New Boss' Challenge: To Keep GE Together

On Sept. 7, less than two weeks from today, General Electric's charismatic chief executive, Jack Welch, will formally retire, leaving to his handpicked successor, Jeffrey Immelt, the challenge of continuing the growth that has given GE greater stock market value than any other firm in the United States, and possibly the world.

At more than $400 billion, the total value of GE's shares is far beyond that of any other company. The stock price, adjusted for splits, is 34 times what it was in 1981, when Welch stepped into the company's top post.

To say that Immelt has a hard act to follow is an understatement. But his greatest short-term challenge will be to hold GE together as a single big company with $130 billion in revenue from eight separate businesses, ranging from aircraft engines to lightbulbs to personal loans.

A chorus of management consultants, economists and investment analysts is calling for a breakup of GE so its divisions could issue shares to the public and attract investments as separate companies.

"They might spin off medical services to shareholders," suggests Bennett Stewart, of the consulting firm Stern Stewart, referring to the GE division that is the world leader in magnetic resonance imaging and CT scanning equipment and services.

Cries for such spinoffs grow louder as GE's stock price, up 95 cents at $41.99 a share on the New York Stock Exchange on Friday, lags at levels last seen in 1999. The stock's retreat in part reflects investor doubts that Immelt can keep profit growing 15% a year in such a large company.

But Immelt, who is busy with five-year plans for his company, has no intention of dismantling GE, say experts and analysts who know his thinking.

In fact, he already has made that clear in spurning the European Union's suggestion that GE separate its GE Capital financial services division.

The story is revealing. In turning down GE's bid to acquire Honeywell International Inc. this year, Mario Monti, the EU commissioner of competition, focused on the fact that GE Capital is a major lessor of aircraft. Monti wanted GE to sell shares in GE Capital so it would operate at arm's length from the parent company.

But Immelt, who has been chief executive-elect since December, said no. And Welch delivered that message to Brussels.

In fact, the 44-year-old Immelt is putting together plans for GE's divisions to cooperate even more closely to enlarge the range of services they offer to customers. "He is going to use information technology to greatly increase GE's returns on capital. Immelt is going to push GE to make money from intellectual capital," says analyst Nicholas Heymann of Prudential Securities, who has followed GE for decades.

What does that mean? More online business, for one thing. GE already uses the Internet to put suppliers and customers in direct contact--eliminating intermediate steps, which saves money and boosts productivity all around. Last year GE earned almost 20 cents pretax on each dollar of sales and more than 27 cents on each dollar of invested capital, very high percentages compared with most global companies.

Now it plans to go further. In plastics, a division with $8 billion in sales that makes car bodies, among other products, GE wants to integrate itself into car design, bringing customers such as General Motors Corp. into its laboratories and taking over some functions of automobile development.

In appliances, GE is using its 13,000 RCA Service operators--acquired in 1986 with the old RCA company--to take washers, dryers and refrigerators directly from its factories to installation at customers' homes, with service contracts to follow. Retailers such as Home Depot Inc. get a retailer's revenue for selling the appliance, but GE earns revenue for the larger business of manufacturing, delivery, installation and service.

Such thinking at GE is of interest to businesses everywhere because the company has a history of adapting to change. When Welch took the reins 20 years ago, GE got 85% of its revenue from manufacturing. Today it gets 70% from services.

But it doesn't manufacture less; on the contrary, it manufactures far more jet engines, gas turbines and medical testing machines. But it has added even larger flows of revenue by providing parts and service on those products and devising tasks it can do for customers.

Now with the coming of broadband Internet, Immelt has ambitious visions of using GE's power systems division to manage energy services for businesses and homes as well as utility companies. He would use NBC to deliver information and entertainment and GE Capital to manage personal financial planning. That's a three-to-five-year vision, analysts say.

Such visions are out of fashion since the collapse of the dot-com mania. But those failures haven't stopped development of Internet technology. Within five years, the U.S. and many other countries may well have broadband Internet services in homes and offices.

Immelt, whom Welch threatened to fire six years ago when he made a string of mistakes running the plastics division, is right to think long term as he takes on a job that could last 20 years.

Immelt joined GE in 1982 after getting a degree in mathematics from Dartmouth College and an MBA degree from Harvard Business School. He knows the company's capabilities and its history: His father worked for 38 years at GE's aircraft engines division--and his wife worked for GE.

A gregarious former college football player, Immelt is sure to further develop GE's recent innovations in bringing workers and bosses together for problem-airing sessions called "work outs."

GE has adapted and lasted all these years, notes Noel Tichy, a management professor at the University of Michigan, just because its top executives don't manage businesses or technologies. "They act as gadflies, driving people, enforcing performance goals," he says.

What is less predictable is whether GE will succeed in making a profit from Internet services. It doesn't now control any technology relating to broadband Internet. It has succeeded with NBC by developing high-income audiences for the broadcast network, the CNBC and MSNBC cable networks and overseas NBC programming. But its NBCi venture into Internet programming failed--as admittedly did most companies' attempts at Internet business.

In the short term, especially if GE's earnings growth falters, Wall Street investors will press even more intensely for Immelt to spin off divisions. Analysts already are calling for him to get out and boost support for the stock by speaking to investor groups.

Immelt is going to embark on such investor meetings this fall. He'll be able to tell investors that he has a challenging job. GE's stock price will tell whether they sympathize.


James Flanigan can be reached at


Manager's Lineup

When General Electric Chief Executive Jack Welch retires Sept. 7, he will leave his successor, Jeffrey Immelt, a company that encompasses a number of large businesses. Financial analysts and business scholars wonder whether Immelt can hold together GE and make it grow.

2000 sales and pretax profit for GE's eight business segments


2000 sales 2000 pretax profit Segment (in billions) (in billions) Aircraft Engines $10.8 $2.5 Appliances 5.8 0.7 Industrial Products and Systems 11.8 2.2 (Light bulbs, locomotives) NBC 6.8 1.8 Plastics 7.8 1.9 (Automobile parts, industrial diamonds) Power Systems 14.8 2.8 (Electric power plants) Technical Products, Services 6.9 1.7 (MRI and CT scanners) GE Capital Services 66.2 5.2 (Personal loans, aircraft leasing, real estate, insurance and reinsurance) Corporate adjustments and 1.1 elimination of discontinued business Totals $129.8 $18.8


Source: Company annual report

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