The Middletown Press (Middletown, CT)
General Electric may regret retreat from Connecticut
Listening to General Electric CEO John Flannery talk about paring back the company’s ambitions, it’s hard not to think he would have kept the headquarters in Connecticut, the state where he grew up.
Does that matter now that GE flies its flag in Boston? Probably not, but it’s one way to think about how deeply Flannery — raised in West Hartford — deplores the pretension and overreach Jeff Immelt showed as CEO for 16 years.
Look past Flannery’s halving of the dividend, grounding of the corporate jet fleet and plan to shed $20 billion in assets as he focuses the industrial businesses on three main areas — health care, aviation and power generation. His main message: Let’s return to a culture of excellence and execution, and stop trying to be what we are not.
Immelt did simplify GE. But his Big Idea was that GE could revolutionize the world with unifying software that could take trillions of points of data and turn it into smart action — not just for GE businesses but for the entire world.
The move to Boston was part of that. Immelt tried to redefine GE from an industrial-financial behemoth to a fast-moving tech disrupter, and a ubiquitous one, to use the word of analyst Nick Heymann at William Blair & Co.
Two big problems: First, the burn rate of cash. In the digital platform alone, Heymann points out, GE’s total outlay grew from $1.5 billion in more than four years, through 2015, to $6.6 billion by the end of 2017.
That included training tens of thousands of independent developers to write apps for GE’s systems. And that was just one place where GE was spending wads of cash without immediate returns, much of it in the name of becoming, yes, ubiquitous in a global industrial economy that runs on software upgrades.
“The reality of the cost of achieving that began to sneak in,” said Heymann, who has GE rated as outperform.
Heymann believes Flannery can succeed in targeting the company’s digital ambitions to serve GE businesses and core customers rather than the whole world.
“This isn’t just a GE phenomenon,” Heymann said. “GE just happened to take a path that was acute in using cash.”
That brings us to the second problem: GE builds software into its products, but can’t be a pure software development company. Sukhmander Grewal, a former longtime GE technology executive and developer who now heads Veoci, a New Haven software company, was among the many with that view two years ago.
Back then, Immelt was winning praise for his expansive vision, including the Boston move, and shares traded over $30. Grewal called the idea ludicrous.
At least four times since the 1930s, Grewal points out, GE has tried and failed to pioneer or even just join a computing revolution. Now, Flannery seems to be confirming the skepticism as GE shares closed at $18.12 Monday on the New York Stock Exchange, down 40 percent for the year.
“There has been widespread skepticism that GE can compete with independent software products on their own,” Grewal said Monday. As for Immelt’s ambition, he said, “The problem wasn’t that it was a conglomerate . ... The investment decisions and the direction of the C-suite were in retrospect misguided.”
Flannery still has plenty of ambition. “The world is fundamentally going to run on the back of GE,” he said on Nov. 14.
GE, now with fewer than 3,000 Connecticut employees after the breakup of GE Capital, isn’t likely to move its head office back to Fairfield. But Flannery should do it, Grewal said.
“It would send a message that GE is back to reality,” Grewal said. “He doesn’t need to be on the cover of Wired magazine.”