Neutron Jack's Destruction
Neptune Bob's question is a valid one. At the time, no one realized the underlying destruction of GE by Welch. As Frigilux said, the value of GE was going up, big time...for awhile.
Anyone can sell off divisions, create and influx of money to a company and make the books look good. And that is what Welch did. It was a very immature thing to do.
I am sure there were probably some, at GE, who realized the future consequences of Welch's actions, but were probably silenced. No doubt Welch would have fired any Board member who opposed him. Most of the board were sycophants, who even copied Welch's unusual dress habits, knowing Welch wanted only "Yes Men.".
Why fire the CEO who is making the stockholders delirious with joy by lining their pockets. Few saw the underlying permanent damage to the very core of GE that Welch was causing. Money talks. And when you fill people's pockets with money they don't often question your motives nor procedures.
What Welch actually created, as we are realizing today, is a House of Cards. House of Cards are very pretty, they attract a lot of attention and get oohs and aahs. Everyone was oohing and awing over a 4000% increase of the value of GE.
The increase of value of GE was only a temporary phenomenon. It couldn't be maintained for the very underlying structure of GE was being torn apart.
The house that Jack built was an illusion. Houses of Cards cannot stand because there is no underlying structure. A wind comes and they fall down.
We have to go back to the origins of General Electric to see why it was so successful and could weather any storm that came. GE, from day one, created a market for its own products, and in doing so was self-maintaining.
theoretically by creating demand for its own products, and with its own products being items need AND wanted by consumers it became a self-perpetuating.
GE, from day one, was designed to create electricity. It began with generators and distribution systems. It created the electricity, then it created and marketed a way to get the electricity to its customers. Then it created the need for its own product to be used.... creating light bulbs for homes and industries, then motors, then home appliances.
Consumers began demanding that their towns become "electrified." they wanted to get rid of kerosene lamps and dangerous and dim gas jet lights in their home.
General Electric was saturating the market place with ads of clean, bright and safe electric lights. Soon GE engineers developed their electric fans, now customers could have breezes of air, providing comfort from the city heat. Something that never existed in the marketplace.
Before long they were making electric stoves for consumers to cook their food on , and electric heaters to keep their homes warm. General Electric mad motors for water pumps so consumers could now have running water in their homes. Then GE made water heaters so the consumers could have the comfort of warm baths and showers and cleaner laundry. Then they made the washing machines to use the water pumped up from their wells by GE motors, heated by GE water tanks from electricity brought to their home by GE wires and transformers, made in powerplants by GE generators...ad infinitum.
Industry was getting electric power for motors, replacing the large and cumbersome steam power that manufacturer's were previously using. Manufacturing plants were able to expand their building with electric lights throughout the plant, plants were no longer dependent on large windows for illumination, some manufacturing plants began second and third shift operations due to GE's electric lights.
GE was supplying the ways and means to give people what they not only wanted, but needed. Everyone needs light, everyone needs heat, everyone needs to eat. All GE products were designed to provide for the basics of human existence and provide means that were better than what was available before.
GE created the electricity, they got it to your house with their electrical wire that they began manufacturing, They created the transformers, the fuse boxes that kept it safe, the outlets you plugged into, the cords that went to their appliances and the sockets that went to their bulbs.
For over a 100 years GE functioned like a fine-tuned watch. Even during the great depression, when other business were falling like flies, GE thrived. No matter how bad the economy people still need light, they need warmth and they need to eat. Money to buy food become scarcer and scarcer during the depression and GE refrigerators preserved this food. Many consumers looked upon refrigeration as a necessity and would scrip and save just to buy GE's refrigerator.
It was all working like clockwork....until Welch came along. Don't get me wrong, GE did have problems along the way. But when a division was having problems, then engineers analyzed and tweaked I. They didn't throw the whole division away as Welch did. By the eighties GE was getting less competitive as it was following the trend of the manufacturing industry to get rid of engineers in position of administrative power and as the CEOs, and replacing them with MBA's.
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Welch was a hybrid. He was a chemical engineer (and not even a good one as even he admits in his autobiography, stating he caused an explosion at one of GE's polymer plants due to his lack of knowledge of chemical processes.) But he got the attention of GE's MBA's because of his aggressive and ruthless business practices. He was a mover and a shaker.
Welch was not an electrical engineer as were most of GE's past CEO's and he had no love for electricity nor electrical products. What he did have a love for was himself and a driving desire to make a name for himself.
Welch was green and not ready to be CEO of one of the world's largest corporations. He had never been a CEO before and only had administrative experience in one of GE's divisions, GE Plastics.
His actions were immature and childish. Playing poker with GE divisions as if they were chips. Every division he sold off gave him literally, billions of dollars to play with and put on the books.
Welch's fatal mistake is that he played to the stockholder. Welch forgot that, as do many MBA's, that company answers to the consumer and not the stockholder.
A company begins when someone has a love for a product or an idea and they market this to the consumer. The company thrives and grows when it meets the consumers needs. It only makes money when the consumer buys its products.
GE's previous CEOs were usually electrical engineers. They loved electrical products, they understood them and they knew how to design them to met the consumers needs and their expectations. Welch's needs were to build an empire by taking and electrical company and making it into a company of his design. A company made in his own image and company that had little to do with electrical products. He threw out the entire history of GE.
Welch hated electrical products and manufacturing. He wanted GE to become a world power in finance and insurance, with a presence in the media (NBC) for self promotion. When he purchased RCA, GE could have been the world leader in electronics. Instead he immediately dissected RCA of its divisions and sold them off for ready cash. A world leader in consumer and industrial electronics destroyed, literally, overnight. RCA was gone forever. Now just a name to be used by paying a licensing fee to GE.
Buying financial and insurance companies, as well as NBC the once mighty GE was now reduced to being a bank, and insurance company and the operator of the NBC owned Universal Theme park Florida. Once a world renowned electrical manufacturing empire was now a bank and operator of the roller coaster at an amusement park. The irony is that even the rollercoasters couldn't use GE motors as their electrical motor division was sold off.
Yes, Neutron Jack was ignoring all of GE's infrastructure. From day one GE was designed to be a manufacturer of electrical equipment. They were not designed for insurance nor owning amusement facilities. Over a 100 years of infrastructure and experience was being thrown away and discarded to meet jack's dream of being a financial magnate.
For a while it looked good. All Houses of Cards look good until they fall. Much of GE's core infrastructure, that it was built upon and supported by, was sold off. they were no longer able to create a demand for their own product. The foundation was gone and GE began to crumble. It began almost imperceptibly. But the cracks were beginning to show and no power in the world could bring GE back.
General Electric is now in its death throes. Upon Welch's retirement, he handpicked Jeff Immelt as the new CEO. Immelt continued to use Welch's sell off off strategy (as instructed to by Welch when he told Immelt he would have him hired as CEO, but only if he would continue GE's transformation out of electrical manufacturing.) Immelt eventually realized the problems and tried to make some minor shifts back to engineering and manufacturing with GE Wind Power.
But is was too late. GE's foundation , built to weather any storm, was largely gone. Immelt found himself selling divisions just to get enough money to keep GE afloat.
GE's divisions WERE GE. Jack hated HVAC, as he stated in his autobiography, and he thought GE Housewares was silly and peeling wands and mixers beneath the dignity of GE. What he forgot was these were GE.
GE's divisions were gold. They were diversified and all worked together for the good of GE and the desire and needs of the consumer.
Imagine a man built a house. After the house was built, he realize the basement foundations bricks were made of rock that had gold streaks in them. He slowly pulled out the bricks, one by one, and sold them for money.
With the money he remodeled his house and made the house look beautiful and attractive to everyone. People came from around the world and marveled at the architecture of his house. He was held in esteem by all, and his ego continued to be artificially inflated. He pulled out more and more bricks to sell off for money. He added onto the house and built it higher and higher.
People from around the world admired him and claimed his to be one of the finest housebuilders in the world.
Houses without foundations, soon develop cracks. So the man, still unaware of what he was doing structurally, to his home, pulled out more and more bricks and sold them to try to patch the cracks and keep the house looking beautiful and impressive. He passed ownership of the house to another man while it was still looking good, but he knew it was starting to develop problems.
Then the house began to crumble. People quite coming to look at it. The new owner had to sell even more bricks to try to keep up with the repair work. Now he was robbing Peter to pay Paul. The more foundation brick she sold off the more the house crumbled. Soon no more bricks could be removed and sold, so there was no money to put into the house to rebuild the foundation.
The house was now in its death spire. No foundation, no money for repairs. It is dying taken over by entropy. It will soon crumble and people will look at it and say, "How could it have happened?"
The houses decline can be traced back to one man. The man who was entrusted to the care. maintenance and operation of the house. He knew the right time to get out of the house before it crumbled.
However the man still goes around and build his ego by giving speeches, making television appearances and writing books, saying, "When I lived in that house, it was the best house in the world. I knew how to build the house. Now look at what has happened to it. It was beautiful when I took care of it and built it up. It's it's new owner who doesn't know what he was doing. What a terrible shame!"
Yes folks, That is Jack Welch. The man who wanted to remake GE in his own image. A little man with a big, big ego.
GE is most likely terminal and is in its last days. If it survives at all, its remaining few division will probably be separated and made into their own companies or sold all altogether. This is the House that Jack built.
A sad ending for a company that didn't deserve it.
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