GE learns the German way – a belated insight

The Wall Street Journal (March 7, 2012) came up with the headline New GE Way: Go Deep, Not Wide. After several decades, General Electric (GE) has ended the practice of job rotation — or job hopping every two years — for future top executives or 'high potentials'. This also marks the end of GE's omnipresent short-term thinking, at least in this respect.

General manager as role model

The management 'philosophy' of job rotation for general managers — soon every technique will be a philosophy — has a long history. Already back in the 1960s, under Chairman Ralph J. Cordiner, GE copied the training concept of business schools, in particular Harvard Business School, and set up its own Management Training Camp in Crotonville, New York. Later, under legendary chairman Jack Welch, Crotonville became a mythical place where entire generations of managers were formed The GE Way.

With what result?

GE gradually transformed into a conglomerate and, by the time Lehman was collapsing, half of GE's profit came from its finance business. GE took the lead in outsourcing but was overtaken in manufacturing (apart from its traditional turbine and locomotive businesses) and its former innovative strength became noticeably weak. Back in 1960, GE registered the most patents worldwide, yet by 2000 it ranked only fifteenth — and engineers accounted for only four percent of its top 650 managers. Currently GE is well down the patent rankings at number fifty-two.

Never too late to learn

Welch's successor (from 2001) Jeffrey R. Immelt, a qualified mathematician and Harvard graduate, only slowly brought the Welch era to an end. But from then on GE began investing more in R&D, slowed down outsourcing, sold several ill-fitting businesses, tried to sell its lighting and household devices businesses (but couldn't find any buyers) and belatedly recognized the need to make more products in the USA. At GE the number of engineers began to grow again. However, what was then announced as an innovation: that managers must have domain knowledge, meant nothing more than they should understand the product, the technology, and the customer.

Is it not surprising that such a high-performance company (its own assessment) took so long to gain this insight? Did top management at GE not know it takes up to ten years to acquire 'domain knowledge'? The fact is, they did not want to know, because that would have been an obstacle to a fast-track career, and the community of experts that surrounded GE merely confirmed the current management method: practical experience was something business professors failed to grasp, consultants recommended managing by numbers, smarter asset allocation and cash balancing, while analysts focused on cash flow and stock market capitalization, and the media swallowed the myth of constantly growing shareholder value without asking how it was being 'engineered'. From then on those who called the shots at GE were the manager(ists) and those who generated the most (cash) value, the 'financial guys'.

Learning late is the hard way

This management philosophy — disrespectful folks might call it GE Think — from the icon of American management culture did the United States unquantifiable but nevertheless enormous harm: value added and many skilled jobs were lost for ever, the competitiveness of manufactured products was eroded, and the loyalty and ethic of responsibility among employees declined. This malaise of deindustrialization infected many other companies worldwide: especially those who, advised by American consultants and under benchmarking pressure from analysts, copied GE. There were even CEOs who proudly admitted their admiration of Jack Welch was absolute.

Siemens und GE: a double-edged sword

Some players, with their own interests foremost, aggressively presented GE as the guiding star for Siemens to catch up on; a tough challenge as Siemens was supposed to be way behind. McKinsey, and even in-house consultants, introduced across Siemens a copy of almost everything that GE had done before. But some limits were set. The former long-standing CEO of Siemens, Heinrich v. Pierer, insisted firstly on closely linking the finance division to the real operating business — whereas GE Capital was considered the new heart of GE — and he insisted secondly on keeping the proven manager training of Siemens in-house. There is no doubt that without v. Pierer's resolute stance Siemens would today be a less robust company.

And yet, since then, something odd has happened at Siemens: during the after-shock of a corruption affair, a noticeably large number of manager(ists) joined from GE and similar-managed companies, hired by people who themselves had just arrived from those same firms. There are worrying signs that in this waySiemens, just when GE drops the practice, is adopting a short-termist and job-hopping approach under the pseudonym 'ready to develop' and abandoning a proved method of succession management.

There have been good reasons to elaborate the dangers of a General Electric-ification of Siemens and to criticize a loss of corporate identity and loyalty among employees: see Issues no. 11. Elsewhere, Prof. B. Eidenmüller has more than once emphasized the key role of manufacturing and manufacturing-related services for Germany as an industrial economy and for Siemens in particular: see Insights no. 3. His arguments have received massive backing from the USA, of all places. President Obama chose Siemens as a prime example of industrial manufacturing and vocational training. GE, the self-proclaimed local champion, could not serve as that example.

Now that this belated insight is public knowledge, German industry must rediscover the responsible entrepreneurship of the mittelstand and ignore those who push alternatives or claim to know better.


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