David Fuller's view -
It’s part of a much larger transformation at GE orchestrated by Jeff Immelt, Welch’s successor as chief executive officer. Most notably, GE is moving its headquarters from suburban Fairfield, Conn., land of golf and bonuses, where it’s been since 1974, to Boston, the Athens of America. The company is selling off its division that makes refrigerators and microwave ovens. Now it’s focused on electric power generators, jet engines, locomotives, and oil-refining gear. And it’s made a significant bet on developing software to connect these devices to the Internet. There’s a term for this trend of adding network connections to hardware not usually considered computers: the Internet of Things. GE believes its opportunity lies in what it calls the Internet of Really Big Things.
In the past five years, GE has hired hundreds of software developers, created its own operating system, and fashioned dozens of applications that it says will make planes fly more efficiently, extend the life of power generators, and allow trains to run faster. GE’s plan is to sell this software to other manufacturers of Really Big Industrial Things, and to be a top 10 software company by 2020. That would put it in the same category as Microsoft, IBM, and Oracle, an ambition that some have difficulty swallowing. “Top 10? No way,” says David Linthicum, senior vice president of Cloud Technology Partners, a consulting firm in Boston.
Inevitably, an activist took an interest in the struggling conglomerate. Last October, Nelson Peltz’s Trian Partners revealed that it had purchased $2.5 billion in GE shares, becoming its ninth-largest investor. In an 81-page analysis, Trian said GE had previously been an unfocused, overly bureaucratic muddle. But rather than call for a breakup of the company as Peltz has done in the past with DuPont and PepsiCo, he instead endorsed Immelt’s strategy.
A year earlier, this would have been hard to believe, but by last fall, Immelt’s program was beginning to succeed. He had announced a plan to shed $200 billion of GE’s problematic financial assets, which have weighed down its share price. The company says it had software sales of $5 billion in 2015, a sign that the Internet-of-really-big-things approach must be taken seriously. And, by all accounts, Immelt’s campaign to remake the company’s intrinsically rigid culture is working. In the past year, GE’s stock has outperformed the Standard & Poor’s 500-stock index. “A lot of people didn’t think this management team would drive an aggressive transformation of the business,” says Steven Winoker, an analyst at Sanford C. Bernstein & Co. “But that’s exactly what’s happening.”
Jeff Immelt is ambitious and creative but what he and many other CEOs lack is that incisive business brain which a long-term activist such as Nelson Peltz of Trian Partners can provide. He is probably the best activist investor in the business and for sentimental reasons I would like to see this sole surviving original Dow Jones component flourish with its comparatively new business plan.
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