Sunday, September 29, 2019


Move fast but try not to move faster than the speed of thought, especially if you are approaching a crossroads. Semantically, crossroads is a word than hides its singularity under the guise of plurality. A crossroads is, in fact, the intersection of two or more roads that also signifies a crucial decision point.

In November 1999, Jack Welch was named the Manager of the Century by Fortune magazine, the most prestigious business publication in the US. Welch had been the chief executive officer (CEO) of General Electric Company (GE) since 1980, and his retirement was imminent. He was nicknamed Neutron Jack for his take-no-prisoners management style and, over time, GE was voted the world’s most admired business organisation. Under his leadership, GE’s market capitalisation rose 4,000%, rising to $410 billion in 2001.

Founded in 1892, this industrial and financial conglomerate’s DNA had been infused with the innovative genius of Thomas Edison, widely acknowledged as one of the greatest inventors who ever lived. Between Edison and Welch, only ten other men had been privileged to steer GE’s storied legacy. By 2001, literally and figuratively, the company was approaching possibly the most consequential crossroads in its history. But, riding the waves of spectacular success, no one at GE, including Jack Welch, could have anticipated what was ahead. 

Before revisiting GE, let me touch on a brief, if subjective, analysis of the nature of crossroads. Assume a man is journeying from the south-west. On reaching a crossroads, the options are to proceed in a north-east direction, turn south-east or move north-west. This is the classic X configuration. Faced with these options, let us agree that the subject cannot turn back in the direction he came from nor can he choose to remain motionless at the junction. Furthermore, the subject cannot allege that the highway was cloaked in pitch darkness such that he drove straight on, oblivious of the intersection. Lastly, since the technology is yet to be perfected, he also cannot claim to have been riding in an autonomous vehicle with a mind of its own.

Left with three valid options, the path to a decision seems clearer but no less fraught with peril. If the south-west road was broad and the trip hitch-free, his natural inclination might be to proceed north-east. By failing to notice other vehicles at the intersection, an overconfident or inattentive driver could easily be side-swiped into a tailspin. On the other hand, a tortuous approach journey along a narrow and bumpy road might elicit more caution. From the foregoing, access to pertinent information is crucial in deciding whether to turn south-east or north-west. But, however unimpeachable the quality of information at-hand, the future is usually a black box.

In 2001, Jack Welch was a rock star CEO who, presciently, had declared in 1991 that his succession plan was the most important challenge ahead of him. He would later identify three internal candidates who were made to jump through hoops before he hand-picked his successor, Jeffrey Immelt. Compared to Welch, who was a hard-nosed engineer with a Ph.D., Immelt was a relatively genteel Harvard MBA graduate. The also-rans, both excellent executives in a company renowned for developing top-notch leaders, quietly left GE, leaving the field open to the incoming boss. On his part, Welch also quit the GE board with a $417 million retirement package, the largest ever in US corporate history.  

Just four days after Immelt took the reins at GE, 9/11 happened like a bolt out of the blue. As one of the world’s largest manufacturers of commercial aircraft engines, the terrorist attacks, which saw planes being flown into New York City’s Twin Towers, was the equivalent of a sucker punch to GE’s solar plexus. Also, in the shadow of the dot-com crash and the Enron scandal, the surviving tyros of the burgeoning digital age threw down the gauntlet and would soon transform and reshape the old industrial economy.

While contending with an identity crisis, and before GE could regain its balance, the worst financial crisis since the Great Depression struck in 2008. Subsequently, GE Capital, which at its peak had contributed as much as 60% to GE’s profitability, became embroiled in a financial maelstrom. Along with other divested subsidiaries like NBC Universal, GE Plastics and GE Appliances, most of the assets of GE Capital were subsequently sold off by Immelt. Consistently underperforming the markets during his reign, GE’s market value plummeted by $150 billion or 37%. Inevitably, investors lost patience with Immelt in 2017, who effectively left behind a complex but hollowed-out shell of the “house that Jack built.” 

On the heels of tough financial reforms, GE had no choice but to return to its industrial roots. Like empires before it, search engines threw up captions along the lines of “The Rise and Fall of GE” and “Who is Responsible for the Mess at GE?” Since Immelt’s departure, GE has had two CEOs in the space of two years. The incumbent CEO, Lawrence Culp Jr., replaced John Flannery, whose tenure was marked by turmoil and a further decline in the company's fortunes.

GE’s current outlook is rather grim, causing many to question whether the company would ever regain its lustre. Of course, nothing lasts for ever and no organisation has the right to perpetual success. In essence, crossroads can be benign when all the stars are perfectly aligned, while a wrong move could prove irredeemably fatal.

Significantly, Culp was the first outsider to run GE in its 127-year history. With the benefit of hindsight, perhaps an outsider, a disruptor and mould-breaker was precisely who should have succeeded Welch back in 2001. Expectedly, expert analysts and armchair critics alike have had a field day second-guessing Immelt's tenure, as well as the logic of GE’s acquisitive business model.

Was it possible that Jack Welch was, indeed, a singularly gifted CEO who functioned at the speed of thought whereas Jeff Immelt could notPresumably, Immelt stuck to the familiar and insular GE Way, kept glancing in the rear-view mirror and missed vital warning signs. 


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