The Secret to GE's Success- Reviews

Pier A. Abetti

Professor- Rensseler Polytechnic Institute

Creativity and Innovation Management

Volume 17 Number 2008

The Secret to GE's Success William E. Rothschild

McGraw-Hill © 2006, 288 pages $27.95

Politics in the art of the possible...Otto Bismarck, 1867

"This book stands out from the plethora of GE books, articles and cases for several reasons.

1. The author worked 28 years for GE, starting in 1955 as a trainee in finance and employee relations, and ending as GE's top strategist in 1984, when he was replaced by an old friend of Welch, who was gradually removing the old guar who had served under his predecessor, Jones.
2. Since he left GE, the author has led his own consulting firm, and has been watching GE's evolution under Welch and under Immelt very carefully, and now runs a website for "GEWatchers" and GE Bloggers".
3. The book is written in a simple, conversational style that makes easy reading in the office, at home, on airplanes, etc. It is structured in short chapters and sections (some only 50-60 words long) with bold headings which allow the reader to resume reading where one left off after an interruption.
4. Each chapter is previewed by approximately ten "Highlights" that stimulate the reader's interest, and concludes with a few "Takeaways". These are real gems, because they summarize the "lessons learned", many the hard way, by GE and make "recommendations" on how to apply these lessons to the business management activities of the readers, many of whom work for, or consult with, large and medium companies.
5. The structure of each chapter is original. Each chapter analyses GE's successes and failures according to five factors: Leadership, Adaptability, Talent, Influence, Networks, which can be summarized by the acronym LATIN (no relationships implied between GE and Roman empires!) In turn, these five factors are displayed according to a magic circle, where each factor is reinforced by preceding one, and reinforces the following one. By comparing these circles from one chapter to the next, it is easy to follow the major changes in GE's evolution, with time and with CEOs.
6. The history of GE is related at the "political" level, following the style and realistic analysis and evaluation of Machiavellian. The historical facts and their positive and negative results are described, showing what worked and what did not, without references to ethics, or, in modern terms, to "corporate social responsibility". GE is presented as it was, not as it should have been. Therefore, Edison's advocacy of AC for electrocution to discreet Westinghouse, the international lamp cartel of the 1920s and the fix-fixing scandal of the 1950s are not condemned. While some readers may object, this approach makes the book more focused.

The book is divided into four parts.

• Part I "Live Better Electrically": GE's First Stage, 1879 to 1939, Edison-Swope/ Young
• Part II- Diversification and Decentralization"GE's Second Stage, 1940 to 1970, Wilson/ Borch.
• Part III- Portfolio Leadership: GE's Third Stage, 1971 to 2001, Borch/ Welch
• Part IV: "Back to Future": GE's Fourth Stage, 2001 to Present, Immelt

This division into four parts is different from the more obvious and common structure found in the literature: (1) Before Welch; (2) Welch; (3) After Welch. Part III binds together three famous CEOs: Borch, Jones and Welch, but note that Jones, the most admired CEO during his tenure, is not listed in the headings, while Borch is listed twice (Part II and Part III). One reason for this apparent underestimation of Jones and also Welch, may be that the author was one of GE's strategists under these three CEOs and wants to emphasize the continuity of GE's strategy. In fact, the author claimes that Welch's well-known " three circle concept" was not original, but derived from what Welch learned under Borch and Jones. It also appears that the author has an ambivalent attitude towards Welch's contributions and his significance for GE's history.

One simple way to resolve this impasse is to compare GE's success under Jones and Welch. The author does not define "success" either qualitatively or quantiatively, and the book includes minimal financials. However, in today's business world, financial success is the most important componet. While the growth rates in sales, net earnings and productivity under Jones and Welch are comparable, there is a major difference in the growth of GE's stock price and market value. Under Jones, GE's market value increased by only 1.3 per cent per year, slower than the S&P 500 index (2.1 percent). Under Welch, the market vlaue increased at the rate of 20.4 per cent per year, 56% higher than the S&P index. This growth rate is truly exceptional for a 120 year old mature company and is therefore the main reason behind Welch's unique success on Wall Street and in the popular press.

Part IV "Back to the Future" is a discussion of GE under Immelt (2001 to 2006). There is an analysis of the challenges faced by Immelt when he took over in 2001: the legacy of Welch, the post- 9/11 financial crisis, organic growth versus acquisitions, back to technology, ecoimagination and, of course, portfolio management. It appears that the author is unsure of Immelt, praising many of his initiatives, but questioning whether they will achieve the expected results, in financial and non-financial terms. The author ends this part with a "declaration of faith".

"In short, I am not convinced that Immelt and his team will be able to grow GE organically at unprecedented rates by innovation and globalization or that they will continue to have the strong, deep, talanted bench that they have had in the past. However, I continue to be a strong fan of this remarkable company, and I hope that my concersn will be unfounded and that Immelt and his team will continue to grwot the company and adapt to both external and internal changes, as his predecessors were so successful in doing"

Unfortunately, GE stock does not go up because of faith, but rather according to the market's expectations of GE''s future concrete business and financial successe. In my opinion, some major problems of the Immelt era deserve a more in-depth analysis than has been done in Part IV.

In the meantime, The Secret to GE's Success stands out from other management books as recommended for executives, managers, students and the general public, but in particular for two classes of readers:

1. GE veterans and long-time stockholders who meed to understand the reasons for GE's past success.
2. The new generation of educated business persons, present and potential GE stockholders who want to learn from the history of GE, the world's most admired company and adapt the lessons to improve the success of their business and personal careers.

Pier A. Abetti

Professor- Rensselaer Polytechnic Institute