The splitting of the sprawling industrial giant into three companies suggests the global conglomerates it once epitomized could be a thing of the past.
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When H. Lawrence Culp became CEO of General Electric in 2018, he was the first outsider ever to take the top job in the firm’s nearly 130-year history. And while his most recent predecessors, John Flannery and Jeffrey Immelt, worked to gradually pare the company down, Culp appears willing to take much bolder measures. The split will essentially dismantle the industrial conglomerate that grew to titanic proportions under the iconic Jack Welch, who served as CEO from 1981 to 2001.
Welch oversaw G.E. at its peak, investing billions of dollars in profits to expand it. Revenue ballooned nearly 500%, to $130 billion. It was also under Welch that G.E.’s finance arm, GE Capital, grew into one of the largest financial services companies in the world. But this huge success has since come to be seen as a major factor in G.E.’s undoing. GE Capital’s stature in financial services exposed G.E. to outsized risk, making it especially vulnerable in the 2008 financial crisis. The company found itself in a credit crunch from which it never fully recovered.
Analysts say over time, G.E.’s “size and complexity worked against the company, as bureaucracy sapped corporate agility,” the New York Times notes. Immelt took over in 2001. He and subsequently Flannery would spend the next two decades selling off businesses. When Flannery replaced Immelt in 2017, he said the era of the giant industrial conglomerate was over and G.E. would be smaller and more focused. Ultimately neither CEO was able to restore it to its former glory. In 2018 G.E. was dropped from the Dow Jones industrial average. Flannery was ousted later that year and replaced by Culp, a former CEO of Danaher Corporation.
One of Culp’s first priorities was to review G.E.’s global operations with the aim of cutting costs. This included determining which businesses were most viable, and later culminated in the announcement on November 9 that over the next three years G.E. will split into three companies: healthcare, energy, and aviation. The plan is to spin off the healthcare division in early 2023, and its energy businesses the following year, leaving only its aviation unit. “G.E. got caught in the past — and now it’s the end, it’s over,” said Scott Davis, CEO of financial analysis firm Melius Research.
Culp expressed confidence, characterizing the breakup of G.E. into three standalone companies as being in step with the times. Several other major global conglomerates have streamlined their operations in the past few years, including Siemens and Honeywell, both of which have spun off or sold businesses. Culp believes each of the three new firms will be “a simpler, stronger and more focused company” that is easier to manage. This marks a complete reversal from the days of Welch.