General Electric's 50year + plus Gas Turbine Commitment to Excellence

The General Electric Energy site reported the following on December 16, 2008

"Government of Iraq Signs Power Generation Agreement with GE Energy Valued at Approximately $3 Billion Iraq Power Initiative Nearly Doubles Electricity Generation Capacity (Baghdad, Iraq - December 16, 2008)

The Iraqi Ministry of Electricity and GE Energy announced today at a ceremony in Baghdad that they have signed an agreement for power generation equipment and services valued at nearly $3 billion to provide much-needed electricity to support Iraq's future economic development. The announcement is a significant milestone as the country seeks to rapidly develop its energy infrastructure and increase its electricity production.

Under the agreement, GE Energy is providing heavy-duty frame 9E multi-fuel gas turbines capable of supplying 7,000 megawatts (MW) of electricity. The Government of Iraq plans to install the units at key sites around the country to provide needed support for the electricity grid. GE's 9E gas turbine technology has proven reliability and performance in more than 400 applications worldwide."

This order demonstrates GE's long term commitment to its core, innovative products and services.

The Gas Turbine business had its roots in the Second World War and made a major venture under the leadership of Ralph Cordiner in the late 1950's. This technologywas used in electrical generation, locomotive and ship propulsion systems. In addition the technology was developed in Evendale's Jet Engine business. Both the Schenectady and Evendale competed aggressively to gain market share in some cases competed against themselves. In my book: The Secret To GE's Success (page 96) I used this internal competition to describe why decentralization had some limitations. "One of the major limitations of decentralization was that in some situations the departments competed against each other. For instance, the jet engine and gas turbine department developed two different versions of the gas turbine and found themselves competing against each other in some markets. This wasn't resolved until much later during the Borch era; meanwhile, the result was customer confusion and the loss of business to competition".

General Electric has long history of product innovation and a willingness to take a long term view, even experiment with organizational systems that provided both external and internal competition. This is a unique characteristic of GE and has contributed to its continuing growth and vitality.

Bill Rothschild, author of the only comprehensive, objective and insightful evaluation of GE's 127 years of successes and failures, THE SECRET TO GE's SUCCESS, now in six languages and a global best seller.

GE the POSITIVES...

Since the economic and credit crisis...GE has suffered...and for many reasons it should...but it is important to step back and look at the entire company and its positives and negatives.
Since the press and so called "investment analysts" have decided to focus on the negatives lets look at the positives of this REMARKABLE company.

First of all it is diversified... which every one asserts is important.

Second it is focused on major growth areas.

• ELECTRICITY... which needs a major overall and upgrade. It provides NUCLEAR, LARGE STEAM TURBINES AND TRANSMISSION SYSTEMS
• GREENING products and services.. which covers the gambit of wind, solar..et
• HEALTH CARE... ranging from diagnostic to information systems and software.
• INFRASTRUCTURE.. which includes a first class locomotive product line.
• LIGHTING which is still a major consumer of electricity and a major opportunity for innovative systems
• INNOVATIVE appliances which can help contribute to the "home of future...which is efficient and energy saving
• Financing...which has been grown too BIG and if restructured and refocued can be a major element to enabling consumers and businesses to afford to innovate and refocus
  

Third.. it is still solvent and makes money.. unfortunately because of the current fiasco in financial systems and demise of the US "big three" automobile... it is being compared with losing companies unfairly.
Fourth.. a leadership team and deep bench... unlike the rest of the world GE has skilled people at all levels and even though I may disagree with their strategies and actions...they are still among the best, (but the rest are just terrible.

In short, GE still is a vibrant company and should not be included with the LOSERS.. however, it is still important that the GE management and leadership learn from its past successes and failures, which includes adapting, admitting mistakes and being realistic...

Bill Rothschild,author of the only objective, comprehensive and insightful analysis of GE's successes and failures and what we can learn from them: THE SECRET TO GE's SUCCESS.. available in all major bookstores and in SIX languages.

BACK TO REALITY--Creating realistic expectations

In my book, THE SECRET TO GE's SUCCESS, I challenged Immelt's assertion that he could grow GE at an 8% compounded growth rate, which translated into added $14 billion plus revenues per year. This challenge was based on my extensive experience, study and evaluations of major companies and especially GE.

This is what I wrote (page 250) : " He (Immelt) is clearly convinced and has the missionary zeal to make it happen. However, based on my experience and study. I am not convinced that he can do it and am concerned that he has created an unrealistic expectation. It is possible that in the long term he will have doubled the revenues every nine years, but it is really impossible to add $14 billion plus revenues year after year?

What happens if he doesn't make it, even for one year? Will this have a negative impact on the stock price and put his reputation in jeopardy?

I think it will!"

Unfortunately, I was right... it is impossible for any organization to growth continually. There are always down cycles and the strong organizations are willing to adapt to these changes, set more realistic expectations and move ahead. I hope that Immelt and his team are re instituting the "strategic thinking and decision making disciplines that enabled Borch and Jones to admit their mistakes and refocus the company's portfolio.

Recent actions and words appear to indicate that this type of strategic thinking and decision making is being used, but only time will tell.


If you want to learn why GE was successful in the past and should be in the future, please read my book THE SECRET TO GE's SUCCESS . It provides an objective, comprehensive and insightful view of the companies successes and failures..and what you can " take away " from this remarkable company. If you have an interest in learning more about strategic thinking and decision making, read Putting It All Together- a guide to Strategic Thinking and decision making...There is a revised and updated edition available on my site: http://www.strategyleader.com/. This book and its companion software StrategyLeader is used in many business and executive programs.

Bill Rothschild, CEO Rothschild Strategies Unlimited, LLC.. that provides personalized consulting and workshops on the art and science of strategic thinking and decision making.

Immelt...globalization affirmation

In the Economist's THE WORLD in 2009 edition, Jeff Immelt asserts that globalization is vital and must be RE-EMBRACED. These are some of this key points:

1. "A strong international trade system is fundamental"


2. " Continued economic liberalization enhances growth"


3. "Protectionism must be resisted"


4. "Global trade must be fair"

I challenged this entire theme. If the world was fair and all countries permitted goods and services to flow in an out of them based on real economic and marketing principles then Immelt is right...but the reality is that this has NEVER happened and NEVER WILL HAPPEN.

The first responsibility of ALL governments is to support and enhance their own countries and provide REAL jobs and positive balance of trade. They must PROTECT their own patents and copyrights and skills... The United States lives in a DREAM WORLD... the country had given away its COMPETITIVE ADVANTAGES and KNOW HOW for short term, greed and profitability and has exported GOOD JOBS to countries that are not willing to honor the intellectual properties.

The United States is now in crisis BECAUSE it can't provide high paying jobs to its citizens. All of the major companies, including GE, has given away jobs, opened laboratories in countries that have a reputation of not honoring patents, copyrights and intellectual proprietaries, all in the name of SHAREHOLDER value, but not STAKEHOLDER VALUE..but unfortunately even the shareholders have been devastated.

The United States companies and government must learn to focus on THE UNITED STATES citizens first and then if it can afford it go GLOBAL

LEARN HOW TO THINK STRATEGICALLY...www.strategyleader.com

Bill Rothschild, author of the only comprehensive, objective and insightful analysis of GE's past successes and failures...THE SECRET TO GE's SUCCESS.

THE GREAT AMERICAN AUTOMOBILE HARVEST

It is amazing to watch the three automobile CEO's sit before Congress and ask for the Federal Government to save them. The American Automobile companies are a classic case of a HARVEST strategy, which in simple terms they have sold off market share over several decades, reaped handsome profits and then collapsed.

Each of these three companies were once led by visionaries and strong leaders.

• Alfred Sloane was the leader in market segmentation and providing unique brands and autos for each segment. He led the idea of market migration...the first buyers purchased a Chevy, then migrated upward to the ultimate a CADDY.
  
• Henry Ford was the low cost, manufacturing genius, introducing the assembly line and offering one color BLACK.


• Chrysler focused on product innovation and differentiation and introduced many new ideas and concepts.
  

Each of the companies prospered until the early 1960s, when they all assumed that there would be FEW automobile companies and they could compete against themselves and ignore the new comers, Japanese automakers. In fact they allowed the Japanese to take control of the small, economy car segment because its margins were lower than the big, gas guzzler segments.They all moved to a manufacturing strategy and ignored the markets and the trends. They sacrificed quality and innovation for lower costs and then gave away the shop to the UNION, providing unreasonable benefits and increasing salaries. They sold the same cars under different brands and downgraded the quality of the high end, prestige brands, like Cadillac, Lincoln and Chrysler.

All of these companies instituted "cookie cutter" manpower and educational systems, so that all of the candidates looked alike and were "automobile" men.

Further all of them divested their non automobile subsidiaries to focus on just automobiles. For instance, General Motors sold its Frigidaire appliance business, its ALLISON division, its locomotive business and so on. All of which were market leaders, but didn't fit the automobile mentality

The reason that it has taken decades to put these companies on the edge of collapse is that they had very large share and were so big. It takes time to harvest giants, but ultimately they meet the same fate of smaller companies, they go out of business. This is the point they are today.

I have mixed emotions about whether to save them or not, but I do think that all of the current leaders, the company's Board of Directors SHOULD RESIGN now... but the problem is that because of their COOKIE CUTTER development systems, it is unlikely they have replacements that can do the surgery and competitive/ market based strategic thinking and development requried and unfortunately it has been demonstrated that bring in outsiders doesn't work either.
Further it is difficult to do creative strategic thinking when you are in the EMERGENCY room and just trying to stay alive. Strategy MUST Be DONE when you are healthy and have options and not when you are trying to survive.Sloane, Ford and Chrysler must be turning over in their graves.

Bill Rothschild, author of the book that shows why GE is different and hopefully will avoid the same mistakes as the Automobile companies...THE SECRET TO GE's SUCCESS and PUTTING IT ALL TOGETHER - a guide to strategic thinking and decision making.

Realistic EXPECTATIONS...

I have advocated realism and establishing REALISTIC, not DREAMING expectations. In my book THE SECRET TO GE's SUCCESS, I described how historically, GE, was able to set realistic expectations and then MEET them.

Unfortunately, the current GE leadership decided to establish... "DREAMING SESSIONS and OUT OF THE BOX" expectations and they failed.

But now reality has forced all, not just GE, to stop dreaming and focus on the current and potential reality and not over promise... the result is clear. Yesterday... Immelt and his dream team, told the world things were BAD...but they had the resources to continue the traditional GE dividends... and even though the results were not desirable ...the GE stock rose 14%...too bad they didn't do this in March and GE would be the safe haven and its stock would be double its current value.

Bill Rothschild, author of the only book that explains the past successes and failures of GE and why General Electric (GE) needs to get back to LATIN...read: THE SECRET TO GE's SUCCESS...

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.