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".