Why GE is stuck
The failure to overcome the clunky tendency
PHOTO CREDIT: Getty Images
General Electric's shocking removal from DOW Jones Industrial Average is a testament to how clunky tendencies can bring down a one-time powerhouse. GE's elimination from the DOW was the last step in a long line of missed opportunities and bad decision-making. In the wake of CEO Jeffrey Immelt's August 2017 departure, a myriad of reports and press releases highlighted the challenges and mismanagement that plagued the organization. GE is now synonymous with Borders and Kodak, conventionally successful organizations sabotaged by leadership failure.
In the case of Borders and Kodak, it was not the clunky tendency that spelled failure, but the myopic tendency. With a single focus on their core business and a studied obliviousness to environmental challenges, the organizations were incapable of creating and delivering innovation. Neither organization was prepared for the digital revolution, whether to sell books online or move toward filmless photography. In both cases, the leaders felt that movement beyond their core focus--even if it meant experimenting with new technologies--would dilute their brand and destroy the business, when, in fact, the opposite proved to be true.
GE's clunky tendency was rooted in its constant attempts to innovate with almost everything, and its propensity to race into new industries, seemingly without a strategy or a plan to integrate the new enterprises into their core business. GE's appetite for rapid acquisition fueled its inorganic growth. Under Immelt's leadership, GE expanded its global footprint by engaging in dozens of acquisitions in markets as diverse as security, finance, and nonrenewable energy. On paper, the acquisitions seemed like a viable strategy to enhance GE's operations and leverage rising markets. However, aside from spurring growth and expanding its operational reach, there wasn't a coherent rationale for the organization to grow as it did. Often, the new acquisitions did not directly support the direction of GE's corporate and business-level strategies. Not only that, GE paid top dollar to acquire organizations as they reached the height of their market value and proceeded to spin them out as they naturally began to plateau. The sheer number of acquisitions often forced it into new and unfamiliar markets, leaving its leaders unable to figure out a viable exit strategy.
Additionally, GE's unbridled growth had the effect of increasing the organization's overall complexity and diluting its focus. Instead of concentrating its efforts on several specific markets, GE made the mistake of haphazardly entering as many markets as it could, attempting to win in every one simultaneously. In short, GE lost its direction.
GE's departure from the DOW is a symbolic reset. It signals the change that is around the corner. Current CEO John Flannery does not have to be weighed down or held back by GE's lofty legacy. He is now liberated to take drastic action to save the organization from its clunky tendencies. Flannery's focus is on what GE has traditionally done well: aviation, power, and healthcare. As a potential breakup looms, every likely course of action is on the table and Flannery has a free hand.