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FINDING CULTURE CHANGE IN GE'S 2019 LETTER

Category: Energy & Environment,Finance

GE Wind Turbine2018 GE Renewable Energy

Read the print and digital news commentary about Larry Culp’s first shareholder letter at GE, and you’ll find skepticism, judgment, cautious hope from various pundits, and even praise. But no one has yet linked Culp’s letter to the importance of changing GE’s culture. To know how necessary this is, you must read Jeff Immelt’s 2017 shareholder letter as GE’s CEO.

This letter rambled and weighed in at almost 8,000 words versus the average of 2,000 for most CEO letters. It lacked coherence and was loaded with fact-deficient, obfuscating, generalities or “FOG”. In fact, Immelt’s letter ranked dead last in my Candor Analytics Rankings Survey of CEO Letters. It suggested that GE’s culture – its beliefs and values that align actions, and engagement among owners, employees, customers and suppliers – was in serious trouble.

In 2002, I had the privilege of working with Jeff and his shareholder letter team to design his inaugural CEO letter. Talk about timing! He took over from legendary CEO Jack Welch soon after the planes crashed into the World Trade Center. Then Enron filed for bankruptcy igniting an epidemic of corporate mistrust that continues today. Immelt wrote about this in his letter:

This was not a great year to be a rookie CEO. With a tough economy, a volatile political environment, and the impact of 9/11 and industry cycles, business challenges were plentiful. Add to that the presumption of widespread corporate fraud and there were not too many normal days in 2002.

However, I am an optimist. In many ways, this was the best time to take over a company…"

His letter was clear, organized and inspired hope in GE, in business, and in a nation still traumatized by the Twin Tower tragedy. So how did GE lose its way? Why did the board now bring in outsider Larry Culp, the former Danaher CEO, to try to rescue this 127-year old company from financial and reputational ruin?

GE: Imagination at WorkAP

Perhaps GE’s over-sized 2016 board and its top-heavy management team had forgotten the words of GE’s legendary CEO Jack Welch: “Yesterday’s newspaper clippings wrap today’s fish.” They had grown insular and forgotten their primary responsibility: to nurture an accountability culture that balances and meets the expectations of customers, owners, employees, suppliers and partners, and communities.

How important is accountability to new CEO Culp? Here are some numbers: Culp’s letter totaled 2,808 words vs. 7,775 in Immelt’s last letter. Yet even with many fewer words, Culp scored 110 points from reports on meeting customer needs vs. Immelt’s 39 points. Culp applauded the essential contributions of GE’s employees in his letter; Immelt did not. About 24% of Culp’s letter was shrouded in FOG compared to Immelt’s letter, which registered 181% FOG. This means that Immelt’s FOG obscured all the positive content in his last letter.

Larry Culp2018 General Electric

Of course, a company as big as GE has a robust communications team which is responsible (along with the CEO) for the content in the shareholder letter. My assessment of GE’s 2019 letter is that about 24% of it is pure Larry Culp – his words, thought and heart; 35% of the letter reveals some integration between the old and new GE cultures; and 51% of it reads like the old GE.

Since Culp was made CEO just six months ago, this analysis shows remarkable progress. These stats suggest that GE’s culture was ripe for change and that Culp is building a culture that is inclusive, accountable, humble, respectful and where people “call things by their proper name”. Culp calls out two critical priorities in his letter: 1) to improve GE’s financial position; and 2) to strengthen GE’s businesses, starting with Power.

This letter excerpt illustrates how GE now articulates a problem and reports on actions to improve it:

Over time, the biggest lever we have to improve our financial position is to prioritize cash generation in each of our businesses. To that end, we are improving how we operationally manage cash every day, in every business, and are using lean management practices to improve working capital levels. For example, our Aviation team used lean and digital tools to improve average cycle time for the LEAP-1B, reducing the average engine assembly time by 10 days, or 36 percent. This led to lower inventory levels, more efficient throughput, and ultimately more available cash."

Culp also commented on GE’s troubled Power business and how it is both getting closer to customers and improving cash flow:

We also need to run Power better, improving how we manage our inventory and material management, product development and delivery, and billings and collections. For example, by moving responsibility for collections closer to the customer relationship managers, Power was able to improve its visibility to cash and collect it earlier in the quarter. Where we used to get just 35 percent of our cash in the first two months of the quarter, in the fourth quarter, Power increased this to 50 percent. This kind of operational improvement takes hard work, and it is a multi-year journey, but I'm encouraged by the Power team's dedication and progress.

For changes like these to truly take root, our businesses need to have more control over their decisions and rely less on the corporate office. Broadly speaking, if we want to run more empowered and accountable businesses, we need to radically change how we operate across GE."

GE90 Jet Engine2018 GE Aviation

So why is it important to focus on CEO words and to call things by their proper name? Futurist Neil Postman observed that “culture is a corporation of conversations”. Words build trust. And trust is destroyed when words are not aligned with actions. Management guru Peter Drucker believed, “The best way to predict the future, is to create it.” When we find the right words to express and share our thoughts with others, we are more likely to act wisely. Culp knows this.

Every day, each of us creates our internal and external worlds with our words and the actions they inspire. Perhaps each of us has a power to create and change beyond what we can imagine. A great leader sees this power and helps us to imagine – and believe – in the future.

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GE Wind Turbine2018 GE Renewable Energy

Read the print and digital news commentary about Larry Culp’s first shareholder letter at GE, and you’ll find skepticism, judgment, cautious hope from various pundits, and even praise. But no one has yet linked Culp’s letter to the importance of changing GE’s culture. To know how necessary this is, you must read Jeff Immelt’s 2017 shareholder letter as GE’s CEO.

This letter rambled and weighed in at almost 8,000 words versus the average of 2,000 for most CEO letters. It lacked coherence and was loaded with fact-deficient, obfuscating, generalities or “FOG”. In fact, Immelt’s letter ranked dead last in my Candor Analytics Rankings Survey of CEO Letters. It suggested that GE’s culture – its beliefs and values that align actions, and engagement among owners, employees, customers and suppliers – was in serious trouble.

In 2002, I had the privilege of working with Jeff and his shareholder letter team to design his inaugural CEO letter. Talk about timing! He took over from legendary CEO Jack Welch soon after the planes crashed into the World Trade Center. Then Enron filed for bankruptcy igniting an epidemic of corporate mistrust that continues today. Immelt wrote about this in his letter:

This was not a great year to be a rookie CEO. With a tough economy, a volatile political environment, and the impact of 9/11 and industry cycles, business challenges were plentiful. Add to that the presumption of widespread corporate fraud and there were not too many normal days in 2002.

However, I am an optimist. In many ways, this was the best time to take over a company…"

His letter was clear, organized and inspired hope in GE, in business, and in a nation still traumatized by the Twin Tower tragedy. So how did GE lose its way? Why did the board now bring in outsider Larry Culp, the former Danaher CEO, to try to rescue this 127-year old company from financial and reputational ruin?

GE: Imagination at WorkAP

Perhaps GE’s over-sized 2016 board and its top-heavy management team had forgotten the words of GE’s legendary CEO Jack Welch: “Yesterday’s newspaper clippings wrap today’s fish.” They had grown insular and forgotten their primary responsibility: to nurture an accountability culture that balances and meets the expectations of customers, owners, employees, suppliers and partners, and communities.

How important is accountability to new CEO Culp? Here are some numbers: Culp’s letter totaled 2,808 words vs. 7,775 in Immelt’s last letter. Yet even with many fewer words, Culp scored 110 points from reports on meeting customer needs vs. Immelt’s 39 points. Culp applauded the essential contributions of GE’s employees in his letter; Immelt did not. About 24% of Culp’s letter was shrouded in FOG compared to Immelt’s letter, which registered 181% FOG. This means that Immelt’s FOG obscured all the positive content in his last letter.

Larry Culp2018 General Electric

Of course, a company as big as GE has a robust communications team which is responsible (along with the CEO) for the content in the shareholder letter. My assessment of GE’s 2019 letter is that about 24% of it is pure Larry Culp – his words, thought and heart; 35% of the letter reveals some integration between the old and new GE cultures; and 51% of it reads like the old GE.

Since Culp was made CEO just six months ago, this analysis shows remarkable progress. These stats suggest that GE’s culture was ripe for change and that Culp is building a culture that is inclusive, accountable, humble, respectful and where people “call things by their proper name”. Culp calls out two critical priorities in his letter: 1) to improve GE’s financial position; and 2) to strengthen GE’s businesses, starting with Power.

This letter excerpt illustrates how GE now articulates a problem and reports on actions to improve it:

Over time, the biggest lever we have to improve our financial position is to prioritize cash generation in each of our businesses. To that end, we are improving how we operationally manage cash every day, in every business, and are using lean management practices to improve working capital levels. For example, our Aviation team used lean and digital tools to improve average cycle time for the LEAP-1B, reducing the average engine assembly time by 10 days, or 36 percent. This led to lower inventory levels, more efficient throughput, and ultimately more available cash."

Culp also commented on GE’s troubled Power business and how it is both getting closer to customers and improving cash flow:

We also need to run Power better, improving how we manage our inventory and material management, product development and delivery, and billings and collections. For example, by moving responsibility for collections closer to the customer relationship managers, Power was able to improve its visibility to cash and collect it earlier in the quarter. Where we used to get just 35 percent of our cash in the first two months of the quarter, in the fourth quarter, Power increased this to 50 percent. This kind of operational improvement takes hard work, and it is a multi-year journey, but I'm encouraged by the Power team's dedication and progress.

For changes like these to truly take root, our businesses need to have more control over their decisions and rely less on the corporate office. Broadly speaking, if we want to run more empowered and accountable businesses, we need to radically change how we operate across GE."

GE90 Jet Engine2018 GE Aviation

So why is it important to focus on CEO words and to call things by their proper name? Futurist Neil Postman observed that “culture is a corporation of conversations”. Words build trust. And trust is destroyed when words are not aligned with actions. Management guru Peter Drucker believed, “The best way to predict the future, is to create it.” When we find the right words to express and share our thoughts with others, we are more likely to act wisely. Culp knows this.

Every day, each of us creates our internal and external worlds with our words and the actions they inspire. Perhaps each of us has a power to create and change beyond what we can imagine. A great leader sees this power and helps us to imagine – and believe – in the future.


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