GE's Jeff Immelt: The Voyage from MBA to CEO
On September 7, 2001, 44-year-old Jeff Immelt faced a daunting challenge when he
was named General Electric’s 12th leader in 123 years. Not only would he be leading a
$130 billion global company managing businesses from lighting to aircraft engines to
financial services, but he was following the legendary Jack Welch. From its founding in
1878 by Thomas Edison, the company grew to be a titan in the world of electrical
generation and a widely followed model of modern management practice. GE was a
pioneer of centralized corporate control in the 1930s, an exemplar of the decentralized
multi- divisional organization form in the 1950s, a leader in strategic planning in the
1970s, and a model of the lean and agile global competitor of the 1990s.
The company’s much admired executive development practices were rooted in the
cultural values put in place by Charles Coffin, the CEO who succeeded Edison in
1892. Immelt took over at a challenging time. Only four days into his new role, New
York’s World Trade Center’s twin towers and the Pentagon in
Washington, D. Undaunted, Immelt saw the opportunity to remake GE’s
businesses, processes, and leadership in a new image and seized the responsibility to
set GE’s vision for the next decades. As Immelt took on one of the biggest management
jobs in the world, some wondered whether GE’s vaunted management development
process had prepared him to lead such a complex organization.
Building the Talent Machine: History of GE’s HR Practices
Four successive CEOs each made the development of management talent a high
priority and, in doing so, made GE’s human resource management processes among
the most sophisticated in the world.
Strengthening the Foundations: Cordiner’s Contributions
This diversification strained GE’s highly centralized management structure, leading
CEO Ralph Cordiner to implement a bold decentralization plan aimed at carving out
businesses that, as Cordiner put it, «a man could fit his arms around». Faced with a
massive management development task, Cordiner built the first corporate
university, known within the company as Crotonville. In 1956, GE spent $40 million
annually to support management education, almost 10% of its $424 million pretax
earnings. Cordiner reinforced his emphasis on education with an equally strong
commitment to upgrade GE’s on-the-job management development processes.
Starting at the level of department manager, the process generated evaluations, career
forecasts, and succession plans for every single management position at GE.
Supercharging the System: Welch’s Initiatives
When Jack Welch became chairman and CEO in 1981, he concentrated on improving
performance by driving businesses to become number one or number two in their
industries or face being sold or closed. This radical restructuring eliminated over
100,000 jobs, earning Welch the unwelcome nickname «Neutron Jack.»4 Welch bound
the interests of all to the company’s performance by increasing the proportion of stock
options and leveraged the rewards by giving them only to top performers. Even while he
was aggressively cutting costs in the early and mid-1980s, however, Welch was
investing heavily in management development. It was at one of these classroom
exchanges in the late 1980s that Welch was inspired to create a process capable of
replicating throughout the company this kind of open dialogue whereby managers could
discuss what was wrong at GE and how to fix it.
Through years of initiatives such as these, a new set of norms, values, and behaviors
emerged that defined what Welch called GE’s new «social architecture». To monitor
evolving cultural values and employee attitudes in the company’s worldwide
operations, Welch initiated an annual employee survey that polled employees on issues
ranging from GE’s overall attractiveness as an employer to personal job satisfaction and
career opportunities. Breakdowns by business and region allowed him to identify
potential trouble spots, and year-on-year comparisons helped him plot
progress. schools, all overseen by line managers who usually were alumni themselves.
The company resisted competing against recruiters from Wall Street and consulting
firms for the most-hunted college and business school graduates, figuring that those
interested in a management career would be available to GE later. Indeed, the company
created an elite group responsible for internal consulting projects and corporate
initiatives staffed by ex-consultants in transition into management roles. Managers in
Welch’s lean, responsive GE had to be willing to work from the bottom up, take on
grindingly hard work, and accept frequent relocation to learn from GE’s vast
operations. As the new cultural changes became embedded, Welch insisted that
managers be evaluated not only on their performance against objectives but also on
how they lived up to GE’s values.
Breaking with tradition, Welch also took Session C reviews out from
headquarters, making them a full-day event in each of the businesses. Typically, the
morning was spent reviewing the business’s management team, working through
binders with photos, bios, and summary evaluations of each. To allow «deep dives,»
backup pages held the detailed self- and manager assessments and development
needs. In the evening, Welch supplemented the formal meetings with receptions and
dinners where he could get a better feel for high-potential talent.
He encouraged managers to focus rewards and development efforts on top performers
and urged them to counsel those who remained in the bottom 10% to improve or move
out of the organization. By the end of Welch’s tenure, the formal HR systems were
tightly integrated with the other elements of what he called GE’s «operating system.»
Each companywide initiative was driven down to the business level through a carefully
linked system of strategic planning, operational budgeting, and leadership performance
reviews. The annual calendar of reviews also provided many opportunities to evaluate
the performance and potential of young managers in these high-visibility forums. In
1982, when Immelt joined GE, he became one of the 5,000 managers being tracked
and developed by this set of formal and informal development processes.
The Making of a CEO: The Rise and Rise of Jeff Immelt
As a 25-year-old Harvard MBA, Immelt greatly impressed Dennis Dammerman, the
executive overseeing GE’s MBA recruiting at Harvard in 1982. "It was clear he had
natural leadership traits," Dammerman recalled. " I immediately wanted to hire the guy."
He was so impressed that he sidestepped the normal process of passing Immelt’s name
on to the corporate referral center and forwarded his recommendation to GE’s sector
executive for consumer products. He also suggested Welch get involved because the
candidate was being heavily recruited by a Morgan Stanley partner who told the young
MBA that at GE, he would not interact with Welch for at least a decade.
Immelt entered on a commercial leadership track that included real work assignments in
different GE businesses. And contrary to the Morgan Stanley partner’s prediction, he
and a corporate marketing group with which he was working presented to Welch 30
days after he joined the company. Month by month, the direct feedback from his
manager focused on his results. " "My manager called and said, ‘You had a terrible
month.
"’ He was just that direct," recalled Immelt. "Over the next seven years, positive Session
C reviews led to successive assignments as a product manager, a sales manager, and
a global marketing manager. " Dammerman, now in an entirely different business, kept
an eye on his young recruit. "In 1987, Immelt was tapped to attend the Executive
Development Course at Crotonville, the youngest in his class. "
Engaging with other highly regarded managers from different businesses and
functions, Immelt found EDC a broadening experience. It also provided a great
opportunity to expand his professional network.
The Appliances Challenge: The Turnaround Test
Following EDC, Immelt was expecting an assignment that would stretch his abilities and
expand his experiences. In 1989, the opportunity arose in Appliances, a business with
razor-thin margins, a highly unionized labor force, and extremely tough
competition. Because of a compressor-design problem, GE had sold more than a million
refrigerators that engineers now believed were likely to fail. 6 For Welch, this impending
disaster was clearly a major business challenge but also an opportunity to develop an
up-and-coming young manager.
Immelt’s job was to understand the issue, marshal the resources, and replace the
million bad compressors with new units sourced from their competitors. As a newly
minted company officer and vice president, he quickly realized it was his "sink or swim"
test in a tough situation that eventually required GE to take a $450 million charge in
1989.7 "I learned how to manage in a completely different way," he recalled. "With the
recall going well, Immelt was asked to run the entire marketing and product
management operations, a position reporting directly to Gary Rogers, the new CEO of
Appliances. " "Bright young people often think knowing what to do and telling people
what to do automatically results in it being done," Rogers said.
Over the years, Immelt continued to receive detailed, frank feedback in this way. He
was lauded for exceptional energy and results but also counseled to listen better, to
empower his subordinates, and to channel his appetite for action in order to bring his
organization along with him. Welch decided to bring him back to Plastics in 1992 to run
a worldwide sales and marketing organization in a business he knew well.
Plastics Redux: Trial by Fire
When it was announced that Rogers would be moving to head up Plastics at roughly the
same time, some expressed surprise that the rising star’s new position was not a direct
report to Rogers, as it had been at Appliances. This is a time when you serve the
company. Facing stiff competition from Dow, DuPont, and Bayer, Plastics Americas had
entered several long-term, fixed-price contracts with key customers, including the major
U. Rogers remembers a call from his CFO at the end of the first quarter of
1994, informing him that due to cost overruns, Immelt’s operation had missed its
operating margin by $30 million, or roughly 30% of budget. To compensate, the
business had tried to implement price increases but had experienced difficulty making
them stick.
The price negotiations led to a deteriorating relationship between GE and General
Motors , with one press report suggesting that the automaker was on the verge of
ordering its purchasing directors to "stop all business relationships with General
Electric." At this stage, GM CEO Roger Smith and Welch got on the phone to sort things
out.
Immelt recalled that, while some friends and peers like Dave Cote provided
encouragement during this time, mostly he remembered it as a period of intense
learning where he wanted to be left to his own devices. People can help you, but
leadership is one of these great journeys into your own soul. In retrospect, Immelt felt
he should have diagnosed the problems sooner but also believed his response was
appropriate. While Welch watched closely, throughout the crisis the decisions always
remained Immelt’s.
His relationship with Welch, and with other influential GE managers in his career, was
characterized by a clear delegation of authority, blunt business discussions, and
continuous evaluation of performance and potential. Like all GE managers, he
understood he would not be punished simply for making a mistake.
Medical Systems: Putting It All Together
Appointed to run GE Medical Systems in 1997, Immelt embraced the opportunity to run
a global technology-based business that was, in his words, "a chance to put it all
together." Although this $4 billon business had been growing at a single-digit rate over
the previous decade, when Immelt took over he found management was focused
primarily on cost cutting in response to reductions in health-care reimbursement in the
early 1990s. Immelt’s style was to engage and energize those around him, even those
who were not in his direct reporting line. In 1999, Welch told Immelt about a high-
potential young Harvard MBA named Greg Lucier who had been having a tough time in
his first general management job running GE Harris Railway Electronics. Welch, who
had been keeping his eye on him, believed he deserved another shot.
Immelt immediately saw Lucier’s strategic perspective and customer orientation as an
ideal fit with the medical information technology business he was trying to build. "Greg
was a self- confident, independent thinker," said Immelt. "Where he needed coaching
was in implementing his creative ideas and developing his skills as a team player." Over
the next three years, Lucier more than doubled the sales of GEMS’ new IT business to
$1.8 billion. Just as people such as Dammerman, Hiner, and Welch had mentored him
at various stages in his career, Immelt had given opportunities to and supported
numerous people, particularly those he thought had untapped talent or underutilized
abilities.
For example, he had kept his eye on Dow Wilson, a quiet but widely respected manager
who had worked for him at Plastics. Believing he had considerable potential, Immelt
invited him to join GEMS as general manager of global CT scanners. Over the next
three years, the boss watched with satisfaction as Wilson succeeded in three big global
business jobs at GEMS. "Dow was almost the opposite of Greg," Immelt reflected.
" Where he needed coaching was to become tougher in holding people accountable and
in developing his own self-confidence." In July 2003, he became a company
officer, succeeding Lucier as president of GEMS’ large and successful medical IT
business. As Welch put it, "When Jeff took over Medical Systems, he let the sun shine
in." It became increasingly clear that Immelt was one of the front-runners in the CEO
succession race, an issue that Welch and the GE Board had been thinking about for
years.
The Succession Process
Because Welch felt that GE’s new CEO would need a minimum tenure of 10 years to
learn on the job and to remold the organization to a new vision, he looked especially
hard at fresh young talent. In grooming and testing the leading contenders, Welch
deliberately used several GE businesses as proving grounds. Facing strong competition
and having long-term highly unionized labor teams, Appliances and Lighting had long
been used as places to develop managers’ operations skills. Transportation
Systems, Energy Systems, and Aircraft Engines enhanced candidates’ ability to
manage through capital-spending cycles.
And their performances at Plastics and Medical Systems could be evaluated for the
candidate’s ability to exploit technological growth, acquisitions, and globalization. In
1997, with Welch’s retirement looming, GE’s board began regular site visits, ostensibly
to better understand the businesses but primarily to get a direct impression of
candidates. Welch did not give the business leaders an agenda for these visits so the
board could see the candidate’s natural style and approach by how he conducted
himself during the visit. On the Friday after Thanksgiving 2000, Welch called Immelt
with the news, inviting him to a low-key and very private celebratory dinner at his home
in Palm Beach.
On Sunday, Welch flew to Cincinnati and Albany to tell McNerney and Nardelli of
Immelt’s selection. Then, on Monday morning, he joined Immelt in New York and, in an
NBC television studio, publicly presented him as GE’s CEO designate.
Jeff Immelt, CEO
GE immediately responded to the disasters with a $10 million contribution to a relief
fund for victims, but the changed business climate pummeled GE, particularly its
insurance and aircraft engine and leasing businesses. A few months later, indictments
against the CEO of Tyco, who had boasted of building «another GE,» raised questions
about GE’s business model and the transparency of its reporting. Furthermore, several
large holders of GE stock reported selling to raise cash and bail out other investments
that had failed in the spectacular crash of the NASDAQ and in high-profile fraud-linked
bankruptcies such as those of Enron and WorldCom.
Immelt’s Priority: Leveraging Human Capital for Growth
Despite the slow economy, the post-9/11 political climate, and the traumatized financial
markets, Immelt committed GE to grow. He committed to building enduring relationships
with customers and creating a world-class commercial culture to overlay the
engineering bias and financial orientation of GE’s dominant business approach under
Welch. Significant resource reallocation was needed to build new business platforms
sensitive to what he called «unstoppable trends» that would provide future growth. The
company continued to drive out costs by embracing information technology, focusing on
automation, and expanding the efficiency paradigm of Six Sigma.
As CEO, Immelt continued the long-standing practice of committing a third of his time
exclusively to people issues, and he acknowledged that the company’s people system
was perhaps his most powerful implementation tool. «Every initiative I’m thinking about
gets translated immediately into recruiting, Crotonville, and Session C,» he said.
Preparing for Growth
At first, Immelt’s message to investors and the press was that he would rebalance and
renew the business portfolio, then drive growth from the revitalized base. To deliver on
the commitment to internally sourced growth and innovation, the company invested
$100 million in its rebuilt R&D center in Niskayuna. When the 2002 EDC class was
tasked to study GE’s approach to corporate responsibility, Immelt followed through with
the appointment of a first corporate vice president for corporate citizenship, and GE
began to issue a corporate responsibility report in 2004. Immelt also saw a change in
GE management’s approach to innovation and the risk of failure as critical to its
effectiveness.
Over the next several years, GE booked some of its largest acquisitions in the form of
Vivendi-Universal Entertainment and Amersham as it also worked to exit the majority of
its insurance business. Immelt took steps to redirect GE’s best-in-class internally
focused practices around operating efficiency and cost cutting to encompass the
customer. GE’s financial services were sent into their related products businesses to
better provide customers with a seamless company interface and specialized financial
support. The more entrepreneurial, growth- and customer-focused environment that
Immelt was trying to create entailed a redrafting of the leadership profile.
Over the years, GE’s HR professionals started identifying the different personal
competencies exhibited by growth leaders. As before, the company committed itself to
study great growth businesses at GE and around the world, benchmarking against best
practices. Knowing that results from growth took time, Immelt directed each business in
turn to create 20 to 30 «pillar jobs» that were customer-facing, change-oriented
assignments in which the growth leader would be developed over a period of at least
four or five years. No future business leader would be named without experience in a
pillar job.
Starting in 2004, rates of revenue growth at nine of GE’s 11 businesses had reached
their double- digit objectives. Immelt was confident that the investments in fast growth
were going to bear fruit, and he expanded responsibility in the company for innovation
at the same time that he set the tone for listening to customers. As part of his continued
commitment to drive growth through innovation, the CEO launched a process he called
«Imagination Breakthroughs» in pursuit of projects with a potential for $100 million in
incremental earnings growth through technological innovation, market
expansion, creating value for customers, and turning good ideas into products. Each
business leader was tasked with submitting three breakthrough proposals a year for
review by the Commerical Council in sessions chaired by Immelt.
An early product of this process was the Ecomagination initiative, which linked GE’s
image with customers and investors with sound corporate environmental practice and
business growth. In pushing GE’s global growth opportunities, Immelt began to
emphasize GE’s ability to deliver integrated infrastructure packages to rapidly
developing countries. Through an initiative known as «One GE,» the company created
vertical teams tasked with developing «company-to-country» relationships, often
coordinated through the Commercial Council. Overhead was reduced wherever
possible, as GE’s business units began to share corporate services and consolidate
headquarters.
The reorganization placed businesses in better alignment with emerging customer
needs and also created more business-leader positions where rising stars, under the
direct supervision of GE’s best senior managers, could benefit from the hands-on
experience, coaching, and development experience. At Crotonville and in corporate
reports, Immelt was sharing a road map to growth that had been continuously refined
during his first five years . Long-understood processes at GE had been conceptualized
as part of a virtuous cycle of innovation, development, leadership growth, and customer
satisfaction. Each element had metrics that were tracked in business reviews and tied to
performance evaluations and career moves.
«I knew if I could define a process and set the right metrics,» said Immelt, «this
company could go 100 miles an hour in the right direction. It took time, thought to
understand growth as a process.
The Learning Continues
In May of 2005, Immelt delivered the class-day address to Harvard Business School’s
graduating MBA class. «At the time, we thought it was a filler between marketing and
finance, things that we viewed back then as really important. I thought the capital-asset
pricing model was 10 times more important than managing people. Immelt summarized
the learning process that had continued during his first years as CEO and that would
return GE once again to head Fortune Magazine’s list of most admired companies in
2006. »
«I have a very different style than my predecessor,» he told the assembled
graduates, «but we intersect 100% where it comes to discipline, focus, passion, and a
focus on getting things done». Today you need to be a passionate growth leader. We
find that people in the business world who are successful have five traits. At the end of
the day you actually have to know something to be successful in the world, you have to
have depth, and you have to have a real sense of what is going on.
Immelt also believed it was vital to maintain a strong set of values that supported his
commitment to developing people . «One of the things I learned at HBS was how to
listen,» explained Immelt. In many ways, businesses operate the same way. You can
run a good company by executing well.
I look at GE as a $165 billion growth company. «Your ability to pick things, to bet on
things, to learn from your mistakes but move on is literally going to decide your
success,» he told the assembled graduates.
Growing Growth Leaders
With the characteristics of the new GE leadership profile incorporated into the
management processes and built into job designs, Immelt watched to see if up-and-
comers, those who would number among themselves his eventual successor, would
take the initiative to develop themselves into mature growth leaders. He hoped that they
would excel in the new GE leadership mold at the same time as they, too, would take
the initiative to develop new leadership capabilities needed to lead GE in the
unforeseeable future.
