Log out
My profile and settings
My bookmarks
Comment history
Please complete your account verification. Resend verification email.
today
This verification token has expired.
today
Your email address has been verified. Update my profile.
today
Your account has been deactivated. Sign in to re-activate your account.
today
View all newsletters in the newsletter archive
today
You are now unsubscribed from receiving emails.
today
Sorry, we were unable to unsubscribe you at this time.
today
0
0
Back to profile
Comment Items
You have not left any comments yet.
title
you replied to a comment:
name
description
Saved Posts
You haven’t bookmarked any posts yet.

Viruses like COVID-19 remind us that, for all our differences, everyone in this world is connection.

Read more
Become a Gates Notes Insider
Sign up
Log out
Personal Information
Title
Mr
Mrs
Ms
Miss
Mx
Dr
Cancel
Save
This email is already registered
Cancel
Save
Please verify email address. Click verification link sent to this email address or resend verification email.
Cancel
Save
Email and Notification Settings
Send me updates from Bill Gates
You must provide an email
On
Off
Send me Gates Notes survey emails
On
Off
Send me the weekly Top of Mind newsletter
On
Off
Email me comment notifications
On
Off
On-screen comment notifications
On
Off
Interests
Select interests to personalize your profile and experience on Gates Notes.
Saving Lives
Energy Innovation
Improving Education
Alzheimer's
Philanthropy
Book Reviews
About Bill Gates
Account Deactivation
Click the link below to begin the account deactivation process.
If you would like to permanently delete your Gates Notes account and remove it’s content, please send us a request here.

Too big to succeed

What happened to GE?

The fall of one of America’s great companies.

|
0

GE is a mythic corporation. It was at one time the largest, most powerful company in the world. Its founding story includes the innovator Thomas Edison and financier J.P. Morgan. Its legendary CEO Jack Welch, who wrote five bestselling books on leadership, became a model for an entire generation of executives. When GE started using Microsoft software in our early days, that gave us a huge boost in the market, because GE was such a bellwether company.

It turns out that the word “mythic” is the perfect word for GE. The corporation has come crashing to Earth in one of the greatest downfalls in business history. Its workforce has been hollowed out, from 333,000 employees in 2017 to fewer than 174,000 at the end of last year. Its share price has fallen precipitously. In 2018, GE was dropped from the Dow Jones Industrial Average after more than a century in the index.

GE’s fall is not the result of innovators developing a better jet engine or wind turbine. It’s also not a case of outright fraud, like Enron. It’s a textbook case of mismanagement of an overly complex business.

Only a few people saw it coming (including one, ironically, from J.P. Morgan’s namesake bank). I wish I could tell you that I was one of them, but I was just as surprised as most people.

That’s why I was eager to read Lights Out: Pride, Delusion, and the Fall of General Electric, by the Wall Street Journal reporters Thomas Gryta and Ted Mann. I wanted to understand what really went wrong and what lessons this story holds for investors, regulators, business leaders, and business students.

At times, it was a bit hard for me, as a former CEO, to read such harsh criticism of fellow leaders, including people I know and like. But I got a lot out of reading this book. Gryta and Mann gave me the detailed insight I was looking for into the culture, decisions, and accounting that eventually caught up to GE in a gigantic way.

My first big takeaway is that one of GE’s greatest apparent strengths was actually one of its greatest weaknesses. For many years, investors loved GE’s stock because the GE management team always “made their numbers”—that is, the company produced earnings per share at least as large as what Wall Street analysts predicted. It turns out that culture of making the numbers at all costs gave rise to “success theater” and “chasing earnings.” In Gryta and Mann’s words, “Problems [were] hidden for the sake of preserving performance, thus allowing small problems to become big problems before they were detected.”

Chapter 14 of Lights Out details many of the gimmicks GE employed to make the numbers look better than they really were. For example, Gryta and Mann report that GE would sometimes artificially boost quarterly profits by selling an asset (e.g., a diesel train) to a friendly bank, knowing that it could then buy back the asset at a time of GE’s choosing.

There are a lot of ways a company can end up with a culture that rewards gaming the numbers. Although Steve Ballmer and I made our share of strategic mistakes, we were maniacal about making sure our numbers were rock solid and avoiding incentive systems where people could cram a lot of sales into a quarter in order to look good or meet some quota. Satya Nadella works the same way today.

In many companies, bad news travels very slowly, while good news travels fast. We tried hard to combat that. A team member might send me mail saying “we just won a software design competition,” and “isn’t this amazing?” I’d typically respond, “Why am I hearing about this one? That’s not statistically representative. How many competitions did we lose?” I used the term “making bad news travel fast” all the time. I wanted to catch negative trends early, when we could still do something about them.

My second big takeaway from Lights Out is that GE didn’t have the right talent and systems to bundle together a dizzying array of unrelated businesses—including moviemaking, insurance, plastics, and nuclear power plants—and manage them well. Investors bought into the notion that the company’s world-renowned training made it better at managing things than anyone else, and that GE could produce consistent profits even in highly cyclical markets. And GE successfully persuaded people that its generalists could avoid the pitfalls that had tripped up big conglomerates in the past.

In reality, those generalists often didn’t understand the specifics of the industries they had to manage and couldn’t navigate trends in their industries. For example, the authors make the case that CEO Jeff Immelt didn’t have a good handle on its huge banking unit, GE Capital. “Making money from [GE Capital] seemed shockingly simple to him at first, as it had to Welch, but the balance sheets were treacherously complex, and deep risks lurked there and were not always easily spotted in the quarterly profits and losses,” write Gryta and Mann. One former GE executive told the authors that “Immelt struggled with basic concepts—the difference between secured and unsecured debt, for instance, which was fundamental to a lending operation like GE Capital.”

This dynamic was not confined to Immelt. It was rampant throughout the company’s top ranks. As a result, the ability of top executives to understand what was really going on was quite limited. The only people who could actually dig down into the numbers and see what was going on were in finance. And as I mentioned above, the finance people didn’t have much incentive to bring negative news to Welch or Immelt.

In my role at our foundation, I sometimes hear fellow philanthropists say things like, “I just wish my grantees could operate more like a business.” The story of GE, led by very smart men who cared deeply about their work, should tamp down that kind of talk. The truth is that businesses, even the giants of industry, are just as susceptible to mistakes as any nonprofit. Anyone who wants to avoid the mistakes made by GE should read this book.

Discussion
Thank you for being part of the Gates Notes Insider community.
Not seeing your comment? You can read our policy on moderating comments here and learn about our Gates Notes badges here.
Badge
📌
Pinned by
Gates Notes
Badge
ʼʼ
0 responses
Sort by
all
all
most
top
old
Comments loading...
CTW
Thanks for visiting the Gates Notes. We'd like your feedback.
Become a Gates Notes Insider
Join the Gates Notes community to access exclusive content, comment on stories, participate in giveaways, and more.
SIGN UP
Already have an account?
Log in here
Logout:


Become a Gates Notes Insider
Become a Gates Notes Insider
Join the Gates Notes community to get regular updates from Bill on key topics like global health and climate change, to access exclusive content, comment on stories, participate in giveaways, and more.
Already joined? Log in
Please send me updates from Breakthrough Energy on efforts to combat climate change.
On
Off
LOG IN
SIGN UP
Title
Mr
Mrs
Ms
Miss
Mx
Dr
This email is already registered. Enter a new email, try signing in or retrieve your password
Why are we collecting this information? Gates Notes may send a welcome note or other exclusive Insider mail from time to time. Additionally, some campaigns and content may only be available to users in certain areas. Gates Notes will never share and distribute your information with external parties.
Bill may send you a welcome note or other exclusive Insider mail from time to time. We will never share your information.
Sign up
We will never share or spam your email address. For more information see our Sign Up FAQ. By clicking "Sign Up" you agree to the Gates Notes Terms of Use / Privacy Policy.
Street address
City
postal_town
State Zip code
administrative_area_level_2
Country
Data
Gates Notes Insider Sign Up FAQ

Q. How do I create a Gates Notes account?

A. There are three ways you can create a Gates Notes account:

  • Sign up with Facebook. We’ll never post to your Facebook account without your permission.
  • Sign up with Twitter. We’ll never post to your Twitter account without your permission.
  • Sign up with your email. Enter your email address during sign up. We’ll email you a link for verification.

Q. Will you ever post to my Facebook or Twitter accounts without my permission?

A. No, never.

Q. How do I sign up to receive email communications from my Gates Notes account?

A. In Account Settings, click the toggle switch next to “Send me updates from Bill Gates.”

Q. How will you use the Interests I select in Account Settings?

A. We will use them to choose the Suggested Reads that appear on your profile page.

BACK
Forgot your password?
Enter the email you used to sign up and a reset password link will be sent to you.
This email is already registered. Enter a new email, try signing in or retrieve your password
Reset Password
Reset your password.
Set New Password
Your password has been reset. Please continue to the log in page.
Log in
Get emails from Bill Gates
Send me updates from Bill Gates
You must provide an email
On
Off
Email me comment notifications
On
Off
On-screen comment notifications
On
Off
This email is already registered
Finish
We will never share or spam your email address. For more information see our Sign up FAQ. By clicking "Continue" you agree to the Gates Notes Terms of Use / Privacy Policy.
You're in!
You're in!
Please check your email and click the link provided to verify your account.
Didn't get an email from us? Resend verification
Upload a profile picture
Choose image to upload
Uploading...
Uh Oh!
The image you are trying to upload is either too big or is an unacceptable format. Please upload a .jpg or .png image that is under 25MB.
Ok
Title
Mr
Mrs
Ms
Miss
Mx
Dr
Cancel
Save
This email is already registered
Cancel
Save
Please verify email address. Click verification link sent to this email address or resend verification email.
Email and notification settings
Send me updates from Bill Gates
You must provide an email
On
Off
Email me comment notifications
On
Off
On-screen comment notifications
On
Off
Select your interests
Saving Lives
Energy Innovation
Improving Education
Alzheimer's
Philanthropy
Book Reviews
About Bill Gates
Finish
Confirm Account Deactivation
Are you sure you want to deactivate your account?
Deactivating your account will unsubscribe you from Gates Notes emails, and will remove your profile and account information from public view on the Gates Notes. Please allow for 24 hours for the deactivation to fully process. You can sign back in at any time to reactivate your account and restore its content.
Deactivate My Acccount
Go Back
Your Gates Notes account has been deactivated.
Come back anytime.
Welcome back
In order to unsubscribe you will need to sign-in to your Gates Notes Insider account
Once signed in just go to your Account Settings page and set your subscription options as desired.
Sign In
Request account deletion
We’re sorry to see you go. Your request may take a few days to process; we want to double check things before hitting the big red button. Requesting an account deletion will permanently remove all of your profile content. If you’ve changed your mind about deleting your account, you can always hit cancel and deactivate instead.
Submit
Cancel
Thank You! Your request has been sent
Page http://www-new.gatesnotes.com:80/ secs = 0.0156131