GE’s success secret decoded

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: Borch's Growth Opportunity Ventures taught GE many lessons, which GE later incorporated into its strategic thinking and management systems and into the GE Code as well. Let’s review some of the reasons that only a few of the ventures survived and succeeded.

Leadership

Unrealistic view of how long ventures take to succeed: Most of the ideas that the growth council proposed have become real and profitable businesses. But it has taken decades for them to materialize, and it has required a sustained, long-term commitment and the investment of leadership, people, and money. This is evident with the ultimate success of jet engines and financial services, and—I would argue— the likely resurgence of nuclear power.

* Recommendation: Realistically assess the time it will take for your new ventures to grow and become profitable. Make sure that you err on the side of being conservative—and don’t overpromise.

Too many ventures at one time: GE’s biggest error was to believe that it could pursue all of these ventures at the same time and that it had the financial and human resources to make them all successful. Each of the opportunities required more cash and capital than anticipated, and the total requirements were enormous—beyond any one company’s ability to fund them. In fact, it is amazing that the company didn’t go broke during this period.

Without doubt, Borch grew the company: Revenues increased more than $3 billion in three years. But it was a profitless growth, which dearly demonstrated that the company needed a new way of planning and setting priorities.

* Recommendation: Be selective. Don’t bite off more than you can chew. Focus on the most attractive opportunities where you can most easily succeed and be sure that you have a clear understanding of what it will take to win before you embark.

Adaptability

Didn’t understand the businesses: Though the council identified growth opportunities, it did a poor job of figuring out what it would take to sell the products or services. It lacked an appreciation of the competitive environment and the response of the incumbents, and—most important—it didn’t take into consideration the power and influence of governments and labor unions.

* Recommendation: If you are planning to move into a new market, either by internal ventures or acquisitions, be sure you really understand what is critical to being successful.

Talent

Believed they could do anything: GE leaders believed that they could do anything and that the company’s managers had been equipped to manage any business regardless of size, technologies, markets, and so on. Clearly, the outcomes of the ventures demonstrated that this conviction, which dates back to Cordiner and Smiddy, was simply wrong.

* Recommendation: Never assume that just because you have been successful in your current businesses that you have the skills and abilities to succeed in others. Recognise that all businesses have some distinct aspects that will separate the winners from the losers.

Networks

Made staff earn a

living: Although Borch’s assumption that he could reduce staff by requiring them to earn their keep turned out to be dead wrong, the idea of having a discretionary, fee-based staff is worth considering.

This approach has several advantages. First, it is Darwinian: Only the fit will survive. Second, it forces the staff to make a contribution to keep clients, and therefore it forces them to keep current. The major dangers are that some will survive just because they have friends inside the company and that the staff may become too myopic.

* Recommendation: Separate your staff organisation into two groups: essential and discretionary. Determine if you need your own discretionary resource, or if you should outsource it. If you think there is an advantage to having your own staff, then make them earn their keep.

Admitted mistakes and changed: To Borch’s credit, he too recognised these errors, and in the second half of his tenure, he changed the company’s management system to ensure that these types of mistakes would not be repeated. The ability to admit mistakes and make major changes is clearly one of the major contributions that Borch made to the GE heritage.

* Recommendation: Everyone makes mistakes. Sometimes the mistakes are large, and sometimes they are small, but they are all a part of leading and taking risks. The key is to follow Borch’s example and be willing to admit your mistakes, take corrective actions, and try not to hide or make excuses.

Now let’s move to the second stage of Fred Borch’s reign: the period of selectivity and the birth of strategic thinking and decision making.