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Innovation Inc.

By Stuart Crainer and Des Dearlove

In a world fixated on growth and expansion, it is easy to forget that companies — no matter their size or seeming impregnability — routinely close their doors, or have them forcibly closed, for the final time. Think of Lehman Brothers, Enron, Andersen, WorldCom, Barings, Digital, PanAm and many thousands of others.  A while ago we took a look and found that, in a typical four weeks, eight public companies with assets of more than $1 billion filed for bankruptcy in the United States.

As the names and numbers above demonstrate, long-term corporate survival isn’t easy. Some die relatively young; others linger, drifting hopelessly into old age — witness General Motors. Only a handful of companies are robust enough to renew themselves and survive over a century.

Among the chosen few is General Electric (GE). In 1878, Thomas Alva Edison set up the Edison Electric Light Company. The company evolved into the Edison General Electric Company and, in 1892, merged with Thomson-Houston Electric Company to form the General Electric Company. In 1896, when the Dow Jones Industrial Index was launched, General Electric was listed. It is the only one of the original companies still listed.

Now more than 120 years old, the American titan is a truly global corporation, one of the world’s most successful and innovative companies, a benchmark. But what are the secrets of GE’s longevity? And can its recipe for survival be maintained in the face of apparently dwindling American economic power and truly global competition?

The current GE CEO, Jeff Immelt, took over just days before 9/11, which had a substantial impact on GE due to its involvement in the insurance industry. Immelt has pursued a less media-attractive route than his predecessor, the legendary Jack Welch. He doesn’t have Welch’s way with a slogan. GE has continued to rack up comparatively impressive results with limited fanfare.

Five key themes link the past with the present and future as Immelt maps it out:

Pragmatism: You don’t survive over a century without a hefty dose of pragmatism. Contemplating the state of the world’s economies, Immelt reflects with a shoulder shrug, “CEOs aren’t economists. Cycles happen. There are always times like these. You’re going to go through an economic cycle every 10 years. Every 50 years you get a permanent reset. We have to be pragmatic.”

In the past, GE has proved adept at changing with the times. As financial services mushroomed in the 1980s and 1990s, GE Capital became a major financial services player. As the world has globalized, GE has led the way. “Globalization has been reordered,” says Immelt, contemplating the economic travails of the world. “But we are a global company. We segment countries — such as Canada — that are deep in resources. They have strategies which fit our view of the future.” GE’s thinking about innovation and globalization is constantly being refined. Immelt brought in VG Govindarajan from Dartmouth’s Tuck Business School to act as the innovation expert in residence.  “One of the interesting things in CEO succession in GE is that each CEO changes the strategic frame of the company in light of the emerging market conditions,” says Govindarajan. “Reginald Jones, for instance, introduced portfolio planning while Jack Welch emphasized themes like Six Sigma and shift from products to services. Jeff Immelt’s legacy will be judged by how well he has embedded innovation culture in a company well known for performance culture.”

Constant renewal: A pragmatic world view means that GE has proved adept at renewing and reinventing itself. It has followed the money. Immelt points to the fact that GE is launching more products than ever in its history as evidence of its appetite for change and renewal. It knows that sitting still is the sure way to being steamrolled.

Says VJ Govindarajan: “I think that is one of the remarkable things about General Electric. It’s a company that’s more than a hundred years old, and the only way you can survive that long is if you make yourself obsolete in terms of products and solutions. And this is the real hallmark of GE: that it’s willing to change; it’s willing to embrace new ways of competing.”

Watching Immelt talk, there is a sense of confidence and competence, rather than the heady scent of ego transmitted by many CEOs on the world stage. “Running GE is a full-time job. I have had five days off in nine months,” he admits. “You need to be comfortable with yourself and being criticized. My advice to people is to do what you like. The thing I love about GE is that we’re going to have a front seat in history whether it’s in China or elsewhere.” Immelt is sitting comfortably but not complacently. He describes himself as optimistic but anxious about the future. “We have a platform for real change and I am convinced GE will emerge as a better company.”

Common sense: Another reason behind GE’s success is that it has been built around a simple, common-sense culture. Nothing fancy has distracted it. No thrills. Nothing too smart. “Sure we have good people, but we were all taken from the same pool as the people of all other companies, and yet I think we have something unique,” ex-CEO Fred Borch said in 1965. “And our uniqueness, I think, is due to this matter of climate; respect for one another and working at our jobs to have as much darn fun out of it as we possibly can.”

Immelt is calmness personified and places a premium on simple but powerful messages. “Companies and countries have to look at their own capabilities. We want to be good at making things. At times we have outsourced too much. If you ever hope to be a long-term player in India and China, your supply chain there has to compete.”

Talent cultivation: Keeping it simple means that GE goes through CEOs at a far slower rate than its rivals. GE is rarely on the phone to headhunters, having long recognized that it is better and cheaper to nurture talent and promote from within. It is significant that GE executives are enthusiastically courted by other companies. (Their success or otherwise away from GE is another matter — compare and contrast the fortunes of former GE stars Bob Nardelli at Home Depot and Jim McNerney at Boeing.)

“We need entrepreneurs who are willing to take well-considered business risks — and at the same time know how to work in harmony with a larger business entity,” said former GE CEO Reg Jones. “The intellectual requirements are light-years beyond the requirements of less complex organizations.”

Arie de Geus has examined the secrets of corporate longevity. Key to de Geus’s argument is that there is more to companies — and to longevity — than mere money making. “The dichotomy between profits and longevity is false,” he says. His logic is impeccably straightforward. Capital is no longer king; the skills, capabilities and knowledge of people are. The corollary from this is that “a successful company is one that can learn effectively”. Learning is tomorrow’s capital. In de Geus’ eyes, learning means being prepared to accept continuous change.

Jack Welch famously championed the company’s Crotonville training center and, under Immelt, GE invests $1 billion a year in training. “There are going to be different skill sets — rapid adaptability, leaders who know how to connect to partners and stakeholders, people who embrace uncertainty and mobilize everyone — and companies like GE have to be more decentralized,” says Immelt. “Business is going to have to be more personal, transparent and open, and these are going to be characteristics of twenty-first century leadership.” Somewhere in GE, the next Welch or Immelt is being nurtured.

Strong future focus: GE has proved adept at managing the nitty gritty of its day-to-day activities in a highly efficient way while keeping an alert corporate eye on the long term. “We keep executing on our long-term strategy,” says Immelt. “There are important issues where business has to engage — such as energy policy — it is better to engage rather than assuming the status quo will carry on. Every company has to have in mind the seismic themes that will shape it in our time. Affordable health care and clean energy are two seismic themes for the twenty-first century. We always want simple views and points of view on the future. We have to be part of it or we will be left behind. Every management team and board must have a real point of view on the next 10 or 20 years.”

Resources

Arie P. De Geus, The Living Company, Harvard Business School Press, 1997.

Richard Tanner Pascale, Managing on the Edge: How the Smartest Companies Use Conflict to Stay Ahead, Penguin, 1991.

Jim Collins and Jerry I. Porras, Built to Last, Random House, 2005.

Noel M. Tichy and Stratford Sherman, Control Your Destiny or Someone Else Will, HarperCollins, 1996.

This was originally published in What we mean when we talk about innovation by Stuart Crainer and Des Dearlove (Infinite Ideas, 2016).

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