Goal For GE’s New CEO: A Profit Turnaround

For institutional shareholders and activist investors, a new CEO couldn't come too soon.

John Flannery

During Jeffrey Immelt’s nearly 16 years as CEO of General Electric, the iconic conglomerate successfully transformed itself by shedding its lending and financing operations and refocusing on aviation, energy, transportation and healthcare. What Immelt did not manage to pull off was to bolster its profits and to turn around the worst performer of any Dow 30 component: During his tenure, GE’s shares declined 29.6% while the S&P 500 index more than doubled.

In June, the company tapped John Flannery, a 30-year company executive who most recently led GE’s healthcare business, to become its new CEO beginning on August 1. “In many ways, Flannery reflects the ideal GE manager—a longtime insider with stints in GE offices around the world, who has experience both in corporate functions and in running a business,” says John Joseph, a professor of strategy at the UCI Paul Merage School of Business. “One of GE’s key challenges going forward is to ensure that its digital strategy is effectively implemented across its diverse operating units.”

Kurt Norder, professor of management at the University of Delaware, agrees: “Flannery will likely need to replicate and extend his efforts with digitally integrated ‘smart’ systems within GE Healthcare to each segment of the conglomerate and across its units. Implementing such a significant transition shifts the value-creating capabilities as well as the supporting management mind-set.”

Flannery, who is 55, is expected to further streamline a still-sprawling behemoth that makes everything from light bulbs and microwave ovens to jet engines and gas turbines. “GE’s paradoxical culture of innovation and cost-effective problem solving will be critical to success,” says Norder. “Hopefully, the current pressures to emphasize cost effectiveness are not too early to allow the transition in organizational capabilities needed to capture the true opportunities that lie in front.”

In this regard, Joseph is optimistic: “This is where GE shines. The benefits to the ‘conglomerate’ of a corporate office are nowhere better illustrated than at GE. Its corporate-directed operating system has always served well in directing attention to areas that need improvement, and, given its size, making it relatively responsive to opportunities and threats. GE leadership development remains among the best—in large part due to its ability to attract top talent, train them well by moving them around, and keep them. Flannery is a case in point.”