Why General Electric Sold So Many of Its Businesses

General Electric (GE) has undergone a significant transformation in the last few decades, from a diversified conglomerate to a more focused industrial firm. This journey was marked by a series of strategic business sales, significantly altering the landscape of the company. The impetus behind these sales can be attributed to a combination of internal and external factors, primarily realized under the leadership of former CEO Jack Welch.

Jack Welch's Strategic Sales Policy

Under Jack Welch's leadership, GE adopted a robust corporate governance policy that prioritized market performance. Welch famously said, 'if you cannot save a bad business, sell it.' This policy was instrumental in shaping the company's approach to its various divisions. Welch's philosophy was not just about short-term financial gains but also about ensuring the long-term health of the company by maintaining a portfolio of solid, market-leading businesses.

As a result of this policy, many businesses that did not meet the stringent performance criteria were sold. Notably, traditionally solid industrial businesses were also sold when they did not align with the company's strategic goals. This approach, while harsh, allowed GE to focus its resources more effectively and streamline its operations to become more efficient and competitive.

The Crisis of 2008-2009

One of the most significant turning points in GE's history came with the financial crisis of 2008-2009. This period was marked by a dramatic retraction in the global economy, causing distress across all sectors. For GE, the crisis hit particularly hard, given its significant presence in the financial services sector. The collapse of its financial businesses was a major factor in prompting GE to sell off several critical assets to address the pressing need to pay off balance sheet debt, fund pensions, and maintain cash flow.

These sales were not just reactive to the financial downturn but also part of a broader strategic objective to shift focus to core manufacturing businesses.

Market Leadership and Performance Standards

Another key driver for these sales involved GE's longstanding policy of trying to be the number one or number two player in any given market. Any business that did not meet this standard faced the risk of being sold. This strategy was not only about market dominance but also about ensuring that all businesses contributed meaningfully to the company's overall Return on Investment (ROI).

According to Welch, any business that was not delivering GE’s minimum ROI would be reconsidered for divestiture. This approach helped GE to maintain a competitive edge and focus on its core competencies, while also ensuring that the company could stay agile and responsive to changing market conditions.

Strategic Decisions and Business Sales

There were several other strategic reasons for the sales of GE's businesses, including:

Paying off debt on the balance sheets: Reducing financial burdens by selling non-core assets to secure the company's future. Strategic decision to exit external-facing financial services businesses: Narrowing the company's focus to align with its core industrial strengths. General shift to focusing on core manufacturing businesses: To capitalize on the strengths and capabilities in areas where GE could excel.

These decisions were part of a broader transformation that redefined GE as a more focused, manufacturing-centric company. The sales and restructuring were not without controversy, but they represented a critical turning point in the company's history, allowing it to navigate the challenges of a rapidly changing business landscape.