Wednesday, April 12, 2017

GE under Immelt - avoiding failure by staying coherent

To say that Jeffery Immelt had to fight an uphill battle to keep GE growing in the 2000s would be an understatement. When he took over the position of CEO from his legendary predecessor, Jack Welch, in 2001, Immelt had to face a number of troubling phenomena: first the repercussions of 9/11 tragedy, then increased skepticism and cynicism (following the Enron scandal), and then later on the global economic recession of 2008. Despite the challenges faced, GE under Immelt was able to weather the storms and recover within a few years. By drawing comparisons between Immelt's methods of management with the concept of coherency described by Leinwand and Mainardi, I explain how Immelt kept GE on track with its fundamental purpose, and thus positioned GE for growth and success in the first decade of the 21st century [1].

To be coherent, a company must realize the following: 1. every employee and manager must understand how their company creates value, 2. the company must have three to six primary capabilities that allow them to deliver on their goals, and 3. all products and services offered must leverage those capabilities.

Immelt enabled coherency in GE by first defining the company not as a conglomerate, but rather as a "high-tech, manufacturing-based, global product and service enterprise" [2]. He felt that GE was too spread-out over too many different markets, not all of which made use of the company's strengths or followed its founding purpose. By encouraging town hall meetings and "high-performance work teams", he was able to communicate this message to the managers and employees [3]. Immelt then backed up his words over the years by shrinking or selling off businesses of GE that were not associated with technology or product development or service: NBC Universal to Comcast, GE Real Estate to Blackstone Group, GE Capital Bank to Synchrony Financial etc. Under Immelt, GE increased its focus on R&D ("growth engines") and technology services, sticking to its fundamental purpose. Immelt was confident that "technology-based manufacturing" would reinvigorate the economy and that investing in growing the technology base was "the underlying DNA of GE".

Immelt defined five key elements or capabilities that GE could use to grow: technical leadership, accelerated services (using technology and sensors), commercial network, globalization, and growth platforms [4]. Additionally, although GE was fundamentally a technology-focused company, it had amassed considerable wealth and reach since it was founded. Immelt strongly felt that GE could use its size and existing resources to create new technology (growth engines), reach untapped markets, and enable technology services (such as real-time jet engine monitoring) using already existing capabilities. He enabled this by introducing vertical teams and financing, hiring marketers, and publicly celebrating businesses that developed large service contracts. Moreover, by developing "company-to-country" relationships and through the imagination breakthrough program, Immelt was able to further GE's globalization by expanding orders into developing regions as China, India, and the Middle East.

Lastly, to ensure that each of GE's businesses leveraged the vast capabilities that GE had as a whole, Immelt consolidated GE's 11 businesses into six large units. This allowed GE to better position itself for serving developing countries and governments, while simultaneously allowing them to improve their service to customers.

References:

[1] Leinwand, P., and Mainardi, C. The Coherence Premium. Harvard Business Review, Jun. 2010

[2] Blodget, H., CEO Jeff Immelt on transforming GE, Business Insider, Dec. 2015

[3] Lohr, S., G.E. Goes With What It Knows: Making Stuff, The New York Times, Dec. 2010

[4] Bartlett, C., GE’s Growth Strategy: The Immelt Initiative, Harvard Business School, Nov. 2006

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