Skip to Content

The Failure of GE’s Digital Transformation

This article first appeared in Data Sheet, Fortune’s daily newsletter on the top tech news. To get it delivered daily to your in-box, sign up here.

It is painful, but necessary, to read about failure in business.

By any measure the decline of General Electric these past months is an epic fail for the ages. Fortune’s Geoff Colvin should know. He repeatedly profiled the storied industrial conglomerate during the tenure of its departed CEO, Jeffrey Immelt. Colvin explained in past years what made Immelt a worthy successor to the legendary Jack Welch. He also described Immelt’s struggles to achieve adequate growth at GE—long before its grave problems emerged.

But nothing prepared Colvin or GE’s investors for the precipitous collapse of the company’s market value in the immediate aftermath of Immelt’s abrupt retirement.

In a stunning article titled “What the Hell Happened?”, Colvin describes a company that made poor investment decisions, allocated capital badly, and suffered from a decline in its vaunted corporate culture.

The irony is that GE (GE) had fashioned itself as an industrial leader of the digital revolution. It was to be a major player in software and putting sensors on its powerful equipment. Immelt’s successor, John Flannery, isn’t backing away from GE’s digital strategy. But he is scaling back its software aspirations and no longer using the flowery language Immelt’s team favored to describe GE industrial hipness.

Colvin’s telling is a sympathetic tale of what can go horribly wrong when a great company becomes distracted or otherwise makes the wrong decisions. GE under Immelt by no means did everything wrong, and Colvin gives the company its due in that regard. But it didn’t do enough things right. It’s a sobering tale.

***

The New York Times published in print Wednesday a piece that echoed the argument I made in Data Sheet about Facebook. I contend that 1990s-era distinctions between print newspapers and newfangled “social networks” are irrelevant. A publisher is a publisher, and Facebook (FB) ought to be treated like one under the law. One European lawyer sums it up nicely. As The Times describes it, he argues that social media companies must block offensive content without censoring legitimate debate, and it must foot the bill the same as any other publisher. “If they can’t do it, they should get out of the kitchen.”

Precisely.