I’m Jack Welch, Chairman of the Board of GE. Here with me are Keith Sherin, Senior Vice President and GE’s Chief Financial Officer and Ben Heineman, our Senior Vice President, General Counsel, and Secretary.
Once again, I’d like to welcome you all to our Atlanta meeting. Thanks for coming and thanks in particular to our Atlanta share owners for their hospitality. GE now has 4,300 employees in Atlanta, 1,500 of whom work for GE Power Systems, the largest single business unit in GE, which established its headquarters here in Atlanta in February of this year.
GE employees have already sunk their roots into the community and begun volunteer efforts. Five hundred of them participated in "Hands on Atlanta Day" recently and 150 participated in the Dr. Martin Luther King Service Summit in January.
Yesterday, Jeff Immelt and John Rice, CEO of our Power Systems business, visited Southside High School and met Dr. Bill Shepherd, its principal. In 1993 volunteers from the Atlanta chapter of Elfun -- GE’s global community service organization -- began a partnership with Southside High. The partnership focused on raising the overall level of academic achievement by preparing students for SATs, mentoring, and tutoring. These efforts are working. The number of students scoring over 800 or better on the SATs has tripled and there’s been a 32% increase in students from Southside going to college.
We’ve been visiting schools like Southside in other cities of GE for years and seen thousands going to college who never would have been able, because of GE mentoring and GE scholarships. We are so proud of our volunteers and the bright face of your company that they present to the community.
Moving from community service to business operations...
2000 was our best year ever. Revenues were up 16% to nearly $130 billion. Net income was up 19% to $12.7 billion. Earnings per share up 19%. And the company generated over $15 billion in cash flow. Operating margin reached 19%, a level many of us would have described as impossible only five years ago.
This performance and the work of our volunteers both contributed to GE being named by Fortune magazine -- for the fourth year in a row -- the "Most Admired Corporation in America", and by The Financial Times as the "Most Admired Company in the World," also for the fourth consecutive year. Our performance has been rewarded, our stock outperformed the S&P in 2000 and also in the first four months of this year. Now that’s the glass half-full look. Because the equity markets, as we all know, have been down significantly and while we outperform the S&P indexes on an absolute basis, GE is down modestly since last year.
However, those of you who’ve held our stock for five years, including up to now, have seen a 34% annual return in your investment. And those who have held GE since 1980 have seen a total compounded annual return of 23%.
I’ll talk about our GE values later, but the current economy is clearly demonstrating one of them — the company’s love of change. GE people always see change as an opportunity. This environment gives us a chance to demonstrate it. And we are. We’ll deliver earnings growth at a time when many are delivering earnings warnings. Our first quarter results just two weeks ago demonstrated this with earnings up 15%. We’re confident GE will have another record year in 2001.
Now, for the rest of this report, I’d like to provide a picture of this company as it begins its third century and tell you what 340,000 GE people around the world have created.
GE is, in a phrase, a new kind of Company, a Company with market-leading positions in businesses ranging from high technology manufacturing of power generation equipment, medical diagnostics, jet engines, plastics — to consumer products — broadcasting, lighting, and appliances — to 24 widely diverse financial services businesses. However, the truly unique aspect is the integration of these businesses in GE: their sharing with one another, learning from one another, their pursuit of common initiatives and their intense belief in common values.
It is this learning culture and these values that make GE so much more than the sum of its parts. This culture and the GE operating system it drives, lets us take an initiative -- a big idea -- plant it like a seed, emphasize it, and watch the people of GE flourish and make it spread rapidly across the Company.
Globalization, for example, our oldest initiative, began as a search for new markets for our products and services. That search quickly expanded to include finding the lowest cost, highest quality sources of finished products, components, and raw materials. Today the initiative is so much richer and is focused on talent, searching the world for intellectual capital, driven by the knowledge that the team that fields the best talent from any source wins.
Six Sigma is our second big initiative. Originally focused on reducing waste and elevating the quality of our products and processes within the company, it has delivered billions of dollars to GE’s bottom line in savings. Today, Six Sigma has grown though, from an internally focused activity of five years ago to an outside focus, improving the productivity and efficiency of our customers’ operations. Six Sigma has increased the intimacy between GE and its customer base and today we and our customers are entwined in what we call "At the Customer, For the Customer" Six Sigma projects. For example, Medical Systems completed more than a thousand of these projects, generating more than $100 million in benefits for their customer hospitals and health providers last year. Aircraft Engines completed more than 1,200 "at the customer" projects in 2000, saving more than $320 million for the airlines. Making customers more productive helps both them and us grow through this tough environment.
Today, though, Six Sigma has evolved to an even larger role in GE. Its rigorous process discipline and relentless customer focus has made it the perfect training ground, a perfect vehicle for the future leadership of GE. Our very best and brightest are moving into Six Sigma assignments and I’m confident when the Board picks the next CEO 20 years from now, the man or woman chosen will be someone with Six Sigma blood in his or her veins. Six Sigma has become the language of leadership in our Company, a big part of what we call the GE brand.
GE has evolved from a product company to a services company that also makes great products. Today, 70% of our revenue comes from services. Increasingly, product services. Twenty years ago only 15% of our revenues came from services. The Product Service initiative started out increasing the focus on traditional maintenance activities — things like turnaround times in engine shops or better delivery of spare parts across all our equipment businesses. The objective was improving the reliability of our products in our customer operations — the more traditional what we call "oil can and overalls" activity.
Today, product service is as high technology as anything we do. Many of the best and brightest of our engineers who traditionally gravitated to new product design, higher thrust engines, more efficient turbines, better diagnostic images have now joined this Company-wide drive to deliver high technology upgrades to GE’s enormous install base. Product Services, which used to be thought of as little more than wrench-turning, is today all about high tech and software products that allow our customers — the world’s hospitals, airlines, utilities, and railroads — to be more productive.
Our fourth initiative, Digitization, is our newest, only its third operational cycle through the GE operating system but already transforming the way we do business.
Like every other initiative, what started out as a little seed of an idea in this case — basically what the dot.coms were doing — Digitization today has expanded far beyond our original vision.
Like the Amazons of the world, we started out with what we call "e-Sell," primarily distributing our products on the Internet. Moving our traditional customers to the Web for much more efficient transactions has been very successful. And in 2000 we sold $8 billion in goods and services online, a number that’ll grow to $20 billion this year, making this 123-year-old institution one of the biggest, if not the biggest, e-Business company in the world.
On what we call the "e-Buy" side, we followed the same path, adopting many of the dot.com ideas on auctions, having a global network of Six Sigma suppliers. The concept of reverse auctions was right in the GE sweet spot and we wasted no time in spreading the new technology across our businesses. We now run global auctions daily — $6 billion worth last year, $12 billion this year, generating over $600 million in savings for the company in 2001.
But the biggest breakthrough of all was what we call "e-Make" and that didn’t come from the dot.coms. They had little infrastructure and few processes. e-Make came from learning what the Internet could do for internal processes and seeing the enormous advantage Digitization can give a big old company that actually makes things, particularly one with Six Sigma methodology already deeply entrenched in its veins. By digitizing our processes from customer service to travel and living, we’ll take over a billion dollars of cost out of our operations this year alone. Digitization will give us at least ten cents a share in 2001, from zero three years ago, demonstrating again the speed with which good ideas are embraced across GE.
Last year I told you I believed e-Business was neither "old economy" nor "new economy," but simply new technology. I’m more sure of that today. If we needed confirmation that this technology was made for us, we got it. GE was named last year "e-Business of the Year" by InternetWeek magazine and awarded the same title last week by WORTH magazine.
Digitization is, in fact, a game changer for GE. And, with competition cutting back because of the economy, this is the time for GE to widen the digital gap, to further improve our competitive position. We will do that by increasing our spending on information technology by 10% to 15% this year despite the weak economy.
The exciting thing about these big thriving initiatives I’ve just described is that they are still in their relative infancy. The wonderful thing about the way GE people work in this culture of learning is that they will continually refresh and expand these initiatives and the new ones that someday will follow, always assuring you, our share owners, that the sum of this company will always amount to something much greater than its parts.
Now I’d like to move from these timely initiatives to our timeless values, values that bind us together and make this company work unlike any institution in the world.
The first of these is integrity and it will always be the first and most important. Integrity means always abiding by the law, both the letter and the spirit. But it’s not just about laws; it’s at the core of every relationship we have. With trust, born of integrity, employees can set stretch performance goals and believe us when we promise that falling short is not a punishable offense.
In our external dealings with our unions and governments, we are free to represent our position vigorously in a constructive fashion to agree or disagree on the issues, knowing in our souls that our integrity is never at issue.
A period of transition is a period of change and some of our values will be modified to adapt to what the future brings. One will not. Our commitment to integrity, which beyond doing everything right, means always doing the right thing.
Some of our other values I’ve alluded to already: The love of change for the opportunity it brings and understanding that nothing we do will contribute to our success unless it contributes to that of our customers. If GE’s destiny is to become the greatest company of the 21st century, we must be the world’s most customer focused company as well.
We can do none of this if we do not find, challenge, and develop the world’s best people. Doing so, developing great people, in the end is the true "core competency" of General Electric.
Our technology, our great businesses, our reach, our resources aren’t enough to make us the global best unless we always have the best people — people who are always stretching to become better. And this requires rigorous discipline in evaluating and total candor in dealing with everyone in the organization.
In every evaluation and reward system, we break our population down into three categories: the top 20%, the valuable high performance middle 70%, and the bottom 10%. GE leaders understand the necessity to encourage, inspire, and reward that top 20%, to be sure that high performance 70% is always energized to improve and move upward. But they also have the determination to change out, always humanely, that bottom 10% and do it every single year. That’s how real meritocracies are created and thrive.
For years we’ve been talking about something these winning people have, something we must help foster in all our people — the magic and indispensable ingredient of self-confidence. A Company that aspires to true greatness furnishes its people with big challenges which, when met, fill people with self-confidence that can only come from within and only from winning. You could see that confidence just a few weeks ago in Tiger Woods’ face as he walked up the fairways near the end of the Masters, with his opponents, every one of them a great player, wilting around him. What a critical, powerful advantage to have when you compete.
A Company of people brimming with self-confidence also communicates with utter simplicity, energizing people with clear, exciting messages, and moving with speed and decisiveness to seize every opportunity.
Speed is so important and we are getting faster by the day. I’m confident future pundits will be writing articles describing how relatively slow and even plodding the GE of today is compared with the lightening pace of the GE of tomorrow. And that love of change and that desire to seize it is what makes this Company so vital, so dynamic, and so special and we’ll never lose it.
GE’s big and it’s going to become a lot bigger. And it’s led by people who understand that size in itself has no value whatsoever other than the ability it gives a company to take swing after swing on new products, ventures, acquisitions, knowing full well that some won’t make it — some will fail but that doesn’t matter because size and the resources that come with it allow us to step up and swing again and again.
Almost all of our shared values are inspiring, uplifting, positive. But one is not — our visceral hatred of bureaucracy stems from the evil and harm it wreaks on the spirit of a company, any institution, and its people, and its dilutive effect on every other value which we believe. Bureaucracy hates change, could care less about the customer, loves complexity, is afraid of speed and incapable of it, and inspires no one. This Company is committed to keeping itself as bureaucracy-free as any big institution that has ever existed.
The continuous and generally successful war we’ve waged on bureaucracy over the past two decades has allowed us to create what we call "boundaryless" behavior.
Boundaryless behavior is one of the small company characteristics we’ve always coveted. It means simply the breaking or ignoring of artificial walls like functions, rank, geography, race, sex, and any other barrier in the way of a headlong rush toward the best ideas. Boundaryless behavior only flourishes when self-confidence reins, as it does in the GE of today and will even more in the GE of tomorrow. Boundaryless behavior and informality go hand-in-hand. Informality in GE means so much more than calling people by their first names or the absence of managers’ suits and ties or reserved parking spaces and other trappings of rank. Informality means that anyone anywhere in the company with a good idea, a new view, feels empowered — and, in fact, expected — to deliver it to anyone else and know it’ll be listened to and valued. Regardless of the occasion, it’s the best idea that wins and that makes all the difference in the way this company works.
This informality and the boundaryless behavior it produces has made GE a Learning Company — a high spirited, endlessly curious enterprise that roams the globe finding and nurturing the best people and cultivating in them an insatiable appetite to learn, to stretch, and to find that better idea, that better way every day.
In my case, the biggest idea I’ve been searching for for a decade is the name of a person who would succeed me as chairman of the Company.
I’m convinced more and more every day that the best idea I’ve had in the past 20 years was to choose with the enthusiastic concurrency of your directors Jeff Immelt as your next chairman and CEO.
I’m sure that Jeff and his terrific team will take GE to levels of growth and excellence that we can only dream of today. And I’m utterly convinced for this great Company, its best days lie ahead.
Thank you for your terrific support over the years.
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