GE CEO Jeffrey Immelt Speaks at Wharton

By: Ross Frisbie, WG '03

Posted: 3/4/02

Last Monday, General Electric CEO Jeffrey Immelt came to Wharton to deliver his thoughts on global leadership. His hour-long address touched upon numerous topics including succeeding Jack Welch, envisioning globalizations' impact on GE, and advice to Wharton students in the midst of their job hunts.

Immelt earned an MBA in 1982 from Harvard and has worked at GE ever since. In 2000, he won the three-way leadership contest to succeed Jack Welch and formally became Chairman and CEO of GE on September 7, 2001.

In an hour long address to a packed Logan hall auditorium, Immelt discussed GE's corporate philosophy, his leadership style and career path, the globalization that will affect both GE and the Wharton students in attendance, and some words of wisdom. His mixture of personal anecdotes, serious analysis, and unexpected humor brought the house down several times.

Immelt started his speech with the line, "You think you got problems?" He could not finish his comment, "I don't feel sorry for you at all," before the audience burst out laughing. He noted that immediately after assuming his current position – which by itself requires him to succeed "the most famous businessman of the last century" at the world's most valuable company – he had to deal with September 11 four days later, and subsequently the problems of Enron, Tyco, and a recession. He credits GE's ability to weather these various storms to its "institutional appetite for change, for doing what's next, and that's how you become a 124 year old company that's still the most valuable company in the world."

Immelt then discussed how GE, Jack Welch notwithstanding, is a company not properly understood by the marketplace. Again addressing his audience head-on, he said, "I hate the fact that you got professors here at Wharton that call us a conglomerate. It drives me crazy … because conglomerates are holding companies that don't do anything. … We are a multi-business company that spends an incredible amount of time and effort to share initiatives and ideas from business to business." He believes that GE owes its success to the combination of constantly evaluating its business model, strengthening its culture, emphasizing financial strength, and attracting the best people.

GE's business model – being an industry leader in a diverse set of businesses – superficially resembles a holding company or even a mutual fund, but Immelt notes that GE can and does reinvest substantial sums in its businesses at times of its choosing. The leading businesses today, he notes, were laggards 4-5 years ago. Conversely, he cites NBC and the plastics business as down businesses where GE is consciously investing today for growth tomorrow. As a result, Immelt believes that GE can make larger and better investments in its own businesses because it has the wherewithal to do so, and has the luxury of being able to plan ahead into the next business cycle.

Immelt cites GE's culture as another critical distinction between a multi-business company and a conglomerate. He notes that a single HR department spans the disparate business units, and cross-company initiatives.

GE has also ensured its financial strength by emphasizing cash flow above more ethereal accounting notions. "We always measure cash flow. Cash is king. You can't fake cash," Immelt notes. GE's prodigal positive cash flow, some $20 billion each year, provides a silver lining to any recession. "What a great time to have money," he notes, as it allows GE to "play offense" at a time when few others can.

The last GE attribute which Immelt cited, corporate culture, tied directly back to his business school experience. Twenty years ago, the curriculum placed little emphasis on corporate culture. Today, he views its importance as important as the aforementioned factors.

Having explained how GE came to its current position, Immelt laid out his vision for GE's future under his stewardship. He intends to make GE "leaner, faster, and customer-focused company." The internet, which started to benefit GE late in Jack Welch's tenure, has barely begun to bear fruit. Immelt notes that a near 50-50 split exists among GE's staff between the back office, and its front office along with research and development. He views the former as far too big and anticipates a 60-80% reduction over time thanks to the internet. In turn, he intends to use these savings to invest more in the latter areas of GE.

Already under Immelt, GE has made progress on his goal of become a "faster" organization. He has abolished GE's quarterly meetings for discussing financial results, in favor of both monthly and weekly meetings. He credits this to the internet, and he notes that today he possesses a "digital cockpit" that enables him to see about anything from his desk.

Immelt returned to GE's bigness in describing how GE will attain the goals he has set out. "Size, scale is a beautiful thing. Big is beautiful," he repeated. More specifically, he noted that GE's size allows it to exploit more opportunities to grow smaller business, enable the company to recover from any mistakes that might occur along the way, and afford GE a longer time horizon for reaping benefits from its activities since it is not financially constrained.

In addition to fully exploiting its size, Immelt notes that three other factors will assist in GE's continued transformation into a growth-oriented company. One is its revenue model. Immelt believes that recurring revenue will play an important role, and contrasts GE's recurring revenue with the unsustainable revenue of technology companies. A second factor, as might be predicted, is continued globalization. Immelt focused on Europe due to its structural changes and China due to its size. The last prong of his revenue strategy is the fill-in acquisition.

finally he points to small acquisitions as another engine of GE's growth. Taking aim at Tyco, he quickly added, "we disclose them all, by the way" to the audience's delight. Generally, the best such candidates are businesses where "we can add the GE toolkit" and consolidate the acquisition immediately upon closure.

After concluding his remarks about GE, Immelt discussed more personal matters – career choices and ethics in the context of "the carnival that has become the business world today."

Immelt emphasized the importance of understanding the business model of a prospective employer. In any year or business cycle, people, investors, and even whole communities are at risk of being taken in by flawed business models. He noted that the largest recruiter in 1982 on the HBS campus was Atari, which hired 18 people. Three years later, all had left.

A second piece of advice he gave is to "play by the rules." He recommended that each audience remember to read the Powers report, the recently commissioned board study on Enron, which described a set of values, governance, and commitment "gone mad, gone crazy." He asked the audience to vow never to have anything to do with a such a corporate culture. As a CEO, his role will be to keep GE out ahead of the regulatory curve. While he hesitates to predict the exact form of future SEC or FASB rules resulting from recent accounting scandals, he will talk more and get out in front of the issue. On this matter, Immelt believes in leading by example. As he puts it, "the world revolves around trust, investors invest in trust, and employees go to work for companies based on trust, values and trust mean a lot. … Every time I see my company in the same paragraph as one of these other companies, I just want to scream." He bemoaned the fact that Fortune, in its issue declaring GE to be the most admired company for five years running, chose to discuss accounting at length. "I wanted to rip my freaking hair out, but that's the world today," Immelt said.

Immelt downplayed succeeding Welch as CEO when discussing leadership. In his view, it is always about defining yourself, and never about defining somebody else. He also noted that between the recession, accounting scandals, and terrorism, he is about leading GE at a very different time. He is spending much of his time establishing relationships with employees, investors, communities, and customers on a retail basis. He boasted, given his long experience in running GE divisions, "Don't tell anybody , I actually do it better than Jack."

He also drew a contrast with Welch in his leadership style. He intends to act differently than his successor by "maintaining the edge of the company but doing it with more heart, doing it with more people-orientation, doing it as a company that really opens up the doors, and is a more vibrant part of the global communities that we are in, and that is a very big deal, because we are in a different time."

But in evaluating leaders within GE, he has a similar viewpoint as Welch. Immelt stated that four key attributes distinguish rising leaders within GE. The first is that they can perform – hitting numbers, having the brains, managing paradoxes. Second, they want to learn everyday. They never stop learning and are "totally paranoid about getting left behind," whether 35 or 65. As he put it, "the biggest failure mode within a company like GE is people who stop growing and stop learning." Last but not least, they can motivate and energize global teams, and they know how to give back to their community.

Despite GE's successes, Immelt noted that attracting business school students was difficult until very recently. As he bluntly said, "we couldn't touch a Wharton student in 1998, 1999, or 1996 or 1997… I couldn't get 50 people in this room because we looked old, we looked old economy, we looked stodgy, we looked stupid, we looked a little bit slow, we weren't appealing. But the world turns, the world changes, and what fuels my company is having the best people."

With that lead in, he then brought the house down with one of the shortest sentences of his entire speech: "So I'm back, and I got jobs."