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/

Bill Rothschild... author of five strategic books, tutors, software...