general electric ver 2 16-6-05 gerpisa

8/6/2019 General Electric Ver 2 16-6-05 Gerpisa

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General Electric

The conditions of success


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Aims and method

Aim: use our narrative and numbers approach toprovide a revisionist account of:

a.Jack Welch as star CEO

b.GE as brilliant success story withtransferable lessons for others

Method:

Narrative: frames understandings of the causes ofsuccess

Numbers: enable us to deconstruct thatrepresentation


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Structure

1. Company narrative: not a conglomerate

2. Business School explanations: managementinitiatives

3. Using the numbers: a tale of two businesses4. GE: the undisclosed business model

5. Conclusion: the limits of the GE way


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Not a conglomerate

GE is a large industrial and commercial

conglomerate

resulting problem because the market prefers

pure plays

Welchs response

a. Narrative defence; GE is not a conglomerate

because the businesses are inter-relatedb. Performative initiatives: widely identified as

the root of GEs success


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GE Business Segment Sales revenues ($ mill) Earnings1($ mill)

GE INDUSTRIAL

Aircraft Engines 11,141 2,060Consumer Products 8,456 495Industrial Products and Systems 9,755 999Materials 7,651 1,125

NBC 7,149 1,6

Power Systems 22,926 6,255Technical Products and Services 9,266 1,562

GE CAPITAL SERVICESCommercial Finance 16,040 3,185Consumer Finance 10,266 1,930

Equipment Management 4,254 311Insurance 23,296 (509)All Other GE Capital Services 4,331 (291)

GE CONSOLIDATED2

131,698 14,118


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Jack Welchs initiatives

Q. the last year or two at GE have been soexcellent. Every year GE gets better andbetter. How do you account for that?

A. You have to take the initiatives and you haveto understand theyve all become broader anddeeper(Jack Welch)

Initiative 1: number1 or number 2

Initiative 2: integrated diversityInitiative 3: Work Out

Initiative 4: Six Sigma

Initiative 5: e-commerce


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Business School explanations

Uncritically reproduced what Jack said and did

Endless obsession with Jacksbackground/psychology

Represents co-authorship of the Jack Welch/GEline that management saves

Success established by simple before and aftertype exhibits plus explanation of success exWelchs style and initiatives

coupled with a general lessons from GEconclusion; you too can succeed in businesswith the same initiatives


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Using the numbers:

1. stock market performanceStock market data shows GEs success is

ambiguous and mixed

1. GEs share price shows a saw tooth pattern,not up and away growth

2. shareholder gains depend on the timing oftheir purchase and sale of stock

3. 5 not 20 glorious years.


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0

20

40

60

80

100

120

140

1980 1983 1986 1989 1992 1995 1998 2001

$

GE stock price 1980-2003 (using the average stock

price during year and adjusted for stock splits)


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0

100

200

300

400

500

600

700

800

900

1,000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Index(1988=1

00)

S&P 500 constituents 1988=100 General Electric 1988=100

GE market capitalisation, compared with the S&P 500

(indexed at 1988=100)


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Using the numbers:

2. a tale of two businessesGE Capital Services: high growth low ROCEGE Industrial: low growth high ROCE

(1980-2003)

1. Sales growth driven by GE CapitalServices23% CAGR for GECS vs 5.5% for GE Ind

2. GECS lowers ROCE

GECS ROCE = 2.4% vs GE Ind 14%

Result = dramatic decline in corporate ROCE;paradoxical given 1990s SV literature; mostlyirrelevant to the stock market


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0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

$millio

1980 1983 1986 1989 1992 1995 1998 2001

GE Industri l GE Capital Servi es

GE real sales revenue 1980-2003 $million (in real 2003 prices)


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0

2

4

6

8

10

12

%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

GE consolidated (post-tax) return on capital employed (ROCE)


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GE

The undisclosed business model Need to distinguish between explicit and

undisclosed business models

Explicit business models are disclosed in thecompanys narrative and discussed by otheractors

Undisclosed business models are not explicitlyarticulated by the company or CEO or discussedby media, analysts etc (nb, not hidden)


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5 principles of the

undisclosed business model1. Run the industrial business for margins to cover

earnings requirement

2. Build industrial services to cover the hollowing out

of manufacturing

3. Deal on a large scale to reach return and growth

objectives

4. Use acquisition and divestment to increase opacity

5. Grow the financial business up to the limits of the

companys credit rating (the critical importance of

GE Industrials AAA rating)


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Conclusion:

1. The limits of the GE way GE as special case/company specific reasons

for success (eg AAA rating). Not the initiatives

Few transferable lessons for other businesses;

different circumstances other levers2. The potential of narrative and numbers

Focuses the constitutive effects of narrative:representations of success and their effects

How numbers can be played against narrative(because numbers are not a function of thenarrative)

general electric ver 2 16-6-05 gerpisa

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