I have this incredible urge to reply to this post. I grew up in Connecticut and worked at GE for 6 years. All of them in GE Capital. For a long, long time it was a point of pride to work there. Where you cite data and interviews, I can remember where I was or what was going on in the company. The Angola deal in particular...
Even as a junior analyst, you could feel the inertia and laziness permeate like a miasma in the company. So many internal meetings or all hands focused on what one part of GE thought of the other.
GE had two training programs that carried tremendous weight internally but I always questioned. The Financial Management Program (FMP) for recent graduates and Corporate Audit Staff (CAS) 2-3 years later. These programs epitomized the intellectual laziness you identified. Graduating from CAS assured you a leadership position within the company, often in a prominent division. Having it on your resume was one of the most sought after credentials in the company.
In my opinion these alumni worked tirelessly, but lacked the rigor and discipline to make difficult choices. They enabled the bureaucracy that Rahul mentions or the success theater you write about. Making the correct internal decision rather than the correct business decision became the norm.
Even before the 2017 nose-dive in price, you could feel that we were living off our reputation rather than enhancing it.
But... isn't a bit ironic for an essay arguing that the hallmark of intellectual laziness is presenting a convincing-sounding narrative without substance to... push such a narrative?
If intellectual laziness were so pervasive, how is it that GE's core businesses *were* well run? How is it it developed great executives who went on to be very successful outside GE? How is it that some of the leaders described as lacking rigour (including Immelt himself) did so well in previous roles?
The sense I get is that GE’s core businesses weren’t actually that well run, they were just exceptional franchises and/or were benefiting from huge positive cyclical trends that later went away. Credit to Welch for getting out of the bad businesses, of course, but it doesn’t mean that the good businesses weren’t being exceptionally run. Also we have to keep in mind that a lot of the intellectual laziness / earnings management type things they were doing were actually not that out of the ordinary in the 80s and 90s but stood out as being abnormally bad when they kept doing them in the 00s/10s. There’s an analogous thing that happens in sports when a gm gets fired and the narrative comes out that they were stuck doing the same things that worked for them 10-20 years ago but became notably outdated.
Also, the consensus seems to be that most ex GE execs flopped in their new gigs (Boeing, HD, 3M) and Cote and the Polaris guy were successful outliers because they did the opposite of the GE approach in many ways.
Fair. Still though, I think the accusation of intellectual laziness is perhaps too harsh, or at least, it doesn't tell the whole story. For example, it's easy to say it's intellectually lazy to massage earnings to deliver consistent growth. But see it from Jack Welch's perspective - the market (irrationally and intellectually lazily in my view) does reward that. Suppose I have one contract that could be closed this year or the next; if I close it this year, I can deliver $10m this year and $8m the next. Or I can delay it and deliver $8m this year and $10m the rest. The market *will* reward the latter, that's a fact. Or, more to the case of GE, it could have sold a bunch of GE Capital assets and deliver a one-off dividend or buyback - or, they could, as they did, stagger such sales to deliver consistency. Again, the market would have rewarded the latter, even if it didn't make economic sense.
So though you can argue the market as a whole is intellectually lazy (because they confuse the consistency of artificial results for true operational consistency), management is doing the right thing by shareholders, no?
1. It’s not clear at all that the market does value synthetic stable earnings growth. Remember, Welch was always frustrated that GE always traded at a low-ish P/E for most of his tenure (except for 2000 when all mega caps traded at nosebleed multiples). It’s probably not impossible to fool the market but it’s very hard, especially for a huge company.
2. Ultimately, shareholders will make what the company makes. The market can’t really reward anything — if a stock re-rates to a too-high multiple, it only transfers wealth from outgoing shareholders to incoming shareholders. Now the company has two problems: not enough profits and disgruntled shareholders who overpaid for their stock.
"Cote preaches that managers should instead strive for intellectual rigor, to probe deeply to identify and confront root problems and think creatively and rigorously to find solutions."
While a simple piece of advice, it really is eye-opening to see what it's like when this principle is deeply embedded into an organization. When managers avoid "cheap calories" to drive growth, and instead ask tough questions centered on the key drivers of the products and customer experience, it also benefits employees, who are able to deepen their own understanding of the business and learn how to ask similar questions (something I've experienced firsthand).
An epic piece. I personally lay a lot of the blame of GE’s failure at Immelt’s feet. He did not understand the businesses, kept adding to bureaucracy to get around the growing bureaucracy (did not understand that a large organization needs to constantly fight this), did horrible acquisitions and worst of all, didn’t understand that GE capital provided the cash necessary to fund the dividend and M&A because the industrial businesses are very lumpy.
Losing Cote might have been the biggest failure of Welch. He gave him the worst business and then was shocked when he didn’t perform as well as the other leading guys…
It's interesting because Welch kind of plucked Cote from obscurity and put him on the fast track at GE, and then Cote hit it out of the park on his first assignment running a small division (Silicones). He clearly recognized that Cote had unusual talent relative to his peers, but maybe that was obvious, who knows.
The sense I got from the book was that Welch didn't know how to identify a good manager because he wasn't a good manager himself. He didn't see his own flaws, so he promoted people with the same flaws. Even in the book, all Welch can say about Cote is "I didn't know he was so smart" - he doesn't realize what made Cote different.
Welch had his strengths but ironically it's probably his strengths that did him in, because they enabled him to keep going despite his fatal flaws. He was known as "Teflon Jack", someone who could dodge accountability for anything, so he never learned from his mistakes. He also legitimately made some good decisions, which offset some of his missteps.
It's implied in the book that everything could have gone sideways for Welch in the early 90s recession, with some of the bad loans they made, but the economy bounced back quickly before GE could get into real trouble. Ironically, if conditions hadn't been so perfect, it would have been a small failure early on rather than a disaster of historical proportions later.
I have this incredible urge to reply to this post. I grew up in Connecticut and worked at GE for 6 years. All of them in GE Capital. For a long, long time it was a point of pride to work there. Where you cite data and interviews, I can remember where I was or what was going on in the company. The Angola deal in particular...
Even as a junior analyst, you could feel the inertia and laziness permeate like a miasma in the company. So many internal meetings or all hands focused on what one part of GE thought of the other.
GE had two training programs that carried tremendous weight internally but I always questioned. The Financial Management Program (FMP) for recent graduates and Corporate Audit Staff (CAS) 2-3 years later. These programs epitomized the intellectual laziness you identified. Graduating from CAS assured you a leadership position within the company, often in a prominent division. Having it on your resume was one of the most sought after credentials in the company.
In my opinion these alumni worked tirelessly, but lacked the rigor and discipline to make difficult choices. They enabled the bureaucracy that Rahul mentions or the success theater you write about. Making the correct internal decision rather than the correct business decision became the norm.
Even before the 2017 nose-dive in price, you could feel that we were living off our reputation rather than enhancing it.
But... isn't a bit ironic for an essay arguing that the hallmark of intellectual laziness is presenting a convincing-sounding narrative without substance to... push such a narrative?
If intellectual laziness were so pervasive, how is it that GE's core businesses *were* well run? How is it it developed great executives who went on to be very successful outside GE? How is it that some of the leaders described as lacking rigour (including Immelt himself) did so well in previous roles?
The sense I get is that GE’s core businesses weren’t actually that well run, they were just exceptional franchises and/or were benefiting from huge positive cyclical trends that later went away. Credit to Welch for getting out of the bad businesses, of course, but it doesn’t mean that the good businesses weren’t being exceptionally run. Also we have to keep in mind that a lot of the intellectual laziness / earnings management type things they were doing were actually not that out of the ordinary in the 80s and 90s but stood out as being abnormally bad when they kept doing them in the 00s/10s. There’s an analogous thing that happens in sports when a gm gets fired and the narrative comes out that they were stuck doing the same things that worked for them 10-20 years ago but became notably outdated.
Also, the consensus seems to be that most ex GE execs flopped in their new gigs (Boeing, HD, 3M) and Cote and the Polaris guy were successful outliers because they did the opposite of the GE approach in many ways.
Fair. Still though, I think the accusation of intellectual laziness is perhaps too harsh, or at least, it doesn't tell the whole story. For example, it's easy to say it's intellectually lazy to massage earnings to deliver consistent growth. But see it from Jack Welch's perspective - the market (irrationally and intellectually lazily in my view) does reward that. Suppose I have one contract that could be closed this year or the next; if I close it this year, I can deliver $10m this year and $8m the next. Or I can delay it and deliver $8m this year and $10m the rest. The market *will* reward the latter, that's a fact. Or, more to the case of GE, it could have sold a bunch of GE Capital assets and deliver a one-off dividend or buyback - or, they could, as they did, stagger such sales to deliver consistency. Again, the market would have rewarded the latter, even if it didn't make economic sense.
So though you can argue the market as a whole is intellectually lazy (because they confuse the consistency of artificial results for true operational consistency), management is doing the right thing by shareholders, no?
There are two problems though:
1. It’s not clear at all that the market does value synthetic stable earnings growth. Remember, Welch was always frustrated that GE always traded at a low-ish P/E for most of his tenure (except for 2000 when all mega caps traded at nosebleed multiples). It’s probably not impossible to fool the market but it’s very hard, especially for a huge company.
2. Ultimately, shareholders will make what the company makes. The market can’t really reward anything — if a stock re-rates to a too-high multiple, it only transfers wealth from outgoing shareholders to incoming shareholders. Now the company has two problems: not enough profits and disgruntled shareholders who overpaid for their stock.
Thoroughly enjoyed this one!
"Cote preaches that managers should instead strive for intellectual rigor, to probe deeply to identify and confront root problems and think creatively and rigorously to find solutions."
While a simple piece of advice, it really is eye-opening to see what it's like when this principle is deeply embedded into an organization. When managers avoid "cheap calories" to drive growth, and instead ask tough questions centered on the key drivers of the products and customer experience, it also benefits employees, who are able to deepen their own understanding of the business and learn how to ask similar questions (something I've experienced firsthand).
An epic piece. I personally lay a lot of the blame of GE’s failure at Immelt’s feet. He did not understand the businesses, kept adding to bureaucracy to get around the growing bureaucracy (did not understand that a large organization needs to constantly fight this), did horrible acquisitions and worst of all, didn’t understand that GE capital provided the cash necessary to fund the dividend and M&A because the industrial businesses are very lumpy.
Losing Cote might have been the biggest failure of Welch. He gave him the worst business and then was shocked when he didn’t perform as well as the other leading guys…
Thanks!
It's interesting because Welch kind of plucked Cote from obscurity and put him on the fast track at GE, and then Cote hit it out of the park on his first assignment running a small division (Silicones). He clearly recognized that Cote had unusual talent relative to his peers, but maybe that was obvious, who knows.
The sense I got from the book was that Welch didn't know how to identify a good manager because he wasn't a good manager himself. He didn't see his own flaws, so he promoted people with the same flaws. Even in the book, all Welch can say about Cote is "I didn't know he was so smart" - he doesn't realize what made Cote different.
Welch had his strengths but ironically it's probably his strengths that did him in, because they enabled him to keep going despite his fatal flaws. He was known as "Teflon Jack", someone who could dodge accountability for anything, so he never learned from his mistakes. He also legitimately made some good decisions, which offset some of his missteps.
It's implied in the book that everything could have gone sideways for Welch in the early 90s recession, with some of the bad loans they made, but the economy bounced back quickly before GE could get into real trouble. Ironically, if conditions hadn't been so perfect, it would have been a small failure early on rather than a disaster of historical proportions later.
The word is not "intellectual laziness"... it's Fraud.