GE Breaks The Mold To Spur Innovation

Immelt is merging GE's health unit with Amersham -- and putting its chief in charge

Despite its eclectic mix of businesses, General Electric Co. (GE ) has long prided itself on an ability to beat all comers in one category: producing the best executives. So when GE completed its deal to buy Britain's Amersham PLC on Apr. 8 for about $10.3 billion in stock, it seemed safe to assume that Chief Executive Jeffrey R. Immelt would send in his troops to whip the diagnostics-and-bioscience giant into shape. But instead, Immelt delivered the equivalent of a body blow to the GE culture. He took the honey-tongued Brit who headed Amersham, Sir William M. Castell, and put him in charge of what is a combined $14 billion GE Healthcare unit.

He's even making the guy a vice-chairman -- a coveted title now limited to Robert C. Wright and Dennis D. Dammerman, a pair of "wise men" who have devoted their lives to GE. Moreover, the mammoth unit will be based outside the U.S. -- less than an hour northwest of London, in the village of Chalfont St. Giles -- another GE first.


The point is not just to rattle the tree, as the Brits might say. Immelt is obsessed with rebuilding a culture of innovation within GE. Amersham's mission -- to foster what Castell calls "personalized medicine" by bringing diagnosis and research down to the cellular level -- sounds far bolder than building, say, a faster oven or a better lightbulb. And that's precisely the kind of pioneering technology Immelt thinks is needed to ensure that GE continues to be a powerhouse into the next century. Simply buying big companies and getting homegrown managers to squeeze out costs while ramping up sales isn't going to cut it, especially when you're already a $134 billion operation. Immelt wants more of the Wow! discoveries and Eureka! moments that spawn new paths of growth. Such breakthroughs have eluded GE in recent years. After essentially inventing such life-changing tools as light bulbs and X-ray machines, the Fairfield (Conn.) company has become better known for developing new iterations of existing equipment.

Immelt has already spent $100 million to overhaul the company's upstate New York research headquarters and invested heavily in overseas research and development. But he also needs more specialists -- more people who understand what it takes to nurture creativity and passion in a particular field. Finding expert managers steeped in GE culture and its Six Sigma statistical dogma isn't a problem. "I know how to get the most out of a business," argues Immelt. What he wants is someone who can take the discipline of GE and meld it with the real firepower of Amersham. As Immelt puts it: "I want to know how to make two plus two equal seven."

That's the biggest reason for Castell's ascension. But there are also less lofty motivations for tweaking the GE management model. Castell's presence will help integrate the British operations, and having a unit based outside the U.S. with a foreign chief gives GE a more global image with customers. While Immelt insists that Castell never asked for such lofty titles or power within GE, insisting the "whole thing was in my head," according such prestige to an outsider was likely a sweetener to the deal. And some analysts note that European regulators, who have rejected GE deals in the past, no doubt smiled at the move.


The most important incentive was making sure the gem Immelt saw in Amersham didn't lose its luster with the acquisition. A critical task for GE was convincing European scientists that their culture would thrive in the belly of a beast renowned for its homogeneity and uniformity of style. These people -- Amersham's primary assets -- are moved more by the science of the human genome than the corporate bottom line. It's an issue GE also faces in absorbing and nurturing talent at places such as Universal Studios Inc., which became part of the GE clan in October after Vivendi Universal (V ) agreed to merge its entertainment assets with NBC (GE ), a deal that should be completed in a matter of weeks.

Still, there are risks to plucking a man whose business currently accounts for about a quarter of GE Healthcare's sales and making him head of the whole thing. One is Castell's lack of knowledge of the rest of the operations. More troubling, perhaps, is the message it sends to insiders who thought they must live and breathe GE to get to the top. "There is a rigorous management process where people work their whole lives to become senior officers," notes John G. Inch, an analyst at Merrill Lynch & Co. (MER ). "Here, in one swoop, it's given to an outsider." Yet Inch supports the move, in part because Amersham has the potential for much faster growth than scanning machines and other parts of the healthcare subsidiary.

As it happens, Joseph M. Hogan, the manager who was running the unit before the Amersham deal got done, has agreed to stick around. Immelt notes that Hogan is now charged with running the GE Healthcare Technologies part of the unit. In essence, it's the same business he ran before, only now he has a new boss between him and the big chief. Immelt acknowledges that the move is a sacrifice for Hogan, whom he brought aboard 20 years ago, but notes that "sometimes I have to ask the indulgence of the people I hire." At 56, Immelt argues, Castell may only stay two to five years at the helm. Immelt is also moving to put him on the GE board, where he may remain longer.


Hogan notes that the move signals "a cultural change within GE" toward "more risk around growth." And few areas sound more cutting-edge than individualized medicine. Amersham's technologies aim to predict disease before symptoms may even be present and then help doctors tailor therapies to a person's genetic profile. Its protein separation systems, for example, isolate the materials needed for biological drugs, while its imaging agents can highlight abnormal cells long before they're detected on traditional scanners. Given the enormous potential of such technology, Hogan says, the new management structure makes sense: "I truly believe it's the right thing to do."

Certainly, Castell wasn't initially champing at the bit to become Immelt's colleague. As he recalls, the two men had a series of chats in which "I repeatedly said I wasn't for sale, and he repeatedly said he wanted to continue discussions." Castell was more interested in acquiring others than being acquired. "We had a great vision of personalized medicine, and that vision was becoming a reality," he says. What he wanted was more scale.

Meanwhile, Immelt kept hammering him with offers through dozens of meetings and phone calls. That prompted the British executive to start approaching other companies to see if Amersham could perhaps stage a merger that would deliver the scale it needed to thrive without being absorbed into a larger company. But Immelt was on to that, too. He once tracked down Castell on his cell phone at 6:40 a.m. when the British executive was in California, watching the surf before speaking to one such diagnostics company about a possible deal. "I said: 'Your intelligence is good. You're a cheeky bugger,"' recalls Castell. In July, 2003, the GE chief flew over for lunch and said: "Come on, Bill. What do you think about price?" Finally, the chitchat turned into negotiation and, eventually, an agreement to pay a 45% premium on Amersham shares. Castell is pleased with the price, adding: "He couldn't have gotten it for less."

After 15 years of leading Amersham as an independent company, Castell certainly seems happy to be part of the GE family. But what really gets him excited is the science. On Apr. 5, Amersham got 55,000 genes on one slide, three times more than previously possible. "We put the whole genome on one slide!" he boasts. That will open the door to testing for an array of genetic mutations and, down the road, discovering what diseases each individual is most at risk of developing. Such talk may require some translation on Wall Street, but it's music to Immelt's ears.

By Diane Brady in New York and Kerry Capell in London

Before it's here, it's on the Bloomberg Terminal.