Is General Electric Too Big to Fail?

General Electric (GE) has long been a stalwart in the industrial and business world, having been founded in 1892. The question arises: is GE too big to fail? The answer may hinge on two contrasting sides: improbability and impossibility.

Arguments for Improbable

Lindy Effect: The Lindy effect suggests that the future life expectancy of enduring entities—like ideas or technologies—is proportional to their current age. As GE has been around for over 120 years, each additional period of survival implies a longer remaining life expectancy. Therefore, with a proven track record and longevity, the likelihood of an impending failure is quite low. Reinvention: GE has continuously reinvented itself, adjusting to changing business and market conditions. By reviewing the latest and historical annual reports, one can see a markedly different picture of its core businesses and technologies, reflecting its ability to evolve and stay relevant. Divestiture: GE has divested the vast majority of its GE Capital business, eliminating the financial services “blow up risk.” This strategic move has significantly reduced the potential for systemic financial failure.

Arguments for Not Impossible

Historical Precedent: Drawing from history, other companies like DuPont, which was founded in 1802, faced similar pressures and transformed into a much different entity. GE’s current challenges, while severe, may lead to a similar transition. Investor Pressure: GE’s share price has not yet recovered to pre-crisis (2007) levels, and investors are increasingly impatient, applying mounting pressure for change. Significant announcements, such as the latest “Letter to the Shareholders” and strategic updates, highlight the need for a radical transformation. Sales and Administrative Costs: My YouTube video on SGA (Selling, General, and Administrative) expenses discusses the measures GE has taken to reduce these costs and increase competitiveness.

GE’s Strategic Transformation

Recognizing the need for agility in a rapidly evolving world, GE is seeking to shift from its previous model to a more nimble, innovative one. Here are some key ways it is adapting:

Fastworks: GE has adopted Fastworks—a methodology designed to make processes quicker and simpler, allowing for rapid experimentation, prototyping, and pivoting. Partnerships: The company is opening up more to partnerships, including with startups, to learn new tricks. These networks and ecosystems are seen as crucial for success in the future. Digital Strategy: GE has positioned digital at the center of its strategy, focusing on leveraging technology to drive innovation and efficiency. Location: The company is moving to Boston, a hub of innovation, to further its adaptive capabilities. Corporate Culture: GE recognizes the enormity of the transformation and tries to laugh at itself, reflecting a culture of adaptability and resilience.

Conclusion: Speed Over Size

While GE has historically been seen as too big to fail, the need for speed in today's rapidly changing business landscape is front and center. As Jeff Immelt, the Chairman of GE, states, 'small and fast beats big and slow, but big and fast beats both.' This transformation is a strategic pivot to ensure that GE remains relevant and competitive in an increasingly dynamic world.