What can we learn from GE?
General Electric was valued at $600 billion in 2000 and had over 300,000 employees world-wide. Their stock price peaked at $32 but it plummeted to a record low of $5 last year. They were removed from the Dow Jones Industrial and recently shareholders voted to approve a controversial 1–8 stock split.
What happened?
How did one of the original DOW members lose its reign after 120 years?
A new book titled “Lights Out: Pride, delusion and the fall of General Electric” describes much of GE’s downfall over the past two decades.
What are the lessons learned and how can we apply them to business today?
1. Don’t expand into too many businesses
GE expanded into a lot of different businesses including appliances, light bulbs, turbines, engines, medical equipment and financial services. It’s purchase of a large French transportation company was widely considered a flop. It had so many different businesses, that if one of the industrial businesses wasn’t doing well they would use another, often GE Capital, to help make the company look better. That worked until the financial crisis in 2008 when this was all exposed. They sold GE Capital in 2015 and used the money to buy back stock and because of #3 below no one said anything about not using the money to buy assets or something that would produce cash.
2. Don’t focus on short-term profits
Creative accounting or manipulating sales to meet or exceed Wall Street’s predictions or to please your investors will catch up to you. Honesty and transparency are expected now. Look at some of the top companies out there. They all had disappointing quarters but over the long-term they became financial powerhouses. Amazon went years without stellar quarters and they are the largest retailer now. Tesla is worth more than Toyota, VW and GM combined! Focus on the long-term.
3. Give managers 1 slide to tell you the good news AND the bad news
I saw a 17-page monthly report from a manager recently. Why not just send one slide that outlines the good news you want to share but also include the bad stuff? It is OK to be optimistic, but don’t motivate people to tell you the great stuff but not the bad. It may be too late to fix it when you find out. Everyone is a victim of their compensation plan and if there is no incentive to share worrisome information managers won’t do it. They won’t be vocal about their skepticism. Encourage it.
4. Don’t be over confident
GE thought their leaders were so smart and well trained in their own legendary management techniques that they could extend this into any business or operation and outperform everyone else. They believed that they were so good at producing managers that any business they owned was worth more just because it was owned by GE. It was a myth and mystique that fed a lot of their decisions.
5. Don’t hire people just to fire them
GE told their managers to classify employees according to letter grades. A players, B players, and C players. C players were considered the bottom 10%. They didn’t rank them in one big bucket but rather per team usually comprised of 3–8 people. This led to challenges with morale and caused high performers to avoid working on the same team. Why would you want to be measured against other high performers and risk looking average? Other companies have adopted a similar model and have taken it so far as to force each manager to have an “unregretted attrition rate”. This means they will fire a certain percentage of employees that they won’t regret losing. Brilliant, right? It gets worse. Managers would then intentionally hire people they intend to fire within a year. They do this to protect their “real team”. Clever, but unethical. It doesn’t promote a healthy team environment where high performers are willing to help others. I get it, some people need to switch positions, get demoted or move on to another company, but hiring someone with no intention of keeping them is wrong. Thankfully this practice has stopped at GE and other companies who followed.
I wish them the best of luck. Perhaps their move and commitment to Boston will revitalize a company that helped build modern America. It will definitely be a different GE that we remember.
I hope this helps others not make the same mistakes.
