Kumar Mangalam Birla talks to GE's Jeffrey Immelt 6 Apr, 2008, 1900 hrs IST, Kumar Mangalam Birla, The

fifth floor room in the chairman’s office of the Aditya Birla Centre in Parel was crackling with ideas. As Mr. Kumar Mangalam Birla and his editorial team (read ET) tried to pick the subject of the interview, a variety Jeff Immelt, Chairman and CEO of GEJeff Immelt, of CEO names were Chairman and CEO of GE discussed and tossed around. Mr Birla had set the bar pretty high himself, as he’s already interviewed Bill Gates for ET two years ago, and the search was on for a similarly iconic interview subject. But one name kept cropping up, GE and Jack Welch. It was then that our Guest Editor made his first content call — why not Jeffrey Immelt , he asked. After all, he had successfully led GE and has clearly emerged as one of the world’s most admired CEOs in recent times — transforming the company into a $165-billion conglomerate, a no mean feat. And when the two finally connected, what followed was a leader-to-leader talk at its best. Excerpts: KMB : Hello! JI: Hello! This is Jeff Immelt. KMB: Hi Jeff, I am Kumar Birla from India. I am the chairman of the Aditya Birla Group. JI : How are you? KMB: Very well. It’s great to speak with you. Thanks so much for taking the time out. JI : Well, congratulations for being the editor for the day. KMB: Well I agreed to do this only because I got to interview you. JI: I hope there is a little bit more reward for you than just having the opportunity to interview me. KMB : No. I think this is much more than I can expect. It’s really a pleasure to be speaking with you and thanks for taking the time out. JI : Happy to do it.

KMB : Ok. Let me ask you — to start with, did you expect the top job? What do you think made Jack select you for the role of the chairman? JI : No, I have to say I never really expected it. It was one of those things where there is so much luck involved. I’ve always been asked this question and I’ve always told people that it’s hard for me to know exactly what was behind the decision making process. KMB : Right! JI: You know...I always think people get a chance like this not because of what they know but more because of how fast people think they can learn. I’d have to think that may be Jack and the board thought that I was a good learner and that I could adjust to the world and drive the right changes at GE. KMB : Right! That’s interesting, let me just go on to ask you, how the last seven years at the helm have been and what changes you’ve been able to make at GE. Are you happy with the way the last seven years have gone by? JI: Its gone by so quickly...I think the world has definitely gone through a couple of changes during that period and that impacts certainly big companies like GE. You know when I took the job, I always said that I wanted the company to be more innovative, more global and more focused on the customer and I do believe that in the last six years we’ve been able to do that, so I see that progress...a lot of large cap companies in the US, and GE is no exception, have seen our PE ratios depress. So, clearly I’d like to see a better appreciation in the stock prices. But our earning is strong, our global position is strong and by & large I am pretty satisfied that the company is strategically very well positioned. KMB : You’ve done a great job and I think you are being very modest when you say that the company is well positioned, I think it’s a lot to do with the strategic direction and some very dynamic leadership provided by you. JI: Thank you! KMB : Just to go back to the three goals that you set out for GE when you took over which you just talked about, give just one example of each. JI: In the area of innovation, I would just pick that we were the early mover in the area of environmental solutions, what we call Ecoimagination. You know we started this before it was very popular, in 2004, and in a relatively short period of time our environmental technologies are above $15 billion of revenue, $16 billion this year. So, I think that was an innovation we drove across our platform, that really drives to ensure growth, some of it technical and some of it from the stand point of how we

did our sales and marketing. KMB : Right! JI: In the case of globalisation, more than 50% of our revenues come from outside the US today. When I became the CEO, it was roughly 42% so that’s a fairly big shift for a company of our size. I see us moving on all fronts from a global stand point. In the case of customers, we’ve embraced what we call Net Promoters’ Score in terms of how our customers view us and judge us and we believe that this very strong focus on the customer has helped us really differentiate ourselves versus the competition. It’s something that we plan to continue to drive forward with. KMB: Just for my learning, Jeff, can you share one example of how customer centricity and customer service has improved in the last couple of years. To start off with GE, it was already a very customer focused company. I’ve read about remote maintenance of aircraft engines, for example. JI: You know, I would say, I would take a perspective of, lets say, the locomotive business, where the cycle time to deliver a locomotive we’ve taken down from about 100 days to about 10 days. KMB : Wow, that’s a huge difference. JI: Net Promoters’ Score for the people in the business review...it becomes a rallying cry of how we can get an entire organisation rallied around one customer. KMB: That’s fascinating Jeff, you’re saying delivery time has gone down from 100 days to 10 days. JI : Yes, it is about 90% reduction.

KMB: That’s truly outstanding, so six sigma remains a very important initiative across the company. JI: I say...six sigma remains important and we’ve kind of evolved it to embrace Toyota’s lean manufacturing at the same time and so what we’ve really tried to do is embrace really the process of change inside the company and try continuous improvement each and every day. KMB: So, would you say that GE is looking to provide solutions to its customers rather that products and services? JI : I’ve always talked that way, let us say it’s a continuous journey in terms of how

we look at it. I think we really want to be embedded with our customers so that we become their partners. I think that a lot of people talk about that but to me unless you can find ways to make your customer more profitable, you cant live that promise and I’ve always thought that’s something GE is good at. KMB : How do you actually get a sense of how customer focused a business is, or how they’ve moved in terms of servicing the customer better, is that something that is measured in quantitative terms or is that more of a qualitative feel? JI: The Net Promoters’ Score from customers gives me at a high level a feel of what a customer is saying about GE. Then I spend about three or four days a month both in the US and around the world really for grassroots customer level exposure... the last two days of this week, I was in Atlanta on Tuesday, Miami on Wednesday and I spent the entire days both visiting customers individually. Then I have a round table with 20 or 30 of our sales people. I also have a town hall meeting with 300 customers and so I get a very fresh perspective during these days in a very filtered way with none of the managers or bosses around, about how the company is doing and what kind of perspectives they have on the company. KMB: So that’s a meeting that’s held without the executives? JI: Without the executives around, it’s just one on one. KMB: So any sort of breakthrough ideas that have come from there Jeff, that you can talk about? JI: I would say from very mundane ideas to bigger ideas, for example, and how best to position technology. So it just gives me a kind of fresh perspective on what’s going on in the market place. KMB : How do you allocate your time across all the priority areas on your agenda? JI: I probably spend my time 30% on people, 30% on growth, 30% on operations and 10% on public things you know... investor meetings, stakeholder meetings, things like that and I try to structure my calendar accordingly. KMB: Let me ask about M&As. What is it that you are really looking for in terms of numbers, in terms of qualitative factors around an acquisition? JI: In our case we have a fairly deepfilled strategy for each business that we are in. So we actually have a kind of war room when we track 50 or 100 companies...or couple of 100 companies at all times that would just be relevant to us.... Infrequently they are not big companies, may be small companies that we see a strategic fit with. We always know what our strategy is, I’d say we are 100% strategy driven.. you know we would never do something to just do, it has to fit strategy. Financially typically we look for a 15% cash on cash return by the fifth year.

KMB: A 15% cash return? JI: Fifteen per cent kind of cash on cash return, so by the fifth year we’d like to have the sense that the ongoing cash flow rate of return has reached 15%. If we did a billion-dollar deal, by the fifth year you are actually generating between $150 and $200 million free cash flow from that deal. That’s just a number we use. We’d like to target deals between $200 million to $2 billion. So we try to match those financial criteria with our strategic criteria when we go for the deal. KMB: Typically, what stage or what size of acquisition do you review? JI: Very small...like I would review every deal, every industrial deal in excess of $10 million and I would review financial deals lets say where the portfolio is in excess of $50 million. KMB : You know Jeff, a lot of Indian companies like ours are going global, making lot of acquisitions globally, there’s a new found confidence in India. What are some of the post-merger integration issues that you focus on to make sure that the merger or acquisition doesn’t fail? JI: Every year we go back and review what we learnt about integration, what we could have done better. I would say typically what makes mergers not succeed are more soft issues, the social issues rather than the hard issues. We are very adaptive. We have a system for consolidating Manufacturing system, Financial systems, Information systems. We are good at all that stuff. KMB : And what would be the first year targets in terms of integration normally Jeff. Are there any sort of guidelines you have for integration as in that the integration must happen in the following way, in the first year of acquisition? JI: We have milestones. So we got a kind of 90-day plan, 100-day plan and so what I would say is that we try to have most of our cost synergies probably take place in three years, the first year being 50% of them. The growth synergies might again be over three years. We find growth synergies are much more difficult to track, to anticipate, than cost synergies. KMB: So when you budget it for, the returns that you are looking at, bulk of the synergies are on account of cost reduction? On the flip side Jeff what about divesture. What has led you to divest some of the businesses that you had. What were some of the criteria that you’ve used to come to a decision about divesting a particular business? JI: We have a tough-minded strategic review of our businesses, when we come to the conclusion that if it is going to be some kind of secular change or that someone

could run a business better than we could, it is time for us to divest a business. You know usually when a business goes through a secular change and it can no longer meet our financial goals. Sometimes there are businesses that can meet our financial goals but where we think somebody would be a better steward than us. Last year, we sold our plastic business and it was clear to us that unless you’re backward integrated in chemicals business, you can’t be a good owner of it, even though we were financially doing ok. We felt we were just not the best owner of the business and we decided to divest it off.

KMB: You know there is a constant debate about this, especially with analysts, about focused companies versus conglomerates and GE has very deliberately chosen for a very long time to be and to stay as a conglomerate and I assume you have a lot of questions coming at you from analysts about whether that is going to be the case forward, so what is the case that you put forward for remaining a conglomerate? JI: The first thing I would say for decades the company basically has always been a conglomerate. We run it that way, we have central research, central training, we’ve got our own management education centre, we run a common capital allocation process, we drive a common culture. We spend a lot of time and effort on the oneness of the company, to bring things together. One of the things that differentiates GE from a lot of other mega companies is from the day you walk into the door to the day you retire we want it to feel as really one company. I think that’s been a quarter of our strength. Second thing I would say for investors. Conglomerates and big companies go in and out of style but the ability to have diversified earnings power through the cycles, makes us grow earnings in a steady fashion equal to or greater than SNP 500. So automatically it comes down to a financial case, for why the company exists and that can only be through our performance. If you look back over 10 years, 15 years, 20 years, 30 years we financially outperformed over a long period of time... automatically that gotta be the case you make. And the last one I would make is, particularly when I look at my friends like you, these new successful companies coming out of India, they are all going to be conglomerates of some way, because you want to be around for a long time and if you want to grow, it’s very difficult to grow just in one industry. Successful industrialists almost always grab a take to adjust in different business where they can apply their expertise and there is nothing wrong in that..I would say it’s quite natural. KMB: I couldn’t agree with you more.

JI: So we gotta stick in this together. KMB : Absolutely! JI: I think some of the great business stories right now are coming out of India, especially some of the new business models. One of the things investors write here is that if you went to India you saw some of the most exciting companies being formed today. They are all conglomerates fundamentally and they are creating tremendous shareholder value. I find that is very persuasive with our investors to say that there is nothing wrong with this business model. I’d clearly say where we are today, in the 6 core businesses that we are in, we feel we’ve got a real competitive advantage. KMB: Do you see the portfolio of GE changing drastically in next five years Jeff? JI: I like where we are right now. I would say the answer is no. Mainly because, when I look at energy, health care, transportation, some of our infrastructure businesses, the entertainment business, the financial services business, we have got good position in huge industries that have a lots of room for growth. So I just don’t think we need to do substantial portfolio restructuring in the next five years. We’d do small things but nothing huge to be successful. KMB: I completely understand and relate to that Jeff. Are you concerned about the overdependence of GE on GE Financial, the finance part of the business. JI: No, I think we are great at risk management, investors have told me that they really don’t want it to be greater than 50% of our earnings. I would say that our investors are comfortable at 50 % of our earnings. They probably won’t be comfortable if it became more. Even in a very difficult year for our financial business, our write offs have been small... KMB: And one more thing on investors. You’ve spoken consistently about building businesses for the long run, you’ve talked to people that they must look at their careers from a longer perspective. So you’re clearly someone who looks at businesses from a long term point of view. But you also have to live quarter by quarter. So how do you actually reconcile the two? It must be a very difficult thing to do. JI : You know, what do I say ... you live in the same world. I think what we want to have is a highly disciplined, well executing company. Strong executing companies know how to predict quarter in and quarter out what they are going to do. Vast majority of our businesses are very long cycle and therefore we have to be making investments that may not pack back for 10 or 15 years and I think that you have to have the whole constancy of the purpose, understand the responsibility both in the short and the long term. That’s why I think business leadership is both fun and

challenging as we have to balance the short term and long term pressures and somehow be good at both. KMB: Do investors really understand the need for investing in a business that has returns over 10 to 15 years, although it’s strategically very important, how do you actually handle that? JI: Some do and some don’t. I try to go and explain to them. Look when we do a new commercial that’s going to have a 50-year life, if we do it well over those 50 years, it’s going to make $25 or $30 billion of earnings, but you gotta invest a billion and a half dollars. I think if you are really transparent, really transpire with your investors, tell them your philosophy and how your business works. At the end of the day I don’t want anybody invested in GE who really doesn’t understand what we have to do to be successful. Then I better have them invested in another company. So what I want to do is to attract all the investors who can understand our business model and what we do. KMB: So you’re saying that transparency is the key to communication with any investor? JI: Totally, totally. I want them to understand our cycles, our technical strategies, how we make money, what investments are long term, what investments are short term, I think if they totally understand the company then they are going to be happy to know that we gotta do some of the things for long term, they are going to embrace that and they are going to like that. And so for long-term, you gotta be very transparent.

KMB: Tell me, what happens if a business misses its targets three years in a row, how do you view that? JI: I would say that if a business missed its targets and it was not related to the industry, you would always have a new management team. I understand business cycles, sometimes business go into tough cycles for several years. There’ll be businesses and businesses. If we have a management team that cannot execute on its commitments they get 1 second chance but they don’t get two second chances. I think it is too important to our company, to our people, to our investors that management delivers result. KMB: So, then the management is transferred to other businesses or they are shown the door? JI: Probably shown the door, I would say. In the end the performance counts. But we know that there are times, there are industrial cycles which our managers have no control over. Sometimes great managers doing great jobs have disappointing

financial results because the industry is so tough and we reward those people versus managers that missed because they didn’t execute well and those people have to be shown the door. KMB : I am sure that is clearly understood across the company. JI: It has to be. KMB: So what are the kind of people, what are the qualities you are looking for in a manager who you think will succeed. Who would you fast track? What is it other than performance that you’re looking for in someone who you would like to fast track in the GE system? JI: If I would pick just one trait, it would be the ability to learn, I think people that have hunger for improving themselves, curiosity, and knowledge gathering. That is an absolute critical aspect for what makes people successful in GE. So, that’s a common attribute and then after that it’s decisiveness, it’s external focus and, working with others. I mean there is a whole series of things to go after that, but one common trait of all the successful people in the company is that they are good learners and they have real dedication to self improvement. KMB: You have a lot of Indians in GE. I know it’s very difficult to generalise, but anything you observe that sets them apart, in terms of their strengths. JI: I think what I just said, when I went to a tech centre in Bangalore, you see thousands of people that have thirst for knowledge, for change, for improvement, for success and I think the attributes that I just mentioned exist in abundance in all of our Indian employees. It’s one of the things that’s made India so successful and so appealing over time. KMB: And you see India as a continuing talent sourcing pool for GE? JI: No doubt, we’ve got more competition than we used to but I am just a huge believer in the country and the power of the people of India. It’s just fantastic. I am most impressed. KMB : Going back to the people’s questions Jeff, what happens to the manager who is relatively not so high on performance but has huge potential, is that something you think would help him to survive in the system, the fact that he has huge potential? JI: I think if he has huge potential, we will be more tolerant and more patient. But in the end they gotta somehow learn to perform. We want to see the best in people, we want people to succeed, we don’t want people to fail, so we try to be fair and we try to be open with everybody. A lot of people get a second chance, I’d say almost everybody gets a second chance to do well and to perform. And we cheer those

people, we want them to succeed in GE. KMB : That’s a great attitude, so you’re saying that you’re actually a cheerleader for people and you want them to succeed. JI: We want them to succeed and we really want the best in everybody. You know while we are tough minded about performance, we don’t do it from the sense of cruelty, we do it from the sense of just understanding how important performance really is. KMB: Right! You said that people have to learn to succeed and a very substantive part of time is spent on coaching. Who are these people you choose to coach and what is this coaching? JI : Everybody who works directly with me, I spend a lot of time with them, but then I try to reach down into the organisation, to people that I think have particular promise. Typically, what I can do at my level is give them a kind of new answer of leadership, how to make good strategic decisions, how to get the best out of their people. I think when you’re the CEO of the company you’ve still gotta roll up your shirt sleeves and go individually towards people, try to may be give them, your unique perspectives that can help them. I think that you gotta keep your hand in coaching no matter how high you get in an organisation because it makes you better at how to manage, in terms of totality of the company. KMB: Despite the fact, that GE is such a large organisation, such a huge company and growing so fast, do you still find it difficult to manage people’s aspirations? JI: You know what I find is...we’ve got enough growth and we’ve got great jobs. So typically, we can meet people’s goals if they give us a little bit of patience. But this is a place where more transparency the better. You know what I try to encourage is complete honesty with people, sometimes we just can’t meet their aspirations as fast as they want, we are much better off in letting them know that upfront. KMB: Something about the world of business at large, any discontinuity you see in the world of business in the next couple of years — five or 10 years — that will actually change the way people work? In terms of technology, in terms of legislation or any other such changes? JI: The two biggest themes in the world. I think one is — what’s the next evolution of globalisation? It’s particularly going to be fascinating. My view is that one of the most interesting trends is going to be business models that get developed or kind of get created in the merging markets in places like India or China or Russia. I think that’s going to be an interesting theme. And then there is always the technology. It depends what industry you’re in ... but I think the pace of technology will continue to change and create discontinuities as time goes on and I think that’s something

every company and industry will have to stay on top of. KMB: What on technology? JI: You might find in the area of, lets say, a water desalination or something like that. Or even let’s take the Tata’s $2,500 car. It’s developed for the emerging world but may be some of those technologies end up in the US or Europe. So those emerging market business, or what I call business models, I think will end up driving huge efficiency and may be change technologies...you know, vis-a-vis, what happens in the developed world. KMB: That’s very fascinating to hear and the role of India as part of GE’s plan going forward, Jeff, in terms of recruitment, in terms of market, in terms of being here, do you see India being a larger and larger part of the plan, in your scheme of things? JI : Well, there is no doubt about that, I think both in terms of the fact that we are a big infrastructure company. So till India continues to invest in infrastructure, that would be a very big deal. I also think, just technically, I think, whether it is you, or whether it is Reliance or Wipro, the business models that you are working on, I think it is going to have a great applicability. In terms of not just how we win in India but also how we win in rest of the world. So India is definitely going to be a core location as we go forward. KMB: Well, that’s very reassuring for us. JI: I think it’s really a great time for India, I really do believe that. KMB: And finally, you are one of the most admired icons in the corporate world, globally. You also head one of the most respected and admired company in the world. What is it that keeps you going, what is that drives you? JI: You know I would say Kumar, it’s probably like you, I love business, I love people, I love learning. If you love learning, if you are curious about business, you love people. You know I got the best job in the world; it’s like when you run GE, you have the chance to see so many different things happen and I just feel very fortunate to have that opportunity. KMB: Well, the passion is palpable, so many thousands of miles away. Jeff, it’s been a real pleasure to talk with you. Writer is Kumar Mangalam Birla, Chairman of the Aditya Birla Group