William J. Holstein

Interesting Article on General Electric--But Where Is The Role of Jack Welch?
APRIL 19--Diane Brady has written an interesting article about General Electric in the latest issue of Bloomberg Business Week:

http://www.businessweek.com/magazine/content/10_17/b4175026765571.htm?campaign_id=magazine_related

Essentially, CEO Jeff Immelt has spent nearly a decade trying to revive GE's former glories. But earnings from continuing operations sank 38 percent in 2009 and are expected to stay flat this year. The company is spending $1 billion a year on training, much of it at Crotonville, NY. But it does not seem to be working. What gives?

I think history will judge that Jack Welch was not nearly the hero he has been cracked up to be, and that Immelt has been stuck with a problem he doesn't really understand. Under Welch, GE stressed efficiency through its Six Sigma doctrine, it placed a huge emphasis on financial gamesmanship at GE Capital and it concentrated on mergers and acquisitions, which have the effect of pumping up earnings once redundancies are wrung out. Welch did not invest in research and development, and innovation. He cut costs and was highly efficient, but that was an unbalanced way to lead a company. He should have maintained and enhanced GE's R&D and its commitment to manufacturing.

If GE is ever to recover, it needs a major rebalancing of its creative energies. It can't just cut costs, play funny money games and make deals. It needs a new culture, which means people who do not embrace the Welchian ways. In some ways, Immelt has been too much of a gentleman and too deferential to the House That Jack Built. Assuming his board does not fire him, Immelt still has time to radically remake the culture of GE and redirect its priorities. That's what he has to do.