At GE, Neutron Jack Is Back
As GE's John F. Welch Jr. heads for retirement, his legacy as Neutron Jack continues. Back in 1981, a 45-year-old Welch settled into his new job as chief executive of General Electric Co. by promptly dismantling many of GE's old-line businesses and hacking away layers of bureaucracy in the big conglomerate. After four years, he had managed to cut some 100,000 jobs, a feat that set GE on its now-legendary course of growth and ever-increasing profits -- and one that earned Welch his infamous nickname of Neutron Jack. Now, at 65 as he's supposed to be winding down his career, it looks as if Neutron Jack is roaring back.
Wall Street sources and people close to the company tell BusinessWeek that GE is planning massive job cuts on a scale not seen since the early days of Welch's tenure. GE may take out at least 75,000 jobs in the next two years --or more than 15% of the 450,000 people it'll employ once the Honeywell International merger is completed. Excluded from the estimates are the 28,000 jobs that will go as a result of GE's decision to shut retailer Montgomery Ward & Co.
To be sure, these cuts are coming at a time the economy is slowing to a crawl. Analysts say GE may eliminate 5,000 to 10,000 jobs in appliances, lighting, broadcasting, and plastics. Those divisions are all highly sensitive to swings in the economy, and they posted marked slowdowns in fourth-quarter sales as car manufacturers, computer makers, retailers, and other key customers cut way back on orders.
But while a limping economy may lend added incentive for layoffs, most of the planned cuts have little connection to the economy's current performance, analysts and people close to the company say. Indeed, the lion's share will come from the upcoming merger with Morristown (N.J.)-based Honeywell and GE's efforts to push mightily into e-commerce. GE may cut 30,000 to 50,000 jobs -- as much as 42% of Honeywell's base -- in the wake of the merger, according to analysts who have spoken with GE officials.
Moving administrative work online will let GE cut entire layers of jobs
Just as important, analysts say, GE is signaling that it's ready to make deep structural changes by migrating reams of administrative work to the Web, allowing it to cut entire layers of support jobs and white-collar positions. Indeed, GE expects to save $1.6 billion on so-called "digitization" this year and eliminate 11,000 jobs. In coming years, cuts from this Web migration -- if it goes successfully and customers embrace it -- could eliminate tens of thousand more jobs, analysts say.
Why now? Analyst Martin A. Sankey of Goldman Sachs says technology is allowing GE to "radically delayer," just as it did in the early '80s. "It's a sensitive issue because a lot of people are going to be losing jobs." No division will be spared. GE Capital Services, the company's finance arm and a consistent source of high double-digit profit growth, is expected to generate at least a third of this year's $1.6 billion in e-commerce savings.
In recent months, GE Capital has begun aggressively pushing much of its paperwork -- from loan applications to insurance sales -- to the Web. As a service business, analysts and employees say it's rife with opportunities to cut jobs. But the same goes for old-line businesses such as appliances. Sankey notes that the millions of calls that go to the appliance unit's call center cost $5 to $6 apiece to handle. "If you can route that call to the GE appliance Web site, that interaction is 50 cents," he says. Still, many of GE's Web efforts are in their infancy, and analysts say it may be several years before the Web investments pay off.
GE says it has no layoff targets, but Welch has spoken recently of "significant" cuts. With Honeywell, they're likely to be significant indeed. That company had failed to move ahead with the integration of its large merger with Allied Signal, say analysts and frustrated Honeywell directors. And there's clear evidence that Honeywell is bloated: While its average employee generates about $209,000 in revenue, GE employees generate $382,000 apiece. Clearly, Welch sees some big potential for job cuts. GE recently increased the estimated annual cost savings from the Honeywell merger to $2.5 billion from the original $1.5 billion it had projected.
Still, outside of the Honeywell merger, it might seem odd that GE, long considered the consummate lean American corporation, now thinks it has at least 75,000 jobs to shave. After all, it just cranked out record earnings in 2000. Even in the anemic fourth quarter, as some of its industrial competitors struggled, the GE magic was in full evidence. While sales were flat or down in appliances, broadcasting, industrial products, and plastics, earnings overall still increased by 16%.
But the company is pushing some very aggressive profit targets for 2001 --recession or no recession. With moderate economic growth, GE projects earnings will grow 18% to 20%. And even if the economy contracts by 2%, GE says it will still have double-digit earnings growth, albeit smaller -- about 10%. With such big job cuts on the way, Welch just may have the formula to keep those earnings chugging.
By Pamela L. Moore in New York
Edited by Beth Belton