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When John Flannery took office as General Manager of General Electric last August, he immediately stated that he would not be nostalgic for the glorious past of the industrial giant when redesigning the company for the first time. ;to come up.
He was not joking.
General Electric announced Tuesday that it was planning to get its hands on its huge health care company and sell its multi-billion dollar stake in Baker Hughes, a leading producer of oilfield equipment, under the umbrella of A radical reshuffle of the industrial titan.
The announcement provides a plan for G.E.'s future, and is the culmination of a top-down review of the company headed by Mr. Flannery. "It's the conclusion of this review," he said during a conference call with analysts. "It's our way forward."
Flannery's latest moves are a last farewell to a vision of a conglomerate gone. Over the years, G.E. of companies as varied as television, with NBC Universal, and mortgages. And the company not only manufactured products, but also a large number of elite managers, trained to apply managerial skills to any business. G.E. has been studied in business schools, extending his influence through American companies.
Although the withdrawal of both companies will take time, G.E's long-term strategy is now clear. It will retain three major operations – jet engines, electric generators and wind turbines – which accounted for 60% of the $ 122 billion in business revenue last year.
The current plan, said Flannery, is to create "a simpler, stronger and more focused business."
G.E. fits a changed business world, and his own mistakes. G.E's large electricity generator business is in the midst of a painful reversal, having misjudged the market and produced too many gas turbines.
Earlier this year, the company took a multi-billion dollar charge and set aside $ 15 billion to pay for bonds held by its financing unit, primarily on long-term care insurance policies. . G.E. has regularly sold assets in its huge financial arm, GE Capital, and the recent problems have been a surprise.
During the past year, G.E. shareholders have suffered that the value of their shares has halved. The announcement of the company's plan on Tuesday came the same day stock of G.E was officially abandoned from the Dow Jones industrial average, having been one of the Dow index companies since 1896.
The stock price of G.E. has risen more than 7% after the announcement.
"G.E. did what needed to be done to get ahead," said Steven Winoker, an analyst at UBS. "The vision makes a lot of sense."
The sale of the health care business and its majority stake in Baker Hughes will not be hasty fire sales. Spinning of the health care business as a separate company, G.E says, will probably take 12 to 18 months, and get out of Baker Hughes until three years.
The health care unit, which reported revenue of $ 19 billion last year, manufactures equipment ranging from M.R.I. machines to products that facilitate research in cellular technology.
Under the terms of the reorganization, G.E. will transform a 20 percent stake in its health care unit into a new publicly traded company. It will then sell the rest of its shareholding to the shareholders as a kind of tax-free dividend.
G.E will also sell its 62.5% interest in Baker Hughes, acquired merger of its oil and gas division with this publicly traded company in 2016.
According to Flannery, jet engines, generators and wind turbines share similar technologies for power generation and propulsion. Their products are long-life industrial equipment, and G.E. holds strong positions in the market. There are 65,000 G.E. jet engines in use worldwide, 7,000 generators and 35,000 wind turbines.
Given their common characteristics, "these three are stronger together," said Flannery.
During the conference call, Flannery pointed out that G.E's management culture is being reshaped, as is its portfolio of businesses.
Business management will be lighter, with most decisions being made by the companies themselves. By 2020, the company's overhead will be reduced by $ 500 million. These cuts add to a program to reduce the company's spending by $ 2 billion this year.
"Our businesses will be the center of gravity," said Flannery.
This is a conscious departure from the past, when the direction of G.E. was considered the heaviest. Even the use by the business aircraft business – and in particular The use of a second empty jet to follow the one who was wearing Jeffrey Immelt, the former managing director of G.E. had been criticized as being a waste.
The development of digital technology and advanced manufacturing, said Mr. Flannery, will remain vital to GE But individual companies will decide how much and the willingness to essentially buy this expertise from the research labs and the Digital unit of GE
The digital technology center in San Ramon, California, had up to 2,000 workers last summer. But the work force has shrunk since then. G.E. invested billions of dollars in this unit, started in 2011.
"There will be no cost of slipping digital by 2020," said Flannery.
Follow Michael J. de la Merced on Twitter: @m_delamerced.
Follow Steve Lohr on Twitter: @SteveLohr
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