Date post: | 08-Apr-2018 |
Category: |
Documents |
Upload: | adam-leaver |
View: | 213 times |
Download: | 0 times |
of 16
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
1/16
General Electric
The conditions of success
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
2/16
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
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
3/16
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
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
4/16
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
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
5/16
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
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
6/16
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
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
7/16
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
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
8/16
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.
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
9/16
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)
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
10/16
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)
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
11/16
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
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
12/16
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)
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
13/16
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)
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
14/16
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)
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
15/16
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)
8/6/2019 General Electric Ver 2 16-6-05 Gerpisa
16/16
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)