Feb 21, 2021
Jeffrey Immelt — Chaos Beats Strategy
Once considered the best-managed company in America, a series of crushing blows at General Electric were blamed on the CEO.
Becoming chief executive of General Electric was Jeffrey Immelt’s secret dream since graduating from Harvard Business School. But it would turn out to be a study in endurance, as Field Marshall von Moltke warned, “no plan survives contact with a hostile force.” By the time Jack Welch retired, his renown, respect, and wealth were no longer there for the taking.
Welch was as close to a celebrity as a chief executive gets.He reigned, and I use the word intentionally, in an era of several cable networks, three business magazines (I was publisher of one — Forbes) and the Wall Street Journal. Your focus was on those targets and Welch played the game brilliantly. But he wanted more. Appearing on CNBC was old hat (after all, he owned the network). He wanted a trophy for turning GE into a perpetual earnings machine — the kind that keeps on ticking and gives competitors a licking.
Welch was a tough Irish kid with a stutter and learned to talk fast or get paralyzed with fear. He felt the same thing happened with companies that reacted too slowly. Speed gave him fluency, and speed was his gift to GE.
Thanks to Welch, there was no higher achievement than running GE until the financial crash. When Immelt joined in 1982, he took on roll-up your sleeves assignments in Pittsfield, MA, and Louisville, KY, not exactly Ivy League stomping grounds for a math major from Dartmouth. But he relished the action of running plastics, appliances, and healthcare businesses before he was promoted to CEO in 2001.
He had learned the ropes the Jack Welch way. When Immelt was a young executive, Welch took him aside, looking through piercing blue eyes, “I love you, but if you don’t make your numbers, I’m going to fire you.” The brawny former Dartmouth offensive tackle got the message. At GE, if you wanted a friend get a dog.
Pundits and politicians harp about ‘greedy executives’ when they move their facilities offshore or lay off employees. This is because a politician’s idea of competition is a campaign. Their customers are the media who print whatever it takes to get access. In the business world, the competitor is China or Siemens, and Welch knew they would jump on any market he didn’t dominate. He was always thinking about the productivity curve. Immelt’s problem was that by the time he became CEO, there was no time to think.
Wall Street’s Game
“Fix or get fired,” Welch barked to his senior team in 1994. That same year he announced GE businesses would be either #1 or #2 in their sectors. It was not an option. Costs were cut mercilessly, and the media found a new nickname, “Neutron Jack,” reflecting the meme that the people were gone, but buildings remained. A few years after the financial crisis, the New York Times laid off its reporters and dismembered the fact-checking staff. This fact didn’t get much coverage. Welch had a different name for what he was doing. He called it “delayering,” taking layers of middle management bureaucrats out of the game, making the company an agile, lean, but sometimes a mean-looking machine.
The goal was whatever Wall Street wanted. If analysts assigned a multiple, it became a paint by numbers exercise. It didn’t matter if the business employed tens of thousands of people or took decades to build. In this instance, Welch was the polar opposite of Warren Buffett, the Sage of Omaha who wants to hold onto good businesses forever. Welch wanted to change outfits the way Rockettes did a new number at Radio City across from his office at NBC. He felt this was his business model. He would say he didn’t make the rules but learned how to operate and win by them.
Welch hated excuses. He hated failure. He loved winning. He believed telling someone he would fire them was ‘tough love’ and could turn s loser into a winner. Just look at Immelt, whom Welch named CEO. For all the controversy about Welch’s management style, GE became the best company in the world, and it could take on any challenger — but it was built for that moment. Wall Street was happy. Shareholders were delirious. Although the moment wasn’t going to last, how it came to an end was a shock of the highest order.
9/11 and Volatility
News of the World Trade Center terror attack hit Jeffrey Immelt hard. Like most Americans, he fretted, worried, and feared, particularly for his colleagues in the building who may have perished. But as GE’s boss, he had to think about the future of the aviation business in Lynn, MA. Was GE responsible? Would airplanes stay grounded? Would people stop flying? It was one of those times that shifts the zeitgeist.
Until terrorists hit the World Trade Center, America’s biggest human-made disaster happened on May 31, 1889, when the Johnstown Flood devastated western Pennsylvania. Industrialist Andrew Carnegie was blamed because his number two, Henry Clay Frick, built a hunting club just upstream from Johnstown that reduced the water level of the South Fork Dam nearby, causing it to break after heavy rainfall. Over two thousand people died. The “South Fork Hunting Club,” named after the dam, led people to point fingers at a rich foreigner (Cargenie was Scottish) who happened to be (only) a club member. Carnegie fled to Scotland, where he turned to philanthropy to assuage his guilt for the remainder of his life.
On 9/11, Immelt realized the thing he needed most was to predict the future. As good as he was, he was not trained as a fortune-teller. But he did foresee it would decimate the aviation business. At least he could rely on financial services to get him through. But by 2008, that washed up. During the global financial meltdown, the GE Capital profit machine took a direct hit. Government regulators looking to cover their behinds labeled it “systemically important,” which was an albatross, not a compliment. It meant the SEC watched every move. The Power business was in the doldrums for economic reasons and a binge of upgrading before he took on the job. It meant GE was running out of places to hide.
He might have recalled what Von Moltke said about making plans.
Takeaways
The Welch era didn’t have staying power. His cheerleading for “think only of now” had as limited. shelf life as the mind-numbing drone of long-term plans. Rogue waves sink all boats sailing the same seas. The problem was that between Welch’s time and the Immelt era, the Japanese and Germans were no longer the enemy, it was time itself. The new world order was based on an unarguable fact, chaos beats strategy because it is faster.
Model Failure
On the bright side, if you call it that, hacking works. Ask Barnes and Nobles, the leading bookseller since 1886. They were hacked. Talk to a driver of a yellow cab whose color was invented in 1960. Again — hacked. Amazon and Uber’s strategy prevailed in a faster, hotter, chaotic, and less strategic, more hackable world. When innovation metastasizes as it has, chaos overwhelms our ability to think strategically. Jeff Bezos says “day two” companies make the right decisions slowly. It meant GE was not built to dominate in this world.
Succession Failure
Part of the blame goes to Welch and the cult of personality. There is no advantage to following a famous predecessor. It subjects the successor to a probationary period from which they may never emerge. Immelt is a fellow who belies his quantitative and strategy smarts through amiable affection toward his team. When he walks down the hall, laughter follows like dominoes. When Welch walked down, you could hear sphincter muscles closing. It got attention but shut down communication. One of Welch’s lieutenants, Gary Wendt, told me the senior staff couldn’t take “Jack’s crap.” Of course, they never told him.
Governance Failure
Some blame GE’s decline on the board. It had the right names but the wrong abilities, like old pitchers who forgot spitballs are illegal now. Old-timers like Sandy Warner, who fought the turf battles of the 80s (at lunch once, Warner told me banks could never make money in foreign markets) or stellar women who crested the feminist tides like Andrea Jung and Anm Mulcahy, but who left their best days behind them according to their questionable legacies at Avon and Xerox. None of them were up to the task of helping Immelt guide the company to a digital future. The GE board never seemed to move past the days when Welch made their jobs easy.
Market Failure
Finally, some of the blame can be chalked up to Wall Street. To reshape GE like Google or Apple, the company had to abandon its profit engine, financial services, but the hurdle rate was too high. Nothing out there gave it the ballast to climb the rogue waves crashing about them. As a result, Immelt had a skimpy budget to transform the company and there was no appetite to break it up. If I had to take a guess, I would say Immelt’s best choice would have been to split the company and run the healthcare piece. Most likely, the board wouldn’t sanction the breakup of GE on their watch. Too bad. He would have made a killing and walked off a hero, which in many ways he was.
One of Immelt’s hallmark traits was asking opinions. He would tell someone like his CMO, Beth Comstock, “I have half an idea.” It meant throwing a bone of an undeveloped theory to a team member “asking them to run it to the ground. Getting fresh eyes on something I’d been noodling over gave me valued feedback on whether the idea was worth more of our time.” In hindsight, time was the big problem. The 21st century turned out to have very little patience.
