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. A new CEO, Larry Culp, is at work, to fix GE, which has crumbled from market cap of about $600 billion in its golden era to about $60 billion today
Few challenges in the business world are of the magnitude that Larry Culp faced when he took over as chairman and CEO of GE in 2018. The ailing multinational was a shadow of its former self, in the process of shrinking in market cap from $600 billion in its heyday to around $60 billion today, and shedding dozens of business units along the way.
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 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.
But note one thing: the tribes of great managers have evolved; Amazon, Google and Nvidia offer better ones today than the descendants trained on the books of Six Sigma in GE. Yes, sometimes, you can be really good, doing bad things. GE had it bad: sold a financial service subsidiary, GE Capital, just as financial services were becoming the money that grows on trees. It also went big on centralized power plants through the acquisition of Alstom’s power and grid businesses, when the world was moving towards decentralized power via renewals.
This is a huge lesson – if you are running in the wrong direction, you will lose. Yes, even if you execute well on the business playbooks, the end goal would be catastrophic since the thesis would be out of phase with markets. GE might have operated the businesses “well’ but the market-fit was not there, and accordingly, it missed the ability to fix the right market frictions.
The past is history, what matters is today. IBM has a market cap of about $98 billion while Microsoft, an old peer, is worth excess of $1.6 trillion today. Yes, Microsoft can buy IBM and still have $1.5 trillion remaining! That was a case study in my Grand Playbook of Business in Tekedia Mini-MBA – and it is worth reading. Has you management evolved for modern markets?