Web Exclusive/Magazine Extra | Dec 16, 2009 | 13067 views

"GE is flat-footed, not knowledgeable and missing what the local market needs"

Forbes India talked to James Schrager about what drives GE, Jeff Immelt and GEs management strategy.
Forbes India talked to James Schrager about what drives GE, Jeff Immelt and GEs management strategy.
James Schrager believes GE is late to the party in India

James Schrager, Clinical Professor of Entrepreneurship and Strategic Management at University of Chicago’s Booth School of Business, has been a GE watcher for a long time. He believes that GE is late to the party in India.

How do you view the current set of changes at GE? What do you think is the trigger?

The trigger is the same one that’s always driven GE. One simple word: Growth. Jeff Immelt [chairman and chief executive] has figured out that GE is not really known for its brilliant innovation. It’s known for being a good player but not really for leading the pack very much. GE has a much better profile when they are either in a growing industry such as the jet engine industry or a growing economy. India is still a very small part of GE’s business right now. When you think about growth that Immelt worries about, India is a very vibrant rapidly growing economy. He rightly says when GE is sitting in a good place, good things happen.

But if you go a level deeper and think of it from Immelt’s point of view and say which of my decisions will give me some really nice growth in India? The nuclear plant business in India, for instance — those are big jobs over a long period of time. That’s real GE gravy. India is growing, India is vibrant. It seems like a really good play. This is just plain old blocking and tackling.

The second piece is that disruption play is corporate jujitsu — you take your opponent’s strength and turn it into your advantage. Immelt took a page out of the classic strategy book and said if I am being invaded, let me go back to the source of the invasion and see if we can team up or beat the invader. GE’s medical products, for instance, are being invaded by low cost alternatives. India has this incredible ability to do something so let’s go there and let’s be the disruptor rather than have our own medical business disrupted.

Jack Welch made one very powerful change in GE – which is to have as small a corporate office as possible. Presidents of divisions run their business with as little innovation from corporate as possible. There are two basic ways to run a company like this. One is to have a set of independent businesses that report straight to the top. The other is called matrix management where a local company president has two or more bosses. So there is a line boss – maybe the president of GE or someone very near the top. And then we have the boss for marketing, the boss for engineering, etc. That’s the matrix system wherein one company president has to serve many masters. It was in GE before Welch got there. Welch said jet engines are its own business and they don’t need a corporate executive for marketing, or a corporate executive for engineering. That president has to run it all. One of the innovations that powered GE during the Welch era was this.

The last thing is a senior vice president in charge of India to whom all Indian businesses will report. When we take that apart we have GE Healthcare in India, GE nuclear power plants in India. There is already a president of GE Healthcare which is headquartered in Europe. Adding a senior VP for India who will have some power over India, goes back to matrix management. I don’t think it kicks one of the pillars of the old Welch idea but it certainly is an impediment.

What you are saying is that during the Welch time there was this vertical structure, and right now it’s more a matrix structure. Is this better?

Both ways can work but GE worked with having the vertical structure, knocking away the horizontal structure. I can’t give you a 100 percent prediction that this won’t work but I can tell you that we are taking away something that was central to the ongoing success of GE in the Welch era and we are replacing it. I would highly question it and watch it carefully.

GE Capital, the big engine driver, is being downscaled. What kind of impact will it have on growth and a market like India?

Everyone has said that the big dirty little secret of GE is that it lives and dies on GE Capital. As GE Capital goes, so goes the company. The second thing is the slower growth, particularly in the US. And particularly with the latest government action, the concern about continued slow growth, continued high unemployment, it is extremely difficult when you have a huge growth agenda to be stuck in a country that is not growing. The only way you grow is when you go out and buy firms – and that is not happening right now. The other way is to be extremely innovative with great new products. And GE doesn’t play out in any of those fields anymore.

This article appeared in the Forbes India magazine issue of 18 December, 2009
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