Jeff Immelt and the Reinventing of General Electric
On April 25, 2012 Jeff Immelt, chairman and CEO of the General Electric Company, presided over the company’s annual shareholders' meeting in Detroit, Michigan. As representatives of the “99 Percent Movement” protesting GE’s low rate of corporate tax were ushered from the hall, and GE’s board members and corporate officers took their seats, Immelt reflected on his eleven years as head of GE.
Immelt knew that taking over from Jack Welch—”living legend” and “best manager of the 20th century”—would be a difficult challenge. Little did he know just how tough his job would be.
Four days after Immelt took over the chairman's suite, two hijacked airliners crashed into New York's World Trade Center, setting off a train of events that would profoundly affect GE's business environment. A month later, Enron's collapse precipitated a crisis of confidence over corporate governance, financial reporting, and business ethics. The mounting controversy over financial statement manipulation and executive compensation soon engulfed GE—which was forced to restate earnings and reveal the details of Welch’s staggeringly generous retirement package. Then came the financial crisis of 2008-9—a major blow to GE since its financial services arm, GE Capital, was one of America's biggest financial services businesses and for two decades had been GE's primary growth engine. It was now seen as “ticking time bomb” of bad debts requiring asset writedowns. In 2008, GE downgraded its earnings forecasts, cut its dividend, suspended its share buyback program, and sought a $3 billion equity injection from Warren Buffett. In the following March, S&P cut GE’s credit rating from AAA to AA+.
Yet, throughout this eleven year period of turbulence, Immelt had systematically put in place a long-term transformation strategy for GE. This strategy had involved reconfiguring GE’s business portfolio around two core businesses, infrastructure and specialty financial services, reorienting GE’s performance goals towards revenue growth, refocusing GE’s competitive advantage around technological innovation and customer service, and adjusting GE’s structure, management processes, and corporate culture.
By the time of 2012 shareholders’ meeting, the results of the strategy were becoming apparent:
GE today is the world's biggest infrastructure company, and we have a great midmarket lending company in GE Capital. Really, two main core businesses, and our goal is really to expand our infrastructure footprint. We're more than $100 billion globally today and continue to build a valuable specialty finance business.
The things we work on are superior technology, leadership in growth regions, services and customer relationships, margin expansion and smart capital allocation. At our core we're a technology company. Keith said we invest about 6% of our revenue back into R&D. It's about $6 billion. We’ll launch more than 880 new products next year…
Services are important for the Company. It's about 70% of our industrial earnings, about $45 billion in revenue. Here we're just really trying to help our customers make more money. We continue to invest in technology that upgrades our customers' performance.
GE is a very global company. As Keith said, about 60% of our revenue is outside the United States. Industrial growth regions, these are really the emerging markets like Asia, the Middle East, places like that. We have a lot of leadership there. Our businesses are growing there substantially. In resource rich regions we're growing in excess of 20%. And rising Asia, like China and India, are growing 10% to 15%.
Lastly, we fly under the banner of GE Works. We're really focused on being mission based, moving, curing and powering the world, believing in continuous improvement. Really a relentless drive to solve customer problems, to create a world that works better. But...