Leading Manufacturer General Electric (GE) to break up into three companies

General Electric Split up

The Industrial Conglomerate and a symbol of the US manufacturing power, General Electric Co., popularly known as GE has decided to break into three public companies. Experts believe that the conglomerate had expended too widely to be run sustainably as one unit, and a break-up was inevitable. The decision was taken on Tuesday by Mr. Lawrence Culp, the present CEO who took over the corporation only three years ago and made frantic efforts to keep the conglomerate together.

GE was founded more than a century ago in 1892 by acquiring assets of three different companies. One of these companies was Edison Electric Light Company founded by none other than the inventor of the electric bulb, Thomas Alva Edison. The company started off by creating electrical consumer goods and later expanded into a vast array of fields including finance, infrastructure (diesel locomotives, jet engines, water treatment systems and energy delivery systems), consumer and industrial technologies, health care, and media and entertainment. 

GE’s problems had been steadily mounting although it survived the challenges of the modern dynamic economy longer than most similar conglomerates. The idea they championed was to allocate funds between different subsidiaries and ride out the market’s highs and lows. Such an approach was however proving to be counterproductive as profits from one part of the company would get diverted to the weaker parts, weakening its core and disappointing investors. Their complex structure only hid the problems and found little or no solution to them. 

Break up plans were on and an active point of discussion in GE’s marathon meetings and board meetings since 2018, where the future for a smaller company was discussed. Even otherwise, GE had been steadily winding down by consolidating or selling off a lot of its subsidiaries. From a total of 13 individual operating segments in 2003, GE had shrunken to 5 by 2021, limiting to Capital, Healthcare, Renewable energy, Aviation and Power. Now, GE has decided to break up into three separate public companies- energy, aviation and health care.

This break up is being seen by experts as a watershed moment in the recent phenomenon of breaking up of large corporations into smaller, manageable units. Although GE was known for its strong corporate center and excellence in management, there had grown high internal bureaucracy within the corporation making it inefficient and difficult to manage. The decision makers believe that although the new companies will be smaller than GE, in their respective areas they will still hold major ground. The break up would allow for investors to invest into their choice of industry and an allocated board and capital will provide greater transparency on how their investments are being used. 

As the century old corporation is coming to an end, the CEO Larry Culp is keen on preserving the corporate structure dating back to the beginning of the twentieth century and therefore plans to retain the GE headquarters in Boston to oversee areas of capital allocation, talent acquisition and technology. As practicability has always taken precedence over legacy in businesses, he urges that the breakup of GE should not be seen in a negative light, but rather as a strong corporate statement in strategy in planning to give up on the periphery to preserve the core.

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