General Electric Copies Siemens

It was the legendary Jack Welch's mantra: Managers at the US company General Electric had to rotate through all of the company's segments. Jeff Immelt is now breaking with his predecessor's philosophy.

Managers at the leading US company General Electric (GE) do not express this much self- criticism every day. "The people at Siemens has the edge over us," admitted the US managers from GE's wind power segment several months ago. The reason: "They have more expertise in engines." At GE things are different. A number of former US military officers are in positions where they have no know-how in the business they are overseeing, as they remain in one segment for too short a time.

The complaint seems to have reached the top, as GE's executive management has now broken with the past, leaving behind it the mantra of legendary Jack Welch, GE CEO until 2001. Mr. Welch rotated his executive managers among his segments every two to three years in order to give them a more multifaceted experience and prepare them for higher responsibilities.

For example, Vice Chairman John Krenicki has worked in such various segments as chemicals, lighting, transportation and energy over the course of his career. "The next generation of GE managers will no longer have that kind of experience on their resumes," Mr. Krenicki, who is seen as one of the top candidates to succeed current CEO Jeff Immelt, told the "Wall Street Journal".

"This represents a paradigm shift for GE," analyses Hubertus Graf Douglas, Germany head of human resources consulting company Korn/Ferry. "No other industrial company has pursued job rotation with such consistency as GE has." This changeover is particularly interesting from the German point of view, and not without some irony.

Specialists, not generalists

Rival Siemens adopted this US model in many areas; however, the Munich-based conglomerate opted against such a strict rotation schedule for its executive management, and has certainly refrained from placing managers in widely divergent segments. Now GE is adopting its German rival's approach, which places more importance on industry and product knowledge.

Typically, executive managers at Siemens spend some time at the Munich headquarters and then climb the career ladder in one of the company's divisions. Crosspollination has been an absolute exception. In the meantime, Siemens career paths have become more flexible. However, even today the company still stresses deep-rooted industry knowledge and close relationships with its customers, in other words expert career paths. "Aside from the CEO level, today management all-rounders are no longer in demand, but rather highly specialised athletes," says Wolfgang Walter from Heidrick & Struggles.

For decades GE had busied itself in training generalists able to sell CT scanners to hospitals, airplane engines to Boeing or water treatment plants to municipalities. However, the world is constantly changing. Unlike Mr. Welch, CEO Immelt is placing increased importance on the sale of high-tech products, primarily in emerging markets. This requires "in-depth, solid expertise," as John Rice, President and CEO of GE Global Growth and Operations, stressed yesterday at an investor conference.

In the past, GE's financial segment was the primary source of stable profits, opening up greater margins of manoeuvre for managers in the industrial divisions. However, the financial crisis has changed the landscape. GE Capital posed a great danger to the company as a result of the recession.

Mr. Immelt is now focusing increasingly on issues such as infrastructure and energy. While GE's revenues in its industrial divisions came to just USD62bn in 2001, revenues last year rose to USD93bn. According to Mr. Rice, GE is looking to post a yearly growth rate of up to 25 percent in dynamic markets like Latin America, Australia and Africa in particular.

To be sure, such ambitious goals can only be attained by relying on "local expertise", as Mr. Rice said. "The world is a complex place," says Susan Peters as well, Vice President of Executive Development at GE. "We need people who have in-depth knowledge of their field." Nevertheless, the management elite of tomorrow will have to be able to work in various divisions in order to climb to the uppermost echelons of the company.

The transformation at GE will likely be watched with great interest in the US. The company is considered to be a incubator of young talent for top management positions. For example, Boeing CEO Jmes Mc Nerney worked at GE for 19 years, and David Calhoun, the head of market research company Nielsen, spent 26 years with the company. However, a great number of former GE managers do not go on to head up other companies, and even experienced managers fail, primarily when they move to a new field of business. "Good people will do a good job everywhere" is a credo that has long been disproved, says human resources expert Walter.

Merciless performance analysis

Every year General Electric spends approximately USD1bn on management training, and Mr. Immelt dedicates about one-third of his working time to the issue. The so-called Session C developed by the company in the 1950s has become famous. In the programme managers' annual performance is subject to merciless analysis by superiors and colleagues. Specialised expertise has been only one of five criteria, which include other qualities like imagination, clear thinking or teamwork, which were considered equally important.

Now expertise has been given an even higher priority. "Those well-versed in a particular area gain the confidence of others," wrote Harry Elsinga, a leading human resource manager at GE several years ago in the trade journal "Human Resources". "And that enables them to creatively engage in risk - something customers love."

The legacy of Jack Welch

Über-father Slowly GE is coming out from under the shadow of its über-CEO Jack Welch (photo below). Mr. Welch headed up the conglomerate from 1981 2001, and unlike his predecessors, he kept a close eye on the company's shareholder value – with success. During his term in office, GE's share price rose from USD1.30 to USD40.

"Neutron Jack"

Mr. Welch tossed out a large number of employees in order to push up share prices, which earned him the nickname "Neutron Jack". Also raising eyebrows in particular was his goal to sack ten percent of the worst managers every year. Successor Jeff Immelt has put a stop to the practice; neither does he adhere to the doctrine of having to be either the number one or number two in any given division – or get out. The competition for talented up-and-coming managers is stiff, and the expansion of new business segments, such as water or wind, takes time.

Principles Mr. Welch himself regards his legacy critically. The idea of shareholder value is not a strategy, but rather its outcome, he said several years ago in an interview with the "Financial Times". One of his key ideas, however, remains in place at GE. Mr. Welch introduced the quality management tool Six Sigma. Still today almost all of GE's business segments are required to apply this statistical method for improving and monitoring production.

A General Store

Structure and results for General Electric in 2011

45.7

GE Capital sales financing rolling stock management

18.9

Aeronautics jet engines

4.9

Transportation locomotives, ships engines drill head propulsion

43.7

Energy-Infrastructure wind and solar installations, natural gas turbines abstraction of drinking water

18.1

Healthcare diagnostics equipment, contrast agents

8.5

Home and business solutions lighting, household appliances

7.6

Miscellaneous/consolidation

Revenue: EUR147.3bn

EBIT: EUR14.2bn

6.55

GE Capital

3.51

Aeronautics

0.76

Transportation

6.65

Energy-Infrastructure

2.80

Healthcare

0.30

Home and business solutions

Sources: ThomsonReuters, Bloomberg, GE