General Electric has been considered an American-icon. But throughout the decades it has lost its shine.
General Electric’s products and services extend throughout a wide variety of industries, from hydroelectric power, energy grids, aviation to financial services. The conglomerate rose to stardom between 1892 to the 1980s, where it saw much of its business crumble down. General Electric grew exponentially after the acquisition of the Edison General Electric Company, which spawned from Thomas Edison’s Edison Electric Light Company.
The company formed by Edison in 1878, had the patents for the incandescent lamp. A product that stood at the foundations of modern civilization. General Electric would grow out to become a global market leader in the electricity industry and consumer goods segment. But its size and wide span across many industries became the company’s greatest weakness, becoming vulnerable to geopolitical tensions and changing consumer behavior.
Oil embargo hits General Electric
In 1974 General Electric stock fell by 47%, marking the largest falls in the company’s history. The drop in market value was the result of a rapidly changing economic climate due to the 1973 oil embargo imposed by the oil producing nations gathered under OPEC. The Arab oil embargo banned oil shipments to countries who supported Israel during the Yom Kippur War. Oil exports were imposed on the Netherlands, Portugal, Rhodesia, South Africa and The United States. The embargo for the United States would be lifted in March 1974, but not before it caused serious economic damage to the economy. Corporations throughout America were scrambling for ways to maintain operations as energy prices soured. General Electric, who was deeply ingrained in the energy sector, was hit particularly hard by the oil embargo.
In October 1974, GE announced it would lay off 14,000 workers. General Electric enjoyed strong growth thanks to soaring housing construction, but production started to slow down. While appliance manufacturers were anticipating a recovery, the economic outlook had taken a downturn. High interest rates plagued new housing development, with money supply declining, the former Vice president of General Electric’s appliances division, Stanley C. Gault, explained to the New York Times. The cool summer of 1974 resulted in General Electric selling less air conditioners than during the period the previous year. Air conditioner sales fell by 20 percent in August 1974.
In order to maintain stable operations, executives at GE decided to lay-off 2,300 employees and another 14,000 being put on temporary lay-offs. In the month of October, another 6,000 employees would be temporarily laid-off. General Electric wasn’t the only American company laying off employees. Polaroid fired 1,000 workers. The Bethlehem Steel Corporation announced it would lay-off 2,600 workers. Corporations operating that relied heavily on energy for their operations, laying off thousands upon thousands of Americans, resulting in soaring unemployment figures. The unemployment rate in the country increased from 4.9 percent in 1973, growing to 5.6 percent in 1974 to 8.3 percent by 1975. The unemployment peaked at 7.6 percent in 1976.
Jack Welch reshapes General Electric
The 1980s broke the declining trend that General Electric experienced during the 1970s. This shift could all be traced back to the appointment of Jack Welch as the company’s chairman in 1981. Welch’s leadership style would become the hallmark for modern day corporate organization, whilst simultaneously leaving the company ill-prepared for the decades to come. The New York Times spoke with Jack Welch in 1985 to discuss how he was going to reshape GE.
The interview comes after General Electric fired thousands of its staff members. In June 1981, the company announced it would lay-off 8,000 employees. A spokesperson explained the staff reductions were necessary as the company was left with large inventories of unsold dishwashers, ranges and refrigerators. About 4,000 of those to be laid off, came from its Kentucky plant, with the state now being faced with an influx of employed residents. Another 5,200 employees were to be fired in November 1982. The lay-offs were the precursor for the reorganization set in motion at the start of Welch’s appointment.
In January 1983, GE announced it would sell its Utah International Inc. subsidiary for $2.4 billion in cash to Australia’s multinational mining and metals public company, Broken Hill Proprietary Company Ltd. The sale would inject much necessary funds to help GE invest in its high tech division. In a statement cited by the New York Times, Welch commented that shedding off the business unit would allow the conglomerate to reposition itself for novel technology goods and services. Through the sale of its Utah International Inc. subsidiary,
In the eyes of Welch, the antiquated business concepts created by its predecessor Reginald Jones, weren’t suitable for the globalized world the company found itself in. Business units that couldn’t keep pace were dismantled at lightning speeds, the news outlet noted. Of the 217 plants, a dozen were shut down, with an additional 13 following the same faith. Remaining plants would either be fixed or sold, Welch explained. The radical clean-up operation set in motion by Welch was disruptive to many of its employees, but economic professors praised the company’s approach to drastically trim and optimize its operations. Rhetoric that has been employed by many business leaders, but with little action to back them up.
Shutting down and laying off thousands of its workers did seem to pay off. Revenue remained stable amidst a recession and growing by 15 percent just a year into Welch’s tenure. Shares followed suit, growing by thirteen percent compared to 1983. However, GE was still trying to navigate its fraudulent overcharging during an Air Force contract in 1980, which banned the company from applying to federal tenders. A major blow for a company that makes good money off of government contracts. While the ban had been lifted by April 18, 1985, its reputation with federal officials was severely damaged, making a strong recovery for Welch the more challenging.
A year after the interview with The New York Times, GE announced it would lay-off another 1,500 employees at its gas and steam turbine plant in Schenectady, NY. Senior vice president and group executive for Turbine Business Group at GE, George Cox, explained the demand for steam and gas turbines had fallen sharply in the United States. Outside the domestic market international competitors were dominating the market. The strong dollar and trade barriers further rendered American goods too expensive.
At the time, Jack Welch’s relentless approach to restructuring business, reframed how corporations would conduct business in years to come. But as influential as his leadership style was at the time, as divisive it has become today. Welch’s principles deified the role of top executives, serving as a blueprint for aggressive expansion through rigorous cost cutting. By any means necessary, if it meant sacrificing loyal employees in search of profits.
General Electric expands
Welch has been cutting off a lot of unprofitable businesses across the conglomerate, but has also been expanding into areas where it could make up for lost revenue streams and move into promising markets. In December 1985, GE would acquire the owner of NBC Television, the Radio Corporation of America (RCA), in an all cash deal of $6.3 billion, becoming the largest non-oil merger in the nation’s history. With the acquisition of RCA, GE wanted to reinforce in defense product segments and gain access to the strong market position of RCA in the consumer goods, an area where General Electric was losing momentum. By adding NBC to its product portfolio, GE became owner of one of the most valuable television networks in America.
In December 1995, GE Capital Services announced it would buy a majority of the life insurance and annuities from Chicago-based insurer Aon Corporation for $960 million in an all cash deal. Annuities are insurance contracts that invest money and return the profits through a fixed payment stream back to the customers. Annuities are primarily used for retirement. Through the acquisition GE would further expand into the financial sector, becoming one of the largest financial services providers in the United States.
The annuity business has been rapidly expanding since GE came onto the market with its acquisition of the Great Northern Insured Annuity Corporation of Seattle for $525 million, The New York Times highlighted. Welch commented that the acquisition of Aon’s annuity business was a key part of GE Capital’s insurance subsidiary GNA Corp., allowing customers to build, protect and transfer wealth. Investors reacted positively to the acquisition with GE shares rising by 50 cents to $72.125.
Throughout the 1990s GE acquired a multitude of companies such as OEC Medical Systems, the world’s largest diagnostic-imaging equipment manufacturer, for $479 million in stock. General Electric’s capital services division acquired Ameridata Technologies Inc. for $490 million to accelerate its product offering in the computer equipment leasing and consulting business divisions. The company kept expanding its services into manufacturing and technology companies to prepare itself for the digital future. But first, it had to survive the Dot-com bubble.
Surviving the Dot-com Bubble
At the turn of the millennium, General Electric was met with financial hardships as the Dot-com bubble unfolded. The world was rapidly changing as the internet connected the world, making communications fast and affordable. This trend spurred newfound optimism with aspiring entrepreneurs who saw this novel technology as the next gold rush. Start-ups popped up left and right, eager to capitalize on this exponentially growing market. Since 1998, countless IPOs launched, with investors throwing money at them in the hopes they would turn a profit eventually. While this concept is commonplace among tech companies today, back then, everybody was blindsided by this digital wave. Scared to miss the boat.
The NASDAQ exchange grew by an astounding 86 percent in 1999, with the merger of AOL and TimeWarner further reinforcing the belief that record return on investments were looming on the horizon. The reality however, was less glamorous. Many start-ups failed to make a profit or generate any revenue at all, with little money left to turn the tides.The writing was on the wall, heralding an economic downturn for years to come. Investors around the world panicked and stock markets started to collapse.
It was during this time that Jeff Immelt became the company’s new CEO. Immelt had to navigate GE through one of the most turbulent times in American history. A period where economic pessimism was fueled by the 9/11 attacks, on top of the Dot-com bubble. The 9/11 attacks hit several sectors, such as the airline industry, particularly hard. Sending shockwaves through the American economy, acting as a fall-out across a wide range of sectors.
The fall of GE under Jeff Immelt
Throughout the decades, GE had weathered many storms. Welch built the blueprint for corporate America as we know it today. May it be for better or for worse. The time had come for Welch to pass on the torch. This would become the pivotal moment in GE’s history and a turning point that marked the definite decline of the once American icon. Jeff Immelt couldn’t have been appointed at a more unfortunate time. Immelt started his first day on September 7, 2001, just four days before the attacks on 9/11, which would impact several of GEs business lines.
General Electric had to resort to its tried and tested mass lay-offs to weather the storm.In December 2001, the company announced it would lay-off 22,000 employees from its 313,000 strong workforce. General Electric expected the economic winds to shift, restructuring its operations across all its divisions, which had grown beyond sustainable levels due to mergers and acquisitions. Almost two years into the Dot-com Bubble, the NASDAQ index had fallen by 77 percent on October 4, 2002. Meanwhile General Electric was caught in the fallout, losing an eye watering 37.71% of its stock value by the end of that year. Investors were now reluctant to invest in unproven technologies.
Selling stakes
Immelt would continue to reshape General Electric through an acquisition and sell-off spree. In February 2013, GE parted ways with Welch’s pride and job, NBC Universal, selling the remaining stake to Comcast. General Electric already started shedding its stake in the television network in 2009, where it sold a majority of its ownership to Comcast in an $8 billion deal. Immelt explained the company was in need of funds to accelerate growth in its core businesses.
In September 2014, General Electric sold its once famous appliances division to the Swedish manufacturer Electrolux in a $3.3 billion all cash deal, marking it as one of the largest division divestments in the company’s history. The successful deal comes after General Electric put its appliances division up for sale in 2008. Appliance sales were a profitable business for GE, but the margins were razor thin. It took six years for the company to finally shed away the appliance division after potential buyers retreated due to the economic recession, CNBC noted.
Isaac Pino at investment news website The Motley Fool, wrote that GE was no longer interested in manufacturing refrigerators as profits were meager, with the appliances division only representing a small fraction of the company’s total revenue. Pino remarked that appliance sales accounted for five percent of total revenue and only one percent of profits. The appliances segment also showed little promise of ever becoming more. Profit margins were also notoriously thin for the manufacturer, with the goods sold in the Appliances and Lighting division only having a margin of 3.9 and 4.6 percent respectively.
Definitive decline
In one of his last big efforts, Immelt would complete the controversial merger with Baker Hughes. In July 2017, GE completed its merger with the oil field services company. Baker Hughes provided technologies to fossil fuel companies such as drills, drill fluids and drilling services for onshore and offshore oilfield operations. GE acquired a 62.7 percent stake in the company for $7.4 billion. The merger would become a massive headache for General Electric, resulting in a swift exit. In less than a year, GE announced it would sell its stake in Baker Hughes.
In a June 2018 Reuters report, the news outlet found many internal struggles that led to the eventual exit of GE. GE was looking to turn a quick profit as it was losing market share with Baker Hughes. It started to enforce strict cost cutting measures at suppliers, hiked service fees, which scared off customers, who took their business elsewhere. GE wanted to increase revenue as fast as possible from existing contrasts to boost revenue and improve margins. A U.S. oil producer told Reuters services prices were increased by 20 percent without proper communications. The producer moved his business to competitor Novomet. Attempts by Baker Hughes GE to rollback the increase were to no avail.
This left executives and employees at Baker Hughes disgruntled and confused. The business they had been building was torn apart in a matter of months. Executives meanwhile either left the company or were contemplating a possible exit. President of its global chemicals business, Mellissa Law, who worked 20 years at Baker Hughes, left the company, together with Director of financial planning, Eric Holcomb. This was only the beginning. A recruiter told Reuters he received 50 resumes from Baker Hughes employees. Under GE’s leadership, revenue fell by $700 million, falling from $23 billion to $21.9 billion in 2017. Baker Hughes GE shares fell by 18 percent since the completion of the merger, becoming the embodiment of troubled days at GE.
Bad bets with Immelt
The brief periods after the 9/11 attacks and mass lay-offs were marked as key turning points in GEs strategy, led by Immelt. In a 2021 interview with CNBC, Immelt acknowledged that decisions made during this moment in time, exposed the company to greater economic threats. He noted that expanding in the financial services sounded good in theory, but during the 2008 financial crisis, brought the company in great jeopardy. Immelt commented he should’ve been more focussed on the long term, instead of quick revenue generating schemes.
The appointment of Immelt as CEO has been controversial from the start. In the search of a successor, Welch was looking for a candidate that would continue his legacy. In a last effort to carve out the future of General Electric, Welch changed the selection process. Done was the secret envelope that would announce the new chief executive. Welch, according to author William D. Cohan in an opinion piece at New York Times, detested this rite of passage. He wanted to choose the best candidate himself.
The candidates were thrilled to take on the position. Cohan commented they did everything in their power to please Welch, convincing him they were the best candidate for the job. Immelt, Cohan pointed out, was the most “polished politician”, having all the right credentials. On paper. Board members protested against the appointment of Immelt, as he was less accomplished than candidates like Jim McNerney. But Welch couldn’t be persuaded. Immelt was to become the new CEO.
Immelt’s tenure was marked by a string of poor decisions. Welch told Cohan how Immelt was making wrong decisions. Paying too much during acquisition, selling off valuable assets such as NBC Universal without streams to compensate for the loss in revenue, ignoring warnings from talented executives. In some way, history repeated itself, as Welch himself ignored early warnings about Immelt’s unproven track record.
The defining millennium
General Electric enjoyed much of its early growth thanks to America’s expanding economy, which needed a lot of electricity to run. Americans were filling their homes with electronics, of which GE had plenty to offer. But this position also made it very vulnerable to economic downturns. This was especially apparent during the 1970s oil embargo which basically paralyzed the company’s energy business. The company had to be adjusted to be less susceptible to economical tidal waves.
Welch had done what no business leader dared to do before, cut and expand. Welch was ruthless in his actions. Shutting down non-profitable business units at breakneck speeds. Laying-off employees thousands at a time. It was all his master plan to prepare General Electric to make its pivotal shift into financial and digital services. Welch acquired large players in the financial services sector to gain massive market share. Buying digital solutions companies to make the jump into a connected world. In retrospect this couldn’t prevent Welch’s successor Immelt from making costly mistakes.
