GE releases 4Q earnings
GE, my former employer, released earnings this morning. As expected, it wasn’t pretty.
Many of my former collegues who have been at GE since the stock’s heyday of the late 1990s have a hard time understanding how GE stock has consistently lost value for nearly 10 years now while the company continues to post profits. Some of them still believe the stock will go back up like it did in the 1990s.
Now working at GE was very good to me. The company has great benefits, health care, tuition reimbursement, a fixed pension, etc. In the aircraft engines division we had a fantastic team of engineers and technicians, as well as a world-class work environment. It’s easy to understand how many of my former collegues, from inside the company, always believed in GE’s stock.
The trouble with GE is that the finance arm Jack Welch created to buy and sell companies at will, and thereby achieve his illusion of “managed earnings”, has now become a big headache. I’m no finance guy or economist, but check out a great analysis of GE’s creaky balance sheet here.
What to do if I were Jeff Immelt:
GE’s corporate culture needs a radical overhaul. GE’s culture is still focused on things like competitive advantage, doing more with less, earnings growth, and all those tired old 20th century concepts that simply won’t work in the 21st century. Only by having a culture that relentlessly drove an illusion of value did GE end up with north of half a trillion $ in debt.
Change in a large organization is not easy, but here are some ideas:
- Do away with all the “fast track” management programs (HRLP, OMLP, etc.) These programs are indeed good mentoring tools, but the trouble is they have created an exclusive fraternity. In a company with over 300,000 employees, it doesn’t make sense to largely limit your innovation and opportunities to a select club of “golden boys/girls”.
- Get rid of most internal metrics and focus on managing people and relationships. Many metrics are unreliable and drive no behavior, or drive unwanted 20th century type thinking.
- Ditch “Six Sigma”. I’m sure when “Six Sigma” was introduced as a quality tool it had its benefits, but it’s no longer relevant today. I could come up with many reasons why, for one, it stifles innovation, but most importantly “Six Sigma” is a throwback to the old way of doing things, pervasive like a cancer in GE’s culture, and it needs to go. Have a big “Green Book” bonfire. Bring hot dogs and hamburgers and have a “Six Sigma cookout” for employee morale. I’ll take onions and BBQ sauce on my burger please ;)
There are plenty of other things I could think of, but the main idea is that GE was a standard-bearer of business in the 20th century, yet corporate culture of the late 20th century set the stage for today’s crises, and a radical overhaul is needed. You can read Umair Haque’s great thoughts on 21st century economics and why 20th century thinking won’t work any more.
As much as I believe in overhauling corporate culture, GE may also have to make structural changes to survive. If GE were forced to take the kind of write-downs on its financial portfolio that major banks have (and there’s no reason why that’s not a possibility) the company would be in big trouble. It may be inevitable to split the finance arm from the rest of the company.
Some more positive ideas going forward:
- Spin of the traditional (non-finance) businesses in a successful IPO. Why should all the good people and great technology in the traditional businesses be burdened with the worry about a half a trillion $ debt load?
- Buy Yahoo! and combine it with GE’s traditional businesses. That’s right, GE’s technology and media businesses would be great partners for Yahoo! – a technology/media company. And coupled with a new and better corporate culture, it would be a cool new place to work!
In the final analysis, you may think I’m naive, just plain wrong or have been drinking too much coca tea. But GE and the rest of corporate America already know how to do business in the 20th century, so if I’m wrong we can always return to the old way of doing things. But if we wait any longer to look forward, it may be too late in case the new reality is here to stay, as I believe it is.
NB: 5 year chart used above courtesy of marketwatch.