The G.E. Puzzle, and the Pieces a New Chief Will Have to Make Fit

By STEVE LOHRJUNE 13, 2017 

https://www.nytimes.com/2017/06/13/business/ge-breakup-flannery.html?smprod=nytcore-ipad&smid=nytcore-ipad-share

A classic look on how a CEO looks at his/her corporate portfolio:

John Flannery, who will become the chief executive of General Electric on Aug. 1, has said that he will “take a fresh look at the company.” …..

……Mr. Flannery examines G.E.’s collection of businesses, he must confront several questions. What is the corporate core? What is less so? What is sure to go? What are unknowns?

Here is a look at how the pieces stack up

.

The Core: Engines and Generators

These are the G.E. heartland operations — machines representing the most advanced application of the touchstone technologies of the 125-year-old company: materials science and physics.

They also exploit what Jeffrey R. Immelt, the departing C.E.O., has termed the emerging “third pillar” of G.E. technology in the future — data and smart software.

Sensors on a new jet engine, for example, stream data on temperature, fuel consumption, vibration and other measurements so the engine, in its own way, signals that it needs preventive maintenance.

Jet engines and power turbines reflect the most lucrative business model for G.E.: an equipment sale that ensures years of revenue from services. The services revenue over the lifetime of a G.E. jet engine, which can be 30 years or more, is eight times the value of the initial engine sale, analysts estimate. That stream of revenue carries high profit margins.

The two products use similar technology. A new gas-fired generator for an electrical utility fires up at nearly 2,900 degrees Fahrenheit and weighs 950,000 pounds — and it is essentially a giant, stationary jet engine.

Nearly Core: Oil-Field Gear

Depressed oil prices contributed considerably to the pressure Mr. Immelt felt from shareholders unhappy with G.E.’s profit performance. The price slump battered demand for its oil-field equipment, and operating income in its oil and gas business fell 43 percent last year.

Mr. Immelt continued to invest in that business despite the downturn. In October, G.E. announced its plan to merge its oil and gas business with Baker Hughes. It will create a new publicly traded company, and G.E. will pay Baker Hughes shareholders $7.4 billion in a special dividend. The Justice Department’s antitrust division approved the deal on Monday, and the European Union gave its O.K. last month.

Though in a down cycle, the oil and gas business has characteristics in common with jet engines and power generators. It is heavy equipment that brings in a lot of services revenue, and it lends itself to efficiency gains using sensor data and software.

The Baker Hughes deal, analysts say, gives the combined entity a strong lineup of onshore and offshore equipment and services offerings, making it a more attractive property.

 “It allows G.E. to make a staged exit from the oil and gas business in the future, if they choose to do so, much as it did with NBCUniversal,” said Deane Dray, an analyst at RBC Capital Markets, referring to the sale of the media company to Comcast in two steps, in 2011 and 2013.

Transportation — mainly locomotives — is another heavy-equipment business with solid service revenue. It is not a big business for G.E., but it is a solid one.

Another Step: Health Care

The health care business combines medical imaging equipment, like CT scanners, and a life sciences business with technologies for use in the fast-growing fields of molecular and precision medicine.

That business, analysts say, could be spun out in a few years as a free-standing entity with its own stock, which, if successful, could be valuable not only to shareholders but also as a recruiting tool for luring researchers and a currency for acquisitions.

Up for Sale: Lighting

The light bulb is a storied product in G.E. history, but its moment seems to have passed. The company is looking to sell that unit, The Wall Street Journal reported in April, talking to investment banks and seeking a sale of about $500 million.

G.E. wants to sell its business in consumer light bulbs and residential LED lighting, but would hold onto a separate business, Current, which supplies commercial LED light and services to cities and companies. That business involves higher-end technology and the sale of energy-management services.

An Unknown: GE Digital

Mr. Flannery fully backed Mr. Immelt’s strategy of investing heavily to build up G.E.’s software and data-analysis capability.

The future for G.E., Mr. Immelt insisted, is to become a “digital-industrial company,” with sensor data and software a “thread” for delivering greater efficiency in its factories, products and services.

GE Digital, begun in 2011, has been set up as its own unit and employs more than 1,400 people at its headquarters in San Ramon, Calif., east of San Francisco.

“Jeff Immelt has done a lot at G.E. that he’s not getting credit for now, including the digital strategy,” said Robert Atchinson, a founder and managing director of Adage Capital Management, a fund that holds G.E. shares.

“But we won’t know for two years or so whether these new initiatives pay for themselves.”

Mr. Davis of Barclays sees the digital strategy as sound but recommends a less costly, less risky approach. A joint venture, he said, “with someone like Microsoft or Google makes the most sense.”

Carl Icahn Ups His Bet by Buying Precision Auto Care

Icahn has been expanding the reach of its auto service network in recent years

By

Austen Hufford

This is a great example of reacting to changing market dynamics and trends

Carl Icahn is raising his bet that Americans won’t fix their own cars, and that eventually many might not even own one.

Mr. Icahn has spent the past few years making deals aimed at extending his automotive-service network nationwide, as increasingly complex cars have their owners relying more on professionals for repairs. On Friday, Icahn Automotive Group LLC agreed to buy car-service chain Precision Auto Care Inc. for about $35 million. The deal would add 250 locations to the billionaire investor’s 1,000 existing shops.

“We’re positioning ourselves well to take advantage of an increase in fleets,” Mr. Icahn said in an interview, as he expects ride-hailing and -sharing services to displace some personal-car ownership and sees rental-car fleets expanding to accommodate those without their own autos.

Mr. Icahn’s goal is to build a company with nationwide reach that can make, sell and install parts, having recently bought parts-and-repair chains Pep Boys and Just Brakes as well as auto-parts distributor Auto Plus. He also took parts maker Federal-Mogul Holdings Corp. private earlier this year after owning a significant stake for a decade.

He also owns stakes in ride-hailing service Lyft Inc. and car-rental company Hertz Global Holdings Inc., which has a partnership through which Lyft drivers can rent vehicles if they don’t have their own. Mr. Icahn thinks far-flung fleet chains and ride-hailing companies could benefit from national service providers in an industry that is often served by local shops and regional chains.
“I have a whole team out there buying installers,” he said. “We want to build a really large national footprint servicing the fleets.”….

…Many cars are more tightly packed under the hood than in the heyday of do-it-yourself mechanic work, and some cars with more complex electronics can require expensive tools to diagnose and fix problems. That can even squeeze out some mom-and-pop shops for whom the investment in those tools might not be worthwhile.

A recent report from market-research company IBISWorld Inc. said the increasing complexity of auto repairs requires mechanics who are more highly trained, which drives up wages. The report also said that it is becoming more expensive to obtain more complex repair information from manufacturers.

Getting to the Critical Few Behaviors That Can Drive Cultural Change

Kristy Hull

https://www.strategy-business.com/blog/Getting-to-the-Critical-Few-Behaviors-That-Can-Drive-Cultural-Change?gko=463e5&utm_source=itw&utm_medium=20170601&utm_campaign=resp

Very important insights

Focusing on a “critical few” behaviors is one of the fundamental tenets of working effectively with organizational culture. Sometimes called keystone behaviors, these are patterns of acting that are tangible, repeatable, observable, and measurable, and will contribute to achieving an organization’s strategic and operational objectives. The behaviors are critical because they will have a significant impact on business performance when exhibited by large numbers of people; they are few because people can really only remember and change three to five key behaviors at one time….

…. Not all our business problems can be solved through such simple actions. But defining and selecting the critical few behaviors is an important first step. And rather than repeatedly asking the simple question, “Why?” you can get there by following a four-step process

Know what you’re trying to accomplish. It’s vital to identify the area or issue in which you are trying to make a difference. For an organization, this often means aligning with the strategic priorities or, sometimes, the goals of a critical enterprise-wide transformation effort.

Define the behaviors that will contribute to the goals. A behavior is a habitual way of acting that is considered the norm or expectation — it is not a one-time action, a policy change, an outcome, or a mind-set/attitude.

Prioritize the critical few behaviors. A common way to do this is to plot the behaviors using the axes of implementation and impact.

Implementation criteria include:

• Actionability: Are people able to perform the behavior?
• Degree of visibility: Can people see others performing the behavior?
• Measurability: Can you measure (preferably objectively) whether people are performing the behavior?
• Speed of results: Can people performing the behavior deliver results in the short term?
• Ease of implementation: Given the current organizational environment, how easy/difficult will it be for people to perform the new behavior?

Validate your choices by getting input from both formal and informal leaders. You might consider using a voting process — it could be an electronic voting tool or something as old-school as a show of hands — to gather formal leaders’ views and prioritize down to the critical few.