Jeffrey Immelt

1/22/15

Jeffrey Immelt, Chairman of the Board and CEO of GE began his presentation with a business perspective on the world’s outlook.  He pointed out that the current world situation is volatile.  Jobs are hard to come by everywhere and politically things appear stagnated.  This has caused unprecedented action by the European Central Bank in forging a stimulus package.  Generally, the situation has placed all central banks in difficult positions, but their reactions to these difficulties tend to have more impact on business than the political statements and stunted political actions that are presently the rule. But volatile situations create opportunities as well as pitfalls and that the U.S. situation is looking relatively good. 

In its own reaction to this environment, GE is undergoing portfolio change.  GE Capital is shrinking from its historical position in the Company.  There is too much capital available, with the consequence that it is unable to generate a satisfactory return.  And while GE Capital is being reduced in size, the Company is making some big acquisitions like the purchase of the French Company, Alstom.  At the same time the appliance business was sold off and the credit card business was spun off.

GE’s industrial business is doing well.  For example, GE Health Care owns a 35% market share and overall GE enjoys a 17% margin.  GE recognizes that you have to constantly produce in order to stay on top.  Fortunately, GE’s strong financial condition places it in an advantageous position in the current environment.  Businesses go through cycles and when one business cycle is down, if the long-term prospects are good, you have to be willing to double down and take advantage of a depressed market and then work to make the investment pay off. 

These days a company must be very good at its core business if it wants to stay on top.  GE is a great technology company and excels in businesses that are very difficult like manufacturing extremely complex machinery.  The Company has also shifted its business venues as times have changed.  When I joined GE it had 80% of its business in the U.S.  Now about 70% of GE’s business is overseas.  GE also enjoys having great assets and good customer relations.  Presently, our customers own several trillion dollars’ worth of GE products.  These are products that must eventually be replaced.  GE is in the best positon and in many times the only position to do that. 

One of the newest ventures for GE is the field of analytics in an industrial setting.  The world is awash in data with more generated all the time.  How to manage and effectively analyze that data mass become increasingly important.  This will spawn new business categories in the near future and GE is investing heavily to become the leader in this burgeoning industry.

One measure of how well a company is doing is how quickly it grows organically.  GE achieved a 7% organic growth in 2014 while maintaining a 17% margin.  This places it well within the top performing category.  Companies that are acquired must be prepared to meet these high standards.  For example, the power and water business has a 20% margin.  We purchased a competitor that has a 6% margin.  They will make the changes necessary to bring them in line with expectations. 

In today’s world, people don’t like big businesses.  To counter this bias you have to have a simplification culture.  Fewer layers of management, fewer procedures to get things changed, and emphasis on results not protocol are the rules of the day.  Consequently, the Company is now a risk based management not a centralized one.  There is a willingness to make mistakes.  And speed is critical. A clock is put on everything.  They also are in the process of digitizing everything as that greatly increases speed in sharing information.  This is done in concert with using the same systems everywhere they are located so no time is lost in converting one system’s output to another system.  They also automate anything They can to help speed things up. 

Q&A

Q.  What do you have to do culturally in acquiring a French company?

A.  That deal will close this summer.  Our procedure in negotiating this type of deal is to be firm, but fair and trade off of our fifty years of good will.  In Europe there are more doors that you have to pass through than here, but it can be accomplished.  Once we have the company we will acquaint them with our performance standards.  Some people will not want to do the work to meet those standards and leave.  But most will accept the challenge.

Q.  How is today’s work environment different from those of yore?

A.  Everything is faster.  There are no secrets.  The information mass is staggering.  No-one takes on a new job out of school with the expectation that it will lead to a thirty year career.  You can keep a person as long as you interest them.   

Q.  How concerned are you about hacking and spying?  How do you handle it?

A.  These are some of my greatest concerns.  Cyber security is critical.  I personally chair our committee on cyber security.  It means we have to invest heavily in technology and restrict sensitive information to very few people.  There is no doubt that attitudes about this have changed dramatically. 

Q.  Does GE train new employees?

A.  We do.  The world needs engineers and welders.  For trade type occupations, community colleges play an increasingly important role.  GE has its own apprentice programs.  We also have a focus on veterans who often have skills that can be tweaked with training to be the skills we need.  Europeans frequently come with higher initial skills, but you have to work with these people and never give up until they are able to produce what you want.

Q.  How do you handle labor issues in Europe?

A.  You need a good labor council to begin with and then you have to train the people.  You also need to be careful not to over hire.

Q.  Is the stronger dollar advantageous to GE or not?

A.  Yes and no.  We watch the dollar exchange rate carefully, but generally have a good balance of programs that can reduce the impact of dollar fluctuation.  Still, there is no doubt that central bank actions are very important.

Q.  Will future job growth in the Company be overseas?

A.  The number of jobs in any locale will reflect our presence in that locale.  But, the U.S. is very competitive today.  Companies are no longer chasing cheap labor. Now market location and technology are driving factors and in my memory the U.S. has never been better situated.

Q.  Will you stay in the lighting business?

A.  Markets determine a business future.  One of the hardest decisions I made was to sell the appliance business, but there was no viable market left for that business.  Lighting is different.  It is driven by technical change and I can’t yet tell where that market will go.

Q.  What about the crony capitalism issue?

A.  That is an issue that goes to the appeal or non-appeal of big companies.  All we can do is be the best we can be.  There is no simple way to describe a company as complex as GE.

Q.  What does GE do for the City of Fairfield and Fairfield County?

A.  80% of what we do is done by our people.  They serve on commissions and do a lot of volunteer work.  The Company donates money to causes and sponsors various programs, but the people make the major impact.

Q.  What is your relationship with Phillips?

A.  It is a competitor and we love to beat them.  We have a much bigger share in the healthcare market and they have a larger share in the lighting market.  But one of the most important things for a business to know is what to get out of.  Phillips stayed in the semi-conductor business for far too long.   It took them from being a great business to just being a good business.  The worst at this are Japanese companies.  They never get rid of anything and develop anchors that drag them down.

Q.  Will analytics change healthcare?

A.  The amount of information and how it is used is game changing.  It is integral to everything and will transform healthcare along with everything else.