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What Is General Electric? Part 2

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The company's leadership and their choices have kept investors away.

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Editor's Note: This is Part 2 of a two-part series. Click here to read Part 1.

When Focus Was King

One hundred thirty years ago, General Electric's (GE) vision was considerably clearer; not only did GE know who it was, but so did their stockholders, and the world. I may be skipping some meaningful and important details, but the gist of it was Thomas Edison had invented the light bulb and built an impressive array of businesses and consolidated their structure, while merging with some others. GE was in the lighting business. Practically nobody's impression of GE was ambiguous then, inside or outside the company.

GE formed RCA at the outset of the Roaring Twenties. The focus was radio technology. That business led off the long and storied path to today's NBC Universal.

Power generation and jet engines came along on the eve of World War II.

During the 1960s, GE ranked consistently among the topmost players in computer technology as "big iron" ruled the day and grew like Topsy. The large and small appliance business was also exploding, emergent hand in hand with the postwar housing boom. Ask your parents or grandparents what a train ride past the company's then-Schenectady, New York headquarters was like back in those days. I can personally attest to the fact that the trademark sign that lit up the night sky like a permanent fireworks display conveyed the indelible feeling that America's industrial might was peerless -- as memorably as long-gone New York Central's coffee guaranteed indigestion.
In those days, GE's mission was defined by what it did.

Then Came Jack Welch

All that changed during the tenure of Jack Welch, who joined the company in 1960 as a junior engineer in Pittsfield, Massachusetts, a young buck who literally blew the roof off the factory soon thereafter and was allegedly nearly fired for it, a remarkable metaphor for what more gradually followed in years to come. Welch was named a vice president in 1972, having contemplated years prior to that leaving the company, dissatisfied with his modest salary. He succeeded the legendary Reg Jones as CEO in 1981 and by the following year had completely reformulated the company's strategic direction. The Welch philosophy revolved around the challenges of growth in stagnant economic conditions and his conviction that growing shareholder value is not an end in itself but rather the consequence of being dominant or near-dominant in whatever business segments selected for entry and development. That is to say, it isn't what you do that counts so much as "being number one or number two." Win or place (show's not good enough), "or get rid of it."

Welch's transformation of GE completely changed the company's culture too. In addition to the radical abandonment of the wisdom of "you can't know what you're good for if you don't know who you are" in favor of The Church of Whatever Works, the most negative depictions of the culture inspired by Welch contend it fostered supersized egos and blatant and slapdash ladder-climbing.

Rewarded were the careers of those who subscribed to growth by acquisition rather than organically, while also inexorably pulling the company away from labor-intensive manufacturing and industrial turfs, however gigantic, and toward the alluring dimensions of finance and the sugar plum of enormous expansion propelled by the inherent nature of a capital-intensive enterprise's fixed overhead declining as a percentage of overall booming revenue accretion: scale, sales, and margin bang. Jack Welch thus also transformed himself from engineer to financial and strategic engineer, forever changing not only Jack Welch and GE, but how managers everywhere think. It was an extremely successful strategy for a long time. And during all this, and even to some extent still today, now nearly a decade since Welch's departure, GE is still organized and viewed as an industrial titan, a residual and generally misleading frontispiece hanging over the door of a mostly financial organization saying as much about America -- and what Americans can be persuaded is true and real -- as it does about this single and still enormous corporation. GE now faces a very long row still to hoe regarding problematic financial and other assets still on the books in the wake of the housing/financial de-bubbling.

Whither NBC Universal/Comcast

Welch's successor Jeffrey Immelt inherited all this 10 years ago before anyone realized it was even a minor problem, while Jack Welch was still enjoying the reputation of perhaps the most vaunted CEO in history. Immelt took the reins of GE exactly four days prior to the 9/11 attacks that brought down the World Trade Center, trashed the Pentagon, and turned the world upside-down. I would hardly be surprised if Immelt feels more challenged today than he did at that ominous initiation in his status as GE's man in charge. Along the way he's even taken highly publicized pot shots from Welch for misguiding sell-side analysts, and more recently he's suffered the ignominy of falling short of his own pronouncements on the amount of business he predicted GE would be doing in China by now. I have a not inconsiderable empathy for Immelt, because I believe he's doing his level best to navigate a giant Leviathan, and that up on that ship's great bridge is an assortment of instruments he's attempting to read that are broken and/or faulty, others that emit voluminous streams of perfectly useless data, and all the while he's also attempting to lead a crew with one eye on its respective battle stations, the other on the life rafts. But mostly, he thinks like the protégé of Jack Welch that he is, despite the changes he's made.

By some reports, a billion dollars has already been spent on lawyers and finance professionals assembling the NBC Universal assets for Comcast (CMCSA). It's a deal fraught with peril. Legion organizational gears and workings and grandiose personalities abound at every turn. There are massive legal and regulatory obstacles, including but not limited to vertical integration implications and market concentrations by way of the resulting entity that will have Comcast on both sides of the content and pipeline aspects (not that that is necessarily a new phenomenon in the ever-evolving and increasingly complex world of communications and entertainment).

Just to get started GE had to recapture a minority stake held by Vivendi in order to deliver Comcast's share in one piece, a major feat all by itself. Top NBC executives are still in considerable doubt as to who will remain once the transaction is completed.

Culturally and business-wise, a lengthy history of non-Hollywood types getting into such things as movie-making and television paints a bleak picture as well.

Over the past 30 years everyone from Coca-Cola (KO) to Sony (SNE) to Joseph E. Seagram & Sons has voyaged romantically onto the strange planet known as movie/TV properties. The record of success is dismal.

The reasons behind consistent failure are entwined in the nature of any creative endeavor, which is not a business at all. Businesses run by predictable measurements. If you haul coal on a railroad you can predict the demand, the level of mining necessary to satisfy that demand, the number of coal cars hauled to transport it -- eventually coming up with revenue, cost, and other forecasts.

The "business" of paying writers, directors, producers, and actors to come up with hits is not predictable at all. It's a little less predictable than the racetrack. At least a racehorse has a database of established odds. Comcast CEO Brian Roberts is by most accounts an agreeable man who vaulted to the top of the Roberts/Brodsky cable empire by proving himself a good businessman in a predictable enterprise that had already passed into the predictable profitability phase when he arrived.

Practically no banker or M&A maven will ever deny the almost unconquerable power of seduction. The business idea of an integrated cable provider's amalgamation with a major producer/distributor of programming for network, cable, and movies is very appealing on paper. It even hedges the bet on cable as a distribution means because it enticingly seems to round out the emerging market for broadband distribution as well.

While Comcast has huge resources, it is playing a dangerous game. Here are three basic pitfalls as I see it:

The first is that the ability to create popular programming is a gamble no one can predict. Many Hollywood moguls have built their careers believing and claiming they could generate winners only to see their brain children crash and burn five years later. They -- and their backers -- learned the hard way that what you're really buying is the success of the past with no indication of the future.

And in NBC Universal's case, that past is a volatile one. Though, as The Wall Street Journal reports, Comcast is bringing on some snazzy, reputable new management.

Second, the "programming" of tomorrow may, and likely will, be very different, and not necessarily fettered by the gatekeepers of distribution and investment that have always controlled the programming of eras past. The next Orson Welles may prefer to do it himself, on his own broadband outlet, as many musicians have already done.

Third, success tends to reflect on the producer; failure on the owner. When Coca-Cola owned Columbia Pictures, every hit was a Columbia hit; every bomb was a Coca-Cola bomb. Coke sold the company to Sony, who immediately hired out to Hollywood con artists to run it. They ran Sony's investment into the ground along with its stock and its leadership. Sir Howard Stringer was brought in because his reputation and aura were perceived large and powerful enough to counter the business injury that had been done. Irrespective of those fine capabilities, and many others, Great Expectations nevertheless degraded into Damage Control.

The Latest

Company Town house organ Hollywood Reporter carries this recent dispatch:

Jeff Gaspin will be departing NBC Universal in the reshuffling arising from the pending merger with cable giant Comcast, according to sources.

Gaspin is a longtime NBC Uni executive who has served as chairman of NBC Universal Television Entertainment since July 2009.

Gaspin had been in Washington on Tuesday evening to watch Tina Fey receive the Mark Twain Prize for Humor at the Kennedy Center. On Wednesday morning sources said he met with executives in New York and was then returning to Los Angeles. He later declined comment.

Sources expect a reorganization at NBC Uni to be announced next week. They say CBS executive Nancy Tellem passed on the opportunity to take a major role at the company because Robert Greenblatt, expected to take a major role at the company, declined to report to her.

Comcast and NBC Uni declined to comment.


Could it ever be more appropriate to advise, "stay tuned?!"

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No positions in stocks mentioned.

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