GE CEO Jeff Immelt Is All In
The longtime executive moved General Electric to Boston with a daring vision to revolutionize the company and transform the city’s tech industry. So far it seems to be working, so why does Wall Street want his head on a plate?
Determined not to repeat IBM’s mistake, Immelt wants GE to lead the way into future industrial technologies. Last September, he spent $1.4 billion on two 3D-printing companies to boost GE’s stake in that promising technology. He has also expanded GE Digital, a software division outside San Francisco tasked with creating Predix, GE’s Industrial Internet operating system. “In 2010, when we started this, we didn’t really know what we were doing,” Immelt admits. Since then he has poached 1,700 programmers and software executives from the likes of Apple, Microsoft, and Cisco. These seasoned hands broadened his view of Predix’s potential, he tells me. “They taught us to say, Gosh, what you see as [merely] a software-apps business could actually be a [whole] platform”—that is to say, a kind of Microsoft Windows for the Industrial Internet. “So I think we got smarter,” he says.
Even so, GE Digital’s work has been slow going, perhaps revealing an Achilles’ heel of Immelt’s long-term strategy. Compared with big corporations, startups tend to innovate faster, so GE has taken to acquiring them or simply white-labeling their technology. “GE is finally realizing that it’s hard to build this stuff internally,” says Brown, the analyst. Immelt dismisses this observation as “too simplistic,” telling me that a combination of in-house development and buying outside startups was always the plan. “When you start something like this,” he says, “you’d be crazy to think you don’t need to do acquisitions to accelerate your work.”
If GE’s in-house innovation is lagging, though, Boston tech companies could score a windfall. GE already has a deal with PTC, a Needham software company, to provide a lot of the tech that underpins Predix. And last November, Immelt spent more than $1 billion on two Industrial Internet startups.
Competition for Industrial Internet dominance is fierce. IBM, Microsoft, and Amazon, which all have vastly greater software experience, are working on their own competing platforms. Nevertheless, Immelt has convinced many tech leaders that GE is a contender in the computing industry’s next arms race. Forrester, a research firm, recently ranked GE’s Predix as one of the most advanced Industrial Internet platforms—a fairly stunning result for a company known, in the popular imagination, for light bulbs.
The progress made is a measure of Immelt’s total commitment to his vision. “No matter how long it takes,” says Brown, who has written critically of GE, “or how many billions of dollars they have to spend on startups, GE is going to emerge as one of the winners, if not the big winner.” He added, “At the end of the day, this is Jeff Immelt’s legacy. This is his whole thing.”
Of course, to do any of this and spend the required billions, Immelt must be around to control the purse strings. Recently, though, Immelt has seen his job security called into question yet again. The grumblings came from the usual critics. A few weeks after the Wall Street Journal’s February article about CEO succession, Scott Davis put a bounty on Immelt’s head. In a note to his clients, he wrote that one of Wall Street’s leading industrial investors predicted that whenever Immelt finally left, GE’s stock would get a 5 percent boost. Then came the most serious blow.
On March 10, Charles Gasparino, a muckraking Fox Business journalist, tweeted that Immelt was “on the hot seat” with his most powerful Wall Street ally, Nelson Peltz, head of Trian Partners, an activist hedge fund. Peltz had staked $2.5 billion on GE in 2015 and endorsed Immelt and his strategy. Now, Gasparino reported, citing unnamed sources, Peltz had lost confidence in Immelt and might seek to push him into early retirement. (Trian said it continued to “work constructively” with GE but did not appear to deny the report.) In response, GE’s stock shot up 2.5 percent during the next couple of hours, demonstrating that Wall Street remains eager for Immelt to step down. After a two-year cease-fire, Immelt was under siege once again.
Investors’ complaints are about arithmetic, not strategy. Immelt hasn’t decreased costs as fast as Trian wanted—or increased profits as much as he’d promised. (In late March, facing pressure from Trian, he agreed to an additional $1 billion in cost cuts.) Additionally, future profits from Predix and 3D printing are so speculative that they haven’t meaningfully contributed to the stock price. Although Immelt has invested in GE wisely, says Noel Tichy, a management consultant to conglomerates who worked closely with Welch and has written extensively about GE, “The numbers haven’t been there for Wall Street,” adding, “He’s got to walk and chew gum at the same time.” In the cold math of Wall Street, Immelt’s GE simply isn’t adding up.
Nick Heymann, who endorses Immelt’s digital strategy, says the boss might not have much time left to turn the math around. “If you don’t achieve the $17.2 billion profit target this year,” he says, “then the pressure will probably be extreme [for the board of directors] to acquiesce and assign somebody else to be the leader.” By all accounts, Immelt currently has the full support of his board.
None of this is to say that Wall Street would necessarily be right to give up on Immelt and his strategy. The stock market can be capricious. When Netflix’s CEO pivoted toward streaming, the stock price tanked and an analyst warned of a “nuclear winter scenario.” Eighteen months later, the stock took off once investors realized the CEO had been right about streaming all along. In today’s market, Immelt tells me, “Everybody’s reacting to every day’s headline.”
Immelt’s supporters tend to come from more sober regions of the business world. Academics have long hailed his leadership during crises and his ability to foster a culture of innovation. And, in the long run, his reforms of GE may pay off. Steven Winoker, an analyst at Bernstein, who’s bullish on GE, predicts that the stock will outperform expectations and climb almost $8 a share, to $38. “Yes, GE is often unloved,” he writes, “but the changes are big and they have come fast and furious.” Even Scott Davis believes the stock is undervalued and has conceded, albeit in a backhanded way, that Immelt has changed GE for the better. “[W]ith CEO Jeff Immelt likely in the final inning of what we see as a rather unspectacular 15-year run,” he writes, “it will likely be Mr. Immelt’s successor who reaps the rewards of an improved GE.”
There’s no guarantee, of course, that Immelt’s successor will share his vision for GE’s future. In fact, if his successor dialed back GE’s software ambitions, he or she might be applauded. But what would a lower-tech GE mean for Boston? In one way, not much would change. GE has annual revenues regularly in excess of $115 billion. With or without Immelt’s grand technology strategy, it will remain a corporate juggernaut, pumping money into the local economy (including, for better or worse, the overheated housing market) and enhancing the city’s business prestige, which can help draw in more investment. The effects on Boston society don’t depend on high technology, either. Already, GE executives are popping up on the boards of companies and charities and the GE logo is finding its way onto everything from student robotics projects to Celtics jerseys.
Yet the greatest hopes for GE’s impact on Boston turn on the company’s own transformation. “After PayPal launched in the Valley [in 1998],” says Michael Greeley, a general partner at Flare Capital Partners, a Back Bay venture capital firm, “there were probably 20 startups that came out of it, a bunch of great entrepreneurs, and people who made a lot of money and became angel investors. So you had this kind of PayPal mafia” that helped kick off Silicon Valley’s consumer-tech boom. “I would hope to see a similar phenomenon from GE,” Greeley says. But GE can only spur that kind of renaissance if it keeps investing in high-tech innovation itself—which might require keeping Immelt at the helm.
Immelt’s holding on for now and has given no indication he wants to step down. When I asked about possible early retirement and the grumblings on Wall Street, Immelt says only that he remains focused on transforming GE. Friends and observers, though, don’t believe he’s going anywhere soon. “I see no difference in Jeff’s commitment and love for the job,” says Ed Kania, one of Immelt’s closest friends. “No sense of fatigue, no sense of It’s time to move on.” Tichy agrees, saying, “He’s not a quitter, and he’s going to want to stay long enough for the world to recognize the company has turned a corner.”
In either case, whether Wall Street gets the leadership change it wants or Immelt rides it out on his own terms, he won’t be around long enough to carry his strategy to fruition—a reality that even he concedes. “Predix is going to take five or 10 years to play out,” he tells me, meaning that it will fall to his successor to see his plans through—or reverse them.
When I spoke with Immelt in March, I asked him how he would evaluate his legacy after retiring. He took the long view, as usual. “You’re probably not going to know the impact I’ve had on this company for years, decades in the future,” he said. Pressed to elaborate, he offered only, “The company is better than when I came here. So I’m able to say, ‘Let’s see how it goes. Let it come.’”