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Bill George

Harvard Business School Professor, former Medtronic CEO

NPR: GE Struggles To Show It Still Has Magic Touch

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When General Electric’s new CEO John Flannery spoke to investors and analysts last month, he acknowledged things are bad.

“I was forced to confront a lot of sort of deeper questions about this company,” he said. “Why do we exist? How do we impact the world for the next 100 years the same way we have for the last 100 years?”

General Electric is one of the most storied corporations in American history, co-founded by Thomas Edison and re-defined by legendary CEO Jack Welch.

For more than a century, GE’s products — from dishwashers to MRI machines — changed the way Americans live. But now the company is in deep trouble. Its stock price plummeted over the last year, losing more than 40 percent of its value while the market as a whole soared.

To get a sense for just how shocking the decline at GE is, NPR traveled to Schenectady in upstate New York, headquarters of the company’s power and energy division. Five thousand GE employees live and work here and it’s a place where magic used to happen.

Bill Buell, a local newspaperman who has written for years about GE and the company’s history, points to the place where Ernst Alexanderson lived. “[He] did the first television broadcast anywhere in the U.S. right here in his home here.”

Schenectady’s boom years started in the 1890s when Thomas Edison built laboratories and factories here.

For more than a century, GE’s global operations seemed unstoppable. The company built everything from TVs and dishwashers to jet engines and power grids. It became one of the most reliable market performers, while reshaping American culture.

Along the way, the company’s scientists won two Nobel Prizes. The cursive GE logo and “we bring good things to life” catch-phrase seemed as much a part of the nation’s identity as Coca-Cola or McDonald’s.

Bill George, former CEO of Medtronic and a fellow at Harvard Business School, said GE helped invent America’s corporate culture.

“Throughout my lifetime, GE has been the leader in coming out with new ideas, new organization structures and has always been 5 to 10 years ahead of everyone else. So all the rest of the corporations looked to them for setting the standards,” George said.

The last decade, however, that storied history seemed to unravel. Bold new products stopped appearing. The company was hit hard by the financial crisis and whole divisions — including the broadcast network NBC — were sold off. Other corporations, like Amazon, Apple and Google, moved to the center of corporate culture.

In the past year, GE’s stock has plummeted and Flannery was forced in November to slash the company’s dividend by 50 percent. “We understand this is an extremely painful action for our shareholders, our owners,” he said.

Flannery’s plan for reinventing GE is focused on simplification. He says the company will sell off $20 billion in assets, including the lighting division, which means that Thomas Edison’s company will no longer make light bulbs.

GE will now focus on three major product lines: energy, aviation and medical technology.

So far, a lot of analysts, including Bill George at Harvard, say they’re not impressed.

“GE could become a typical industrial company and perform reasonably well,” he said. “But that’s not the GE we knew.”

It’s not that people doubt GE can still make and sell good products. This remains one of the biggest corporations in the world, with nearly 300,000 employees. But George says investors once looked to GE for something bigger, more exciting.

During his mid-November call with analysts, Flannery asked them to withhold judgment and to give GE one more shot. “It’s a heavy lift but I think for our teams this is really the opportunity of a lifetime to reinvent an iconic company,” he said.

Bill Buell, the newspaperman in Schenectady, agrees there’s a lot at stake, not least for places like his home town. In the 1980s, GE employed more than 25,000 people here, but wave after wave of layoffs has reduced that number to 5,000, and people are afraid.

“I know right now they’re worried about people losing their jobs. It’s a pretty sad story,” Buell said. “Hopefully it won’t get any worse than it is.

Flannery hasn’t released details, but part of his reorganization plan involves cutting $2 billion in annual operating costs, with much of that savings stripped out of the company’s power and energy division, headquartered right here in Schenectady.

LULU GARCIA-NAVARRO, HOST:

President Trump may announce this week that the United States will recognize Jerusalem as the capital of Israel. Also on the table, the eventual relocation of the U.S. embassy from Tel Aviv, where it’s been for over 50 years, to Jerusalem. Those would be enormously controversial moves with profound implications should they happen. To talk about why, we have Aaron David Miller. He’s the director of the Middle East program at the Wilson Center. He’s also a former State Department Middle East negotiator. Thanks for coming in.

AARON DAVID MILLER: Always a pleasure, Lulu.

GARCIA-NAVARRO: So Palestinians want Jerusalem as the capital of their future state, so the city’s fate is profoundly intertwined with the peace process. What’s your view on this announcement, should President Trump make it?

MILLER: You know, worked for half a dozen secretaries of state. My advice to all of them was always the same when it comes to Jerusalem. Don’t mess around with it. Don’t fool around with it. It’s a tinderbox waiting for a match. And the reality is, we’ve skirted the issue these many years. The argument for an Israeli embassy – a U.S. embassy in west Jerusalem is compelling, no question about it. The issue is timing and the implications of such a move. And the president on Wednesday presumably is going to announce that the U.S. recognizes Jerusalem or west Jerusalem – a tricky issue in itself – as capital of the state of Israel.

GARCIA-NAVARRO: And if he does that, what do you think the ramifications will be?

MILLER: I mean, it’s hard to say with respect to violence. It’s impossible to predict. The reality, though, is it…

GARCIA-NAVARRO: Palestinians are warning against the move, saying that there will be a violence – Hamas in particular – and that it will be the end of the peace process.

MILLER: Well, if Hamas and the Islamic jihadis were looking for an issue to exploit, this would clearly be it. And violence, essentially, has been the story many times – 1990, 1996, 2000, most recently over metal detectors on Haram Sharif – Temple Mount. My take on this is quite simple. There is simply no compelling U.S. interest to deal with Jerusalem at a time when Israelis and Palestinians have zero trust and confidence in one another, at a time when the president of the United States is pursuing his ultimate deal and when he wants to involve key Arab states, Jordan and, particularly, Saudi Arabia, to facilitate and help Israelis and Palestinians in a negotiation. I don’t see the logic. I don’t see the timing. I think it’s driven largely by the fact that the president of the United States is tired of certifying. He’s got campaign commitments he’s made. And frankly, he also is in a position – I suspect psychologically – where he can do this, and he’s going to.

GARCIA-NAVARRO: Is there a chance that this may be part of a wider plan? We have the president’s son-in-law Jared Kushner, who has been tasked by Trump to deal with this issue. And there are reports in Bloomberg that he may have cut a deal with Arab powers in the region, namely Saudi Arabia, to fund a Palestinian state. Could this be part of a bigger picture?

MILLER: I mean, is it possible there’s a compelling coherent strategy that’s going to be revealed sometime early next year? Perhaps. It’s just the issues that separate the parties, Jerusalem border security, refugees, recognition of Israel as the nation state of the Jews, end of conflict in claims. The gaps on those issues are huge. And why an administration, even if it had such a compelling plan, would want to inject Jerusalem into the mix right now is difficult for me to understand. I met Mr. Kushner several months ago, and I told him, I wish my father-in-law had as much confidence in me as his father-in-law appears to have in him because he’s given him literally mission impossible, if not mission improbable. And at the same time, he is the repository. President’s son-in-law is the repository of an issue that is usually, normally accorded to the secretary of state. And that in itself, in many respects, becomes problematic.

GARCIA-NAVARRO: Aaron David Miller of the Wilson Center, thank you so much.

MILLER: Thank you so much, too.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

This content was originally posted on Kazu.org on 12/3/17.