Today we talk about two Giants, Titans of Industry. Organizational supercentenarians who for years have been able to sing the “Song of the Fortune Teller” and find success in any industry or market they wished to pursue. But today they find themselves with New Giants at their doorstep, those born in the Information Age, threatening to outpace and outmaneuver them. Can the Titans stay at the top? Can they find the same levels of success over the next century as they have in the past? While they have both achieved considerable success, one looks set to stay on top while the other has started to falter. After all these years, why does one succeed while the other fails? We will explore these questions and much more. But first, who are these mythical Titans?
3M
Minnesota Mining and Manufacturing Company was established in 1902. Originally created as a mining venture, the goal of the company was to mine the mineral corundum for use in their grinding wheels. This was a complete and utter failure because the company’s mine was holding a worthless mineral called anorthosite instead of corundum. They “quickly” pivoted and began sourcing material for their grinding wheels (and an innovative product called sandpaper) from countries around the globe. According to Wikipedia “Failing to make sandpaper with the anorthosite, the founders decided to import minerals like Spanish garnet, after which sale of sandpapers grew. In 1914, customers complained that the garnet was falling off the paper. The founders discovered that the stones had traveled across the Atlantic Ocean packed near olive oil, and the oil had penetrated the stones. Unable to take the loss of selling expensive inventory, they roasted the stones over fire to remove the olive oil; this was the first instance of research and development at 3M.” Who else in that period was looking at research and development as a means of driving innovation?
General Electric (GE)
The General Electric story starts long before the company’s official creation date. At its foundation you will find the personal story of the first “Chief Innovation Officer”, Thomas Edison. Edison established the Menlo Park laboratory, designed for industrial research in 1876. Menlo Park became the first institution set up with the specific purpose of producing constant technological innovation and improvement. In 1878, Edison began working on a system of electrical illumination and by November of 1879 had created the first commercially practical incandescent light. Over the next few years, Edison expanded his electric efforts into improved designs and power delivery systems (direct current (DC) based) but found himself losing ground to new entrants like Westinghouse, delivering cheaper and farther-reaching electric using alternating current (AC). By the early 1890s, Edison’s financiers and partners began looking for ways to push Edison (and his support of DC tech) out of his own company. This mutiny was realized when J.P. Morgan ousted Edison and General Electric was formed through the 1892 merger of Edison General Electric Company and Thomson-Houston Electric Company. GE as a company had an original focus on all things electricity and was one of the first 12 companies listed on the Dow Jones Industrial Average in 1896.
Singing the “Song of the Fortune Teller”
Now that we know the who the Titans are, we explore how they have been able to survive and grow for over more than a century. Inno – Italian for hymn, song, or anthem and vati – meaning prophet or fortune teller; the roots of modern day innovation (or how I like to describe it, as the “Song of the Fortune Teller”), is how 3M and GE have grown and succeeded throughout the years. Innovation has been at the core of both companies since their inception. They have taken innovative approaches to create, grow, manage, and acquire products, and even organizations, consistent with their strategic paths. 3M produces a variety of products, including adhesives, abrasives, laminates, passive fire protection, personal protective equipment, dental and orthodontic products, electronic materials, medical products, car-care products, electronic circuits, healthcare software and optical films. GE has taken a broader approach and consists of the following primary business divisions:
- GE Additive
- GE Aviation
- GE Capital
- GE Digital
- GE Healthcare
- GE Lighting
- GE Power
- GE Renewable Energy
- GE Transportation
- Baker Hughes, a GE Company
- Current, powered by GE
- GE Global Research
So how is it that one Titan looks poised for growth while the other was recently taken off the Dow Jones Industrial Average?
What Makes a Giant?
Innovation, smart growth, agility, flexibility, process improvement, reduction of waste and efficiency are some of the many characteristics that make a Giant, with those that execute them the best becoming Titans. While both companies spent an entire century living and breathing these ideals, 3M continues to fully embrace and embody them. According to an article by Reuters, newly appointed CEO Mike Roman stated, 3M is “looking at acquisitions in attractive parts of our portfolio… and how they can leverage our fundamental strengths.” “In some cases that might also lead to divestitures.” This in addition to their culture of innovation sets them on a path of continued growth through the next century. But what about GE? Didn’t they follow a similar path to growth and success?
How Giants Stumble
While individual business units continued to develop innovative, state of the art, and even market leading technology, GE as a conglomerate was going the opposite direction. How does a Titan like GE, KNOWN for their innovation, fall so far from grace? The reason we at Ever Evolving came up with the InnoSpecting Framework was because of observations we saw with how innovation was executed in a variety of companies. Our research highlighted serious problems with organizational innovation efforts with a symptom being the sheer number of partial-successes and numerous failures our clients and many other companies were experiencing. InnoSpecting or InnoSpection is a combination of Innovation, Prospecting (actively searching externally for value) and being Introspective (or looking internally for how and where you can improve).
GE spent years constantly innovating and looking externally for how they could find value. Our research found their two biggest problems to be that they slowly stopped looking internally in a truly introspective manner and they stopped focusing on innovation as a whole (and focused on paying Shareholders). They couldn’t see that the process for building future leaders, one of the largest contributors to their success, was slowing them down and had become a drain on their efforts and their ability to maximize their value. The school of thought changed over the years where leaders were taught to chase products and services that maximized revenue instead of value. As showcased in an article on Bloomberg.com, “Under (Jack) Welch, GE’s net income swelled from $1.65 billion in 1981 to $12.7 billion in 2000, even as its workforce shrank from 404,000 to 313,000. But over time, less and less of that income came from technological innovations or manufacturing prowess or even the productivity gains Welch had wrung out early in his tenure. Instead it came from GE’s financial-services arm. From its humble beginnings financing family purchases of refrigerators and dishwashers during the Great Depression, GE Capital had ballooned into a behemoth whose global stable of investments ran from insurance to aircraft leasing to mortgages, giving GE a share of the action during a period when the financial sector was the fastest-growing part of a fast-growing U.S. economy.” It took The Great Recession to show the cracks in that way of thinking and really highlight that revenue and sales growth doesn’t always translate to opportunity growth.
How Giants Fall
Even still, GE stayed the course and continued to acquire in pursuit of revenue instead of value. In an article in written for Harvard Business Review in September 2017 titled “Inside GE’s Transformation”, then GE CEO Jeffery Immelt boasted about this approach and the revenue it created for Shareholders. “My legacy at GE will be a complicated one. In our core businesses, earnings have tripled during my tenure. Our $324 billion backlog is up more than $150 billion in the past decade. We have record-high market share. Our financial performance has outpaced that of our peers over the past five years. We have paid more in dividends during my tenure than during the previous 110 years of GE history combined. Nonetheless, our P/E ratio has gone from 40:1 to 17:1 in the past decade, and the stock price has underperformed. Thus it is with transformation. At GE we are never in episode 10.” In an article that surpassed 6500 words, Immelt talked transformation and only used the word “innovation” or some variation of the word twice. TWICE! Once when talking about sharing capabilities across divisions and another when talking about technology that would help the company and its customers to “achieve leaps in productivity”. It is no wonder to me that GE lost its place on the Dow Jones Industrial Average after being there for 122 years.
Time for Success or Failure
Even with 3M looking to be on the continued path of success and GE on a downward trajectory, there is time for either or both Titans to find success (or total failure). By revisiting or diverging from the characteristics that made them a Giant in the first place, either company could see themselves alive and growing well into the 22nd century or another memory in the ever-growing corporate graveyard. Time and proper innovation management will tell! If you are looking for help making the above mentioned characteristics of a Giant a part of your organization’s culture or need support improving them to the point of becoming a Titan, please contact us at Ever Evolving.