Business Breakdowns
· Ramesh Narayanaswamy, Matt Reustle
And especially in an environment like today, where that combination of predictable, solid earnings growth is rare, today’s valuations reflect that. [00:00:00] S0: This has been a fascinating look and lens into a specific industry and then how GE fits in it. What would you say stands out as the lessons that you can take away from GE and apply elsewhere?
· Ramesh Narayanaswamy
[00:00:00] S1: Given the technical complexity of making jet engines. It’s hard to learn from GE in that regard. It’s not like we can learn to make jet engines ourselves by observing GE. This is a case of “do not try this at home” type of thing. But jokes apart, the less obvious learnings from the engine business model are that the bifurcation of the buyer and the user is a recurring pattern in many engineering businesses. For engines, you have Airbus and Boeing as the OE customer, but the long-term user being airlines. And whenever you have this kind of bifurcation, you set up conditions for a more complicated path for a new entrant, as you now have to solve sort of a 3D puzzle, so to speak. The other insight that I draw from GE is the importance of management culture and how some cultures emphasize growth and others emphasize durability. The most obvious one is the importance of management culture in GE. Books like Lights Out by Thomas Gryta and Ted Mann document some of the missteps that happened at GE in what became a culture that prioritized growth over durability, amplified by balance-sheet leverage. So “even the mighty fall” might be another lesson. And durability, rather than a focus on growth, is another lesson. And the last one that comes to mind is how scarcity can drive value. There are not that many companies in the world that can do what GE does, and that scarcity is what has provided the foundation for Larry Culp to come in, bring in focus, and crystallize that latent value embedded in the franchise.
· Matt Reustle, Ramesh Narayanaswamy
[00:00:00] S0: Well, Ramesh, this has been a true pleasure. Thank you very much for joining us today. [00:00:00] S1: Pleasure, Matt.