September 25 – A little over a year ago, Jeff Immelt (MBA ’82A) inherited one of the toughest jobs in corporate America. Succeeding the much-lauded Jack Welch, Immelt took over the helm of General Electric (GE) just a few days before the September 11 terrorist attacks.
In front of a capacity crowd in Burden Auditorium, Immelt outlined his views on the near term economy and GE’s future prospects. “It’s tough out there,” he began, “we are entering a world of slow growth.”
Overcapacity and the resultant lack of capital expenditure is the main reason why most industries are currently in a recession. Specific industries such as insurance and commercial aviation are hurting particularly badly. “Over the next two to three years, we’re looking at GDP growth of around 2 per cent in the US and Europe,” Immelt continued, “we’re facing a world of deflation in which pricing is going to be brutal.”
However, there are still growth opportunities. Healthcare is forecast to comprise 20 per cent of US GDP by 2010. China is capable of 7 per cent GDP growth (excluding exports). The security industry will experience robust expansion. Managing infrastructure investment (water, energy, railroads) will continue to be a key concern for developing and developed countries alike. “Don’t miss these opportunities,” advised Immelt.
Shifting his focus to GE’s prospects, Immelt started by emphasizing how tough times call for good management. “We’ve had difficult decisions to make, investing in sales people, cutting back office costs … it’s a good time to have money though, there are opportunities to acquire cheap assets.”
According to Immelt, four qualities define a good company: business model, performance capability, ability to see change, and a company’s culture.
On GE’s business model, Immelt likes “70 per cent” of the current portfolio. “In the long term, [GE] will have half of its business in long cycle industries, 40 per cent in GE Capital, and 10 per cent in short cycle technology industries.” The company will continue to focus on growth overseas, identifying China and Europe as priorities. “In Europe we only have half the market share we have in the US,” Immelt remarked.
GE pays on the basis of performance to attract the best people. “We believe in stock options, which we expense … I hold six times my salary in GE stock … I don’t have a contract, and am only as good as my last board meeting,” continued Immelt. He lambasted the “star culture” present at some companies that allows “one person to stand apart from the company’s culture.” Immelt pointed to the existence of “stars” at each of the companies recently embroiled in scandals.
Succeeding Jack Welch was a tall order. “Jack was recognized by many as the best CEO of the last century … we’re only two years into this century, so I may never get there,” Immelt wryly observed. However, the current economic environment calls for a different leadership style, and greater board involvement. “Jack’s leadership style would not get us there,” said Immelt. The selection of Welch’s successor was “more public than I would have liked,” he admitted, “the worst part was when we were told individually that if we didn’t get the job we would have to leave [GE].”
In response to a question on GE’s attitude towards hiring Harvard MBAs, Immelt maintained “the day you join GE, you have to forget where you went to school … I review 5,000-6,000 resumes each year, I never focus on where the candidate went to school.” That being said, GE would “be crazy” not to recruit at HBS. In the last decade, GE found it hard to recruit from the school. “When we kept getting turned down for Goldman Sachs, McKinsey, and dot.coms, that hurt,” Immelt joked.