12 Strategy

Case 20 Restructuring
General Electric

The appointment of Larry Culp as the chairman and CEO of the General Electric
Company (GE) on October 1st, 2018 was a clear indication of the seriousness of the
problems that had engulfed the company. Culp, the former CEO of the highly-successful
conglomerate, Danaher Corporation, had been appointed a GE director only six months
previously and was the first outsider to lead GE—every one of GE’s previous CEOs had
been a career manager at the company. On the same day as Culp’s appointment, GE
abandoned its earning guidance for the year and announced a $23 billion accounting
charge arising from a write-down of goodwill at its troubled electrical power division.1

Culp’s predecessor, John Flannery had been CEO for a mere 14 months—a sharp
contrast to GE’s two previous CEOs: Jeff Immelt (16 years) and Jack Welch (20 years).
Flannery’s tenure at GE has coincided with of the company’s most difficult periods in its
entire 126-year history. In November 2017, amidst deteriorating financial performance,
Flannery announced a halving of GE’s quarterly dividend, the proposed sale of its
lighting and locomotive units—two of GE’s oldest businesses—and the elimination of
12,000 jobs in the power division.

In 2018, the situation worsened. In January, GE announced that it would be paying
$15 bn. to cover liabilities at insurance companies it had sold 12 years previously. In
February, GE confirmed suspicions over its dubious accounting practices by restating its
revenues and earnings for the previous two years, while also announcing the likelihood
of legal claims arising from its its subprime mortgage lending over a decade earlier.

The outcome was a precipitous fall in GE’s share price (see Figure 1) that culminated
in GE’s dismissal from the Dow Jones Industrial Average (DJIA). Until June 2018, GE
was the sole surviving member of the DJIA when it was created in 1896.

The crisis at GE presented the board with two central questions. First, should GE
be broken up? Second, if GE was to continue as a widely-diversified company, how
should it be managed?

As a diversified corporation that extended from jet engines, to oil and gas equipment,
to healthcare products, to financial services, GE was an anomaly. For three decades, con-
glomerates—diversified companies comprising unrelated or loosely related businesses—
had been deeply unfashionable. CEOs, Jack Welch and Jeff Immelt, had claimed that,
by virtue of its integrated management system and knowledge sharing among its busi-
nesses, GE was not a conglomerate. The stock market seemed to agree—for decades
GE was able to defy the “conglomerate discount” that had been the trigger for many
widely-diversified companies to unbundle. GE’s ability to flout conventional wisdom
rested on its status as one of the world’s best-managed companies. In the first 10 years of
Fortune’s ranking of the world’s most admired companies (1998–2007), GE topped the
list seven times. By 2018, GE’s dismal financial performance (see Table 1), poor top-level
decision-making, and dubious financial practices have reduced that reputation to tatters.

During summer 2018, Flannery provided a partial answer to the question of whether
the company should be broken up: GE would spin off its Transportation and Healthcare
divisions and its oilfield services business, Baker Hughes, A GE Company (BHGE).

This case was prepared by Robert M. Grant. ©2019 Robert M. Grant.

CASE 20 REStRuCtuRinG GEnERAl ElECtRiC 601

TABLE 1 General Electric: Selected financial data, 2010–2017 ($bn unless otherwise indicated)

2017a 2016a 2015a 2014b 2013b 2012b 2011b 2010b

GE consolidated

Revenues 122.1 123.7 117.4 148.6 146.0 146.7 147.3 150.2

Net earnings (7.8) 8.8 (6.1) 15.3 15.2 14.6 14.2 11.6

R & D expenditurea 4.8 4.8 4.2 4.2 4.6 4.5 5.4 4.9

Cash flow from
operating activities

10.4 (0.2) 19.9 27.5 29.0 31.0 33.4 36.1

Cash from (used in)
investing activities

2.3 49.2 59.5 (5.0) 29.1 11.3 19.9 32.4

Return on
average equity

(8.7%) 10.9% 1.6% 11.6% 12.2% 12.1% 11.9% 12.1%

Stock price range ($) 17.25–31.84 27.10–33.00 19.37–31.49 27.94–23.69 28.09–20.68 23.18–18.02 21.65–14.02 19.70–13.75

Total assets 377.9 365.2 493.1 648.3 656.6 681.7 717.2 747.8

Long-term
borrowings

108.6 105.1 144.7 200.4 221.7 236.1 243.5 293.3

Total employees
(thousands)

313 295 333 305 307 305 301 287

GE data (industrial businesses)

Short-term
borrowings

14.5 20.5 19.8 3.9 1.8 6.0 2.2 0.5

Long-term
borrowings

67.0 58.8 83.3 12.5 11.5 11.4 9.4 9.6

Shareowners’ equity 64.3 75.8 98.3 128.2 130.6 123.0 116.4 118.9

Total capital invested 166.8 159.5 205.7 145.3 144.8 141.3 129.0 133.1

Return on average
capital invested

2.7% 25.4% 16.9% 10.6% 11.3% 11.7% 11.6% 11.8%

(Continues)

60

55

50

45

40

35

30

25

20

15

10

2000 2005 2010 2015

FIGURE 1 General Electric share price, March 1998 to March 2018 ($)

Sources: General Electric Shareowners Meeting, April 25, 2012 and Annual Letter to GE Shareholders: 2014.

602 CASES tO ACCOMPAnY COntEMPORARY StRAtEGY AnAlYSiS

Although Culp had endorsed this restructuring of GE’s business portfolio, the board’s
decision to fire Flannery and appoint him CEO was a clear indication that these mea-
sures were not enough. Culp would need to answer the fundamental questions relating
to the identity and strategic rationale of GE. If GE really did add value to its constituent
businesses, why divest these major divisions? If the synergies among GE’s businesses
really were illusory, then why not break up GE entirely?

The History of GE

GE was created in 1892 from the merger of Thomas Edison’s Electric Light Company
with the Thomas Houston Company. Its business was based upon exploiting Edison’s
patents relating to electricity generation and distribution, light bulbs, and electric
motors. Throughout the 20th century, GE was not only one of the world’s biggest
industrial corporations but also “a model of management—a laboratory studied by
business schools and raided by other companies seeking skilled executives.”2 Each of
GE’s chairmen contributed to the development of GE’s management system, and these
contributions diffused well beyond GE’s corporate boundaries:

● Charles Coffin (1892–1922) married Edison’s industrial R&D laboratory to a
business system capable of turning scientific discovery into marketable products.

● Ralph Cordiner (1950–63), assisted by Peter Drucker, established
GE’s  Crotonville management development institute and decentralized GE’s
operational management to 120 departmental general managers.

● Fred Borsch (1963–72), devised GE’s corporate planning system based on stra-
tegic business units and guided by portfolio management techniques, which
became a model for most diversified corporations.

● Reg Jones (1972–81) integrated strategic planning with financial control to create
a comprehensive system for the corporate headquarters to manage its businesses.

2017a 2016a 2015a 2014b 2013b 2012b 2011b 2010b

Borrowings as % of
capital invested

48.9% 49.7% 50.1% 11.2% 9.2% 12.4% 9.0% 7.6%

GE capital data (financial services)

Revenues 9.1 10.9 10.8 42.7 44.1 45.4 49.1 49.9

Net earnings (7.1) (2.2) (15.8) 7.2 6.2 6.2 16.5 2.2

Shareowner’s equity 13.5 24.7 46.2 87.5 82.7 81.9 77.1 69.0

Total borrowings 95.2 117.3 180.2 349.5 371.1 397.0 443.1 470.5

Ratio of debt to
equity

7.06:1 4.75:1 3.90:1 3.99:1 4.49:1 4.85:18 5.75:1 6.82:1

Total assets 156.7 183.0 316.0 500.2 516.8 539.4 584.5 605.3

Notes:
a As reported in 2017 financial statements.
b As reported in 2014 financial statements.

TABLE 1 (Continued)

CASE 20 REStRuCtuRinG GEnERAl ElECtRiC 603

● Jack Welch (1982–2001) had energized GE by stripping out layers of hierarchy,
introducing a rigorous, and demanding performance management system based
on stretch targets and powerful incentives for their achievement, and spear-
headed a series of initiatives designed to root out complacency and to drive
change.3 Welch reformulated GE’s business portfolio through exiting low-growth
extractive and manufacturing businesses and by expanding services—financial
services in particular. By the time he retired, GE was “a bank disguised as an
industrial conglomerate.”4

● Jeff Immelt (2001–17) returned GE to its manufacturing roots through divesting
its financial service and entertainment businesses, and increasing integration
among the industrial businesses through sharing technology, increasing global
presence, and exploiting synergies in sales and marketing.

GE’s Portfolio

In a world of turbulence, GE had always viewed its diversified portfolio of businesses
as a source of stability over the business cycle. In 2015, Jeff Immelt stated: “Diversity
provides strength through disruptive events and commodity cycles,” thereby consti-
tuting a key “source of value from a multibusiness company.”5

The guiding theme of Immelt’s restructuring of GE’s portfolio of businesses was
exploitation of profitable opportunities for long-term growth. Immelt identified four
global trends of key importance to GE:

● Demography: The aging of the world’s population would create opportunities
for goods and services required by older people—healthcare especially.

● Infrastructure: GE anticipated massive investments in infrastructure including
energy, water, and transportation.

● Emerging markets would offer rates of GDP growth around three times those of
the world as a whole.

● Environment: The problems of global warming, water scarcity, and conservation
required new technologies and innovative business responses.

The outcome was to recreate GE as an infrastructure company—a diversified cor-
poration directed toward global needs for aviation, rail transportation, power genera-
tion and distribution, oil and gas production, and medical hardware. Figure 2 shows

Capital
25%

Infrastructure
75%

Plastics, Media
20%

Infrastructure
41%

Capital
24%

Capital
43%

Infrastructure
34%

Plastics, Media
15%

2001 2005 2016

Insurance 15% Insurance 8%

FIGURE 2 The changing balance of General Electric’s business portfolio

604 CASES tO ACCOMPAnY COntEMPORARY StRAtEGY AnAlYSiS

Immelt’s depiction of GE’s changing business composition. During his 16-year tenure,
Immelt reconfigured GE through the acquisition of infrastructure-related companies
and the divestment of consumer and financial service businesses. Table 2 shows GE’s
principal acquisitions and divestitures during 2004–17.

TABLE 2 General Electric’s principal acquisitions and disposals, 2004–17

Year Acquisitions Disposals

2004 Acquires entertainment assets of Vivendi
Universal for $12 bn. to form NBC Universal
(80% owned by GE).

GE Healthcare buys Amersham PLC for $9.5 bn.
GE Capital acquires Dillard’s credit card unit

for $1.25 bn.
GE Security acquires InVision Technologies

(airport security equipment).

Life and mortgage insurance spun
off as Genworth Financial.

2005 GE Commercial acquires the financial
service business of Bombardier for $1.4 bn.

2006 GE Healthcare acquires IDX Systems, a medical
software firm, for $1.2 bn.

GE Water & Process Technologies acquires Zenon
Environmental Systems for $758 mn.

GE Advanced Materials sold for
$3.8 bn.

GE Insurance Solutions and GE Life
sold for $6.5 bn.

2007 GE Aviation acquires Smiths Aerospace for $4.6 bn.
GE Oil & Gas acquires VetcoGray for $1.4 bn.

GE Plastics is sold to Saudi Arabia
Basic Industries for $11.7 bn.

2008 NBC Universal buys Weather Channel for $3 bn.
GE Capital acquires Merrill Lynch Capital,
CitiCapital, and Bank BPH.

2010 GE Healthcare acquires Clarient for $0.6 bn.

2011 GE Oil and Gas acquires Dresser Inc. ($3 bn.),
Wellstream PLC ($1.3 bn.), and the well support
division of John Wood Group PLC ($2.9 bn.).

51% of NBC Universal sold to
Comcast for $13.8 bn.

GE Capital sells Mexican assets to
Santander.

2012 GE Capital acquires $7 bn. bank deposits
from MetLife.

2013 Buys oilfield pump maker, Lufkin Industries,
for $3.1 bn.

Remaining 49% of NBC Universal
sold to Comcast for $16.7 bn.

2015 Acquires Alstom S.A.’s power business
for $13.1 bn.

GE Antares Capital (private equity)
$12.0 bn.

GE Capital (vehicle services) $6.9 bn.
GE Capital (transport finance) $8.9 bn.
GE Capital (lending & leasing) to Wells

Fargo for $26.5 bn.
Synchrony (credit cards) for $21.6 bn.

2016 Sale of GE Appliances to Qingdao
Haier for $5.4 bn.

2017 Acquires 62.5% of Baker Hughes (for $32.4 bn.),
merges it with GE Oil and Gas.

GE Water & Process Technologies
sold to Suez for $3.4 bn.

Sources: General Electric press releases and Wall Street Journal.

CASE 20 REStRuCtuRinG GEnERAl ElECtRiC 605

Shrinking GE Capital was a massive challenge given its size and contribution
to GE’s profitability. Despite Immelt’s commitment to downsizing GE Capital, it
continued to grow during 2001–07. In 2006 and 2007, GE Capital accounted for
almost half of GE’s total net profit (up from 25% in 2001). Only after the financial
crisis of 2008–09 did GE take drastic action to divest financial services. The designa-
tion of GE Capital as a “systemically important financial institution” in 2013, which
raised its capital reserve requirements, eliminated any competitive advantages it had
derived from being a nonbank supplier of financial services.6 The only businesses
that GE Capital retained were “vertical financial businesses”—those linked to GE’s
core industrial businesses.

At the beginning of 2018, GE comprised eight major sectors. Table 3 shows these
sectors’ financial performance. Exhibit 1 describes their business activities.

TABLE 3 General Electric segment financial results, 2013–2017

2017 2016 2015 2014 2013

Revenues ($mn.)

Power 35,990 36,795 28,903 27,746 26,770

Renewable Energy 10,280 9033 6273 6399 4824

Oil & Gas 17,231 12,898 16,450 19,085 17,341

Aviation 27,375 26,261 24,660 23,990 21,911

Healthcare 19,116 18,291 17,639 18,299 18,200

Transportation 4178 4713 5933 5650 5885

Lighting(a) 1987 4823 8751 8404 8338

Total industrial segment revenues 116,157 112,814 108,609 109,574 103,269

GE Capital 9070 10,905 10,801 11,320 11,267

Total segment revenues 125,227 123,719 119,410 120,894 114,536

Segment profit

Power 2786 5091 4772 4731 4437

Renewable Energy 727 576 431 694 485

Oil & Gas 220 1392 2427 2758 2357

Aviation 6642 6115 5507 4973 4345

Healthcare 3448 3161 2882 3047 3048

Transportation 824 1064 1273 1130 1166

Lighting 93 199 674 431 381

Total industrial segment profit 14,740 17,598 17,966 17,764 16,220

GE Capital (6765) (1251) (7983) 1209 401

Total segment profit 7975 16,347 9983 18,973 16,621

(Continues)

606 CASES tO ACCOMPAnY COntEMPORARY StRAtEGY AnAlYSiS

TABLE 3 (Continued)

2017 2016 2015 2014 2013

Operating Margins (%)

Power 7.74 13.84 16.51 17.05 16.57

Renewable Energy 7.07 6.38 6.87 10.85 10.05

Oil & Gas 1.28 10.79 14.75 14.45 13.59

Aviation 24.26 23.29 22.33 20.73 19.83

Healthcare 18.04 17.28 16.34 16.65 16.75

Transportation 19.72 22.58 21.46 20.00 19.81

Lighting(a) 4.68 4.13 7.70 5.13 4.57

Total industrial segment 12.69 15.60 16.54 16.21 15.71

GE Capital –74.59 –11.47 –73.91 10.68 3.56

Total 6.37 13.21 8.36 15.69 14.51

Note:
(a)  Lighting includes Appliances before 2017.
Source: General Electric, 10K report for 2017.

EXHIBIT 1

General Electric’s business segments, January 2018

GE Power. The acquisition of Alstom had made GE the
world’s biggest supplier of equipment for generating

and distributing electricity. GE Power was also GE’s big-

gest division with 83,500 employees in 2017. It supplied

gas turbines, steam power systems, power plants, main-

tenance and service solutions for power generation,

industrial gas engines for power generation, nuclear

reactors and fuel (GE Hitachi Nuclear), electricity trans-

mission and distribution systems, and electric motors.

During 2017, GE Power was hit by a decline in world-

wide demand and made a loss of $0.9 bn. arising from a

write-down of inventory.

GE Renewable Energy employed 24,000 people
in 2017 and was one of the world’s top-five suppliers to

the wind power industry, supplying wind turbines and

related hardware, software, and services for both onshore

and offshore generation. GE was a world-leader in wind

generation technology: its Haliade-X wind turbine,

launched in March 2018, is 260-m tall and can generate

12MW. GE Renewable Energy also supplies products and

services to the hydropower industry.

GE Oil and Gas, with 64,000 employees in 2017, had
been built by multiple acquisitions between 2007 and

2016. By merging with Baker Hughes, it created Baker

Hughes, A GE Company (BHGE), the world’s second

biggest oilfield services supplier after Schlumberger. Its

products include drilling equipment, oilfield fluids and

chemicals, pumps, pressure control equipment, subsea

production systems, flexible pipeline systems, equip-

ment for production platforms, and products for refining

and petrochemicals. Oilfield services include well eval-

uation, drilling, downhole completion, wellbore inter-

vention, wireline services, and decommissioning. Profits

declined in 2017 due to reduced capital expenditure by

oil and gas companies and restructuring costs arising

from the acquisition.

CASE 20 REStRuCtuRinG GEnERAl ElECtRiC 607

Planning for a New General Electric

During his 14 months as CEO, John Flannery had taken a systematic approach to GE’s
restructuring, making it clear that a wide range of strategic options for GE were under
consideration: “That assessment is continuing and focuses on maximizing value, all
options on the table, no sacred cows.” The corporate review “could result in many,
many different permutations, including separately traded assets really in any one of
our units, if that’s what made sense.”7 Any restructuring of GE would need to address
two major questions: What were the sources of GE’s current problems? and, did GE add
value to its constituent businesses or destroy it?

The Sources of GE’s Problems

Analyses of what had gone wrong at GE were plentiful. Most of these focused on the
role of Flannery’s predecessor, Jeff Immelt, and some traced the problems further back
to the Welch era.

GE Aviation, with 44,500 employees in 2017, was
the world’s leading supplier of jet engines (together with

avionics systems and after-market services). GE Aviation’s

40-year-old joint venture with Safran of France, CFM

International, supplies its highly successful LEAP engine

for which there was an order backlog of 12,550 at the

beginning of 2018. GE’s GE9X engine, built using light-

weight carbon fiber and 3-D printing, which is to be

launched in 2018, is the world’s biggest turbofan engine.

GE Healthcare, with 52,000 employees, is the world’s
leading supplier of diagnostic imaging systems using

X-rays, digital mammography, computed tomography,

magnetic resonance, molecular imaging, and ultrasound.

It also provides systems for patient monitoring, infant

incubation, respiratory care, anesthesia, and cellular and

gene therapy.

GE Transportation, with 8000 employees in 2017,
supplies diesel-electric locomotives together with

support services, parts, software solutions, and data

analytics. It also supplies diesel engines and drive sys-

tems to the shipping and mining industries. Despite GE’s

technical leadership in locomotives, the world market

was dominated by CNR and CSR of China. Following

them was CLW of India and Bombardier of Canada. In May

2018, the merger of GE Transportation with US rail equip-

ment manufacturer, Wabtec Corp, was announced. The

combined company would be owned 49.9% by Wabtec

shareholders, 40.2% by GE shareholders, and 9.9% by GE.

GE Lighting, with 7500 employees in 2017, is com-
prised of a consumer lighting business focused on LED

lighting; and Current, which provided lighting solutions

for commercial, industrial, and municipal customers. At

the end of 2017, the business was put up for sale and

a management buyout had been agreed upon for GE

Lighting’s business in Europe, Middle East, and Africa.

GE Capital, with 4000 employees in 2017, had been
reduced to financial services that were closely aligned

with GE’s industrial businesses. These included Industrial

, providing equipment financing for the health-

care and additive businesses; Energy Financial Services,

which offers financial solutions and underwriting for

Power, Renewable Energy, and Oil & Gas; and GE Capital

Aviation Services, the world’s biggest aircraft leasing

company. During 2018, its Industrial and Energy

Financial Services would be shrunk considerably. How-

ever, it continued to be haunted by its past—during

2008–14, it would pay $15 billion to top-up the reserves

deficiencies of previously-owned insurance companies.

608 CASES tO ACCOMPAnY COntEMPORARY StRAtEGY AnAlYSiS

It was clear that Immelt was guilty of decision-making errors—particularly with
regard to timing. Criticisms focused in particular on the following:

● Ill-judged acquisitions. Several commentators pointed to GE overpaying for
the companies it acquired. The principal evidence of this related to Alstom.
During the long delay in gaining approval for the acquisition, the market for
power-generating equipment took a downturn, and GE was forced to offer
more concessions to Alstom and the French government. Hence, by the time
the acquisition closed, Alstom was worth considerably less than the price GE
was paying. Timing was also amiss for several of GE’s acquisitions in oilfield
services: Dresser, Wellstream, John Wood, and Lufkin were all bought when oil
prices were booming. Scott Davis of Melius Research estimated that GE’s total
return on Immelt’s acquisitions were less than half of what GE would have
earned by simply investing in stock index mutual funds.8 The Economist esti-
mated that GE was paying much more for the businesses it bought than what it
received for those it sold.9

● Poor cash flow management. During the 21st century, GE lost its reputation for
financial conservatism along with its triple-A credit rating. At the core of con-
cerns over its financial management has been an erratic approach to cash-flow
management. The financial crisis was, of course, unexpected, but the fact that
GE was forced to obtain $3 bn. in emergency funding from Warren Buffett’s
Berkshire Hathaway Inc. and $139 bn. in loan guarantees from the federal
government appears not to have alerted GE to the risks inherent in GE Capital.
Particular criticism has been directed at GE’s stock buyback program: in the
three years prior to the dividend cut in 2017, GE spent $49 bn. on buying its
own stock.10 According to the Financial Times, GE’s free cash flows from its
industrial businesses failed to cover its dividend during 2015–17.11

● Over-optimism. GE’s failure to guard itself against risk and pay adequate
attention to early warning signs have been interpreted by some GE-watchers
as symptoms of top-management’s overconfidence and reckless optimism.
According to some current and former GE executives, Immelt and his top dep-
uties engaged in “success theater”—they “projected an optimism about GE’s
businesses and its future that didn’t always match the reality of its operations
or its markets.”12 In particular, during 2017, when signs of flagging sales and
mounting inventory were emerging at GE Power, Immelt was slow in acknowl-
edging the problems.

● Problems with GE’s financial accounting. If GE had been slow to recognize and
react to emerging problems, one factor might have been its accounting prac-
tices, which for decades had been designed to impress Wall Street, but may also
have insulated management from the reality of business performance. Under
Jack Welch’s leadership, GE Capital became a valuable tool for managing GE’s
quarterly earnings: “Unlike a factory, GE Capital’s highly liquid assets could
be bought or sold at the ends of quarters to ensure the smoothly-rising earn-
ings that investors loved.”13 Dubious accounting practices also surfaced in GE’s
industrial businesses. At GE Power, sales of upgrades to make existing gas tur-
bines run more efficiently were booked as current revenues, without taking
into account the effects of these sales would have on reducing future service
revenues.14

CASE 20 REStRuCtuRinG GEnERAl ElECtRiC 609

Does GE Add Value to Its es?

Ultimately, the question of whether or not GE should be broken up rested on the issue
of whether GE’s corporate umbrella added or subtracted value from the businesses.
At the time Culp was appointed CEO, with its share price depressed and facing a slew
of legal and regulatory problems, it was likely that GE would be worth more if it was
broken up and its constituent businesses either sold or floated as independent com-
panies. In January 2018, the Financial Times valued GE’s constituent businesses as:
Aviation at $85 bn., Healthcare at $56 bn., and Power at $36 bn. Adding other smaller
businesses and subtracting debt and other liabilities (including pensions) gave a sum-
of-the-parts valuation of costs, the result was something close to $158 bn. Although
this was greater than GE’s market capitalization, the Financial Times cautioned that: “It
does not look as though there is a pot of gold there waiting to be uncovered.”15

Previous CEOs, Immelt and Welch, had argued that GE created value for its busi-
nesses through several mechanisms. These were:

1 Reducing risk. According to Immelt: “The GE portfolio was put together for a
purpose—to deliver earnings growth through every economic cycle. We’re con-
stantly managing these cycles in a business where the sum exceeds the parts.”16
To the extent that GE’s business diversity did smooth its overall cash flows, then
it seemed that the major benefit of this was giving GE greater independence from
external financing.

2 Portfolio management. Both Welch and Immelt had radically changed and
reconstituted GE’s business portfolio. Welch had built a huge financial services
business; Immelt had re-created GE as an industrial corporation heavily focused
on infrastructure. The rationale was to exit slow-growing, low-margin sectors
to exploit the growth and profit opportunities of more attractive industries. In
building GE’s presence in jet engines, medical equipment, and systems for gener-
ating and distributing electricity, Immelt was widely perceived as having aligned
GE’s businesses with long-term global growth trends. However, The Economist’s
Schumpeter column doubted the effectiveness of portfolio management in cre-
ating value: “The cost of churning capital in predictable ways can be significant …
GE has paid a multiple of 13 times gross operating profits for the businesses it
has bought and got 9 times for those it sold. Some nine-tenths of its industrial
capital is now comprised of goodwill, or the premium that a firm paid above
book value for its acquisitions.”17

For portfolio management to work well, corporate management must be willing
to exit businesses whose long-term prospects are deteriorating. This is easier for
a private equity firm than for a diversified industrial corporation where long-
established businesses are likely to be protected by sentimental attachment and
entrenched political power. A feature of Immelt’s leadership was the long length of
time it took to exit from financial services and domestic appliances.

3 Exploiting synergies. A central theme of Immelt’s 16-year tenure as CEO was
building and exploiting linkages among GE’s different businesses. While Welch
had been a passionate advocate of knowledge sharing within GE, Immelt’s
emphasis was on putting in place the systems for such sharing to take place.
Sharing technology was the priority. Under Immelt’s leadership, GE built a net-
work of eight Global Research Centers. By 2015, GE had 37,000 technologists

610 CASES tO ACCOMPAnY COntEMPORARY StRAtEGY AnAlYSiS

engaged in R & D within its businesses and its corporate research centers. Corpo-
rate-level research programs addressed technologies with applications to multiple
businesses. These included molecular imaging and diagnostics, nanotechnology,
energy conversion, advanced propulsion, sustainable energy, and security tech-
nologies. The greatest importance was …