John Flannery is set to become the new chief executive of General Electric on August 1. He has told employees that he plans to “take a fresh look at the company” in light of its falling stock prices and unhappy shareholders and that new approaches will be implemented when he is done with his review in the fall. Investors are pushing for General Electric to become a smaller, simpler company and give the company a clearer direction.
The core of General Electric is their production of engines and generators. According to Jeffrey R. Immelt, the departing chief executive, the “third pillar” of General Electric, which has been building up since 2011, is data and smart software.
This data and smart software can be implemented into improving engines and generators by streaming data on temperature, fuel consumption, and other measurements in order to signal the need for maintenance.
In the past, General Electric has produced a lot of oil field equipment. With the downward spiral of the oil industry, the demand for oil-field equipment dropped and income in General Electric’s oil and gas business fell 43 percent last year.
However, Mr. Immelt continued to invest in oil despite the disapproval of shareholders. The industry brings in a lot of service revenue and can be improved using General Electric’s sensor data and software. In October, the company announced a plan to merge its oil and gas business with Baker Hughes, one of the world’s largest oil field companies.
The Justice Department recently approved the merger and declared it did not violate antitrust laws. The merger will create a new publicly traded company and General Electric will pay Baker Hughes shareholders $7.4 billion. According to Deane Dray, an analyst at RBC Capital Markets, this move “allows G.E. to make a staged exit from the oil and gas business in the future, if they choose to do so…”
Another direction that General Electric could on in is the production of medical imaging equipment, like CT scanners and other equipment to aid in molecular and precision medicine. The company has also decided to sell its business in the product of light bulbs and residential LED lighting. However, General Electric will hold on to its business of supplying commercial LED lights to cities and companies which involves energy-management services.
Mr. Immelt set up GE Digital in 2011 to move GE into the future of becoming a “digital-industrial company” that would deliver greater efficiency by using sensor data and software.
Many are in support of the digital strategy but some like Scott Davis, an analyst at Barclays, recommend a less costly, less risky approach of pursuing a joint venture with a bigger tech company “with someone like Microsoft or Google”.
According to Robert Atchinson, a founder and managing director of Adage Capital Management, “we won’t know for two years or so whether these new initiatives pay for themselves,” he said in terms of the digital strategy taken on by Mr. Immelt.
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