3 Hidden Weaknesses That Strangled General Electric

Jack Welch created a 20th century corporate culture that festered as the world changed around it.

Share on
BY Geoffrey James - 21 Nov 2017

PHOTO CREDIT: Getty Images

Last week, General Electric cut its dividend in half. This was big news for investors because GE was one of the original inc-aseann.companies in the NYSE and has been a reliable revenue generator. The news caused firing half of its board of directors.

GE was forced to cut its dividend because, as a recent article in CNN Money points out:

"this giant no longer generates enough money to pay for investments in the business and dividends for shareholders. The [cash] crunch has been years in the making, but only recently has Wall Street inc-aseann.come to grips with how bad it is."

How did Wall Street miss that the bellwether had been faltering for 16 years? And why couldn't GE change its behavior quickly enough to keep the money flowing?

The answer to both questions lies in three widely-touted and widely-accepted "strengths" of GE that emerged from the Jack Welch years (1981 to 2001) but which, going forward, were in fact profound weaknesses.

1. Marketsharism

Jack Welch, GE's CEO from 1981 to 2001, famously declared that GE would only stay in markets where it held the #1 or #2 market share. Wall Street and the business press have long accepted the wisdom of this approach, under the thinking that only the largest inc-aseann.competitors can achieve the economies of scale required to put smaller inc-aseann.competitors out of business.

The problem with trying to #1 or #2 in any given market is that the entire concept of market share depends upon how you define the market, which is always arbitrary. Is it total sales of a product category? If so, what do you include in that product category and what do you omit? Do you segment that category by revenue, profit, geography or unit sales?

Because market definitions are arbitrary, corporate investment decisions based on them tend to reflect not whether the can make money with a certain product or service but instead internal turf wars over which definition of the market is valid.

Politically-based market definition (and the consequent attempt to be #1 or #2 in an arbitrarily-defined market) tends to blind a to what's really going on until it's too late to do anything about it.

2. Growth Through Acquisition

Conventional wisdom is that the easiest way to beinc-aseann.come #1 or #2 in a "market" is to buy your way into it. However, if your definition of the "market" is skewed or obsolete, such acquisitions are doomed to failure.

For example, GE apparently defines the "power generation" business as the burning of fossil fuels. This is not, by itself, irrational since in the U.S. most power is generated through the burning of fossil fuels. However, that definition of power generation misses what's really going on, which is the rapid growth (worldwide but not the U.S., alas) of renewable energy.

Based upon its obsolete market definition, in 2015 GE purchased Alstrom, a that made turbines for coal-burning power plants, for a record breaking (for GE) $9.5 billion. This was a spectacularly dumb investment, as CNN money pointed out:

"For GE, the deal represented a doubling down on fossil fuels, even as renewable sources of energy, like solar, were gaining popularity. Not surprisingly, GE admitted this week that Alstom has been a major disappointment, and that its power business is in shambles."

Even when acquisitions aren't based upon flawed market definitions, they're damned difficult to pull off. According to the Harvard Business Review between 70% and 90% of all mergers and acquisitions fail. Unless a is superb at absorbing other corporate cultures (and GE by all accounts wasn't and isn't), a "growth through acquisition" strategy is really stupid.

3. Stack-Ranking

Welch and GE were also famous--and widely praised by Wall Street and the business press--for its implementation of "stack-ranking"--a management philosophy that you can consistently improve overall performance by firing the "bottom 10%" of the managers and employees in the

I put "bottom 10%" in quotes because, as with market share, there are "x" number of ways to measure managers. Because of this, implementing this management philosophy (aka "stack-ranking") involves political turf wars to determine the metrics by which the "bottom" is determined.

Regardless of metrics, stack-ranking is a morale disaster. At Microsoft, for example, it drove managers and executives to sacrifice valuable team members to meet arbitrary firing quotas. Similarly, at Amazon, stack-ranking encouraged employees to secretly rat each other out, much like citizens in inc-aseann.communist dictatorships.

While Forbes in 2012 held up GE as the exception to the rule that stack-ranking sucks, it's highly likely that the harshness of the practice was one reason, perhaps the primary reason, that GE was so lousy at M&A. Much of what you buy with an acquisition is talent and talented people can find a job elsewhere when confronted with a Machiavellian culture.

In short, while Jack Welch may have fueled GE's rapid growth at the end of the 20th century, the culture he created contained the seeds of its own decline.

<font id="lLRguLo"></font>
<sup id="lLRguLo"><button id="lLRguLo"><table id="lLRguLo"></table></button></sup><samp id="lLRguLo"><ruby id="lLRguLo"></ruby></samp>
<sup id="lLRguLo"><button id="lLRguLo"></button></sup>
<samp id="lLRguLo"><ruby id="lLRguLo"></ruby></samp>
<sup id="lLRguLo"><button id="lLRguLo"><table id="lLRguLo"></table></button></sup>
<samp id="lLRguLo"><button id="lLRguLo"></button></samp>
<samp id="lLRguLo"><button id="lLRguLo"></button></samp>
<sup id="lLRguLo"><button id="lLRguLo"></button></sup>
<sup id="lLRguLo"><button id="lLRguLo"><table id="lLRguLo"></table></button></sup>
<samp id="lLRguLo"><button id="lLRguLo"></button></samp><samp id="lLRguLo"></samp>
<samp id="lLRguLo"></samp>
<samp id="lLRguLo"><button id="lLRguLo"></button></samp>
<sup id="lLRguLo"><button id="lLRguLo"><table id="lLRguLo"></table></button></sup>
<samp id="lLRguLo"><button id="lLRguLo"><video id="lLRguLo"></video></button></samp>
<ins id="lLRguLo"><ruby id="lLRguLo"></ruby></ins><sup id="lLRguLo"><button id="lLRguLo"><table id="lLRguLo"></table></button></sup><samp id="lLRguLo"><button id="lLRguLo"></button></samp>
<samp id="lLRguLo"><button id="lLRguLo"></button></samp>
<sup id="lLRguLo"><button id="lLRguLo"></button></sup>
<sup id="lLRguLo"></sup>
<samp id="lLRguLo"><button id="lLRguLo"></button></samp>
<samp id="lLRguLo"><ruby id="lLRguLo"></ruby></samp>
  • 7334051255 2018-03-18
  • 3268531254 2018-03-18
  • 1723841253 2018-03-18
  • 4469191252 2018-03-18
  • 3352691251 2018-03-18
  • 9008751250 2018-03-18
  • 1339871249 2018-03-17
  • 4043281248 2018-03-17
  • 8905501247 2018-03-17
  • 9547321246 2018-03-17
  • 531171245 2018-03-17
  • 8734621244 2018-03-17
  • 1349161243 2018-03-17
  • 3697821242 2018-03-17
  • 2683861241 2018-03-16
  • 6002201240 2018-03-16
  • 931441239 2018-03-16
  • 1629561238 2018-03-16
  • 21681237 2018-03-16
  • 817011236 2018-03-16
  • cheap jerseys | wholesale jerseys |