Lessons from the Titans summary

During his 20 years as General Electric’s CEO, Jack Welch took a lot of risks. And for the most part, these ended up being very profitable. Welch transformed GE’s corporate structure, increased cash flow dramatically, adopted the Six Sigma quality control system for factories, and got rid of everything he viewed as dead weight.

By the year 2000, GE’s market capitalization had reached $600 million. In 2020 dollars, that would be the equivalent of $1.34 trillion, just above Apple’s, Microsoft’s, Google’s, and Amazon’s respective market caps.

In hindsight, GE Capital’s shady accounting tactics played an important role in General Electric’s decline. They also made it appear sudden, even while cracks had already begun to reveal themselves.

GE’s financial statements puzzled even the most experienced analysts and debt rating experts. And yet the US Securities and Exchange Commission, or SEC, never stepped in. GE was just too big, and as the company expanded, its lobbying clout did too.

In the summer of 2007, Boeing had high hopes for its brand-new, high-tech 787 Dreamliner airplane, which it planned to unveil on July 8th. But there was just one problem – the plane was nowhere near ready. The wings were even missing segments.

In the end, the first 787 didn’t take its first test flight until 2009, and customers had to wait until 2011 for their first planes. The 787 didn’t actually become profitable until 2016, and by then, Boeing had lost over $50 billion. In response, CEO Jim McNerney announced a plan to get Boeing back on track that he called “de-risking the decade.”

When Dave Cote received the offer to become CEO of Honeywell in 2002, it wasn’t because of his talent or experience – it was because nobody else wanted anything to do with Honeywell.

And no wonder. The company’s factories were in disarray, it was facing multiple lawsuits over asbestos liabilities, and it owed rising debts. As if that wasn’t enough, Cote became CEO in the aftermath of the economic decline following the dot-com bubble.

The first few industrial businesses we’ve looked at develop and sell products to customers. But United Rentals does neither of these things – it rents out industrial equipment to other businesses. 

Many companies don’t use machinery like aerial work platforms or industrial dehumidifiers all the time, and it doesn’t make sense to buy and maintain something that only gets used once or twice a month. So there’s clearly a market for United Rentals’ services. Yet when Mike Kneeland became CEO in 2008, the stock price had gone from $20 a share to just $3. Kneeland intended to reverse this trend, though, by making the most of the Great Recession’s lousy rental market and restructuring the company from the bottom up.

Companies like Uber and WeWork might operate in fundamentally different industries from General Electric and Honeywell, but they have also run into the problem of profitability and responsible risk management. 

As it turns out, the so-called new economy of today has a lot in common with the old economy dominated by industrial businesses. And the reasons why a company is successful – or fails – often boil down to the same basic principles. In fact, there are a few key commonalities between General Electric, Boeing, Honeywell, United Rentals, and their peers.