GE explains why they are CONFIDENT and believe that their strategy is still right!

Confidence... is vital in a crisis situation and it continues to be apparent the Immelt and his team are very confident that they have the right strategy and it will yield positive results for all of the stakeholders.

This is summary of what they have communicated on the GE website (http://www.ge.com/) , about the critical issues and how they are addressing them. I would like discuss these points briefly:


GE is a strong and solvent company-- and adapting to change..
My opinion: I am happy that Immelt and his team have recognized that being adaptable is key to the success of the company. This is one of the key points I made in my book.
The Company is safe
• "We have taken actions to keep the Company safe and to maintain a strong balance sheet. These include reducing leverage and long-term debt needs to solidify our Triple-A credit rating and raising an additional $15 billion of cash through an equity offering. This is money in the bank that gives us additional protection and flexibility."
My opinion... unfortunately the actions taken to keep the Triple A rating caused the stock to dive to as low as $12 a share... this was a surprise and it is critical that future surprises be avoided.
Aggressive cost management
My Opinion...GE has always been focused on cost reductions. However, it is very difficult to rely on the Business Units to do this without top down prodding and enforcement. The combination of top down and bottom up cost reduction has worked the best. The key is assure that the most vital businesses don't sacrifice the future to make the short term numbers...
No “bailout” money
My Opinion-- unfortunately "perception is often reality" and the company's moves to get Buffet and Government money made it appear that it was required and not just desired... it is vital that the company review the words and timing of its actions so that it is not just related to sick companies.
Diversified business model
My Opinion... most of the most recent news stories about GE appear to confirm that energy and infrastructure are doing well. It is vital that this continues and if there are changes that the company inform investors early and tell the entire truth... NO SURPRISES...
Global growth
• "More than half of our projected ~$187 billion in revenues will come from outside the U.S. this year. While other economies are experiencing challenges, some areas are growing and our broad diversification will serve us well."
My Opinion: I am still concerned about having Research and Development Labs in China and India, since it puts GE innovative and technological assets and skills in countries where it is not uncommon to have them pirated. China still has a poor track record on patent and copyright protection.

• "Providing service to our customers is a key piece of our business. It is even more important in challenging times as customers want to insure that their equipment is running efficiently and effectively. Services are high margin; they will contribute about $35 billion in revenue in 2008 and make up a significant portion of our backlog. GE Capital is profitable and manages risk prudently"
My Opinion... Services have a been a key to GE's success since the Jones era...however, the best services are based on strong technological based products and systems.
• "GE Capital is expected to make about $9 billion in 2008, more than almost any other financial services company in the world"
My Opinion is that GE Capital plays a vital part of the overall GE strategy, since it enables the company to finance high tech systems and projects...but it has been allowed to take on a life of its own and became all things to all people and highly leveraged and opportunistic... Immelt has promised to reduce the dependence on GECC now he must do it.

"We are a profitable, well run business with a portfolio of high quality assets and hold the highest long and short-term credit ratings from S&P and Moody’s. Notwithstanding this, we continue to diversify our funding sources (including growing deposits), reduce our reliance on commercial paper and strengthen liquidity and capital adequacy to improve our access to funding."
Stock price
My Opinion: GE's stock has been impacted by the financial crisis, but if the company had not missed its first quarter and surprised everyone, including themselves, it would still be in the high 20's or low 30's. It was SURPRISE that caused half the problem.

Overall, I am still a GE fan and investor... I still think the company needs to be more selective and focused and not be focused on GOING BIG and GOING GLOBAL..further they need to slow down, focus on doing what they say and avoiding further surprises... if they do and follow the key factors of past success, which I call LATIN...Leadership, adaptability, talent, influencing and networks, all of the stakeholders will prosper.

Bill Rothschild, author of the only objective, comprehensive and insightful analysis of GE's 127 years of successes and failures and the lessons we can learn from both...THE SECRET TO GE's SUCCESS.

GE's actions and contracts increase confidence!!!

It is both reassuring and confusing that GE is continuing to invest in new projects as though nothing is happening in the world. The latest $850 million investment in a wind farm, in British Columbia is just one in a series of new investments that the company has made. This is confusing since the company just accepted Federal Government money to assure preserved its AAA credit rating.

Hopefully, these actions and the continuing number of large energy and infrastructure contracts worldwide will reassure the investment community that GE is not only going to survive but will do what it did in the past prosper because of its ability to adapt and provide the leadership required to do the job.

Bill Rothschild, author of the only objective, comprehensive and insightful analysis of GE's 127 years of success and admitting and responding to its failures, THE SECRET TO GE's SUCCESS...now in six languages including Chinese, Indonesian, Japanese, Spanish and Korean.
Available on www.Amazon.com .

The GE Capital Story

In 1932, General Electric recognized the need to help its dealers survive the Great Depression and have cash to finance their floor planning and consumer credit, so they created the General Electric Credit Corporation. GECC continued in this role until the 1960's, when Fred Borch created his "growth council" to identify new ways for the company to diversify and get off the $5 billion revenue plateau, that resulted from the Great Electrical Conspiracy...the price fixing scandal.
One of the recommendations of the Growth Council was to focus on FINANCIAL SERVICES, which included moving into other financial sectors. The head of this task force was Ticker Klock, a GE financial executive. Borch selected Klock to expand the scope of GE Credit and he moved the company into other financial services, including commercial financing and "private label" credit cards.
During the Jones era, GE recognized that financial large commercial projects was both a MEANS to enhancing revenues and an END to make more money. For instance, GE was able to sell more jet engines if it financed the the aircraft and then provided operating leases to airlines. The same was true of locomotives and so GE Credit became a key element in GE's marketing strategies.
When Jack Welch became CEO he selected two of his key staff from GECC. One was Dennis Dannerman who became CFO and other Larry Bossidy as his Vice Chairman. Dennis and Larry convinced Jack to increase the size, importance and scope of GE Credit and make it GE Capital. Welch appointed Gary Wendt to head of this organization and gave him a license to grow. Under Wendt, GE Capital increased in size and importance to GE and served as a means of managing earnings. GE Capital had a competitive advantage because it could borrow under its parent's AAA credit rating and have a strong competitive advantage.
This combination of a Financial Services subsidiary and a strong manufacturing portfolio, enabled GE to provide predictable and positive earnings growth.
Unfortunately, nothing lasts forever. Today GE Capital has become a liability and not an asset and so GE has witnessed a loss in confidence and a rapidly declining stock price. Immelt has vowed to reduce the size and importance of GE Capital. He announced he was restructuring the organization and it would become a smaller contributor to GE's bottom line. However, he also announced he would use the same successful JET Enging financing strategy to enable GE to grow its solar and wind generation businesses.
I have always believed that GE Capital should be a "means" to help the manufacturing businesses to grow and not a END of its own, in shore, I think it is appropriate to move back to what its role was in the past and not be a financial services company.

Bill Rothschild, author of the ONLY objective, comprehensive and insightful assessment of GE's 127 years and even predicted the current problem....THE SECRET TO GE's SUCCESS and GE Watcher blog (www.strategyleader.com)

Standing and Fighting- the difference between General Motors and General Electric Labor Relations

Standing and Fighting - one of GE's success policies!!

Many leaders have taken the easy way out. Rather than taking strong stand against adversaries they have been willing to give in to unreasonable and uneconomical demands rather than standing a fighting.

This is painfully obvious today when we witness the problems in the automobile and its supplier industries. General Motors and Ford are almost in bankruptcy and asking the Federal Government to save them and are not able to compete against its non-union foreign competitors. Not only are their wages high, but they are forced to pay for workers who don’t work, fund pensions, and contribute to ever increasing health benefits. In addition, these companies are forced to operate in old, non-competitive factories in locations that have high taxes and worker protection laws.

All of these problems were not caused by the current management but by those who preceded them, especially the leaders in the 1950’s and 1960s. Following World War II, the United States experienced its most prosperous times. There was enormous demand for consumer and industrial products. During the war, the entire US manufacturing effort was focused on winning the war and not on providing consumer and industrial products. Further the US companies stood alone in the ability to provide these products worldwide, since the European and Far East producers had been devastated during the war.

Unlike other major companies in autos, steel, aluminum and transportation, GE was unwilling to “pay off” the unions with overly generous, non-economic wages and benefits. Instead, GE leaders took a strong stand in the mid-1950s against the then strong labor unions dominance and uneconomic demand.

Led by Lemuel Boulware, GE’s refused to participate in industry bargaining and negotiated with the unions on a company basis. They carefully thought though what was in the balanced interest of employees, investors, stockholders and made a “fair offer” prior to the negotiations. Though they were willing to make some concessions, they were firm and were willing to take a strike rather than give away the shop. They christened this approach “Doing Right Voluntarily” and used these policies and practices to assure that the company didn’t mortgage its financial future. In addition, GE made it clear that it was ready willing and able to move its established plants to friendlier, non-union locations, rather than be blackmailed.

This practice became known as “Boulwarism” and though it received a great deal of negative press, it worked for a number of reasons:

• First, GE had a long positive track record from the company’s inception of caring about its employees and their welfare. They instituted a suggestion system in 1906, a pension program in 1912 and insurance in 1920.


• Second, the major GE union, the United Electrical Workers (UE) was a communist led union that appeared to be more concerned with having a people’s revolution than about the conditions faced by the GE workers themselves. This union was highlighted in the McCarthy hearings and was ultimately ejected from the CIO.


• Third, the CIO created a competing non-communist controlled union, under Jim Carey, who aggressively sought to convert the UE members to the IUE. Further other powerful unions were part of the GE bargaining units, including the Teamsters and the IBEW. So Boulware divided and conquered the unions and didn’t have to face one dominate union, as there were in the auto, coal and steel industries.


• Fourth, as we said GE did its homework and was willing to give the workers, both union and non-union, attractive and even innovative benefits before they were required. In most cases, the workers recognized that the benefits and wage increases were fair and balanced and were will to accept them without a strike. This neutralized the unions bargaining power.


• Fifth GE hired the “Great Communicator” and the popular host of GE Theater, Ronald Reagan to tour all of the GE plants and spread the message of evils of Big Unions and Big Government. Reagan claimed to have visited 135 GE research and manufacturing facilities and met with some 250,000 individuals. It ultimately led to his own conversion and gave him the underpinning of his successful election to President of United States.


• Sixth and probably most important, GE was willing to close plants in unattractive union locations and move them to non-union cities. This was very powerful, since it gave the company power that the auto, steel and coal companies didn’t have. GE was an early proponent of moving to the southern US and overseas.

Overall the GE Boulwarism approach enabled the company to maintain control over its own destiny and not allow Big Unions and Big Government to dictate to them. GE was unwilling to mortgage the future for short term gain and was willing to take a strike if it was needed. This was sharp contrast to the other industry leaders who accept peace at any price and didn’t appear to care about the long term implications of giving away the shop.

This is just one of the elements that has enable GE to prosper and grow over its 127 years of existence, while other United States giant companies have gone out of business or are one the verge of bankruptcy. The complete story can be found in my latest book “The Secret to GE’s Success”, published by McGraw-Hill and a global best seller...now in six languages, including Simplified Chinese, Japanese, Korean, Indonesian and Spanish, as well as being digital. It is being used in many MBA and Executive programs worldwide. Other strategic leadership books are available on www.strategyleader.com

India's Financial Express highlights and learns from THE SECRET TO GE's SUCCESS !!!

India's Financial Express highlights and learns from THE SECRET TO GE's SUCCESS !!!
7:02 AM PST, November 10, 2008
India's Financial Express Newspapers highlighted a section of my book THE SECRET TO GE's SUCCESS... The Indian press have shown a significant interest in learning what they can from GE's remarkable history, since GE has made India one of its three key growth areas...I thought you would be interested in what they have focused on.
Bill Rothschild, CEO of Rothschild Strategies Unlimited LLC

GE's success secret decoded
Borch's Growth Opportunity Ventures taught GE many lessons, which GE later incorporated into its strategic thinking and management systems and into the GE Code as well. Let's review some of the reasons that only a few of the ventures survived and succeeded.
Leadership
Unrealistic view of how long ventures take to succeed: Most of the ideas that the growth council proposed have become real and profitable businesses. But it has taken decades for them to materialize, and it has required a sustained, long-term commitment and the investment of leadership, people, and money. This is evident with the ultimate success of jet engines and financial services, and—I would argue— the likely resurgence of nuclear power.
* Recommendation: Realistically assess the time it will take for your new ventures to grow and become profitable. Make sure that you err on the side of being conservative—and don't overpromise.
Too many ventures at one time: GE's biggest error was to believe that it could pursue all of these ventures at the same time and that it had the financial and human resources to make them all successful. Each of the opportunities required more cash and capital than anticipated, and the total requirements were enormous—beyond any one company's ability to fund them. In fact, it is amazing that the company didn't go broke during this period.
Without doubt, Borch grew the company: Revenues increased more than $3 billion in three years. But it was a profitless growth, which dearly demonstrated that the company needed a new way of planning and setting priorities.
* Recommendation: Be selective. Don't bite off more than you can chew. Focus on the most attractive opportunities where you can most easily succeed and be sure that you have a clear understanding of what it will take to win before you embark.
Adaptability
Didn't understand the businesses: Though the council identified growth opportunities, it did a poor job of figuring out what it would take to sell the products or services. It lacked an appreciation of the competitive environment and the response of the incumbents, and—most important—it didn't take into consideration the power and influence of governments and labor unions.
* Recommendation: If you are planning to move into a new market, either by internal ventures or acquisitions, be sure you really understand what is critical to being successful.
Talent
Believed they could do anything: GE leaders believed that they could do anything and that the company's managers had been equipped to manage any business regardless of size, technologies, markets, and so on. Clearly, the outcomes of the ventures demonstrated that this conviction, which dates back to Cordiner and Smiddy, was simply wrong.
* Recommendation: Never assume that just because you have been successful in your current businesses that you have the skills and abilities to succeed in others. Recognise that all businesses have some distinct aspects that will separate the winners from the losers.
Networks
Made staff earn a living: Although Borch's assumption that he could reduce staff by requiring them to earn their keep turned out to be dead wrong, the idea of having a discretionary, fee-based staff is worth considering.
This approach has several advantages. First, it is Darwinian: Only the fit will survive. Second, it forces the staff to make a contribution to keep clients, and therefore it forces them to keep current. The major dangers are that some will survive just because they have friends inside the company and that the staff may become too myopic.
* Recommendation: Separate your staff organisation into two groups: essential and discretionary. Determine if you need your own discretionary resource, or if you should outsource it. If you think there is an advantage to having your own staff, then make them earn their keep.
Admitted mistakes and changed: To Borch's credit, he too recognised these errors, and in the second half of his tenure, he changed the company's management system to ensure that these types of mistakes would not be repeated. The ability to admit mistakes and make major changes is clearly one of the major contributions that Borch made to the GE heritage.
* Recommendation: Everyone makes mistakes. Sometimes the mistakes are large, and sometimes they are small, but they are all a part of leading and taking risks. The key is to follow Borch's example and be willing to admit your mistakes, take corrective actions, and try not to hide or make excuses.

If you wish to read the entire book...it is available on AMAZON.

The Training Ground...

The following is an excerpt of THE SECRET TO GE's SUCCESS, which appeared Express Computer , in India's leading IT weekly business

Manage-Wise
The training ground
Many electric utility executives, engineers, and professionals were graduates of GE’s test and management programs. Since GE kept only a percentage of the trainees, the company encouraged those who didn’t make the GE team to work for the electric utilities. This cultivated strong bonds between “GE alumni” and the company.
These mutually beneficial relationships between manufacturers and their customers were very common and were practiced in all major industries. It was the personality and skills of Coffin and his team, however, that made GE even more successful.
Coffin recognized the need to hire the best people and keep them loyal. He instituted several major training programs that still exist today, and he hired qualified people regardless of their race, religion, or politics.
Building a bench
From its inception to the present, GE has had a strong farm system organization. The company has always believed in the concept of recruiting young, retaining the best, and building from within.
Coffin and his management team recognized early that it was very important to recruit talented individuals early in their careers and then provide the training and work assignments to enhance their skills and company loyalty.
In 1901, GE established apprentice programs in Schenectady, Lynn, Bridgeport, and Fort Wayne, which were the major manufacturing locations. A combination of work assignments and evening classes were developed in four areas: machinist, draftsman, blacksmith, and moulder. Upon completion of a course, the graduates were awarded a “Certificate of apprenticeship.” This program was one of the key programs in the company until the 1950s. There were ties to local universities so that the apprentices also could work on getting engineering and technical degrees.
Coffin knew that the company needed competent, GE-trained and GE-loyal engineering staff, so he created the Engineering Test Program. This program was an entry-level program for all engineering recruits. The trainees were assigned to specific “testing” operations in the product departments, as well as the General Engineering Laboratory. Some were sent to the Corporate Research and Development Center.
Coffin also recognized the need to hire talented nontechnical college graduates, so he established the Business Training Course (BTC). The college recruits were given a variety of financial assignments, and they were required to take very intensive accounting and financial courses two nights a week. The trainees had to take weekend exams, and they were given grades as though they were in college.
Grades and work appraisals were used to determine who would be promoted. The best graduates were assigned to the Auditing Staff, enabling them to learn about the various company operations and enhance their ability to lead in these businesses. Graduates of the Auditing Staff became the financial linchpins, and often the general managers, of the company’s business units.
A personal recount
This is the program that I joined in 1955. I was a Fordham University Russian Language and area studies major, and I had never had an accounting course in my life. I soon found that I was not alone. More than half the BTC enrollees were liberal arts majors. GE believed it was the trainee’s ability, rather than his or her undergraduate major, that mattered.
All of the GE training programs had six common characteristics:
The programs recruited from the best technical high school, colleges, and universities. The apprentices were recruited from the best high schools; the engineering and BTC program candidates came from the best colleges and universities. The recruiters’ focus was on the candidates’ ability to learn, not just on their experience. This candidates’ selection process resulted in programs being filled with excellent and committed students. It also resulted in strong relationships between GE and the best high schools, colleges, and universities.
The GE training focused on the GE Way of doing things. Even if you were a skilled engineer or accountant, you often had to forget what you had learned in school and relearn the GE Way. Some of the trainees found this difficult, so it was often easier for GE to hire those with less education in an area and train them than it was for GE to convert those who already believed they knew how to do it. (My lack of previous accounting knowledge made it easier for me to learn the GE Way, in contrast to those participants who already had accounting degrees and had to “unlearn” what they already knew and then relearn the GE Way.)
The program trainers assigned challenging work. All of the programs used work assignments that were designed to help the participants practice what they were taught. GE was able to develop such challenging teaching materials because the program administrators assigned a “mentor” and “counselor” to each student to help him or her learn and adapt.
The programs included tests and work appraisals. The BTC, for instance, had Saturday morning examinations at the end of each course, and these three to four hour exams were as rigorous as any college or university exam. Numeric grades were given and posted for all to see, just as they would have been in college. (I was amazed at having to take exams and get grades. I was equally amazed at how competitive the program was.)
Breeding the best
Up or out. Throughout its history one of GE’s strengths has been its willingness to focus on the best and “prune” those not making the grade. So too did the company let go of those students in its training programs who couldn’t get the grades GE was looking for. The company used a combination of exams and work assignment appraisals to determine whether a trainee would (a) continue in the program, (b) be asked to leave the program but be allowed to stay with the company, or (c) be asked to leave the company outright.
GE gave certificates, not advanced degrees. Though the GE training programs were intensive and demanding, the graduates received only a GE certificate and not an advanced degree. This was done to ensure that the graduates stayed with GE and were less marketable on the open market.

Excerpt from 'The Secret to GE’s Success' by William E Rothschild. Reproduced with permission © 2008, Tata McGraw-Hill Publishing Company Limited. Price: Rs 595. Vishwanath_Ghanekar@mcgraw-hill.com
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Destroying STAKEHOLDER value and confidence!

During the past six months we have witnessed many companies destroy their stakeholders' personal wealth and confidence. Note I use the word "stakeholders" and not shareholders. Stakeholders include employees, communities, governments, investors, stockholders and any one who has a vested interest or "stake" in an organizations.

There are FOUR factors that have contributed to this destruction:

1. Unrealistic expectations. Most of the LOSERS have promised results that were unrealistic, poorly conceived and missed them dramatically. It is truly amazing how much money major organizations have lost and missed their promised results.




2. Surprised Themselves. To make matters worse, the management of these organizations have not only surprised their stakeholders, but themselves. This is the worse SIN anyone can commit. It means that the organizations lack internal assessments and believe their press releases and not the reality of their situation. It appears that they have had staff organizations who were "yes people" and not willing or able to point out that the "emperor has no clothes".




3. Arrogance and unwilling to admit mistakes and take responsibility. Not only have these "so called leaders" fooled themselves, but have been so arrogant that they refuse to admit they made mistakes and were at fault. They use the "blame game" to say that everyone else was at fault and not themselves.




4. Rewarding themselves for failure. Finally they destroy organizations, put them in bankruptcy, do harm to their investors, employees, communities, but have the nerve to take HUGE compensation packages. They reward themselves tens of millions of dollars and benefits for FAILURE.

It is amazing that these four characteristics can be attributed to major organizations. Some are still viable, but many have been destroyed forever and everyone has lost.

The real issues are: WHY DID IT HAPPEN AND WHAT CAN BE DONE TO PREVENT THIS IN THE FUTURE. I hope that the major MBA programs are studying this situation and will determine if they were also responsible for the problem and how they can prevent it in the future.

Bill Rothschild, author of the only comprehensive, objective and insightful assessment of GE's 127 years... THE SECRET TO GE's SUCCESS and Risktaker, Caretaker, Surgeon, Undertaker- the four faces of strategic leadership.