Dow Cuts GE; GE Management Factory Needs New Tutors

General Electric (GE) fades. The Dow is replacing the iconic American conglomerate with Walgreens Boots Alliance. Yes, the GE Management Factory seems to have stopped working as the paralysis continues with no break.

S&P Dow Jones Indices announced on Tuesday that the iconic maker of light bulbs and jet engines will be replaced in the 30-stock index by Walgreens Boots Alliance. GE was an original member of the Dow in 1896 and has been in it continuously since November 7, 1907.

Being ousted from the Dow is the latest indignity for GE, which is dealing with a serious cash crisis caused by years of bad deals. GE has replaced its CEO, slashed thousands of jobs and cut its coveted stock dividend in half.

The decline of GE should teach us a lesson on management. At its peak during the golden years of Reginald Jones and Jack Welch, GE was the management factory where American companies went to hire their leaders. That was then – a really long time indeed as GE needs vision with the fierce urgency of now.

GE used to be the gold standard on the development of management systems and processes. At its zenith, GE was known as a factory where some of the finest business leaders were incubated, nurtured and prepared for leadership. With peerless business management and training systems, GE supplied a generation of CEOs to corporate America. The company pioneered and scaled many industrial age management systems and sold them across the world.  One of those systems is the Six Sigma: Six Sigma was invented in Motorola, GE through its former leader, Jack Welch, popularized it when the company adopted it. As Toyota perfected its Kaizen and Japan pursued Total Quality Management, GE gave America management systems for growth and success. But that was the old GE; the present GE is sick

Today’s GE is using the management principles of the industrial age conglomerates in knowledge-based economies. For a company that prides itself as a center of management systems to fade in this way is unfortunate. The implication is that GE may be out of sync with the tenets of modern business processes. The industrial age has passed, and now it needs to learn what works. The strategic mistakes over the last ten years have been constant, and if GE does not stop making them, this iconic American company may go.

As GE makes way, Amazon, Alphabet (parent of Google) and Alibaba are pioneering new models of conglomerates. These new breeds are not called industrialized conglomerates but digital conglomerates. They do not require huge capital (relatively) and they are built on platforms which generate moats through network effects and positive continuum of the winner-takes-all. They could have taught GE some things but GE was far with its own disappearing world.

Yes, as the dawn of the knowledge economic systems was evolving, GE was selling its financial services to invest deeper in the old business of power generation and turbines. With solar and digital systems, most of those big pockets power turbines are “disintermediated” and that is partly why GE is struggling. Who needs a power plant with capacity of 4,000MW when you can get pieces of 1MW of solar plants across the country? Without those big huge contracts, the business model of GE was affected, and with the cash cow financial services already gone, GE was left bare.

The company would be back but it is certainly not going to be as powerful as it was. But no matter what, it needs to send its managers to Alibaba, Amazon and Alphabet for the modern management tutors, structured for the 21^st century markets. Whatever GE Management Factory has been teaching in the last ten years is not working – it needs to update its curricula. No matter how you see it, GE needs to update its management curricula!

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