GE 2015 Annual Report Download - page 24

performance, regardless of the environment.
A new, more highly leveraged, team-based
incentive compensation plan creates even
more alignment and accountability. GE lead-
ers earn more as we exceed goals that align
with shareholder value. And payouts are
broadly differentiated based on business per-
formance. In 2015, business payouts ranged
from 63% to 130% of target compensation.
Our teams want to win.
We are redefining what it means to govern
a large, global company. Historically corpo-
rate was a “temple for reviews.” We want to
make it smaller and intensify the impact of
the GE Store. GE is an operating company, so
the senior team will always enforce mutual
accountability. But gone are the days when
people would migrate to headquarters to
report out and receive instructions. Rather,
we must be in the world of ideas, so that we
remain contemporary and paranoid. This is
behind our move to Boston. We plan to keep
our corporate costs low—less than 2% of rev-
enue—but having a big impact. The GE Store
is valuable for investors, a key reason you
should own GE.
Simplication:
for the Team +
Investors
To accomplish all of this, we are embracing a
culture of simplification. I have put together
a team of early career GE leaders to coach
me on our simplification journey. They in-
spire and motivate me; but listening to them
is humbling. Through their eyes, I can see the
evil nature of corporate bureaucracy; they
are a good mirror for my own failings. The GE
they want to work at is a deeper and simpler
company—one where everyone is looking at
opportunities out there for the taking. I want
to make GE better for them.
Simplification is essential to become the Dig-
ital Industrial. We are leaving the world of
professional silos, disconnected spreadsheets
and bureaucratic workflows to agile teams
that are mission-based. We are acknowledg-
ing that, to the next generation, speed and
simplification are synonymous with quality
and innovation. We have asked many out-
standing people to join GE, leaving promising
careers in IT companies. They do so because
they share our vision for the Industrial Inter-
net. I have promised them that we will lead
in both technology and culture; that we will
not be burdened by old industrial procedures
that no longer are a foundation for success.
Achieving a culture of simplification is a stra-
tegic imperative at GE and will define our
leadership for the next generation.
Simplification reinforces that outcomes mat-
ter. Companies need to blunt the momentum
of “corporate political correctness.” It creates
a sense that, if the processes are followed,
outcomes don’t matter. In this world, it is
easy to lose a sense for priorities and propor-
tionality. When political correctness invades
business, you lose your competitive edge. It
doesn’t do any good to win awards for good
governance if you are getting eaten alive by
competitors. Our sole truth of performance
is in the market, winning with customers and
investors.
Simplification is making GE safer. Integrity
is the foundation of GE. But I take a broader
view, not just a legalistic one. We want GE to
be morally sound, but also strong. The way
we keep GE safe is by having great engineers
who design reliable products; by taking cyber-
security seriously and holding senior leaders
accountable to be cyber experts; by having
a strong balance sheet that is impregnable
in a crisis; by having open reporting of rule
violations; by seizing growth opportunities
in an uncertain economy; and by creating a
culture of constructive conflict where every-
one has a voice. This includes people who
challenge procedures when they don’t make
sense. Simplification has helped us improve
risk management through operational excel-
lence, not by multiple reviews that cheapen
accountability.
Through simplification GE is more unified. It is
important to take out layers so that leaders
are in touch with their teams. We are reduc-
ing vertical reviews in favor of delegating
decisions to experts who are closer to our
customers. We have learned that even the
best people will underperform when they
have myopic goals. So we have simplified
our metrics to better align our teams. GE
has 333,000 employees working around the
world. Simplification is essential to lead them
with a unified purpose.
A simpler company is faster. Let’s face it,
complex systems are put in place by bu-
reaucrats to either stop progress or simulate
perfection. FastWorks is becoming the way
we work, favoring progress over perfection.
Becoming the Digital Industrial will take mul-
tiple improvements. We are not exactly sure
what every strategic step will look like. But,
we will find out quickly; we will learn and
adapt to win.
A simpler company is more empathetic. Sim-
plification forces you to actually learn how
your team works; to care more about their
tools and productivity. Doug Folsom leads GE
Aviation’s 50-year-old Hooksett, New Hamp-
shire factory, which embodies the best of GE’s
past and future. Here we have 700 motivated
teammates driving a transformation in what
we build and how we build it. They are em-
bracing a fully digital factory, including new
automated milling machines and 3D printing
capability. More than half of GE’s employees
are associated with high-tech manufactur-
ing. We are investing in their future, and they
are delivering advanced technologies to our
global customers. It requires investment and
empowerment to create valuable manufac-
turing jobs.
A simpler company is better for our custom-
ers. Maria Claudia Borras recently joined GE
as the Chief Commercial Officer in our Oil &
Gas business. At GE, we have become too
comfortable with fragmented approaches
that work internally, but make customers
miserable. She has reorganized our commer-
cial efforts to provide solutions, broken down
functional barriers and leveraged digital tools
to improve our service.
A simpler company is good for investors.
Good teams like the same things as good
investors. Low-cost companies are better
for your team and investors. It means fewer
layers, fewer processes, more delegation of
authority and better jobs. Information and
transparency produce more speed and more
accountability. Your team loves it and so do
investors. Linking beliefs with valuable out-
comes with compensation motivates our
team and investors.
We have done a better job of being our own
activist. Few companies can match our re-
cord of bold change. To be honest, I don’t
think activists are necessarily bad for com-
panies. They are able to take a fresh look.
We like having smart investors in the stock,
even when they have a point of view. Activ-
ists challenge companies to set priorities, stop
wasting money and time, and work on what is
essential. When a business team fails in GE,
this is what you find: complicated account-
ability, too much cost in the wrong places,
excessive priorities and low market aware-
ness. These are factors activists point to when
they criticize companies. Shame on us if we
need help from the outside to find this out.
But let’s face it, every CEO and company
should be proudest of long-term investing;
of building something, not just managing
it. I know I am. Everybody likes our Aviation
business today. It has an awesome franchise,
technical leadership and valuable customer
relationships. But nobody liked it after 9/11 or
during the financial crisis when we doubled
our R&D. We have the finest Life Scienc-
es business in the industry, one that is high
margin and fast growth. Building this position
was facilitated by an “expensive” acquisition
that today looks like a bargain. It has pros-
pered with the benefits of the GE Store. If we
had waited for this to be popular, we would
have missed the opportunity. For every com-
pany, there is a fine line between staying the
course and listening to new voices; between
short term and long term. GE is a 138-year-
old company. Frequently, our investors hold
our stock for only an hour, six months, three
years. They are important, but can’t be the
only voice. Not because these investors ask
for too much, but because they ask for too
little. Our strategic opportunities are vast. Our
products, and more importantly our custom-
er relationships, last for decades. At GE, we
are builders.
Recently, several big investors publically crit-
icized companies for being too short-term
oriented. They may be right, but large insti-
tutional investors are to blame as well. They
have allowed governance to become too
legalistic, about politics instead of protect-
22 GE 2015 ANNUAL REPORT