I’m sure Thomas Edison turns in his grave as he looks down on his once large and now struggling General Electric company that has spearheaded the global electrification revolution over the past century. General Electric or GE, as it’s more commonly known, has always been synonymous with excellence, but that’s not a word I would use to describe GE’s stock price performance since 2008, declining. 70% or the recently announced $ 21 billion depreciation in the power business. This raises the question of why this happened and what lessons can we learn from GE’s experiences.
GE’s problems stem from its core business, energy, and its failure to understand and respond effectively to the dramatic changes underway in global energy. In addition to the shale revolution in the United States from which GE has only marginally benefited, we have also experienced a renewable energy revolution which has seen solar and wind become the main growth markets for new electricity generation. However, GE has no position in solar power and key technologies such as batteries, and has lost market share in wind over the past two years. In addition, GE has made various acquisitions in the energy field, three of which were too small, too expensive and too late. In 2011, they acquired the Converteam power electronics business; then in 2015 they acquired the French gas turbine and networks company Alstom, then in 2017 they acquired the oil and gas services company Baker Hughes.
The acquisition of Alstom for $ 17 billion is revealing as it shows GE’s obvious lack of understanding in the face of the changes taking place in energy. Rather than investing in future growth markets, GE has chosen with this acquisition to double its bets on natural gas as a “clean and flexible source of energy” for the future. Since the acquisition in 2017, sales of large gas turbines have fallen by 45%, which has put great pressure on prices and pushed what was a very profitable business unit within GE to losses.
GE is not alone, however, facing the challenges of a rapidly changing energy market. In recent years we have seen nuclear suppliers Toshiba and Areva go bankrupt and we have seen the mass destruction of shareholders in a whole range of European utilities such as RWE and E.On. On the other hand, GE has peers like Siemens who have been relatively successful in coping with the changing market, and in the utilities area we have companies like Enel, EDP and NextEra who have created value. important for shareholders in recent years. The question is what is the difference between these companies?
The answer is cultural. Successful businesses are led by entrepreneurial and diverse management teams who have all developed corporate cultures that have enabled them to confront conventional thinking and, when necessary, embrace new paradigms. Those who fail like GE; well, they did the exact opposite.