Friday, July 25, 2008

GEWatcher... Continuing change adds to complexity and insecurity.

Immelt and his team are continually making changes in the organization, strategy and leadership. This continues to add complexity and insecurity and makes it difficult to predict what the company will do next and whether it can meet the "very high expectations" that it has created.

This is the latest organizational and leadership changes:

Effective immediately, GE moves from six to four segments, including two infrastructure segments:
-- GE Technology Infrastructure - Led by Vice Chairman John Rice, this segment includes Healthcare, Aviation, Transportation and Enterprise Solutions. These businesses have opportunities to leverage technology, software and engineering.
-- GE Energy Infrastructure - Led by newly appointed Vice Chairman John Krenicki, this segment includes Energy, Oil & Gas and Water. These technologies already work together with large customers, particularly in emerging markets.
-- GE Capital - Led by Vice Chairman Mike Neal, this segment aggregates all the financial service businesses including Commercial Finance, GE Money, industry verticals (GECAS, Energy Financial Services), and Corporate Treasury. This organization will improve GE Capital's opportunities to allocate capital, grow globally and reduce cost.
-- NBC Universal- Led by Jeff Zucker this segment is unchanged and will continue to focus on its strategic evolution through globalization and diversification.

Bill Rothschild, author of the global best seller: "The Secret to GE's Success"... just published in Chinese, and available in Spanish, Korean, Indonesian, Japanese and English.

July 11, 2008

GEWatcher- At Last...Spinoff strategy is accepted!

Since 2000, I have written several articles, my book The Secret to GE's Success, and numerous blogs suggesting to GE management that they could enhance shareholder value, maintain control over the GE Monogram and reduce complexity by creating "tracking stocks" and allowing GE stockholders to purchase parts of the company, as well as the whole company if they preferred.

These are some quotes from two of my articles in Chief Executive Magazine:

In March 2000 article entitled: "Succeeding a Legend" (note this article was writtend before Immelt was appointed and was addressed to all of the candidates for the job)

I wrote:

The first step in the evolution is to create at least three companies and establish tracking stocks:

1- TRADITIONAL GE. This would include the electrical, electro-mechanical and chemical based components of the company. Lighting, power systems, aircraft engine, and plastics would be part of this company. Its mission would be to continue to grow profitable sales and maintain strong positions, using the skills and resources of GE Capital as required. In essence, this is the continuation of the current strategies. There may be, however, some pruning required with Major Appliances as a disposition candidate.

2- GE FINANCIAL SERVICES. In essence, it is now a separate company and behaves like one. This company should aggressively but selectively continue to gain position and be the financial arm of the other components, which would enable GE to adapt to the dynamic changes in the industry. It may require the acquisition of or merger with a major financial services company.

3 GE TECHNOLOGY. This is the major change in the portfolio and Welch strategy. Jack elected not to be a major player in the information and communications, biotechnology and new IT-based markets. GE has made many acquisitions in the medical systems and communications area, but nothing real dramatic; most have been either line or market extensions. It has not really decided how to use NBC as a platform for the revolutions taking place in the information, communications and entertainment arenas. The new CEO must take decisive and major steps in these markets before it's too late. New ventures, creating new products and services and so on, all of which GE did before the Welch era.

By creating these three companies the new CEO would be able to focus each one and be positioned to participate in new markets. The tracking stocks are likely to increase overall stockholder value and reduce the need for debt. But most importantly, it would enable the company to clarify what it really is and develop the most appropriate management and teams to meet the unique needs of the three companies. Integration and communication need not suffer if they are managed.

In June, 2007 article entitled: Decision Time for Immelt and Buffett, I recommended:

Imagine if GE gives the investor an opportunity to invest in selective sectors of the company and not just in the total company portfolio. In this scenario, GE decides to offer stock in its key areas/sectors. For instance, it creates separate stock offerings in GE Healthcare, GE Infrastructure, GE Money, GE NBC/Universal, GE Commercial Financing and other key components of the company. These would replicate the current building blocks of the company. So investors could invest in either the total company or selective parts of the company. This is not unrealistic since many companies have done this and have been successful in doing so. Of course, this will require more evaluation.

· GE is major stockholder of new companies. The GE Corporation would continue. The company would only sell a part of the new companies and retain majority control over the businesses. I would recommend that GE retain 75 percent of the companies and sell the other 25 percent on the open market.

· GE would focus on maintaining GE traditional success factors. Under this new scenario, the GE corporate staff would be significantly reduced and focused on a few key areas. For instance, the company would continue to work on succession plans for the key management positions in the company and especially the next CEO. The corporate staff would monitor external changes and help the subsidiaries anticipate and respond to change, as well as change the portfolio as required. It would continue to have company wide training at all levels, take stands on political issues as needed and continue the strong financial, strategic and manpower networks that have contributed to its past success.

The anticipated results could be very positive to all of the key stakeholders. The stock should rise overall, the investor will have more options and the company will continue to retain its AAA rating and have a strong and deep bench.

Unfortunately, GE management ignored my recommendations, until July 10, 2008.

Because they have not been able to sell the appliance business, Immelt and team are now accepting the spin off idea as a viable strategic alternative. The only problem with "belated acceptance of the tracking stock/ spin off idea" is timing. Both the consumer and industrial products markets are now slow and negatively impacted by the global recession. The spin-off would have been more effective when everything was growing and not when they are declining.

However, as a GE stockholder and alumni, I am happy to see that the Immelt team is finally using its imagination to create stakeholder value. I believe that the employees of this new company will be better off being managed by their own experienced management and not by some foreign company that doesn't understand the culture and the "GE success factors".

In my book I cited five key elements to GE's success, one was Adaptability... which has enabled the company to adapt to change and this may be a sign that this trait is still alive in the GE management team.

Bill Rothschild, author of The Secret to GE's Success, now available in Chinese, Korean, Indonesian, Japanese, as well as many English versions.

Tuesday, June 17, 2008

GEWatcher 15- Financial Analysts have discovered what has always existed!

Open Season on GE!
Since Jeff Immelt and his team were unable to meet the "very high expectations" that they promised in the first quarter, GE has been under a microscope and many of the surprised "analysts" are now running in the opposite direction.

For instance: "C. Stephen Tusa Jr., who follows GE for JPMorgan Securities, cut his rating on
the stock to "neutral" (i.e., "hold") from "overweight" ("buy"), saying the company faces too
many near-term challenges -- including senior management's damaged credibility and the possibility that lower-level managers won't be willing to tell their hard-driving bosses the truth about things."

The result is that it is open season on GE and the stock has declined by over 20% since Immelt's miss.

But except for the Miss...nothing has changed!
Obviously, missing expectations is a serious problem since it impacts credibility. However, the Immelt's GO BIG/ GO GLOBAL/ PORTFOLIO CHANGE strategy is the same as it was when he took over and his management team and philosophies have not changed.

Immelt brags that he has sold over $50 billion in assets and acquired another $45 billion. He has moved business unit headquarters to Europe, aggressively targeted China, India, Middle East and has been even willing to invest in major research centers in "unsafe" areas like China and India. He has acquired financial service companies in Japan and Australia and then within four years put them on the block to be sold, while then making acquisitions in Poland.

Confusion about what GE really is.
Immelt has made GE into a giant global mutual/ hedge fund and made it clear that "no one and nothing is sacred." Of course this was the same philosophy of Jack Welch, but Immelt has made it even more complex since he had added systems, technological solutions oriented projects and businesses that were not part of the Welch game plan. The result is that GE is so complex that it appears that even the company leadership aren't sure what is going on.

It is clear to me that the disciplines of sound strategic thinking and review, which stressed being realistic and avoiding surprising yourself and the other key stakeholders, have been replaced with "imagination and dreaming programs" that stress innovation and creativity over sound business assessments. Tusa puts it this way: "We also think the high bar for success in such a competitive environment could create a scenario in which bad news is not tolerated, making necessary communication with senior-level managers a challenge until it's too late to fix."

Nothing really new... but concerns continue.

Last year, I wrote an article in the June,2007 issue of Chief Executive Magazine entitled: Decision Time for Immelt and Buffet and made the following recommendations

"Reduce Complexity

Make It Simpler. Make the company less complex.
Continue to Prune the Portfolio....I think that broadcasting and even additional parts of the traditional GE lines, like major appliances and lighting, could be divested. These moves would permit the company to focus on its major solutions, technology business, while maintaining its strong financial services operations. This portfolio approach may build more confidence among investors, since they recognize that the primary goal of the company is to continue to increase the bottom line.

What if neither works? In this case, I think we need to adopt the new company motto “Imagination at Work” and look for a more creative approach that may initiate the next stage of the company.

Let’s imagine that:

· GE gives the investor an opportunity to invest in selective sectors of the company and not just in the total company portfolio. In this scenario, GE decides to offer stock in its key areas/sectors. For instance, it creates separate stock offerings in GE Healthcare, GE Infrastructure, GE Money, GE NBC/Universal, GE Commercial Financing and other key components of the company. These would replicate the current building blocks of the company. So investors could invest in either the total company or selective parts of the company. This is not unrealistic since many companies have done this and have been successful in doing so. Of course, this will require more evaluation.
·
GE is major stockholder of new companies. The GE Corporation would continue. The company would only sell a part of the new companies and retain majority control over the businesses. I would recommend that GE retain 75 percent of the companies and sell the other 25 percent on the open market.
·
GE would focus on maintaining GE traditional success factors. Under this new scenario, the GE corporate staff would be significantly reduced and focused on a few key areas. For instance, the company would continue to work on succession plans for the key management positions in the company and especially the next CEO. The corporate staff would monitor external changes and help the subsidiaries anticipate and respond to change, as well as change the portfolio as required. It would continue to have company wide training at all levels, take stands on political issues as needed and continue the strong financial, strategic and manpower networks that have contributed to its past success.

The anticipated results could be very positive to all of the key stakeholders. The stock should rise overall, the investor will have more options and the company will continue to retain its AAA rating and have a strong and deep bench.

In my latest book, The Secret to GE’s Success, I describe the company as remarkable, since it has had the ability to succeed and prosper for over 127 years. I use the word “Latin” to capture the five reasons for this success. These include leadership, adaptability, talent, influence and networks. Though all are important, I think one of the most important is the company’s ability to adapt and admit mistakes.
Immelt and his team have adapted and created a solid, though complex, game plan. (The real question is whether it will work and whether the investment community will reward the company if it does.
The verdict will be in within the next few years. I continue to believe GE is a remarkable company and hope that if and when the company must adapt, it will do so as effectively as it has in the past."

The point is that GE has not changed, Immelt continues to pursue his same strategy, but he has lost credibility because he missed his numbers and has downgraded his optimism of the past. Now the vultures are circling to see what they can pick apart and all of the key GE stakeholders are suffering.

I still assert that GE is TOO COMPLEX and that it must simplify the company and focus on not size and being global but having the best products and services in the segments it selects. It can't "be all things to all people", believe it can do anything because it is GE and continually act like a hedge and mutual fund, buying and selling assets and business. Further it can't have headquarters and R&D around the world since it is costly, inefficient, insecure and very costly.

GE leadership and management must renew the attributes that made it successful for over 127 years and not just change for the sake of change. The key element is willingness to admit mistakes and adapt to reality... this was done in the past and is one of the major reasons the company has not only survived but has prospered... a rare exception to most major companies over the past 100 years.

If you really want to understand GE issues and challenges, read my book and my many GEWatcher Blogs and then compare my insights and recommendations with the current situation. I still am a strong believer in GE but it must be able to admit mistakes and adapt and not just continue to purse "imagination dreams".

Bill Rothschild, author of The Secret to GE's Success... in six languages and a "global best seller" and GEWatcher blogs.

Wednesday, June 11, 2008

GEWatcher- There is good news too!

I have expressed my concerns about the Immelt strategy of GO BIG/GO GLOBAL and obviously many investors share these concerns. In the past two days, GE stock has declined over 5% and it may still be falling as I write this blog.

But this decline doesn't fit the successes that the company has reported in the Infrastructure arena. The company has received billions of dollars in orders for power systems from Iraq, Saudi and other parts of the world. It is participating in the new "plug-in hybrid" government project. It has taken some action to reduce the complexity by divesting its appliance business and several international financial service businesses. In short, many parts of the strategy are working.

I continue to have faith in the company and its management and will remain an investor. But I still believe that the company needs to stop buying and selling businesses and focus on executing the strategies it has articulated.

GE has had stock problems before and ultimated demonstrated that it was able to adapt and admit mistakes. I hope this continues and the stock will move to its appropriate levels.

Bill Rothschild, author of the Secret to GE's Success and other key strategic leadership books and software packages.

Friday, May 30, 2008

GEWatcher-- my predictions came true- NOW WHAT?

I completed writting my latest book: The Secret to GE's Success in June, 2006 and it was published in August 2006 and hit the bookstores in January 2007. The book summarized the key lessons learned from GE's successes and failures over its life span of 126 years.

In order to make the book current, I described and evaluated the Jeff Immelt strategy and compared it to his predecessors. At the end of this assessment I included three pages which I entitled: "Perspectives and Insights". I started with complementing Jeff and his team and sympathized with there frustration that though the financial results were impressive the stock price didn't respond.

My major issue was the "High Expectations" that Immelt created and promised to meet. This is what I said: "Welch created very high expectations, and Immelt, as we just said, has achieved excellent results. The issue is whether Immelt has created such high expectations that many don't believe they are realistic and can be achieved.

Listed below are four major areas of concern. I have about Immelt's ability to meet the expectations he has articulated to the world."

I wish to focus on the first concern which was : "Ability to GO BIG"
"It is clear that Immelt continues to assert that GE can grow at an 8% compounded organic growth"... "He is clearly convinced and has the missionary zeal to make it happen. However, based on my experience and study, I am not convinced that he can do it and am concerned that he has created an unrealistic expectation. It is possible that in the long term he will have doubled the revenues every nine years, but is it really possible to add $14 billion plus revenues year after year?
What happens if he doesn't make it, even for one year? Will this have a negative impact on the stock price and put his reputation in jeopardy? I THINK IT WILL!"

This is exactly what happened last month. Immelt missed his promised results and the GE stock dropped 14% in one day and still has not recovered. My continuing concern is that Immelt and his team are still vowed and determined to show the world they are right that they may not do what their predecessors did..namely, adapt to reality and make changes if they are needed. One the best examples was the willingness of Fred Borch to recognize that his " Internal Growth Strategies" (Chapter 10) were failing and he needed to take major actions to abort many of them and install the discipline of strategic thinking and decision making". I believe the Borch and Immelt strategies have many similarities and need to evaluated in light of the changing world.

Admitting mistakes and moving on has been of the reasons that GE is still alive and prospering while the vast majority of its peer companies no longer exist.

If you wish the complete story and understanding of all my concerns: read pages 249- 252 in my book "The Secret to GE's Success" and the many blogs I have written in the past few months.

If you have any insights or different perspectives please respond...

Bill Rothschild, CEO Rothschild Strategies Unlimited, LLC

Wednesday, May 28, 2008

Reducing GE's Complexity.

In June, 2007, I wrote a Chief Executive Magazine article on GE's need to reduce the complexity of the company. This is what I wrote:

"Reduce Complexity
· Make It Simpler. Make the company less complex. This can be achieved by focusing more on products and services than solutions, as well as reducing the risk by participating in lower risk global areas. This strategy is not exciting, but it could build more investor confidence and increase the stock price.
· Continue to Prune the Portfolio. Continue the traditional GE portfolio management approach perfected by Welch. In this case, the company asserts that nothing is sacred and all businesses are potential divestiture or harvest candidates. Immelt has already done this. He divested the insurance and reinsurance businesses and was even willing to take losses. He sold the advanced materials business (man-made diamonds, silicones) to a private equity firm.
In January of this year, Immelt announced that the company’s plastics business is now on the block. It could yield $12 billion from a Saudi firm—a major financial windfall for the company, similar to the Welch RCA deal.
I think that broadcasting and even additional parts of the traditional GE lines, like major appliances and lighting, could be divested. These moves would permit the company to focus on its major solutions, technology business, while maintaining its strong financial services operations. This portfolio approach may build more confidence among investors, since they recognize that the primary goal of the company is to continue to increase the bottom line.

What if neither works? In this case, I think we need to adopt the new company motto “Imagination at Work” and look for a more creative approach that may initiate the next stage of the company.

Let’s imagine that:
· GE gives the investor an opportunity to invest in selective sectors of the company and not just in the total company portfolio. In this scenario, GE decides to offer stock in its key areas/sectors. For instance, it creates separate stock offerings in GE Healthcare, GE Infrastructure, GE Money, GE NBC/Universal, GE Commercial Financing and other key components of the company. These would replicate the current building blocks of the company. So investors could invest in either the total company or selective parts of the company. This is not unrealistic since many companies have done this and have been successful in doing so. Of course, this will require more evaluation.
· GE is major stockholder of new companies. The GE Corporation would continue. The company would only sell a part of the new companies and retain majority control over the businesses. I would recommend that GE retain 75 percent of the companies and sell the other 25 percent on the open market.
· GE would focus on maintaining GE traditional success factors. Under this new scenario, the GE corporate staff would be significantly reduced and focused on a few key areas. For instance, the company would continue to work on succession plans for the key management positions in the company and especially the next CEO. The corporate staff would monitor external changes and help the subsidiaries anticipate and respond to change, as well as change the portfolio as required. It would continue to have company wide training at all levels, take stands on political issues as needed and continue the strong financial, strategic and manpower networks that have contributed to its past success.
The anticipated results could be very positive to all of the key stakeholders. The stock should rise overall, the investor will have more options and the company will continue to retain its AAA rating and have a strong and deep bench.
In my latest book, "The Secret to GE’s Success", I describe the company as remarkable, since it has had the ability to succeed and prosper for over 127 years. I use the word “Latin” to capture the five reasons for this success. These include leadership, adaptability, talent, influence and networks. Though all are important, I think one of the most important is the company’s ability to adapt and admit mistakes."

I still believe that GE needs to think about ways to allow their shareholders the opportunity to invest in parts of the company and not just in the entire portfolio.

Bill Rothschild, author of "The Secret to GE's Success".

Friday, May 16, 2008

Selling the GE monogram & Managing Earnings.

The sale of GE's Appliance business presents three problems for Immelt

First is the need to sell the GE monogram with the business
Second is the ability to manage the bottom line.
Third is the continuing portfolio movement makes the company even more confusing and creates anxiety among key stakeholders, especially employees.

Selling GE Monogram and Impact on Total Company

GE has always prized and protected its "brand", which it calls "the monogram". It wasn't until Jack Welch took over that GE was willing to sell the monogram with the sale of a product business.

Welch broke tradition when he was willing to permit Black & Decker to use the GE brand on its small appliances for five years. He then gave allowed Thomson Electronics to use the GE brand when he sold the combination of RCA and GE to them.

The primary reason for not permitting others to use the GE monogram was the concern about the acquiring company's selling inferior or poor quality products or services that would reflect negatively on the entire GE company.

This is a major issue in the disposition of GE Major Appliances, which has been a 100 year consumer franchise and has contributed to GE's reputation for quality and innovation. If GE sells the brand to Korean or Chinese company it may cause brand problems. This is not to say, that Korean and Chinese companies can't produce quality products, but these companies have had some situations where the quality was not up to standards and it could be repeated.

Managing the Bottom Line.

A second issue deals with GE's ability to use its diversity to manage earnings and meet expectations. GE has had a balanced portfolio, consisting of long cycle/ large systems businesses, short cycle consumer non-durables (appliances, lighting) and financial services. This combination has enabled the company to ride out economic cycles and deliver the earnings expected. In the first quarter of 2008, Immelt was not able to meet expectations and the stock took a dive. Over his seven years in office, Immelt has changed the product mix.

He continues to sell off many of the short term consumer financial businesses and has increased his dependence on long cycle, technological systems businesses in countries that are not stable. This is what happened in the first quarter of 2008. The company was hit by the sub-prime and lack of liquidity and so was not able to meet his targets. The health care business was negatively impacted by having to close down a major component of the business for 20 months to fix quality problems.

This change in portfolio mix will make it even more difficult to manage the short term numbers.

Confusion and Insecurity.
The third issue is the continuing changes in the portfolio. Immelt brags that he has acquired over $50 billion of businesses and sold over $60 billion in his reign. This makes the company look more like a mutual fund than an operating company. It adds confusion and makes it increasingly difficult to lead. Even worse, it builds insecurity into the company, since no business seems to know whether it will continue to be in the family or will be discarded. It is clear that he holds to the Welch philosophy, "no one and nothing is sacred".

Overall, I agree that Major Appliances doesn't fit the GE long term game plan and should be spun off. But it is not easy and could have negative implications and impacts on the company and the image of management.

Thursday, May 15, 2008

GE Appliance Spin Off Makes Strategic Sense

Both the Wall Street Journal and the Financial Times reported May 14th, that Immelt had hired Goldman to divest the "storied" GE appliance business. Diane Brady, senior Business Week reporter, had a blog which also highlighted that the spin off was a good idea.

I have been out of GE for 24 years but still completely understand their strategies and portfolio, and in 2000, before the appointment of Jeff Immelt, I wrote an article for Chief Executive Magazine recommending that Jack Welch's successor, then unknown, sell Major Appliances. In my book The Secret to GE's Success and in another Chief Executive article in 2007, I repeated this recommendation. (These articles can be found on my site: http://www.strategyleader.com/.

So, I believe, that this spin off is long overdue and I agree with Immelt's belated decision. However the timing may be poor since the value of the appliance business is lower than it was several years ago and maybe Immelt should wait to get more money of this asset.

But let's go beyond the obvious reasons, that are being reported, namely that the GE Appliance business doesn't produced the desired earnings and is cyclical.

The real reason that I recommended this sale is that Immelt has created a new GE and the Appliance and the Lighting businesses, don't fit.

Immelt has moved GE "back to the future" that is he has moved GE back to long cycle, technology, systems businesses, which he had christened "infrastructure". This includes some of the traditional GE businesses, like nuclear, gas turbines, jet engines, locomotives..plus some new ones like water purification, wind, solar energy. It also should include health care...a very old GE business, starting with x-ray (pages 140-141in The Secret to GE's Success)

The appliance and small appliance businesses were created as part of the "benign cycle" strategy ( pages 57- 58 in The Secret to GE's Success) whose theory was simple: "provide consumer and industrial electricity using products that would require the electric utilities to acquire more generation, transmission and distribution products and systems." Thus as the consumer demand increased so did the demand of the longer cycle more expensive systems. Since GE provided them all it was a win/win game plan.

Jack Welch discontinued this strategy when he sold the housewares, transformer and switchgear businesses. Further GE has not been the innovative leader in the appliance business for many decades.

In short... GE has moved beyond the "benign cycle" and appliances, lighting no longer fit..so Immelt is right in divesting them.

But this decision has several major strategic/ financial implications that will be discussed in my next blog. To gain a complete understanding of the real, objective, unbiased GE STORY... read my book" The Secret to GE's Success" and view my GEWatcher blogs on my site" http://www.strategyleader.com/

Test time for GE and Jeff Immelt.

The past few weeks have been very trying times for GE and Jeff Immelt.

The most shocking time was when Jeff, after having said that 10% earnings growth was "in the bag" and then missing his promises was one of the worse times since Jeff has taken over.
This embarrassment was compounded when his friend, mentor and predecessor went on global video to say he was shocked and that it happened again he would get a gun and shoot him ( this was shocking because it showed that Jack Welch was out of toon with the times and out of the company network)
Then there were stockholder suits, the investigation of the SEC and finally admission that one of his acquistions,when he was the CEO of Healthcare had just resummed production after 20 months.
Even worse was the Forbes article on the CEOs who failed to earn their money for stockholders.

In short, it appears that Jeff's "seven year honeymoon" has come to an adbrubt end and that his creditability and ability to lead and increase SHAREHOLDER VALUE are much in jeapody.

Unfortunately I think that Jeff is now witnessing the downside of his GO BIG, GO GLOBAL and Dreaming Approach to leading one of the most remarkable and successful company for over 127 years.

I personally continue to maintain my investment in GE and believe that the company will address its mistakes and ADAPT to external changes and its past mistakes.

Stay tuned…Bill Rothschild, author of The Secret to GE's Success which anticipated the problems of Immelt's GO BIG strategies, visit www.strategyleader.com for a continuing assessment of GE and other major companies…

Thursday, April 17, 2008

GEWatcher 12- "Welch violated one of the GE key success factors- Leave and get out of the way"

It has been an amazing GE week...for people like me who are alumni and investors.

In my book, The Secret to GE's Success, I emphasize that among GE success factors, has been their ability to make their numbers and never over promise...

But on Friday, April 18, 2008... Jeff Immelt had to apologize because GE was unable to meet the income targets that he had just two weeks before said were "in the bag". Even worse he missed badly and had to blame more than one business unit for the miss. This caused a major sell off of the ENTIRE DOW since the most reliable company missed and everyone thought that things were bad and getting worse.

To make matters worse Jack Welch, the GE legend, went on CNBC (a GE owned cable network) and its competitor FOX NEWS... to say that Immelt's miss was irresponsible. This unprecedented action made things worse... and it was compounded when Jack..ate humble pie.. and said he was miss interpreted.

One of GE's great strengths in the past was that its CEO's retired and then disappeared. Unfortunately Jack has not disappeared and continues to promote himself. He has columns in Business Week, is a frequent guest on news programs, and even leads expensive, executive session.

This is what I wrote in my book:

"Leave and Get Out of the Way. This is another critical piece of GE’s leadership success. GE leaders have been required to leave when they retired and not permitted to hang around either as members of the board of directors or as advisers. This practice has enabled the new leader to take command without being second-guessed by his predecessor."

It is clear, that even if Jack Welch meant well, he appears to unable to leave GE behind and not continue to play the role of CEO. Unfortunately, he made the situation worse and has caused many to question Immelt's game plan and abilities. This is not positive.

I will continue to comment on the GE strategy and its ability to create and meet realistic expectations.

Welch said that Immelt can't surprise everyone again... I agree and Immelt and his team must be able to make the numbers with no excuses.

Bill Rothschild, author of The Secret to GE's Success and the most unique strategic thinking software and tutor available, StrategyLeader(tm). This software is available for a 10 day trial on www.strategyleader.com.

Tuesday, April 15, 2008

GE Surprised itself

High Expectations and Surprising Yourself

During my 25 year GE tenure and my subsequent 23 years as a consultant to major corporations, I stressed two leadership tenets

1. Set minimum expectations and always meet or even slightly exceed them. This demonstrates that you are credible and can always be counted on.
2. Never surprise your “key stakeholders”, especially customers and investors and most of all YOURSELF. This shows that you have done your homework and are prepared for uncertainty.

Last Friday, Jeff Immelt and his GE team violated both of these leaderships tenets.

In my recent book: The Secret to GE’s Success, I ended my 127 year strategic history of the company with concerns about Immelt’s ability to “meet high expectations and avoid surprises”.
I cited four concerns:

"Ability to “Go Big”, which was the theme of the 2005 annual report. In this area, I applauded his “missionary zeal”, but didn’t believe that he could grow organically, at a 8% compounded rate, because of the size and complexity of the company ( adding $14 billion of revenues each year and even a higher rate of earnings can’t be achieved forever… it is simply the “law of BIG numbers”).

“Selling Solutions Globally” - highlighted the complexity of selling to developing nations, like China and India, who are not willing to “repatriate earnings and even nationalize companies” if they are too profitable and big.

“It Always Takes Longer Than You Think”, focused on how difficult it is to get large, infrastructure orders and maintain strong competitive positions.

“Maintaining a Strong and Deep Bench” focused on GE’s willingness to invest in people and even allocate a month of the CEO’s time to evaluating key people. When you have over 300,000 employees with a wide variety of cultures, religions and skills, this is almost impossible. GE has been and continues to be the prime source of executive and professional talent by headhunters and companies who have a “just in time” staffing philosophy.

Chief Executive Article. In June, 2007, I published an article in Chief Executive magazine, entitled: “Decision Time for Buffett and Immelt”, in which I contrasted the “GO BIG” simple approach of Warren Buffett with the complex approach GE’s Immelt. In this article, I stress three actions for Immelt to consider: Make the company less complex.
Continue to Prune the Portfolio.
Create “tracking stocks”- that would allow investors to invest in sectors of the company, while allowing GE to remain in control and one company.

Blogs on Amazon and Google. Since November, 2007, I have been writing a series of blogs, entitled GEWatchers, to keep my readers and clients up to date on what Immelt and his team are doing strategically and how their actions compare to what made GE successful in the past. These are indexed on this site, along with blogs on other major topics.

Bill Rothschild author of five key books on strategic leadership.

Wednesday, April 9, 2008

"Past is Uncertain As the Present & Future"!!!

Today's business press is full of articles and quotes about what caused the current economic mess. Greenspan, who was on the job for 18 years (which is too long for anyone), is defending his actions and says that he did what was right given the information he had. Others disagree and blame him for the current situation. John Reed, former Citicorp CEO has stated that the merger of Citicorp and Travellers was a mistake, while Sandy Weil his successor says it was a good move.

Obviously each of these individuals have their own view of what happened, which may be right or wrong, but it is really perception that is the foundation of even history. I am an avid read of American history and am amazed when I read different biographies about revolutionary heroes, which is popular today. The story of Jefferson, Washington, Adams, Burr all supposedly deal with the same "facts" about what happened, but they all have a different bias.

Unfortunately in the United States today, we focus only on what is happening today and don't learn from the past. We keep making the same mistakes, but it gets worse, because the actions of leaders today impact the entire world and not just one country.

Further we have created "news and commentary" networks and publications, that are so interested in getting the "headline first" that they often ignore the facts. In addition, the major organizations and companies tend to employ "spin doctors" to only show their good side and ignore their failures and weaknesses.

We can only learn from the past if we recognize that there were good and poor decisions and actions. However, we need to examine whether what worked or failed in the past, will work or fail today. This should be an integral part of all educational institutions and company training courses.

I believe that all of companies and institutions should take the time to examine their history and share it with the world. This means being willing to give all sides and then using these insights to improve the organizations. But it must be remembered that "the past is as uncertain as the present and future" and that it is okay to have different perceptions and conclusions.

When I developed the GE strategic planning workshops and seminars at Crotonville in the 1970's, I hired consultants and professors to study GE's past strategies and identify what they did well and not so well. One of the consultants came back after a month study and told me "in GE the past was as uncertain as the present and the future". I laughed and asked what he meant. He said that he interviewed dozens of executives and they all had a different perception of GE's past. This was a lesson I never forgot.

In the original GE Strategic Planning workshops, a four-hour "strategic history of the company" module was included, that covered both GE's successes, failures and even questionable management actions, such as "the great electrical conspiracy" and participation in cartels.

These sessions were a major success and I ultimately continued to lead these sessions, both inside and outside of GE. It is the foundation of my new book" The Secret to GE's Success", which also used these insights, as well as what I have learned from own experience and study, to evaluate GE today and the current leadership and strategies.

History is a critical element is learning and in developing sound business and public strategies. I believe that all companies and institutions would take the time to learn from its own past successes and failures and not just study "other company or organizations case studies". The real learning takes place when it is relevant to the students, employees and managers and it is a critical part of creating sound, viable and successful strategies and execution plans.

In short, know your self first and then learn from others.

Bill Rothschild, author of "The Secret to GE's Success"-which enables readers to learn from the successes and failures of an American Icon Company and put these lessons to work for themselves.

Friday, April 4, 2008

GEWatcher 10- Losing the Nuclear Power Race?

It is clear that one of the most significant ways that the United States and rest of the world will become more petroleum independent is by adding nuclear reactors.

Unfortunately, for GE it appears that Toshiba, who purchased the Westinghouse Nuclear business from British Nuclear Fuels in the fall of 2006 for $4.2 billion", appears to be in the leadership position.

The Wall Street Journal's April 4, 2008 edition reported: " that Toshiba will build four nuclear power plants in the US valued at a combined 1.4 trillion yen". "Since moving under Toshiba's umbrella, the U.S. company has received a total of a trillion yen in orders to build nuclear plants in China."

Nuclear is a key part of the United States energy policy and it is anticipated that there will be 30 new reactors planned over the next 20 years.

In my book: "The Secret to GE's Success" (pages 236- 237), I pointed out the GE lost the deal to purchase the Westinghouse PWR technology, which accounts for over 75% of the total global nuclear plants installed, because it refused to raise it bid and allowed Toshiba to win the prized Westinghouse nuclear business. I asserted that this was a mistake and that it was unclear whether the GE Hitachi combination would be successful in winning its fair share of the nuclear orders worldwide. So far, it appears that my prognosis was correct and that Toshiba is winning the order race.

In my book, I also point out that a successful nuclear strategy requires solving the nuclear waste problems and standardizing the type of reactors used in the United States. Both Japan and France have elected to use nuclear as a means of solving their energy problems, but they also have a complete system and standardized units. The United States does not.

Another surprise is that GE has not done better in China, where it has made significant investments in the Olympics, opening plants and offices and even moved one of its Research centers to Dalian. It appears to me that GE should have been able to get at least some of the nuclear orders in China.

Saturday, March 29, 2008

GEWatcher9 "Strategic Portfolio Management Continues"

One of the major reasons, that Jack Welch was so successful was that he had the strategic instincts to know what he liked and made deals that focused on his priorities. Nothing and no one was sacred and Welch didn't let fondness for any one business stand in his way in making tough strategic decisions.

I believe that his ability to acquire RCA at a bargain price and then package RCA's strong consumer electronics brand and businesses with the weaker GE brand and make a strategic deal with Thomson of France, was one of this defining moments.

WIN/WIN. Welch got the Thompson Medical Systems business, which he loved, and got rid of the consumer electronics business, which he hated. While Thompson enhanced its world wide consumer electronics business. Both were happy!

Jeff Immelt and his team have taken similar steps in the Consumer and Commercial Financial arenas. Recognizing the vulnerability of the consumer financial markets and their declining margins, Immelt had done the following:

"GE yesterday agreed to sell its corporate charge card unit to American Express Co. for $1.1 billion. It also agreed to swap GE Money units in Germany and the U.K. to Spain's Banco Santander SA in exchange for Italian commercial lender Interbanca, which is valued at 1 billion euros ($1.58 billion)."
GE Money, as it was exiting WMC last year, agreed to buy part of UniCredit SpA's Bank BPH unit in Poland for 625 million euros ($893 million). In September, GE Money said it would invest $200 million in India by 2011. The sale of the corporate payment services unit to American Express should result in a gain of $200 million to $300 million, or 2 cents to 3 cents a share, and is included in GE's first- quarter forecast of 50 cents to 53 cents a share, Lehman Brothers analyst Robert Cornell, Goldman Sachs analyst Deane Dray and JP Morgan Analyst Stephen Tusa wrote in a notes yesterday and today.
It's not an exit from consumer finance, it's part of a really deliberate strategy that comes from a pretty clear agreement with Jeff,'' Cary, 48, said yesterday. GE Money competes with the commercial-finance division for capital to be invested in higher-return areas." (http://www.bloomberg.com/ March 28, 2008)

Sound Strategic Portfolio Management.

I applaud these moves, since I have never been a strong advocate of the GE Consumer business and have believed that GE's strengths were in the commercial and industrial financial arenas, where it can combine its technical, market and financial skills to gain a competitive advantage.

This is sound strategic thinking portfolio management and is consistent with GE's past successes. It clearly demonstrates that Immelt and his team are continuing to assess their portfolio and willing to make strategic, longer term decisions and is not wed to any one business, even if it has been successful in the past. The divestiture of the "once beloved GE Plastics" was another example of this willingness to move ahead and not protect "fond" memories.

As a GE investor and alumni, I hope that this type of selectivity and portfolio management will enable the company to increase its disappointing stock performance.

Bill Rothschild, CEO Rothschild Strategies Unlimited, LLC (specialists in helping clients enhance their strategic thinking and decision making skills) and author of global bestseller: The Secret to GE's Success".

Strategy is what you do and not what you say

Many companies develop elaborate strategies describing what they plan to do and then do something different. This has a very negative impact on creating realistic expectations and guiding the key stakeholders.

GE seems to be falling into this situation.

Organic Growth-
Immelt has stated that he wants to grow the company organically and not just through acquisitions and yet it was reported, in a recent edition of the Financial Times, that GE made 2311 deals, worth $382 billion, in 2007. Is this consistent with the stated "organic growth"?

Financial Services
GE became highly dependent on its financial services portfolios and Immelt has stated that the company would focus more on technology based business and less on financial services. Yet it continues to pick up more financial assets. This week they purchased the Merrill Lynch Capital assets which added $10 billion in assets and $5 billion in commitments to the GE Capital Commercial Finance's base of $260 billion. This is most likely a deal they couldn't refuse, but it still adds financial assets.

Further, it is interesting to note that the combination of GE Money and GE Commercial accounts for 30.6% of the first nine months 2007 overall company revenues and 36% of earnings. Both of these have increased over the first nine months of 2006, when the combination accounted for 28.% of 2006 revenues and 33% of earnings.

It is clear that GE is still highly focused on making deals and being a financial services company, though it has asserted something different.

It is vital that words and actions be consistent. When they are not it adds confusion and can be detrimental. This may be another reason that GE has had such a difficult time increasing its stock prices.