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.

GEWatcher-Same story

During the past week, the GE story continues to follow the same plot:

Immelt and team continue to defend their strategy and work to increase the stock price. So far, the stock is improving, but not by much.

Key GE leaders continue to leave... Hogan left Healtcare to join a GE rival ABB... however this may not be a loss since Hogan was responsible for making major healthcare acquisitions, designed to GO BIG and OFFERING ONE STOP SHOPPING...but none of these acquisitions and ventures have enhanced profitability and may even have added to complexity and lower returns. Healthcare which was one of the Immelt focused growth areas has been disappointing.

Quick replacement...GE again demonstrated that it has a deep bench and so it replaced Hogan with the leader of transportation almost immediately. I am not sure this is a good move since it may weaken Transportation...but we will see.

Continuing partnerships... there seems to be an increase in creating joint ventures and partnerships... in fact the acquisition of the PRIZED WEATHER CHANNEL, which is supposed a BIG WINNER now will have three owners... this adds even more complexity. ( Have never found that partnerships yield the results expected and in most cases it is alike a marriage where the partners are not on the same page).

China and Olympics... it is getting close and it will be interesting to see if the GE BET pays off and what other problems, like Tibet, the pollution, natural disasters, will occur.... It will also be interesting to see if the GE commitment to China will be a profitable bet.


Overall, there are many that think that Immelt's time is limited and that he is on trial. But Immelt and his team strongly assert that they are on the right track and will win...

Bill Rothschild, author of the only complete object assessment of GE's strategies ..THE SECRET TO GE's SUCCESS, now in SIX LANGUAGES... Simplified Chinese, Indonesian, Spanish, Korean, Japanese and English.

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.

GEWatcher - Why the rush?

Since 2000, I have written several articles, blogs and my book THE SECRET TO GE's SUCCESS and in all of them recommended that Immelt consider selling its traditional consumer and industrial businesses and focus on infrastructure, health care and other new technology based businesses, while using the financial services businesses to help sell the complex solutions and provide a means of managing short term earnings.

These are some of my comments:

• "There may be, however, some pruning required with Major Appliances as a disposition candidate. ("Succeeding a legend" Chief Executive Magazine- March 2000)
• "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. (Decision Time for Immelt and Buffett Chief Executive Magazine- June 2007)

Therefore I am not against the disposition of the traditional GE, but I am concerned about the timing and appearance of panic. Why has Immelt decided to make these moves now, when the value of the traditional GE businesses are low and could get lower. Why is he now taking time and effort to be auctioneer and not trying to fix the problems he has? Why is the company increasingly looking like a "giant hedge fund" and not an operating business?

In my book, The Secret to GE's Success, I discussed the Welch era in-depth and had positive and negative assessments of his reign, but one of the things Jack did well was selling off assets and getting top dollar. I think that Immelt is not doing this. So why not?

Bill Rothschild, Rothschild Strategies Unlimited LLC.

"T" stands for TALENT (home grown)

As I was writing THE SECRET TO GE's SUCCESS, I concluded that I could use one word LATIN to summarize why GE has not only survived but prospered over 126 years while its peer companies, like Westinghouse, no longer exist. The T stands for TALENT, but not just the everyday type of talent, but HOME GROWN TALENT.

Since GE's beginning, led by Charles Coffin, who was the first CEO of General Electric, after Edison merged his company with Thomson Houston, GE has been committed to growing its own talent in all functions and at all leadership level. It did this by recruiting bright people from middle class backgrounds and providing a combination of training and tough evaluations. It was always competitive and the survival of the fittest.

Many think that it was Jack Welch was the architect of this type of tough minded "up or out" mentality, but this human resource strategy, started in the late 1890s and was continued by all of the leaders over the 126 years. (I personally experienced the selection and evaluation process and even held positions where I had to make the tough the decisions.)

Immelt has continued this heritage and it was clearly demonstrated this week when the head of the Aircraft engine business left and was immediately replaced. This is very rare in today's environment which I call the Just In Time SUCCESSION planning system. Most companies don't recruit early, train, evaluate and have a DEEP bench...they just wait until someone leaves, then they hire a "headhunter" to recruit someone from another company, which most often is GE.

GE and Immelt are to be applauded that they have continued the "GROW YOUR OWN" tradition and still have the deepest bench in all of American and probably global companies.

Unfortunately, as I pointed out in the conclusion of my book... GE is the first choice of most "head hunters" and they will make very attractive offers to the GE team. This is going to be a problem for GE as time goes on and many of the GE trained and developed executives and professionals are offer deals they can't resist. Further since they know who the best and brightest are they will move in and recruit others from the GE bench.

So, the issue is whether Immelt and his successors will continue to be the training ground for other companies or revert to the more opportunistic " JIT" system. I hope they continue since this is one of the reasons that GE continues to prosper and has differentiated itself from the rest of the "also-rans".

Bill Rothschild, author of THE SECRET TO GE's SUCCESS, now in Chinese, Indonesian, Korean, Japanese, Spanish and many English multi-media versions.