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What happened to GE? Simple. Jack Welch killed the golden goose. During his tenure he shifted focus and money away from long-term R&D in the name of boosting qu

• analog31 3y ago
  There was a time when American corporations discovered that financial services were more profitable than manufacturing. The biggest division of GM was GMAC. The "profits" were at least partially fraudulent -- division managers cooking the books in order to make their numbers. I seem to recall that some of them went to prison.
  • deleted 3y ago
    [deleted]
  • hackernewds 3y ago
    Multiple companies have turned into glorified financial firms with their core product becoming auxillary. Look at airline credit cards, Starbucks loyalty cards, Block's Bitcoin repository, AMZN investing in Rivian and so on.
    • adventured 3y ago
      Starbucks is a terrible example. That's like claiming the Costco membership makes the Costco retail business the auxillary. Or that Kroger/CVS/Walgreens membership/rewards cards do the same for those retail businesses (when in fact all they do is drive higher rates of return visits and higher sales). The Starbucks business remains almost entirely their retail service business.
      • coliveira 3y ago
        In fact, for all these companies the retail operation is a secondary business. Their main business is to prop up the stock. They do that using all kinds of accounting and financial tricks, the reward cards being one of them. These companies will do anything to increase short term valuation, such as stock buybacks (totally useless for the business), announcing vaporware/initiatives that have little impact on business but look good for investors, etc.
      • fyrn_ 3y ago
        Costco is a terrible example for the point you are trying to make. Costco (rather famously) makes most of it's money from the membership. https://www.fool.com/investing/2019/02/13/how-costco-actually-makes-money.aspx https://www.fool.com/investing/2019/02/13/how-costco-actuall... In a way, the cheap bulk goods are just a way to convince people to get the membership.
        • b112 3y ago
          Not really. The card/membership is useless without the retail aspect.
          • actionablefiber 3y ago
            It is sort of like claiming Netflix is a membership-selling company that happens to run a streaming service. Though you could make this argument for gyms, which are notorious for selling a lot of memberships to people who lack/lose the motivation to use them.
        • smsm42 3y ago
          That sounds like "cars are just a way to make people come to the car dealership". Technically, this is true, but "just" here is not playing a good role. The whole point of the thing is the cheap bulk goods, so "just" is not really applicable there. You can't remove it without making all the rest utterly pointless.
    • philip1209 3y ago
      Even technology feels a little bit like that. Anybody with moderate success - either as a founder or leader at a successful startup - seems to turn into an investor. Over time, the industry turned into an inverted pyramid with more money managers than operators. 2% management fees are easy money, and 20% of gains encourages gambling. So much capital burning a hole in the pockets of novice investors drove bad investments, and ultimately the most recent financial downturn happened as LPs wised up. We glorify operators who keep operating - such as Elon, Zuck, and Bezos - but, few people seem to do it. Long live the operators.
  • Phiwise_ 3y ago
    >There was a time when American corporations discovered that financial services were more profitable than manufacturing. ... The "profits" were at least partially fraudulent -- division managers cooking the books in order to make their numbers. Regardless of how it happened in individual cases back then, this is still the case now, and if anything has accelerated, so it's not as worth mentioning as the wider phenomenon: Why are so many different companies in so many different industries putting out much worse business/consumer products these days? Because they're not in the business of selling to customers any more, but in the business of selling non-commodity money products to the financial sector in a little-known industry called "The New York Stock Exchange" so funds, or individuals, can bridge their shortfall between compounding obligations and shrinking currency value. GE isn't in the business of selling turbines, GM doesn't sell cars, Microsoft doesn't sell software, Broadcom doesn't sell components, Moderna doesn't sell pharmaceuticals, and Pepsico doesn't sell sugar water to children. All of them are in the primary business of selling money that's not on a pre-expected inflationary schedule, and everything else they do is just a particularly long-run guerrilla marketing campaign for that money over the other guy's in the corporate headquarters down the street. If they wanted to be in some other business, they'd either not go public in the first place or buy back their stock so they didn't have to serve two market masters any more. This explains why going public can be such a Faustian bargain for so many otherwise successful companies that quickly and seriously trips them up; it's essentially a decision to pivot the business from a product market fit to a new sector most of the building usually knows nothing about, just because it will let them double-dip on monetizing their hard work. Is there any other situation where a move that extreme, or the same pivot for any other reason, wouldn't get laughed out of the room? I can't think of one. It turned out to work for a couple of years for google by letting them attract top talent to the advertising products of anything not called search or ads (before they've now been losing the plot just like everyone else), and combined with the good timing of running their business through the first quarter of this century made their pivot very successful, but most companies aren't called google. It also explains a lot of surface-level counterintuitive behavior: why are too many arch-capitalists not nearly as interested in investing in innovations that price their competitors out of the market as we'd like them to be? Because they wouldn't be mostly investing in innovation but in advertising, since you can't innovate a piece of paper with "1 share" written on it (without running afoul of the SEC and co. at some point). Advertising isn't really an investment; it's more like gambling, and most of the financial sector sees gambling as an uncomfortable risk (for their suppliers anyway) even if you happen to be up a bit right now. They'd much rather see a steady "blue chip" growth pattern that's half a point above the index than the wild swings in revenue and spending that come from experimentation, so it only happens in C-suites with a culture of tolerating more gambles and their associated stock spikes. Why are so many companies moving to the same business model of skeleton operational costs and recurring subscriptions instead of trying to carve out different niches for different consumers? Because the financial world, by dollars, largely prefers the advertisement that that's how their suppliers increase the attractiveness of their quarterly reports, so the customer is always right. Why are even accelerating startups entering the big leagues so much more eager to get bought up by the bigger, more ossified old guard than try to replace them, even as it puts them at more and more legal risk? Because gaining a footing through advertising is an absolute slog of a business to cut against the grain in, much more than tech or manufacturing or grocery services or logistics or what have you, and in this age it's tougher than ever, so they make the reasonable decision to throw in the towel and drift off someone who's already got momentum. I could go on, but I already feel like a broken record and it's mostly more of the same. There's plenty of historical particulars to consider, But what happened to GE from a 10,000-foot perspective? The same thing that happened to everyone else: the index hit 4-7٪, the appeal of being on the top of that pile looked like a mirage of water across the desert, and they pivoted, to unanimous applause until they either made it or the wheels came off. Everything else is the same story in a different setting.
• rm445 3y ago
  It's interesting, isn't it. Jack Welch must have had very many superb characteristics, to be as revered as he was. Or is it an element that the profits of golden-goose-killing created the mystique?
  • jdewerd 3y ago
    You've seen how celebrity worship works -- how often does it involve "very many superb characteristics?" Yes, the pumped up numbers helped, but there will always be a market for selling validation to assholes.
  • swells34 3y ago
    It's horrifying. The man destroyed one of the most profitable and productive companies in the world to make himself look good, and make huge quantities of money for himself. From a business standpoint, he has no good qualities, as long as you are assessing over a longer period than ten years. He's really quite terrible at running a business, but great at making it appear that the business is doing better than ever while it rots away. Frankly, it's close enough to fraud that it should be a criminal offense.
• mc32 3y ago
  I’m under the impression of having read that Immelt inherited some semi cooked books and had to undo some of those things. Under Jack the accounting was not up to par.
• roenxi 3y ago
  Wasn't Welch the one who was using "sack 10% of the managers each year" as a strategy? That one was obviously long-term stupid; I can see it being healthy for maybe a cycle or 2, but after that it would just kill off all the intangibles of management. At some level, every company relies on a culture of people doing the right thing to thrive over the long term. Although I do think that it is a mistake to just pin blame on Welch for that. There is a pretty solid amount of evidence that the WWII-era-boom US started falling apart from the early 1970s; there were a lot of ugly trends that took hold after US traditional oil production peaked. One of the symptoms is that nobody important seems to see a model where the States are a world class manufacturer. If nobody sees a way to run manufacturing companies at as high-performance entities then it won't happen. There is a lot of blame to be assigned to the space between the CEOs. That is to say, my thesis is that management is optimising correctly in context - but they are in a context where US manufacturing excellence doesn't make as much sense as it once did.
  • KerrAvon 3y ago
    Your context is that US manufacturing was uncompetitive by the early 1970’s? Gonna need to back that one up.
    • roenxi 3y ago
      * Becoming unproductive from the 1970s. The difference is one of velocity rather than location. If we're talking "global manufacturing excellence" the trends have been favouring Asia for a while. See also https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/ where a bunch of important changes are showcased. Modern management styles that aren't good make a lot of sense sense when considering a lot of those graphs. Financial shenanigans have a lot more payoff than manufacturing, and manufacturing gets harder as the energy squeeze happens.
  • hakfoo 3y ago
    The reason US manufacturing excellence doesn't make sense is because we let it rot. We don't have cities like Shenzhen, where everything you need to get a product to market is within same-day courier range. I understand this was a feature of the old "hardware-centric" Silicon Valley, and it made fast iterations on new products a lot more viable. I wonder if we could even build a hub like that today, with property speculators and NIMBYism blocking anything short of grabbing a cornfield in Iowa and declaring it our new national manufacturing centrepiece. We've completely ceded on education, and that was realistically where we could have competed. We could never match the labour prices of China or Viet Nam, but we could offer better trained workers. Our schools are a disaster, and it feels like we've completely lost a focus on competitiveness. It was only a few years ago, we were very fixated about being beaten in test scores, but now the focus has been lost to social battles (scares over LGBTQ+ content) which suck all the oxygen out of the room when people want to ask about actual student achievement. We don't have the right backing for moonshot inventions. The way we lost solar panels to the PRC should be a freaking embarrassment. We knew for 40 years that people are going to want these things. Moreover, it was a new technology-- you didn't need to fight with entrenched players that didn't want to retool (like EVs)-- all you needed was a stream of seed capital and friendly loans to make sure people built here first. This might be helped with some more government intervention-- strong industrial development finance products with a VC-esque mentality of "90% of them will fail, but a few will pay off 50-fold". The state is a good backer here, because they can take the "50-fold" in forms other than raw stock appreciation, like "securing an industrial edge for our country."
• meepmorp 3y ago
  The interesting part is that Jack Welch wasn't an MBA - he was a (PhD) chemical engineer who'd worked at GE for his whole life after getting out of grad school. He'd had several management positions in the company before he got to CEO, so it's not like he didn't understand how the company worked and kinds of things it did.
  • katbyte 3y ago
    It’s a bit more nuanced then that, it pretty much failed upwards if I remember this podcast accurately https://www.iheart.com/podcast/105-behind-the-bastards-29236323/episode/part-one-jack-welch-is-why-114741686/ https://www.iheart.com/podcast/105-behind-the-bastards-29236...
• hackernewds 3y ago
  "Killed the golden goose" sounds kinda like what the administration is doing in California, especially San Francisco
• detourdog 3y ago
  You forgot moved the headquarters from Pittsfield Massachusetts to Rockefeller center.
• deleted 3y ago
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• datavirtue 3y ago
  Sadly, we are still in the throws of this.