The Secret to GE's Success

Citation

Rothschild, W.E. (2008), "The Secret to GE's Success", Strategic Direction, Vol. 24 No. 2. https://doi.org/10.1108/sd.2008.05624bae.001

The Secret to GE's Success

The Secret to GE’s Success

William E. Rothschild McGraw-Hill

William E. Rothschild, former senior corporate strategist at General Electric and for the last 22 years a well-known, widely published management consultant, has now told The Secret to GE’s Success (McGraw-Hill, 2007). So do we really need yet another book about GE? In the wake of the avalanche of writing about the Jack Welch era – to which Welch, the former CEO, has contributed mightily – this might seem to be a legitimate question. But the truth of the matter is that, while much of this writing focused on the success of the 20 years of the Welch era (in itself, no mean accomplishment), it did not address the broader historical question that Rothschild poses in his latest book. He asks and answers: what is it about GE that accounts for the company’s success, not just under Welch, but throughout the 126 years of the company’s existence, and under a succession of chief executives of widely differing temperaments?

To discover this secret, Rothschild examines the record in the light of his experiences – as a GE strategic planner, during a long career with the corporation, from a working relationship with Welch, and gained as a consultant.

He attributes the uniqueness of GE, the oldest company tracked by the Dow Jones Industrial Average, to a convergence of five success factors summarized by the acronym LATIN – leadership, adaptability, talent, influence, and networks (see Table I). This list is, for the most part, unexceptionable, although I find it strange that, in the company of inventors such as Edison, Steinmetz and Langmuir and leaders like CEOs Welch and Jeff Immelt, there is no mention of technology and innovation. I would argue the technological leadership has played a key strategic role at GE from the electric light bulb to the jet engine to health care. As such, it surely deserves inclusion in this list.

Table I

Key factors in GE’s success

Rothschild describes how the five key success factors played out in what he sees as the four stages of GE’s strategic history. The emphasis in the period he calls Stage One (1879-1939) was on achieving dominance in the entire electrical cycle under the leadership of Edison, Coffin and Rice, Swope and Young. In Stage Two, GE evolved under Ralph Cordiner and Fred Borch, into a highly complex, diversified and decentralized company; and then, in Stage Three under Reg Jones and Jack Welch, the corporation transformed again into what Rothschild terms “portfolio leadership.” His Stage Four, just started under Immelt, Rothschild calls “back-to-the-future” because he sees it as trying to build on the successes of the pre-Welch era while continuing to build on Welch’s financially based strategies.

I find it interesting that Rothschild takes issue with Immelt (who ascended to the CEO position after Rothschild had left the company) over the feasibility of achieving an 8 percent organic growth rate indefinitely into the future. “Ultimately, it seems, the leadership must face the inexorable realities of big numbers and be willing to split the company,” he warns. Rothschild may turn out to be right, but I, for one, would not count Immelt out in his ability to target markets – such as health care and environmental management – that are growing at above average rates, and in which GE has as yet only modest positions.

Leadership lessons

Rothschild summarizes what he believes to be the most useful leadership lessons to be derived from GE’s experience:

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  Avoid cookie-cutter succession planning.

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  Create and meet realistic expectations.

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  Share power and rewards – avoid being greedy!

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  Let your successor take over and lead without interference from you when you retire.

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  Avoid trying to be all things to all people – take your shots selectively.

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  Know what you like and be willing to exit and prune even your core businesses.

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  Admit your mistakes and move on.

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  Build your own farm system for key positions.

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  Seek out the insights and recommendations of your team, but remember that the buck stops with you.

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  Take public stands when needed to control your own destiny.

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  Build strong financial, strategic, operational and human resource systems, but be willing to periodically adapt and modify them if required – without succumbing to fads, of course.

It is critical that we remember that Rothschild’s book is a history – the story of how a remarkable company succeeded by adapting to changing conditions. It is not meant to be a generalized prescription for success. As Rothschild is at pains to point out, the “GE way” doesn’t always work consistently for GE: it cannot possibly work for any other company that attempts to embrace it indiscriminately. That is not to say that others cannot learn from GE’s experience; and Rothschild makes a point of including, at the end of most chapters, a section on what he terms “takeaways” – a set of questions and observations that invite you the reader to sit back, reflect and “ask yourself these key questions.”

Rothschild’s history gives us much to ponder – but the lessons are for us to learn.

A version of this review was originally published in Strategy & Leadership, Volume 35 Number 4.