Lessons from the Titans

Why do some companies rise to industry dominance while others crumble? The answer often lies in their management's choices and cultural attitudes, not just innovation or market disruptions.

1. Smart acquisitions can transform companies

Jack Welch's leadership of General Electric (GE) displayed how a bold acquisition strategy can reshape a business. In 1986, Welch sealed a $6.3 billion deal to buy Radio Corporation of America (RCA). RCA had a broad portfolio, but Welch was interested solely in its NBC television network. He strategically sold off the other RCA assets and even GE's existing consumer electronics division, raising more money than the acquisition cost. Effectively, GE acquired NBC for free.

With this capital freed up, Welch focused on other growth projects. One impactful initiative was winning the contract for the CFM56 engine to power Boeing's upgraded 737 aircraft. Recognizing globalization's growing travel demands, Welch bet on efficiency and reliability. The CFM56 became one of GE’s most successful products, selling over 32,000 units by 2020.

Another growth push came in the form of GE's energy turbines. Welch funded innovations to make the F series power turbines more versatile, addressing fluctuating electricity demands. These turbines not only served customers’ needs efficiently but created profitable, long-lasting service contracts for GE.

Examples

• GE acquired NBC almost for free by cleverly offloading other RCA assets.
• The CFM56 aircraft engine became immensely lucrative, earning its place as a top product in US history.
• GE developed power turbines that met seasonal energy spikes, generating stable revenue from maintenance.

2. Over-reliance on short-term boosts can spell trouble

GE Capital's meteoric rise in the 80s and 90s contributed significantly to GE's dominance, but the cracks in this success revealed themselves eventually. Originally created to offer financing for GE appliances, GE Capital evolved into a financial mammoth, often blurring the lines between genuine industrial earnings and financial gains. Under Welch’s leadership, the segment saw explosive growth by using creative accounting tactics to smoothen earnings reports.

When quarterly financial results looked weak, GE could cushion the blow by using earnings from its finance segment. This made the company’s growth appear steady and inevitable. However, it also justified riskier ventures—many of which lacked immediate returns—across the company’s portfolio. By the time Jeffrey Immelt succeeded Welch in 2001, GE Capital was contributing 40 percent of total earnings, rendering the company dependently fragile.

The cracks became undeniable during the 2008 financial meltdown. The risky, debt-heavy strategies left GE exposed, forcing Immelt to slash its dividend while share prices cratered from $60 in 2000 to $6 in 2009. If not for external lifelines, like Warren Buffett's emergency investment, GE may not have survived.

Examples

• GE Capital's unchecked growth delivered short-term profitability but hid structural flaws.
• Earnings from industrial gains and financial lending were improperly intermingled.
• The 2008 crisis saw GE’s share prices plunge as its over-reliance on GE Capital backfired.

3. Toxic cultures can prevent honest feedback

Under Jeffrey Immelt, GE's cultural flaws, long embedded during Welch's reign, stifled criticism and independent thinking. Immelt perpetuated an environment where tough questions went unasked, and dissenting voices were silenced. This lack of internal checks often pushed the company toward risky, impractical ideas while long-standing problems were ignored.

This issue wasn’t limited to internal decisions—GE's culture extended externally too. Wall Street analysts were pressured into giving favorable ratings to support GE stock. One analyst recounted how bankers warned him daily about the potential consequences of delivering unflattering reports on GE. Such tactics inflated GE’s stock price, creating a bubble that worsened its fall during the 2008 financial crisis.

Immelt’s tenure ended following several poor acquisitions, such as the $17 billion Alstom Power purchase, which burdened GE with failing assets. By then, GE's reputation and organizational credibility were eroded, hampering meaningful growth.

Examples

• GE discouraged feedback and constructive criticism, allowing risky ventures to flourish unchecked.
• Analysts received threats to coerce favorable stock ratings, promoting a manufactured image of success.
• Poor acquisitions like the Alstom deal further diminished GE’s prospects.

4. Over-complicated projects can derail success

Boeing’s 787 Dreamliner aimed to set new industry standards for efficiency and performance. However, poor execution turned a high-potential venture into a costly delay. When the Dreamliner was finally launched in 2011—four years behind schedule—the project had drained over $50 billion from Boeing's coffers. It only became profitable five years later.

Learning from this, Boeing attempted to streamline operations under subsequent leadership. New strategies included ceasing high-risk projects and tightening supply chain costs. However, such shortcuts contributed to the development flaw in the 737 MAX aircraft, leading to two tragic crashes. The defective MCAS system revealed a culture that seemingly prioritized speed and competition over quality and safety.

Boeing’s struggles worsened with the COVID-19 pandemic, grounding aircraft orders worldwide just as the company anticipated rebounding demand for the 737 MAX. Its attempts to reduce risks had, ironically, left it even more vulnerable.

Examples

• Boeing’s late delivery of the 787 Dreamliner caused financial losses exceeding $50 billion.
• The defective MCAS system on the 737 MAX resulted in major safety failures and two fatal crashes.
• The pandemic disrupted Boeing's recovery plans, compounding earlier missteps.

5. Turnarounds require strategic investments

When Dave Cote joined Honeywell in 2002, the company was in shambles. With debts, lawsuits, and inefficient factories dragging it down, few expected success. However, Cote methodically addressed multiple weaknesses, emphasizing smart hiring, localized manufacturing, and targeted spending.

Instead of cutting staff indiscriminately, he prioritized investing in high-potential areas, including aerospace software. This decision allowed Honeywell to boost innovation while keeping operating costs in check. Cote also championed localized production, ensuring that products sold in local regions were manufactured there—a key move for the company’s growth in international markets like China.

By 2017, Honeywell had transformed into a well-oiled machine with significant profitability. Its market capitalization soared to $125 billion, reflecting the success of Cote's focused decisions.

Examples

• Targeted R&D spending helped Honeywell innovate in high-demand sectors like aerospace software.
• Localization strategies tailored production to specific markets, fostering international expansion.
• Under Cote's leadership, Honeywell’s profits rose from 11% to nearly 20% in just over a decade.

6. Big changes often require teamwork

United Rentals faced immense difficulties before Mike Kneeland took over in 2008. The company, which rents industrial equipment, suffered inefficiencies because its branches functioned independently. Furthermore, its compensation structure rewarded managers for individual profits rather than broader district success.

Kneeland aligned the branches toward regional cooperation by linking bonuses to group results. He also implemented centralized pricing policies and improved workflow efficiency through kaizen—a philosophy of continuous small improvements.

Over a decade later, United Rentals emerged as a market leader despite carrying significant debt. Its operational changes created a scalable model adaptable to acquisitions, helping it integrate newly acquired rivals with ease.

Examples

• Regional collaboration policies connected over 200 independent branches under shared goals.
• Digital solutions streamlined pricing and contracts across United Rentals’ systems.
• Kaizen workshops addressed inefficiencies, improving workflow and reducing costs.

7. Lean principles improve production and profits

One recurring lesson is the value of lean manufacturing systems, which focus on reducing waste and improving efficiency. Honeywell implemented lean methods to boost production speed and quality, while also cutting costs. Boeing and GE similarly relied on lean practices to remain competitive, although neglecting these processes often led to costly mistakes, as in GE’s case.

The result of lean systems often includes faster delivery times, lower defect rates, and higher operating margins. The success of companies like Honeywell underscores these benefits and shows how lean principles foster long-term growth.

Examples

• Honeywell’s lean practices raised its profit margins to industry-leading levels.
• GE faltered when Immelt's team abandoned focus on reducing manufacturing inefficiencies.
• Boeing’s use of lean systems helped improve certain financial metrics, despite external setbacks.

8. Leaders must adapt to market realities

Leaders navigating industrial businesses must keep grounded in market conditions. Immelt’s failure to pivot GE away from declining areas like fossil energy was a missed opportunity. Conversely, companies like Honeywell succeeded by investing in sustainable technologies and adapting ahead of trends.

Examples

• Immelt’s indecision led GE to overcommit to outdated sectors.
• Honeywell’s investments in greener technologies fostered growth.
• United Rentals capitalized on changing work site rental needs by streamlining its offerings.

9. Responsible capital use drives long-term growth

Allocating resources effectively can make or break a company. Reckless mergers and spending placed GE at risk, while strategic acquisitions enhanced Honeywell and United Rentals. Leaders must weigh capital returns wisely to ensure stability and profitability.

Examples

• Immelt’s $17B Alstom acquisition became a costly misstep.
• Honeywell’s targeted R&D spending developed successful product lines.
• United Rentals’ post-acquisition structure ensured efficient integration and growth.

Takeaways

1. Prioritize building an open company culture where criticism and feedback are welcomed.
2. Adopt lean principles to reduce waste across production and management systems.
3. Optimize average employee performance instead of relying solely on standout talent.