General Electric may be known as the “House that Jack Built,” but give credit where Chairman and CEO John F. Welch, Jr. often says credit is due: to the dozen hard-charging executives who lead this global giant’s 12 divisions. Welch demurs that he is but a player-coach. He’ll occasionally juggle the lineup-as the shifts this August attest-but generally crafts a game plan for his best athletes and leaves the playing field to their day-to-day management talents.
Were the GE 12 not part of a huge, $80 billion conglomerate, their multibillion-dollar businesses would stand alone as Fortune 500 companies. Several former GE 12ers have already left for an independent stage, including Lawrence Bossidy to Allied-Signal and, more recently, John Trani to StanleyWorks. Yet running a business within GE is uniquely demanding, for it requires cooperation and communication not just with employees and directors, but with 11 other talented leaders. Without teamwork and best-practice sharing, GE could not be the nimble giant it is, a company that Welch described in the 1995 annual report as “intent on getting bigger, not smaller-a company whose only answer to the trendy question-‘What do you intend to spin off?’-is ‘cash-and lots of it.”
The other side of camaraderie is competition. Much of Welch’s success lies in his ability to balance these two distinct motivations, both in himself and in his employees. He runs GE with the same hardscrabble edge he developed as a boy in the industrial city of Salem, MA, where he and other kids in his working-class neighborhood would scrape through makeshift basketball and ice hockey games in a dusty gravel pit they called simply “the Pit.” Welch was a leader and negotiator then, and he expects his team now to handle the ball-not hog it-under any conditions.
Once a quarter, the GE 12 convene with the CEO and other high-ranking officials at the Corporate Executive Council, or CEC, which Welch created in 1986 as a kind of democratic forum to air crucial company concerns. They meet at GE’s Crotonville management training center in Croton-on Hudson, NY, about an hour’s drive from corporate headquarters in Fairfield, CT. For two days, this bucolic, 52-acre retreat becomes GE Central Command, a place for the no-holds-barred debate Welch calls “constructive conflict.” None-too-subtly, the CEC is Welch’s incarnation of those boyhood days in the Pit, with nowhere to hide, no room to sidestep. You play aboveboard or not at all.
These division CEOs are 12 angling men, casting their lines to reel in market share, lead innovations, speed internal growth, and widen profit margins-as well as fish for the favor of the top brass. Yet each has a genuine interest in seeing the parent company and by extension, each other-prosper. If they didn’t, they might have a bright future-but not at GE.
“These guys basically have the right stuff,” says Prudential Securities analyst Nicholas Heymann. “They’re inspirational.” They’d better be. The 12 are instrumental in GE’s tremendous push into services and, most importantly, to 6 Sigma qualityWelch’s boldest attempt yet to redefine GE’s core. GE currently operates at about 3.5 Sigma, or roughly 35,000 defects per million. Six Sigma is 10,000 times fewer defects, or about 3.5 per million. Welch wants GE at this highest level of quality by 2000. This demanding, process-oriented stretch goal essentially determines what the customer wants, where a division stands in relation, and-through rigorous training-how to deliver customer satisfaction by eliminating mistakes-whether it’s a disconnected air hose or an overcharged bill. It’s an enormous challenge that, if successful, could bring big cost-savings and boost customer demand. “The edge [6 Sigma] will add to the competitiveness of an already awesome array of world-leading businesses and will change every game in which we play,” Welch told shareholders at this year’s annual meeting.
These are the new rules by which the GE 12 will govern. They are in a wider spotlight now, their decisions, direction-and directness-carefully monitored not just within GE but also by a swelling chorus of GE-watchers. These executives-most in their 40s-are ushering GE into the next century. One is likely-but by no means certain-to get Welch’s job if the CEO retires as expected in 2000, capping a 20-year tenure at the top.
The GE that most of these 12 know-the culture in which they have thrived-is Welch’s GE. Attaining 6 Sigma can contribute to a flawless handoff, where GE doesn’t even break stride between leaders. That baton is certainly within reach. Welch has woven his expansive, elastic approach to how GE sees the world-and how the world sees GE-into the very framework of the company. Indeed, Noel Tichy, who teaches organizational behavior at the University of Michigan and has written The Leadership Engine, a forthcoming book that profiles Welch and other GE leaders, contends that Welch’s winning ways will remain at GE long after the CEO. Notes Tichy, “Jack could be run over by a beer truck and a lot of it would continue.”
While every move Welch makes-including the recent shuffling of several GE leaders-generates a fury of succession speculation, Tichy is dismissive of attempts to read every tea leaf. “It is still pre-season,” he adds. “He will be trying different players in different positions, and my opinion is that the final varsity cut will not be made until Jack is a lot closer to stepping down.”
Still, no transition will be letter-perfect. It’s likely that several of those leaders who don’t get the top post will then move on. “When the decision’s made on who takes Jack’s job, you’ll start seeing some of them go,” Tichy predicts. “There isn’t one head of a GE business that doesn’t have headhunters calling constantly. If they’re under 54 give or take a year-it wouldn’t surprise me if they decide to cash in on these opportunities.”
That would shake-up GE and corporate America-in a positive way. An investor could do worse than construct a portfolio of companies with former GE executives at the helm. GE has always been something of an elite corporate academy, filling its own and others’ executive suites with its best and brightest. And when a GE business leader leaves, it’s usually on friendly terms. The organization is revitalized as younger managers move up. This is the hallmark of a flexible enterprise, the foundation of the House that Jack Built, one designed to withstand the storms of personalities and progress.
David Calhoun: GE Lighting
The executive shuffle in August brought Calhoun to Lighting, an area that, like many GE business lines, is increasingly global in scope. The division has a significant presence in Europe, including its well-known subsidiary, the Hungarian lighting company Tungsram, which after early losses is now in the black. GE is now committing major resources to challenge Europe‘s market share leaders Philips and Siemens-a charge that will be led by Calhoun.
The 40-year-old executive hails from $1.7 billion Transportation Systems, one of GE’s smaller operations, seen by some as a corporate backwater. Don’t tell that to Calhoun, who recreated Erie, PA-based Transportation and galvanized 5,800 employees in the process. Under Calhoun, Transportation moved from just selling the nuts and bolts of a train engine to helping railroads embrace technology, enabling them to manage traffic and talk to their engines anywhere along the line. The job, Calhoun explains, required smarter locomotives, not just bigger ones, or as he put it, “going from brawn to brains.”
Calhoun sums up his management style this way: set targets, motivate people, and accomplish more as a team than as individuals. “One of leadership’s greatest challenges,” he explains, “is to encourage and to create energy and excitement in people for their own ideas, and at the same time work hard to eliminate anxieties that exist in every organization.”
Calhoun says he learned about management and business from his “incredibly disciplined” father, a cement company executive in Allentown, PA, and his mother, an “emotional, spiritual competitor.” During his two years at Transportation, Calhoun won a reputation among industry analysts as an innovative, accessible thinker.
“He’s probably the best at coming up with brand new ideas for services,” says a former GE employee. “He’s definitely astute, sharp, personable, and he manages people really well. He’s not bottled up by ego.” But it’s Calhoun’s accomplished golf game that has everyone talking. Quips a colleague, “He may be our Tiger Woods.”
David Cote: Appliances
Put Cote on the short list-along with Jeff Immelt and David Calhoun-to run GE after Welch. That, at least, is the gallery-eye view. And looking at Cote‘s performance, such reasoning is understandable. Cote is using every square inch of counter space to leverage
a dominant position for Appliances in what is arguably GE’s most competitive business. “He’s ‘Mr. Spandex’ when it comes to his capital investments,” says a Wall Street analyst. “He really can get a lot of mileage out of what he puts in.”
Cote, 45, took over Appliances in June 1996 after a stint at Silicones-a $1 billion division of Plastics. The promotion was something of a homecoming for Cote, who first arrived at this Louisville, KY-based division as a senior manager in 1988 and stayed for six years. Since assuming the lead role, he has been capitalizing on GE’s recognized brand name, introducing new products, and broadening service contracts beyond washing machines and refrigerators to include computers, satellite systems, and other home products.
Through joint ventures overseas, Appliances is challenging competitors on their own turfs-and beating them, a tactic insiders call “smart bombing.” Analysts estimate that Appliances earned $320 million from foreign operations over the past three years, as rivals bleed from costs and blunders. The results are in the numbers: operating profit in 1996 reached $750 million on worldwide revenue of nearly $6.4 billion. Profitability doubled since 1993, although revenues grew just 15 percent.
Cote conveys both a relaxed demeanor and a sense of urgency. His ability to squelch costs with a smile is particularly important at GE, where Welch has decreed a “spend less, do more” mandate that Cote evidently takes strongly to heart. Adds the GE analyst, “Dave is particularly good at understanding strategies that are going to be effective on a global basis for competing, and recognizing that there are some distinct differences between markets.”
Jeffrey Immelt : Medical Systems
Some of GE’s brightest service innovations are coming from Medical Systems, which Immelttook over in January 1997 fromJohn Trani, who left to run Stanley Works. Immelt, 41, is using Trani’s map to cover greater distances. Described by oneGE observer as “a supersharp guy, very capable, and able to motivate people,” Immelt steps into a $4.5 billion divisionwith 15,000 employees worldwide, a business with the No. 1 market share in diagnostic imaging techniques such as CT scanning and ultrasound.
With managed care fighting escalating costs, offering solutions and services for hospitals and other health-care providers can extend Medical Systems’ competitive advantage. Immelt wants nothing less. “Our goal is 10 percent average annual growth,” he says. But the global market for medical equipment is basically flat. “How can we look for opportunities to grow?” Immelt asks. The short answer is services, which now accounts for roughly 40 percent of revenue but is growing at 10 percent to 15 percent annually, against only 5 percent for product-related revenue. His five-year goal: an $8 billion global business, including $3 billion to $4 billion from services, up from $1.9 billion today; $1 billion from business solutions, now in its infancy and $3.5 billion from product, currently at about $2.5 billion.
The drive is relentless. One service, Integrated Imaging Solutions, is potentially a 20 percent to 30 percent a year grower that gives customers remote diagnostic capabilities, such as transmitting scans from a mobile base to a hospital miles away. As befits best-practice sharing, Medical Systems also made this technology available to other GE units including Aircraft Engines, Transportation, and Power Systems, allowing them to monitor the performance of jet engines in-flight, locomotives pulling freight, and turbines in power plants.
Immelt is a clear-minded, direct speaker who had been running North and South American operations at Plastics, a $3 billion division with 5,000 employees, before being given Medical Systems. He joined GE in 1982 as a marketing executive, and quickly branched into operations roles at Plastics and Appliances. Along the way, Immelt says he learned open yet focused management from Gary Rogers, his boss at Plastics; Glen Hiner, who now runs Owens Corning; and vice-chairman John Opie, who once ran Lighting. “I have a personally informal style that encourages two-way dialogue,” Irnmelt explains, “but I match that with strong professional discipline so that people know what to expect.”
Growing up in Cincinnati, Immelt knew what to expect from GE. His father spent 40 years with the company at Aircraft Engines, in purchasing and systems, and Immelt recalls sitting around the family’s kitchen table as his parents talked about good and bad bosses. What’s a good boss? Immelt explains, “Somebody that communicated good news and bad news and did it in a way that was open and honest.” And a bad boss? He doesn’t miss a beat. “A bad boss is somebody who thinks that being a boss is nothing more than knowing one more fact than the people who work for you, and not engaging everybody’s mind.”
James McNerney, Jr.: Aircraft Engines
McNerney fills the pilot’s seat emptied by Eugene Murphy, who in August was named a vice chairman of the board and executive officer. McNerney brings a smooth flight pattern to the post, having won upbeat reviews for improving sales volume and operating profit in Lighting, which the 48-year-old executive had led since November 1995.
Aircraft Engines-GE’s second-most profitable industrial unit after Plastics-had been under Murphy’s command since 1993 when he inherited a division coming to terms with the end of the Cold War, a ratcheting-clown of military spending, and the redefinition of its business. Under Murphy, inventories were reduced, and time to market hastened. Productivity improved dramatically, and 1996 operating profit jumped to $1.2 billion on revenues of $6.3 billion from $798 million in 1993.
McNerney takes over a division that now emphasizes engine services, which produces double-digit growth and annual revenues of $3.5 billion. Unlike most of the other GE 12, McNerney’s background encompasses an overseas GE posting; he directed the fast-growing Asia-Pacific operations for nearly three years before moving to Lighting. While at Lighting, McNerney globalized the business quickly, increasing manufacturing and sales in Southeast Asia, China, and India. Early reports indicate that Lighting’s international outposts are, in fact, squeezing competitors in their own markets.
McNerney joined GE in 1982 from management consulting firm McKinsey & Co.-one of those outside-the-box thinkers that Welch likes to hire. Soon he was president of Information Services, then executive vp at Capital Services, and later CEO of Electrical Distribution and Control. “He’s a good operator,” says a GE watcher. “A hard-driving guy.”
Robert Nardelli: Power Systems
Nardelli was on business in Zurich, Switzerland, in May 1995 when he got a call from Jack Welch. Nardelli, Welchsaid, was being given Power Systems, the financially and quality-plagued manufacturer of giant turbine engines and compressors for electric and nuclear power plants. The assignment: turn the division around.
Nardelli, who had been running Transportation Systems, got word on Thursday, flew home on Friday, met with executives in Fairfield on Monday reported to his new post in Schenectady, NY, on Tuesday. Nardelli, 49, recalls that he had only the barest understanding of the Power Systems business. “From a prior experience standpoint,” he says, “this was as cold a start as I’ve had in my career.
“Immediately, he moved to boost confidence among both employees and customers and to ground his team in the reality and common purpose of their situation. He established clear channels of communication and accountability that filtered throughout the business. Each week, he updated employees via satellite with good news and bad, sharing praise and problems. The practice continues. Says Nardelli, “I fundamentally believe in candor.”
Two years later, product design flaws have been corrected, and new orders are up sharply. Operating profit in 1996 rose to $1.1 billion from $769 million in 1995. Revenues in 1996 grew to $7.2 billion from $6.6 billion the year before, making Power Systems the company’s biggest revenue engine. Roughly $2 billion of that total comes from long-term service contracts; Nardelli would like to see that figure at $4 billion within three years.
Asked why Welch chose him for the Power Systems task, Nardelli-a 26-year GE veteran-says, “I would hope he picked me because he had confidence in both my leadership capabilities and my business capabilities. I would hope he picked me based upon my demonstrated track record within GE. And I hope he picked me because he feels I have all of the traits that are so prevalent throughout this company, from the standpoint of integrity, of boundary less behavior, of having energy and energizing.”
Indeed, for someone who knew little about Power Systems two years ago, Nardelli rattles off facts and figures as if the business has been his only job. He can describe intricate details and conditions at length, with a dry wit that is sometimes overshadowed by energetic techno-speak. Nardelli was raised in a GE household; his father was involved with a team that engineered dishwashers and television receivers. “A lot of my childhood was walking through factories and being exposed to GE,” he says. Adds a former GE employee, “Bob is very skilled, capable, and personable. He has great insight about change and how to get people to change what they’re doing.”
Gary Reiner: Information Services
Information technology is key to Welch’s goals. The CEO rhapsodized in his 1996 letter to shareholders about the many benefits GE intends to gain from digital commerce. Information technology, he wrote, is key to how the company will guarantee its double-digit growth.
As GE’s chief information officer-its first in many years-Reiner’s job is to see that computing power helps GE scale new heights. But leveraging technology across GE’s web of business units is a huge, expensive challenge. Shortly after being appointed CIO in April 1996, Reiner, 43, visited every top business unit for a look at how each uses computers. Regular meetings with the divisions’ technology officers create new ideas and implementation strategies. “He’s got his work cut out for him,” says an observer familiar with his role. The affable executive is perceived as singular-minded about his current task, a management trait he has demonstrated over six years at GE. A former Boston Consulting Group partner who specializes in automation, he has directed strategies at GE to speed manufacturing and product development and consolidate supply lines.
And as the head of Information Services-his second hat-Reiner oversees a vast corporate-wide intranet system that facilitates communication between divisions and gives employees a chance to share ideas and best practices. The unit also enables suppliers and customers to conduct business with GE over the Internet. The company’s purchasing systems are now running on-line, giving GE greater pricing clout with suppliers. That’s just for starters. In this grand Welchian vision, the operations executives tightly manage production costs and leverage the GE brand, Capital Services makes scads of money for the firm through savvy investments, and Information Services neatly ties this package together by shepherding quality improvement, speeding internal processes, and facilitating communication-all at the touch of a button. If Reiner succeeds in bringing GE deeper into the Information Age, and does so at a reasonable cost, look for him to get greater operations clout, perhaps at one of GE’s leading industrial businesses.
John Rice: Transportation Systems
Rice, 40, is the newest member of the GE 12, joining the top ranks from an overseas post as president of GE Plastics-Pacific, the fastest growing area in GE Plastics. The shift brings him to Erie, PA, to oversee a $1.7 billion unit that primarily manufactures and services railroad locomotives worldwide.
Transportation Systems is highly cyclical, so the test for Rice will be meeting the goals set by his predecessor, former Transportation Systems head David Calhoun, who targeted 10 percent annual top-line growth regardless of business conditions. To achieve this goal, Rice will need 20 percent yearly growth from services, which now account for about $400 million of revenue. At the same time, he-along with all of GE leaders-is charged with cutting costs and instilling 6 Sigma efforts on factory floors and executive offices. It’s a formidable task, but his 16-year track record at GE suggests Rice is up to the challenge. As head of GE Plastics-Pacific, he was charged with constructing a new 20,000 ton-per-year compounding facility in Mansha, China, and overseeing operations in five geographic regions: greater China, Japan, Australia, Korea, and the Pacific. Previous terms include postings as vice president of GE’s corporate audit staff and president and CEO of CAMCO, the Canadian affiliate of GE Appliances.
Gary Rogers: Plastics
Plastics, located in Pittsfield, MA, was the first house that Jack built. Welch reported to the group in 1960 for his first GE job. Today the division generates $1.5 billion of operating income on $6.5 billion of revenue-as big as shoe manufacturer Nike-and more profitable. In fact, Plastics is the No. 1 profit generator in GE’s industrial portfolio.
Rogers, 52, is considered a well-rounded, tenacious manager. “He’s good at running the show,” says an industry analyst. That’s especially important now, with severe pricing pressures keeping operating income and revenues flat. “It’s not like they’re lighting the world on fire right now,” the analyst adds, a stark contrast from the days when there was GE Plastics-and everyone else.
Still, Plastics is a major supplier of partsfor autos, computers, appliances, and construction, and global customer needs are constantly changing. Rogers, who has led the division since 1992, is moving toboost productivity by streamlining organizational layers and increasing capacity. And Rogers-a 31-year GE mainstay-is no stranger to crisis. Tapped in 1990 to resurrect a faltering Appliances division, he successfully navigated out of a tight spot, winning greater respect-and the plum Plastics assignment.
James Rogers: Industrial Control Systems
Score one for Rogers for successfully digging his cyclical, heavy industrial business out of a hole. A recent name change-the division was formerly known as Motors and Industrial Systems-reflects the change in direction the division has taken under Rogers, who has engineered a shift in emphasis from the sale and servicing of commercial and industrial electric motors to becoming a provider of industrial systems solutions that integrate products, control software, and services. Revenue growth since Rogers took the wheel in 1991 has been modest, and the 1995 numbers weren’t so hot. But since then, this $2 billion division has posted double-digit earnings gains through productivity initiatives and tight-fisted management. Operating margin, operating cash flow, and return on capital were all higher last year. Joint ventures in Asia and Europe are generating new growth.
A Massachusetts native like Welch, Rogers, 46, joined GE in 1972 on the finance side and later gathered operations experience at Power Systems and Aerospace. He put in time at various finance-related responsibilities at Capital Services in the late 1980s before the promotion to his current job. “He’s learned a lot from his seasoning as a senior GE manager,” says a longtime GE watcher. Still, it’sworth noting that Rogers is one GE business leader who hasn’t been front and center in the publicity department.
Lloyd Trotter:Electrical Distribution and Control
In the nearly five years that Trotter has been running it, this core unit has overhauled its approach to both customers and employees. And the shift has helped propel the $2.2 billion manufacturer of electrical products for homes, factories, and utilities.
Trotter is a persistent, clinical executive, an engineer by training who sets goals high and expects employees to reach for them-if not scale them outright. Just now, he wants to bring products to market 50 percent faster. Revenues should rise at 12 percent annually, he adds, no matter the business cycle. Facing mature markets at home, Trotter looks to Europe and Asia to attain these goals. Global ventures account for 40 percent of sales, up from 20 percent five years ago. Additional growth could also come from deregulating U.S. utilities that could hire outsiders like ED&C to provide streamlined business solutions.
Trotter, 52, has an easygoing style that underscores a drive to connect with his employees-all 18,000 worldwide. No locked corner office for him. He reaches out through videoconferencing, informal meetings, and on-site visits. “Dealing with the management structure isn’t enough,” he explains. “The things that have worked for me are pulsing people, making sure they are engaged in the process of impro