Starting with 10 GE leaders, we will restore a very energetic and creative “General Electric”.
Editor’s note: This article is from WeChat public account “Guotai Junan Securities Research”(ID:gtjaresearch), author Guotai Junan total team.
What is GE in your heart?
Is the infinitely fascinating World War II military manufacturer, or an enterprising financial services organization? Is it the national pride that witnesses the popularity of consumer electronics in the United States, or is it in the bounds of financial fraud?
More than 130 years of ebb and flow, how many industries have been cast by GE, I am afraid no one has ever remembered.
Standing in the Internet era of today’s Internet era, GE’s centuries-up is the best portrayal of the last century, and we can still learn a lot from this great company, no matter the company’s governance experience. It is still a glimpse of the decline.
Since September, the total team of Guotai Junan Research Institute has launched a series of special reports on “Greatness”. The first article was written by the US market value overlord, General Electric.
Next, we will start with 10 GE leaders to restore a very energetic and creative “General Electric.”
▼General Electric Leaders
Data Source: Baidu Pictures, Guotai Junan Securities Research
01 Rise in the wild:Edison era
We know Edison because he invented the electric light; we know GE, because the world’s first president Jack. Welch.
But not everyone knows the relationship between Edison and General Electric.
In 1878, Edison founded the Edison Electric Light Company to develop a DC power system, which was the predecessor of General Electric.
▼1878 Edison Electric Company was established
Data Source: General Electric’s official website
At the beginning of the establishment, Edison assigned a number of guidelines for the company:
1) Focus on real problems and try to solve problems systematically, through a series of inventions and innovations to solve the problems faced by humans entering the electrical age;
2) Patenting all inventions to give them a competitive edge in patents and products;
3) Control key factors in the value chain, namely controlling R&D, controlling patents, controlling products, and gradually establishing a complete set of products, systems and services in the electrical age;
4) Create demand, build networks, and then use their strengths to develop products that use power systems, using this strategy to force network providers to build larger, better, more complex electrical systems, and GE will These systems will be available.
This strategy is known as the “virtuous circle.” GE is relying on Edison’s original strategy to become a step-by-step company in the electrical age.
Edison’s emphasis on patents has laid the foundation for GE’s strategy and research and development.
▼1882 Edison built the first power station, the world enters the electrical age
Data source: General Electric’s official website. Note: On September 4, 1882, Edison established the first power station in Pearl Street, Lower Manhattan. The electricity generated by the power station can provide power for 800 bulbs. In December of the following year, the Pearl Street Power Station already had 508 users and powered 12,723 bulbs. The world has since entered the electrical age.
Edison is a legendary figure in the history of rare inventors and entrepreneurs. It has 1,093 patents in the fields of telephone, telegraph, projection system, and incandescent lamps.
He established a unique laboratory in New Jersey and developed a highly organized approach to inventing and innovating some products. He asked employees to record all their successes and failures and reflect on the reasons.
In this period, Edison instilled a philosophy for the company: a highly rigorous and systematic approach to R&D activities.
This philosophy is one of the key sources of GE’s ability to maintain its continued advantage over the 140-year history.
▼The patent, product, and networked value chain created by Edison
Data Source: “General Electric Success Book”, Guotai Junan Securities Research
However, such a soul figure left the company after losing the “current and DC dispute”, and Edison’s departure eventually led to the establishment of General Electric.
▼ 1892 General Electric Company officially established (GE logo)
Source: GE official website, Guotai Junan Securities Research
In 1892, financier J.P. Morgan eventually led the merger of Edison Electric and Thomson Houston to form the new General Electric Company.
Thomson Houston is strong in AC technology, and the company has a strong complement to Edison GM’s DC technology, which has made General Electric a leader in electrical systems and electronics.
▼Edison Electric Company merges with Houston Company
Source: GE official website, Guotai Junan Securities Research
After the merger of the two companies, Charles Coffe became the first president of General Electric (president from 1892 to 1912, chairman of the board from 1913 to 1922).
In the spirit of inheriting Edison’s R&D spirit and recruiting R&D talent, Coffey has nothing to do with it—for example, for Charles Steinmetz, Coffey simply bought a company story and became a good news for General Electric.
02 Swoop and Yang:Creating a Consumer Electronics Festival
Not only that, but Coffin also pioneered the sharing of leadership for General Electric, which has far-reaching implications for future generations.
In 1913, when Coffin decided to withdraw from the CEO position, he chose Edwin Rice as his successor, creating a leadership style for GE to share the leadership style—
Coffin continues to serve as Chairman of the Board, focusing on long-term planning and maintaining good relationships with external partners, while Rice is focused on internal corporate affairs. The two people’s personalities and abilities are very different, making GE’s management style even more Compatible and packaged.
After that, sharing leadership has become one of GE’s important milestones.
In 1922, after the retirement of Coffin and Rice, a new leadership team was appointed. Gerard Swoop was the president and Owen Young was the chairman of the board (1922–1940).
They inherited the leadership style of Coffin’s “shared leadership style” – Swope is in charge of corporate administration, and Yang focuses on the company’s long-term strategy and corporate external relations.
Swoop and Yang institutionalize and develop the consultative leadership style created by Covent.
In 1928, they founded the Elfun organization (an independent management association) and established a mechanism through which organizations and managers can question company policies and strategies without using Worried about being punished.
At the same time, the electrical industry is in the early stages of growth, and the two have expanded GE’s products into mass consumer goods, making GE a household name and further driving demand for electricity.
▼General Electric drives the society’s demand for electricity through products, bringing humans into the electrical age
Data Source: Guotai Junan Securities Research
Using its R&D, patent, and M&A advantages, GE has established its own home appliance division, which has developed electric fans, washing machines, dryers and other home appliances through mergers and acquisitions and research and development, and has entered the US family.
▼Company leads the product system of the home appliance industry
Source: GE official website, Guotai Junan Securities Research
In order to promote the rapid spread of its consumer electronics products downstream, GE is aware of the need to provide financial support for franchisees.
In 1932, in order to provide financial support to retailers and provide credit support to consumers, GE established GECC, a key element of GE’s consumer strategy and general financial business. Embryo.
03 Time to create heroes in Wilson era and World War II munitions
The historical opportunity of World War II transformed GE from a leader in the electrical industry to a highly diversified enterprise.
In 1940, Swamp and Yang handed over the management of the company to Charlie Wilson and Phil Reid. Charlie Wilson (1940 – 1950) served as president and Phil Reid served as chairman of the board.
In the context of chaos in the world, all normal business practices have stopped. The company’s talent reserves and patent reserves in research and development enable the company to meet the needs of the military and serve the military.
At this time, GE’s only task is to provide all the equipment for the military to do all its research and development, so that the United States can win the war.
Wilson and Reid have only been the head of General Electric for two years. In 1942 Wilson was appointed vice chairman of the American Wartime Production Committee; Reid also left the company and became a member of the US economic affairs delegation.
But their role in the government has also facilitated the development of GE, and the historically specific environment has provided GE with a diverse and optimal soil.
In World War II, GE entered a number of military fields and accumulated a number of advanced military technologies. These technologies have created a solid historical foundation for the company’s diversification and decentralization after World War II.
For example, GE has provided the military with a large number of naval warships and jet engines. Until today, GE is still the leader in this field.
In addition, GM’s radar systems and radio communication equipment produced by the military have laid the technical and practical foundation for the popularization of radios and televisions after the war.
After World War II, in 1950, Wilson chose his own executive assistant, Codinar (president from 1950 to 1958; chairman and president of the board from 1958 to 1963) as his successor to lead GE. Reed is still the chairman of the board, and they still choose a path of diversity at this time.
Since the housing shortage in the post-war period, developers built houses on a large scale.The real estate market has a situation of demand blowouts.
GM has created a new sales channel that uses developers directly as its sales channel. The Home Appliances Division has also continuously introduced new products such as dishwashers, microwave ovens, induction cookers, heat pumps, refrigerators and air conditioners to make the home appliance business grow significantly.
The improvement of people’s material life after the war has promoted the demand for small household appliances. At this time, the innovative small household appliances department invented new small appliances such as electric toothbrushes, hair dryers, coffee machines, and toasters.
They even used military radar technology for civilian use, and developed small appliances such as radios, portable TVs, stereos, etc., and distributed these products to all parts of the country through franchise retail systems and agency systems.
04 Running on a diverse road:Bolchi’s hegemony
In 1963, Borch was appointed CEO of General Electric.
Bolchi’s first job after entering GE was a financial auditor, and he spent most of his time in sales and market influence.
In 1959, before becoming CEO of the company, he was the leader of the consumer business unit. After succeeding Cordinal, he realized that he faced a big challenge – the company’s income has always been hovering around $5 billion.
In order to change this situation, he launched the “Growth Committee”, where they look for major growth opportunities for the company:
1) These opportunities must first be related to GE’s strengths;
2) Its potential development prospects are higher than the growth rate of the gross national product.
This move ultimately led GE to select nine new growth areas, including four product-oriented areas (nuclear energy, computers, plastics, aircraft engines) and five service industries (entertainment, community development, education). , financial and personal credit services, medical services).
▼Bolchi era, General Electric works in 4 products, 5 service areas
Data Source: Guotai Junan Securities Research
Bolchi’s new business has increased the company’s revenue, but many businesses have not made a profit, and the company’s cash flow has also been affected.
▼Business Summary of Success and Failure in the Borch Age
Data Source: “General Electric Success Tips”, Guotai Junan Securities Research
For example, in the field of commercial computers.
The Bank of America originally planned to select GE as a computer terminal for business and financial accounting in 1956, but this business was vetoed by Cordinal.
After the veto, Bank of America looked for IBM, and IBM used this project to build an advantage in commercial computer systems.
This veto brought a lot of damage to GE. Given that the commercial computer market is in the early stages of industry development and GE’s technology and software advantages in commercial computers, the company decided to enter the commercial computer field to compete with IBM.
But the company’s misjudgment of some important factors ultimately led to the company’s business computer business falling into an unprofitable embarrassing situation.
Another example is the entertainment industry.
Because GE operates several radio and television stations, and the growth committee believes that these platforms can produce special programs for TV networks and independent TV stations, and can provide movies for playback through traditional video channels, the company has established The entertainment sector is entering the entertainment industry.
But the conservative management style of General Electric’s management is incompatible with Hollywood’s work and lifestyle, and because the company’s growth committee is not fully aware that film distribution and its associated theaters are highly controlled, So the company’s entertainment department was finally confirmed to be a mistake.
Successful projects are not without, such as the company’s personal financial services business.
At the beginning of the establishment of the personal financial services business, the financial industry’s services were very scattered, banks were prohibited from providing insurance and investment advice, and investment companies were not able to provide bank lending services due to the high degree of control by local industry associations and the government.
With the help of General Credit, it is able to leverage the parent company’s AAA credit rating to borrow funds at attractive interest rates and is not as tightly regulated as its competitors’ banks and investment companies, so it can provide more financial With these two advantages, personal financial services have finally become the most successful business of all the company’s services.
Bolchi’s decentralized management makes GE more like an alliance than a company.
Each department operates independently and competes in the business. Employees pay more attention to their personal business and do not maintain the company’s overall interests.
They pioneeredFive of the nine businesses failed, and this situation forced Borch to rethink the company’s strategic direction and business mix.
He introduced the company’s strategic vision and decision-making process, so that all business units should evaluate their business portfolio from the height of the company’s overall development. This is the first time in the company’s history to cut and restructure the original business portfolio.
05Spiritual crisis:Welch’s brilliant and declining seeds
In 1972, Reginald Jones (1972-1981) succeeded Borch’s leadership position. Jones is a travel auditor from the FMP program, and his financial performance requirements are very strict.
He will continue to judge GE’s business based on financial data, and based on these assessments, allocate enterprise resources to more promising, higher-yielding businesses.
In 1981, Jones divided GE’s business into six strategic business areas:
1) Energy;
2) Energy use and production;
3) Communication, information and automatic detection;
4) Materials and resources;
5) Transportation and power;
6) Comprehensive services.
But soon after the new strategic system began, Jones retired.
The new successor, Welch, is not satisfied with Jones’s grand vision. He is more inclined to make things simple and simple, to return to the truth, to do subtraction and cost reduction as their primary goal.
Based on four dimensions of business (I (Investment/Growth), II (Selective Growth/Protection), III (End/Harvest), IV (Exit/Harvest)), he divides all GE operations into Service, high technology, core, and peripheral business.
For example, the peripheral business is what Welch thinks is the least important business in GE.
▼ Welch divides the business into different dimensions based on its three-ring theory (service, technology, core)
Data Source: “Jack Welch Autobiography”, Guotai Junan Securities Research
In the first two years of his tenure, Welch sold 71 production lines, returned more than $500 million, and completed 118 investment transactions, including acquisitions, mergers, joint ventures, and equity investments.
▼ Schematic’s “reorganization, closure, sale” sketches by hand
Data Source: “Jack Welch Autobiography”
Through a series of operations, GM has abandoned the central air-conditioning, small appliances, consumer electronics, semiconductors and other businesses.
▼ Welch believes that the semiconductor business, is cyclical, capital intensive, and has a short product life cycle
Data Source: “Jack Welch Autobiography”
And GE’s financial business is one of Welch’s favorite businesses.
Under Welch’s leadership, GM’s financial services business has evolved into a financial trader that is stable and good at taking advantage of opportunities, and has grown rapidly over the next decade. The financial sector is constantly being established.
In 2000, GE’s financial services business already had $370 billion in assets and 24 operations in 48 countries. Financial services have become the most important business in GE.
The service target of GE Finance at this time is no longer limited to the group, but extends to the upstream and downstream of the group’s external industry chain, and even to various international markets.
By using diversified operations, cross-border mergers, and financial leverage, Welch increased GE’s market capitalization from $13 billion when he took office to $480 billion, and was once the company with the highest market value in the US.
However, this model has gradually exposed the limitations and high risks of short-term thinking. The financial expansion has enabled GE to give beautiful reporting data when its manufacturing capabilities and R&D capabilities have deteriorated. The explosive growth of financial benefits masks the fact that technology and patent-driven growth have emerged.
Welch advocated “speed win”, which made GE more and more inclined to pursue short-term profit growth returns and neglect the development trend of industrial technology research and development during his tenure.
It’s in WelchIn the 20 years of simplification and brilliance, the performance has been flourishing, and the GM “innovation” gene has also been lost, which has laid the seeds of crisis for GE.
06 There is no return:Imelt’s efforts and collapse
Since 1994, Welch began trying to find a long-term successor for the company. In the end, Jeff Immelt stood out from the crowd of candidates.
But General Electric, which was taken over by Immelt (2001-2017), is a huge financial group. GE’s financial services division has made great strides, with more than 46% of its revenue coming from Financial services department.
Imelt wants to pull the company back to the technology-centric drive, but this reform has been a long way to go.
In 2012, GE determined that the Industrial Internet would be a breakthrough in GE and the industry as a whole.
With the convergence of big data analytics technology, cloud computing technology and mobile technology, the Industrial Internet will eventually connect all the “application islands” to create a huge physical world composed of machines, intelligence and digital.
General Electric has defined its role as a spoiler in the industrial sector, investing heavily in software, sensors and the Internet of Things.
▼6 core business units by Immelt in 2006
Data Source: “General Electric Success Book”, Guotai Junan Securities Research
Evenly, Immelt’s efforts did not make GE out of the fact that it relied too much on financial business to achieve financial growth.
After Immelt took office, GE Finance vigorously carried out international expansion, but excessive capital activities led to a rapid increase in the scale of its risk assets, and the financial sector gradually became a major source of liabilities for GE.
In 2004-2007, GE’s annual financial gap was $21.1 billion, and in 2007 it reached $40 billion.
In order to make up for the funding gap, GE Finance relied on the issuance of commercial paper for debt financing, and eventually the financial business collapsed in the 2008 financial crisis.
In 2017, Immelt stepped down and after six years of management review, the management hired FranNari is the new CEO of General Electric.
Franner quickly embarked on a series of drastic reforms, but the capital market seems to be very unfaced.
After more than a year of stock decline, on October 1, 2018, GE fired the current CEO without warning, and announced on the official website that company director Lawrence Culp succeeded to become the new chairman and CEO of GE. It also broke the tradition of GE’s selection of CEOs from within the company for over a hundred years.
07 There are many more to learn than sighs
The moon is full, and the glory is fading. It seems to be the unbreakable truth of nature. Since last year, GE has been in a negative situation, and public opinion has been raging.
In fact, over the past 130 years, GE has been a leader in the industry for a long time, and its performance has been impressive.
Even if you stand today, when we look back at GE’s centuries-old history, we can still learn a lot from this great company.
At the beginning of the company’s establishment, Edison instilled in GE a concept of a high degree of rigorous attitude towards R&D activities, and GE’s long-term commitment to this concept is one of the reasons for the company’s long-term success.
After that, Coffin created a system for discovering, nurturing, and retaining outstanding management talent, so that GE has never experienced a period of talent disruption.
American famous scholar Jim Collins commented on Charles Coffin in “The Evergreen”, saying that he focused on creating a company instead of creating a product. He is a bell maker, not a timekeeper. .
The institutional management of Coffey and future generations of leaders has built General Electric into a precision-running clock machine. This fully automated clock will time the historical moments and lead the organization to a relatively correct path.
1. The company always inherits the talent concept and regards talent as the most important resource.
The Tao Te Ching: “The heavens and the earth can grow long and long, so they can live forever, so they can live forever.” Laozi believes that for a long time, the reason why Tianhedi can exist for a long time is precisely because they have all kinds of things, so they can survive for a long time. GE’s long-term cultivation of talent is one of the reasons why GE can survive.
General Electric’s training system has made the company talented, and almost all executives are promoted internally.
At the beginning of its founding, GE recognized that people are the company’s most valuable resource and wealth, not the company’s spending.
German’s past leaders focus on the career development of employees in key functional areas, and through the constant investment and unremitting efforts to develop the potential of these talents.
From the Coffin era, GE set up a special program to recruit key personnel, instill them with GE’s ideas and train them.Reward those excellent employees and eliminate those unqualified employees. Coffin systematically established a training program that laid a solid foundation for GE’s rise in the electrical age.
In the era of Cordinal, GE further extended its talent training and reserve philosophy to various departments, including management. He established the Crotonville Training Center to systematically establish a series of training programs for each company. Level employees are systematically trained.
Welch era, he attached great importance to the company’s human resources and talent training system, and personally went to Crotonville to conduct interactive training for the company’s employees.
This makes GE always have a rich talent pool. In any era of great historical opportunities, the company always has enough talent to seize market opportunities. GE’s training not only trains executives at all levels of GE, but also trains executives across the US industry. GE has always been considered the cradle of corporate executives.
Jim Collins believes in his “Essence of Everlasting” that great companies often cultivate and promote talent from within. The great company regards the promotion of talent from the inside as an important factor in its core.
From 1806 to 1992, Collins research found that only two great companies directly hired external executives as their CEOs, accounting for 11.1% of the great companies, while the contrasting company that is a great company for Collins research, There are 13 CEOs hired from outside, at a rate of 72.2%.
In Collins’ survey data, only 3.5% of the 113 CEOs of the great company came from outside the company, while 22.1% of the 140 CEOs of the control company came from outside the company.
▼Between 1986 and 1992, the proportion of external CEOs in great companies was much lower than that of comparative companies
Data Source: Jim Collins “Essence of Everlasting” Note: The company is a great company that Collins thinks, and the comparison company refers to the same industry comparison company of a great company.
2. Coherent leader succession and shared management enable the company to seize opportunities at key moments.
General Electric has established a good heir selection system that will allow the company to always choose a completely different successor from the previous CEO.
This difference can adjust the company’s strategy according to the changes in the real environment, so that the company can always adapt to the market, and can correct the previous one.The lack of leadership.
3. A good system of checks and balances is a prerequisite for the company to always choose the right leadership.
The company’s good external directors play an important role at the company’s critical time.
Since the company’s inception, the company has an excellent board of directors, mostly composed of outside directors. GE’s external board of directors not only attends board meetings but also visits business units.
External directors have a long term, they are more focused on the management of the company and make a significant contribution to the health of the corporate governance structure.
For example, when Edison and Westinghouse’s DC and AC battles were defeated, the board decisively led to the merger of Edison Electric and Thomson Houston, and chose Coffin as a new manager. The company’s leader. The decision of the board of directors has created a bright future for GE.
The GM’s regular succession system also shows that when a leader leaves, the leader will be asked to leave the company completely and not be allowed to remain in the company as an outside director or consultant.
This requirement enables the next leader to exercise decision-making power independently, and is able to reform the malpractice of the former leader and make GE grow healthily.
Inversely, we believe that Welch’s excessive success and excessive deification have had a major impact on Immelt’s policy approach, and this influence has made Immelt aware of GE’s excessive dependence. The facts of the financial business, but at the same time as the reforms will become timid, making it difficult for GE to return to the essence of technology-driven.
4, company-shared management keeps the company’s management calm.
In fact, at the beginning of General Electric’s establishment, it adopted a collective leadership approach.
This approach effectively and systematically unearths a wide variety of insights and recommendations from its leadership team members. Coventin’s pioneering model of sharing leadership has had a profound impact on GE.
From Coffin to Borch, GE has been balanced by two leading groups to lead the company’s development. Coffin is an expert in marketing and interpersonal relationships, and he works with Rice, who is in charge of production. Swop is an engineer and is also a good complement to lawyer Yang.
From Borch to the present, GE has always had a “president’s office.” Borch’s decision to introduce the “President’s Office” allows GE to have a highly diverse executive team to share leadership power, which allows companies to achieve different perspectives while developing key policies.
5, every key stage of the company’s life cycle, you can meet the right leaders.
From establishmentSince then, GE has started to train its own management team. This has made the company always select talents from within. Most of GE’s leadership positions are selected internally by the company.
The company’s coherent candidate system allows the company to always select leaders with a big picture and a high profile. Each of them has different personalities, skills, and abilities that are consistent with the company’s specific requirements at a particular stage of development.
▼The company’s different lifecycles have leaders that are well suited to their development
Data Source: Guotai Junan Securities Research
▼Pre-tax ROE comparison of GE’s CEOs during their tenure
Data Source: Jim Collins, “Essence of Everlasting”, Guotai Junan Securities Research
For the future, “100-year-olds” General Electric is still walking steadily on the path of painful transformation, and we sincerely hope that it will return to the right path of development.