Wednesday, December 12, 2018

What Went Wrong at GE?



What went wrong at GE ?
by Harrison Snow


GE is an industrial conglomerate with a
storied history that was long considered the model for how a business can thrive through skilled leadership and a strong culture. GE’s different divisions make a wide range of products to include: jet engines, medical devices, drilling equipment, power generation, Insurance, and healthcare. The traditional benefit of a conglomerate is its ability to weather cyclic downturns because different sectors may be in different stages of a cycle. Losses in one sector can be offset with profits in another sector 


Yet, somehow during an historic business expansion after the 2008 financial panic, GE managed to underperform its competitors and the stock market overall.  Some of the bad news for GE includes a stock price that lost 61% of its value while the stock market increased its value a 185%. This translated into a loss of 175 billion dollars in market evaluation over two years. The GE dividend is now at four cents per share and its stock is no longer listed on S&P 500. Cash flow from profitable divisions goes into servicing the debt accumulated by the underperforming divisions.

John Clupp, the current CEO, was brought in to turn around GE. An outsider, he must win over employees to his vision for the company. He replaced John Flannery who was fired by the board after a one-year tenure. Flannery tried to reduce the complexity in the areas of organization, finance and staffing that made running GE a management challenge. His predecessor, Jeffery Immelt, was forced out after a sixteen-year tenure, in part, because of a series of mergers and acquisitions that proved to have more costs than benefits.  Criticized for being fad driven, the top dollar prices he paid resulted in what is known as poor capital allocation; which included buying back GE stock at high prices. His predecessor, Jack Welch, was considered by many to be an iconic business leader who guided GE through a long period of profitable growth. However, Welch was nicknamed, Neutron Jack, for his HR policies that supposedly eliminated staff while keeping infrastructure intact. He was also an advocate of the “rank and yank” policy that automatically fired staff ranked at the bottom ten percent of all performance evaluations.

Focus Question

The two questions the Washington DC Organizational Constellation group sought to answer after reviewing the data presented above were: What key factors were responsible for GE’s decline? If those factors were identified what measures could be taken to truly turn GE around? While issues such as poor capital allocation certainly affected GE’s bottom line they were seen to be symptoms of the problemand not the actual problem. 

 GE employees lots of smart, educated and capable people. The GE culture supports, at least in principle, “speaking truth to power.”  How did they, at least at the headquarters level, manage to keep making the same mistakes; chasing fads that resulted in poor capital allocation? Was there insular thinking that meant they were somehow out of touch with the dramatic changes taking place in the business world? 

GE has taken steps to shake up C-suite management and the board, institute a leaner workforce and reduce financial complexity. Would this bring about the necessary change whatever that might be to revitalize the company?

The group of participants conducting this analysis included two shareholders, a potential shareholder and a former employee. One of the shareholders had been impacted by the decline in the stock price. Was there hope for a turnaround or should he cut his losses? 

Systemic Factors

The group brainstormed a list of systemic factors that might be impacting GE. The factors that seemed most relevant included: former CEO Jack Welch, the new CEO, staff affected by the “rank and yank” policy, previous nuclear power programs and the associated toxic waste, the GE conglomerate business model, something not apparent that was the root cause of the downward spiral, and the GE management ethos. The nuclear power issue was unexpectedly raised by the former GE employee who participated in the exercise. Although it was something no one else had heard about the issue seemed relevant so the participants decided to include a representative for it in the constellation. 

The members of the group each agreed to represent one of the identified factors and found a spot in the meeting room that seem to be their place. Two groups formed and stood about 15 feet apart. The smaller group was Jack Welch and the toxic waste from the nuclear program. Another person joined them to represent the people affected by the radiation. 

Interactions by the Representatives 

Welch reported he felt distant from GE but concerned about what was happening there.  Near the GE group but not in it was the new CEO. He observed their interactions with a degree of objectivity and detachment.  In the GE group the representative for those affected by the HR policy was bent over and turned away from the others. The business model moved slowly towards the management ethos. She eventually she stood in front of the ethos wanting to know what the company stood for now. Ethos and the affected staff did not look at her and the new leader. Nuclear waste left her small group and moved slowly over to the side of management ethos as if looking for something. 

 Nothing happened until Welch moved closer to the GE group and claimed responsibility (for his part) for the HR policies and management ethos and how that had affected people. When that occurred the staff, who were bent over, stood up and turned to face the rest of the company. The shadow root cause realized he was hubris. He was “the best” and always knew better than anyone else. He represented a long history of excessive pride and arrogance that led to bad decisions and a lack of self-accountability. 

When management ethos saw how hubris was a part of his persona it was able to become humbler and more connected to the others in group. Ethos acknowledged what happened to the “ranked and yanked” staff and the victims of the toxic waste. Both ethos and business model looked at John Clupp to answer the question, who are we now?The new CEO seemed relieved this question had been asked. And he appeared ready to work in partnership with the rest of company to forge the answer.  

Exercise Debrief and Take-Aways

After the participants de-roled from the exercise they discussed what they took from the experience. The answers to the two questions had a lot to do with the corporate culture that Welch was instrumental in creating and the policies and structure that supported it. 

Hubris not only fosters poor decision making; it prevents people from learning from their mistakes. “Being the best” can easily warp into “looking the best” and not admitting or addressing mistakes. Clearly over the last few years, this emperor had no clothes. But there was no way to confront the issue and how it was impacting decision making as long as hubris was an unacknowledged part of the management ethos. 

Restoring the GE brand according the results of this exercise starts with changing the culture. This change requires a collective and honest look at the ethos of “being the best” and how that shaped workplace behavior. Pride can be source of strength. Hubris never is. But it’s difficult to know the difference once hubris takes root. The new CEO has the opportunity to inspire the shift towards humility. During the exercise the dysfunctional ethos became more open to the change effort the new CEO needs to lead. This openness grew as parts of the company’s dysfunctional past were brought to light and acknowledged. Obviously, some corporate soul searching is called for. This soul searching would likely be more accepted if the champion of that effort was an insider, like Walsh, who helped shaped the past dynamic that is affecting GE’s present performance.

The unexpected issue of nuclear waste was intriguing. Any waste that was a public health hazard likely occurred decades ago. The fact that it showed up in the constellation asking to be seen and acknowledged does not mean some kind of malfeasance actually took place. But it does indicate a potential issue that needs to be researched. That research would answer the question if there is a past that should be uncovered and remediated. 

 The possible victims of the toxic waste, along with the “ranked and yanked” staff could be two groups who might be still be energetically part of the current system.  Given GE’s poor performance one has to ask if there was an unconscious compensation at work to atone for those who were disadvantaged or hurt by abusive or shortsighted corporate policies and culture? 

Conclusion 

About two weeks after the above exercise the writer of this article came across a blog, Contrarian Edge, written by investment analyst, Vitaliy Katsenelson.  According to Katsenelson, GE’s management thought they could dramatically improve any company they acquired through a process known as Six Sigma. Their confidence in their abilities was such that they did not worry much about the initial acquisition costs. Katsenelson also faulted Jack Welch for his near obsessive focus on quarterly results. Welch left GE years nearly two decades ago but his values apparently still predominate as part of the management ethos. The focus on beating Wall Street earnings estimate each quarter likely made short-term thinking and short-sighted behaviors part of the institutional norm. Revising the GE culture and establishing acorporate modus operandibased on greater humility and longer-term thinking should be one of John Clupp’s priorities as he seeks to rebuild the GE brand and its performance.























Friday, February 23, 2018

North Korea, the USA and the Bloody Nose Option; A Systemic Analysis














On January 26, 2018, members of the Chesapeake Bay Organizational Development Network (CBODN) facilitated a public session to explore the dynamics between the USA and North Korea. The Wall Street Journal had recently reported that the Trump Administration was seriously considering the “bloody nose” option of a limited conventional strike to break the standoff between the two countries and initiate meaningful negotiations. Obviously, this option was considered high risk, by a number of commenters, given the level of retaliation that would likely follow. The other option was diplomatic engagement with the threat of increased sanctions. However, years of diplomatic efforts and sanctions had so far failed completely to persuade NK to abandon its nuclear ambitions. Between the two extremes was the current situation of uncertainty and ambiguity. Both states were engaged in the boasts, insults, threats, and justifications of classical saber rattling that often precedes an outbreak of hostilities. As professionals who work to resolve conflicts in large systems, the CBODN members felt called to utilize their tools and expertise to look for potential solutions.

The analytic tool chosen for the exploration was a process known as systemic constellations. The tool is based on systems thinking and embodied learning theory.  Once the analytical question is clearly articulated the key actors in the system are identified. Representatives for those actors are selected and placed spatially in relationship to each other in a way that replicates the current dynamic within the system. Various scenarios based on a tentative hypothesis are introduced and observed to see how they play out. As described in the book, Confessions of a Corporate Shaman, the process is used to explore individual, organizational and social issues.

The tool offers a heuristic for “going to the balcony” and enabling a meta-level perspective that might reveal previously unseen connections and motivations. While the tool is similar in some respects to scenario planning it also possesses an embodied, learning component which may uncover new insights not conceptualized by other means that are solely cognitive.

The primary analytic questions we asked ourselves was about the viability of military force versus diplomacy to resolve the crisis.  Was the USA serious about the bloody nose option? What would happen if the USA did implement that option? Were there unknown factors that, if brought to consciousness, might open new possibilities for reconciliation?

Our group of participants included two Americans who had spent time in South Korea for business and defense-related purposes and one South Korean who was involved in monitoring the status of human rights in North Korea. The other participants had little experience with the region but were aware of the rising tensions between the two countries and concerned about the ramifications. Ironically, the group supported analysis was conducted in a meeting room just a few blocks from the State Department in Washington DC.
Three people were set up to represent South Korea (SK), North Korea (NK) and the United States (USA) and begin the analytic process. NK took its place in the middle of the room and stood staring at the USA. The USA paced back and forth on one side of the room glancing furtively at NK. These behaviors arose spontaneously in the representatives without any premeditation or acting as if. SK moved to a place behind NK and stood there at a distance observing the dynamic between the USA and NK with a demeanor of helpless despair. The tension in the room grew. NK glared defiantly but did not move as a worried looking USA continued to pace. NK reported feeling powerful and in control but not happy about its power.

Besides tension, there was also a sense of pain in the room. A representative was placed off to the side for the traumas people had experienced in the region. It was pointed out that besides WWII, the Korean War, and human rights abuses in NK, Japan had a long history of intervening in Korea including its occupation of the county from 1910 to 1945. NK refused to look at or acknowledge the pain brought on by these collective traumas. The only thing that mattered was holding on to its power because power meant survival.

After the representative for collective trauma was given a place SK moved to the side of the USA. They both paced while NK watched impassively. They had the sense that this standoff favored NK. A representative for China was brought in. China stood facing the right side of NK.  He reported feeling annoyed with the USA. Why should he disadvantage himself for the sake of the USA? It did not serve China’s national interest to see this issue resolved. The two Koreas united under the influence of the USA would be a threat. As long as China was part of this situation the sanctions on NK would never be fully implemented.    

The USA seemed at a loss for what to do and stopped pacing. SK judged that the USA was not a reliable partner and did not have sufficient resolve to deal with NK successfully. A representative for the “bloody nose” option was brought in. She also felt the USA and SK were too weak to act on their own. She sought help from China but was rebuffed. Finally, after a period of uncertainty and confusion, she snatched the purse next to NK that represented the nuclear weapons. NK scoffed at the USA, declaring that object was just a decoy. She still had plenty of weapons the USA could not reach or find. NK reported feeling contemptuous towards the USA and its ineffectual use of force. Surprisingly, NK did not feel the need to immediately retaliate.

SK moved closer to NK shying away from the USA. SK communicated that what they needed was a parent-like figure who would be a supportive witness to their discussion without taking sides. Conflict resolution expert, William Ury, advocates in his book, The Third Side, the best means for resolving conflict is not force, but an arrangement that gives a place for those affected yet not engaged in the conflict. A person who represented the historical Korea that was united for many centuries was placed nearby as that parent figure. SK offered he had always believed he was the elder brother, but actually, NK was the elder brother. He respected his elder brother and wanted to find a way to live in harmony supported by the parent figure. NK was not sure if she could believe SK. It seemed to her SK was being too conciliatory. What NK wanted more than anything was respect. Brotherly felicity was not something she related to. But she began to soften just a bit and in that softening noticed the pain of the collective traumas which she had long ignored. 

As the potential for rapprochement grew between NK and SK, China reported losing interest. As SK continued to acknowledge NK’s place and importance NK reported her eyes were beginning to open and she could see SK and the other nations with less rigidity. The USA and China stood back and allowed the rapprochement to continue. SK offered NK money and assistance. NK did not take it. SK and NK looked at their parent figure. Both were willing to consider the figure as a part of their future as well as their past. SK was emotionally touched by NK willingness to engage with him and the parent figure. As that engagement unfolded the tension in the room was slowly replaced by a feeling of connection and shared humanity. NK did not understand this appeal to humanity and brotherhood. Her bottom line was still being respected in a way that insured her power. But she was willing to move in small increments towards SK in response to his overtures.       
 
The facilitator ended the analysis at that point of resolution. During the discussions afterward, the participants who were new to this process reported their surprise in the depth of feeling and insight that arose spontaneously. It was agreed that the “bloody nose” option and the increased sanctions had little chance of resolving the issue. NK was not going to give up its nuclear weapons as a result of limited and unilateral, military force or multilateral, economic coercion. While it came as a surprise that NK did not retaliate the “bloody nose” strike the lack of any movement to negotiate with the USA seemed to support its futility as an option.


The one possibility that held promise was the rapprochement between NK and SK through the aegis of their shared history as one country. Interestingly, after this analysis was conducted SK pursued engagement with NK not only in talks that did not include the USA. but also through a unified woman’s ice hockey team at the Winter Olympics, a cheerleading squad and a delegation that included Kim Jong Un's sister.

If these joint activities will continue after the Olympics or what they might lead to is obviously not known. NK will likely continue to see nuclear weapons as essential to its survival. Money gained from any form of economic cooperation with SK would doubtlessly go into those programs. A unified Korea on South Korean terms would naturally be in the interests of the USA.  While this is a long shot it may be a more viable option than the others which have not worked or entail extremely high levels of risk. President Trump did admit that the use of force would be "very unfortunate" for the world.  While this analysis did show that USA was willing to use force, that was limited in scope, NK scoffed at its impact.

This leaves the option of engagements that support a peaceful unification as the most viable path forward. This option could be dubbed the East-West Germany scenario. NK is a very different county than East Germany yet there are contextual similarities, such as the presence of 30,000 NK defectors in the South from North Korea. While China would likely try to block any movement that benefited the USA it did step back when the two Koreas began to dialogue with each other. It would be useful to explore through another systemic analysis the impact the active engagement between the two Koreas might have on the nuclear issue with the USA. A key question for the USA would be how it could best foster that engagement in its interactions with NK, SK, China and other nations in the region.