The Decline of GE – What Can Leaders Learn?

Some years ago, I brought an internal corporate team I was leading to visit GE’s famous Crotonville Learning Center, where we spent a day with the legendary Steve Kerr, then GE’s Chief Learning Officer. I don’t think any of us will never forget the awesomeness of that experience; not only was Steve a gracious host, but he was very persuasive in explaining GE’s culture of boundarylessness and information sharing.

Our team took those lessons to heart. In subsequent years, I regularly turned to GE in my MBA classes as an example of many of the things that great companies do right – emphasizing the importance of behavior and values and not only results, carefully identifying and developing potential leaders, and, through its Workout and Six Sigma processes, reinforcing accountability and continuous improvement. These were all wonderful practices that would warm every business professor’s heart.

So what if Jack Welch was perceived as ruthless and the architect of the rank-and-yank system? He was widely revered both inside and outside GE, and who could argue with the results? In the past several years, however, the cracks in GE’s vaunted armor began to show. Reports started to surface about GE’s over-reliance on its financial arm GE Capital and on former CEO Jeff Immelt’s obsession with getting the share price up while seeking mega deals, such as the acquisition of Alstom, that did not turn out to be such a success.

I found many parallels between his work and Jim Collins’ earlier work, in which he wrote about what happens to those organizations that fail over a period of time. Collins wrote about five stages that such organizations go through on their way to failure; here are some details on each of these stages, with some examples from my own experience and knowledge.

As many of you know, John Flannery succeeded Immelt, but only lasted 14 months. GE is on its third CEO in five years. A book about these years at GE called Lights Out by Thomas Gryta and Ted Mann, writers for the Wall Street Journal, recently came out, and I highly recommend it. It gives a lot of insights that many leaders could learn from. Here are six of my take-aways, based on the book and my own knowledge of GE from interviews with both former employees as well as consultants who have worked with GE over the years.

Having a bold vision is not enough. Jeff Immelt inherited a problem that was clearly not of his making. His goal to become less dependent on GE Capital and his vision of “ecoimagination,” (of GE transforming itself to a very different organization) was admired by many. Immelt himself looked up to founders like Jeff Bezos and Fred Smith, but at the end of the day, he was not able to execute against this vision quickly enough. Why not? The authors don’t give a good explanation, but as I have learned from my own consulting work and interviews with dozens of executives, a vision has to be aligned with the firm’s capabilities. If these capabilities are not there, then they need to be developed so they can execute on the vision.

Optimism will only take you so far, especially if it blends into hubris. Immelt was ever the salesman, a powerful presenter, always exuding confidence. Yet this blinded him to the realities of the business. For example, the authors mentioned that early on in his tenure, Immelt wanted to form a group of his fellow high-profile CEOs to discuss the pitfalls of the CEO job:

Frank Langone, the entrepreneur who cofounded Home Depot and a Board member, pulled Immelt aside and said, “I see what you are doing,” he told Immelt. “With all due respect, I think the time you spend on this would be better spent with some of the high-potential leaders in the company or with customers.” Immelt fixed him with a stern look. “I know exactly what I’m doing,” Immelt said. Oh shit, Langone thought to himself. Two months in and he has senioritis.”

Never underestimate the power of a strong company culture. We are all too familiar with the dysfunctional cultures that founders can create with their behaviors (such as the recent cases of Uber and WeWork). Yet, as the authors point out (p. 315):

“There is also plenty to blame to put on GE’s top-down culture, which Welch and any number of midlevel managers used to their advantage as readily as Immelt did. They instilled a by-any-means possible mentality and a lax attitude toward costs in an organization so gargantuan that mistakes were easily hidden. Unleashed on a grand scale year after year, these practices are inevitably crippling.”

Of course, there have been successful cultural transformations; both Satya Nadella of Microsoft and of Dara Khosrowshahi of Uber are examples of CEOs who, in a short span of time, have managed to instill different cultural norms in their respective organizations. But this takes leadership, consistent messaging, walking the talk, and changing reward systems.