. The resulting products and services reflect this. They are not related in purpose, but they are related in that they are evolving technologies in opportunity markets. G.E. developed spanish language television for an undeniably growing spanish language market. They got into renewable energy, because the scarcity of fossil fuels is not going away. They acquired Amersham, because health diagnostics are the future of care.

Immelt’s strategy for growth does not expand beyond G.E.’s core competencies. For now, G.E. is coherent, which will make G.E. stronger and more resistant to market fluctuations moving forward. Their projected growth will come from getting in on the ground floor of emerging markets-- whether it’s renewable energy, or infrastructure in developing countries. Over time, this work will pay sustainable dividends.

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