Wednesday, July 09, 2008

GE: Not easy being a conglomerate General Electric has long been the counter-example. Whereas most other large companies have tried to specialize in adjacent areas and have gotten away from conglomerate status, GE has thrived on managing a wide variety of businesses, from light bulbs to jet engines to TV and movies (NBC Universal). The secret, or sp we were told, was a special GE management technique. It is a conglomerate. In recent years, GE itself has tried to simplify operations, by shedding operations in areas like plastics, and insurance, and (in process) appliances. But never before has it become so apparent that GE split up would be far more valuable and manageable than GE the conglomerate. A WSJ column ("Immelt Defends GE's Wide Reach", 7/7/08), reports that the company and CEO Jeffrey Immelt are under a lot of pressure. GE had an unexpected 5.9% drop in first-quarter earnings along we pre-announced flat second-quarter results, with low expectations for the rest of the year. As the article puts it "In the past, GE's diverse businesses balanced one another to produce relatively smooth results. But that formula failed in the first quarter, when the credit crisis kept GE from completing real-estate sales and there were slowdowns in health care and appliances." Aside from the appliance spin-off, it is thought that GE is n the way to selling its lighting business and its $30 billion credit-card business. But Immelt may have to do more, according to the article, "He also will have to convince investors that GE's vast portfolio, which includes everything from NBC Universal to biosciences, can be managed under one corporate roof and that the company doesn't need to be broken up or even dramatically streamlined." The article notes that Healthcare division, which makes medical imaging equipment may need to be spun-off or sold-off, Aviation might be hit as airlines cut flights. And even the once thriving financial services division, so carefully assembled over the past decade, is threatened buy the credit crunch. The column quotes one analysts as saying that "the gloss has come off the GE manager mystique." Indeed, the difficulty of managing such a wide variety of companies with different business cycles at a time when all companies are being stressed may change GE radically in the nest few years.   9:45:35 PM

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