In November 2021, the company (GE) said it would spin off its last remaining three business divisions – aviation, healthcare and power – into separate publicly traded companies.
GE Announcement If you read business articles from the 1990’s to early 2000’s it is likely they will cite GE as an example of a highly successful, well managed business. Yet today, slightly more than decade later it is a shadow of its former self and soon will cease to exist. What went wrong? What can we learn for the rise and fall of this American business icon?
Too understand more I turned to two articles on from HBR and the other from Chicago Booth.
https://hbr.org/2018/06/ges-fall-has-been-accelerated-by-two-problems-most-other-big-companies-face-them-too
https://www.chicagobooth.edu/review/three-strategy-lessons-ge-s-decline
Starting with the HBR article written Roger Martin (Former dean Rotman School of Management at the University of Management) Mr. Martin argues that GE’s downfall was due to two effects that are common through out today’s corporate world. Clueless but deep pocket activist investors and mergers and acquisition folks masquerading as strategists.
On October 25, 2015, activist hedge fun Trian announced an $2.5 billion equity stake in GE. Trian claimed that with Trian’s “help” GE stock could be expected to rise from just over $25 to the $40 to $50 dollar arrange by 2017. Trian insisted that to avoid a proxy fight GE should appoint the founder Ed Garten to the boards. In June 2017 GE’s then CEO Jeff Immelt resigned and was replaced by John Flannery, In October Ed Garten joined the board. From this point it was downhill all the way. Mergers acquisitions and divestments became GE turnround strategy tool. – Historic GE businesses were divested – Light bulbs, appliances and locomotive engines. Juggling the corporate portfolio is common in large companies. Strategy heads often have a belief that if a company is in trouble the solution is to buy or sell something. Its not that MA&D cannot help strategy – used in context of the longer-term business strategy it can work. Google buying Android, Facebook buying Instagram. But for a business that is struggling they are a distraction when the focus should be on fixing the customer value equation. The MA&D activity plus cost cutting did not improve GE’s performance GE announced the divestment of GE Healthcare and Baker Hughes. Two giants of GE. Plus of course some more cost cutting What did Trian get out of the deal. At the time this article Ed Garten was no longer on the board and Trian’s investment had been devalued by about one third.
What can we take away from this? Although it is unlikely your business will be the target from an activist hedge fund, if you have backers – they may want to influence how your business is run. If they are knowledgeable this can be a blessing, if they are not – who knows where this might lead. Choosing your backers is critical, as a startup you may not have a lot of choice in selecting your investors but where possible partner with people who share your dream and can bring some knowledge to the table. M&A is a part of your strategy toolbox which can help you achieve your long-term goals. It is not a strategy in itself. Before you buy or sell a company check with yourself, how does this purchase or sale move me towards my goals.
Let’s turn to James E Schrager’s article in Chicago Booth’s Report. Although written a year later than the HBR article Mr. Schrager argues that GE troubles started much earlier. Jack Welch failed to plan for the end of history, what happens when the existing strategy no longer delivers?
Mr. Welch took over a sleepy company in 1981. He stripped out layers of bureaucracy, pushed decision making down to the field. Set up management education programs that matched that of topflight business schools.