Lights Out: Pride, Delusion, and the Fall of General Electric

by Thomas Gryta

Immelt felt that he was truly innovating, forging a new unifying vision that justified the conglomerate structure so out of favor elsewhere. Danaher, for example, used a very thin umbrella, only a few hundred people, to oversee its portfolio companies. Berkshire Hathaway, the conglomerate run by the billionaire investor Warren Buffett, was even leaner, with just a handful of people at the top. All other functions were put into the divisions so that they could manage costs appropriately and then be held accountable for keeping them under control. By contrast, GE’s corporate structure not only could prevent managers from developing the skills they needed to run an independent business, but also made it impossible to get an accurate picture of a division’s performance or health. Measuring profit without including all the underlying costs distorted the performance of the businesses and their management. It was great for painting a picture of success to investors. Less clear was whether the thickening of the corporate layer was a solid strategy for the long term. Immelt was effectively undoing the aggressive cuts that Jack Welch had inflicted on the GE bureaucracy. Welch’s dreaded layers were now returning under another name.