From “progress for people” to “hard times” … is a venerable American company being disrupted?
Some time ago I wrote an article about risk and innovation and the fall of Kodak. In that article I opined that the basis of Kodak’s failure to capitalize on its early momentum in digital photography lay in the fact that it went to great lengths not to cannibalize its core business. Its leaders were dependent on the rich profits from their bread and butter 35mm film business and worked hard not to endanger them. In short, they sacrificed innovation for the status quo, unwilling to accept that the days of film were numbered. And as a result, Kodak was out-innovated and ultimately defeated by its rivals.
I asked a question that is as pertinent today as it was then:
“It took one hundred years for Kodak to go from cutting-edge innovation to Fortune 100 success to bankruptcy. One wonders where the likes of Apple, Google and Tesla will be in a century.”
One thing occurred to me in hindsight, however. The pace of change is occurring so rapidly that one need not look out so far to wonder which of today’s companies will be around and thriving, and which will be gone or struggling, at some point in the future … Ten years? Twenty? A century seems like a millennium today.
I now wonder if another Fortune 100 company, a household name for over a century, may be in the midst of a disruption that could irreparably challenge its market dominance.
When I was growing up, there was perhaps no stronger brand in the home appliance space than GE, the company that “brought good things to life”. GE’s tagline when I was a kid was “progress for people”. In 1960, GE was 4th in the Fortune 500 ranking (last year, by the way, it had dropped to 13th, still not too shabby, but consider that half of the companies outranking GE last year did not even exist in 1960).
Beyond appliances, GE Energy, now GE Power, built on the roots of the company’s founding to become a dominant player in the power generation technology space, with a particularly strong focus on gas-powered turbines for electricity generation. Over the years, the company diversified into a broad range of other sectors, including computing, television, plastics and capital financing.
A veritable powerhouse (no pun intended)!
But fast-forward to today.
- Last June, Jeffrey Immelt, the company’s chief executive, was forced to resign amid mounting pressure from Trian Fund Management, a major investor in the company.
- Berkshire Hathaway sold its stake in GE last year, Warren Buffett telling CNBC that “clearly there were mistakes made” at the company.
- The company has been plagued by SEC investigations over its accounting practices and insurance losses.
- In December, the company announced the power business was laying off 12,000 employees in order to save $1 billion this year, in the face of an ongoing decrease in demand for fossil fuel power plants.
- And to add insult to injury, there is now talk of removing GE from the Dow Jones Industrial Average (DJIA) after the company’s worst performance last year among all DJIA companies.
So why is all of this happening at this time? Is it due to mismanagement? To a lack of innovation? To some systemic flaw in the company’s business model or the organization’s culture? All of these factors probably play a role to one degree or another.
I would argue that, at least in part, GE’s woes are due to a focus on protecting the profitability of its existing, “bread and butter” business, as the demand for its core product offerings has eroded, the terrain has been altered by changing market needs, and competitors have moved in to capitalize on this change.
This is a classic case of disruption.[*]
Let’s look at a few givens, at least as I see them:
- Since the days of Jack Welch’s Six Sigma push, the company has focused on continuous improvement in the pursuit of operational excellence across its existing business lines … to great effect.
- Toward the end of 2015, GE acquired the power and grid business of the French company Alstom, further consolidating its position in its existing business, electricity generation. Wall Street applauded the move and called it the “best deal in a century”.
- Meanwhile, as GE focused on consolidation in the conventional power generation space, a seismic shift was occurring beneath its feet, manifested by the growing economic and technical viability of renewable energy and a “cliff-like” decrease in demand for gas powered turbines as newcomers to the game stepped in to capitalize on this opportunity.
- The Alstom acquisition failed to perform as expected and as a result GE Power embarked on a cost-cutting mission to “shrink to fit” (see above).
- It’s not that GE hasn’t focused on product innovation. It has. But its overarching investment of money and time has been on getting better and better at, and consolidating its dominance around, things the market wants less and less of.
- How many breakthrough innovations can you name that have come out of GE in the past three decades?
Do you see a pattern here? Is GE suffering the fate of other companies that, though working hard to shore up their existing businesses and to protect what they have, end up being disrupted? Is this analogous to what happened to Kodak? To Blockbuster? To Magnavox?
Clayton Christensen has written a lot about this. He cites other examples of established companies that were disrupted by newcomers. Remember Seagate Technology? Bucyrus-Erie? F.W. Woolworth?
Perhaps my assumptions are incorrect. I hope I’m wrong about GE. After all, I would hate to see the continued decline of the company I grew up admiring so much. Only time will tell.
Will you wake up one day only to realize you have been disrupted? Or will you be a disruptor?
The answer to success in a world of rapid change and uncertainty lies in your relentless commitment to continual exploration, innovation and reinvention. Constantly changing. Not accepting the status quo as a given. Not protecting what you have at the expense of where you can go. Never standing still.
Please reach out to me if you would like to talk about this in more detail. This is something I am passionate about. It is borne of three decades helping business leaders, and their companies, be the best they can be.
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[*] Lest I be challenged by the purists out there for my use of the word “disruption”, I have chosen not to adhere to the distinction made by Clayton Christensen regarding “disruption” vs “dislocation” but, rather, to use the term a bit more loosely.