Why General Electric Company Endures

The secret to GE's long, prosperous life in a cutthroat world of business.

Apr 6, 2014 at 12:30PM

For 2013, the theme of General Electric's recent letter to shareholders was "progress." Jeff Immelt, the CEO and chairman of the board, retold stories of product advancement, of employee growth, and of operational strategies that have pushed the company forward in recent years.

Over a longer timeframe, however, the word "change" more aptly describes GE's formula for success. Immelt summoned a quote from one of the great entrepreneurs of our time, Jeff Bezos of Amazon.com, to illustrate how GE's managed to differentiate itself from the pack for 122 years:

Jeff Bezos is an extraordinary leader and entrepreneur who founded Amazon.com. Recently, he made the assertion that most businesses have short life spans. He said: "Companies come and go. And the companies that are the shiniest and most important in any era, you wait a few decades and they are gone." But GE has remained competitive because we learn and change.

GE, in other words, has served as one of those rare examples of resiliency over the years, even during the midst of massive industry upheaval. And that ability to defy the odds, from Immelt's perspective, is due to GE's willingness to embrace change.

Consider, for instance, the businesses that GE called its peers in the first Dow Jones Industrial Average back in 1896:

  • American Cotton Oil Company
  • American Sugar Company
  • American Tobacco Company
  • Chicago Gas Company
  • Distilling & Cattle Feeding Company
  • Laclede Gas Company
  • National Lead Company
  • North American Company
  • Tennessee Coal, Iron, and Railroad Company
  • U.S. Leather Company
  • United States Rubber Company
Ge

GE's 2013 Annual Report. Source: General Electric.

Today, not one of those companies remains in the Dow. In fact, none of these businesses from the 19th century still operates on a standalone basis. Of the original 12 stocks, GE is the only one still in existence and the only one that remains a component in the most-followed stock index in the world.

Now, that's a testament to GE's ability to endure, and also a fitting illustration of how different America's largest companies can look from one era to another. In the early 1900s, the commodities and transportation businesses ruled the day. But you'll be hard-pressed to find a "cotton oil" or "lead" company thriving in the 21st-century economy.

In a relatively short timeframe, the production of raw materials gave way to the manufacturing of more complex finished goods and ultimately what we might call "value-added" products.

These goods allowed companies and brands to differentiate from one another, thereby resulting in more attractive profit margins. Companies like GE evolved with the industry in this manner, while the competitors who clung to the pure commodities business fell by the wayside.

And this evolutionary process will continue. The general lifecycle of industrial products can be represented by the following timeline, with data-driven machines eventually replacing the inefficient and disconnected devices of the 20th century:

Lifecycle

What's incredible -- and crucial for investors to understand -- is how quickly these trends are now taking shape. If we conclude that it took several decades to usher in a wave of value-added products, then we can cut that timeframe in half for the advent of "smart" machines.

GE predicts the total value creation from data-enhanced products (also known as the "Industrial Internet") will reach $1.3 trillion by 2020. That amount means the equivalent value of today's four largest American companies is going to be created in less than six years' time, solely from the rise of data-driven machines.

Foolish takeaway
More than ever, investors have to identify evolving trends and bet on the companies that are shaping the future of the industry. Likewise, investors need to evolve themselves, as so skillfully described by The Reformed Broker's Josh Brown in a recent post called "Adaptation."

As the Charles Darwin-inspired quote goes: "It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change."

At GE, progress is what inspires product innovation, but change has allowed the company to endure.

Ge Evolution Series Locomotive

Even the railroads are being transformed by the rise of GE's industrial Internet. Source: General Electric. 

9 rock-solid dividend stocks you can buy today
One of the dirty secrets that few finance professionals will openly admit is that dividend stocks as a group handily outperform their non-dividend-paying brethren. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Isaac Pino, CPA, owns shares of General Electric. The Motley Fool recommends Amazon.com and owns shares of Amazon.com and General Electric. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers