Strategy Review

Test time for GE and Jeff Immelt.

TheStrategist — Sun, 04 May 2008 23:22:00 +0000

The past few weeks have been very trying times for GE and Jeff Immelt.

The most shocking time was when Jeff, after having said that 10% earnings growth was "in the bag" and then missing his promises was one of the worse times since Jeff has taken over.
This embarrassment was compounded when his friend, mentor and predecessor went on global video to say he was shocked and that it happened again he would get a gun and shoot him ( this was shocking because it showed that Jack Welch was out of toon with the times and out of the company network)
Then there were stockholder suits, the investigation of the SEC and finally admission that one of his acquistions,when he was the CEO of Healthcare had just resummed production after 20 months.
Even worse was the Forbes article on the CEOs who failed to earn their money for stockholders.

In short, it appears that Jeff's "seven year honeymoon" has come to an adbrubt end and that his creditability and ability to lead and increase SHAREHOLDER VALUE are much in jeapody.

Unfortunately I think that Jeff is now witnessing the downside of his GO BIG, GO GLOBAL and Dreaming Approach to leading one of the most remarkable and successful company for over 127 years.

I personally continue to maintain my investment in GE and believe that the company will address its mistakes and ADAPT to external changes and its past mistakes.

Stay tuned…Bill Rothschild, author of The Secret to GE's Success which anticipated the problems of Immelt's GO BIG strategies, visit www.strategyleader.com for a continuing assessment of GE and other major companies…

GEWatcher- Measuring performance

TheStrategist — Mon, 28 Apr 2008 15:19:00 +0000

In the mid-1950's the GE CEO, Ralph Cordiner with the help of some of the best management academics and consultants, created a course, Professional Business Management, to develop the strategic and implementation skills of the company's management. This course was based on four words: Plan, Organize, Integrate, Measure.

I wish to discuss the last word: measure.

Measuring included a comprehensive listing of key business results, such as profitability, cost reductions, market share. Every business unit, then called "product departments", had a very extensive evaluation of these key result areas. In addition, GE had a very large "financial traveling audit" staff, that continually evaluated the operations and helped the company avoid embarrassing surprises.

In the 1970's Fred Borch installed a new strategic management system and again included a very comprehensive review system. But this went beyond the numbers and included in depth strategy reviews. These strategy reviews included assessing the business units, renamed "strategic business units"; product/ service, marketing/ sales, production, technology and financial strategies, implementation plans and programs to assure that the business units were being responsive to external, market, technological and competitive changes and were implementing programs that were consistent with their investment strategies and strategic drivers.

These reviews were time consuming and expensive and in some cases, and often an overkill, but they did enable GE to avoid missing its promised numbers and the key stakeholder expectations.

Since I have not been part of the GE system for over 24 years, I am not sure what the company does in reviewing strategies, at all levels, and assuring that they are internally consistent and able to respond to change, but it appears that this might be one area that needs to be re-assessed and changed so that the company doesn't embarrass itself with the investment community as it did this past quarter.

I am strong believer in learning from the past and from mistakes. GE's ability to ADAPT is one of its "secrets to its success".

Bill Rothschild, author of "The Secret to GE's Success", now available in Korean, Indonesian, Japanese, Spanish and English, and will shortly be published in Chinese.

Pope Benedict - Exceeding Expectations

TheStrategist — Sun, 20 Apr 2008 23:02:00 +0000

Pope Benedict XVI visited the United States during the later part of the week and over the weekend. I have never been impressed with "spectacular events" because they are often so over publicized and promoted that by the time they happen the reaction is "why?".

Americans love the theatrical and so this even makes things worse, and often have very HIGH EXPECTATIONS that are difficult to achieve.

Pope Benedict was the surprising exception. He never promised anything and delivered a very inspiriting result. In fact, many Americans, including me, wondered why he was coming in the first place. Let me outline why I am so impressed with his visit and its potential positive results on the American Catholic Church and maybe society in general:

First of all, he was willing to confront one of the greatest scandals and embarrassment in the recent history of the Catholic Church...the pedophile scandal. He didn't hesitate to confront and even say he was scandalized and that it was MANAGED badly by the American Hierarchy. Which is true...some of the American Cardinals and Bishops should have been removed from their leadership positions for their inability to admit mistakes and then to try and hide the reality, which has spanned many decades.

Second, the Pope met with some victims of the scandal...this was a sign of REAL leadership and especially for someone who could have avoided the embarrassment of such an event.
Third, he went and participated in a Jewish celebration, a clear sign of reaching out.
Fourth, he invited the youth to become more involved. His visit to St. Joseph's Seminary and the over 25,000 enthusiastic youth was inspiring, especially when you could see so many young women in religious habits and young men in "roman collars". ( I believe that one of the reasons for the lack of vocations is that American women's religious orders stopped wearing their habits and many priests stopped wearing the roman collar, and so became part of the crowd and not different from the crowd. It is like the military when soldiers wear civilian clothes, they stop being soldiers and just become like every one else).

Fifth, the Pope, is multi-lingual, included a Spanish element to his homily and made it clear that the Latino/ Hispanic population is a key element of the religion in the United States and will continue to increase their leadership in the church

In short, Pope Benedict, did what all leaders should do: NOT OVER PROMISE and EXCEEDED ALL EXPECTATIONS. I think this is the model of JESUS CHRIST... Pope Benedict, like his predecessor, John Paul II, is a clear strategic leader in his own right and built on his own unique talents.

Pope Benedict has said on many occasions he was not John Paul II is not trying to emulate him, but be himself. This visit demonstrated he was truly his own man and demonstrated that he too, like his predecessor, is the RIGHT LEADER FOR THE RIGHT TIME.

Since I am an enthusiastic Roman Catholic, it just demonstrates to me that the Holy Spirit has again enabled the Church to have the right leader for this time of crisis. Benedict is what I describe in my book, (Risktaker, Caretaker, Surgeon, Undertaker- the four faces of strategic leadership), a missionary, risk taker.

I wish him well and congratulate him on his ability to stimulate and challenge the American Catholics and the church. I wsh him a long and productive life.

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

GEWatcher 12- "Welch violated on of the GE key success factors- Leave and get out of the way"

TheStrategist — Thu, 17 Apr 2008 22:36:00 +0000

It has been an amazing GE week...for people like me who are alumni and investors.

In my book, The Secret to GE's Success, I emphasize that among GE success factors, has been their ability to make their numbers and never over promise...

But on Friday, April 18, 2008... Jeff Immelt had to apologize because GE was unable to meet the income targets that he had just two weeks before said were "in the bag". Even worse he missed badly and had to blame more than one business unit for the miss. This caused a major sell off of the ENTIRE DOW since the most reliable company missed and everyone thought that things were bad and getting worse.

To make matters worse Jack Welch, the GE legend, went on CNBC (a GE owned cable network) and its competitor FOX NEWS... to say that Immelt's miss was irresponsible. This unprecedented action made things worse... and it was compounded when Jack..ate humble pie.. and said he was miss interpreted.

One of GE's great strengths in the past was that its CEO's retired and then disappeared. Unfortunately Jack has not disappeared and continues to promote himself. He has columns in Business Week, is a frequent guest on news programs, and even leads expensive, executive session.

This is what I wrote in my book:

"Leave and Get Out of the Way. This is another critical piece of GE’s leadership success. GE leaders have been required to leave when they retired and not permitted to hang around either as members of the board of directors or as advisers. This practice has enabled the new leader to take command without being second-guessed by his predecessor."

It is clear, that even if Jack Welch meant well, he appears to unable to leave GE behind and not continue to play the role of CEO. Unfortunately, he made the situation worse and has caused many to question Immelt's game plan and abilities. This is not positive.

I will continue to comment on the GE strategy and its ability to create and meet realistic expectations.

Welch said that Immelt can't surprise everyone again... I agree and Immelt and his team must be able to make the numbers with no excuses.

Bill Rothschild, author of The Secret to GE's Success and the most unique strategic thinking software and tutor available, StrategyLeader(tm). This software is available for a 10 day trial on www.strategyleader.com.

GE Surprised itself

TheStrategist — Tue, 15 Apr 2008 22:58:00 +0000

High Expectations and Surprising Yourself

During my 25 year GE tenure and my subsequent 23 years as a consultant to major corporations, I stressed two leadership tenets

1. Set minimum expectations and always meet or even slightly exceed them. This demonstrates that you are credible and can always be counted on.
2. Never surprise your “key stakeholders”, especially customers and investors and most of all YOURSELF. This shows that you have done your homework and are prepared for uncertainty.

Last Friday, Jeff Immelt and his GE team violated both of these leaderships tenets.

In my recent book: The Secret to GE’s Success, I ended my 127 year strategic history of the company with concerns about Immelt’s ability to “meet high expectations and avoid surprises”.
I cited four concerns:

"Ability to “Go Big”, which was the theme of the 2005 annual report. In this area, I applauded his “missionary zeal”, but didn’t believe that he could grow organically, at a 8% compounded rate, because of the size and complexity of the company ( adding $14 billion of revenues each year and even a higher rate of earnings can’t be achieved forever… it is simply the “law of BIG numbers”).

“Selling Solutions Globally” - highlighted the complexity of selling to developing nations, like China and India, who are not willing to “repatriate earnings and even nationalize companies” if they are too profitable and big.

“It Always Takes Longer Than You Think”, focused on how difficult it is to get large, infrastructure orders and maintain strong competitive positions.

“Maintaining a Strong and Deep Bench” focused on GE’s willingness to invest in people and even allocate a month of the CEO’s time to evaluating key people. When you have over 300,000 employees with a wide variety of cultures, religions and skills, this is almost impossible. GE has been and continues to be the prime source of executive and professional talent by headhunters and companies who have a “just in time” staffing philosophy.

Chief Executive Article. In June, 2007, I published an article in Chief Executive magazine, entitled: “Decision Time for Buffett and Immelt”, in which I contrasted the “GO BIG” simple approach of Warren Buffett with the complex approach GE’s Immelt. In this article, I stress three actions for Immelt to consider: Make the company less complex.
Continue to Prune the Portfolio.
Create “tracking stocks”- that would allow investors to invest in sectors of the company, while allowing GE to remain in control and one company.

Blogs on Amazon and Google. Since November, 2007, I have been writing a series of blogs, entitled GEWatchers, to keep my readers and clients up to date on what Immelt and his team are doing strategically and how their actions compare to what made GE successful in the past. These are indexed on this site, along with blogs on other major topics.

Bill Rothschild author of five key books on strategic leadership.

"Past is Uncertain As the Present & Future"!!!

TheStrategist — Wed, 09 Apr 2008 13:42:00 +0000

Today's business press is full of articles and quotes about what caused the current economic mess. Greenspan, who was on the job for 18 years (which is too long for anyone), is defending his actions and says that he did what was right given the information he had. Others disagree and blame him for the current situation. John Reed, former Citicorp CEO has stated that the merger of Citicorp and Travellers was a mistake, while Sandy Weil his successor says it was a good move.

Obviously each of these individuals have their own view of what happened, which may be right or wrong, but it is really perception that is the foundation of even history. I am an avid read of American history and am amazed when I read different biographies about revolutionary heroes, which is popular today. The story of Jefferson, Washington, Adams, Burr all supposedly deal with the same "facts" about what happened, but they all have a different bias.

Unfortunately in the United States today, we focus only on what is happening today and don't learn from the past. We keep making the same mistakes, but it gets worse, because the actions of leaders today impact the entire world and not just one country.

Further we have created "news and commentary" networks and publications, that are so interested in getting the "headline first" that they often ignore the facts. In addition, the major organizations and companies tend to employ "spin doctors" to only show their good side and ignore their failures and weaknesses.

We can only learn from the past if we recognize that there were good and poor decisions and actions. However, we need to examine whether what worked or failed in the past, will work or fail today. This should be an integral part of all educational institutions and company training courses.

I believe that all of companies and institutions should take the time to examine their history and share it with the world. This means being willing to give all sides and then using these insights to improve the organizations. But it must be remembered that "the past is as uncertain as the present and future" and that it is okay to have different perceptions and conclusions.

When I developed the GE strategic planning workshops and seminars at Crotonville in the 1970's, I hired consultants and professors to study GE's past strategies and identify what they did well and not so well. One of the consultants came back after a month study and told me "in GE the past was as uncertain as the present and the future". I laughed and asked what he meant. He said that he interviewed dozens of executives and they all had a different perception of GE's past. This was a lesson I never forgot.

In the original GE Strategic Planning workshops, a four-hour "strategic history of the company" module was included, that covered both GE's successes, failures and even questionable management actions, such as "the great electrical conspiracy" and participation in cartels.

These sessions were a major success and I ultimately continued to lead these sessions, both inside and outside of GE. It is the foundation of my new book" The Secret to GE's Success", which also used these insights, as well as what I have learned from own experience and study, to evaluate GE today and the current leadership and strategies.

History is a critical element is learning and in developing sound business and public strategies. I believe that all companies and institutions would take the time to learn from its own past successes and failures and not just study "other company or organizations case studies". The real learning takes place when it is relevant to the students, employees and managers and it is a critical part of creating sound, viable and successful strategies and execution plans.

In short, know your self first and then learn from others.

Bill Rothschild, author of "The Secret to GE's Success"-which enables readers to learn from the successes and failures of an American Icon Company and put these lessons to work for themselves.

MBA needs to be combined with on the job experience- it worked in the past, why not now?

TheStrategist — Tue, 08 Apr 2008 12:12:00 +0000

The April 7,2008 Financial Times' article " Masters and Misgivings" celebrated the 100th anniversary of the Harvard Business School and raised several critical issues about the worth and need for MBA degrees. It was amazing to learn that over 500,000 students will receive MBA degrees globally in 2008.

The MBA degree has become almost a must for those who want to become senior managements in many organizations. It is like the bachelors degree became a must for my generation. But the real issue, is it worth the time and effort and would organizations be better off taking undergraduate degree holders and train them.

GE's Talent was homegrown.
In my recent book: "The Secret to GE's Success", I stressed that one of the reasons that GE has been successful for over 127 years, is that it has developed its own talent and created a strong and deep bench. Training programs began with the founding of the company in the 1897 and has continued today. The first programs were technical programs, but the company recognized the need to train financial and business leaders and in the early 1900's added its renowned Business Training Course. The programs were further enhanced in the 1950's when all of business functions, (sales, marketing, human resources, manufacturing) added their own unique three year programs, that combined on the job training and after work educational programs.

It was at this time that the company opened its famous Crotonville executive management center. The Crotonville courses were taught by a team of both academics and GE staff to assure that the concepts were translated into practical applications and built on real problems and situations and not just case studies. The GE programs built a strong, deep bench of skilled and committed professionals and managers. However, there were no degrees given by the Crotonville or GE training programs so they were not a marketable as an MBA or Masters degree. This was intentional to avoid GE being raided by others.

Today's Graduates want a marketable degree.
Over the last few decades, many companies have stopped their own training and relied almost exclusive on hiring MBA graduates. This was result of the unwillingness of MBA graduates to want to do entry level work and spend more time in the classroom. The company's found this less expensive and so they have relied more and more on hiring the graduates, either directly from the Universities or from the consulting and accounting firms who are still the largest employers of MBA grads.

Need Combination of Academics and Real, Hands On Experience.
Unfortunately, this approach has left some gaps in the experience and skills development of the new recruits. Since most MBA grads start working in middle management or in consulting firms positions, they lack the practical hands-on experience that they can only gain by being in the trenches and learning from the bottom up.

I started my career on GE's Business Training Course and then moved to the Employee Relations Program. On these programs I had assignments as a factory foreman, in the "apprentice shop", in the bookkeeping organizations, in short, in the less desirable but important parts of the business. It is the old story, if you haven't lived it you really can't appreciate what it takes to do some of these routine, sometimes boring, manual jobs. No MBA program can provide this first hand experience and it shows when their graduates enter the workforce. Most lack the sensitivity to the workforce and many consider themselves anointed.

One of the criticisms about the current MBA programs is that they are focused on techniques and not the real applications. Case studies are still academic and not real and you really can't solve real problems unless you face them and must solve them under pressure and with time constraints.

Combinations work...
I believe that MBA programs do have value, but maybe they need to be combined with "on the job, entry level training programs. Maybe the solution is to have students serve an apprentice ship and then go to MBA programs, designed by their employers and paid by them. This is not a new concept. In the 1960's I developed and managed two key technical programs for the GE Missile and Space Division. One was an entry level program, called the Space Technology Engineering Program (STEP)and this enabled the participates to get a Masters at the University of Pennsylvania. The other was a more advanced program called the Systems Engineering Program and it allowed participants to get a doctorate at U of Penn. Both were highly successful in combining academics and practical experience.

Business is not a science... it is an art and this requires learning to apply common sense in a more efficient and organized way...I call it Organized Common Sense. This can only be done with a combination of real life and some academic training and no MBA program can do this on its own.

Bill Rothschild, author of "The Secret Tot GE's Success" and "How to Gain and Maintain the Competitive Advantage in business". Both are available on Amazon.

Bring Back Simplicity and Common Sense

TheStrategist — Sun, 06 Apr 2008 13:15:00 +0000

In the past few days I have read a number of articles which reinforces my belief that things have gotten so complex that many major organizations and even governments really don't know what is going on and how much risk they have undertaken.

The first article dealt with the mess on Wall Street. It is clear that the "GO BIG/ GO GLOBAL financial institutions, have become so complex that no one really knows what is going on and even the degree of risk they have taken.

The standard, but dull" "debit and credit" logic, got lost in the ingenious ways of booking income and profits, often,"off their balance sheets", so that their leaders really didn't know they were vulnerable. This is a reflection of our times and just bad leadership and management.

Warren Buffet has said it repeatedly, "if you don't understand it then don't invest in it". He christened this type of creative bookkeeping as "weapons of mass destruction" and I agree.

Another article described, how one of Rupert Murdock's affiliates, Harper Collins, is going to establish a new "imprint" that will refuse to allow the bookstores to return books and will not give authors large advances. The article pointed out that publishers print too many books because they get huge orders from the book chains, who then send them back (30-40% of the books are returned).

The book publishing and selling business has also followed the "GO BIG", "Be all things to all people if it sells" and has become complex, it is hard for an author to get published and a reader to find a good book to read. The mass merchant, "all things to all people" mentality has destroyed the small "mom and pop" bookstores where you could go and be waited on by "book lovers" and even find a book that wasn't just being hyped. Today you enter the superstore and it is not clear what it is... it has thousands of books, but often you can find what you want.

I continue to believe that one of the major problems with GE's ability to get its stock price where it should be ($50 a share versus $38) is that the company is so complex and has the obsession to "Go Big/ Go Global" that the investors would prefer to invest in simple companies like Warren Buffet's Berkshire Hathaway and not have to make a career out of finding out what is really going on, as well as the company's real assets and liabilities. This was one of my key points in my book: The Secret to GE's Success (page 249) and in many of my "GEWatcher blogs".

It is clear that even the Federal Reserve is confused since there are so many creative, often financially unsound, instruments. They still have no idea what Bear Sterns is really worth and what its real assets and liabilities are.

I think the world should adopt the Warren Buffet school of management: "keep it simple, invest in what you understand and avoid complexity". It has worked for him, so why would it work for others... maybe the MBA programs should have a "Buffet strategic thinking and investing course or even program."

Bill Rothschild, CEO Rothschild Strategies Unlimited, LLC... who specialize in logical and effective business strategies and implementation programs and consulting...author of Putting It All Together- a guide to strategic thinking and decision making. Recently updated and available on http://www.strategyleader.com/

GEWatcher 10- Losing the Nuclear Power Race?

TheStrategist — Fri, 04 Apr 2008 13:35:00 +0000

It is clear that one of the most significant ways that the United States and rest of the world will become more petroleum independent is by adding nuclear reactors.

Unfortunately, for GE it appears that Toshiba, who purchased the Westinghouse Nuclear business from British Nuclear Fuels in the fall of 2006 for $4.2 billion", appears to be in the leadership position.

The Wall Street Journal's April 4, 2008 edition reported: " that Toshiba will build four nuclear power plants in the US valued at a combined 1.4 trillion yen". "Since moving under Toshiba's umbrella, the U.S. company has received a total of a trillion yen in orders to build nuclear plants in China."

Nuclear is a key part of the United States energy policy and it is anticipated that there will be 30 new reactors planned over the next 20 years.

In my book: "The Secret to GE's Success" (pages 236- 237), I pointed out the GE lost the deal to purchase the Westinghouse PWR technology, which accounts for over 75% of the total global nuclear plants installed, because it refused to raise it bid and allowed Toshiba to win the prized Westinghouse nuclear business. I asserted that this was a mistake and that it was unclear whether the GE Hitachi combination would be successful in winning its fair share of the nuclear orders worldwide. So far, it appears that my prognosis was correct and that Toshiba is winning the order race.

In my book, I also point out that a successful nuclear strategy requires solving the nuclear waste problems and standardizing the type of reactors used in the United States. Both Japan and France have elected to use nuclear as a means of solving their energy problems, but they also have a complete system and standardized units. The United States does not.

Another surprise is that GE has not done better in China, where it has made significant investments in the Olympics, opening plants and offices and even moved one of its Research centers to Dalian. It appears to me that GE should have been able to get at least some of the nuclear orders in China.

Bill Rothschild, author of "The Secret to GE's Success" and CEO of Rothschild Strategies Unlimited, LLC (specialists in helping management teams improve their strategic thinking, decision making and execution.)

Learning from "March Madness"

TheStrategist — Sun, 30 Mar 2008 16:43:00 +0000

I enjoy the NCAA basketball March madness. It is fun to watch a real playoff where all of the conferences, large and small, have a chance to compete and see you is really the best. Every year there is always a "Cinderella" team or two, who upset the higher ranked, more publicized teams. But normally it is the highly seated teams that win it all.

Every year the same names appear at the top. This is not a matter of chance but a clear reflection of the college's commitment to being the best. These teams reflect the spectrum of giant state universities, to smaller but committed institutions.

There are several lessons that we can learn from these institutions.

They are committed to being winners and not just competing. I am always amazed when I hear coaches say they just want to be competitive and not that they want to win it all. The same is true in the business world. The leaders are focused on being the best and not just showing up.
The teams have long tenured coaches. Some of the coaches have been in their jobs for over twenty years and have moved up gradually, but consistently and when they are on the top they know how to stay there.
Many of the successful programs have had a strong succession plan. When the coach leaves or retires, they have assistants really willing and able to take their place. This is a strong contrast to the losing programs, who have no continuity and no succession planning.
The coaches build teams to fit their strategies and the really good ones, adapt to change. The great coaches are flexible, but highly demanding and if the players, regardless of their talent, don't follow the game plan, they either don't play or even are dismissed from the team.
The colleges commit the resources to attract the players and the fans. Their facilities are "second to none" and they are continually investing in them. They provide supporting staffs to recruit, train and provide academic support.
The winners have a loyal fan base, who show up even when things are not going well and support the coach and team players.

These are just a few of the positive lessons we can learn from March Madness. They are similar to what I learned from my study of General Electric...that I summarized in one word, LATIN, in my book: The Secret to GE's Success.

Leadership- the universities have committed, long tenured leaders who want to win and allocate what it takes to consistently do so. They have a strong succession plan in place.
Adaptability-good coaches, like leaders in all institutions, must adapt to change and not have one "cookie cutter" approach.
Talent- the winners learn how to recruit, motivate and retain the talent. This has become increasingly difficult since many of the recruits are just "passing through" on their way to the professional ranks.
Influence - they winners influence the policies of the NCAA to assure that the sport remains a sport and is not overwhelmed and influenced by the money that is spent. The college presidents work to retain "student/ athlete" and not hired guns. Of course this is a continuing challenge, as it is for any institution.
Networks- the winning programs create strong networks with alumni to provide funding, as well as to help to find jobs for their graduates.

The lessons are the same, whether it is a winning basketball team or a giant company.

Winners have long term strategies and invest in providing the resources to be successful over the long term.

Bill Rothschild, author- The Secret to GE's Success.

GEWatcher9 "Strategic Portfolio Management Continues"

TheStrategist — Sat, 29 Mar 2008 12:41:00 +0000

One of the major reasons, that Jack Welch was so successful was that he had the strategic instincts to know what he liked and made deals that focused on his priorities. Nothing and no one was sacred and Welch didn't let fondness for any one business stand in his way in making tough strategic decisions.

I believe that his ability to acquire RCA at a bargain price and then package RCA's strong consumer electronics brand and businesses with the weaker GE brand and make a strategic deal with Thomson of France, was one of this defining moments.

WIN/WIN. Welch got the Thompson Medical Systems business, which he loved, and got rid of the consumer electronics business, which he hated. While Thompson enhanced its world wide consumer electronics business. Both were happy!

Jeff Immelt and his team have taken similar steps in the Consumer and Commercial Financial arenas. Recognizing the vulnerability of the consumer financial markets and their declining margins, Immelt had done the following:

"GE yesterday agreed to sell its corporate charge card unit to American Express Co. for $1.1 billion. It also agreed to swap GE Money units in Germany and the U.K. to Spain's Banco Santander SA in exchange for Italian commercial lender Interbanca, which is valued at 1 billion euros ($1.58 billion)."
GE Money, as it was exiting WMC last year, agreed to buy part of UniCredit SpA's Bank BPH unit in Poland for 625 million euros ($893 million). In September, GE Money said it would invest $200 million in India by 2011. The sale of the corporate payment services unit to American Express should result in a gain of $200 million to $300 million, or 2 cents to 3 cents a share, and is included in GE's first- quarter forecast of 50 cents to 53 cents a share, Lehman Brothers analyst Robert Cornell, Goldman Sachs analyst Deane Dray and JP Morgan Analyst Stephen Tusa wrote in a notes yesterday and today.
It's not an exit from consumer finance, it's part of a really deliberate strategy that comes from a pretty clear agreement with Jeff,'' Cary, 48, said yesterday. GE Money competes with the commercial-finance division for capital to be invested in higher-return areas." (http://www.bloomberg.com/ March 28, 2008)

Sound Strategic Portfolio Management.

I applaud these moves, since I have never been a strong advocate of the GE Consumer business and have believed that GE's strengths were in the commercial and industrial financial arenas, where it can combine its technical, market and financial skills to gain a competitive advantage.

This is sound strategic thinking portfolio management and is consistent with GE's past successes. It clearly demonstrates that Immelt and his team are continuing to assess their portfolio and willing to make strategic, longer term decisions and is not wed to any one business, even if it has been successful in the past. The divestiture of the "once beloved GE Plastics" was another example of this willingness to move ahead and not protect "fond" memories.

As a GE investor and alumni, I hope that this type of selectivity and portfolio management will enable the company to increase its disappointing stock performance.

Bill Rothschild, CEO Rothschild Strategies Unlimited, LLC (specialists in helping clients enhance their strategic thinking and decision making skills) and author of global bestseller: The Secret to GE's Success".

What happened to Usury Laws?

TheStrategist — Thu, 27 Mar 2008 17:35:00 +0000

What ever happened to the usury laws?

It is interesting that there has been so much discussion about reducing interest rates to help solve the foreclosure problem. The Federal Reserve has reduced interest rates so low they are negatively impacting the older population who are on fixed income. It has significantly contributed to the decline and fall of the United States dollar and is increasing the prices of oil, heating oil and other commodities, which again impact the middle class, working people and those on fixed income.

But it is interesting there is NO DISCUSSION about the exorbitant "credit card fees and interest" charged by the credit card companies. These companies have encouraged credit card users to have several cards and only to pay the minimum payments. They charge what should be called "usury/ loan shark" interest rates at time in the low 20 percent level. If someone misses a payment they charge hefty fees.

The result is that many consumers are maxed out on their credit cards and pay a significant part of their discretionary income on just paying interest.

There should be an analysis of this situation and a move to force the credit card companies to reduce their interest rates to a reasonable level and stop behaving like loan sharks.

This may be an easier and more effective solve or at least reduce the current liquidity situation.

Bill Rothschild, author of The Secret to GE's Success...available on AMAZON and at your local book store...Visit www.strategyleader.com for more blogs and strategic leadership books and articles.

The TOILET PAPER INFLATIONARY INDEX...

TheStrategist — Sat, 22 Mar 2008 20:48:00 +0000

We all know that gasoline, heating oil, measuring liquids, meat and poultry are regulated by law, a gallon is a gallon, a pound is a pound and so on. So, Exxon Mobil, can't make you fell as though the price has not increased by just giving you less for the same price..The same is true of the butchers, the dairy companies, and many other regulated consumer markets.

But Proctor Gamble, one of the best managed, highly admired companies and their key consumer packaging companies, like Lever Brothers, Johnson and Johnson, Kellogg are able to create the image that they have not raised prices, by reducing the quantity in the package and keeping the price the same.

Judge for yourself---Just look at the size of the regular toilet paper, paper towel package and you will visually see inflation at work. The same is true of over the counter medicine, like aspirin, vitamins etc. or the amount of cereal you get in a package. In most cases the package is the same or even big, with the headline: family, giant size, but when you open up and look inside it is only three quarters to half full.

This is inflation and it is never discussed or used to show that prices are increasing. In fact, it also provides the wrong impression about sales, since consumers must buy more packages to just keep up with their needs it gives the impression that sales are increasing, when they or not. Further, it contributes to the "garbage/ land fill" problem since there are more paper or plastic packages being thrown away every day.

This is just another indication that the country has a major inflation problem that is not being addressed. It supports the issue I raised in an early blog about the UNITED STATES GOVERNMENT and INDUSTRY ORGANIZATIONS...having elected to GIVE US FEEL GOOD NUMBERS... so that we don't worry and they can work on other problems, likes solving the banking and falling dollar crises.

CREDIBILITY is the key any successful society and leaders. I strongly hope that everyone will start to be honest and describe reality, even if it is not popular...Leaders must be honest... this involves those who sell to consumers...when the price is going up... don't make the consumer feel it is not...keep the same package and charge more...or tell them that they are getting less for the same price.

Let's be truthful. We must stop deceiving the public, but most of all we must stop deceiving ourselves. This is the only way that we can focus and solve all of the major problems facing us.

Bill Rothschild, CEO Rothschild Strategies Unlimited, LLC and author of the global best seller:
"The Secret to GE's Success"...available on AMAZON... and "Putting It All Together- a guide to strategic thinking" that focuses on creating realistic and viable strategies and implementation plans. (available on http://www.strategyleader.com/.

GEWatcher-8 "Missionary Leadership"

TheStrategist — Sat, 22 Mar 2008 13:30:00 +0000

One of the most critical jobs of any leader is to make converts and keep the loyalty of the flock. They must believe deeply in their mission, have positive vision and take actions that are consistent with both. I have been very fortunate to have worked with several successful missionary leaders.

These individuals had several unique characteristics:

They were true believers and their faith was based on a combination of analysis, intuition and decisiveness.
They did what they said and when they were wrong they admitted their mistakes and tried to do better.
They were willing to bet their career and personal wealth to execute what they believed.
They were willing to share the wealth and were not greedy.

Though I have some disagreements with what GE's CEO, Jeff Immelt's "go big/ go global" strategy, I am impressed with his personal dedication and missionary zeal. It is clear that he believes that he has selected the best strategy, has the best team and will succeed.

He has personally sacrificed to do what he believes is right. This included being willing to give up a $7.1 million bonus because the stock didn't do what he expected and recently investing over $5 million in purchasing GE stock at a time, when most would not have recommended that he do so. He believes that "ecomagination" will work and that GE can grow its organic businesses. He truly believes that size and diversity are critical for GE's continued success.

Immelt is a TRUE MISSIONARY LEADER.

In the past few days, the investment community appears to have listened to his continuing assertion that GE stock should sell at a premium and the stock has moved strongly.

I still have many concerns about his strategy and vision and will continue to comment on them, as well as those areas I agree with, but I admire his conviction and wish him well.... I too believe GE is a good long term investment and is undervalued.

Bill Rothschild, author of "The Secret to GE's Success" and "Risktaker, Caretaker, Surgeon Undertaker- the four faces of strategic leadership"- both books describe the missionary concept in more detail and shows how leadership, strategy and talent must fit together. They can be purchased on AMAZON and http://www.strategyleader.com/.

Sensible Succession Planning

TheStrategist — Thu, 20 Mar 2008 13:55:00 +0000

It appears that Warren Buffett has "reluctantly discarded the notion of continuing to manage the portfolio after my death" and has embarked on finding three successor to fill his job. This is consistent with my June 2007 Chief Executive Magazine article entitled: "Decision Time for Immelt and Buffett." In this article, I contrasted the GE succession planning system with Buffet's lack of concern and lets wait until it is necessary approach.

"Trust Me vs. Obsessive" was the title of one of the paragraphs.

This is what I wrote: " General Electric has gained a reputation as an innovator in management systems and practices. it succession planning system is complex, time-consuming and expensive, In some ways, it has become an obsession. Reginald H. Jones, Jack Welch's predecessor as chairman and CEO, even reorganized the company to select his successor. Immelt spends a month a year performing the process."
"Buffett is the other extreme. He is 75 and "he is Berkshire Hathaway" he makes it clear that he has a successor in mind. He doesn't plan to leave and asserts "trust me" that everything is under control".

In a recent March 13, 2008 Business Week article, Rick Wartzman quoted one my favorite author's and management scholars...Peter Drucker: "we tend to pick people who remind us of ourselves when we were 20 years younger". First, this is pure delusion. Second, you end up with carbon copies and carbon copies are weak".

In my book: The Secret to GE's Success"; I emphasize that one of the reasons that GE is still alive and vibrant is that it has had only ten CEOs in its 127 year history and each one was different than his predecessor. Jones was a financially trained executive and different than his predecessor the risk taking Fred Borch; the aggressive Welch was very different from statesman Jones. And it is clear that Jeff Immelt is not a carbon copy of Welch.

There are those in GE, that will tell you that the reason that GE has been able to have internal candidates to succeed its leaders, is because of its elaborate manpower system. But it is important to point out that Borch succeed Cordiner and Jones Borch BEFORE the current elaborate system was in place and both were the right leaders for the right time. In fact, the only two CEO's that were selected with this type of system were Welch and Immelt.

I agree the current system may help but is not the only reason and in fact, it may inhibit the company's growth, which I believe happened under Reg Jones' tenure. (page 185 in my book: "The Secret to GE's Success")

I strongly believe that the reason GE has had this ability is because it has had a commitment to developing people from its beginning and it has been able to recruit, develop and motivate people because of training programs at all levels. I joined GE out of college and became a very committed GE employee because I knew that if I did my job, the company would provide opportunities for me to grow and develop. I also knew that I had to earn my strips and it was not just because of I had friends in high places.

Another key to GE's successful CEO and senior management successions is that it has recognized that different leaders and professional skills are required for different business situations and places on the life cycle. In my book: "Risktaker, Caretaker, Surgeon Undertaker- the four faces of strategic leadership", I describe the different types of leaders and teams required and explain how GE and a few other companies have recognized this fact and have been able to select different types of leaders and professionals to fit its market and competitive environments.

In conclusion, I am pleased to see that Warren Buffett now recognizes the need to select a successor but it is also important to emphasize that his successor will have a very difficult time succeeding a legend and will never have the acceptance as he has had. This is what I wrote: " But it is clear that his successor will not be placed on the same pedestal as Buffett, and if expectations are not met, the investors will not be as kind in their response".

I totally agree with Peter Drucker's quote in his 1999 book: "Management Challenges for the 21st Century" : "Succession has always been the ultimate test of any top management and the ultimate test of any institution"... In my book I put it this way: "Avoid Cookie Cutter succession planning".

Bill Rothschild, author of: "The Secret to GE's Success" and "Risktaker, Caretaker, Surgeon, Undertaker- the four faces of strategic leadership". Both available on Amazon and http://www.strategyleader.com/

GEWatcher 7- A Two Sided Sword- Taking Public Stands

TheStrategist — Tue, 18 Mar 2008 17:22:00 +0000

Throughout GE's history its CEO's have been willing to take public stands on major issues and influence public policy. Gerard Swope, the GE CEO from 1923 to 1939, was a major advisor to the Roosevelt administration and was the architect of the National Recovery Act and Social Security. Ralph Cordiner was a strong proponent of legislation that was viewed as anti- Big Government and anti- Big Labor. Cordiner hired Ronald Reagan to espouse these views.

Jeff Immelt in 2004 conceived the idea of building on the need to "green" the world and at the same time sell GE products. He called this "ecomagination" and has created specific measures on helping the company improve its own energy savings, but also to demonstrate how it is has impacted the company revenue and earnings growth.

All of the GE's CEO have tried to blend their efforts to INFLUENCE public policy and support the company's ability to compete and be profitable. Swope's NRA program would have created cartels and permitted leading company's in each industry sector to increase their leadership position. The NRA only lasted three years and was declared unconstitutional. Cordiner recognized that if BIG government and BIG labor controlled the economy GE would not be able to compete. Immelt recognizes that GE will significantly benefit by helping the country and the world become more ecologically friendly.

Unfortunately, when a major company and its CEO takes a stand there will always be advocates of the opposite point of view that will challenge you, especially if you represent a major company.
Jeff Immelt experienced this reality at the Eco:nomics conference at which he was invited to speak. He said: " I came because I was invited"..and "I don't need to be lectured by anyone in this room on how to compete". "Immelt's outburst came toward the end of a Q &A session that saw him repeatedly assailed by ideological conservatives angry over his involvement in the US Climate Action Partnership, a coalition of large businesses lobbying for a carbon cap and trade system, and his leadership role in pushing the business world to embrace clean energy and sustainability."

Immelt obviously was angry and it is apparent that he didn't expect to be criticized. Unfortunately, he must recognize that he must always be ready to defend his position both from a external, value to the world and customers, and internally, making money. Jeff seems to been unprepared for being criticized and reacted.

Jeff made another good point in his talk: " There is no completely free markets. The government has its hand in every industry: housing has mortgage tax credits' GE got into commercial aviation because of DOD helped fund it; etc.... " It is true that GE entered and has been supported by government money. It developed the jet engine during WWII because the US needed a jet engine... its nuclear technology was a by-product of the US nuclear program... and many other businesses were supported by the US government. This is only fair since all of its foreign competitors have been financed and supported by their governments. Nothing is pure...

Overall, I applaud Immelt's focus on helping solve the environmental and pollution problems since it has the abilities to do so...but it must always be remembered that his primary mission it to enhance the wealth and well being of his key stakeholders...employees, investors etc. He must never be SURPRISED or upset when others challenge his strategies and mission. This is just part of the game!

Bill Rothschild...author of "The Secret to GE's Success" the only book that explains the company's successes and failures and the lessons we can all learn from this remarkable company.

Teaching how to make strategic and implementation decisions with limited information.

TheStrategist — Sun, 16 Mar 2008 17:54:00 +0000

The February 4, 2008 Business Week included this story "The case against Case Studies" about how Glenn Hubbard, Dean of Columbia business school was not happy with the traditional case study and was experimenting with what he calls "decision brief" which requires making decisions with less information.

In the late 1960's and early 1970's, when I ran the GE Crotonville's Manager Development Course, a four weeks program and all of the strategic planning programs, I recognized that case studies were inadequate to teach strategic thinking and decision making and so I created an "in-basket/ computer competitive simulation case" that forced teams of students to work to together with limited information to create viable strategies and test their decisions via a simulation. In fact, I used this approach with then Columbia Business Dean, Boris (Bob) Yavitz, at the two week strategic planning program at the University's Arden House executive center in the early 1970s.

This approach created competitive business teams..consisting of a General manager and all of the key functional managers (engineering, marketing, finance, human resources and manufacturing) and split the data up among the team. The GM received information typical of the what a GM would get, the engineering manager received his type of information and so on. This forced the team members to share information, integrate and communicate among each other and use the "strategic thinking tools" we were teaching. In addition, the team could purchase additional information for a fee, if they wanted to...some of which was useful and other not so useful. Just like the real world many of the expensive studies are not very useful, while others are very helpful.

During the stimulation, the teams had to make decisions and were given quarterly results, which included some additional information. At the end of program the teams had to present their strategies and results to a simulated board of directors and were evaluated based on the quality of the strategy, their presentation and the simulated financial results.

The program was very successful in all regards. The students learned the art and science of strategic thinking, they learned how to integrate and communicate among each other, as well as to make assumptions, decisions and see if the financial results. If the team didn't manage their cash well, they could go bankrupt. Many teams, led by senior executives, went bankrupt and were not able to make decisions with limited information.

I don't know if this type of simulation and "in-basket" exercise is still being used at Crotonville, but it was highly effective at the time. Maybe, Dean Hubbard might find it useful to study its effectiveness in the Arden House programs and see if would complement his latest new case study approach.

Bill Rothschild, author of Putting It All Together- a guide to strategic thinking, which summarizes the art and science of the concepts and approaches used at GE and many other successful companies.. Learn more by visiting: www.strategyleader.com.

GEWatcher 6- Continuing FRUSTRATION

TheStrategist — Thu, 13 Mar 2008 22:35:00 +0000

At the end of my latest book: "The Secret to GE's Success", I provided my perspectives and insights about Immelt and his ability to meet the "high expectations" that he has set for the company. I promised my readers that I would continue to objectively evaluate Immelt and his teams performance. I just finished reading the extensive, Sales oriented 9 page, "letter to investors" in the 2007 annual report and would like to use this letter to see what has changed and how it compares with the key points I make in my book.

"Impressive Results but Poor Stock Performance" was my closing comments in the book. This continues to be a great frustration for Immelt and his team. Jeff strongly believes that GE is still a BEST BUY and is UNAPPRECIATED... it clear that he is very frustrated. In fact, in recent days it was reported that he lost over $7 million bonus because the stock didn't perform and he also reported that in the past week he invested over $5 million of his own money in GE stock. So, you must applaud his commitment and belief that the stock will ultimately achieve its value.

Again the numbers are impressive..revenues were up 17%, earnings 22%. The company asserts that it is the "third straight year of organic revenue growth of 2 to 3 times GDP growth. This is an interesting change in goals. When I was researching and writing my book, the GE Annual Report's Cover headline was "GE BIG" and asserted the company would grow organically 8% per year. I challenged this assertion and said the company couldn't do it. But based on this report organic growth was 9%, so it would appear I was wrong.

But now the goal is not 8% but a multiple of GDP... I find this interesting since GE now generates "more than half the revenues outside the United States, so why use GDP as a measure?
Of course my greatest concern is the validity of the numbers. In my GEWatcher Blog- 3 I discussed a WSJ article which stated that:
" In each of the past three quarters, GE has corrected financial statements because it improperly booked income at its rail, aircraft engines, health-care, energy and water units". It is important to note that these are GE's major growth businesses and continually lauded by Immelt and his executive team as the great hopes for the future. "In the fourth quarter of 2003, for example, GE locomotive unit overstated revenues by 22.6% and profit by 16.6% according to SEC filing". (Immelt says that this has been corrected in the latest annual report.)
But even if the numbers are okay... I am still concerned about the entire idea that GO BIG is the right strategic goal. "Growth or its own sake" is not a viable or intelligent strategic goal. By the way, the new GE theme is INVEST and DELIVER and not GO BIG...I like this better, but the real issue is where and how much to invest and the ability to adapt to change.

So, lets review where GE is placing its bets...

Environmental solutions, ties with Jeff Immelt's personal theme of "ecomagination", is high on the list...and it makes sense...the company has acquired the wind turbine, solar, waste management and several others to provide a "full market basket" of energy businesses. Note that a great deal of this growth is from ACQUIRED companies and not organic growth.

Unfortunately GE missed the opportunity to acquire Westinghouse Nuclear and had to settle for a joint venture with Hitachi in the nuclear business. I think Nuclear is the biggest opportunity, but am not convinced that GE is in the strongest position to be the leader...but of course, this was always GE's problem since they selected the "second customer preferred" technology, BWR rather than the preferred one, PWR. Over the past two decades the technologies have changed, but it is interesting to note that Westinghouse and European nuclear companies have won recent Chinese contracts.

Emerging Markets..."China and India are the biggest emerging markets and are essential to GE. Immelt forecasts revenues in the region to move from $5 billion in 2006 to $13 billion in 2010. "Here we win by being a LOCAL PLAYER". In short, GE is going to continue to build plants, sales offices and even transfer R&D to these countries. I have a major concern about this strategy and will continue to follow it in future blogs.

Digital Connections... one of the major issues for Immelt is UNBC.. he states: "UNBC is a great example of a business that becomes more valuable as its market evolves". "We have refocused UNBC in global markets around fast growing cable, film and digital businesses".. In short, Immelt continues to be committed to UNBC. I also have concerns about this issue. UNBC has taken a "liberal stand on most major issues", which can have a negative impact on the GE brand, and its network ratings are poor and it is still #4. GE has placed a significant bet on the Chinese Olympics and this may be either a big win or a big loss.

It is true that CNBC is the leader, but Fox is likely to take share as they roll out their Business Network and use the extensive resources and brand strengths of the Wall Street Journal. However, only time will tell and since I have no real inside information I will just monitor and comment as time goes on.

In conclusion, it is clear that Immelt and his team are dedicated, committed to GE and its investors. They have a game plan and believe in it. The leadership continues to be deep and strong and as they point out in the annual report "we develop great leaders". But as I pointed out in my book, one of GE's "success factors" has been its ADAPTABILITY... the leaders willingness to change if and when necessary and admit they were wrong and move on. I am not sure that Immelt and his team are adaptable.

Complexity is still my greatest concern. The revenues are now $173 billion... it has exited businesses, like Plastics, Reinsurance etc, with revenues of over $50 billion and acquired businesses with revenues in the $80 billion since 2002. It is moving aggressively globally and betting on countries with major problems.. these types of change would be difficult for a mutual fund to manage, but it must be unbelievably difficult to integrate and operate businesses in this type of dynamically changing portfolio. I know GE says everything is under control, because they are skilled, but it is still a major challenge and concern.

Immelt closes his letter saying that GE's success is based not "on the sum of its parts" but on its totality and points out that it is ranked high on the Barron's and Fortune lists and fourth on innovation. But to truly understand GE and its abilities to succeed over the past 127 years, you must clearly understand the reasons... these reasons are clearly articulated in my book and I use the word: LATIN... It is because of the company's Leadership, Adaptability, Talent, Influencing and Networks that it has been successful. I will continue to evaluate each of these key factors in future blogs to determine if they are continuing, improving or declining. There is no question the company has a deep, talented bench...but it is also true that they are the target of all of the head hunters and every day I read about a GE executive moving to another company.

PLEASE ADD YOUR INSIGHTS AND PERSPECTIVES..

Bill Rothschild, author of "The Secret to GE's Success" and "Risktaker, Caretaker, Surgeon, Undertaker- the four faces of strategic leadership". Both available on Amazon and on http://www.strategyleader.com/

GEWatcher 5- GE's success in dealing with dissent

TheStrategist — Tue, 11 Mar 2008 00:14:00 +0000

The Business Week, Interactive Case Study of March 4, 2008 describes the dissent that Immelt faced when he introduced the concept of "ecomagination" in 2004. The article portrays Immelt's surprise when only six of his 35 senior officers approved of the concept and approach. This is not a new situation for GE leaders.

Ralph Cordiner had to move the GE headquarters out of Schenectady in 1953 because there was so much negative reactions to his introduction of decentralization. GE had been a highly centralized organization and dominated by the electric utility businesses in Schenectady. Cordiner's new organization and leadership system was a threat to their power and they resisted. But Cordiner's approach proved to be the right change and GE prospered from it.

Fred Borch and Reg Jones also had a similar near revolution when they introduced Strategy Planning. This new system was not welcomed by the senior management. In fact, Borch insisted, like Cordiner did before him that everyone go to Crotonville to learn about the new system. I led all of these sessions and personally saw the resistance and resentment. Again Borch and Jones was right and the company benefited.

Over the 126 years there were many situations where the CEO and his senior officers had to take stands and introduce changes that were not welcome and resisted. And in each case the company was better because of these changes and, in fact, if they didn't happen, GE may be like its traditional competitor, Westinghouse and just a memory.

I am not sure that "ecomagination" is in the same category of the previous major strategic and organizational changes, but I am happy that Immelt has had the conviction and courage to make it successful. He has displayed the same strategic skills of his highly successful predecessors.

If you want to learn more about the unique GE leadership and how they changed the company at the right time, read my book: "The Secret to GE's Success" and continue to read these blogs.

Bill Rothschild, author of "The Secret to GE's Success"

Who says the value of the dollar doesn't matter?

TheStrategist — Fri, 29 Feb 2008 00:07:00 +0000

The Bush administration and the Federal Reserve act as though the declining dollar is not a real issue. They keep reducing interest rates which has caused the dollar to reach all time lows.
Unfortunately, the declining dollar has had and continues to have a major impact on all Americans.

First of all it has contributed to the unprecedented rise of oil prices ($100 p;us) since the oil producing nations sell their output in dollars. So as the dollar declines OPEC raises prices, even though demand has declined and supply is about normal. This has caused a significant rise in the prices of everything and is causing high inflation.

Second, it has enabled countries, like Dubai and China, to purchase American companies and assets are bargain prices. In fact, you might say that they own the United States since they have enormous amounts of dollars and have a very favorable balance of trade.

Third, tourists from Europe, Mid East and Far East are able to come to the United States on special shopping tours to purchase products are bargain levels, while US citizens who wish to travel to these parts of the world can't afford it.

Of course the retort is that the United States exports increase. The porblem is that we really don't make much in the country to benefit from this growth and to create jobs and enhance the wealth of Americans.

It appears that the new Federal Reserve Chairman is doing everything to save those who created the sub-prime mess and are allowing the country's assets to decline and inflation to increase aggressively. Why are they ignoring this issue and making decisions, like continuing to reduce interest rates, which makes the value of the dollar lower and hurts all of those on fixed incomes?

We need sound long term economic strategies and policies and not just politically expedient short term fixes.

Bill Rothschild, CEO Rothschild Strategies Unlimited LLC, author of "The Secret to GE's Success".

GEWatcher Update (4) GE Money Another falling star!!

TheStrategist — Fri, 22 Feb 2008 18:57:00 +0000

As I emphasized, in my latest book, The Secret to GE's Success, GE is a strategic portfolio managed company. It is willing to take risks and is committed to GOING BIG AND GLOBAL. Unfortunately, this means that some parts of its risk profile succeeds and others fail.

One of GE's growth stars has been GE Consumer Finance, now called GE Money. The credit card segment has been a major part of its growth. Since credit card interest rates have been unbelievable and some say "unethical". GE and other credit card companies have prospered, but recently several things have grown wrong. Less than two years ago, GE moved aggressively into Japan offering credit cards and loans, at high interest rates. However, this changed quickly when the Japanese instituted limits on the interest rates, the delinquency rates increased and GE Money lost heavily on sub-prime. The results have included: GE announced it will sell its Japanese unit and take an after tax loss of $906 million, it is the process of trying to find a buyer for its credit card business, GE liquidated $3.7 billion of its sub-prime mortgages at a loss and the units CEO and one of the founders of the unit, retired early.

The art and science of strategic thinking requires that leaders and their organizations anticipate change and take these potential changes into their strategic investments and resource allocations. Nothing lasts forever, especially if it is very positive. Obviously, these skills have declined at GE and the company has has number of negative surprises.

Bill Rothschild, author of the first book on strategic thinking and decision making, Putting It All Together- a guide to strategic thinking and decision making. This book was updated in 2002 and is used in many executive and MBA programs and is available on http://www.strategyleader.com/. This book describes the type of thinking required to avoid surprises and potential profit declines.

FEEL GOOD NUMBERS- must stop now....

TheStrategist — Thu, 21 Feb 2008 00:05:00 +0000

Whether we like to admit it or not, we love positive numbers. When the Dow is moving up, we feel good; when the economists report that GNP is growing faster than expected, we feel good; when we are told that inflation is low, we feel good.

The major problem I believe they are manipulated to make us feel good and when the numbers turn negative, our government and others either just change the way they are calculated or explain why they are better than they appear.

For instance:
LOW INFLATION - The CNBC "Goldlock people and "expert(?)" economists" tell us there is LOW INFLATION... but we all know that we are paying more DAILY for gasoline, heating oil, bread, milk and everything else we use but, of course, these are NOT counted in the "feel good inflation calculations".

HIGH EMPLOYMENT.. The experts tell us that only 5% of the population is unemployed and this very good. In fact, the experts (?) tell us this is "full employment". But we all know professional and skilled people that are unemployed and may not be counted because they have dropped out of the search for jobs or not receiving unemployment insurance. Of course there are jobs, if you want to work part time in WalMart, but there are few professional and managerial positions because these jobs have been "outsourced and exported" to India and China.

DECLINING DOLLAR ..Our dollar is so weak that foreigners come to the UNITED STATES for shopping tours to get bargains, but Americans can't afford to go to Europe or Japan. But the "experts(?) tell us "not to worry" since a weak dollar helps the US export to other countries, but what they don't explain is that we really don't make many of the products that would benefit from a weak dollar, since they are imported from other low labor cost countries and our American factories have been harvested or just closed down.

The GREAT AMERICAN LIQUIDATION SALE. When the Dubai government wants to purchase of shipyards or other strategic assets, and the Chinese government are purchasing our financial institutions and technology companies at bargin prices, because our dollar is weak and these countries have huge, growing trade surpluses and have enormous dollar reserves; the experts (?) tell us this is great since it shows we are a global society.

THE REAL, not FEEL GOOD, NUMBERS... It is interesting that everyone wants TRANSPARENCY in companies and governments, but no one wants to admit that the UNITED STATES is a harvesting country with serious problems that we act like it is "Alice In Wonderland"..

WE NEED THE REAL NUMBERS and not the "feel good numbers" that are being used by our government, the media and those who are taking advantage of our decline. AMERICAN's can face reality, but they need to know what reality really is.. and the current trend to make the numbers "feel good" must stop. I hope that whoever becomes President... will have the courage to tell us the truth and not continue this FEEL GOOD fiasco...

Bill Rothschild, author of PUTTING IT ALL TOGETHER- A GUIDE TO STRATEGIC THINKING AND DECISION MAKING, that provides a proven process to evalutate reality and make sound decisions based on the real facts, not "feel good facts.

Visit: http://www.strategyleader.com/ to order this and other strategic leadership books, software, tutorials and see a complete listing of all Bill's blogs, articles and commentaries.

GEWatchers (3) Results of "eliminating the bureaucracy"...

TheStrategist — Tue, 19 Feb 2008 13:58:00 +0000

In my book The Secret to GE's Success, I describe that one of GE's historical great strengths was its strong financial and auditing organizations. These organizations enabled the company to spot problems before they became public and to avoid embarassing surprises. I also pointed out that one of Jack Welch's first actions when he became CEO was to was to attack what he called the "bureaucracy", which included finance and the auditing staffs. He reduced the auditing staff.

During the Welch era, the lack of a strong auditing staff resulted in the Kidder fiasco, in which one of the traders was able to loss over $350 million without the company's knowledge. The result was the GE had to divest Kidder.

However, it appears the lack of a strong auditing staff is still a major problem. The February 19, 2008 Wall Street Journal reported that GE has been under investigation for improperly reporting revenues since 2002. These are few of the highlights as reported in the WSJ:

" In each of the past three quarters, GE has corrected financial statements because it improperly booked income at its rail, aircraft engines, health-care, enegery and water units". It is important to note that these are GE's major growth businesses and continually lauded by Immelt and his executive team as the great hopes for the future.
"In the fourth quarter of 2003, for example, GE locomotive unit overstated revenues by 22.6% and profit by 16.6% according to SEC filing".
To show the severity of this situation, the General Electric Company has hired Wilmer-Hale LLC's William McLucas, a former head of SEC's enforcement division to investigate the situation and, simultaneously, the GE Board's auditing committee has hired its own investigative group, Cravath, Swaine and Moore, LLP. In short, there are "investigators investating investigators and everyone is trying to protect themselves."

GE has fired a number of people involved and the company will make changes including: "adding staff incorporate accounting to review revenue matters and bolstering the internal-audit department". Obvious, not creative solutions!

As a GE stockholder and fan, I have three major concerns.

First, is the fact this has happened and that GE must have reduced the strength and power of its internal auditing staff so that it is didn't know what is going on and was surprised. Surprise is one the major fatal flaws of any organization.
Second, I am even more concerned that GE's increasing complexity, which I have discussed in my book and in several GE related articles and blogs, will make it worse. As GE moves globally, transfers facilities overseas, it will become even more difficult to know what is happening. Further, each country has different accounting and financial regulations and the employees in these countries may not be aware of the regulations and so it is likely that more surprises will occur. Like or not, GE is still a US corporation and subject to US laws.
Third, everyone wants to look good and it is not uncommon to find that people will book sales before they happen or hide the real numbers. This is just human nature and will require strong financial and strategy review organizations.

I entitled the last section of my book about the Immelt era, "Back to the Future" since I believe it is critical that GE build on its past strengths as it moves into the future. I think that GE should take a close look at some of the reasons why it has been successful in the past and they will find that the financial, auditing and strategic thinking disciplines of the past were key to this success and must not be neglected.

GE and all CEOs must not classify those who do their job and bring up unpleasant issues as bureaucrats but recognize they need people who are willing to identify potential problems, help to avoid them and being surprised.

Bill Rothschild, author: "The Secret to GE's Success" and "Putting It All Together-a guide to strategic thinking and decision making". Both books emphasize the need to "avoid surprises, especially surprising yourself". They are available on http://www.strategyleader.com/.

GE Watcher (2) Making GE even more complex.

TheStrategist — Mon, 18 Feb 2008 23:42:00 +0000

In my most recent book: The Secret to GE's Success" and my article comparing Buffet and Immelt in Chief Executive magazine, I emphasized that one of GE's major strategic challenges was dealing with complexity. I truly believe that one of the reasons that GE's stock has not done well in the past seven years is that the investors don't understand GE because of this complexity and would prefer to place their bets in areas which are more understandable. My recommendation is to simplify the company, like Buffet has done.

However, it appears that the GE leaders have decided to make it even more complex. They recently announced that the GE Money's Consumer business will move its headquarters from Stamford, Connecticut USA to London. The GE Healthcare business is already located outside of London as a result of an acquisition and the promise to a senior officer that the headquarters would be in the UK.

This move adds to the complexity of managing the business, retaining key people, dealing with different government regulations, tax laws and cultures, making decisions and security problems. GE has already made its research and development complicated by having R&D facilities in China, India, Europe and the United States, which have enormous communications, cultural and SECURITY issues.

It is clear that my perceptions and those of the Immelt team are far apart and that GE has decided to become a WORLD, not a US company.... I believe this is a mistake for the long term.

Your comments and insights are welcome...

Bill Rothschild, author of "The Secret to GE's Success", which describes GE's successes and failures.. and why it has been able to prosper for 126 years.

Immigration Problems Need More Than Good Management.

TheStrategist — Sat, 16 Feb 2008 19:02:00 +0000

I recently read the Jack and Suzy Welch weekly Business Week column "Immigration: A Reality Check" which urges the reader to face reality and view the immigration problem from a management perspective. There are some good insights in their comments, but what they fail to include is that the reality is that there is not one immigration problem, but several, each with its own causes and each must be solved individually.

Legal Versus ILLEGAL Immigrants. The Welchs' quote a Tuft's immigration history professor, who says that all immigrants have tried to stop the next wave of immigrants. This is probably true but we are not dealing with "legal immigrantes" we are dealing with "illegal immigrants". My own and my wife's ancestors all came from foreign countries, but they came here legally and this makes them different from the major issue facing us to day.

At Least Four Different Segments and Problems. To solve the problem, we need to segment the problem into the different types of illegal aliens and the reasons they have violated our immigration laws. These are few of the key types:

Visa violators- I have read that 45% of the illegals are here because they came on legal Visas and never went back home. Clearly, this means that we need to know who comes to this country and who doesn't leave? One expert pointed out that if Fedex and UPS can track millions of documents and packages daily and know where they are at all time, why is it so complicated to know who and where those who are violating US Visa rules are? All passports now have barcodes and so we should use them to monitor who enters the country and when they leave. If they don't leave we can track them down and deport them.
Seasonal, "slave- like laborers"- Second, there are millions of people who are coming here to work in "poor paying, seasonal jobs", who are being hired by "greedy" individuals who are only interested in taking advantage of their poverty and inability to earn a living in Mexico. Several decades ago, there were immigrant children working in sweat shops in most of our urban areas. Their employees claimed that this was the only way to compete. However, laws were passed and implemented to stop this practice and the employers were put in jail if they violated the law. What is so different about the current situation where greedy people are exploiting the current poor illegal workers? These dishonest business people argue that if they didn't have these "slave" labors they would go out of business. I don't think this is true since many employers in these industries follow the law and are still able to make money and stay in business, even when they have to compete against those who violate the law and take advantage of these poor people. It is true we might have to pay a little more for our fruits or vegetables or to have services provided, but I think most of us would be happy to do so or be willing to do without.
Foreign Students- Third, there are thousands of foreign students, who "the Welchs' describe as entrepeneurs, in our colleges and universities who don't leave our country when they graduate and in fact, many don't even show up for classes. Again, we have laws that must be inforced and it is the responsibility of the Universities and trade schools, to know who is in class, who is in violation of the law and report them.

Mexico has failed- The fourth and maybe, most important reason is that Mexico lacks the leadership to use its natural resources and strategic position with the United States to create good paying jobs. Over the past several decades, many US companies moved their manufacturing to Mexico to take advantage of its lower labor costs and proximity to the United States. Obviously, the Mexican government has not been able to capitalize on these gifts and oppotunities to create a stable society. It is pathetic that Mexican citizens will risk their lives, leave their families, even pay to be "imported into the United States" and to take poor paying, difficult jobs in order to escape from their homeland. This is a complex problem, but if Mexico can't take care of it own people, the broken borders will continue and even get worse.

In short, these are just four entirely different situations, each has a different cause and must be solved individually. If we enforced our current laws we would at least stop the growth of the illegal immigrants.

Another assertion in the Welchs' column is that it is impossible to deport all of the 12 million plus aliens already here. This is true. But it doesn't mean that all of the current illegals are the same. Again we need to segment them and deal with each separately. This is just common sense and sound strategic thinking. For example:

Hard working individuals, who want to be citizens and pay taxes. Some of those here illegally are hard working, good people who want to pay taxes and be given a chance to become citizens. However, we must be fair to those who become citizens by following the rules and it must be highly selective, since not everyone fits into this category.

Opportunists- Others are just here opportunistically and have no interest in becoming citizens or paying taxes. They take jobs, don't pay taxes, send the money home and plan to leave. They have no desire to be citizens and pay taxes. Often, many in this category go on welfare and take away the funds that should be allocated to citizens who deserve them. These should be deported.

Criminals and Terrorists- A third group are criminals and even potential terrorists. These should be dealt with like any other criminals and put in jail and then deported. If their native countries will not expatriate them, then they stay in jail. This will communicate the message to these unwanted individuals and will deter more to follow.

In conclusion: This is not just another management problem and the reality is that we are dealing with a very complex number of different problems. However, these problems can't be ignored or just passed over as "reality". They impact our homeland security, economy, legal system and ability to retain our national identity. We need real strategic leaders, with the courage to stand up and be counted and not just try and satisfy the few greedy business people or to get the votes of those who favor ignoring it. Timing is NOW...it will require consisten actions and not just slogan and words.

Bill Rothschild, author of "Risktaker, caretaker, surgeon, undertakers- the four faces of strategic leadership" and The Secret to GE's Success, both available on http://www.strategyleader.com/ and Amazon sites.