It may be too early to write an obituary for General Electric, but only just. In the past few years, the company has gone from iconic American corporate titan and darling of Wall Street to a humbled, awkward, oversized giant. In June 2018, GE was kicked out of the Dow Jones Industrial Average, the blue-chip club of the United States’ largest public companies. It had been a member since the stock gauge was launched in 1896. Some analysts have GE on bankruptcy watch.

To those who have been paying attention, this has been a long, slow decline. In fact, GE never had much of a chance once Jack Welch retired as chairman and CEO in 2001. That wasn’t because of bad luck or lackluster management. Instead, Welch’s perfectly brilliant growth strategy had simply run its course.

Welch’s great mistake was to fail to plan for the “end of history”—what happens when the golden goose stops laying. The story is worth revisiting not just because it explains the deterioration of GE. It also holds three powerful lessons about corporate strategy:

  1. All growth from any single market or technology will end. Companies that endure are those that plan for this reality.
  2. If you are successful, many will copy your success. Companies that continue to prosper update and adapt their strategies.
  3. Smart corporate strategies are flexible and nimble, enabling action rather than constraining it.

The Welch era

Upon taking over as CEO in 1981, Welch reorganized GE’s structure in the face of trenchant resistance from an overgrown and constraining bureaucracy at the company’s Boston headquarters. He shed excess corporate staff and pushed decision-making down into the field. This had wondrous effects but required keeping a scrupulously close eye on emerging trouble spots.

One positive outcome of this management realignment was that it helped spawn a well-rounded group of division presidents able to handle much more responsibility than in a typical large, heavily layered, diversified conglomerate. To train these newly empowered executives, GE created a series of management education programs. In its heyday, roughly 1985 to 2005, GE’s management academy was in many ways the equal of first-rate graduate schools of business in its ability to train management teams that were able to execute its plans.

But there was a downside to this management upheaval. Because managers were empowered to problem solve in their own divisions, less information flowed up to corporate headquarters. This was the trade-off of devolving decision-making down: Welch understood that much of the bureaucracy was tasked to uncover small problems out in the vast divisional expanses before these could fester into large headaches.

Admirers were justifiably impressed at what Welch had accomplished, especially given the raw ingredients he had started with: a sleepy mishmash of low-growth businesses.

Welch did not want to lose touch with what might become big issues. With so many communication ties broken, he instructed his division presidents that their jobs depended on ensuring that immediate assessments of potentially damaging issues found their way, posthaste, to the CEO’s desk.

Among other things, Welch wanted to avoid violating what became GE’s rule No. 1: don’t surprise the board with bad news. The consequences of ignoring this imperative would become evident during the relatively short tenure of John Flannery, who was fired unceremoniously in October 2018 after just over a year as CEO. In Flannery’s case, the bad news was a $23 billion write-down that blindsided the board, exactly the kind of incident Welch had worked hard to avoid. The board was correct to quickly sever ties with Flannery, who, in spite of having worked at GE since 1987, failed to warn of trouble brewing out in the hustings.

Growth through acquisitions

Welch understood that growth is the magic potion Wall Street requires, yet he also realized that most of the “industrial” businesses GE was operating had modest organic growth prospects. He therefore developed a strategy around increasing earnings through acquisitions.

Welch wouldn’t accept just any deal. Instead, he searched for businesses ranked first or second in industries with only three or four players. These acquisitions proffered a commanding seat at the table in his newly acquired industries. No turnarounds, no rollups, no startups here. He was interested in buying companies with dominant positions at or near the top of their markets.

Once a newly acquired company became a part of GE, Welch’s management structure was often a welcome relief for those working inside the companies he purchased. This allowed him to get a preferred position when large and attractive businesses were on the block. His successful growth strategy became well known. Admirers were justifiably impressed at what Welch had accomplished, especially given the raw ingredients he had started with: a sleepy mishmash of low-growth businesses.

Lesson 1: Plan the next big thing

Welch’s long view was the same as his short view. What he saw in GE’s future was an unlimited supply of large, interesting companies to buy at fair prices, delivering seemingly endless growth possibilities along with operational results. And Welch had a great run. We should take nothing away from him.

But by the time Welch handed over the reins to Jeff Immelt in 2001, the world was a much different place. Many in the business world had listened carefully to Welch’s widely told story of GE’s stellar results. Naturally, they wanted to inhale the wisdom and earn a piece of the action for themselves. Jack Welch was flattered to be imitated, but by making his approach well known to all, he hastened the time when GE’s strategy would lose its luster.

Welch got out before his lack of strategic, long-term planning was exposed, but his final act as CEO hinted at his awareness that without acquisitions, GE would be in trouble. Welch was supposed to retire, but he asked the board for time to undertake one more big acquisition. The target was Honeywell, and ultimately the takeover bid failed. It was a foretaste of the troubles that would befall GE.

The lesson here is clear. However big you are, however successful you are today, however thoroughly you dominate your sector, plan for a time when your current strategy no longer works. Change always happens, and this means that strategies must be renewed and revised. Corporate leaders need to ask themselves: What is the pipeline? What is driving growth? What are we going to run out of?

GE is not unique in having failed to pose and respond to these questions. Chrysler lost its minivan advantage to Honda over reliability and durability issues. Sears never updated its strategy to account for discount retail. The steel company Nucor never planned for the day when scrap steel would be more expensive than iron ore; but demand from China drove scrap prices to record levels, causing harm to Nucor’s prized status as a low-cost producer.

By contrast, Walmart had a strategic pipeline. Although it ran out of places to locate stores in the rural southern US, it expanded north to keep growing. Sam Walton was not short of ideas for what to try next. He tested drugstores, hardware stores, a warehouse club, and other retail formats. Walton moved Walmart into the high-volume grocery business to drive traffic into his stores. He pioneered expansion outside of the US as well, fully understanding that he needed growth to continue. He was able to do so because he knew he must think beyond the “end of history.”

Lesson 2: Expect competition

GE pioneered its particular approach to mergers and acquisitions, but it was imitated. In many ways, today’s private-equity industry, with billions of dollars on call and ready to deploy, is testament to Welch’s clever growth strategy. Other large public companies also became engaged with buying companies. This left Jeff Immelt looking at an entirely different chessboard.

In the days of building GE, the company was one of the few players big enough, fast enough, successful enough, and with enough access to capital to make the deals work. It earned a gold-plated level of acceptance at all levels of business, from being one of the best places to work and a company with among the highest stock market values to having the best growth record and the best trained management teams, and so on.

Immelt was serious about acquisitions. He had learned his lessons well, and spent about $175 billion buying more than 300 companies. He used the full set of GE-trained managers onboard, and deployed the principles honed in the Jack Welch era in order to make the acquisitions work. Immelt was the handpicked successor, the best of the best. But it wasn’t enough.

Strategies should not be straightjackets that constrain action so much as frameworks for decision-making.

Once private-equity firms became able in the 1990s to raise vast sums of capital, as well as to establish generous bank lines to fund their acquisitions, every juicy acquisition suddenly had too many bidders. This pushed prices ever higher, forcing increasingly risky bets. When the strategy of buying the right companies at fair prices no longer worked, applying GE’s superior management attributes did not have the same effect.

The lesson here is that no market stands still. Successful companies spawn competitors; rivals will replicate winning strategies and may do so cheaper, faster, or smarter. A robust strategist will expect this competition from the outset, identify its likely sources, and plan how to stay ahead.

Lesson 3: Be nimble

GE’s current CEO, Larry Culp, took over in October 2018, and came from a sort-of GE clone, Danaher Corporation. Danaher had followed many of GE’s management tenets except for one big difference, plucked from the private-equity playbook. Danaher was free to sell companies—as well as buy them—when that was the smart move. This open-minded approach brought the private-equity firms’ biggest profit weapon back to a publicly traded conglomerate: the ability to take advantage of frothy markets when appropriate to cash out, rather than always forcing a long-term hold position.

With this background, GE under Culp has belatedly moved to sell off its assets and focus its business. This new strategy has exposed the weaknesses of the traditional buy-and-hold mentality that saw GE cling to divisions that were more of a burden than a boon in the past.

One of these is GE Finance, which started as a captive bank to finance only purchases of industrial products made in house. From there, it grew wildly into all sorts of things and crashed hard in the 2008–09 financial crisis. In some ways, GE Finance was the tail wagging the dog, and unwinding it has proven to be costly for the parent company, as previously-hidden liabilities have emerged as GE shutters this division.

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Another example is GE’s growth in the Internet of Things sector with their Current Division, which never quite found its footing as an internal startup, and was sold to a private-equity group. The same is true of its Distributed Power Division, which resulted from the melding of two acquisitions that appeared not to meet their targets in the small, transportable power-generator industry.

There is a bigger lesson here than just knowing when to sell. Strategies should not be straightjackets that constrain action so much as frameworks for decision-making. The most successful corporate strategies are those that enable companies to be nimble and flexible, and to pivot when things are not working or when unexpected opportunities arise.

Will GE survive? Ironically, perhaps one of the few factors keeping GE out of bankruptcy is that, like the conglomerate itself, a good portion of its stock investors are unable and unwilling to bring themselves to sell. Perhaps they simply cannot believe that a former industrial behemoth could really be on its knees. It seems the shareholders, like GE itself, display difficulty thinking beyond the end of history.

James E. Schrager is clinical professor of entrepreneurship and strategic management at Chicago Booth.

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