Thursday, September 27, 2007

Running G.E., Comfortable in His Skin
Published: NYT June 9, 2007

This posting is a bit longer than normal, but I think it offers great insight into the challenge of leadership from the individual’s personal makeup to the tough decisions that rest only in the corner office..........

“When you put your foot on the gas in this company,” Jeffrey R. Immelt said a few weeks ago, with just the slightest trace of a satisfied smile, “the car goes forward.”Skip to next paragraph
Mr. Immelt, 51, was leaning back in a chair in a conference room that adjoins his Connecticut office, his legs casually crossed, acting as if he didn’t have a care in the world. He seemed utterly at ease, like LeBron James shooting a jump shot, or John Pizzarelli playing guitar.

Then again, Mr. Immelt always seems at ease. Never mind that as the chief executive of General Electric, a position he assumed a week before 9/11, he presides over one of America’s most storied companies, an incomprehensively large industrial conglomerate that employs over 300,000 people, generated nearly $21 billion in profit on $163 billion in revenue last year and ranks sixth on the Fortune 500.

Never mind, too, that there were enormous expectations placed on him from the start: he won the job after a well-publicized bake-off with two other prominent G.E. executives, W. James McNerney Jr. (now the chief executive of Boeing) and Robert L. Nardelli (you know who he is, right?), while replacing perhaps the best-known businessman of the age, Jack Welch. He then had to deal with 9/11, with a power turbine business that fell off a cliff, with NBC’s fall from first to last place in the ratings, and with the realization that the company’s insurance business was under-reserved by $10 billion.

And never mind that once he got through that, he has spent much of his time reshaping the leadership culture within General Electric — messing around with one of the things that G.E. does better than any other company in the world. And he’s been making a series of very big bets, selling off parts of the company, while doubling down on others, with no guarantee that the profits he is seeking will ultimately be achievable.

Oh, and one other thing: the entire time he’s been chief executive, the stock hasn’t budged. (It closed yesterday at $37.32.) In April, Jeffrey T. Sprague, the Citigroup analyst, called for “a partial breakup” of G.E., arguing that the company’s “size and complexity is working against investor interest in the stock.” During Mr. Welch’s 20 years at the helm, G.E.’s stock had a staggering 7,000 percent total return, including dividends. If the company’s share price doesn’t start to rise soon, Wall Street is going to be agitating for more than a breakup.

Mr. Immelt seems pretty much at ease about that, too.

Let me put my cards on the table: I think Jeff Immelt is the prototype of the modern chief executive. And a large part of the reason is his unflappable personality.

I’ve argued before that the age of the authoritarian C.E.O. is over, and that chief executives today need to have the whole range of “softer skills.” They need to be good listeners, consensus builders, ambassadors to the larger world, and leaders who others follow not because they have to but because they want to.

They need to be able to do really hard things — change a strategic direction, sell a long-valued division, lay off employees — with such a deft touch that nobody revolts. Informality is important. Charisma is important. Empathy is important. Admitting mistakes is important. The modern C.E.O. has to be, in sum, utterly comfortable in his own skin. These days that quality — “authenticity,” the management gurus call it — is what gives employees confidence in the boss, and makes them willing to ask “How high?” when he wants them to jump.

Mr. Immelt has those qualities in spades. He is not a clone of the blustery, impatient Mr. Welch, just as Mr. Welch was not a clone of his predecessor, the statesmanlike Reginald H. Jones. But that’s an amazing thing about G.E.: it has an uncanny talent for picking exactly the right leader for each different era. In its 128-year existence, it has had 10 leaders , and only one — the founder Thomas Edison, of all people — was a bust. Mr. Immelt’s quiet charisma, his self-confidence and his “emotional intelligence” make him the right man to run General Electric in this era.

Noel M. Tichy, the co-author of the coming book, “Judgment: How Winning Leaders Make Great Calls,” and a longtime G.E. watcher, spoke to Mr. Immelt not long after 9/11. Mr. Welch had made G.E. “faster-moving and more entrepreneurial,” the incoming C.E.O. said. “But it doesn’t have the heart it needs, and it doesn’t have the context it needs. That is what I want to do in the next 20 years.”

An advantage Mr. Immelt has is that he does indeed expect to stay in the job for 20 years; that’s just the way it’s done at G.E. Jack Welch used to say that it takes a C.E.O. five years to learn the job, and General Electric is the rare company that wants its chief executives to be around for decades in order to leave their mark. There isn’t another C.E.O. in the land who has that luxury. Another advantage is that, as with every other General Electric chief executive, he’s been there his whole career. He understands the company in his bones. And he loves it, to use his own words, “completely and deeply.”

For instance, the grooming of leaders has always been a core strength of General Electric. But as Mr. Immelt rose near the top of the G.E. ladder, he came to believe that the company focused too much on individual leadership traits and not enough on team skills. So he began the process of instilling a better team ethos. How do they do that at G.E.? They institute a process, first teaching the skills, then rating the performance of up-and-coming leaders, and finally promoting those who show the attributes the company cares about. It’s a kind of enforced culture change, but somehow, at G.E., it works.

Mr. Immelt also felt that G.E. needed to do a better job at what is called “organic growth,” that is, growth that is not a result of acquisitions. So he had G.E. study companies that excelled at internal growth, like Apple and Toyota, quantified the qualities that those companies had in common, and began teaching them at General Electric. Now, Mr. Immelt has told Wall Street that he wants the company’s organic growth rate to be 8 percent a year, twice what it used to be.

“Eight percent may not sound like much,” he says, “but it means we have to grow the size of a company like Nike every year.”

A statement like that one, delivered by someone else, might have a feeling of helplessness about it — an admission that with $163 billion in revenue, the company is bumping up against the law of big numbers. But when Mr. Immelt says it, it is clear that he views it as an achievable goal. And that’s because he has a tremendous belief in the power of large industrial conglomerates — or at least his.

You see, the way he views it, G.E. is operating in a gigantic world economy that is currently growing at a rate, more or less, of 4 percent a year. So “all” the company needs to do is grow at double the rate of the world’s economy. And if he places the right bets — if G.E. expands in the right countries, and focuses on the right sectors — he is confident the company can pull it off.
Hence, his decision, for instance, to stress global infrastructure and health care, both businesses that G.E. knows a great deal about already, and which are growing much faster than the other parts of the world economy. And thus perhaps his most controversial bet: to build a huge business around the environment.

“The first time I brought the idea to the company’s executive council,” he said, “there was rapt silence. Some people saw it as wimpy, caving into the enviros. But I saw that we already had two-thirds of the company working in some way on environmental technology, like water scarcity. And I thought it was worth a swing.”

The day before I interviewed Mr. Immelt, I saw him speak to a group of G.E. customers. “It was not universally loved by our customers and even less by employees,” he told them, referring to the company’s environmental thrust. “I have made a couple of hundred mistakes in my business life, but this isn’t one of them.” From a standing start, the ecomagination line of General Electric products has become a $10 billion business, a number the company expects to grow to $20 billion within three years.

Wall Street, of course, doesn’t much care about the law of big numbers either. It just wants to see the stock go up. “Yes, there is a mood of impatience,” said David Bleustein, who follows General Electric for UBS. But Mr. Bleustein also told me that right now at least, he’s buying what Mr. Immelt is selling — and currently has a buy on the stock. “More often than not, he’s made the right moves,” Mr. Bleustein said. From the Street’s point of view, it’s payoff time.

Most C.E.O.s whose stock hasn’t moved in five years would be in a world of trouble, of course. And Mr. Immelt is not going to get his 20-year run if he can’t get the stock to move. But he’s still got plenty of time to show that his repositioning is working; Wall Street may be antsy, but no investor is crazy enough to call for his ouster. And he’s adamant that the solution is to wait for the market to catch up with the company’s changing nature, rather than to execute a partial breakup just to please the Street.
“Investors go through cycles where they don’t like conglomerates,” Mr. Immelt said. “But if you want to be a lasting company, you have to know how to be a multibusiness structure. If Google is going to be a 100-year-old company someday, it is going to have to learn to do more than search.”

At one point in our conversation, I asked Mr. Immelt how he balanced the need to be building consensus with the need to make a firm decision and, in effect, show who’s boss. It struck me as a tricky issue, and it was clearly one he had thought about a lot.

When you run General Electric,” he said, “there are 7 to 12 times a year when you have to say, ‘you’re doing it my way.’ If you do it 18 times, the good people will leave. If you do it 3 times, the company falls apart. You want a team of leaders who are self-confident. But in the end it is not a democracy. There has to be clarity about decisions.”

Which helps explain why, if you’re Jeff Immelt, you can put your foot on the gas, and that amazing $163 billion car goes forward

No comments: