Case of Ge Growth

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  • Topic: General Electric, GE Infrastructure, GE Transportation Systems
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CHRISTOPHER A. BARTLETT

GE’s Growth Strategy: The Immelt Initiative

Yet, for the past year GE’s share price had been stuck at around $35, implying a multiple of around 20 times earnings, only half its price-to-earnings (P/E) ratio in the heady days of 2000. (See Exhibit 2 for GE’s 10-year share price history.) It frustrated Immelt that the market did not seem to share the belief that he and his management team had in his growth forecasts. “The stock is currently trading at one of the lowest earnings multiples in a decade,” he said. “Investors decide the stock price, but we love the way GE is positioned. We have good results and good governance. . . . What will it take to move the stock?”1

Taking Charge: Setting the Agenda
On Friday, September 7, 2001, Immelt took over the reins of GE from Jack Welch, the nearlegendary CEO who preceded him. Four days later, two planes crashed into the World Trade Center towers, and the world was thrown into turmoil. Not only did 9/11 destabilize an already fragile postInternet-bubble stock market, but it also triggered a downturn in an overheated economy, leading to a fall in confidence that soon spread into other economies worldwide.

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After the chaos of the first few post-9/11 days during which he checked on GE casualties, authorized a $10 million donation to the families of rescue workers, and dispatched mobile generators and medical equipment to the World Trade Center, on September 18 Immelt finally focused on reassuring the financial markets by purchasing 25,000 GE shares on his personal account. Three days later, he appeared before a group of financial analysts and promised that 2001 profits would grow by 11% and by double digits again in 2002. As impressive as such a performance might have appeared, it was less than Welch’s expansive suggestion in the heady days of 2000 that GE’s profits could grow at 18% per annum in the future.2 The net result was that by the end of Immelt’s first week as CEO, GE’s shares had dropped 20%, taking almost $80 billion off the company’s market capitalization. ________________________________________________________________________________________________________________

Professor Christopher A. Bartlett prepared this case from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2006 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

This document is authorized for use only by DINDIN SYARIFUDIN until August 2009. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

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In February 2006, after four and a half years in the CEO role, Jeff Immelt felt General Electric (GE) was finally poised for the double-digit growth for which he had been positioning it. Having just announced an 11% increase in revenues for 2005 (including 8% organic growth), he was now forecasting a further 10% revenue increase in 2006. And following 12% growth in earnings from continuing operations in 2005 (with all six businesses delivering double-digit increases), he committed to leveraging the 2006 revenues into an even greater 12% to 17% earnings increase. It was a bold pledge for a $150 billion global company. (See Exhibit 1 for GE financial data, 2001–2004.)

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GE’s Growth Strategy: The Immelt Initiative

To make matters worse, as the year wore...
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