Can GE Still Manage?By
A couple of Fridays each month, Jeffrey R. Immelt hosts a sleepover. The chairman and CEO of General Electric (GE) invites one of the 185 officers of his company—and only one—to his home in New Canaan, Conn., for a leisurely meal. After a few drinks, some laughs, a plate of pasta, and a wide-ranging discussion of what's going on in the world, the two executives part. Immelt, 54, stays home while his guest heads to lodging at GE headquarters in nearby Fairfield. When they reconvene the next morning, things get personal. "We spend Saturday morning just talking about their careers," says Immelt. "Who they are, how they fit, how I see their strengths and weaknesses—stuff like that." One recent guest, Steve Bolze, president and CEO of GE Power & Water, calls it "a really nice discussion, a chance to get to know each other better."
What does it say about Immelt that after almost a decade in the top job he's looking for ways to bond with his team? "The personal connection is something I may have taken for granted before that I don't want to ever take for granted again," he says. "Sometimes there's a tendency to say, 'Well, this is an officer of the company. They've been here 20 years. They can figure it out. Do they really need me to draw them a diagram?' But you need to make the time."
The sleepovers are part of a major rethink by Immelt, a personal reevaluation of how GE equips its people to lead. The reappraisal was triggered by the global financial crisis, which shook the $157 billion-a-year conglomerate, almost destroyed its financial services unit, and sent its share price from $29 in the days before Lehman Brothers crashed to below $6. (It has since recovered to around $19, leaving GE's market cap, at roughly $200 billion, about half what it once was.) That led Immelt to become what he describes as "self-reflective on steroids" and to ask a hard question: "Was there one of my top 150 people who was thinking, 'You know, Jeff, commercial real estate shouldn't be so goddamn big,' but didn't have a way to say [it]?"
Immelt intends to spend this year exploring new ideas, which he describes as "wallowing in it," to decide how GE should shape and measure its leaders. He has solicited management suggestions from a broad range of organizations—from Google (GOOG) to China's Communist Party—and sent 30 of his top people to more than 100 companies worldwide. He's holding monthly dinners with 10 executives and an external "thought leader" to debate leadership. He launched a pilot program to bring in personal coaches for high-potential talent, a practice that GE once reserved mainly for those in need of remedial work. To increase exposure to the world beyond GE, Immelt is even reconsidering the age-old rule that employees can't sit on corporate boards. "I think about it all the time," he says. "You have to be willing to change when it makes sense."
To see GE openly scrutinize its leadership approach is a bit like watching Oprah take talk-show lessons. Despite questions about GE's ho-hum results (earnings from continuing operations sank 38% in 2009 and are expected to stay flat this year) and the familiar calls to break up the conglomerate, creating leaders is one area where GE's reputation remains unparalleled. Year after year the world sees it as the gold standard for talent. In a recent global survey of the best companies for leadership by Hay Group, GE ranked No. 1.
At a time when many view training as a burdensome cost center, GE continues to treat human resources as a sacred art, spending $1 billion a year on training and devoting weeks or months of each year to evaluating talent. Immelt spends a big chunk of April on little else. "Their investment is formidable," says Brooks C. Holtom, a management professor at Georgetown University's McDonough School of Business. "The bench is widely viewed as one of the deepest in the world."
Yet there's a growing sense that something's not right—and not just because of the "decade from hell" that Immelt wrote about in this year's annual shareholder letter, which concluded that "GE must change" to thrive in the new era. (Amid the crisis, he has cut the dividend and laid off 10% of his workforce while forgoing his own bonus for the second year in a row.) He's backing out of the NBC Universal media business, waiting for his big bets on carbon capture and nuclear technology to pay off, and contending with harsh realities: an appliances unit he couldn't sell, a commercial property unit that could be a drag on earnings for years to come.
When a CEO of Immelt's stature puts his company under the microscope, his own management style inevitably comes in for scrutiny as well. Both current and former GE managers say that for years too much of Immelt's warmth, wit, and attention has been beamed outside the GE family. He is the traveling salesman, the thought leader, the motivational speaker. Inside the company he has been less visible and less available. Despite these shortcomings, Immelt's new effort seems more aimed at his team than at himself. It's about, in his words, making sure they're "really on the right path in a world that I view as being very different in the future than it has been in the past."
Few at GE believe the rethink has anything to do with succession. Immelt was brought into the C-suite with the thought he would stay 20 years, like his legendary predecessor, Jack Welch. The board has remained steadfastly supportive. Welch, who could not be reached for comment, offered sharp criticism when GE had a big earnings miss in April 2008. He told CNBC that Immelt had a "credibility issue" for making promises he couldn't keep. A number of well-regarded lieutenants, including former Vice-Chairman Dave Calhoun and GE Money chief David Nissen, have left the company or retired early on his watch. And executive recruiter Peter Crist says companies that once poached GE talent now look beyond it to alternatives such as Danaher (DHR), United Technologies (UTX), and even Tyco (TYC), which are viewed as "decentralized, sophisticated, and young."
As far as Immelt is concerned, though, the main issue is GE's approach to human capital. Does the company need to retool HR innovations that are now half a century old? Immelt doesn't think so, arguing that GE's processes are both timeless and adaptable. Within GE, the talk is about the new traits leaders will need to thrive, a subject that's reviewed every five years. "We are working on '21st century' attributes," explains Chief Learning Officer Susan Peters. What the insiders don't express doubts about—though a growing number of outsiders do—is GE's talent machine itself. "All of the old success models are coming into question," says Graham Barkus, who heads organizational development at Cathay Pacific Airways. In an age of flattened hierarchies, do time-consuming programs and a largely top-down assessment make sense? GE's Web site boasts: "Our 191 most-senior executives have spent at least 12 months in training and professional development programs during their first 15 years with GE." One entire year—and that's the minimum. GE thinks this is a virtue. What if it's not?
BATTALIONS OF CEOs
In the mid 1950s—the dawn of the age of management science, when the company Thomas Edison founded in 1890 was the fourth-largest corporation in America—company President Ralph J. Cordiner decided to decentralize GE. He made about 120 department general managers responsible for business segments, creating an army of mini-CEOs. That generated the need for more rigorous training and evaluation. So in 1956, Cordiner created the "Session C" assessment and carved a sprawling campus from the leafy Hudson River Valley in Ossining, N.Y., an hour north of New York City, for a management institute. GE Crotonville, as it was known, became synonymous with excellence.
In 1981, Welch, a blunt Boston-born engineer, launched his own revolution. Jettisoning businesses and ripping up bureaucracy, he used Crotonville to drive change across a broad swath of the company. Welch became a fixture at the facility, preaching boundaryless behavior and obsessive efficiency (through embracing the canonical business management strategy known as Six Sigma) and drilling his managers on the fine points of their businesses.
Today, Crotonville still looms large inside GE. But its image in the wider world comes as much from the way Tina Fey and Alec Baldwin parody the place on 30 Rock. The world has changed, and GE hasn't, at least not very much. "They have a 20th century model for a 21st century world," says John Sullivan, a former chief talent officer for Agilent Technologies (A) who's now a professor of management at San Francisco State University. Sullivan has presented at Crotonville and found that people there seemed stifled by slow reaction times and an internal focus. Bucking the conventional wisdom, Sullivan says that in a flatter, networked world, companies ranging from Hewlett-Packard (HPQ) and Cisco (CSCO) to Best Buy (BBY) and Deloitte have become better innovators of talent than GE. Scott Belsky, a leadership strategist who founded Behance, which designs products and services for creative industries, concludes that "when it comes to being lean, mean, and productive, GE's processes are great. When it comes to being agile and innovative, these processes can become obstacles."
In interviews with more than 50 headhunters and consultants, questions about GE's centralized approach kept coming up. Some of the experts wanted to be quoted. Some did not, in part because they do business with GE. Many said they admire the company's efforts to get it right. "I think the topic of collaboration struck a chord," says Pino Audia, founder of the Center for Leadership at Dartmouth's Tuck School of Business, who spoke at one of Immelt's dinners. He was struck by how much the attendees "knew each other and knew about leadership....GE wants to be the leader here."
While by GE standards Immelt may be morphing into a change agent, he's not talking about blowing up cherished traditions. Crotonville remains the company Mecca. "There is no substitute," says Chief Learning Officer Peters, noting that a trip remains a sign that an executive is being groomed. For Immelt it's only a 45-minute drive from the office. ("I'm at Crotonville every week," he says.) Many of the other 9,000-plus participants in its leadership programs each year fly across the planet to get there. "GE is old-style but good," says Kentaro Iijima, a senior vice-president at Fujitsu Business Systems who was a guest at Crotonville several years ago. But the time commitment is difficult, he says, and "other styles of training have emerged." Iijima uses a team-oriented Web-based program called CoachingOurselves.
At GE, more time-intensive means more valuable. Consider Session C, GE's months-long performance review process. The cycle starts around the beginning of each year and ends with full-day visits to every business in April; Immelt is present at each one. There's a wrap-up in May, a review with board committees in June, a teleconference in August, and another meeting in November—at which point the exercise essentially starts again. One former HR executive at the company, who requested anonymity because he values his friendships at GE, recalls the process with dread. "It felt like your entire team was spending all of December and all of January on this, instead of focusing on the business and on customers," he says. "It was such a time suck." And despite all that energy, despite the famed ranking of GE's top and bottom 10% of performers, it was 2008 before the people in the middle started to learn where they stood relative to their peers. "We were in a 'don't ask, don't tell' environment," says Peters.
Immelt says the calamities of the past 18 months prompted him to pause. He wants to experiment with new approaches, accelerate the evolution of GE's processes, and make sure his team has the right tools to "look around corners." Current and former executives notice the effort he has made to forge stronger connections, and they say it's welcome. Whatever the rank-and-file thought of Welch, they never doubted his passion for his people. He knew their names, argued with them as equals, and could reach down several layers to find out what was going on. Immelt looks at the world through a different lens. He likes to test a range of ideas instead of settling on a few and spends much of his time reaching outside GE. Through his monthly dinners and biweekly sessions, though, he now feels he's "able to hit the top 175 people every year in virtually every setting." He has learned something about them. "One of the interesting things in having done this is that you discover—and I'm not sure if this is a good thing or a bad thing—that there really is a GE type. People have different backgrounds, but there is a type of person who tends to do best in the company." The hallmarks, in his words: overachiever, working-class roots, resilience, the ability to be challenged and to learn, a tendency to be self-reflective, and a desire to grow. All good stuff, he says, "but there's always this impediment of 'Why do we have to change if we're good?' "
Thus his openness to reversing the rule that GE employees can't serve on boards. "I want to make sure our leaders have every opportunity to get different inputs so we don't become too insular. It's a danger with every old, big company." Thus, too, an experiment with decentralizing operations in India so that employees there report to a country chief instead of to headquarters. "It's a place where I thought we underachieved. China, we get. We're big. China's big. We know who to talk to. I don't have problems there. India requires more nuance. From a market standpoint, we're not where we should be."
Immelt has always been "a believer that management ideas have almost no shelf life," he says. "By the time an idea gets thought of and in a book and broadly disseminated, it's already two years into a five-year life or a three-year life." Yes, he wants change. But he has come to appreciate all that is good about GE—the attention to nurturing excellence, the constant evolution as a company, the pride it takes and the investments it makes in producing leaders. He points to the processes that have saved the company, not the ones that may have impeded it. "This was the sixth-biggest financial services company in the world the day that Lehman Brothers went bankrupt. Guess what, guys? We're still standing. We didn't take TARP. Everybody has written about commercial real estate and stuff like that. We've taken our shots, many of them deserved. Who did GE Capital compete with? It wasn't JPMorgan (JPM) and Goldman Sachs (GS). It was CIT (CIT), AIG (AIG), GMAC."
Immelt knows that stereotypes die hard. He doesn't talk about cutting the bottom 10% or many of the other aphorisms that became famous under Welch. "Some of the conversation about GE is just street lore. It's just things that were written that aren't really true," he says. "It really speaks to what a backwards art management education is. I still hear 'Be No. 1 or No. 2 in your market.' Not even Jack was doing that past 1990. It's like 20 years old. C'mon. The statute of limitations is up."
EXPERTISE: GO DEEP OR GENERAL?
Immelt and his team aren't the only ones raising questions about how to build a better leader for the post-crisis world. Some of the other people on the hunt, however, question whether it is desirable to take top people out of their day jobs for weeks to teach them new skills. Should companies build deep expertise, as GE now prefers to do, or shape more general managers? Does it make sense to talk about a standard set of leadership traits? If GE begins to replicate its India experiment elsewhere or evolve into a collection of autonomous businesses, what's the value of being GE? "People need to see the value proposition of putting all this together," says leadership consultant Gary E. Hayes. "They need to understand what it means for their own careers and futures. What's the magic sauce?"
Consider the experience of one revered brand that hasn't had time to develop leadership programs: Google. For the past decade or so its philosophy has been what Director of Talent Management Judy Gilbert describes as "let's hire fantastic people, bring them in, and set them free." That works best when you're small and have the wind at your back. While there's a growing emphasis at Google on measuring and supporting talent, the company emphasizes peer feedback, two- or three-day leadership programs, and self-directed career planning. "We thought about Crotonville, but we didn't want the formalness of it, the separateness," says Gilbert. As for GE's reputation for ousting the lowest 10% of performers: "When you're killing yourself to hire the right people, it doesn't make sense to cull." And Session C? Gilbert has never heard of it.
Her boss has. Laszlo Bock, Google's vice-president for people operations, was hired in 2006 from GE, where he was a vice-president for human resources at GE Capital Solutions. Google, he thinks, is more flexible about managing talent. "To have a monolithic view of leadership sets you up for a lot of problems," he says. Google's approach precludes setting up what he calls a "big, corporate, top-down, university model of training" because it's "too static." It also precludes identifying too many common traits. When his team at Google tried to put some together, they quickly amassed more than 40. "Having the right balance of generalists and specialists is important," Bock argues. "Some leaders excel technically, and some stand out because they're innovative, creative thinkers. What you need is a portfolio of people with widely varying skill sets."
John Lynch, GE's senior vice-president for corporate human resources, agrees. "Is there anything general anymore?" he asks. He believes the beauty of GE's system is that it can be adapted to a rapidly shifting environment. GE measures people on five "growth traits"—external focus, clear thinking, imagination, inclusiveness, and expertise—that are broad enough to allow for wide interpretation. The current push is meant to enhance those traits with more contemporary thinking. "Everything we do drives change," Peters says. "The focus is relentless, and it's a constant evolution." Under Welch, for example, the prized skills were cost-cutting, efficiency, and dealmaking. Then Immelt came in, calling for risk-taking, customer focus, and innovation. Now, Immelt says he's leaning toward "more networking, more managing in volatility...more orientation toward not just the person, but how the person works within a team." Some readers might think, well, that could mean anything. Maybe it means a blossoming of employee blogs and Twitter accounts. Maybe it takes Immelt in the direction of HCL Technologies, a global IT company, where CEO Vineet Nayar encourages every employee to evaluate the performance of any manager who influences his or her work—including Nayar's—with all the results posted online. "Opening wide the window of transparency not only builds knowledge, it creates trust," says Nayar. "Suddenly, there are far fewer rumors flying around." He views fresh voices as critical because "corporate deterioration happens very slowly" and few in the upper ranks notice it until things are off track. His philosophy: Put employees ahead of customers and "destroy" the office of the CEO by reversing accountability and shifting responsibility for change to the employees.
If that sounds radical, consider IBM. (IBM) Like GE, it is old—dating back a century—and big. But it's nimble and transparent as well. While GE posts vignettes of selected employees on its Web site, IBM offers a full 400,000-employee directory. It has been an innovator in connecting its people via an internal social network where workers post photos, CVs, and a list of professional skills. That's used by management to fill leadership roles and is part of a system that serves as a "career GPS" for every employee. About 60,000 of the staff are seen as people with high potential to take on leadership roles, according to Ted Hoff, a vice-president who leads IBM's Center for Learning and Development. Because the business is globally decentralized, those leaders can work in hundreds of roles, industries, and specialties without having to move. Where someone is based often matters less in forming teams than their skills. But IBM also sends thousands of people on short-term global assignments every year. While it offers classroom training, the company increasingly favors social networks, Hoff says, and "any other tools that enable peer-to-peer learning." The result of such virtual learning, argues Josh Bersin of research and talent advisory firm Bersin & Associates, is that "companies like IBM and Cisco have become outstandingly nimble globally."
Who is the pioneer of peer-to-peer learning, or what executive coach and author Daisy Wademan Dowling calls the "leaders teaching leaders" model? A company called GE. The main difference at GE is that much of the peer-to-peer learning takes place in front of an audience at Crotonville, now known as the John F. Welch Leadership Development Center. Dowling is a fan of the 53-acre campus, noting that "it makes a gigantic company tiny." The problem is time. "I have difficulty imagining being offline for three weeks," she says.
So far, Immelt's period of reflection has only reinforced his conviction that GE has the tools it needs. He sees Crotonville, Session C, and all the old HR structures as "the melting pot. It's what goes on inside those processes that needs to be updated."