This chapter is from the book
This chapter is from the book
This chapter is from the book
Quantum Leap
It was also part of Welch’s business philosophy to stick to fundamentals. He put value on taking incremental steps. He had little faith in pursuing growth for growth’s sake. At times during his first few years as CEO, he imagined what it would be like to take one big swing and increase the size of the company by 30, or 40, or even 50 percent; but, he felt it would be irresponsible to make a systematic strategy based on what he termed the “QUANTUM LEAP,” acquiring other major businesses.
Four years after he took over, Welch was ready to shift gears; he was prepared to tackle one king-sized growth initiative, stealthily pursuing the acquisition of the Radio Corporation of America (RCA). He termed this sudden, secretive approach to acquisition his “quantum leap.”
Like GE, RCA was one of America’s most important corporations. It set up the National Broadcasting Company (NBC) in 1926, entered the record industry in 1930, and was the first company to market a television set. RCA had interests in satellites, consumer electronics, and defense electrics. The deal was announced December 12, 1985, when GE and RCA agreed that GE would purchase RCA for $6.28 billion, or $66.50 a share. At the time, this was the largest non-oil merger ever. Prior to the deal, GE ranked ninth among America’s largest industrial firms, and RCA was second among the country’s service firms. When joined, they created a new corporate powerhouse with $40 billion in sales, making it the seventh largest company in the United States. Welch “grew” GE enormously with that one, swift, clever move.
The RCA gambit proved the exception rather than the rule in the mid-1980s. Welch would not take another “big swing,” as he liked to call it, until just before his retirement in the year 2000, when he, seemingly without warning, decided that GE should purchase Honeywell.
On October 22, 2000, Welch stunned the business world by announcing that GE would buy the Morristown, NJ-based enterprise that made aerospace systems, power and transportation products, specialty chemicals, home-security systems, and building controls.
As a result of the Honeywell acquisition, GE would become far larger, in revenues, profits, and head count. The acquisition would add $24 billion to GE’s annual revenues of $112 billion. GE’s profits, at nearly $11 billion a year, would grow by another $2.5 billion, thanks to Honeywell. And, GE was getting another 120,000 employees, giving the new GE a combined head count of 460,000. (The planned merger fell apart when European regulators created conditions that Welch could not abide.)