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Bloomberg Businessweek (March 25, 2024)

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Год выпуска: March 25, 2024

Автор: Bloomberg Businessweek

Жанр: Бизнес

Издательство: «Bloomberg Businessweek»

Формат: PDF (журнал на английском языке)

Качество: OCR

Количество страниц: 64

Dismantling An Icon

General Electric’s leaders explain why three companies are better than one

Big sheets of white paper line the perimeter of a meeting room at the General Electric Co. factory in Beavercreek, Ohio. Each sheet is scribbled on with markers and covered with neon Post-it notes outlining the steps needed to produce the tubes and ducts that will eventually be assembled into a jet engine.

The vibe is more elementary school science fair than American industrial icon. But the simplicity is the point. Determining the layout for the Beavercreek facility was tricky: The revamped plant opened last year, combining components of production that had previously been spread out across eight different sites. To figure out the best setup, plant leaders built a replica of furnaces, tube benders and welding booths out of cardboard boxes. That visual, along with the Post-it notes describing production steps such as “brazing,” “bending” and “trimming,” makes it easier to identify and root out manufacturing inefficiencies. The exercise also helps show visiting GE executives how the whole thing works.

About 250 managers from around the world have gathered here in the Cincinnati area, which will be the headquarters of GE Aerospace once the conglomerate completes its slow-moving breakup in early April. One stated goal of the executive retreat is to set a culture for the soon-to-be-standalone company. “Culture can’t be declared,” says Farah Borges, who oversees GE Aerospace’s assembly, test and maintenance operations. “You have to build it.” Some declaring is still apparently necessary, because the team spent the previous day at an event space a few miles away doing just that.

But under Chief Executive Officer Larry Culp, no leadership confab is complete without a gemba walk. Gemba in Japanese means “actual place,” as in the actual place where a product is made. It’s essentially a tour of operations with a heavy emphasis on Q&A with the factory staff. The practice is central to lean manufacturing, an influential operations philosophy developed by Toyota Motor Corp. that Culp has championed at GE.

Factory floor visits aren’t a radical idea for an industrial company, but GE didn’t always do them this way. The company used to place more emphasis on polishing a PowerPoint presentation than on drilling into the details of manufacturing workflows, says Russell Stokes, the head of commercial jet engines and services, who’s been at GE for more than 25 years. Somewhere between the wrong-way financial bets that blew up in the 2008 economic crisis and a huge, disastrous acquisition of energy assets from Alstom SA in 2015, GE, with its persistent mindset that anyone with an MBA could run any business, forgot that it’s a manufacturer at heart.

When Culp became CEO in 2018, GE was far too big and complicated for its own good, and the company’s businesses weren’t bringing in enough money to support its sky-high debts. “We were at risk of not making payroll, in a manner of speaking,” he says. He managed to pay down more than $100 billion of the debt through a series of well-timed divestitures. He dismantled GE Capital, its investment arm, largely untangling the company from a financial albatross. And then, in 2021, he announced that GE— the quintessential American conglomerate, which at one point or another sold washing machines, credit cards, plastic resins and TV advertising slots for NBC’s Super Bowl broadcasts—was breaking up. None of those efforts would’ve been as successful, and perhaps wouldn’t have even been possible, if Culp hadn’t tightened up GE’s operations and turned key businesses into stable, cash-generating entities that could stand on their own.

Today, GE’s stock is near a seven-year high. GE HealthCare Technologies Inc., which split off in 2023, is up about 50% from its debut. The final piece is the electric-grid, gas-power and windturbine business, which will become its own standalone company called GE Vernova on April 2.

In one sense, Culp is restoring GE to its original identity as a maker of stuff. But he’s also the guy dismantling a monument to American capitalism. From its inception as an outlet for Thomas Edison to commercialize the lightbulb through the era of rapid globalization embodied by Jack Welch, GE practically swallowed entire industries. It loaned planes to companies and money to real estate developers; for a time it even owned a large chunk of Dreyer’s Grand Ice Cream. Most of that is gone now. Culp divested the aircraft leasing arm, biopharmaceutical assets and the remnants of GE’s oil and gas operations and saw through sales of its locomotive and lightbulb units. Even the GE name is on loan. GE appliances are made and sold by China’s Haier Smart Home Co. The new GE will just be a manufacturer of jet engines, essentially, with a few random money pits left over from the old conglomerate, like insurance for elder care and a Polish mortgage business. “We constantly debated what the right structure was,” says Ed Garden, a GE board member since 2017. “But the first order of business was fixing the underlying businesses.”

On the gemba walk, Culp and his aerospace deputies stop to meet with the plant’s lean manufacturing leader, Cem Salahifar, who launches into an overview of the factory’s operations. He describes the facility’s transition from a single, giant furnace—known in manufacturing parlance as a monument—to a bunch of smaller ones spread out around the factory floor. This eliminates the need for employees to shuttle components back and forth and stand around waiting for the heating process to complete. Turnaround times for this part of the production process dropped to 30 minutes from four hours. Culp interjects: The team should appreciate how meaningful this change was, he says, for improving efficiency. He then asks them to find ways to rethink the monuments in their own factories. “We like to tear down monuments,” Culp says.

To be CEO of GE is to be compared with the late Jack Welch. For most of his two-decade reign, Welch made the company bigger, more valuable and more profitable. But the sun began to set on the age of the conglomerate by the time he retired in 2001, and soon other industrial giants were breaking up. Post-Welch CEOs at GE found themselves trying to explain why it made sense to be big for the sake of being big. Jeff Immelt, Welch’s handpicked successor, talked up the benefits of the “GE Store,” a shared repository of technological tools that the whole company could pull off the shelf. In reality, there was no good reason why one company needed to sell MRI machines, jet engines and wind turbines. Even worse, GE’s voluminous sprawl left too many places for problems to hide.

One of the biggest problems was GE Capital, which helped fuel stock growth during the Welch years but proved to be a time bomb. GE had loaded up on debt to support its ventures in corporate lending, real estate, credit cards, mortgages and insurance. When the economic crisis arrived in 2008, GE Capital had more than $500 billion in assets and almost as much debt, which made it the largest financial company in the US that wasn’t technically a bank. As customers worldwide defaulted on loan payments and investors lost their appetite for risk, GE turned to Warren Buffett and the federal government for financial support. Immelt cut GE’s dividend for the first time since the Great Depression. He later sold off huge chunks of GE Capital, but it continued to haunt his successor, John Flannery, who in 2018 disclosed a $15 billion hole in a long-term-care insurance business Immelt had been unable to fully get rid of. The timing couldn’t have been worse: Flannery had cut the dividend two months earlier, to some shareholders’ dismay, and with the gas-power business in a slump and fewer GE Capital assets, there just wasn’t enough money from its operations to keep handing out such generous payments to investors...

GE Becomes Three

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  • The US dollar is a superpower facing fresh threats
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