Jeff Immelt and the Reinventing of General Electric 1
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 20 th
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…
1 This case was prepared by Robert M. Grant. ©2012 Robert M. Grant.
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 very
much based on our terms and our people and we think that’s what makes GE great. 1
The changing shape of GE’s overall business makeup is shown in Figure 1. However, for all of
Immelt’s success in transforming GE’s business model and guiding GE through the challenges of the
21 st century, financial performance had lagged. During 2002-2003 Immelt, had established ambitious
performance targets for GE: sales growth at 2-3 times that of global GDP, 10%-plus earnings growth
and 20%-plus return on total capital. 2 GE’s performance had fallen well short of these targets (see
Table 1). GE’s share price told the story: when Immelt’s appointment had been announced late in
2000, GE’s stock was trading at $53. For most of 2001-08, GE’s shares fluctuated between $20 and
$40, but in the midst of the financial crisis GE’s stock fell below $6 (March 5, 2009); by April 26,
2012 it had climbed to $19.81.
Figure 1 General Electric Strategic Overview: A Stronger Portfolio
Source: Adapted from General Electric Shareowners Meeting, April 25, 2012
Table 1. General Electric: performance indicators, 2001 and 2011
Sales
($bn.)
Net
income
($bn.)
Return
on
equity
(%)
Return
on
investe
d
capital
(%)
Market
capitalization,
31 st Dec. ($bn)
Employees
(,000s)
% of Non-
US
employees
2001 125.9 13.7 26.0 27.0 397.9 310 49.0%
2011 147.3 14.2 11.9 11.6 187.8 301 56.5%
Immelt had been widely applauded for deft leadership of GE in guiding it—more or less
unscathed—through the financial crisis and taking steps rebalance GE away from financial services
towards technology-based, industrial businesses. Moreover, Immelt has sustained GE’s emphasis on
long-term development built upon investment in technology, developing new businesses, international
expansion, and upgrading of GE’s manufacturing base. Yet without a sustained improvement in GE’s
financial performance, the doubts about GE remained.
For all Immelt’s reframing of GE as an “infrastructure company with two core businesses,” GE
remained a widely diversified enterprise. Although Immelt forcefully argued that GE was not a
conglomerate, most investment analysts regarded it as such and, as a result, was always open to the
possibility that it could create shareholder value by being broken up (as had happened to most other
conglomerates including ITT, Tyco International, General Mills, Fortune Brands, and Vivendi-
Universal). The case against highly-diversified companies was reinforced by the growing recognition
of the need for in-depth domain expertise for senior managers. Andrew Hill of Financial Times raised
the question: “If the demand is now for depth over breadth, with there be enough ‘serial masters’
capable of understanding, let alone running companies of the scale and scope of General Electric?
And if not, at what point will the market judge that such companies are simply too big to manage?” 3
Table 2 summarizes GE’s financial performance during 2002–8.
Table 2 General Electric: selected financial data, 2006–11
($ billions) 2011 2010 2009 2008 2007 2006
General Electric Consolidated
Revenues 147.3 150.2 156.8 182.5 172.5 151.6
Net earnings 14.2 11.6 11.0 17.4 22.2 20.7
Cash from operating activities 33.4 36.1 24.6 48.6 43.3 31.5
Cash used for investing
activities 19.9 32.4 43.0 (35.4) (69.5) (52.6)
Return on average equity 11.9% 12.1% 11.6% 15.9% 20.4% 19.8%
Stock price range ($) 21.65-
14.02
19.70-
13.75
17.52-
5.87
38.52–
12.58
42.15–
33.90
38.49–
32.06
Year-end closing stock price ($) 17.91 18.29 15.13 16.20 37.07 37.21
Total assets 717.2 747.8 781.8 797.8 795.7 697.3
Long-term borrowings 243.5 293.3 336.2 330.1 319.0 260.7
Total employees 301,00
0
287,00
0
304,00
0
323,00
0
327,00
0
319,00
0
US 131,00
0
133,00
0
134,00
0
152,00
0
155,00
0
155,00
0
Other countries 170,00
0
154,00
0
170,00
0
171,00
0
172,00
0
164,00
0
GE data (industrial businesses)
Short-term borrowings 2.2 0.5 0.5 2.4 4.1 2.1
Long-term borrowings 9.4 9.6 11.7 9.8 11.7 9.0
Shareowners’ equity 116.4 118.9 117.3 104.7 115.6 111.5
Total capital invested 129.0 133.1 135.3 123.5 137.8 128,2
Return on average capital
invested 11.6% 11.8% 10.6% 14.8% 18.9% 18.5%
Borrowings as % of capital
invested 9.0% 7.6% 9.0% 9.9% 11.4% 8.7%
Working capital (0.0) (1.6) (1.6) 3.9 6.4 7.5
GECS data (financial services) a
Revenues 49.1 49.91 51.8 71.3 71.9 61.4
Net earnings 6.5 2.2 1.4 7.1 10.3 10.7
Shareowner’s equity 77.1 69.0 70.8 53.3 57.7 54.1
Total borrowings 443.1 470.5 493.3 514.6 500.9 426.3
Ratio of debt to equity at GECS 5.75:1 6.82:1 6.96:1 8.76:1 8.10:1 7.52:1
Total assets 584.5 605.3 650.4 660.9 646.5 565.3
Note: a GECS is General Electric Capital Services which owns GE Capital
Source: General Electric, 10-K reports
History of the General Electric Company
The GE that Jeffrey Immelt inherited in 2001 was the world’s most valuable company (in terms of
market capitalization and was widely regarded as the world’s most successful. It was the only
company to have remained a member of the Dow Jones industrial index since the index was created in
- The key to its success had been to combine massive size with constant adaptation. Over the
decades GE had adapted both its business portfolio and its management systems to the demands and
opportunities of a changing world.
GE was founded in 1892 from the merger of Thomas Edison’s Electric Light Company with the
Thomas Houston Company. Its business was based upon exploiting Edison’s patents relating to
electricity generation and distribution, light bulbs, and electric motors. Throughout the twentieth
century GE was not only one of the world’s biggest industrial corporations, it was also “a model of
management—a laboratory studied by business schools and raided by other companies seeking skilled
executives.” 4 Under the leadership of Charles Coffin, between 1892 and 1922, GE successfully
married Edison’s industrial R&D laboratory to a business system capable of turning scientific
discovery into marketable products. After the Second World War, Chairman Ralph Cordiner, assisted
by Peter Drucker, pioneered new approaches to the systematization of corporate management. Under
Fred Borch (CEO 1963–72), GE’s corporate management system based on strategic business units
and portfolio analysis became a model for most diversified corporations. Reg Jones, GE’s chairman
from 1973 to 1981, linking GE’s techniques of strategic planning to its systems of financial
management.
During his two decades at GE’s helm, Jack Welch had led the most comprehensive strategic and
organizational upheavals in GE’s long history. Welch reformulated GE’s business portfolio through
exiting low growth extractive and manufacturing businesses and expanding services—financial
services in particular. By the time he retired, GE Capital represented almost half of GE’s revenues and
the majority of its assets. At the heart of Welch’s remaking of GE was the creation of a performance
culture supported by comprehensive systems for setting and monitoring performance targets and
providing powerful incentives for their achievement:
Changing the culture—opening it up to the quantum change—means constantly asking not
how fast am I going, how well am I doing versus how well I did a year or two before, but
rather, how fast and how well am I doing versus the world outside. Are we moving faster,
are we doing better against that external standard?
Stretch means using dreams to set business targets—with no real idea of how to get there…
We certainly didn’t have a clue how we were going to get to 10 inventory turns [a year]
when we set that target. But we’re getting there, and as soon as we become sure we can do
it—it’s time for another stretch. 5
Welch declared war on GE’s elaborate bureaucracy and stripped out layers of hierarchy. His
management style was direct, personal and often confrontational: managers were encouraged to
commit to ambitious performance targets, after which they and their subordinates were under intense
pressure to deliver. Every aspect of GE’s management systems was redesigned from the ground up,
from strategic planning to human resource management. Welch also introduced periodic challenges
for the whole organization. These included: “Be #1 or #2 in your global industry”; “Work-out, ” a
process for company meetings that allowed grassroots ideas about organizational change to be
implemented; “Six Sigma, ” a program of company wide initiatives to improve quality and reliability;
and “Destroy your business dot.com, ” an initiative to drive adoption of internet technologies.
The outcome was two decades of outstanding corporate performance. Between 1981 and 2001,
revenues grew from $30 billion to $126 billion, net income from under $2 billion to $14 billion, and
stock market capitalization from $14 billion to $510 billion—an average annual return to stockholders
of 24%.
Jeff Immelt
Jeffrey R. Immelt was appointed CEO of GE at the age of 44. He had previously been head of GE’s
Plastics business and, most recently, head of Medical Systems. He had an economics and applied
math degree from Dartmouth and an MBA from Harvard. He claimed that his own experience of GE
extended beyond his two decades with the firm—his father spent his entire career at GE. On being
recruited from Harvard by GE in 1982, Immelt was identified as a “young high potential” which
meant that his progress would be be carefully tracked by top management at GE. In 1987, Immelt
attended the executive development course at Crotonville, GE’s management development center.
This course was considered the gateway to the executive ranks of GE. At GE Appliances, GE Plastics
and GE Medical Systems, Immelt acquired a reputation for turning around troubled units, driving
customer service and exploiting new technologies. He also demonstrated the ability to motivate
others—an aptitude that he had revealed as an offensive tackler for Dartmouth’s football team in the
1970s. 6
In December 1994, the GE board began to consider possible candidates to replace Jack Welch. Immelt
was one among a list of some 20 GE executives submitted by Welch for board consideration. After
five years of careful monitoring and assessment the list had shrunk to three: Jim McNerney, Bob
Nardelli and Immelt.
Immelt’s emergence as front runner owed much to his outstanding success at GE Medical Systems,
which he led from 1997 to 2001. He demonstrated strong leadership capabilities in energizing and
motivating others: “He brought the life and energy that drives major growth,” commented GE’s head
of HR.
His personality and leadership style contrasted sharply with those of Welch. “Where Welch ruled
through intimidation and thrived as something of a cult figure, Immelt opts for the friendlier, regular-
guy approach. He prefers to tease where Welch would taunt. Immelt likes to cheer people on rather
than chew them out. That style has given him a very different aura within GE. He may not be a
demigod, but it’s his man-of-the-people nature that draws praise from the top ranks to the factory
floor.” 5 This different style of leadership had implications for the organizational and management
changes that Immelt would introduce, however, it was radical changes in GE’s business environment
that would be dominant driver of GE’s strategic and organizational development.
GE’s Business Environment, 2001–12
The remarkable growth in profits and stock market valuation that Welch had achieved was against a
backdrop of an economy effused by optimism, confidence, and growth. The new century presented a
whole new set of challenges. In his first letter to shareholders, Immelt observed: “The exuberance of
the late 1990s and the inevitable downturn have created difficult times. Entire industries have
collapsed, poor business models have been exposed, large companies have filed for bankruptcy and
corporate credibility has been called into question.” 6
In this world of turbulence, Immelt initially believed that GE’s diversified portfolio of businesses
would provide GE the stability to weather business cycles. Yet, the experience of the 21 st century was
that the returns to different businesses tended to become increasingly correlated. Indeed, during the
financial crisis, contagion became the norm—problems in any one business would tend to infect other
businesses
A further key change in the business environment was the discrediting of the 1990s’ obsession with
shareholder value maximization. From the outset, Immelt was anxious to disassociate himself from
cruder versions of shareholder value maximization. In all his communications to shareholders, Immelt
was emphatic that the job of the CEO was not to manage the stock price but to manage the company
for the long-term earnings growth that would drive the stock price: “We all want the stock to go up.
But to do that we have to manage the company. In fact, the only way you can run GE is to believe that
performance will ultimately drive the stock.” 7
The critical challenge of the business environment of the 21 st century, believed Immelt, was identify
the potential sources of profit for GE. Under Welch, GE had created value cost reduction, eliminating
underperforming assets, and exploiting the opportunities offered by financial services. By the time
Immelt took over, these sources of value had been mined out: GE would need to look into new areas.
Top-line growth, he reasoned, would have to be the driver of bottom-line returns. Yet, given the
generally poor outlook for growth in the world economy, growth opportunities were likely to be
meager: “I looked at the world post-9/11 and realized that over the next 10 or 20 years, there was not
going to be much tailwind.”
In identifying opportunities for profitable organic growth, Immelt sought to identify key global trends
that would offer business opportunities for GE. Four external trends emerged as paramount:
Demography. The aging of the world’s population would create opportunities for goods and
services required by older people—healthcare services in particular. Population growth in the
developing world would also offer expanding demand for many other of GE’s
businesses—including entertainment.
Infrastructure. GE predicted massive investments in infrastructure. GE’s positioning in
infrastructure products, services and financing offered it opportunities in energy, aviation, rail
transportation, water, and oil and gas production.
Emerging markets. China, India, Eastern Europe, Russia, Middle East, Africa, Latin America and
South East Asia would offer rates of GDP growth around three times that of the world as a
whole. These countries would be key centers of business opportunity for GE.
Environment. The challenges of global warming, water scarcity and conservation would become
increasingly pressing creating the need for technologies and innovatory responses to alleviate
these problems.
GE’s Growth Strategy
Growth—organic growth in particular—became the central theme of Immelt’s strategy for GE. In
2002, he committed GE to an organic growth rate of 8% per annum (under Welch organic growth had
averaged 5% a year) and to “double digit” earnings growth. This 8% revenue growth was based upon
the idea that GE should be able to grow at between two and three times that of world GDP. Profits
would grow faster than revenues, explained Immelt, because of reductions in general and
administrative expense as a percentage of sales and higher margins resulting from new products and
services. Between 2002 and 2007, GE comfortably met these targets: revenues grew at 13% each
year, operating earnings at 14%. However, in the wake of the financial crisis, both revenues and
profits went into a sharp decline.
Reshaping the Business Portfolio
To position GE for stronger growth, the company would need to exit slow-growth businesses,
reallocate resources to businesses where growth prospects were strong, and enter new businesses. A
key theme in Immelt’s reshaping of GE’s business portfolio towards higher growth was the creation of
new “growth platforms.” Growth platforms could be extensions of existing businesses or they could
be entirely new areas of business. Identifying new growth platforms was established as a central
strategic challenge for GE’s businesses.
In several cases, GE’s growth platforms were areas of business where it was already present, but
where there was potential to greatly expand its market presence. For example:
Healthcare. GE was the world leader in diagnostic imaging: X-ray equipment, CT scanners and
MRI scanners. Under Immelt it became a major area of growth for GE expanding its range of
products and services and its geographical presence. Key acquisitions included: Amersham (a
UK-based diagnostics and medical equipment company), HPSC (financial services for medical
and dental practices), and Abbott Diagnostics (the world’s leading provider of in vitro
diagnostics).
Energy. Power generation was GE’s oldest business; in addition it had developed a promising
business supplying equipment to the oil and gas sector. Immelt viewed energy as a particularly
attractive growth platform for GE. One major growth areas was alternative energy. Here key
acquisitions included Enron’s wind energy business, BHA Group which supplied emission
reduction equipment, ChevronTexaco’s coal gasification business, and AstroPower which
supplied solar energy products. Another was oil and gas where GE diversified its offerings of
products and services through acquiring Vetco Gray (subsea platforms) and Hydril Pressure
Control (petroleum drilling equipment).
Broadcasting and entertainment. During 2001-7, GE’s expanded its entertainment activities
beyond its NBC broadcasting and cable TV businesses. Key acquisitions were Telemundo which
took GE into the fast-growing market for Spanish language broadcasting and Vivendi Universal’s
entertainment business, which took GE into film studios and theme parks. However, by 2009, it
was increasingly evident that NBC-Universal did not fit with Immelt’s identification of GE as a
technology-based industrial company. As a result, NBC Universal was merged with Comcast’s
cable TV channels, with the new company 49% owned by GE and 51% by Comcast (GE received
$6.2 billion from Comcast).
Technology infrastructure. Infrastructure provided a valuable umbrella for a number of Immelt’s
growth initiatives. In 2003, he had announced: “We are taking the company to a place where few
can follow: big, fundamental, high technology infrastructure industries in which GE can have
enormous competitive advantage.” 8 Growth platforms included: security systems, where GE’s
acquisitions included In Vision Technologies (explosive detection systems), Edwards Systems
Technology (fire detection), and Interlogix (security systems); water treatment, where GE
acquired Ionics and BetzDearborn; and aerospace where GE buit upon its strong position in jet
engines to diversify into avionics (Smiths Aerospace was a major acquisition).
Developing growth platforms involved the analysis and segmentation of markets to identify high-
growth segments that offered the potential for attractive returns, building upon GE’s existing
businesses, and using acquisitions to help deploy GE’s financial, technical and managerial resources
to build a leading position. Immelt explained the approach:
We did a lot of heavy lifting in our portfolio because we didn’t have enough juice. We
saw where we needed to go and we found that we wouldn’t get there with our existing
businesses. So, we bought homeland security, biotech, water—businesses that would
give us a stronger foundation for innovation. 9
In addition to the sale of a majority share in NBC Universal, GE also exited other businesses, most
notably, plastics where it believed that high petroleum prices would limit growth opportunities.
However, by far its greatest divestment challenge was the financial services business, GE Capital. For
all Immelt’s emphasis on GE as a technology-based, industrial company, GE Capital continued to
grow over most of his tenure. For 2006 and 2007, GE Capital accounted for 49% of GE’s total net
profit (up from 25% in 2001). GE Capital’s growth during 2001-7 had ben reinforced acquisitions in
equipment leasing, commercial finance, credit cards and consumer finance. However, even before the
financial crisis, Immelt was committed to pruning GE Capital. During 2004 and 2005, GE sold most
of its insurance businesses. The financial crisis created urgent pressures to shrink GE Capital’s assets
(i.e. reducing its loan exposure), increase its liquidity, improve its risk profile, and redefine its role
within GE. Increasingly, GE Capital was reconceived as a supplier of specialist financial service with
a particular emphasis on “mid-market lending and leasing, financing in GE domains and a few other
specialty finance segments.” 10
Table 3 General Electric’s principal acquisitions and disposals, 2001–12
2001 NBC acquires Telemundo, a leading Spanish language television networks.
2003 GE Healthcare acquires Instrumentarium.
2003 GE Capital acquires Transamerica Finance from AEGON.
2004 NBC acquires the entertainment assets of Vivendi Universal, to form NBC Universal
(80% owned by GE)
2004 GE Healthcare acquires Amersham plc. for $9.5 bn.
2004 GE Capital acquires Dillard’s credit card unit for $1.25 billion.
2004 GE sells 60% of GE Capital International Services (GECIS) to private equity
companies, Oak Hill Capital Partners and General Atlantic, for $500 million.
2004 GE’s life and mortgage insurance businesses spun off as Genworth Financial.
2004 GE Security acquires InVision Technologies, a leading manufacturer of airport
security equipment.
2005 GE Commercial Finance acquires the financial assets of Bombardier, a Canadian
aircraft manufacturer for $1.4 billion.
2006 GE Healthcare acquires IDX Systems, a medical software firm, for $1.2 billion.
2006 GE Advanced Materials division is sold to Apollo Management for $3.8 billion.
2006 GE Water & Process Technologies acquires Zenon Environmental Systems for $758
million.
2006 Sale of GE Insurance Solutions and GE Life to Swiss Re for $6.5 bn.
2007 GE-Aviation acquires Smiths Aerospace for $4.6 billion.
2007 GE Oil and Gas acquires Vetco Gray for $1.4 billion.
2007 GE Plastics is sold to Saudi Arabia Basic Industries Corp. for $11.7 billion.
2007 GE NBC-Universal acquires Oxygen Media (cable TV channel).
2008 GE Co. acquires Vital Signs Inc. for $860 million.
2008 GE Energy Infrastructure acquires Hydril Pressure Control (oilfield equipment).
2008 GE Capital finance acquires Merrill Lynch Capital, CitiCapital and Bank BPH.
2009 GE increases its ownership in BAC to 75%
2010 GE Healthcare acquires Clarient, Inc.
2010 GE Capital deconsolidates Regency Energy Partners L.P., and sells its general
partnership interest in Regency
2011 GE Energy Infrastructure acquires Converteam, Dresser, Inc., the Well Support
division of John Wood Group PLC, Wellstream PLC, Lineage Power Holdings, Inc.
GE’s Competitive Advantage
A major theme in all Immelt’s speeches and strategy presentations as Chairman and CEO was
emphasis of the competitive advantages that GE shared across its different businesses. Immelt placed
a particular emphasis on three sources of competitive advantage: technology and innovation, customer
focus and integrated solutions, and global presence.
Technology
Immelt identified technology as a major driver of GE’s future growth and emphasized the need to
speed the diffusion of new technologies within GE and turn the corporate R&D center into an
intellectual hothouse. His commitment to technology was signaled by expanding GE’s R&D budgets.
This began with a $100 million upgrade to GE’s corporate R&D center in Niskayuna, New York and
was followed by the construction of new Global Research Centers in Shanghai, Munich, and Rio de
Janeiro. In 2012, GE claimed to have 37,000 technologists working in its businesses and in its
research centers.
Immelt’s emphasis on technology reflected his belief that the primary driver of sales was great
products: “You can be six sigma, you can do great delivery, you can be great in China, you can do
everything else well—but if you don’t have a good product, you’re not going to sell much”. 11
Increasing product quality and product innovation became a critical performance indicator for all of
GE’s businesses.
Under Immelt, GE focused upon fewer, bigger, longer-term projects. This emphasis was reflected in
GE’s Advanced Technology Programs in molecular imaging and diagnostics, nanotechnology, energy
conversion, advanced propulsion and sustainable energy.
Immelt was particularly interested in identifying and supporting projects that offered large-scale
market potential. “Imagination Breakthroughs” were promising projects with the potential to create
$100 million in sales over a three-year period. By mid-2006, some 100 Imagination Breakthroughs
had been identified and individually approved by Immelt. Major Imagination Breakthroughs included:
Evolution hybrid locomotive: an energy-saving locomotive that would use energy lost in braking
to be stored in batteries.
Smart Grid: a marriage of IT with electrical infrastructure to support twenty-first century energy
needs.
Sodium batteries: a novel, patented battery technology for large-scale electricity storage.
GE’s “Ecomagination” was a program of product and business development launched in 2005 as
“GE’s commitment to address challenges such as the need for cleaner, more efficient sources of
energy, reduced emissions and abundant sources of clean water.” 12 The Ecomagination program
provided funding and coordination for developing environmentally-friendly products and business
solutions across GE’s different business divisions. In 2011 it was credited with generating $21 billion
of clean energy revenue.
Customer Focus and Integrated Solutions
Throughout his career at GE, Immelt has emphasized customer orientation and value of spending time
with customers, building relationships with them, and working on their problems. Soon after taking
over as CEO, Immelt emphasized the primacy of customer focus:
We’re dramatically changing our resource base from providing support to creating value.
Every business has functions that add high value by driving growth. These are the functions
that deal with the customer, create new products, sell, manufacture, manage the money and
drive controllership. Call that the front room. Every business has backroom support
functions that sometimes are so large and bureaucratic they create a drain on the system and
keep us from meeting our customers’ needs and keep us from growing. So we’re going to
take more of the back-room resources and put them in the front room—more sales people,
more engineers, more product designers. We’re changing the shape of this company and
we’re doing it during a recession.” 13
The increased customer focus involved increased investment in GE’s marketing function—including
hiring talented marketing executives and developing processes for identifying new product and
service offerings and unmet customer needs.
A major avenue for translating enhanced customer focus into value creation for GE was through
bundling products with support services to offer customized “customer solutions.” Expanding the
range of customer service offerings to include technical services, financial services, training, and
other forms of customer support. Creating customer solutions required coordination across GE’s
businesses. For example, in the case of a new hospital development, there might be opportunities not
just for medical equipment but also for lighting, turbines and other GE businesses as well. To exploit
new opportunities that cut across GE’s existing divisional structure, GE began to create cross-
business, high-visibility marketing campaigns.
As we shall see, increasing GE’s capacity to serve customers better with integrated solutions was a
key consideration in Immelt’s reorganization of GE’s structure which combined and reorganized GE’s
divisional structure (see below).
Global Presence
Immelt believed that some of the biggest payoffs from greater customer orientation would
come from GE’s increased success in international markets. Positioning GE to compete in
growing emerging markets was a central strategic priority for GE. In 2011, Immelt appointed
vice chairman John Rice to lead its international growth efforts—with particular emphasis on
high-growth markets such as China, India, the Middle East and Brazil. Maximizing GE’s
potential in these markets required a coordinated approach across GE’s businesses: “A great
example is our spectacular success with the Beijing 2008 Olympic Games. This event
produced $2 billion of revenues across multiple GE platforms, while building our
relationships in China. In 2008, we announced a multifaceted partnership with Mubadala, the
commercial investing arm of Abu Dhabi, which includes a commercial finance joint venture,
projects in renewable energy, and a training center in Abu Dhabi. Mubadala will also become
a ‘Top 10’ GE investor.” 14 In 2009, GE announced its “Company-to-Country” strategy where
GE worked directly with government in order to meet local needs across a range of
infrastructure investments. China, India and Brazil where the focal points for GE’s top-down
business initiatives. In 2012, GE announced that, “In Nigeria, we are building out a
comprehensive “Company-to-Country” approach to address infrastructure challenges; Nigeria
should be our next billion-dollar country.” 15
Internationalization involved a fundamental rethink of GE’s approach to product development
and an adapting products and services to meet local market needs. GE’s traditional approach
had been to develop products for the US market, then to offer simpler, less costly “de-
featured” versions to emerging markets. Combining GE’s international emphasis with its
increasing customer focus, reoriented GE towards a “customer-optimization” approach to
product development where local teams were given greater freedom in adapting and
innovating products for their own markets. The outcome was “reverse innovation”: many of
the product concepts developed to meet the needs to emerging markets customers could be
applied in GE’s the advanced industrialized nations. For example, a low cost, portable, battery
operated ultrasound machine designed to meet the needs to physicians in India and China,
became a commercial success in the US. 16
Exploiting global opportunities also involved globalizing GE’s organization and its talent base. For
example, the headquarters of GE Healthcare was moved to the UK, while in 2011 it announced the
transfer of its X-ray business from Wisconsin to Beijing, China. Internationalization of the workforce
included core corporate functions: by 2006, of 400 younger members of GE’s audit staff, about 60
were Indian.
Changing the GE Management Model
The management system that Immelt inherited had been reformulated by his predecessor and mentor,
Jack Welch, but as also a product of 120 years of continuous development. Immelt respected GE’s
management systems and process, and recognized that many of them were so deeply embedded within
GE’s culture that they were integral to GE’s identity and the way it viewed the world. At the core of
GE’s management system was its management development—its so-called “talent machine”—and its
system of performance management.
Leadership Development and Performance Management
From early days, GE was committed to internally developed leadership: all of its CEOs were
promoted from within the company. General Electric’s meritocratic system of development and
promotion was put in place by Charles Coffin, the CEO who succeeded Edison in 1892. Since then
GE has been a “CEO factory” producing top management talent not only for GE, but for corporations
worldwide. Its management development system rested on two key pillars: its corporate university at
Crotonville, NY, and its “Session C” system for tracking managers’ performance, planning their’
careers, and formulating succession plans for every management position at GE from department
heads upwards. Under Welch the Session C reviews became all-day events at each of GE’s businesses
where Welch and the division CEO reviewed the performance and potential of every manager.
GE’s management appraisal and development processes together with its financial and strategic
planning systems formed the core of GE’s performance management system. Under Jack Welch the
GE’s system of performance management became increasingly based upon quantitative targets that
allowed focus and accountability. Immelt was equally committed to GE’s metrics-driven approach to
performance management: “Nothing happens in this company without an output metric,” observed
Immelt. All of Immelt’s strategic initiatives—from earnings and organic growth targets to productivity
improvements, reductions in overhead costs and six sigma quality—were linked to precise
quantitative targets. In 2005 GE standardized its customer satisfaction metrics, focusing on “net
promoter scores” (the percentage of customers who would recommend GE to a friend, minus the
percentage who wouldn’t).
Immelt’s strategic initiatives represented a challenge to GE’s metrics-based performance management
system. Goals such as innovation, enterprise selling, and environmental sustainability tended to less
amenable to quantification and objective measurement than goals of cost efficiency, productivity and
profitability.
The shifting of strategic priorities also had implications for GE’s management development system.
As with Jack Welch, Immelt saw his most important task as helping to develop GE’s managerial
talent. Implementing GE’s growth strategy required that GE’s employees internalized growth as part
of their personal mission. This required inculcating among GE’s managers the skills and aptitudes to
becoming “growth leaders.” A benchmarking exercise investigating the management characteristics of
15 companies with outstanding records of revenue growth resulting in the identification of five
“growth traits.” These included: external focus, imagination and creativity, decisiveness and clear
thinking ability, inclusiveness and deep domain expertise.
These growth traits became part of GE’s annual HR review, with each of GE’s top 5000 people rated
on each of the five traits and the results of the assessment built into their subsequent development
plans. Career planning also changed: because of the importance of “domain expertise” (knowledge of
the particular business), managers were required to stay longer in each job.
Changing Organizational Structure
The most visible of the management changes introduced by Immelt concerned the overall structure of
the organization. Between 2002 and 2008, Immelt reversed several of the major structural changes
that Welch had introduced during the 1980s. As part of “delayering” and his effort to create a more
responsive company, Welch had broken up GE’s major industrial sectors into smaller divisions. In
order to facilitate greater cross-business integration, the bundling of products and services into
“systems”, and the creation of new “growth platforms”, Immelt progressively reorganized GE’s
divisions into a smaller number of broad-based sectors. Reorganizations in 2002, 2005, and 2008
reduced the number of business sectors reporting to Immelt from twelve to five; before a further
reorganization in 2010 increased them to seven (see Figures 2 and 3).
Figure 2 GE’s Organizational Structure, 2001
Figure 3 General Electric Organizational Chart, February 2012
Innovation and New Business Development
A key challenge was to reconcile GE’s famous obsession with profitability and cost control with
nurturing the innovation needed to drive growth. Innovation, especially when it included big, long-
term projects, involved substantial risk. The danger was that GE’s obsession with performance metrics
might discourage business unit heads from making big bets on promising new opportunities.
Furthermore, given the fact that many of the biggest opportunities were likely to require cooperation
across divisions further increased the likelihood that that they would fail to get the support they
needed. The “Imagination Breakthroughs” initiative was designed to ensure that major, innovatory
projects would receive the investment and attention needed to exploit their potential. “Imagination
Breakthroughs” were promising projects for new business creation that had the potential to create
$100 million in sales over a three-year period. By mid-2006, some 100 Imagination Breakthroughs
had been identified and individually approved by Immelt. Once approved, these projects were
protected from normal budget pressures. About half involved new products and the other half
involved changing commercial structure. Immelt saw these Innovation Breakthroughs as a means of
focusing attention on the goal of business creation and development. Given that some of these
projects involved substantial levels of investment (GE’s hybrid locomotive, for example, would
require tens of millions of dollars), by lifting these projects from the business level to the corporate
level, it took pressure off the business heads. One problem, observed Immelt, was that GE did not
possess sufficient product managers and systems engineers to put in charge of high-visibility
programs involving substantial risks and substantial possible returns.
Marketing and Sales
Realizing Immelt’s goal of a customer-driven company required revitalization of GE’s marketing
function: “Marketing was the place where washed-up salespeople went,” observed Immelt 17
Upgrading GE’s marketing was achieved through creating the new senior position of Chief Marketing
Officer, the recreation of GE’s Advanced Marketing Seminar, developing an Experienced Commercial
Leadership Program, and requiring that every business appoint a VP-level head of marketing. Most
important was the creation of GE’s Commercial Council, which brought together GE’s leading sales
and marketing leaders to develop new business ideas, to transfer best practices and instill a
commercial culture within GE. A key initiative was “At the Customer, For the Customer, ” a program
that deployed six sigma in marketing, sales, and customer relations activities, applied GE’s six sigma
methodologies to customers’ own businesses, and used new metrics to track customer satisfaction and
customer attitudes.
As with all aspects of GE’s approach to management, marketing was subject to the same systematized,
metrics-driven analysis as all other functions within the firm, often with some startling revelations:
We’re getting the sales force better trained and equipped with better tools and metrics. A
good example is what we’re doing to create discipline around pricing. Not long ago, a guy
here named Dave McCalpin did an analysis of our pricing in appliances and found out that
about $5 billion of it is discretionary. Given all the decisions that sales reps can make on
their own, that’s how much is in play. It was the most astounding number I’d ever
heard—and that’s just in appliances. Extrapolating across our businesses, there may be $50
billion that few people are tracking or accountable for. We would never allow something
like that on the cost side. When it comes to the prices we pay, we study them, we map them,
we work them. But with the prices we charge, we’re too sloppy. 23
The GE Growth Process
Very soon after his appointment as GE’s chairman and CEO in 2001, Immelt had articulated his
strategic vision of GE as a technology-based, customer focused, growth orientated industrial
powerhouse. Implementing this vision was a longer term project. Immelt’s changes in GE’s
organizational structure, its management development and appraisal system, and its marketing and
technology functions were all efforts to align GE’s structure, systems and processes with the intended
strategy. By 2006, these various initiatives had coalesced in Immelt’s mind around an integrated
system that he referred to the GE Growth Process. As Immelt explained:
If you run a big multibusiness company like GE and you’re trying to lead
transformative change, that objective has to be linked to hitting levers across all of the
businesses—and it must keep that up over time. So you’ve got to have a process.
That’s true from an internal standpoint, but it’s also the only way you get paid in the
marketplace. Investors have to see that it’s repeatable.
I knew if I could define a process and set the right metrics, this company could go
100 miles an hour in the right direction. It took time, though, to understand growth as
a process. If I had worked out that wheel-shaped diagram in 2001, I would have
started with it. But in reality, you get these things by wallowing in them awhile. We
had a few steps worked out in 2003, but it took another two years to fill in the
process. 18
During 2006, Immelt’s view of GE’s growth engine as an integrated, six-part process was
disseminated throughout the organization and became a key part of Immelt’s communication to GE’s
external constituencies (see Figure 4).
Figure 4 General Electric’s six-part growth process
Source: General Electric 2005 Annual Report, p.8
The Challenge of Integration and Complexity
Common to most of the organizational changes initiated by Immelt was the desire to create value
through the many parts of GE working together more closely and more effectively. “Working at GE is
the art of thinking and playing big; our managers have to work cross-function, cross-region, cross-
company. And we have to be about big purposes, ” observed Immelt. 25
However, greater integration across GE’s different businesses created complex coordination problems.
Consider GE initiatives relating to product bundling and customer solutions through its “enterprise
selling” and “company to country” initiatives. At one level these strategies are intuitive and straight-
forward:
If somebody’s building a hospital, that might represent a total package of $1 billion,
of which the GE market potential might be $100 million. We’re probably already
talking to the C-suite because we sell the medical equipment. What we need to do is
set things up so that the medical rep can bring in the lighting rep, the turbine rep, and
so on.
Similarly with whole countries:
In Qatar, the emir wants to know everybody doing business in his country. In a dinner
set up to talk about oil and gas bids, he might say, “Jeff, I’m going to put $10 billion
into a hospital, ” or he might mention that they’re going to buy GE engines for Qatar
Airways. 19
However, the organizational ramifications were complex. Sales and marketing staff becoming less
focused upon their particular business and more oriented towards the opportunities provided from
across the company as a whole. In practice, this creates complex problems of organization, expertise,
and incentives. Exhibit 1 describes the difficulties encountered in the apparently simple bundling of
medical diagnostic equipment with consulting services.
Exhibit 1 GE Medical Systems Customer Solutions Initiative
One of the earliest initiatives to exploit opportunities for bundling products and services was to
combine the sale of medical imaging equipment with consulting services. In 2001, GE Medical
Systems (soon to become GE Healthcare) created a new unit, Performance Solutions, to provide an
integrated approach to hospital diagnostic imaging departments by combining equipment with
technical support and patient-management systems. A lead customer was Stanford University Medical
Center which transitioned to all-digital imaging for its hospital and outpatient unit.
After a promising start, by 2005, Performance Solutions was in trouble. The medical equipment sales
people had limited understanding of the consulting services being offered by the Performance
Solutions unit and provided few sales leads for the new integrated offering. They were also reluctant
to share their customers with sales personnel from Performance Solutions. Meanwhile, the sales
personnel from Performance Solutions considered themselves as “solution providers” and felt
constrained by having to limit their solutions exclusively to GE offerings.
Source: Based upon Ranjay Gulati “Silo Busting How to Execute on the Promise of Customer
Focus, ” Harvard Business Review (May, 2007).
As Immelt recognized, organizing to meet customer needs implied a different type of organizational
structure from organizing for operational efficiency. Similar challenges existed in relation to GE’s
efforts to develop large-scale innovations that cut across its existing business-based structure.
Reconciling these different coordination needs posed organizational challenges that even GE had not
fully resolved:
I’ve found that few companies are actually structured to deliver products and services in a
synchronized way that’s attractive from a customer’s perspective. Individual units are
historically focused on perfecting their products and processes, and give little thought to
how their offerings might be even more valuable to the end user when paired with those of
another unit. It’s not just that the status quo doesn’t reward collaborative
behavior—although the right incentives are also critical. It’s that the connections literally
aren’t in place.
One way to forge those connections is to do away with traditional silos altogether and
create new ones organized by customer segments or needs. Many companies, however, are
understandably reluctant to let go of the economies of scale and depth of knowledge and
expertise associated with non-customer-focused silos. A company organized around
geographies can customize offerings to suit local preferences, for instance, while a
technology-centric firm can be quick to market with technical innovations. In many cases,
functional and geographic silos were created precisely to help companies coordinate such
activities as designing innovative products or gaining geographic focus. A customer focus
requires them to emphasize a different set of activities and coordinate them in a different
way.
In their initial attempts to offer customer solutions, companies are likely to create
structures and processes that transcend rather than obliterate silos. Such boundary-spanning
efforts may be highly informal—even as simple as hoping for or encouraging serendipity
and impromptu conversations that lead to unplanned cross-unit solutions. But the casual
exchange of information and ideas is generally most effective among senior executives,
who have a better understanding than their subordinates of corporate goals and easier
access to other leaders in the organization. 20
Establishing informal collaboration across divisional boundaries was the way in which companies
such as Samsung, IBM, and had responded to the conflicting requirements for responsiveness and
integration. For GE however, flexible boundary spanning risked conflicting both with GE’s metrics-
based system of performance management and with its culture of internal competition. Internal
competition—between divisions and business units for resources and between individuals for
performance bonuses and promotion was a fundamental feature of its management systems and its
organizational culture.
Immelt’s efforts at creating a more integrated GE, had also changed the relationship between GE’s
corporate headquarters and the businesses. Under Welch, there was a clear division of roles and
responsibilities between the business divisions and that of the corporate HQ. The business divisions
with their individual CEOs were responsible for running their own businesses both operationally and
strategically. The role of the corporate headquarters was both to support the businesses through
various centralized services and to drive business performance by putting divisional top management
under intense pressure to deliver.
As headquarters became increasingly involved in promoting and supporting developmental initiatives
(e.g. “Imagination Breakthroughs” and enterprise selling), so the corporate HQ became more of a
partner with the business divisions rather than an overseer of divisional performance and interrogator
of business strategies.
As a result, much of the simplicity and directness associated with Welch’s management style had been
supplanted by an emphasis on managing integration which inevitably involved more intricate and
sophisticated approaches to strategy execution. Developing new products, businesses, and customer
solutions required new and more complex cross-business and cross-functional coordination within
GE. The new performance requirements were being built on top of GE’s existing commitments to
efficiency, quality and financial performance. Could this added complexity be borne by a company
that was steadily growing larger and encompassing a widening portfolio of businesses and products?
Most US companies that had achieved outstanding performance by successfully combining innovation
with efficiency in fast-moving business environments were fairly specialized. Certainly the great
majority of companies on Fortune’s list of “most admired companies” were strongly focused around a
single core business. To find examples of highly diversified, multinational corporations that were also
outstandingly successful, Immelt had ot look far beyond US shores to Samsung and Tata Group. As
Immelt reminded his top managers, GE was entering uncharted waters: “The business book that can
help you hasn’t been written yet.”
APPENDIX. General Electric Segment Performance
Table A1. General Electric: segment performance, 2006–11 ($ millions)
2011 2010 2009 2008 2007 2006
Revenues
Energy Infrastructure 43694 37514 37134 38571 30698 25221
of which:
Energy 31080 29040 30185 31833 24788 19406
Oil and Gas 13663 9483 7743 7417 6849 4340
Technology Infrastructure — 37860 42474 46316 42801 37687
of which:
Aviation 18859 17619 18728 19239 16819 13017
Enterprise Solutions n.a n.a. 3957 4710 4462 3951
Healthcare 18083 16897 16015 17392 16997 16560
Transportation 4885 3370 3827 5016 4523 4159
Home & Business
Solutions a
8465 8648 8443 n.a n.a n.a
NBC Universal n.a. 16901 15436 16969 15416 16188
GE Capital 45730 46222 48906 67008 66301 57943
Consumer and Industrial n.a. n.a. n.a 11737 12663 13202
Profit
Energy Infrastructure 6650 7271 6842 6080 4817 3518
of which:
Energy 4992 5887 5782 5067 4057 2918
Oil and Gas 1872 1553 1222 1127 860 548
Technology Infrastructure n.a 6314 7489 8152 7883 7308
of which:
Aviation 3512 3304 3923 3684 3222 2802
Enterprise Solutions n.a n.a. 704 691 697 620
Healthcare 2803 2741 2420 2851 3056 3142
Transportation 757 315 473 962 936 774
Home & Business
Solutions a
300 457 400 365 1034 970
NBC Universal n.a. 2261 2264 3131 3107 2919
GE Capital 6549 3265 2344 8632 12243 10397
Assets
Energy Infrastructure 54389 38606 36663 33836 31466 24456
Technology Infrastructure n.a 51474 56392 58967 57670 49641
Aviation 23567 21175 20377 n.a n.a n.a
Healthcare 27981 27784 27136 n.a n.a n.a
Transportation 2633 2515 2714 n.a n.a n.a
Home & Business
Solutions a
4645 4280 4965 5065 5351 5740
NBC Universal — 33792 32282 33781 33089 31425
GE Capital 552514 56533
7
53706
0
57290
3
58396
5
49100
0
Investment in fixed assets
Energy Infrastructure 2078 954 945 1226 1054 867
Technology Infrastructure n.a 789 880 1395 1954 1389
Aviation 699 471 442 n.a n.a n.a
Healthcare 378 249 302 n.a n.a n.a
Transportation 193 69 68 n.a n.a n.a
Home & Business
Solutions a
278 229 232 284 363 373
NBC Universal — 286 282 131 306 352
GE Capital 9882 7674 6426 15313 17832 14489
Notes: a For 2006-9, the figures for Home and Business Solutions refer to the Consumer and Industrial segment
Source: General Electric, 10-K Report, 2008.
Table A2. GE Capital: financial data by business segment (in $ millions)
2011 2010 2009 2008 2007 2006
Revenues
Commercial Lending &
Leasing
18178 18447 20762 26742 27267 25833
GE Money n.a n.a n.a 25012 24769 19508
Consumer 16781 17204 16794 n.a n.a n.a
Real Estate 3712 3744 4009 6646 7021 5020
Energy Financial Services 1223 1957 2117 3707 2405 1664
GE Commercial Aviation
Services
5262 5127 4594 4901 4839 4353
Profit
Commercial Lending &
Leasing
2720 1554 963 1805 3801 3503
GE Money n.a n.a n.a 3664 4269 3231
Consumer 3551 2523 1282 n.a n.a n.a
Real Estate (928) (1741) (1541) 1144 2285 1841
Energy Financial Services 440 367 212 825 677 648
GE Commercial Aviation
Services
1150 1195 1016 1194 1211 1174
Total assets
Commercial Lending &
Leasing
193869 20265
0
205827 232486 229608 n.a
GE Money n.a n.a n.a 183617 209178 n.a
Consumer 139000 14732
7
176046 n.a n.a n.a
Real Estate 60873 72630 81505 85266 79285 n.a
Energy Financial Services 18357 19549 22616 22079 18705 n.a
GE Commercial Aviation
Services
48821 49106 51066 49455 47189 n.a
Source: General Electric, 10-K Report, 2011.
Notes
1 Transcript, General Electric Company Annual Shareholder Meeting, April 25, 2012
2 “Letter to Stakeholders,” General Electric Annual Report, 2002: p. 3,
3 “Can a Specialist Run General Electric?” March 7, 2012.
4 “What Makes GE Great?” Fortune, March 6, 2006, pp. 90–6.
5 “The Days of Welch and Roses, ” Business Week, April 29, 2002.
6 General Electric, Annual Report, 2002.
7 Address to shareholders, Annual Shareowners’ Meeting, Philadelphia, April 26, 2006.
8 Letter to stakeholders,” General Electric Annual Report, 2002: p. 9.
9 “Growth as a Process: An Interview with Jeff Immelt, ” Harvard Business Review, June, 2006.
10 “Letter to shareowners,” General Electric Annual Report, 2011: p. 5.
11 “Growth as a Process: An Interview with Jeff Immelt,” Harvard Business Review, June, 2006.
12 “GE Launches Ecomagination,” General Electric Press Release, May 9, 2005.
13 Ibid.
14 General Electric, Annual Report 2008, pp. 6–7.
15 “Letter to shareowners,” General Electric Annual Report, 2011: pp. 6.
16 J.R. Immelt, V. Govindarajan and C. Trimble, “Hoe GE is Disrupting Itself,” Harvard Business Review,
October 2009: pp. 56-65.
17 “Growth as a Process: An Interview with Jeff Immelt,” Harvard Business Review, June, 2006.
18 Ibid.
19 Ibid.
20 Ibid.
