“Two pounds of iron-stone purchased on the shores of Lake Superior and transported to Pittsburgh; Two pounds of coal mined in Connellsville and manufactured into coke and brought to Pittsburgh; One-half pound of limestone mined east of the Alleghenies and brought to Pittsburgh; A little manganese ore mined in Virginia and brought to Pittsburgh; And these four and one-half pounds of material manufactured into one pound of solid steel and sold for one cent. That is all you need to know about the steel business:”
— Andrew Carnegie
All you need to know about running GE is that Jeffrey Immelt took over as chief executive four days before September 11, 2001.
All you need to know about running GE is that as two jetliners crashed into the World Trade Center, three thousand people died, most of them instantly, from the inferno caused by fuel engorged planes powered by GE Engines.
All you need to know about running GE is that Immelt was in Seattle at a customer meeting when tragedy struck.
All you need to know about running GE is that the world that greeted Jeffrey Immelt as the new CEO had changed forever.
When Immelt was a young executive, Jack Welch took him aside one day and looking at him through piercing blue eyes said, “Jeffrey, I love you, but if you don’t make your numbers, I’m going to fire you.” The brawny former Dartmouth offensive tackle got the message. At GE, if you wanted a friend, get a dog.
Jack Welch was a scrappy, back alley street fighter and Immelt was an Ivy League BMOC. It was why Immelt’s promotion was the most talked about in corporate history. While they weren’t exactly Tarzan and Godzilla, they certainly were an odd couple.
Until the financial crash, there was no higher achievement in the business world than running GE. After joining the company in 1982, Immelt took on roll up your sleeves assignments in Pittsfield, MA, and Louisville, KY, not exactly Ivy League stomping grounds for a math major from Dartmouth. But he relished the action of running plastics, appliances, and healthcare businesses before being named CEO in 2001. Becoming chief executive of General Electric was the secret plan come true. It was a moment that recalled Field von Moltke the Elder’s words, “no plan survives contact with a hostile force.”
The Welch Era
By the time Welch was ready to retire, he had earned renown, respect, wealth and was as close to a celebrity as a chief executive could be without being Waren Buffett. But he wanted something else. Appearances on CNBC were old hat (after all, he owned the network) compared to a lasting legacy. Welch was so admired his epitaph could be written, “Look on my Works ye mighty!” as Percy Shelley wrote in 1818. He was untouchable, and so was the company he was leaving. Or so he thought. If only Welch read poetry as well as he could a balance sheet, as the poem’s ending foretold a different story, “Round the decay Of that colossal Wreck, The lone and level sands stretch far away.”
Jack Welch’s greatest invention and the reason business schools will teach his methods for decades to come was turning GE into a perpetual earnings machine. The kind that gives competitors a licking and keeps on ticking. Welch was a tough Irish kid with a stutter, and he learned early to talk fast or be paralyzed with fear. Speed gave his speech a fluency that swished past the stutter. And speed was his gift to GE.
Welch visited me at Forbes one time, leaving me with a pearl of wisdom. “If you don’t make productivity gains every day, you will destroy a business franchise that took 100 years to build.” That is what Andrew Carnegie was complaining about in the 1800s. Welch understood that gravity would pull you down unless you constantly found new ways to lighten the burden.
Pundits and politicians harp about cost-cutting or moving offshore because they have no idea of what it means to run a complex business. A politician’s idea of competition is a campaign stop. Whether it was China or Siemens, Welch knew the enemy would take his company down if he didn’t stay ahead of the productivity curve. The media called it too aggressive. Welch was only trying to survive. Jeffrey Immelt's problem was by the time he became CEO, speed was no longer enough, and it was no longer even possible.
“Fix or get fired,” Welch barked to his senior team in 1994. That same year he announced GE businesses would be either #1 or #2 in their sectors. It was not meant as an option. People began cutting costs, shedding layers of employees (Welch coined the term “delayering”), dropping profitable but slow growth lines, and making the company an agile, lean, and if need be, mean machine.
What was Welch’s big idea? The answer was Wall Street. Whatever multiple it assigned became a paint by numbers exercise assigned by Wall Street. It didn’t matter if the business took decades to build and employed tens of thousands. In this instance, Welch was the polar opposite of Warren Buffett, the Sage of Omaha. Buffett wants to hold onto good businesses forever. Welch wanted to change outfits like the Rockettes doing a number at Radio City across from his office at NBC.
Welch would say he didn’t make the rules but learned how they operate and won by them. He hated excuses. He hated failure. He loved winning. He believed by telling someone he would fire them, ‘tough love’ could turn losers into winners. As a result, GE became the best company in the world for that moment, and it could take on any challenge at that moment. But moments last — well, a moment. It made Wall Street happy but turned good managers into reactors and not creators. They built for today.
Immelt was about to face a more daunting challenge called ‘tomorrow.’
News of the World Trade Center terror attack hit Immelt hard. Like most Americans, he fretted, worried, and feared, particularly for his colleagues in the building who may have perished. But as GE’s boss, he had to think about the future of the aviation business in Lynn, MA. Was GE responsible? Would airplanes stay grounded? Would people stop flying? It was one of those times that shifts the zeitgeist.
Until terrorists hit the World Trade Center, America’s biggest manmade disaster happened on May 31, 1889, when the Johnstown Flood devastated western Pennsylvania. Industrialist Andrew Carnegie was blamed because his number two, Henry Clay Frick, built a hunting club just upstream from Johnstown that reduced the water level of the South Fork Dam nearby, causing it to break after heavy rainfall. Over two thousand people died. The “South Fork Hunting Club,” named after the dam, led people to point fingers at a rich foreigner (Cargenie was Scottish) who happened to be (only) a club member. Carnegie fled to Scotland, where he turned to philanthropy to assuage his guilt for the remainder of his life.
On 9/11, Immelt realized the thing he needed most was the ability to predict the future. As good as he was, he was trained as a strategic planner, not a fortune-teller. But he did foresee the aviation business would be decimated. At least he could rely on financial services to get him through. But by 2008, that was washed up as well. During the global financial meltdown, the GE Capital profit machine took a direct hit. Government regulators looking to cover their behinds labeled it “systemically important,” which was an albatross, not a compliment. It meant the SEC watched every move. It meant GE was running out of places to hide.
It meant what Von Moltke said about plans.
To make it in today’s marketplace, the wrong lessons are taught at Harvard Business School. Planning doesn’t work. Hacking does. Ask Barnes and Nobles, the leading bookseller since 1886. Talk to a yellow cab driver whose familiar color was first painted in 1960. Amazon and Uber didn’t give them any warning, so planning would not have changed outcomes.
Part of the blame goes to the legacy Welch left. Immelt is a jovial, passionate fellow, qualities which belie his quantitative and strategy chops. When he walks down the hall, laughter follows like falling dominoes, and people use words like inspiring and dynamic. When Welch walked down, you could hear sphincter muscles closing. It also shut down communication. One of Welch’s lieutenants, Gary Wendt, told me the senior staff couldn’t stand “Jack’s crap,” but, of course, they never told him.
Some blame for GE’s decline falls on the board. It had the right names, but the wrong talent. Old-timers like Sandy Warner, who fought the turf battles of the 80s (at lunch once, Warner told me banks never made money in foreign markets) or a few stellar women who crested the feminist tides like Andrea Jung and Anm Mulcahy, both of whom left questionable legacies at Avon and Xerox, weren’t really up to the task of helping Immelt guide the company to a digital future. The result was an improbable job became impossible.
Finally, some of the blame can be chalked up to the stock market. To reshape GE to stand up to dynamic players like Google or Apple, Immelt had to makeover the company, which meant finding a new portfolio. But Wall Street wasn’t buying green bananas. In hindsight, his options were to go private or change the shareholder base, both long, long, long shots.
As the world stood by and asked what the hell happened, the answer was, in a phrase, the 21st century.
One of Jack Welch’s favorite expressions was “the book on you is blankety-blank…” and by that, he meant your reputation. The book on GE is the board (as well as the media) fell in love with the Welch era. They wanted the same GE only prettier. After 9/11, the ’08 financial crisis, and the digital revolution, the battle changed from longer ‘The Charge of the Light Brigade” to “Starwars.” Immelt was built to succeed Jack Welch but the company he inherited could not succeed in an era that moved at lightspeed. What GE needed was a corporate raider or turnaround artist, not a CEO.
When Immelt finally announced his successor on June 12, 2017, he must have felt as Winston Churchill did when he gave Anthony Eden the Prime Minister’s scepter:
“He will praise me for two days until he realizes I have left him with a job in which no one can succeed.”
Jeff Immelt revealed the seven Immelt Principles that govern business in the modern age in our interview:
1) Fast and Slow
“I think we used to think that if you had good leaders, you could be in any business. We want to have good leaders, but we actually believe that this deep domain expertise is also critically important for the future.”
Deep domain expertise can develop skills to take advantage of newer markets like crowdsourcing, AI-driven decision-making networked organizations.
2) Built For Volatility
“When I took over GE, the biggest surprise was the world twisted from one of relatively benign growth to one of just high volatility, high risk. In many ways, the environment today is nothing like what I thought it would be when I became CEO.”
There was no way to foresee the cataclysm. But he did understand the mandate to turn the company around had to happen while traveling at the speed of sound.
3) Ignore Noise
“Business has no shelf life, and what was right 10 years ago may now be obsolete. You are always planning for the next disruption, and that means looking at new markets all the time.”
When we find a winning approach that Wall Street loves, let’s not be surprised that as the world changes, so does Wall Street. Much of what comes out of the stock market is momentary noise, not signals.
4) Tougher Than You Think
“I’ve done this for 14 years. For anyone who thinks it’s easy, these are hard jobs. But you also have this sense that no matter what happens, we can get better.”
This is no longer the ‘suffer in silence” era. Relate on a personal level, and your team will repay you by bringing their best thinking.
5) Markets Never Lie
“I had this feeling we were still constructed for an American-centric economy, and I realized we had to get more global.”
That old warning, ‘don’t sell ice cream to Eskimos’ is actually a delusion. The Inuit love ice cream, called akutok. Today, Immelt says, you are always planning for the next disruption, and the old rules don’t apply.
6) Diversity Matters
“If you can bring it, if you’ve got merit, if you’re winning, you’re going to get promoted.
Not everyone will make it to the CEO’s office, but they need to know they can make it. Today’s genius isn’t from the same gene pool as tomorrow’s.
7) Tough Times Toughen
“There’s no doubt in my mind when I talk to other leaders. You haven’t led until you’ve been through a ‘flying close to the sun’ tail risk.
By leading through a downturn, you assure you can survive ‘tail risk.’ That gives you the confidence to move forward and make bold decisions about the future.