Looking to create a “simpler, stronger and more focused company,” CEO John Flannery plans to pare General Electric down to just three major business units.
The American industrial giant is facing a major restructuring under Flannery, who was appointed Chief Executive in August 2017. His plan calls for spinning off G.E.’s healthcare business as a separate company and selling its 62.5% stake in Baker Hughes, one of the country’s biggest oilfield services companies. G.E. will retain just three major operations: jet engines, electric power generators and wind turbines. These accounted for 60% of its $122 billion in revenue last year.
G.E. has undergone a decline in recent years, and its executives have not been able to sell its struggling businesses quickly enough to counter its losses. The company’s shares have fallen by half in the past year, slashing its market value by $120 billion. On June 26, the same day as Flannery’s downsizing announcement, G.E’s stock was dropped from the Dow Jones industrial average.
Over its more than 125-year history, G.E. spread into many disparate sectors, such as home-mortgage lending and media. Its business model centred on the ability of its management to make all of its divisions profitable, despite being very different. Jack Welch, G.E.’s famed CEO of 20 years, championed the model. But it could not withstand the global financial crisis, which hit when its finance arm, GE Capital, was the largest nonbank financial institution in the U.S. Welch’s successor, Jeffrey Immelt, pared GE Capital down; however he built up G.E.’s oilfield machinery business, only to see oil prices crash.
By the time Flannery took over as CEO of General Electric, he inherited a deeply troubled company. As the New York Times reports, it was clear that cost-cutting and shedding smaller businesses, like the spinoff of its $11 billion railroad business last month, would not be enough.
Flannery first eyed GE Healthcare, which reported $19 billion in revenue last year. He previously led the unit, and believed it would perform better as a separate company. His restructuring plan entails spinning off a 20% stake in GE Healthcare into a new publicly traded company. Its stake in Baker Hughes will be sold off. Flannery wants to focus G.E. on jet engines, electric power generators and wind turbines, which he said share similar technologies for power generation and propulsion. They all make long-lived industrial equipment, and in all three, G.E. holds strong market positions.
Flannery also said that G.E.’s management is being decentralized, with the businesses making most decisions themselves. “Our businesses will be the center of gravity,” he said, marking a departure from G.E.’s historically top-heavy management structure and a significant break from the past.
