Complete confidence in the game plan...

I just received the Annual Meeting summary and am now completely convinced that Immelt and his team have no reservations about their game plan and its ultimate success. They have rationalized that the first quarter "miss" was a fluke and that what they are doing is right and it will make GE even greater.

Immelt accepts that the investment community and he stakeholders, reaction to his miss was justified, but they are "continuing looking in the mirror and asking the tough questions". He asserts " we will not let others define our future". He continues to stress his great results and that he has a great team that will do the job. He emphasizes the significant opportunities in Infrastructure ($10 trillion investments in the next decade) and takes great pride in "Ecomagination".

In short, Immelt appears to be totally convinced that he will win.... I hope he is right and that he doesn't repeat the first quarter surprise. Only the results will tell the total story...

Bill Rothschild, author of The Secret to GE's Success" now available in Korean, Chinese, Japanese, Indonesian, Spanish and English print and multimedia versions.

Putting the ELECTRIC back in General ELECTRIC

Edison started General Electric to provide total electrical solutions and to "light up the world". In 1893 his Edison General Electric merged with Thomson Houston to become General Electric. Up until the 1950s... the GE game plan was simple... create increasing demand for electricity by providing electrical products like light bulbs, irons, refrigerators, cooking products, etc. so that electric utilities required more generators, transformers, switchgear equipment and total systems. This was called the BENIGN CYCLE and it was the essence of GE.

In the 1950's GE moved into other products, primarily those that were by- products or offshoots of their electrical and chemical technologies, such as plastics, jet engines, locomotives etc. It added financial services to help provide financing to consumers and industrial/ commercial customers. Again this worked and GE grew.

In the 1960's, because of the Great Electrical Conspiracy (price fixing) GE's growth plateaued at $5 billion and so it created its GROWTH COUNCIL to identify markets growing faster than the GNP that GE has some expertise...this was the beginning of the massive diversification of the company. Diversification moved to "portfolio management" in the 1970s and it was the underpinning strategy of Welch and Immelt.

Interestingly today, GE is returning to its roots as a global leader in electrical systems. Even though it has spun off many of its consumer products and is in the process of selling home appliances, GE now offers a full array of generation products and systems and in recent months has received billions of dollars of orders to produce electrical systems in Iraq, Middle East and has become a leader in wind turbines.

GE is likely to benefit from the current need for the United States to reduce its dependence on oil since it is one of the leaders in Nuclear Energy and Wind Turbines, as well as being able to supply complete electrical systems. In addition, most of the electrical utilities have been harvesting their facilities and now need to invest in new generation, transmission and distributions systems.

This is a great illustration of history repeating itself and shows that it is beneficial to stay the course even when markets are down and out of popularity.

If you want to get the complete story of GE's successes and failures and the genius of GE's early leaders, read my book: The Secret to GE's Success.



Bill Rothschild, CEO of Rothschild Strategies Unlimited LLC and author of GEWatcher blogs.

From Surgeon to Risktaker/Undertakers

In 1993, when I wrote my book: Risktaker, Caretaker, Surgeon, Undertaker- the four faces to strategic leadership, I found that many of the major corporations were being led by Surgeons, that it individuals who were skilled at managing a strategic portfolio and divest or liquidate the "poor businesses" and invest in what they considered to be winners.

On the other hand, I had problems identifying leaders who thought that they were risk takers but in actually were undertakers. But today, this seems to be the most prevalent type of leader globally.

Almost every week, there is a story of individuals who were willing to bet the future of their companies on focusing on businesses that had immediate financial rewards, that have proven to be lead to the destruction on their companies. They didn't do their homework and were surprised that where they bet were major losers, such as sub-prime mortgages and other creative financial instruments. The strange thing about all of these undertaker leaders is that they have been personally rewarded to destroy their companies.

I hope that this is only a short time phenomena and that we will be able to have more real risk takers and caretakers who do their homework, bet on realism not wishful thinking and are more concerned about their companies than their own personal rewards.

Bill Rothschild, author of Risktaker, Caretaker, Surgeon, Undertaker- the four faces of strategic leadership.

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.

My personal mourning for Tim Russert...some one I never knew, but who stands for everything I believe in.

I am amazed that I feel a great loss, for an individual I didn't know and didn't even follow closely. Tim Russert died on Friday suddenly. I never watched "Meet the Press", rarely watched his special election programs and interviews, and yet I feel a loss of an individual who was very rare.

Tim was rare because he had values, worked hard, never pretended to be someone important and even honored his hard working father. I guess it was these attributes that cause my feelings of loss.

Today, we have some any "self important", "legends in their own minds" that it is unusual to find an individual who wanted to help others understand what was happening in the world and especially in a overly promoted political arena.

I am much older than Tim, but he and I shared several characteristics. His father was hard working man who supported his family without and regard for himself...so was my father.
He was a devote committed Roman Catholic...so am I. He attributed such of his success to his Jesuit education, so do I. He loved his wife and family and so do I... in short, though he was 16 years my junior, he and I shared the same values and loves.

I will pray for Tim and his family...since this what being a Roman Catholic is all about... may his soul Rest In Peace and may he enjoy the love and peach of Christ and enjoy his reward in HEAVEN.

Bill Rothschild

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.