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3 Lessons Learned From the Decline of GE

January 28, 2019 Advisory

The Wall Street Journal recently ran an excellent article about the long decline of General Electric Company. I read the article with particular interest, as I do most articles about GE, since my first job out of college was with GE in New York City. It is hard for me to come to grips with the idea that GE is no longer in the Dow Jones Industrial Average … it had been a part of the average continuously since 1907, and for many of those years was considered one of the most respected companies in the world. Now its long-term viability is questioned.

Two questions came to my mind:

  • How did this happen?
  • What lessons can be learned from this epic downfall so that other companies can avoid making the same mistakes?

To get to the answer to the first question, you need be a subscriber to the WSJ, and then read the article which, I admit, is a bit long, especially for those who do not share my interest in GE history. So, I will take the liberty of skipping the history lesson and focusing on the three “lessons learned” that I gleaned from the article:

1)  Nothing is forever
GE proudly traces its origins to Thomas Edison and has a history of moving into new growth businesses and getting out of businesses with less exciting prospects. If there was ever a company that was a candidate to be perpetually successful, it would have been GE. But, of course, there are no guarantees, as the economy, markets and competitors are constantly changing. I sometimes hear companies say things like, “We made it through the last recession, we’ll make it through the next one,” or “This company has been in business for 20 years and will be in business 20 more years.”  If this kind of talk is heard around your business, you would be wise to eliminate it … it is not strategic … it is irrelevant.

2)  A successful segment of a business can carry less profitable segments for a while, but…
For years, GE Capital generated buckets of cash flow that were used to fund the operations of other GE divisions. This easy access to cash masked the fact that those divisions were facing declining results.  When the Great Recession hit, GE Capital’s business experienced the same stresses and strains as other financial companies, exposing the weaknesses in the other business units. The lesson is clear: Over time all business units need to stand on their own…using profits from successful businesses to fund less successful units is not a viable long-term strategy. Why would you want to do it anyway? If a business unit isn’t working fix it or sell it.

3)  You need to be willing to listen to alternative views.
GE had relegated its Board of Directors to cheerleaders for whatever management presented. At internal management meetings, potentially controversial topics were glossed over, and discussion was not welcomed. Wildly optimistic projections, often blind to economic realities, were presented and accepted without question. We all know that a sense of optimism is a critical component to building a successful business, but it always needs to be tempered by reality and a willingness to have assumptions challenged. Companies can get this feedback in many ways: encouraging open discussion by internal management, creating an advisory board, joining a CEO or industry roundtable. The most important thing you can do for your company is to recognize that all good ideas do not reside within the four walls of your business.

Keep these in mind as you lead your business into 2019! And please Contact the team at Fahrenheit if you need assistance with your business strategy challenges.

About the Author

Doug Jones is part of The Fahrenheit Group’s fractional CFO & controller practice, providing senior financial management services to small and mid-size organizations on an “as needed” basis. In addition to serving his own clients, Doug manages relationships with companies using other fractional resources on a short-term, long-term or project basis. Doug has over 25 years of experience as a CFO with various middle market companies, in addition to experience with several Fortune 500 firms. He holds the Certified Management Accountant (CMA) designation. Contact Doug Jones.

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