GE – Pre ImmeltJack Welch as CEOYearly Shareholder Return (last 20-year period): 23 %History of double digit revenue growth in 90’sA fine tuned productivity companyA high discipline in working efficiently to maintain bottom-lineTop line growth largely through geographical expansion and acquisition.Low organic growth rate of 4% Only Company listed in Dow Jones Industrial Index that was included in the original index in 1896
Immelt – A Turbulent Year to BeginGE : $110 billion Company• Stock price now Stuck around $ 35• 20 times earnings, half of the P/E from Welch era• Four days later, the 9/11 attacks occurred and the world was thrown into chaos.• At the end of first week, stock dropped 20%• Bankruptcy of Enron and market manipulation accusation of Tyco a “Mini GE”• By the end of 2002, Stock crashed further to $ 24Concern: Large and complex operations are too difficult to understand
ButImmelt was determined for a Marathon He stuck to a Plan Determined to Pursue his Growth Strategy Agenda
Immelt – Thought Process1. Organizations will be driven by innovation2. Premium would be placed only on those companiesthat could generate their own growth3. A new and equally disciplined focus on organicgrowth To leverage GE’s traditional strength of process orientation and ability to develop, test and deploy management ideas in inventing repeatable growth process for reliably drawing new revenue streams from existing businesses Goal– Sustained organic growth of 2-3 times the growth of global GDP (~ 8%)
5 Key Elements of Growth Immelt created a growth strategy made up of 5 key elements:1. Technical Leadership – A key driver of future growth2. Services Acceleration – GE already had a large amount of product out in theindustry that would eventually need servicing as the products aged and wore down.3. Commercial Excellence – Shifting focus from GE’s internal processes to externalcustomer requirements.4. Globalization – Main focus on China and India.5. Growth Platforms – Build new businesses based on high-growth areas that willprovide “unstoppable” opportunities.
Immelt’s InitiativesEstablish much more openness and trustOrganic Growth• Rebalance and renew business portfolio• New platforms and new processes• Growth in developing countries• Innovation• Operational efficiencies• Customer focus: At the Customer, For the Customer (ACFC)HR initiativesRe- organization
Immelt’s Initiative – To increase Public Understanding and AwarenessTransparent Operations• Separate Balance Sheets and explicit growth strategy• Frequent and detailed communications with investors• Kept on communicating that GE was not an overgrown, slow to move and slow to react conglomerateCommitment to Corporate Social Responsibility • To be a great company today, you also have to be a good company. The reason people come to work for GE is that they also want to work for a company that makes a difference, a company that’s doing great things in the world. • . . . It’s up to us to use our platform to be a good citizen. Because not only is it a nice thing to do, it’s a business imperative.
Immelt’s Initiative – Driving for GrowthTo maintain a portfolio of strong businesses in high technology areas where GE couldhave a competitive edge and others could not follow easily Rebalance and renew the portfolio to drive growth from a revitalized base • Acquired Telemundo and Bravo networks to capture fast growing Hispanic advertising market • Acquired Enron’s Wind Energy Business as new platform for long term growth and high returns in future For strong innovation foundation and future market opportunities • Acquired Interlogix, an excellent technology company in Security systems • Acquired BetzDearborn in Water Services Invested USD 35 billion in acquisitions during first year
Rebalancing the Portfolio I Integrating into Leverage Identification of Small GE by applying Financial high growth Acquisition GE growth strength for segment initiatives rapid growth Add Subtract + New technologies - Low Return + New Geographies - Low Growth + New Growth Plaforms - Low Technology + Scale/Cost Reduction + CapabilitiesUniversal Entertainment Business of Vivendi was acquired at a price of USD 5.5 billion adding content,production facilities, cable distribution, a strong management team and assets valued at USD 14 billionAcquired Amersham, a British Life Sciences and Medical Diagnostics company at a price of USD 10 billionwhich could boost GE’s medical business to USD 15 billion from USD 9 Billion.Sold 3 units of Insurance business unit valued at USD 4.5 billion
Rebalancing the Portfolio IIGrowth Engines: Businesses having market leadership that accounted 85% ofearnings and could grow at rate of 15% annually with high returns. Commercial Finance Transportation Consumer NBC Finance Infrastructure Healthcare Energy
Rebalancing the portfolio IIICash Generators: Businesses that are more cyclical but withconsistent strong cash flows Advanced Insurance Materials Consumer Equipment & Services Industrial
New Platforms, New ProcessHealth Care Water Security and Oil & Gas Hispanic ConsumerInformation Technology Sensors Technology Broadcasting Finance System and Services GE’s top leaders identified 6 business growth platforms that would lead to way for GE’s growth opportunities over the next few years and will have a potential to generate USD 1 billion within next few years These businesses were averaging a 15% annual organic growth rate and represented USD 9 billion in revenue and USD 2 billion in operating profit.
A New Growth Market in Developing Countries• In 2004, revenues from outside of the US grew by 18% to USD 72 Billion• Leading the way was a massive increase of 37% from developing countries –an area that Immelt was particularly focused on for long-term growthDeveloping World to contribute 60% of the GE’s revenue during next 10 years.China was the most visible growth opportunity
Innovations– Commitment to R&D• Committed USD 100 m to upgrade GE’s major R&D facility at New YorkPromoted close coordination between Scientists and Marketing ExecutivesCommitted more resources on long term research that could fructify into businesses over aperiod of 10 years in areas of Nanotechnology, advanced propulsion and bio technologyNew facility at ShanghaiProposal for adding another facility in GermanyIncreased the size of R&D spent from USD 286 million in 2000 to USD 327 million in 2002.Planned investment of USD 3 billion in technology In 2004, 2500 GE researchers worldwide filed for more than 450 patents
Innovations : Promoting TechnologyImagination Breakthroughs• These were projects – technological innovations, market expansion opportunities, product commercialization proposals or ideas to create value for customers• Imagination Breakthroughs (IBs) were identified as large projects or business opportunities that had the potential to generate at least $100 million in earnings within 3 years. • Within 1 year of launching an initiative to develop IBs, over 80 had been identified within GE. By 2005, 25 of these were generating revenue.Immelt committed USD 5 billion to fund those projects with atargeted annual additional revenue of 25 billionShipping unassembled ships to Russia, India and China whereassembly was done – generation of USD 100 million revenue
Funding Growth through Operational Efficiencies - I• Immelt made cash flow GE’s number one financial focus. It was throughimproved cash flow that Immelt would continue to invest in the business.He first used tools like Six Sigma to reduce the cash tied up in inventoryand receivables.Undertook the process of digitization for economic sourcing andinfrastructure efficiencies.Digitization saved USD 2 billion savings which was one of the main reason resulting into increase incash flows by 10% in comparison to last year
Funding Growth through Operational Efficiencies - IIContinued focus on operational efficiencies for better accounts receivableand inventory turnover with a target of another USD 7 billionLean Sigma was introduced to reduce working capital and improvingreturn of equity in industrial businesses while in commercial financebusiness it was on margin expansion, risk management and costreduction leading to improvement of USD 2.7 billion in working capital.“Simplification Process” started to reduce overheads from 11% ofrevenue to 8% with a target of removing USD 3 billion of such cost over 3years time.
Customer Focus IInitiated “At the Customer, For the Customer” (ACFC) to bring GE’s most effectiveinternal tools and practices to meet customer challengesImmelt named Beth Comstock as GE’s first Chief Marketing Officer in 2001. This movewas meant to stress GE’s new focus on their customers and less on their internalprocesses.• Acting on the momentum created by the new marketing emphasis, Immelt formedCommercial Council in 2003 to bring together GE’s top sales and marketing leaders.Immelt chaired that council himself.• GE began to work very closely with their customers to improve their customer’sbusiness (focus on providing service for GE). In 2002, GE completed 6,000 Six Sigmaprojects with their health-care providers alone.• Immelt wanted GE service to be a critical part of their customer’s operations.
Customer Focus II Immelt started holding Town Hall Meetings withcustomers to get a better idea of what they wanted outof GE and how he could serve them better.• He also created another type of forum known as“Dream Sessions” in which he would meet with majorCEOs from major industries to discuss roadmaps,implications for GE, and future opportunities for GE.
Re-Organizing and EfficiencyAircraft enginesRail products GE InfrastructureWater EnergyOil and gas In a major re-organization GE’s 11 business units were reduced to 6 large unitsSome Financial Services Targeted savings in administrative cost – USD 400 millionNBC Universal Better alignment of business with customerGE Finance and market needsGE industrial The 6 macro business groups are: GE Industrial, GE Commercial Financial Services,GE Health care NBC Universal, GE Health Care, GE Consumer Finance and GE Infrastructure.GE Money
HR Initiatives As GE’s growth strategy began to take hold, Immelt worried that some of GE’s traditional managers may not have the skills to be able to succeed in the more entrepreneurial environment that he was trying to create. Think Clearly • Acting on this, HR developed new career paths for managers, focusing on more in-depth job experience as opposed to job rotations. • HR also developed 5 action-oriented leadership traits that they Inclusiveness would require all leaders to possess:Expertise in a and function Connection with People Leader To develop these skills, 20-30 “pillar jobs” were created within each ship traits organization which required the continual use and development of these 5 skills. External Imagination (customer) and Courage Further after re-organization into 6 macro-business group, each focus to take risks group to be led by one of the GE’s most experienced top executive These group heads would spend most of their time in coaching, developing and supporting younger managers
FINANCIAL RESULTS 148 163 12.3112 113 134 9.6 3.92002 2003 2004 2005 2006 2004 2005 2006 GROWTH OF REVENUE REVENUE FROM ACQUISTIONS 21 15.5 17 16 13.6 15 11.3 13 2004 2005 2006 2002 2003 2004 2005 2006 OPERATING PROFIT NET EARNINGS All Figures in $ Billions
Conclusion & LearningsLEARNINGS1. Set Clear Long term goals for business growth and stick to it2. Strive for organic growth3. Focus and strengthen your core capabilities4. Leverage on strengths – through synergies across diversified Businesses5. Maintain competitive edge through innovation