In an alternate reality, the current CEO of GE, Larry Culp, might have found himself at the helm of hedge fund Bridgewater, while GE struggled under the weight of debt and underperforming businesses. This intriguing revelation comes from Rob Copeland's recently published book, "The Fund."
From Danaher to Bridgewater
Culp, who had enjoyed a successful 14-year tenure as head of the industrial and healthcare conglomerate Danaher (DHR), briefly assumed a leadership role at Bridgewater in 2015. However, according to the book, Culp's time at Bridgewater was characterized by a clash of ideas with the firm's founder, Ray Dalio.
Clashing Philosophies
Dalio, known for his book "Principles," wanted Culp to contribute ideas on managing the firm using committees and concepts outlined in his book. However, Culp held a different perspective. He believed that Bridgewater suffered from a surplus of individuals with undefined roles and that a single person should be in charge.
After voicing his ideas, Culp found himself on the receiving end of Dalio's criticism. According to the book, Dalio dismissed Culp on the spot, claiming that he lacked conceptual thinking ability. The dramatic encounter ended with Dalio abruptly leaving the room.
A Blessing in Disguise for GE Investors
Although characterized as a firing, it's important to note that Culp was serving as an advisor at Bridgewater rather than a full-fledged employee. GE chose not to comment on Culp's brief stint at the hedge fund, and Bridgewater did not respond to requests for comments.
Looking back, GE investors should consider themselves fortunate that Culp and Dalio failed to see eye to eye. In 2018, Culp assumed the top position at GE and wasted no time in tackling the company's enormous debt burden. Through strategic asset sales, he successfully reduced the debt load and, more recently, initiated the split of GE into three distinct businesses.
A New Chapter for GE
The first chapter unfolded at the beginning of 2023 when GE Healthcare Technologies (GEHC) was spun out. Next on the agenda is the spinning out of GE Vernova, GE's power generation business, scheduled for the first half of 2024. This strategic move will leave GE with its highly regarded aerospace franchise, which Culp will continue to oversee.
As the dust settles, all three businesses are poised to have investment-grade balance sheets once they become independent entities—proof of the tough decisions and tireless efforts made over the years.
Embracing Lean Management
Culp's management philosophy is rooted in lean management principles, a familiar concept for U.S. businesses. Tracing its origins back to post-World War II Japan, lean management emphasizes inclusive, decentralized, and hands-on approaches to leadership. It also places importance on statistical process control as a means of continuously improving operations and addressing challenges head-on.
In conclusion, Larry Culp's journey from Bridgewater to the helm of GE is a testament to his leadership abilities and unwavering determination. Despite facing adversity, his strategic decision-making and commitment to lean management have positioned GE for a brighter future.
The Success of GE's Lean Application Under Culp's Leadership
General Electric (GE) has seen remarkable success in applying lean principles under the leadership of its CEO, Culp. Despite facing challenges such as the impact of Covid-19, supply chain issues, and high inflation, GE's aerospace business achieved an impressive operating-profit margin of 20.4% in the third quarter of 2023. This surpasses the margins of 20% seen in 2017 during a strong period for the industry, just prior to Culp's appointment.
Culp's achievements go beyond the aerospace sector. GE has also made significant improvements in profit margins within its gas-power and wind-power businesses under his tenure. This demonstrates the efficacy of Culp's lean application across various units within the company.
One notable marker of GE's success is its stock performance. Adjusted for the GE Healthcare spin, GE stock has risen by approximately 50% since Culp assumed leadership. This growth is even more impressive when considering the depths of December 2018, shortly after Culp took over and investors began to grasp the extent of GE's challenges. During this period, GE shares rose by over 100%, while the S&P 500 only experienced a 50% increase.
Achieving parity with, or outperforming, the S&P 500 is no small feat for GE given its previous struggles. From December 2013 to December 2018, GE stock had lost around 70% of its value. Therefore, the positive correlation between Culp's leadership and GE's stock revival is highly noteworthy.
The reasons behind Culp's departure from Bridgewater, a hedge fund, remain uncertain. Hedge funds operate differently from traditional businesses, often relying on the guidance of influential founders who shape investment strategies. Notably, a small number of trades can have a significant impact on a hedge fund's annual gains or losses. Perhaps the stark differences between the hedge fund environment and the manufacturing industry made it challenging for Culp to replicate his success at GE in a different context.
Regardless of the circumstances surrounding Culp's departure from Bridgewater, GE investors are extremely pleased with the results he has achieved thus far. The application of lean principles and Culp's strong leadership have propelled GE to new heights.
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