At its peak, General Electric was the most valuable company in the U.S., worth nearly $600 billion in August 2000. Today it’s worth a tenth of that. What went wrong?

The Wall Street Journal recently had an article on what went wrong at GE. The company, “born of Thomas Alva Edison’s ingenuity and John Pierpont Morgan’s audacity,” had “burned out.” Having connected neighborhoods with streetcars, cities with locomotives, and filled kitchens with ovens and toasters, GE is now $100 billion in debt. The company has become a shadow of its former self.

Why?

Pixar has suffered GE’s fate. In 2014 it was hailed as one of the world’s most creative companies.[1] Pixar had revived Disney by established a rigorous culture based on its “Braintrust,” an ambidextrous leadership team of right- and left-brain leaders. Right-brainers are outsiders asking disruptive questions. Left-brainers are insiders exploiting existing technologies. An ambidextrous culture relies on both hemispheres.

The Braintrust was most famous for its “Pixar reviews.” After every film project, it had to agree on five things that went well in making the film and five things that stunk. These five reproofs were supposed to keep Disney out of La La Land. Three years later, the “golden age of Pixar” was over. The company had become a shadow of its former self.

What happened to the Braintrust?

The Ford Motor Company knows. In 2008, Alan Mulally became CEO. He was an outsider, previously with Boeing in Seattle. Mulally revived Ford from near insolvency by establishing a “braintrust.”[2] This insider/outsider culture enabled him to drive long overdue innovations at Ford. But after Mulally’s departure, Ford’s fortunes sagged.

To see why this happened, run the film backward.

But go way back 2,500 years, to the Babylonian exile. Ever wonder why Nebuchadnezzar “came to his senses,” confessing he was wrong and turning to God (Dan.4:34)? In one respect it was God’s convicting him. But Babylonian culture might have a played a part.

During the Akitu festival of New Year, the Babylonian king would go down on his knees before an image of the god Marduk, beg his forgiveness, and promise to do better next year. The rite ended with the high priest giving the royal cheek a good, hard slap. The aim was to keep the king humble—to appreciate a good slap in the face, like John Goodman in the 1979 Mennen After Shave commercial: “Thanks, I needed that.”.

Fast forward to 1816. In a loving letter to his 15-year-old daughter Elizabeth, William Wilberforce hoped that she had “accustomed” herself to “the friendly reproofs of a real friend.” “Our hearts are deceitful above all things,” he wrote, “we are all prone to flatter ourselves, to form too high an estimate of our own good qualities, and too low an idea of our bad ones.”[3] A friendly reproof is like a gentle slap in the face.

Fast forward to 40 years of Harvard Business School research. Most organizations lack the necessary structure to sustain innovation.[4] It requires outsiders providing friendly reproofs. Few organizations have this ecosystem, especially if they’re successful. That’s why the cultural historian Gerald Nachman warned, Nothing fails like success. Performance reviews become nothing more than applause. Failure isn’t far behind.

Fast forward to Ford to see this. After Mulally’s departure, the braintrust dissolved. The board became 100 percent insider. Half-brained. Ford’s board once again shied away from tough critiques. No friendly reproofs. No disruptions. No innovative culture.

Fast forward to 2017, when Pixar and Disney’s leadership had become entirely insiders, overconfident in their abilities. No outsider critiques. The golden age of Pixar was over.

Fast forward to 2019. GE is worth a tenth of its 2000 value. For 36 years under Jeffrey Immelt and Jack Welch, the GE board had largely followed the chairman’s lead. One newcomer under Welch was so surprised by the lack of debate that the director asked a more senior colleague, “What is the role of a GE board member?”

“Applause,” the older director answered.

 

[1] Ed Catmull, Creativity Inc: Overcoming the Unseen Forces That Stand in the Way of True Inspiration (Random House, 2014)

[2] Bryce Hoffman, American Icon: Alan Mulally and the Fight to Save Ford Motor Company (Crown Publishing Group, 2012)

[3] “Private Papers of William Wilberforce,” published by Burt Franklin, (New York), 165-68.

[4] “Making 1+1=3: Hierarchies & Networks,” Kotter Consulting (chaired by John Kotter, a professor at Harvard Business School)

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6 Responses to “Nothing Fails Like Success”

  1. Tim Kriewall says:

    Good one!

  2. Bob Moffitt says:

    Looking forward to hearing more regarding your new understandings about poverty.

  3. Dave T says:

    I should have a longer memory where you may have already answered this question but can you name a company or a ministry that did the right thing by having outsiders be brain-power with the insiders and they righted the ship or improved performance and the company is still sailing long after intervention because outsiders (and maybe different outsiders keep rotating in & out) are still being asked for their help? Or companies that in some other way stay fresh with some system for retaining outsider input? Love the truth that you’re telling in this column.

  4. CTW says:

    Thank you for this piece. Very helpful in working with some companies I do consulting with.
    I am wondering why the “older director” stayed on the board? Compensation and benefits for his applause?

  5. Mike Metzger says:

    Your guess is as good as mine. A lot of prestige being on GE’s board.

    A lot of compensation as well.

  6. Timothy Smick says:

    Mike,

    I would suggest reading the following Fortune article: http://fortune.com/longform/ge-decline-what-the-hell-happened/

    As usual, GE’s demise was multi-faceted. Clearly Jack was a tough act to follow for Immelt. Jack was largely a hierarchical leader whose time has come and gone since the end of the 80’s. Still he was a very shrewd and disciplined purchaser of companies that had the prospect of being number 1 or 2 in every space in which they operated. Immelt seemingly did not bring that talent to the table as a leader. I have read three different books on Jack over the years and found him to be a remarkable and quotable leader.
    I have a great deal of uncertainty that Immelt’s shortcomings (which were multi-faceted) would have been solved by the addition of a number of “right brain” thinkers.
    I am humbled by the idea of having to follow up Welch’s considerable success as a leader.

    Tim

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