With the announcement of General Electric Co.’s proposed acquisition of Honeywell International Inc.–the biggest industrial merger of his career–CEO John F. Welch has put high-tech manufacturing in the spotlight, wresting away attention of the analysts and investors from the dotcoms, if only briefly. In the process he is helping to debunk several blatant misunderstandings about manufacturing that have plagued the sector in recent times.
Granted, bringing to light some very basic questions about manufacturing is not his goal–-he’s just trying to grow a very profitable business. But for solidly profitable manufacturers whose stocks have languished while dotcoms-with-no-profit-in-sight saw their valuations soar, this unexpected opportunity to trumpet the importance of the manufacturing sector should not be squandered. Now is the time to lay out the following facts:
Manufacturing is a high-tech, new economy venture. Welch minces no words on this. At the press conference announcing the merger, Welch referred to a questioner who asked why he's not merging with a high-tech company. His answer: "What the hell do you think Honeywell is? A high-tech comapny isn't a dot.com. A high-tech company is a company with great fundamental business and technology that can use tomorrow's tools, the e-business tools to get faster and more global."
There's money to be made in manufacturing. With the backhand insult to the dotcoms, Welch served up a stem reminder to analysts: “[Honeywell is] a real business, with two and a half billion dollars in profit. [GE] is making twelve and a half billion dollars of profit.” And there are many other manufacturing moneymakers, including the one profiled on Page 46. The stunning success of Tyco International Ltd. under the direction of Dennis Kozlowski shows that there is money as well as fast growth in manufacturing.
Just because a manufacturing company is emphasizing the growth of its services business doesn't mean it is abandoning the manufacture of products. True, a few companies have outsourced all production successfully, but that’s only one strategy. With the emphasis on selling customer solutions it’s not about manufacturing versus services, but about manufacturing plus services. That’s the real success story of Welch: He has blended product and service offerings so well that the sum is greater than the individual lines of business.
- Manufacturing is e-business. In his spirited defense of Honeywell’s high-tech status, Welch stressed that a key to the company’s success is its use of e-business tools. And the real value of e-business will be unlocked when many more manufacturers get up to speed, according to a report from Forrester Research Inc., Cambridge, Mass.
In a report on “eMarketplaces” last February, the firm declared: “Business-to-business trade isn’t growing up in high-tech centers like Silicon Valley; it’s developing in industrial hubs like Cleveland and Detroit. As B2Btrade expands, there will be a flight of talent and venture-capital money to support these efforts, leaving the coasts feeling a bit of frost-while middle America experiences the Internet boom in 2001.”
Though many analysts and investors undoubtedly will remain skeptical, Jack Welch has them thinking. Taken together with recent dotcom reversals, there’s a chance they might finally realize that like the service-industry boom before it, Internet businesses aren’t replacing manufacturing. They’re supplementing it, expanding it, and adding dramatically to its value.