General Electric CEO Jeffrey Immelt says the company chose to put its North American shared services center at The Banks because it was an “exciting” project that would help him attract the best talent.
Returning from Cairo to speak in Cincinnati, Immelt answered via email wide-ranging questions on his nearly 14-year tenure running the conglomerate and parent of Evendale’s GE Aviation, which employs 7,500 in Greater Cincinnati.
On his watch, GE has undergone a flurry of changes: the 9/11 terrorist attacks; the 2008 financial crisis; and more than 600 acquisitions and 300 divestitures. The company is in the midst of a massive $17.1 billion takeover of the power and grid businesses of France’s Alstom at the same time it’s selling off its iconic appliance business for $3.3 billion.
Greater Cincinnati has benefited from those and other changes – and Ohio is home to the most U.S. employees. GE Aviation has grown from 8 percent of GE’s total revenues in 2000 to 16 percent last year. GE is also growing locally-based Morris Technologies, which it bought in 2012, to accelerate its move into cutting edge 3D-printing technology. The shared services center is part of a consolidation of back office functions that will service all eight of the company’s business segments from healthcare to energy management.
Immelt has also reshaped the giant $148.6 billion company, making it an even bigger manufacturer as it pares back its hulking financial business. Nearly three quarters of its revenues come from the industrial side, up from half in 2000.
Why was it important to put the shared services center Downtown at the Banks?
We looked at a lot of criteria to assess and determine the best location for our U.S. Global Operations Center. We chose the Banks because we had the opportunity to be an economic catalyst for the exciting development activities already underway along the riverfront and in downtown Cincinnati. The Banks is the new front door to Cincinnati and a centerpiece of the city’s re-vitalization efforts. It provides many of the amenities that help us attract and retain top talent.
As a native Cincinnatian, was there any part of you that wanted to build it here in the region?
The pool of local talent and long history between Ohio and GE were the most important factors in our decision to locate the U.S. Global Operations Center in Cincinnati. We also looked at cost and incentives, but the people are really what led to our decision. We’re excited to be coming to a very attractive site for employees that will also have a big impact on Cincinnati’s downtown development efforts.
GE has had a great relationship with the state of Ohio for a very long time. In fact, our 15,000 GE employees in Ohio is more than any other state in the U.S.
GE Aviation remains a powerful engine for the company overall. What are the biggest opportunities and biggest challenges ahead for the division?
GE Aviation is entering one of the most important execution phases of its history. We have 15,000 commercial engines in our backlog for delivery over the next few years, and that includes the LEAP engine (the next generation engine that is 15 percent more fuel efficient than its predecessor for the ultra-lucrative narrow-body jet market) being developed by our joint company (CFM International) with Snecma of France.
It enters airline service next year, and as a new engine, it needs to perform with the same impressive reliability as its predecessor, the CFM56. That’s not an easy task. So, not only does our Aviation business face record deliveries over the next several years, but we must execute successfully on the development of the LEAP engine for narrow-body aircraft. Also, we are developing the GE9X (the next generation engine for wide-body jets) for the new Boeing 777X that enters service at the end of this decade. By 2020, GE and its partner companies will have about 46,000 commercial engines in service – that’s 10,000 more than today.
(GE Aviation CEO) David Joyce and his team have been on a tremendous run in recent years winning both engine orders and long-term service contracts. The majority of our new engine sales are now sold with a long-term maintenance package. The LEAP engine has won three-fourths of the narrow-body aircraft market. These kinds of numbers are mind-boggling to my father, who spent his career at the Evendale plant just as the company was entering the commercial engine business. If we successfully execute on the LEAP program, this business will be in outstanding shape for many years to come.
How are you growing Cincinnati-based Morris Technologies (which GE bought in 2012)?
Morris Technologies has been a key strategic acquisition for GE Aviation. Along with the work at our Global Research Center, the Morris acquisition has helped to thrust GE into the forefront of the 3D additive manufacturing revolution.
We had been a customer to Greg Morris’s operation in Cincinnati for many years, and it only made sense to put his main focus on our growing Aviation business. So, we were thrilled to have Morris Technologies in the GE family. Thanks to the Morris acquisition, we are using additive manufacturing to produce the interiors of the fuel nozzle for our LEAP engine (the component feeds jet fuel into the engine to ensure maximum efficiency), which is a real industry breakthrough. We are in the process of producing this component on a grand scale at our new additive manufacturing operation in Auburn, Alabama. Also, GE Aviation will open a new additive manufacturing development center just off I-75 near West Chester later this year (expected to produce dozens of new jobs in the next few years). The new center will consolidate the additive development activities from around Greater Cincinnati into a larger, more central location. We are aggressively exploring what future components can be built using the additive process.
How have you tried to reshape GE during your tenure?
Today, GE is a new kind of industrial company. Our recent strategic portfolio moves cap a decade where we repositioned GE as a high-value industrial with businesses that can share technology and global capability. During this time, we have completed more than $100 billion of acquisitions and dispositions. This includes major investments to strengthen our infrastructure portfolio, substantially reducing financial services and selling businesses where we lacked competitive advantage. Going forward, GE is built on businesses that fit our strength and purpose.
You’ve really pushed for manufacturing at GE. Why is that a solid strategy?
GE is making substantial investments in advanced manufacturing. Material science and analytics are transforming the way that our factories can operate. Digital tools will make us faster and more efficient. We’re investing in high-performance computing so that we can reduce cycle time, and are leading in advanced fabrication innovations like 3D printing to lower product cost and drive speed. We have digitized our supply chain to enable collaboration. We are at the leading edge of robotics and automation. Out factories are smarter, more distributed and reconfigurable.
How does today’s worldwide economy affect GE’s plans?
Global markets are constantly in motion. GE’s strength allows us to create value through cycles and invest when others walk away. For instance, we see capability in Europe and will invest there today for long-term benefit. Winning globally requires scale to build new positions in growth markets with the speed to solve local needs. GE sells in 175 countries and is leading economic development around the world – bringing power to Africa and healthcare solutions to rural India.
You’ve cut back finance, you sold off NBC a couple years ago, you’re exiting appliances. What are the 3-4 core businesses of the GE in the future?
GE leads in power, healthcare, aviation, transportation, and oil & gas and we will continue to compete in these industries because they are big, growing and essential for global economic progress. For GE Capital, we’ll continue to look at ways to make it a smaller, safer and able to leverage the strengths of our industrial businesses. It’s ultimate size will be based on return on equity, competitiveness and the impact of regulation.
GE has acquired its way deeper into oil and energy just before oil prices plummeted. Where do you see this going?
We have lowered our guidance for Oil & Gas, but we are thinking about this as an opportunity. We are the kind company customers want to work with in a time like this. Before the oil prices went down, customers were focused on improving the quality of the projects. We have been working on product standardization and things like that for a long time. It is all going to get accelerated. And also, don’t forget that close to 50 percent of our revenues come from the US – a market that will benefit from lower oil prices. We have leadership in businesses like Aviation and Transportation because we know how to operate through and invest during cycles.
The world will always need more energy tomorrow than we have today, and we have to find it from a greater array of sources than we have in the past. GE’s diversified energy portfolio allows us to compete globally and meet local energy needs here in the U.S., in Africa, and all around the world.
What part of GE’s business portfolio is most misunderstood by Wall Street?
I want investors to better understand how GE’s specialty finance capabilities enhance our industrial competitiveness. GE Capital is an important part of our portfolio (With more than $500 billion in assets, it’s the U.S.’s seventh-largest bank – roughly the size of Fifth Third and U.S. Bank combined).
Despite all this change, GE’s stock has stubbornly refused to recover pre-financial crisis levels. What are you doing to boost the stock and the company’s future?
From 2014 to 2016, we are focused on delivering an important financial pivot. This includes: growing EPS each year; achieving 75 percent of our earnings from industrial businesses; returning $50 billion to investors; and growing margins and returns.