WINNERS...Set Realistic (even low) Expectations and EXCEED THEM

GE has the ability to do what I tell my clients "create realistic/ even lower" expectations and exceed them.

For the past few years, I believe that GE has created unusually high expectations and has not achieved them. This has contributed to the stock decline and loss of credibility. Now, the company can do the opposite. The "street" doesn't believe that GE can achieve the earnings it promises, but GE asserts it can,

SO...GE can do what it promised and be a perceived as an OVERACHIEVER...if it does, I believe the stock will surge and the GE management will regain the confidence it learns... and the investors will be happy.

A WIN/ WIN/ WIN opportunity...so I hope that Immelt and his team will use this unusual opportunity and be heroes.

Bill Rothschild, author of the only comprehensive, objective and insightful assessment of GE's successes and failures from Edison to Immelt... THE SECRET TO GE's SUCCESS and GE Watcher blog...

Economist's Magazines GE assessment is fair and balanced..but their conclusion is wrong!

My favorite magazine is the ECONOMIST, which calls itself a newspaper. It is my favorite because, unlike other magazines who think that brevity is the key to success, the Economist provides in-depth, comprehensive and in most cases, fair and balanced news, columns and special reports. Its GE analysis in March 21, 2009 edition, entitled: Losing its magic touch demonstrates what I am asserting. The Economist, unlike other publications, gave a good analysis of GE and its problems. Lets review some of the key points the article made about GE:

• "How did GE get itself into a mess that has seen $269 billion wiped off its stock market value since the beginning of 2008? The main reason is that the strategy which helped GE gain its reputation for consistently producing bumper profits, year in and year out, has backfired. At its core was GE Capital. Founded in 1932 as General Electric Contracts Corporation to provide financing that supported the group’s industrial businesses, the operation gradually expanded into other areas of lending unrelated to GE. Under Jack Welch, GE’s chief executive from 1981 to 2001, GE Capital grew rapidly." This is true GE Capital was established as GE Credit Corporation during the great depression to finance dealers inventories and consumer purchases (note this is different than the Economist "facts", but mine are correct).
• "If GE Capital were a bank, it would rank as one of the biggest in America (see chart 1). Its growth has made the division more and more important to its parent’s overall revenues and performance (see chart 2). In 2007 GE Capital’s profit made up 55% of the company’s total. "This is true and even though Jeff Immelt promised to reduce the dependence on GE Capital it didn't happen and the company became addicted to the ability to use GECC earnings to fill the gap and make the numbers.
• "Given the unit’s difficulties, it would be understandable if Mr Immelt wanted to jettison GE Capital as soon as it has been nursed back to health—which may take a while. But he insists he is committed to the business, which he says has strong franchises in areas such as aviation and energy finance, thanks to its close association with GE’s industrial activities." This is also insightful GE's success in aircraft engines was partially a result of GE's financing of the engines and providing operating leases to airlines. This was a successful strategy and should continue, but it doesn't require all of the consumer and commodity type of financing GECC does. These could be separated out and spun off. Possibly using a " tracking stock approach".
• "Mr Immelt, recognising that the world has changed, has placed more emphasis on organic growth since taking office. He has built up the company’s marketing expertise, whereas in Mr Welch’s GE engineers and spreadsheet jockeys were the masters. And he has focused on innovation. Since 2001 GE has invested $330m to expand its research facilities around the world. It spent $4.3 billion on R&D in 2008, up from $2.3 billion in 2002." This is a significant point. Welch focused on short term and not the long term and the company's ability to innovate declined during his tenure. Immelt needed to change the strategy and focus on innovation. In my book: The Secret to GE's SUCCESS" In my book, I entitled this "back to the future" since Immelt has tried to restore what GE once was, namely: innovative. However Jeff combined it with GO BIG (also discussed in the book") and this has become a major problem.
• "So does this mean that GE should be broken up? Assuming the company can revive GE Capital, there might be a case for hanging on to that business even if its margins are squeezed. By refocusing on its original mission, a stripped-down finance unit could help drive sales at GE’s industrial operations by providing finance for large infrastructure projects and other activities." This is key to GE's future success, namely to become more focused, more selective, use the financial arm as a MEANS to grow the other businesses and not an END in itself.
• "Some critics claim that GE’s boss has dented his credibility by making several optimistic predictions that have been quickly proved wrong. For instance, barely a couple of weeks before the company revealed that it had missed its earnings in the first quarter of 2008, Mr Immelt declared that he expected GE to hit its target. In September he denied that the company needed a fresh capital injection. But soon afterwards it announced that it had raised $15 billion from Mr Buffett and others." I totally agree that GE has created unrealistic expectations and has not been able to meet them. In my book, I challenged the company's assertion that it could grow at a 8% organic compounded growth rate, especially if the assumption that it could also grow earnings at the same rate, which had been the case under Welch.
• "Nevertheless the suspicion lingers that GE’s boss has a habit of promising too much. The best way for him to rebuild confidence in his leadership will be to demonstrate that GE can bounce back quickly from its woes. It will require a prodigious feat of managerial wizardry to pull that off." I agree that there has been a tendency to over promise and not deliver...however, it Immelt follows his predecessors he will lead through adversity, admit mistakes and adapt thus making the company even stronger. A review of GE's past (in my book) shows that GE leaders, of which there have only been 10) all faced adversities.
• -Edison picked the wrong technologies but adapted.
• -Swope and Young saw GE revenues drop 75% during the Great Depression,
• -Borch got the company growing again after the Great Electrical Conspiracy
• -Jones managed to overcome hyper inflation and
• -Immelt grew the company successfully and profitably after 9/11.

GE's success has been because of its LEADERSHIP, ADAPTABILITY, TALENT, INFLUENCING PUBLIC ISSUES and CREATING STRONG MANAGEMENT SYSTEMS and NETWORKS...I call this LATIN in my book.

In closing, I believe that the ECONOMIST has done a great job in summarizing what GE is and the key challenges it faces, however I DON'T THINK IT WILL REQUIRE A WIZARD, BUT A RETURN TO SOUND STRATEGIC THINKING AND DECISION MAKING that made the company stronger even in adversity.

Bill Rothschild, author of THE SECRET TO GE's SUCCESS and GE WATCH blog (www.strategyleader.com)

Shareholder versus Stakeholder Value

In a recent FINANCIAL TIMES front page article the issue was raised about who created the Shareholder value concept and its negative impact on US businesses. The author asserted that the concept can be traced to Jack Welch's speech in 1981. Welch asserts that maximizing SHORT TERM profits to enhance Shareholder value, which really means increasing the share price is not a strategy and is not a good thing to do.
I totally agree with JACK that maximizing short term profits to increase the STOCK price is poor management. But in fact, this is what he did and it enhanced the share price.
But this concept of CREATING and MEETING Wall STREET EXPECTATIONS didn't start with JACK, it really started with Fred Borch and enhanced by Reg Jones... Jack two previous predecessors.
It started when GE was involved in PRICE FIXING. Borch took over because GE stock had stopped and Fred recognized it need a jump start. He and Reg, his CFO, decided to create and meet realistic expectations on Wall Street and it was GE that established the now accepted approach of guiding the Street.
GE under Jones mastered this approach and GE stock started to move upward, however Jones also recognized the need to balance all STAKEHOLDER (investors, stockholders, governments, employees, management, unions, communities and others) results, but clearly recognized that it was impossible to satisfy all stakeholders.
Welch elected to focus on shareholders, employees and management and he was successful..but times have changed and these stakeholders are under attack.
The issue facing Immelt and other current CEO's is how to balance the conflicting needs and expectations of all stakeholders and determine which is the right mix and emphasis.

Bill Rothschild, author to the most comprehensive, objective and insightful evaluation of GE's 127 years of successes and failures...THE SECRET TO GE's SUCCESS..

GE should show the world its total portfolio...to regain confidence!

My son, Steve, and I were chatting about the GE situation yesterday and he made a great recommendation. Steve, who is a marketing expert and CEO of a new healthcare information venture, said that people really doesn't know what GE really is and the company needs to have extensive marketing and public relations campaign to explain what the company is and what it's opportunities are.

I believe that Steve is right. GE has become so complex and global that it is unclear what it is. In simple terms, GE is a strategic portfolio led company, with strong positions, globally in energy, health care and many other infrastructure markets that are very likely to benefit from the massive stimulus plans in the United States and China. It has had a strong leadership team and it is not just another financial services company.

In my book, THE SECRET TO GE's SUCCESS, I use the word LATIN to summarize GE's successes. It stands for Leadership, Adaptability, Talent, Influencing and Networks. These five characteristics explain why GE has been able to be successful for over 127 years, and overcome failures and adversity. I believe that GE still has strengths in each of these areas, but the company must be more aggressive in communicating what it is, why it is positioned to be successful for another 100 years.

In short, GE needs to give the world the BIG PICTURE and explain why they should have renewed confidence that the company will be able to overcome its current adversities and be successful for another 127 years.

Bill Rothschild, Rothschild Strategies Unlimited, LLC

Admitting Mistakes is a key to GE's Past success!

Jeff Immelt is truly in the GE Leadership tradition. He has been willing to adapt to reality, rethink his game plan and most of all today...admitted he was responsible for the company's tarnished image. This is in the GE tradition.

In my book, THE SECRET TO GE's SUCCESS, I enumerate a number of situations where the GE leaders were wrong, recognized their mistake and moved on. In fact, the first GE CEO to do this was Edison, who picked the wrong technology, but was willing to admit it and move the company into the winning technology.

I still believe that one of the reasons that GE is in the current situation is that it's GO BIG/ GO GLOBAL strategies were wrong. I strongly believe that GE's strengths have been and will be being selective and focused on markets that they can lead. Unfortunately, this is not possible when you just want to get bigger.

However, the good news is that this may change and the company will again target and win.

I admire Immelt's leadership, dedication and even willingness to invest his own money in GE stock, when others are not and giving up his incentive bonuses ($12 million) when others have not been willing to do so. He is clearly dedicated to GE and hopefully the current crisis will be a positive and not a negative. He believes that the crisis provides opportunities and I agree, but it will require both taking risks and doing the required surgery.

I believe that the GE stock has been unfairly hammered because the company has been equated with many mismanaged banks and financial services company. GE is well managed and still has over 55% of its revenues and even more of its profits in businesses that will benefit from the current "stimulus plans" and the desire to invest in infrastructure, electrical generation, healthcare and many other key industries.

Investors and analysts should look at the total picture and give GE its just stock value. It should be trading at 15 times earnings and not 5. It credit rating should be retained since it is still profitable and doing what is necessary to assure it is liquid. Overall, GE should be viewed objectively and not emotionally.

Bill Rothschild, author of five strategic leadership books, many articles and blogs...visit http://www.strategyleader.com/