The GE’s Failing Management Factory

GE (General Electric) 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.

Last December, I offloaded on GE for many mistakes in its strategy. My conclusion was that GE should reach out to modern conglomerates like Amazon, Google and Alibaba to learn new things. I do believe that the concept of TQM and some of the old management systems used in the industrial age empires are not necessarily relevant in the knowledge economy. In the past, you built for absolute quality and perfection. Today, you build for a balance between quality and quantity. Yes, you launch a half-bake web product in the day and wait for comments to fix it in the night. You make a video game in the day and wait for comments to fix it in the night. You make a hardware product (yes voice assistant like Alexa) but the development never finishes because the AI that powers it in the cloud is a continuum. The ways products are engineered are changing. While that may not necessarily apply to making turbines, GE could learn from these modern firms.

Largely, the nature of the product distribution means that you can succeed by producing and learning from your customers while on the fly. So, a product can be built within 24 hours and launched with bugs which can be fixed. The “total quality” remains for the industrial age firms but not for many knowledge age companies.

I do think that GE needs to take management internships in Google (yes Alphabet), Alibaba or Amazon to have a better idea on how the world (knowledge) economy works. A “premier industrial company” does not mean that one cannot bring the knowledge business in the same economy. Alphabet runs any type of business today and finds ways it can build synergies across them. GE is simply fixated on making heavy equipment which may not be needed in the ways it has imagined. Everything is changing, including transportation, and GE is right to be thinking of leaving the locomotive business: with Uber, Lyft and others, locomotives may not be a really good business in the near future. Simply, GE lost the world; it has a lot of work to do, to recover. Its problems are severe, because it has sold some of its best assets, when it expected the world to align to its future, instead of adjusting to the emerging and evolving new world. A more agile Board may not be a bad idea: I need the badly beaten stocks to rise.

Yet, GE could still be fine if not for one of the worst strategic mistakes: exiting the financing business. That was the origin of its cashflow problems. The new businesses are not bringing free cashflow to compensate what GE Capital was providing.

GE wanted to streamline its business, cutting off GE Capital which was very important in deal financing and generating good cash flow. The cashflow has been critical in GE’s capacity to sustain its dividend tradition, despite the lack of growth in the stock. Selling GE Capital was also problematic in another angle: the GE Capital was making it easier for GE to sell its wares by providing easier capital to clients. Partly, GE could be struggling because of the absence of GE Capital.

This week, The Wall Street Journal tears the former CEO of the company, Jeff Immelt, down in a piece.

GE’s precipitous fall, following years of treading water while the overall economy grew, was exacerbated, some insiders say, by what they call “success theater.” Mr. Immelt and his top deputies projected an optimism about GE’s business and its future that didn’t always match the reality of its operations or its markets, according to more than a dozen current and former executives, investors and people close to the company.

This culture of confidence trickled down the ranks and even affected how those gunning to succeed Mr. Immelt ran their business units, some of these people said, with consequences that included unreachable financial targets, mistimed bets on markets and sometimes poor decisions on how to deploy cash.

Reuters has a piece also on the GE problem, making a case that Immelt mismanaged GE: “John Flannery, GE’s new chief executive, blamed the forecast, along with poor management and other factors, for the power business meltdown. In January, he warned the pain would continue this year “and potentially be worse than expected.”

All Together

For a company that prides itself as a center of management system to collapse 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 time may be passing, 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. Yes, it could be broken into pieces to salvage value for its investors.

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