GE Update- Not consistent with its past success

Not Home grown and not strategic...
In my book, The Secret To GE's Success, I emphasize that one of the five reasons that GE has been able to continue to prosper, while most of its peers have disappeared, is that GE has been able to "home grow" its own leaders and not hire them from the outside, and the company has had a very disciplined strategic thinking and review process, that had identified " potential problems" and worked to prevent or minimize their impact.


But it appears that this is not as true today in GE, as it was in the past.


In the October 29, 2007 Business Week, the headline reads: Adventure of a Sub prime Survivor. The story describes Amy Brandt and how she was able to sell her company "WMC Mortgage" to GE, become the General Manager, have the complete support of Jeff Immelt to move GE into very high risk "sub-prime" markets.

Amy became one of GE's highest- profile young women and even given a Jeff Immelt "high-five" after her Boca Raton presentation in January 2005.


"Today, Brandt is gone and GE is struggling to contain its mortgage mess." says the article. Since January 2007, "GE has sold off more than $ 4 billion of loans ($375 million is left" and closed down operations, taking a $1.4 billion charge in the third quarter and a discontinued Japanese loan operation.


But Brandt is living well.. She lives on a 30 acre ranch is starting a new career... she still thinks Immelt is "very charismatic" but recalls she hated the GE power point presentations.. "she was a kid who didn't like to go to camp".

It is clear that GE didn't do its traditional disciplined strategic thinking and evaluation process and doesn't have the internal auditing systems that made it successful in the past and its suffering the consequences.

Discipline, comprehensive thinking and challenging was a reason for GE's past success and GE must be sure that these skills and processes are still alive and well, even it inhibits some of its "dreaming sessions".

Surprising yourself can kill you

Obviously, you can't avoid surprises. No one can anticipate the future. But it is the responsibility of leaders to avoid surprising themselves and being unprepared for the consequences.

The latest surprise is the current "sub-prime" situation. Highly reputed companies, like Citicorp, Merrill and all major banks have forced to take unprecedented write-offs and fire their leaders, because their leaders were unaware of the magnitude of their involvement in new untested instruments.They were just as surprised as others that they had a major problem.

Why?

It is clear that the disciplines of strategic thinking, analysis and decision making have been neglected. Current managements have become so involved in the "numerics" that they failed to understand why the numbers were so good.

Just look at the CNBC programs... all everyone talks about are the economic and financial numbers and not the underpinnings of these numbers. When the numbers are good, it is assumed they will remain good, when they are poor there is a strong tendency to explain them away and point out that things could be worse and will get better.

One of the major reasons that GE, in the 1970's, embarked on installing a highly disciplined strategic thinking process was that they were surprised that five of their eight major ventures failed. They installed a disciplined system to challenge the key assumptions and make sure that they were as sound as possible. In addition, a contingency alert system was established to reduce the impact and hasten the response if the key assumptions were wrong. I explain this in my book, The Secret to GE's Success, and played a major part in this review system.

Jack and Suzy Welch in their November 19, 2007 Business Week column, the Welchway, explain that it is critical that leaders don't become isolated and surround themselves with "yes people", and emphasize that it is critical to have an open system and get inputs from a variety of sources.

I know that Jack personally has a number of people in lower parts of the organization to give him inputs. He was willing to cut across and down into organizations to find out what was really happen and enable him to ask good questions in his review sessions. But Jack was human like all of us, he had is own biases and favorites and it was difficult for others to get him to change his mind.

The key to avoiding surprises is to have system that continually challenges the key assumptions, determines their foundation and is willing to change direction.

In my book , I use the word, adaptability as one of the reasons the GE was successful. However, this only comes if you have a strong and disciplined strategic thinking and decision making system and welcome comments from all and not just a few. It is not easy to take an unpopular stand and get promoted in any organization. This means that you need people who are willing to risk their careers if they believed that the company is moving in the wrong direction.

In future blogs, I would like to discuss some of the key ways to avoid surprise and what to do about it.

Your comments and experiences are welcome.

Marie Antoinette School of Management-1

The October 19, 2007 edition of the Wall Street Journal reminded me of my desire to write a book on the type of management that appears to be prevalent today, the management style called " ME FIRST". One of the articles was about the "Villa Compounds " being built in China. The article described that these enormous "mcmansions", in a gated community outside the Beijing airport. The article also pointed out that there are now over 100 BILLIONAIRES in China.
This phenomena is not new, nor is it reserved to China. All around the world the number of billionaires are increasing and they all follow the "Marie Antoinette/ Louis XVI model". Unfortunately, if these individuals study history they will learn that this type of ostentatious behavior always fails and they should recall that both Marie and Louis XVI were both beheaded.
I plan to discuss this situation more in future blogs... Please share your opinions and perceptions.

College of Surgeons

In my book: "Risktaker, Caretaker, Surgeon, Undertaker- the four faces of strategic leadership" I point out that GE develops excellent "surgeon leaders". Bob Nardelli's first move at Chrysler clearly illustrates that one of the first actions GE alumni take is to "prune the line". Yesterday's WSJ article described that Bob will cut out models and reduce the number of dealers. This clearly makes sense since it reduces costs, but the company must simultaneously be able to fill the line and be sure it keeps the best dealers. This is not as easy especially when these actions must be done at the same time. Let's see if he can pull it off.

By the way, the sale of GE's Plastic business, clearly shows that GE is still ready, willing and able to do selective surgery when it makes sense. I think this move is the right move, but I still think that the company's portfolio is too complex and its goal of 8% compounded organic growth is a major challenge. If you a complete view of the GE successes and failures, read my latest book: "The Secret to GE's Success".

How attractive is CHINA as a market and place to bet your future?

There are over 1.5 billion Chinese. It is an enormous, double digit growth market and most MAJOR companies believe that they must be there to be long term, even short term, winners. Therefore the common logic is that you must be in this market to grow and even just to survive. Is this true? How much focus should companies place on China? Can they ever make any real returns on their investments of money, people and technology? I am not convinced that this is the best place to put most or even all of your resources and would like show you by a comprehensive assessment of CHINA why I am concerned.

In the 1960's, this was the folklore that led many companies to over diversify and move into the BIG/ FAST Growing markets. In my recent book, " The Secret to GE's Success". I describe how GE in the 1960s, moved aggressively into nine "large, fast growing markets" and failed in five of the nine.

Over the next few weeks, I will focus on THE ATTRACTIVENESS of CHINA and provide some challenges to the viability of succeeding in this market.

I welcome your insights and so please challenge my opinions, analysis and experience and we will both learn.



Bill

Strategy and Execution

In recent years there have been several books that assert that the key is implementation and not strategy. The fact is that you need both and one without the other will fail. The key is that the implementation and execution strategies and actions match the overall strategy. There are many illustrations of organizations have the right strategy, but the wrong implementation.

Case in point, airlines have spent billions of dollars to create "frequent flyer" programs. The intent was to create customer loyalty and improve their satisfaction. The strategy made sense, but the execution has not only negated the intent of the strategy, but it has even made customers angry. The October 17 Wall Street Journal article demonstrates the customer frustration and anger.

Success depends on having a realistic strategy and the ability execute it effectively. Airlines had the right idea, but have failed to make it happen. They must revisit this area and either make it consistent with creating loyal customers or admit they can't do it and abort the idea.

Print Media Response to Declining Readership and Advertising

It is clear that all of the major newspapers and magazines are losing readership and advertising dollars. Many prefer to get their information and news from the Internet or cable. The printed publications, like Wall Street Journal and Business Week, seem to believe that the solution is to make their articles and analyses shorter.

As a reader of both these publications I totally disagree with their response. The publications are not informative and lack the depth of insights that I liked. They are now just printed versions of the electronic media and don't have any distinctive advantage or appeal.

As a strategist I would have recommended that go the other direction. Make their publications truly different and provide in-depth analyses and insights. The Economist is an excellent example of this type of publication and I learn more from it and gain insights that I could not get anywhere else.