Key Annual Speech to Shareholders by CEO Jack Welch
Report to Shareholders
I have three subjects to cover in this 10-minute report.
First, I want to give you a brief perspective on your Company at the beginning of a new administration, with some reflections on the significant achievements of my predecessor, Reg Jones.
Second, I want to discuss the rationale behind the Company's recent major moves in electronics, including two significant acquisitions.
And third, I want to talk about one of my basic objectives for this Company over the decade ahead.
Let's begin with General Electric today. GE is one of the most widely diversified high-technology companies in the world, with sales totaling $25 billion last year, and earnings of $1.5 billion. Where did those earnings come from?
At the end of the 1960s, 80% of your Company's earnings came from the manufacture of electrical equipment for the power stations, factories, and homes of America. Most of these traditional GE businesses are still healthy and expanding. But today, they provide only 44% of our earnings. The other 56% comes from new, fast-growing businesses in man-made materials...natural resources...aerospace...land transportation equipment...medical systems...and major new lines of opportunity like credit services. Within this total Company product mix, 16% of the earnings about a decade ago came from international activities. This has grown to 42% today.
Under Reg Jones' leadership, the Company was not only diversified and internationalized, but also strengthened technologically and financially. Last year, our research and development expenditures amounted to $1.6 billion, and our investments in new plant and equipment came to nearly $2 billion. Yet in spite of these substantial investments in the future, the Company's financial position is strong - with almost $2 billion in cash and marketable securities and a low debt-to-equity ratio. So this new management team inherits a strong and healthy company, well positioned strategically and financially for vigorous future growth.
It was this strength and diversity that, in a world economy with many sluggish segments, gave us a relatively good first quarter for 1981. Sales of $6 billion were up 4% over 1980's strong first quarter, and earnings of $359 million increased 5%. Equally important, this Company is poised to take advantage of any upturn in the world's economies.
In recent months, your Company acquired two electronics companies in California - Calma Corporation and Intersil - as part of an overall industrial electronics strategy. The inroads of foreign companies, especially in autos and steel, have awakened American industry to the realization that it cannot compete when its factories are aging, its productivity is declining, and it is working with the technologies of yesterday.
The United States is poised for a dramatic surge of investment in new plant and equipment . . . what has been called the "Reindustrialization of America." And we believe a large, profitable market is emerging for equipment that addresses these productivity and modernization issues. We in General Electric are preparing ourselves to serve those new markets.
We already had important capabilities for serving the existing industrial markets of this country. For years, General Electric has led in the automation of major industries like steel and paper. We developed the ability to automate job shop operations with such innovations as numerical controls for machine tools and programmable controls for assembly operations, and our factories served as major laboratories for trying out a great variety of new manufacturing techniques and equipment. GE's Information Services Company offers a comprehensive package of software and consulting services that can coordinate the whole flow of events involved in running a business - from order entry to factory scheduling to customer billing.
But galloping technology left some holes in our ability to be a leading supplier of advanced production systems.
Advanced production starts with a new way of designing products. An engineer takes ideas right out of his head and sees them in full color on a screen. He can inspect his design from any angle, change it, stress it and then electronically command a variety of machines on the factory floor to produce it - all of this without generating a scrap of paper. That's where Calma comes in.
Calma is a leading manufacturer of interactive graphics - that's the technology that eliminates tedious manual drafting, tons of paper and, sometimes, man-years of design work.
Another missing link to the factory of the future was robotics. These are machines that can cut, paint, weld, or assemble components or total products.
Robots learn quickly, remember thousands of tasks, and perform complicated work, like assembling small motors. We're developing a variety of robots internally.
The source of their intelligence, as well as the basic cell structure of each of our automation systems - the computer aided design, the electronic control and all the rest - is the integrated circuit. And that's why we acquired Intersil - to assure us a supply of custom-designed chips, and to keep advanced electronic technology running in the Company's bloodstream.
Our goal is to be a major worldwide producer of automation systems in the eighties . . . and Calma and Intersil, coupled with our own internal developments, will enable General Electric to become what one newspaper called us, "a world supermarket of automation for the reindustrialization of America."
Now, if I may, I'd like to talk with you a bit, philosophically, about what we have in mind for this Company.
When any of us assumes a new role, many thoughts go through our minds as to what we want to do. Our new Corporate Executive Office is having this experience, and we naturally have many objectives that, with the help of our great organization, we want to achieve.
But rather than talk about specific tasks, I want to reflect on what we want this Company to be in 1990 - a decade from today - in two sentences.
We would like General Electric to be perceived as a unique, high-spirited, entrepreneurial enterprise, a company known around the world for its unmatched level of excellence. We want General Electric to be the most profitable, highly diversified company on earth, with world quality leadership in every one of its product lines.
You won't see slogans and banners proclaiming our allegiance to excellence. We want something deeper than that: excellence as a faithfully held commitment by everyone associated with General Electric; excellence as the dominant aspect of our Company's culture.
To me, "excellence" means being "better than the best." Its achievement requires an introspective assessment of everything we do, say, or make, and an honest inquiry: "Is it 'better than the best'?" If it is not, we will ask ourselves, "What will it take?" and then rally the resources required to get there. If the economics or the environment determine that we can't get there, we must take the same spirited action to disengage ourselves from that which we can't make "better than the best."
As share owners, I hope you will recognize that this commitment to the utmost in quality and personal excellence is our surest path to continued business success. Quality is our best assurance of customer allegiance. It is our strongest defense against foreign competition and the only path to sustained growth in earnings. And I have no doubt that, as the spirit of excellence penetrates to all parts of the Company, it will lift the productivity and the pride of our employees. We all want to be part of an organization that needs and expects our very best.
General Electric is already a world-class Company with one of the best reputations in world business. I am asking all of my associates - in the offices, and labs and factories - to take that reputation up several notches...to a point where, in the world's assessment, our quality and excellence are not issues for conjecture, but indisputable facts.
to make our share owners, our employees and ourselves prouder than ever to be
associated with General Electric.
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