The Immelt Revolution

Who is Jeff Immelt? Joined GE Plastic in 1982 (MBA from Harvard University) Various global leadership positions over year career in GE - GE Electronics, GE Medicals, International Marketing Elected as CEO to begin tenure in September 2001 Different personality from J. Welch -Easygoing, friendly, natural charisma (lead by example) cf. Jack Welch :Brash, Impetuous, abrasive, feisty (dictatorship)

CEO ProcessImplementation Long Term Planning CEO Candidacy Programme for an emergency, 1994 CEO Candidates 24 survived Management Development and Compensation Committee Appraisal on Personality and ability(1-2 yrs) 8 Board members collective interviews Management Ability Test (3-4 yrs) Job rotation in divisions - One of final three candidates - designate backup Decision Merit (TO/Profits) check and CEO interview - young, expansive thinking Time consumed6 years 5 months 1. Tracing Young Turks - Scanning high - potential cases 2. Global Mgt Capability - Leadership, Strategy - Human Resource 3. Crisis Capability - Adversity - Venture, New Area 4. CEO Candidate - CEO School - Competency 5. CEO Cultivation Team - Professional Support - Mentor by J. Welch Jeff, breakthrough in the CEO Factory?

Immelt’s Narratives Repositioning the portfolio and diversification –From a process oriented company to creativity and fundamentals –Emphasizes organic growth rather than deals, divesture (Necessity after Welch’s era) Innovation Management –“Imagination Breakthroughs” for sustainable growth New Ethical policy (Core Value) and its connection to personnel - 8 Values and 4 Actions (‘Integrity’) Changing the culture –Outsiders to high rank positions –Diversifying the top ranks –New executive compensation

Jack WelchJeff Immelt Paradigm Efficiency Oriented - Strong business and down- sizing Effectiveness Oriented - Growth engines for the future Methodology 6 Sigma - Quality and costs Imagination, Breakthrough Project Target MarketEU, USA (developed) New markets, products, and businesses - Focusing new emerging market Portfolio Cash Generator - finance, Service Infrastructure business, health, environmental business - contents, bio, security Organization Culture Systematic management and through implementation - finance oriented Creativity and ideas for innovation - Marketing Oriented - ‘One world’ Core value in the era Built to Last, 1994Mgt Challenge for the 21 st Century, 1999 What are differences ?

GE Performance Under Immelt

Performance Sound Growth Sales Increase 17% Net Profit 32% EPS Growth 27% But Declining ROE

Market view Relative to the S&P500 Composite, General Electric Co has moderate value characteristics –Its appeal is likely to be to income oriented investors. –Has not outperformed the market in recent years

Why GE under Immelt has not impressed the stock market?  Business Strategy Change from the growth by M&A to organic growth and competitive advantage by internal innovation Investors are alarmed by the growth of GE's finance business –Finance companies have lower P/E multiples and thin margins –Exposure to interest rates Quality of its earnings will not enjoy low tax rate and low loan-loss provisions in the future Investors trust dented by accounting of derivative transactions Jitters in the global and emerging markets could slow GE growth Reluctancy to sell unattractive units (MBC Universal)

Why GE under Immelt has not impressed the stock market?  CEO Discount and no CEO Brand Investors value simplicity - Immelt has diversified the portfolio Stock Markets like charismatic leaders Immelt has not made its brand as GE CEO Legacy of Welch  Change of Core Values GE suffered from accounting scandals (Enron), 911 incident (Airline Industry), etc. From Comparative advantage, down-sizing, super MNC to win-win growth, business ethics & responsibility

How could GE stock make a comeback? Our Story. Enhance investor relations –Simplify the business Eliminating uncertainties related to key businesses High growth expectations in Infrastructure, Aviation, Energy, and Oil & Gas (late-cycle businesses) Attractive valuation for large cap defensive stocks

How could GE stock make a comeback? Our Story. Increasing shareholder value through: Margin expansion in the company's industrial business Sustainable global growth Containing interest rate risk in financial industry Reshaping the company: –Spinning off selected units

Thank you! Questions?

References ( ontent/jul2007/pi _ htm?c han=search) ontent/jul2007/pi _ htm?c han=search flash/content/may2007/db _ htm?chan=searchhttp:// flash/content/may2007/db _ htm?chan=search flash/content/apr2007/db _ htm?chan=searchhttp:// flash/content/apr2007/db _ htm?chan=search

Sources: ntent/05_13/b _mz056.htm p2001/nf _519.htm?chan=search ml es/pluggedin_fortune/index.htm