GE’s revenues from clean technology products continue to grow, but financial problems in other sectors continue to hamper the company

General Electric, the US conglomerate perennially considered a Rock of Gibraltar for investors, had a disappointing first quarter that took its shareholders, and apparently even its chief executive, Jeff Immelt, by surprise. After GE had promised 10 per cent profits growth in 2008, it reported a 6 per cent fall in first-quarter profits, triggering a sell-off that wiped more than $46 billion from GE’s market capitalisation.

Since the dismal earnings report, Immelt has been pummelled by critics on everything from investments in China and Japan and his own leadership abilities to the very essence of GE’s longstanding business model.

Although he later backpedalled, even former GE chief executive Jack Welch argued that Immelt had lost credibility. Welch went as far as to say he would “get a gun out and shoot him” if Immelt reported similar results again.

Despite the heat Immelt has taken, he seems confident in his vision of GE’s future. The company’s clean technology business, Immelt’s most visible mark on GE, is one of its best performing.

Staking the future

Immelt has staked much of GE’s future on its “Ecomagination” range of clean products such as solar panels, energy-efficient lighting and water purification technologies. GE has also committed to improve its own energy efficiency and reduce greenhouse gas emissions as part of the green drive.

In mid-2007, on the two-year anniversary of the initiative’s launch, Immelt said: “Ecomagination is growing beyond our expectations, evolving into a sales initiative unlike any other I’ve seen in 25 years at GE.”

Echoing her boss, Lorraine Bolsinger, head of the Ecomagination programme, told shareholders in September 2007 that the company “has never had an initiative that has generated better financial returns so quickly”. She says Ecomagination has become a $14 billion, 64-product business outpacing total GE revenue growth 20 per cent to 8 per cent. Based on its strong performance, the company has upped the programme’s goals and now expects to achieve $25 billion in sales by 2010.

Immelt told investors at the company’s annual general meeting this April that “the formula is working”, adding: “Ecomagination has become a global brand, symbolic of innovation at GE.”

By the end of 2007, GE said it had invested more than $2.5 billion in cleaner technology research and development since the initiative’s start and will be investing $1.5 billion annually in R&D by 2010.

The company is also following through on its commitment to reduce its own energy use and greenhouse gas emissions. Emissions in 2006 from GE operations were down 4 per cent from the 2004 baseline and the company had saved nearly $70 million in energy costs, despite revenue growth of 21 per cent during the period.

GE’s annual $1 million investment in publicising the initiative, however, has been criticised as a high-stakes branding exercise that amounts to little more than greenwashing. Lloyd Alter, a commentator for treehugger.com, an environmental news blog, says companies pushing green initiatives often take small steps that their marketing departments turn into huge ones.

Alter and others point out that despite its big Ecomagination push, GE continues to sell coal-fired steam turbines, is delving deeper into oil and gas production and still has not delivered on its promise to clean PCBs from the Hudson River.

Bolsinger admits that Ecomagination is, first and foremost, a growth strategy. But she says she is wary of greenwashing and insists that touting green products without some proof in the pudding would only set GE back. She says GE cannot leave its traditional business lines behind. Offering green product alternatives, however, will sustain GE’s business by helping clients sustain theirs, she says.

Bigger challenges

But are the extra revenues and savings that Ecomagination delivers for GE enough to pull up the stuttering corporate giant? Consultant William Rothschild of Rothschild Strategies Unlimited, a 30-year GE veteran and author of “The Secret to GE’s Success”, says that although Ecomagination is a nice theme and an integrating force that’s “right on with what’s happening in the world,” it does not fit the entire company or solve all of its problems.

“Even at $20 billion, Ecomagination is only about 10 per cent of GE,” Rothschild points out. “It’s a very creative way to drive and differentiate the company, but it’s not going to make, break or save GE.”

Rothschild believes GE’s challenges lie in resolving how to manage a business that is so global and diversified. He urges the company to consider offering what he calls “tracking stocks”, which basically allow people to invest in pieces of the company without investing in the whole GE business. That, he says, could make Ecomagination an intriguing “portfolio” for investors.

There is also a reputational benefit to programmes such as Ecomagination, Rothschild says. Showing both internally and externally that GE cares about the environment and its corporate responsibilities is “extremely positive”, he says.

But the company’s key challenges, says Rothschild, remain managing its broad portfolio and integrating new business acquisitions with existing units. Ecomagination’s 8 per cent compounded growth rate cannot last forever, he argues, saying clean technology products will not amount to a substantial percentage of GE’s business for at least 20 years – if then.

GE, it seems, can only build the future it imagines by retaining the foundations of its rock solid past.

Water worries

GE was set to mark the third anniversary of its Ecomagination campaign at the end of May with a series of announcements on water. It released tools to help its customers reduce consumption and benchmarks to compare usage within industries. GE has also committed to lowering its own use.

Putting its own technology to work

Five million dollars of GE’s own $100 million in energy savings in 2007 came from replacing traditional light bulbs in its 60 lighting plants worldwide with a “T-8” energy-saving bulb made by GE in Canada.