Succeeding a Legend
Rothschild, William E., Chief Executive (U.S.)
On April 2, 2001, the oldest company on the Dow Jones, General Electric, will elect a new CEO. This new CEO will have no small challenge: succeeding a business legend.
There are several candidates that we are all publicly aware of. I won't speculate on who will replace Welch, but rather will focus on what the new CEO should do to become a legend in his own right. Jack himself has made it clear that the new CEO should have a minimum of 15 years in office, which in today's business world is an eternity and why Jack's replacement will need to establish his own mark as a legend.
To become a legend the new CEO should ask the following questions:
How and why did Jack Welch become a legend?
Is the current GE business portfolio sufficient to replicate the Welch track record?
What are my strategic alternatives to make me a long-term winner?
HOW AND WHY DID JACK WELCH BECOME A LEGEND?
There are four characteristics of Jack Welch that, I believe have contributed to his remarkable success. Jack is 1) a skillful, intuitive portfolio strategist; 2) willing to change the rules if required; 3) highly competitive; and 4) a great communicator and motivator.
1) The skillful inutitive portfolio strategist. Jack knows what he likes and dislikes. With focus and careful analysis, he is willing to bet on his instincts. He has focused on what he believed were the winners and eliminated the pieces that didn't fit his strategy, but did so with an excellent sense of timing and the recognition that business or product lines that didn't fit GE were potential strategic fits with other companies.
He has exhibited the same sense of value and timing in making acquisitions. In the past few years he has made strategic acquisitions in Japan and Europe at very attractive prices. Welch acquired RCA at a bargain price, merged its market leading consumer electronics business with a losing GE brand and then traded it to Thompson for Medical Systems properties and cash. He also spun off Utah International at a profit and sold the Aerospace and Defense businesses and has made money on the Martin Lockheed stock.
2) Willing to change the rules as needed. Jack Welch's predecessors were unwilling to sell a business unit with the GE brand name for fear that the brand would be negatively impacted. Jack changed that thinking, carefully selling the GE brand with both the small appliance and consumer electronics businesses. He took advantage of the huge profits made from the GE pension programs to supplement company earnings, as well as to use this know-how to manage other company pension programs.
3) Jack, the competitor. As with his golf game, Jack in business sought to be the leader in every market. His vision was simply: Be #1 or #2 or don't play. He emphasized the need to be "different" and create sustainable long-term competitive strengths.
He used GE's financial strengths and skills to gain dominant positions in many of its capital goods markets. GE has become the largest owner and leaser of aircraft, thereby pulling through aircraft engines and services. It did the same in the locomotive, turbine, and medical systems businesses.
Welch increased GE's emphasis on selling of services and solutions, rather than just products. Services have become a major contributor to earnings and even permitted the company to sustain positions in stagnant markets, such as Nuclear and Steam generation.
4) A great communicator and motivator. An eective communications strategy has been critical to energizing the GE troops. Numerous books and articles have been written about Jack's management style, and frequent and recognized speaking engagements at MBA schools have spread his success to the academic community and to their students.
IS THE CURRENT GE BUSINESS PORTFOLIO SUFFICIENT TO REPLICATE THE WELCH TRACK RECORD?
The new CEO must accept that GE is a strategically led portfolio company with a mix of businesses in different phases of the life cycle, which enables GE to deliver consistent earnings. …