G.E.'s Stealth Strategy: Do What Everyone Wants, but Don't Admit It

The standard spin practice for most corporate turnarounds is to announce that you've developed a bold, winning strategy, and then do your best to convince everyone that you're executing it well.

If good numbers follow quickly, you attribute it to the new strategy. If they don't, you attribute it to the fact that real change doesn't happen overnight, insisting you're right on schedule.

General Electric, it seems, has embarked on exactly the opposite approach. While chief executive Jeff Immelt continues to defend G.E.'s long-established massive-conglomeration business model, he's also methodically taking steps to turn the company into the sleeker, simpler, higher-margin, more-manageable enterprise now demanded by every pundit who follows the company.

But wait a minute. Let's take first things first. Is G.E. actually in a turnaround situation? Not by the typical definition, given that it is hardly a company in sustained decline.

But G.E. is not your typical company. Against its illustrious history, the surprise earnings belly-flop of the first quarter -- exacerbated by the on-air foamings of Immelt's predecessor, Jack Welch -- was reported with the same shaken tones used to describe the collapse of the I-35W bridge in Minneapolis.

And after seven years of watching G.E.'s price-to-earnings ratio come back to rationality, analysts and journalists suddenly began to openly wonder about the job security of a guy rightly considered by many to be one of the most able C.E.O.'s of this young century.

So, yes, everything is relative. And by G.E. standards, the company is indeed in a turnaround situation. (Why else would Jack Flack dispense a Rescue Memo to Immelt back in April?)

It's also in turnaround mode. At least it sure appears that way if you apply careful scrutiny to company's actions and words since the first-quarter meltdown.

On their own, none of the actions -- announcing its intentions to shed its appliance business, auction its private-label credit card unit, sell its Japanese consumer-lending operations, etc. -- are earthshaking. But given that the current market is lousy for sellers of almost anything, those actions collectively seem to reflect a considerable sense of urgency.

The recent words are even more telling than the actions. Immelt has consistently maintained that the G.E. of his tenure has been aggressively reshaping its portfolio of businesses for years, selling the weak and buying the strong.

But underneath the broad defenses of the overall business model, G.E.'s language has shifted significantly. That's important, because G.E. shows far more care in choosing its words than most companies, giving attentive readers decent clues about its thinking.

The movement in the rhetoric started with Immelt openly promising/warning at the annual shareholders meeting that G.E. "has always been about change." That is usually a sure sign that a company is about to position upcoming big moves as simply the latest manifestations of a highly consistent long-term approach.

And then consider G.E.'s announcement several days ago that it was consolidating its six units into four. The statement uses some form of "simplify" four times, probably equaling the number of times it's been used in the whole history of G.E. press releases.

Even more important, it explicitly labels G.E. as a "global infrastructure, finance and media company." While some have interpreted the new alignment as a sign that bigger changes are not coming, the memo reads like a description of a new phase, not the end-state.

So are we seeing a full-fledged strategic shift? After all, G.E. could simply be dressing up its normal hygienic activity to appease the current critics of its complexity, right?

Possibly. But you have to assume the first-quarter aftermath resonated at G.E.'s headquarters in Fairfield, Connecticut. If the Welch outburst -- and the media avalanche it triggered -- wasn't cathartic, then what would be?

At that particular moment, Jeffrey Robert Immelt undoubtedly shook himself by his own lapels, vowing not to go down as the victim of incremental improvement of an over-stretched idea.

Consequently, look for G.E. to continue to beef up its infrastructure businesses through reinvestment and acquisition, while it gets rid of everything else.

Within two years, NBC Universal will be dealt to a major media player or spun off, while G.E. Capital will be sold in large and small chunks once the financial sector begins to stabilize.

Buyers will feel as if they got bargains, but G.E. will still show enough patience to extract the respectable prices required for nice return-on-investment calculations.

The most telling indicator will be G.E. Healthcare, a business that is genuinely struggling. Because Immelt once ran it, a divestiture would indicate that G.E. is clearly more focused on its future than its past.

So why, if real change is actually afoot, is G.E. so reluctant to admit it? Three guesses.

First, announcing such a strategic shift would compromise its ability to negotiate for optimal value in each of the transactions it will do. The current environment would make that dynamic particularly onerous, as any significant transactions with any of its financial units right now would only deliver fire-sale prices.

Second, it would represent a departure from the glorious Welch era. Immelt and every other G.E. decision-maker would swear on a stack of Six-Sigma manuals that G.E. has never been about protecting the past. But the reality is that it's very hard to break with any real boldness from a formula that was once widely hailed as the smartest business mojo on the planet.

The G.E. ethos has always been based on the concept of growth-growth-growth, both organic and acquired. Pruning underperforming units is fine, but "restructuring" smacks of retreat.

Third, it would give the appearance of caving in to outside pressure. No manager likes to be told what to do by howling pack of sell-siders who have never actually operated a business. Nor should they.

But the bottom line is that the G.E. of 2011 will look very different, much to the benefit of its shareholders. The only shame is that Jeff Immelt won't have the pleasure of being able to say, "I told you so."