GE “The House That Jack Built” Becomes Immelt's “Global Industrial Fortress”

Date01 January 2016
Published date01 January 2016
© 2016 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22119
“The House That Jack
Built” Becomes Immelt’s
Louis P. Le Guyader
CEO Jeff Immelt
is completing the
most recent phase
of his transforma-
tion of GE. The most
up-to-date version of
his vision foresees GE
as the leading global
industrial corporation.
This GE is a large but
streamlined global
competitor that has
significantly reduced
its emphasis on finan-
cial services and exited
certain mature business
lines; this sleek and
strong industrial GE
is designed to produce
sustainably high indus-
trial sector returns on
equity (ROEs) that
map into a sustainably
high stock price. GE’s
reweighted ROE is also designed
to reflect a qualitatively new
“GE premium” in its stock price.
This article provides a snapshot
of Immelt’s strategy through
mid-2015 and seeks to explain the
propositions most likely to be at
the core of his thinking.
When Immelt
took over the GE
helm from Jack
Welch, the “house
that Jack built” had
become a vast inte-
grated industrial
conglomerate with a
marquee plastics busi-
ness and sustainable
GE brand items, from
light bulbs and appli-
ances to locomotives
and aircraft engines.
Moreover, these busi-
nesses were operating
vibrantly in paral-
lel with its growing
finance businesses.
The finance activity
was known by vari-
ous labels and quietly
occupied a capital markets niche
as one of the largest nonregu-
lated banks in the global capital
markets. Dividends were high,
Industrial GE has built a fortress balance sheet.
Legacy businesses were jettisoned if they were too
mature, and declining. The massive finance busi-
ness’s dominance that threatened to overshadow
the balance sheet has been reduced, and the
associated regulatory burden is being minimized.
New industrial businesses have been acquired to
deepen the industrial commitment and diversify
within it, with major positions in Europe and China.
New manageable uncertainties including foreign
currency risk have been accepted as part of the
“going global” bargain. An internal hedge against a
pure “brick-and-mortar” strategy has been created
in the form of a newly announced “digital” market-
ing approach. The purer GE return on equity (ROE)
signal should be easier for the market to interpret.
The “upgraded” ROE is engineered to generate
a new style of “GE premium” in the stock price.
© 2016 Wiley Periodicals, Inc.
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