Manasenient Strategies

The ImmeltRevolutionHe's turning GE's culture upside down,demanding far more risk and innovation

DESPITE HIS AIR OE EASY-going confidence, JeffreyR. Immelt admits to twofears: that General Elec-tric Co. wül become bor-ing, and that his toppeople might act like

cowards. Thaf s right: cowards. He wor-ries that GE's famous obsession with bot-tom-line results—and tendency to get ridof those who don't meet them—vidü makesome execs shy away from taking risksthat could revolutionize the company.

Immelt, 49, is clearly pushing for acultural revolution. For the past 3V2years, the GE chairman and CEO hasbeen on a mission to transform the hard-driving, process-oriented company intoone steeped in creativity and wiredfor growth. He wants to move GE'saverage organic growth rate—theincrease in revenue that comes fromexisting operations, rather thandeals and currency fluctuations—toat least 8% from about 5% over thepast decade. Under his former boss,the renowned Jack Welch, the skillsGE prized above all others werecost-cutdng, efficiency, and deal-making. What mattered was thecontinual improvement of opera-tions, and that mindset helpedmake the $152 billion industrial andfinance behemoth a marvel of earn-ings consistency. Immelt hasn'tturned his back on the old ways. But inhis GE, the new imperatives are risk-tak-ing, sophisticated marketing, and aboveall, innovation.

This is change borne of necessity. TheWelch era reached its zenith in thebooming, anything-goes economy of thelate 1990s. Back then, GE always seemed

64 I BusinessWeek I March 28, 2005

to beat the consensus forecasts by a pen-ny a share—and investors felt no burn-ing need to figure out exactly how theydid it. Immelt has no such luxury. With aslower-grovidng domestic economy, lesstolerance among investors for buyingyour way to growth, and more globalcompetitors, Immelt, like many of hispeers, has been forced to shifr the em-phasis from deals and cost-cutting tonew products, services, and markets.Any other course risks a slow descentinto irrelevance. "Ifs a different era,"says Immelt, a natural salesman whostill happily recounts the days when hedrove around his territory in a Ford Tau-rus whüe at GE Plastics. He knows theworld looks to GE as a harbinger of

ShockHow CEO Immelt is trying to shiftthe GE mindset:

Link bonuses to new ideas, customersatisfaction, and sales growth, with less emphasison bottom-line results

. Spend billions to fund "ImaginationBreakthrough" projects that extend the boundariesofGE

; ' . . : . Rotate executives less often, and bring inmore outsiders to create industry experts insteadof professional managers

future trends, says Ogilvy & MatherWorldwide Chief Executive Rochelle B.Lazarus, who sits on the GE board. "Hereally feels GE has a responsibility to getout in front and play a leadership role."

So how, exactly, do you make a cultureas ingrained as GE's sizzle with boldthinking and creative energy? To start.

you banish some long-cherished tradi-tions and beliefs. Immelt has welcomedoutsiders into the highest ranks, evenmaking one. Sir William M. Castell, avice-chairman. Thaf s a serious breakVidth GE's promote-from-within past. Heis pushing hard for a more globalworkforce that reflects the communitiesin which GE operates. Immelt is also en-couraging his homegroviTi managers tobecome experts in their industriesrather than just experts in managing. In-stead of relying on execs who barely hadtime to position a family photo on theirdesk before moving on to the next exec-utive assignment, he's diversifying thetop raiücs and urging his lieutenants tostay put and make a difference wherethey are.

Most of all, Immelt has made theneed to generate blockbuster ideas morethan an abstract concept. In true GEfashion, he has engineered a quantifi-able and scalable process for coming upvwthmoney-maMng "eureka!" moments.Whüe Welch was best known for the an-nual Session C meetings during which hepersonally evaluated the performance ofGE's top several hundred managers, Im-melf s highest-profile new gathering is theCommercial Councü. Immelt leads thegroup of roughly a dozen top sales andmarketing executives, including someunit heads such as GE Consumer FinanceCEO David R. Nissen. The members holdphone meetings every month and meeteach quarter to discuss grovs th strategies,think up ways to reach customers, andevaluate ideas from the senior ranks that

aim to take GE out on a limb. "Jeffhas launched us on a journey to be-come one of the best sales and mar-keting companies in the world," saysNissen, who describes the meetingsas coüegial and more experimentalthan other GE gatherings.

This is no free-for-all, however.Business leaders must submit atleast three "Imagination Break-through" proposals per year that ul-timately go before the councü for re-view and discussion. The projects,which WÜ1 receive büUons in fundingin the coming years, have to take GEinto a new line of' business, geo-graphic area, or customer base. Oh,

and each one has to give GE incrementalgrowth of at least $100 muhon.

Such change can be scary stuff forfolks steeped in Six Sigma, who were ledto believe that if you made your numbersand were prepared to uproot your fam-ily every year or two, you had a shot atthe top rungs. Now they're being

The CEOteils everymanager tocontributeideas—evenif they flop

fcs,,

èniiï it strategiesasked to develop real prowess in areassuch as creativity, strategy, and cus-tomer service that are harder to measure.They are being told to embrace risky ven-tures, many of which may fail. Immelt'sGE can be seen as a grand experiment,still in its early days, to determinewhether bold innovation can thrive in aproductivity-driven company.

To inspire the fresh thinking he'slooking for, Immelt is wielding the onething that speaks loud and clear: money.The GE chief is tjdng executives' com-pensation to their ability to come upwith ideas, show improved customerservice, generate cash growth, and boostsales instead of simply meeting bottom-line targets. As Immelt puts it, "you'renot going to stick around this place andnot take bets." More concretely, 20% of2005 bonuses will come from meetingpre-established measures of how well abusiness is improving its ability to meetcustomer needs. And while he hasn't ex-actly repudiated Welch's insistencethat managers cull the bottom 10% oftheir staff, insiders say there's more flex-ibüity, more subjectivity to the process.Risking failure is a badge of honor at GEthese days.

To lay the groundwork for an organi-zation that grows through innovation,Immelt took steps early on to rejigger theGE portfolio. He committed to sell $15bulion of less profitable businesses suchas insurance, whue shelling out morethan $60 billion in acquisitions to diveinto hot areas such as bioscience, cableand film entertainment, security, andwind power that have better growthprospects. In doing so, he pared the

low-margin, slower-growthbusinesses like appliancesor lighting, which he diplo-matically calls "cash genera-tors" instead of "losers,"down to 10% of the portfo-lio, from 33% in 2000.Nicole M. Parent of CreditSuisse First Boston is im-pressed with "the way theyhave been able to evolve theportfolio in such a shorttime" and with so litdedisruption. "This is a company wheremanagers wül do anything to achievetheir goals."

Good thing, as their back-slappingchief is now looking for "those things thatgrow the boundaries of this company."He's confident that the new business mixand growth incentives are already payingoff. At GE'S annual gathering of its top650 executives in Boca Raton, Fla., in Jan-uary, he insisted that "there's never beena better day, a better time, or a better placeto be [at GE]!" Strong words in a compa-ny that stretches back 127 years tofounder Thomas Edison. After an 18%jump in revenues and earnings in thefourth quarter, to $43.7 bühon and $5.4bulion, respectively, Immelt predicts up to17% earnings growth and 10% salesgains for aU of 2005, with double-digit re-turns through 2006. Whüe economistsscratch their heads over the next quarter,Immelt is promising two years of explo-sive growth. No wonder Sharon Garavel,a quality leader at GE Commercial Fi-nance says that, at Boca, "everyone wastalking about a $60 stock price," or about$24 more than its current price.

The changesare tough onthe manywho aren't"dreamertypes"

Shuffling' :Immelt has spent more than $60 billion to bolster GE's mix ofbusinesses. Some new capabilities:

Buying Universalgave GE a richlibrary, filmstudio, cablenetworks, andtheme parks.Bravo and Tele-mundo help, too.

With Amersham,GE can bringdiagnosticsdown to thecellular level andbe a leader inpersorializedmedicine.

GE bought itsway into firesafety andindustrialsecurity withEdwardsSystems.Ion Track andInVision gave itentrée intohomelandsecurity, frombomb detectionto screening fornarcotics.

Buying IonicsandOsmonicsgets GE intodesalination,fjuid filtra-tion, andother water-processingservices.The goal: toincrease theavailability ofclean wateraround theworld.

RENEWABLE

_™EM!LGE movedinto solarand wind powerand biogas withacquisitionssuchasEnron Wind.

That in itself may be astretch of the imaginationfor now, but Immelt is tryingto recast the company fordecades to come. He'sspending big bucks to createthe kind of infrastructurethat can equip and foster anarmy of dreamers. Thatmeans beefing up GE's re-search facüities, creatingsomething akin to a globdbrain trust that GE can tap

to spur innovation. He has sunk $100 mu-lion into overhauling the company's re-search center in Niskayuna, N.Y., andforked out for cutting-edge centers inBangalore, Shanghai, and Munich.

Globalizing research has allowed GE toget closer to overseas customers. The sim-ple fact is that most of GE's growth wülcome from outside the U.S. Immelt pre-dicts that developing countries wül ac-count for 60% of the company^s growthin the next 10 years, vs. about 20% for thepast decade. But he is also spreading newpractices to lethargic economies such asGermany. After a 2002 meeting with Ger-man Chanceüor Gerhard Schröder rein-forced his notion that GE could be doingmore in that country, Immelt decided toopen the Munich center. As Immelt ex-plains, "there's no place in GE where youfeel more like a loser than in Germany.You have Siemens and Phüips, and wehaven't been that good." By Jiüy, 2004, anew center was up, and the results wereimmediate. According to Nani BeccaUi-Falco, CEO of GE International, the com-pany saw a 21.5% grovrth in German-speaking markets last year from 2003.

Now that Immelt hasrepositioned the portfolioand added resources, hismain objective is to getmore immediate growth outof the businesses he alreadyhas. That's where the Imagi-nation Breakthroughs comein. Over the past 18 months,Immelt has agreed to invest$5 billion in 80 projectsthat range from creating mi-crojet engines to overhaul-ing the brand image of3,000 consumer-finance lo-cations. The hope is that thefirst lot WÜ1 generate $25 bu-lion in revenue by 2007—cheap, if it works, when youconsider what it would costto acquire something fromthe outside with that level ofsales. In the next year

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66 I BusinessWeek I March 28. 2005

Mänä^ment Strateitwo, Immelt expects to have 200 suchprojects under way.

The pressure to produce could not bemore intense. Many of the company's307,000 workers weren't exacdy hired tobe part of a diverse, creadve, fleet-footedarmy of visionaries who are acutely sensi-dve to customers' needs. "These guys justaren't dreamer types," says one consult-ant who has worked wdththe company. "It almostseems painfiil to them, luce awaste of time." Even insid-ers who are openly euphoricabout the changes underChairman Jeff admit to feel-ing some fear in the depthof their guts.

"This is a big fundamen-tal structural change, andthat can be tough," saysPaul T. Bossidy, CEO of GECommercial Equipment Fi-nancing, who is reorganiz-ing his sales force so thateach person represents allof GE to particular cus-tomers. Susan P. Peters,GE's vice-president for ex-ecudve development, eventalks about the need foremployees to "reconceptu-alize" themselves. "Whatyou have been to date isn'tgood enough for tomor-row," she says. Ouch.

To Immelt, the best managersgreat marketers and not just great opera-tors. Thaf s a rethinking of GE's long-held bias that winning products essen-dally sell themselves. Beth Comstock,who was appointed chief marketing offi-cer three years ago with the mission ofboosting the company's markedng ex-perdse, says that when she started, anumber of insiders were sMtdsh aboutthe new agenda: "Eveiyone thought. Tvegot to get into sales and marketing to berelevant in this company?' "

WeU, yes. Comstock is trying to elevatethe role of marketing throughout GE. Shehas helped develop a commercial leader-ship program that sends the best andbrightest marketers arotmd the organiza-don for two intensive years, much as GE'scorporate audit staff has long done on thefinance side. The auditors were importantto maintaining financial discipline underWelch. Now, GE has inidated new cours-es in marketing, as weü as ones on how tospark idea generadon. Some execudveshave also taken to holding "idea jams,"where people from diverse businessesbrainstorm. Widiin GE Energy alone.

GEhasmade abreak withits promote-from-withintradition

are

there are "growth heroes," who are heldup as emblemadc of where the companywants to go, a "virtual idea box" to spurbrainstorming via the Web, and "Ex-ceüerator awards" for the development ofideas. The jargon may smack of classicGE, but the approach is novel. "This isabout unlocking the curiosity, yet havingthe rigor stay intact," says Comstock.

In this era, marketing isnot just a matter of produc-ing edgier commercials orcatchier slogans. It meansgetdng outside the compa-ny to understand marketsand customers. Among oth-er things, GE's top market-ing execudves have spent alot of time examining thepracdces ofcompanies suchas Procter & Gamble Co.,which let them spend dmelast November in "TheGYM" where strategies andissues are debated, exam-ined, and maybe evensolved. "The idea is toenhance a team's creadvethinking," says P&G spokes-man Terry Loftus. GEstaffers also spent dme atEedEx Corp., which has ex-cepdonal customer service.Welch did the same thingin benchmarking MotorolaInc. when he delved into Six

Sigma, but the external focus is evenstronger now.

Immelt wants his managers to leadindustries rather than merely follow de-mand. Take the company's move to cre-ate a cleaner coal plant—another Imagi-nadon Breakthrough—before itscustomers were even asking for it. GEinidated the push after acquiringChevronTexaco Corp.'s gasification-technology business last year. Immeltand GE Energy CEO John G. Ricebrought together big power customersand experts on subjects such as climatechange at GE's educadon center in Cro-ton-on-Hudson, N.Y., last July to debatewhere the industry would be in 2015.James E. Rogers, chairman and CEO ofpublic udlides giant Cinergy Corp., wasshocked to hear Immelt talk about theneed to generate electricity with far few-er emissions—a touchy subject in an in-dustry that sdll burns a lot of coal. "Hewas tmafraid to articulate a point of viewthat his customers might not share,"says Rogers, whose company burns 30mulion tons of coal a year.

What convinced liogers to partner

with GE and Bechtel Corp. on a cleanercoal power plant was the prospect of hav-ing an integrated package managed byGE. Instead of forcing Rogers to licensethe technology and figure it out himself,GE in partnership with Bechtel wül de-sign and implement the plan, whüe Cin-ergy will provide and help develop thesite. GE's promise: that the cleaner-bum-ing plant V TII soon become compeddvewith pulverized coal and that GE vidllhandle any hiccups in the process. "I lucethe way they're thinking about the fu-ture," says Rogers. "They're going tomake this work."

OUTSIDERS' INFLUENCEBUT THERE'S A LIMIT to how much Im-melt can transform his own people. Akey strategy—and one that amounts to agut punch to the culture—involvesbringing in more outsiders. In sales andmarkedng alone, GE has hired morethan 1,700 new faces in the past fewyears, including hundreds of seasonedveterans such as David J. Slump, a for-mer ABB Group execudve who is thechief markedng officer of GE Energy. "Ijust didn't think outsiders would do wellhere," says Slump, who was surprised atthe unites openness to changing itsways, though one of the senior execu-dves did warn him about coming off as"too intense." That said, he was alsoamazed at the lack of attendon tomarkedng when he arrived—with nomarketers among the senior ranksand no real sense of strategy beyond theoccasional ad or product push. Slumpfelt needed.

Immelt is also looking for more leaderswho are intensely passionate about theirbusinesses and are experts in the detaus."I want to see our people become part oftheir industries," he says. No one repre-sents Immelf s vision of what a GE leadershotüd be better than Bul CasteU—whohas spent his endre career in one industryand who has rarely, if ever, focused onmaximizing profits. The cerebral Brit washeading up diagnosdcs-and-biosciencegiant Amersham PLC when Immelt ac-quired it—after much wooing—for $10.7bilhon last year. Not only did Immeltmake CasteU head of the new $14 bilhonGE Healthcare, he named him a vice-chairman of GE and located the unif sheadquarters outside the U.S., in the Eng-lish viüage of Chalfont St. Gües.

CasteU is quite unlike the archetypalGE execudve. He's totaUy immersed in hisindustry, a leading thinker on the futureof personalized medicine who wül neverhead up a business based on jet engines

March 28, 2005 I BusinessWeek ! 71

or commercial finance. Nor is he pursu-ing a black belt in Six Sigma or losingsleep over making his numbers. "Peoplewere surprised at first that I didn't tendto talk about the quarter," admitsCastell. Yet Immelt loves him. "I wantmanagers to have the kind of curiositythat BÜ1 has, his passion for the indus-try," he says. "He understands wherethe market is going." This is, after all, aman known to call up his boss and waxon about an angiogenesis marker thatwon't hit the marketplace for 10 years.

Imagine how long

To deepenexpertise,execsstay inone joblonger

that conversationwould have lastedwith Welch.

To encouragethat kind of ex-pertise and pas-sion in the rest ofhis organization,Immelt is urgingpeople to stay in

^ ^ ^ ^ place longer to^ ^ ^ ^ buüd stronger re-

lationships withcustomers and markets. GE Energy'sRice—a hotshot who is emblematic ofthe old system, in which a great GEmanager could parachute onto thescene to turn any business into gold-notes that the idea of staying put takessome adjustment. "There was alwaysan impression in the midlevel ranksthat if you weren't moving everyfew years, something was wrong," saysRice. He now says he likes the factthat he has been in one place for fouryears, because he's developing a deep-er knowledge.

Investors are still waiting to seewhether GE's evangelizing chairmancan truly make his company growfaster than the world around it.Even some of his fans think that GE'snew momentum has more to do withthe overall economy than with ideageneration. Says Steve Roukis of Ma-trix Asset Advisors, which owns 2 mü-lion GE shares: "If you have a revolu-tionary decade of growth around theworld, who's going to be there to cap-ture it? GE."

Capture it? Jeff Immelt wants toshape it, drive it, make it his own. Forhim, reinventing GE is the only way tomake his company dominate this centu-ry, much as it led the one before. •

-By Diane Brady in Fairfield, Conn.

BusinessWeek online For more on GEunder Jeff Immelf, including a Q&A,go to www.businessweek.com/extras

To Live andThrive in L AJuicy Couture's founders are spinninggold from Valley Girl "casual chic"

THERE ARE THE CONVEN-tional measures of suc-cess in business: healthyprofits, high stock prices,happy employees. Thenthere's the way 44-year-old Gela Taylor and 41-

year-old Pamela Skaist-Levy, the twowomen who founded Juicy Couture, thevery LA line of clothes, measure success:"We had our biggest honor this year,"says Taylor. "We're Barbies now." That sright Mattel Inc. designed doUs based onthe Juicy ladies, dressed in their signaturesweat suits, pet dogs at their sides.

It doesn't get much better than thatfor this pair, who often do wear match-ing outfits, call each other "Fluffy," andcan take much of the credit for bringingL A ' S casual chic to the rest of the world.Juicy clothes are laid back, sometimescheeky, and priced just this side of outra-geous. Ripped jeans with a rhinestone

heart on the front sell for $178; a hoodedsweatshirt lined with rabbit far goes for$395. And, although you won't hear thisfrom them, paying more helps accoimtfor the 4% rise in U.S. apparel sales in2004, to $173 bülion, the first increase inthree years. "People are identifying withthat affluent celebrity lifestyle," saysMarshal Cohen, an analyst at market re-searcher NPD Group Inc. "Everybodywants to go to the gym widi Madonna, orat least look like they did."

WORKING OUT WELLJUICY COUTURE IS also a rare exampleof a corporate takeover that has worked.Liz Claibome Inc. acquired the companyin April, 2003, for what Skaist-Levy callsa juicy price: $53 million plus an addi-tional sum based on future earnings,which Claihome estimates could reach$92 miUion. Juicy Couture has becomeone of Claibome's fastest-grovidng di%'i-

March 28, 2005 I BusinessWeek I 73

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