What is next for GE?

  |  by Alexander Chepakovich   |  Primary ticker: GE

GE should put emphasis on innovation and development of new wonderful products. This is the only recipe for the company’s revival. Selling its business units will only lead to further decline.

What’s next? Nothing good. What can be expected of a company (any company) when its CEO speaking about the business talks only about financial performance? This means only one thing: he does not care (or know) what his company true business model is, what is its competitive advantage and, following from this, what needs to be done to succeed.

The most memorable phrase of the recent General Electric CEO John Flannery interview to CNBC is about the recent quarter cash flow which he characterized as terrible. This is a talk of an accountant. He even did not mention excellent products GE still has in its portfolio.

Accountants (in a broader sense of paying attention where money is generated and spent) is good to maximizing monetary return from the business in the short-term horizon. But they, definitely, will run the business ship to the ground if not counterbalanced by product people. The company needs to innovate and in the case of GE this means massive research & development investments.

The situation GE found itself in is the product of decades of overemphasis on financial performance and neglect of innovation and product development. To turn the company around the company management needs to focus on creating great new products, and not on making the most out what they already have. To me, however, it does not seem that they understand the problem. And they are not alone: all that equity analysts discuss in relation to GE is which businesses it could sell. But you do not grow by selling businesses – you do this by creating wonderful new products.

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