Learning from the Best Managed Company — GE !

(classic article – earlier published)

For more than 10 years I have been closely following the progress General Electric/GE, called the “The World’s Most Respected Company”, and especially the way it is managed, and its capability to build from strength to strength.

Their achievements are even more impressive if one realizes that they are operating in some of the most difficult sectors of the economy.  As a large and widely diversified conglomerate, GE should be more handicapped than other smaller, more focused companies due to the fact that it is so complex.

 Recently I actually studied their 2003-Annual Report.  Again a very inspiring exercise!  But what did I learn?  In their letter to their stakeholders the CEO, Jeffrey R. Immelt, clearly describes which ‘drivers’ helped GE again to enjoy excellent performance (his words).  As he frequently used words like ‘excel’, ‘excellence’ and ‘excellent performance’, I thought, let’s ‘frame’ GE’s drivers using our TPE Framework of six Drivers for Excellence.

I will start with summarizing GE’s ‘vision’ (“The environment we see”) where he describes, among others, some global trends like globalization, creating excess capacity and resulting price pressures, global competitiveness from places like China and India, and new technologies which will contribute to further margin erosion.  Winning companies will sustain long term growth by betting on high-growth markets to which they can bring unique technical and management capabilities (one of GE’s key strengths).  He then mentions that GE can outperform by executing their ‘strategic imperatives’ to sustain our strong business model; strengthen our portfolio and drive our growth initiatives.  Their business model has two dimensions : ‘broad-based financial contribution of our businesses’, measured by double-digit earning-growth of the BUs’ and ‘continuous improvement in execution’, measured by cash flow growth and balance sheet strength. 

 The ‘Drivers’ he refers to, I have ‘grouped’ in our TPE format: 

Portfolio Excellence ‘Strong organic growth’. M&A : ‘Committed $30b to portfolio moves to create further growth’. ‘Fix or Exit’: Refers to “GE Doghouse” & how subsidiaries have been ‘fixed’ and others exited.	Marketing Excellence Customers : ‘Pass on your excellence to      your customers, so that they also win, building enduring relationships’. Products : ‘Launched dozens of leading-edge products, filed many patents and developed new technologies for future products. Distribution : ‘Winning companies have strong direct sales force’.  90% of GE’s revenues is through direct customer contact.
Operational Excellence Operations: ‘Continuous improvement through six sigma’. Technology: ‘Spent $4b on technology’. ‘2000 researchers in global Research Centres around the world (India, China). Leverage global capabilities to local markets.	Organizational Excellence People/HR: ‘Give staff the technology and the training that make them competitive’. ‘We recruit, we train, we develop and we improve’. ‘Want to raise ‘growth leaders’, people with market depth, customer focus and technical understanding’.
Reputation Excellence Corp. Communications: From Core Values to Core Actions: ‘Imagine, Solve, Build, Lead’. Strong governance. Mention four ‘Believes’ and one ‘Worry’ when ‘GE wins’.	Financial Excellence Increase operating cash flow by higher      turnover of inventory, receivables’ (‘Bonus-linked’). AAA-rating and ‘leverage this strength’. ‘Dynamic control and procedures’. High quality financial reporting. Key performance metrics.

Although I do not intend to list all the reported issues, it is interesting to note that compared to our TPE Drivers for Performance Excellence, that some of our key TPE-Drivers are not referred to, such as: ‘Partnerships’ (Portfolio), ‘Branding’ (Reputation) and ‘Risk Management’ (Financial).  However, they might be addressed in their Operational Plan.

As you may know, one of GE’s biggest and most profitable Business Units is GE Capital.  Its Consumer Finance Unit made US$2.1b profit, while the Commercial Finance Unit reported a US$3.8b profit in 2003 and the Insurance unit US$2.1b.  Equally interesting is that the sources of profits were derived from market segments not typically found within more traditional financial holdings.

GE remains one of the most inspiring companies from which to learn in our attempts to ‘outperform the competition’ and to achieve ‘continuous improvement’.

Advertisement