Tuesday, May 4, 2010


General Electric Company

Fact File

Founders: Thomas A. Edison.

Distinction: It lit up our lives

Primary Products: Electrical equipment, home appliances, jet engines,

financial services, broadcasting.

Annual sales: $110.832 billion.

Number of employees: 340,000.

Major competitors: Matsushita, Rolls-Royce, Siemens.

Chairman and CEO: John F. Welch Jr.

Headquarters: Fairfield, Conn.

Year founded: 1892.

Web site: www.ge.com.

General Electric was already one powerful company when the 45-year-old

son of a railroad conductor, Jack Welch, took control. The year before, it

reveled in a $12 billion market value and recorded earnings of $1.5 billion

on sales of $25 billion. It could trace its roots to the great Thomas Alva

Edison, and notable alumni ranged from Hewlett-Packard co-founder

David Packard to offbeat novelist Kurt Vonnegut. It had a hand in

developing everything from light bulbs and toaster ovens to televisions

and jet planes. Its name was one of the most well-known on Earth.

Welch and his backers felt GE could do better, however, and under his

direction it has. By emphasizing quality in both products and processes,

the company’s sales increased nearly ten-fold while its stock moved

consistently upward. Unproductive subsidiaries were jettisoned and

promising new ones acquired. A bloated payroll was trimmed drastically

and unnecessary layers of bureaucracy cut. In the process, GE was

transformed from a successful if lumbering old-line industrial giant into a

sleek money-minting conglomerate that now combines manufacturing

with service and technology in way that meshes perfectly for today’s

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global economy.

GE’s story begins in 1878, when Thomas Edison founded the Edison

Electric Light Company to support his development of a practical

incandescent lamp. He produced his first one, along with his first

“dynamo,” within a year. As other products followed, he renamed the

company Edison General Electric. Competing firms started surfacing. One,

the Thomson-Houston Electric Company, grew particularly strong because

of a series of mergers and acquisitions. Edison ultimately combined forces

with it in 1892, and a powerful new entity dubbed General Electric was


Through his patents and consulting responsibilities, Edison remained

involved with his old company for several years. During this time it moved

into various related endeavors–such as building the world’s largest

electric locomotives and transformers. Success in these fields led to GE’s

listing in the original Dow Jones Industrial Index in 1896. Today, it is the

only one of those initial entries still included.

Edison’s passion for invention also rubbed off on his peers. In 1990 the

company established a novel research and development center run by Dr.

Willis R. Whitney. Over the years GE’s in-house scientist developed many

trailblazing ideas at this facility in Schenectady, N.Y. (which is now the

world’s largest private lab of its kind.) Among the many early products

that took shape here was the first electrically-propelled ship developed for

the U.S. Navy in 1912, and the first hermetically-sealed domestic

refrigerator unveiled in 1925.

The 1920s additionally kicked off a lengthy period in which General

Electric began focusing on the creation of TVs and radios. The company’s

first connection to this burgeoning news-and-entertainment arena can be

traced to 1919, when it helped David Sarnoff found the RCA Corporation.

Its initial intention was to correct as large a portion as possible of the

rapidly growing market for radio receivers, which soared in sales from 12

million in 1921 to 207 million in 1926. But during this time, GE also

entered the broadcast fray, putting Schenectady’s WGY on the air in 1922

in direct competition with RCA’s own content providers.

As RCA organized the NBC network and began experimenting with an

even more promising media called television, both as a broadcaster and a

set producer, GE formed a plastics division to advance development of TV

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receivers and related products. It also moved into the production of

airplane engines as World War II began. In 1942, its turbos powered the

very first jet–propelled planes designed and built in the United States. A

decade later, its J-79 jet engines were the first to transport aircrafts at

twice the speed of sound. The smaller appliances, such as those it had

become known for in the past were not neglected. In the 1950s, GE

began building early computers (again with RCA) while its house wares

division introduced the Toast-R-Oven, along with a clothes dryers that

featured the industry’s first automatic termination device.

During the next few years General Electric played a role in the creation of

even more technically advanced projects, such as the weather satellite

and vacuum circuit breaker. And in 1969, it assisted in the Apollo moon

landing–which was the result of 37 separate GE operations handled by

6,000 company employees. Dr. Ivar Giaever of its R&D Center was

awarded the Nobel Prize for physics in 1973, and the facility designed a

critical component for the CAT scanner in 1975. Its lighting division by

this time had become a leading supplier of bulbs and other products

around the globe. The appliances division was then also one of the world’s

largest, producing refrigerators, freezers, ovens, ranges, washers, dryers,

dishwashers, microwaves, disposals, compactors, air conditioners, and

water purifiers. The aviation division had expanded into aircraft leasing,

while other departments concentrated on electric power, medical

technology, and a host of individual and commercial financial service.

Still, shareholders were not satisfied. In 1981, they shook things up by

naming Johan F. Welch, Jr. to lead the firm. The Massachusetts native not

only became the youngest person ever to head GE, but with his Ph.D. in

chemical engineering he was also the first with a doctorate at the helm.

Welch quickly showed that he would additionally be the first in modern

times to demand big changes. Immediately, he announced that the 89–

year–old institution would henceforth only compete in fields in which it

could be first or second among all players.

To reach that goal, he pulled the company away from small household

appliances. He downsized the workforce from 404,000 to 229,000, ending

GE’s longtime no-layoff policy and earning the nickname Neutron Jack. He

sold $12 billion in GE businesses and purchased others worth $26 billion.

Among them was the RCA Corporation and its NBC television network,

although he turned right around and swapped RCA's consumer electronics

division–which he deemed a loser–for a French medical technology firm.

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He agreed to combine GE's European interests in appliances, medical

equipments, electrical distribution, and power systems with the unrelated

General Electric Company of Britain.

The combination generated some criticism even as it transformed the

venerable manufacturing giant into a global service-oriented titian. It also

boosted the company’s market cap from $12 billion to more than $100

billion–garnering increasing admiration along with the rapidly diminishing


Above all, Jack Welch prepared GE for the 21st century by insisting that

all of its business would consistently perform at the highest level possible.

In 1995–the year he underwent triple bypass surgery and started

speculation about a successor–Welch implemented his most famous

efforts in this regard: “Six Sigma.” A quality initiative that permits just

3.4 defects per every one million possibilities, Six Sigma demands nearperfection

across the board. Welch invested $200 million that first year to

jump-start the program in 200 projects. When he learned it almost

immediately generated $170 million in savings, it was rapidly expanded.

Other firms also rushed to use it to boost their customer satisfaction,

supplier quality, internal performance, and other gauges of


Welch’s legend expanded as GE became, in 1997, the first company in the

world to exceed $1200 billion in market value. After teaming its NBC

division with Microsoft in order to launch the groundbreaking television

and Internet news service MSNBC, he aggressively expanded the list of

products the company sells online–including financial service such as

insurance, mutual funds, credit cards, and home mortgages.

And then Welch announced that he would step down late in 2001, after 20

years on the job. At the end of 21000, GE named medical systems

division boss Jeffrey R. Immelt, 44, to replace Welch. Immelt immediately

became president- and chairman-elect, and began working closely with

Welch until the transition was completed.

At number-five on the Fortune 500, with successful operations in dozens

of fields and more than 100 countries, he had taken GE farther than

almost anyone expected. Few were surprised, therefore, when he was

offered the record book advance to explain how he did it–or with his

subsequent pledge to give the entire $7.1 million and all additional

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earnings to charity.

IBM Corporation

Fact File

Founders: Thomas Watson Sr.

Distinction: The king of technology throughout the technology age.

Primary Products: Computer hardware, software, peripherals, service.

Annual sales: $87.548 billion.

Number of employees: 307,401.

Major competitors: Compaq, Hewlett-Packard, Microsoft.

Chairman and CEO: Louis V. Gerstner Jr.

Headquarters: Armonk, N.Y.

Year founded: 1911.

Web site: www.ibm.com.

Thomas Watson Sr. (also known as TJ) joined the company that would

become IBM in 1914, the same year Thomas Watson Jr. was born. TJ left

his job as second–in–command at the National Cash Register Company

one year earlier. He joined the Computing–Tabulating–Recording

Company as general manager, and became president after 11 months. At

40, Watson found himself with a new baby and a new business. The

latter–with 1,300 employees, a half dozen North American plants, and

headquarters in New York–sold everything from commercial scales to

cheese slicers. Both father and son would have a lot to say about that in

coming years.

TJ was an accomplished salesman, having hustled sewing machines and

musical instruments before joining NCR and working his way up to

general sales manager. At C-T-R he put his experience to use, paying

particular attention to the Punch Card Tabulating Machine developed in

1890 for the U.S. Census Bureau. To sell it to businesses, such as

railroads and insurance companies, Watson adopted numerous tactics

from his previous firm. These included employing only clean-cut salesman

who aggressively competed for generous performance incentives, hanging

assorted inspirational slogans like “THANK” and “Make things happen”

throughout the workplace, and instilling fiery company spirit by promoting

employee sports teams, family outings, and even a company song.

Watson built a fanatical workforce. And within a half-dozen years tripled

revenues to about $15 million before expanding into Europe, South

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America, Asia, and Australia. Concentrating on tabulators, time clocks and

typewriters, he refocused the company and in 1924 changed its name to

International Business Machines to reflect its new emphasis.

The Depression quieted most American businesses in the 1930s, but it

seemed only a minor inconvenience to Watson. During the decade he

unveiled new calculating machines, and gave employees medical and life

insurance, a pension, and paid vacations. This kept everyone busy and

loyal until the Social Security Act of 1935 was passed, bringing IBM a

huge contract to maintain records for the new program’s 26 million

participants. To assist in what the company still calls “the biggest

accounting operation of all time,” Thomas Watson Jr. came aboard in


IBM was an optimistic place, but the start of World War II changed

everything TJ offered his plants to the U.S. Government, and got them

producing some three dozen war-related items such as bombsights and

rifles. At the same time, his son left for a five-year hitch as a B-24 pilot.

While the war raged, the line between Seniors’s declining reign and

Junior’s emergence was irrevocably drawn. In 1994 IBM completed

six-year collaboration with Harvard to develop the Mark I, or

Automatic Sequence Controlled Calculator. Over 50 feet long and

weighing five tons, it was the first machine capable of automatically

executing long computations. Seeing few commercial possibilities, the

elder Watson dismissed the new technology. But the younger Watson

envisioned it as the company’s future. His position ultimately won out,

and in 1952 he was named IBM’s president.

During the next several years the company went the way of both

Watsons, moving solidly into the new age of computers while solidifying

its old-world culture. A strict level of almost Victorian morality prevailed,

while workers often toiled overtime and on holidays. As compensation,

they were offered top benefits along with an inherent promise of lifetime

employment. This created a fiercely faithful staff that eventually

developed the first computer to efficiently perform basic business

functions, such as billing, payroll and inventory control–thus opening new

opportunities that IBM was ready and eager to address.

The younger Watson fully emerged from TJ's shadow by aggressively

pursuing this new market. And in 1956–just six weeks before the elder

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Watson’s death–Thomas Jr. was named IBM’s CEO. One of his first acts

was to reorganize into six autonomous divisions. He then completed

the move from old-fashioned tabulators to cutting-edge

computers by developing the first transistorized mainframes and

the first “family” of compatible business computers. He also

revolutionized the way such products were sold, unbundling the

hardware, software and services previously offered only as packages. The

company blossomed during this tenure, which ended a year after he

suffered a heart attack in 1970, growing from 72,500 to 270,000

employees and from $892 million to $8.3 billion in gross revenue. Fortune

magazine called him “the greatest capitalist who ever lived,” and he sat

on the board until 1984.

Life after the Watsons was not so smooth. IBM products became

increasingly ingrained in everyday life, as epitomized by its supermarket

checkout stations and early automatic teller machines. It remained the

leader in large computers, and claimed the desktop market for itself for

awhile after unveiling the PC. Old technology (like the ubiquitous Selectric

typewriter) was jettisoned, and new technology (as embodied by the

pioneering, but ultimately unsuccessful, Prodigy service) was embraced.

But when growth peaked in 1986, a swollen, complacent workforce and

corporate-wide arrogance stemming from years as the unmatched

industry leader, kept IBM from pursuing potentially lucrative new


By the early 1990s, IBM no longer seemed sure of its customers or the

products they needed. Pressures mounted along with losses. In

desperation, the board turned for the first time to an outsider–Louis V.

Gerstner Jr. –and beseeched him to turn their company around.

Gerstner began with a bang, slashing annual expenses by $9 billion.

Among other things this meant layoff–unambiguously reneging on the

historical promise of lifetime employment–and the newcomer had to deal

with the resultant personal and cultural fallout.

Another major reemphasis was on customer orientation, a sensibility

shared by both Watsons but largely missing since their departure. This

was achieved in part by revamping the product line to meet the real

needs of the customer, whom Gerstner believed was mainly interested in

network computing issues. He began by acquiring complementary

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business to spilt IBM into independent companies (recognizing the

advantages of offering broad but integrated services).

In 1997, IBM emphatically proved its heavy-duty hardware still packed a

punch. It created a machine nicknamed Deep Blue that defeated world

chess champion Garry Kasparov in a six-game match. But the attention

remained primarily on helping clients plan, install and operate virtually

any type of high-tech network. As the century turned, a strong interest

developed in e-business customers, for whom IBM could do everything–

from hosting simple Web sites to orchestrating entire corporate

technology programs. A reorganization early in 2000 aimed for

accelerated growth in this area and also hinted at a possible successor to

Gerstner, whose employment contract calls for him to remain at least

until March 2002 when he turns 60. Without confirming or denying such a

departure he is concentrating on building IBM’s strengths in e-business,

which he’s targeted as his next frontier.


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