General Electric (GE) has undergone extensive reorganization and strategic realignment during Larry Culp’s leadership, with the goals of stabilizing the corporation and guiding it towards profitability and growth. Upon Culp’s assumption of leadership in October 2018, GE was not yet officially in bankruptcy, but it was experiencing a severe financial crisis due to its enormous debts, assets that were not functioning up to par, and the widespread loss of faith in the company’s future that had driven its stock price to record lows. To avoid a further decline that could result in insolvency, immediate and firm action was required.
Welch’s Success & Immelt’s Failure
1981–2001 marked the tenure of Jack Welch as chief executive officer of General Electric (GE). Massive expansion and a rise in market value resulted from the organization’s rapid development and diversification into new industries, including financial services, broadcasting, and plastics, at that time. Under Welch’s leadership, General Electric experienced a meteoric rise, propelling the company to the status of a global superpower. An influential factor in the enhancement of GE’s operational performance was his contentious implementation of management techniques, such as the “rank and yank” method, which aimed to increase efficiency and productivity. Nevertheless, when Jeffrey Immelt assumed control, the complexities, and susceptibilities that Welch had previously introduced became evident, thus establishing the foundation for subsequent challenges.
Despite various hurdles, GE CEO Jeffrey Immelt’s 2001–2017 transformation projects were criticized for decreasing the company’s value. At GE during the dotcom bubble collapse and 9/11 attacks, Immelt addressed severe operational concerns. His 2008 financial crisis-era GE Capital expansion failed, requiring a bailout. Immelt made many mistimed power and energy acquisitions, notably Alstom’s energy businesses, which underperformed due to falling market prices. Divestment and restructuring, such as NBC Universal’s sale and GE Capital’s shrinking, failed to solve the conglomerate’s complex structure and mounting debt. GE’s stock price fell, and dividends were lowered during his stint as CEO, according to investor confidence. Leading GE, which still suffers from strategic decisions from Welch’s expansion-oriented leadership to Immelt’s challenging tenure, is complicated.
Bring On Larry Culp
Larry Culp assumed the role of GE’s inaugural external CEO in October 2018, coinciding with the organization grappling with substantial obstacles such as financial gremlins and operational inefficiencies. Culp, who served as the accomplished President and CEO of Danaher Corporation from 2000 to 2014, garnered recognition for his pivotal role in the company’s evolution into a diversified and highly efficient conglomerate. This transformation was primarily accomplished through the effective execution of the Danaher Business System, which emphasized lean manufacturing and continuous improvement. His extensive history of successfully transforming intricate organizations, achieving operational excellence, and streamlining strategies made him an appealing candidate for GE. By prioritizing accountability, transparency, and execution, Culp’s leadership approach sought to instigate a transformation in organizational culture, rein in investor trust, and guide GE back to its industrial origins with a streamlined framework that ensured sustained prosperity.
Value Creation in Breaking Up
GE announced its plans to divide into three public companies, each focusing on a core sector of GE’s operations, on November 9, 2021.
Culp’s plan to split up GE into smaller, more specialized businesses is an effort to make the conglomerate more efficient and profitable. Several important reasons support the strategy. One is that it creates leaner management and operational agility by removing complex corporate structures. Another is that it helps businesses adapt faster to changes in the market and customer demands, which leads to innovation and growth. Investors have more clarity because investment opportunities are tied to specific industry sectors. Lastly, it aims to unlock greater shareholder value by suggesting that independent companies could be valued higher than conglomerates. The goal of this restructuring at GE is to create a future where each of the company’s divisions can compete successfully on its own in international markets.
Culp announced the company’s strategic split into three specialized, publicly traded companies. Each will focus on a different industry to take advantage of its own strengths and market possibilities. GE Aviation wants to take advantage of the growing flight market. The company is known for making money and coming up with new ideas in jet engine production and aviation services. GE Healthcare is a leader in medical imaging, testing, and digital health solutions. The company wants to focus on driving growth and innovation, taking advantage of changes in healthcare technology and population trends.
GE Vernova
Lastly, GE Vernova, which was formed when GE’s power and renewable energy businesses merged, is ready to take the lead in the energy shift by focusing on long-term energy infrastructure and solutions. The GE Vernova spinoff is expected to happen in early April 2024, subject to final approval from the GE Board of Directors and other customary conditions.
Driving the GE Vernova Transformation into Positive Territory Before Spinoff
General Electric has had trouble in the power and renewable energy divisions. As a part of the 2024 Spinoff, these divisions will be merged and renamed GE Vernova. These sectors make up around 51% of GE’s operations after the healthcare spinoff in 2023. It is believed that the forthcoming spinoff will enhance performance and simplify company operations. Better financial reporting, operational strategy, and capital allocation will also result from this.
The responsibility of reviving and turning GE Power & Renewable’s Power division into a profitable one fell to CEO Scott Strazik in 2017. Starting in 2017, he served as the head of GE’s Power Services division, and in 2018, he was promoted to the position of chief executive officer of gas power. Not long after that, in 2021, he took the helm of the power business, expanding his responsibility even more. The power business has been steadily improving margins and getting out of the low-growth market since then. Power did not turn a profit in 2018. But it broke even and began making operating profits after introducing reforms and cost-cutting measures.
In response to the present market circumstances, the corporation has reduced its facilities by more than $1 billion to take advantage of the halving of the worldwide large-turbine market. Considering this, Steam Power has eliminated unprofitable equipment and is now concentrating on aftermarket parts and services. Segmental profit improved from $808 million in 2018 to $1,449 million in 2023, despite a 4.3% CAGR fall in revenue from $22,150 million in 2018 to $17,731 million in 2023. A low double-digit margin is within reach for the power business by 2024.
GE Vernova is on the cusp of transformation. The outlook seems good, coupled with key drivers such as the 10-year extension of production tax credits for wind projects under the US Inflation Reduction Act (IRA), a focus on clean energy, a proposal to expand wind installation to 150–200 GW in the next ten years, more than double from 88 GW in the past decade, and other incentives. We believe that GE Vernova will emerge as a stronger and more focused energy player in the upcoming years, thanks to the underlying demand, leadership positions, federal incentives, and Mr. Scott Strazik’s proven leadership.
Remaining GE
Just the aviation division will remain with GE post spinoff. Thanks to its innovative products and many contributions to civil and military aviation, GE Aviation has become an industry powerhouse in the production of jet engines and other aviation services. By refocusing on its aviation division, GE can take advantage of its dominant position in an industry predicted to have robust growth because of the ongoing recovery and expansion of both the global economy and air travel. The company’s strategy is to use its strengths in aerospace technology and services through GE Aviation, which will help propel innovation and growth in this important industry segment.
How To Profit From The Change
During this time of change at General Electric, there is an appealing investment opportunity, says The Edge which has been analysing global breakups and special situations for over 18 years. GE is focused on its core competencies through strategic spinoffs and divestitures. This is a move toward more streamlined and efficient operations. Bad choices and market changes have caused years of trouble, and this is the end of it. The company wants to achieve value unlocking and sector-focused growth, so it has said it will split into three separate groups: flight, healthcare, and energy. GE has refocused its efforts to cut debt, improve business efficiency, and spur technological innovation since CEO Lawrence Culp Jr. took over. The GEHC spinoff and the upcoming separation of the power and renewable business into GE Vernova are two important initiatives. The goals of both are to improve financial performance and take advantage of market possibilities.
As part of its structural and operational transformation, General Electric is making progress in its power business and strategically positioning itself in the green energy market to take advantage of government subsidies and the global shift toward clean energy. GE might be a good bet now that it has a more focused leadership style, is using its cash in a smart way, and has reorganized itself. Many of GE’s current spinoffs and restructuring plans could have a big effect on the company’s marketplace and bottom line, so investors should pay close attention to them. People who want to invest in companies that will make them money in the long term and be leaders in important industries may find GE Vernova’s expected rise as a focused energy player, along with GE’s history of resilience and strategy pivot, to be an interesting story.
The writer of this article owns shares in General Electric (GE)