I’ve seen GE in the news recently. The main point seems to be that CEO Jeff Immelt is guiding the company away from the elixir of finance and back to its roots in manufacturing.
Steve Lohr writing in The New York Times on Dec. 4 says, “Perhaps no company outside of the banking sector was hit as hard by the financial crisis as G.E., certainly none that seemed healthy before the economic tailspin. Its big finance arm, GE Capital, long a cash machine that bolstered the mother ship’s bottom line, became an albatross, threatening to pull down the entire enterprise. G.E. cut its dividend for the first time since the Great Depression, lost its triple-A credit rating and hastily arranged a $3 billion investment from the billionaire Warren E. Buffett.”
Immelt admitted that GE was “seduced” by GE Capital’s financial promise. In a disturbing part of Lohr’s report, he notes, “In the buoyant years before the credit crisis, the company’s finance arm contributed nearly half of GE’s overall profits. When Mr. Immelt had qualms about the unit’s risks, he sought outside opinions, including ordering up a study by the consulting firm McKinsey & Company in 2007. Sixty days later, the consulting team, he says, told GE that money from nations with a trade surplus, like China, and sovereign wealth funds, among other investors, would provide enough liquidity in the financial system to fuel lending and leverage for the foreseeable future. (McKinsey declined to comment on the study.)”
I call this disturbing because McKinsey supposedly hires very bright people. But they ignore what makes an economy healthy and buy into the day’s prevailing wisdom.
Where the blog is going
Seven years ago this month, I started playing around with blogging software and began this blog. I had been reading blogs for several months, but 2003 was a hectic time as we got Automation World started and I learned to be an Editor in Chief. December was the first break I had where I could put together several contiguous days to concentrate on it.
It began as a person blog where I wrote as much about soccer as business and automation. For several reasons, the blog got co-opted by Automation World. First the sales department discovered it could sell advertising for an email newsletter with the blog as contents. Then I discovered we just couldn’t post news often enough on our Website, so I started doing more newsy posts on happenings in the automation market.
Very soon, you will see a new and revolutionary Automation World Web site. Scary, I’m not on the team, but they are doing almost what I would do if I were designing it. It’ll be great. It’s built on a new platform that is easier to use than our current platform. So for current news, the site to visit or subscribe is here.
I will be doing less news and more thoughtful pieces on manufacturing, leadership, automation technology–and, yes, soccer.
I finally caved in and decided to send Rupert some money for an electronic Wall Street Journal subscription. Hope I’m not disappointed. But I say a couple of recent articles that had interesting manufacturing angles.
“Insourcing: The Secret To Job Growth, Want to put Americans back to work? Help multinationals grow their U.S. operations,” by Robert M. Kimmitt and Matthew J. Slaughter, looks at the inverse of “outsourcing”–or sending jobs away from America.
They write, “Last month a Survey of Current Business report by the U.S. Bureau of Economic Analysis suggested ‘perhaps accidentally‚’ a promising new approach. The report documented a dynamic group of companies that create high-paying American jobs based on significant capital investment and export prowess‚–precisely the kinds of jobs America desperately needs to build a sustainable recovery.
“In 2008, these companies employed 5.6 million Americans, 4.7% of total private-sector employment. In the U.S. private sector that year, these companies accounted for 11.3% of capital investment ($187.5 billion), 14.3% of research and development ($40.5 billion), and 18.1% of goods exports ($232.4 billion). All these activities contribute to good-paying jobs. In 2008, total U.S. compensation at these companies was $408.5 billion‚ per-worker average of $73,023. That’s about one-third more than the average for all other U.S. workers.
So which companies are these? Ones that “insource”‚ that is, the U.S. operations of multinational firms based abroad. Insourcing companies now employ more than twice the number of Americans they employed in 1987. According to a recent survey by the Organization for International Investment, the chief financial officers of insourcing companies continue to see growth opportunities in America. Almost 50% plan to increase U.S. employment over the next 12 to 18 months, and just 22% plan to reduce it.”
The global economy is so complex that any simple explanation will be much like the fable of the blind men and the elephant–you see only that part to which you’re disposed to see, overlooking the whole picture. Remember to step back and look for balance when you see just one report.
I just received two reports on economic growth in the United States.
U.S. purchasing and supply management executives say economic growth in the United States will continue in 2011 in their December 2010 Semiannual Economic Forecast. Expectations are for a continuation of the economic recovery that began in mid-2009. The manufacturing sector continues to outpace the non-manufacturing sector and has greater expectations for growth in terms of revenue, say the nation’s purchasing and supply management executives in their December 2010 Semiannual Economic Forecast. The overall forecast projects optimism about the U.S. economy for 2011. The manufacturing sector, overall, is positive about prospects in 2011 with revenues expected to increase in 16 of 18 industries, while the non-manufacturing sector appears slightly less positive about the year ahead, with 12 of 18 industries expecting higher revenues. Business investment, a major driver in the U.S. economy, will increase substantially in the manufacturing sector, while investment in the non-manufacturing sector will increase at a lower level. These projections are part of the forecast issued by the Business Survey Committee of the Institute for Supply Management (ISM).
Senior management at U.S. manufacturing companies is once again optimistic, according to a Grant Thornton LLP November survey. Nearly half (49%) believe the U.S. economy will improve in the next six months, and the same amount (49%) say they plan to increase staff during the same period. Manufacturing leaders are also optimistic about their own businesses, with 81% feeling optimistic about their companies’ growth over the next six months.
There is much reason to be optimistic looking forward into 2011. But it will take all of our leadership skills to keep this growth on the right track.