The Revamping of General Electric
Is GE a zombie or a firm in the midst of a creative destruction process?
The 2018 drawdown of GE shares was of historical proportions that was only tested by the great financial crisis of 2008. Could GE be a kind of restructuring story like Nokia in 1992, where the company, seemingly on the verge of a complete collapse, transformed itself into the leader of Mobile Telephony by the end of the 20th century?
-4th quarter results (January 28)
Beat analysts estimates on top and bottom line, earning 21 cents/ share to analysts expectations of 18 cents/ share.
Reached 15-month high of $13 before selling off some.
-Since taking over as CEO in October of 2018, Larry Culp has been on a mission to revitalize General Electric.Many had concerns about Larry Culp’s prior practice of establishing a decentralized corporate structure, as GE has operated through a strong hierarchy throughout much of the company’s history.
-Culp took these concerns into consideration, as well as the failure of the recent ill-fated CEO’s plan, which lasted only 14 months, as he vowed to not go for a complete overhaul, but recognized a change was needed.
-A few of the first changes he instituted were to give individual business units more autonomy, began to hire more from the outside, as well as the importing of newer management strategies.
-Many company veterans still oversee major business units, but outsiders have been brought in in just about every area of the company from the human resources department to investor relations. New blood brings fresh ideas and allows for better insight and innovation rather than simply going about business as usual.
-Culp has focused on better streamlining operations, while shrinking the company’s bureaucracy as well. He began enacting Hoshin Kanri, a Japanese strategic-planning process that is part of lean manufacturing, or the systematic minimizing of waste within the manufacturing system without sacrificing productivity. Hoshin Kanri holds that all workers should understand the company’s strategy and how their role can contribute to it, enabling feedback and improvement to come from lower levels. The idea is to find small adjustments or areas to improve that will lead up to large scale improvements over time.
-Oversight of GE’s divisions has also been increased, which now requires formal monthly reviews and encouraging daily management of operations to get away from the goal of simply meeting financial targets, such as earnings per share targets.
Restructuring Debt and Selling Assets
-GE has been working on decreasing their enormous debt, which was over $120 billion at the beginning of 2019, but down to about $94 billion by the end of the year.
-They were looking into spinning off the health care portion of their business, but decided against it. In February of 2019, GE sold their biopharma business to Danaher Corporation for $21.4 billion. The deal had been previously rejected the year before (under the previous CEO).
-In a recent conference call on January 29, CEO Larry Culp stated that the company's healthcare team is "smack in the middle" of the turnaround. China is also a huge focus, and although the Coronavirus has overshadowed much of the good news recently, the company sees growth opportunities in China thanks in large part to part 1 of the US-China trade deal. The company is “prioritizing servicing GE equipment and new equipment deliveries, particularly to the Wuhan hospitals." Culp also said GE made "a significant donation" of patient monitors and ultrasound equipment to assist in the crisis.
-GE has also sold down its Baker Hughes (BHGE) stake and stake in Wabtec (WAB), to go with the sale of the biopharma unit, about $38 billion in cash proceeds in the past year.
-The Boeing 737 MAX issues have negatively impacted the company as GE has slowed production of its LEAP 1-B engine that is used in that aircraft. As Boeing aims to get production back in service this year, GE is playing the waiting game but they remain hopeful.
-Overall, the focus is no longer on being the biggest or acquiring as much business as possible and hoping the sheer size of endeavors will lead to success as in the past. Now GE, led by Larry Culp, is choosing projects that lend the best economics and beneficial opportunities, even if it means missing out on some business that the old General Electric would have gobbled up. That is the precise practice that got the company into their recent financial dilemmas.
Smart Cities
-Current by GE provides energy systems and data solutions for the ‘smart cities’.
-The company was established by General Electric as a subsidiary on October 7, 2015 but was acquired by American Industrial Partners (New York-based private equity firm) on April 2, 2019 and financials were not disclosed. Under terms of the agreement, Current will maintain use of the GE brand name.
Current is the digital engine for intelligent environments. The company blends advanced LED technology with networked sensors and software to make commercial buildings, retail stores, industrial facilities and cities more energy efficient & productive. Backed by a broad ecosystem of technology partners, Current is helping businesses and cities unlock hidden value and realize the potential of their environments. https://www.gecurrent.com/
Tyler Krebeck
Macrowise
Chief Content Editor