GE and the Process Hedgehog

Audio Transcript

First, how many people in here read the GE Hedgehog answer in the back of Good to Great? A few. It’s actually enlightening. Because when I look back over the last hundred years, I’ve puzzled over GE’s three circles. When you think about the fact that there is this huge portfolio of activities—they didn’t just start with electricity and then basically just do light bulbs for forty years. Starting at about 1910, they actually have always had some reasonably diversified or—I should say—a portfolio effect to what they were doing.

Around 1910, there emerged one of the greatest chief executives ever, a fellow named Charles Coffin who is my own personal pick as the greatest chief executive of the last one hundred years. Charles Coffin invented the idea of systematic management development as a process that could be replicated. If you go all the way back and you look at what really drove GE over the course of its history, it was a process Hedgehog, right? Their Hedgehog isn’t—their three circles aren’t—jet engines or NBC or any one of their businesses. Think about it. What has GE been potentially the best in the world at for a hundred years? Developing general-management talent and deploying it into reasonably attractive businesses. That’s the essence of it. Doesn’t speak anything about electricity, light bulbs, appliances—anything.

What would be their economic denominator? I would contend that the operating-system-level economic denominator has been basically the same for a hundred years, and it is profit per unit of executive talent. Profit per unit of your top managerial talent. You could buy two businesses. Both generate $100 million in profits, but one of them will drain three times the amount of executive talent to realize that $100 million as the other. Lowers the economic denominator, less attractive acquisition.

Then, third, what are they most passionate about? If you really look at what they’re most passionate about, it is that underlying process. For those of you who know GE well—and I know a lot of people in this room do—yes, when you’re in a given business, there’s great passion about the jet engines, for example. But across the system, there’s this passion about we are the greatest management-development system that’s ever been created. Now, they wouldn’t say it that—yes, they would, they would say it that way.

{Laughter}

But that’s the point of real pride, in that process. So, I would say that that is really what’s replicably turned the GE flywheel for going on ten decades. And it’s a process approach. It’s a way of thinking about it. It demonstrates tremendous consistency. And if you look at each generation of leadership within GE, starting with Coffin and going to Wilson, and then on into Swope and Cordiner and Borch and Jones and Welch and now Immelt, that same basic Hedgehog is there all the way along. It just shows up in new ways, but it’s the same basic driving idea.