G.E.'S HEAVY ARMFUL

AN old axiom at General Electric Co. is that "no operation should be larger than a man can get his arms around." There are few armfuls quite so huge or potentially so bountiful as G.E.'s. Its 375,000 employees turn out some 3,000 product lines, including jet engines, nuclear power plants and electric toothbrushes. Now the company has designed an unusual management system to better take hold of some costly problems.

The new system does away with the post of president and divides responsibility largely among three vice chairmen, who report only to Chairman Fred J. Borch, the man who gave up the presidency but remains very much the chief executive. The group's main task is to squeeze more earnings out of G.E.'s steadily increasing sales. Last week in Manhattan, Borch publicly introduced his triumvirate--William Dennler, Jack S. Parker and Herman Weiss. He also reported that sales reached a record $8.4 billion in 1968--double ten years ago--but profits did not keep pace. A preliminary estimate shows earnings are, as Borch put it, "no more than 2% below" 1967's record $361 million.

Entrance Costs. Borch is openly dissatisfied. He says: "We have not been doing as well as we would like in increasing our earnings to match our recent sales growth." At G.E., the percentage of profits to sales ran 4.7% in 1966 and 1967, well down from 1959's recent record of 6.2%. Last year earnings would have been off even more except for a final-quarter spurt in overall sales, including those of TV sets, appliances and other consumer products, which account for some 25% of G.E.'s business.

The troubles lie mainly in G.E.'s newer technological fields. The firm had to pay high entrance costs to break into those areas, and profits are farther into the future than managers had expected. The difficulties focus on three areas:

P: COMPUTERS. The company entered the computer field in the mid-1950s and so far has spent hundreds of millions to develop a full family of machines. Partly because of the competition from IBM (see page 63), it is unlikely to turn a profit before 1970 at the earliest. Another costly venture was G.E.'s purchase in 1964 of Machines Bull, a French computer manufacturer. G.E. has pumped well over $100 million into the company, most of whose major computer lines had to be scrapped; Bull has yet to earn a profit for G.E. Some management critics believe that G.E. would have done better if it had set up its own European computer subsidiary instead of buying the ailing Bull.

P: NUCLEAR POWER PLANTS. The company unwisely signed some "turnkey" contracts to supply complete plants at a fixed fee. Managers underestimated the devastating effects of inflation. They reckoned that construction costs would rise only 3% or 4% a year, but they have actually gone up about 12%. Result: losses on those jobs amounted to many millions of dollars last year. G.E. has a big backlog of $2 billion in orders for nuclear plants, but probably will not realize a profit on them for several years.

P: JET ENGINES. Though G.E. introduced jet engines in the U.S. 27 years ago, it has lately encountered some turbulence in this well-known field. Most of its engines go to the military but its profit margins are a slim 2.7% on some major Pentagon contracts. Borch figures that when the Viet Nam war ends, G.E.'s more than $1.5 billion sales of aerospace and defense hardware will drop about 10%. Partly to compensate for that, the company will try to push deeper into the more profitable commercial jet market. The payoff will not come immediately. G.E. is building engines for 110 McDonnell Douglas DC-10 air buses. In addition, the company's contract to power the Boeing supersonic transport should eventually be worth $5 billion or more in sales, but executives do not expect to reach the break-even point before 1980.

Rare Collection. Borch figures that the decade of the 1960s has been unusually demanding--yet highly promising--for the company that was founded 77 years ago by Thomas Edison and some others. "Rarely will two things with such exponential leverage for the future as nuclear power and the new generation of jets fall together in a single decade," Borch points out. "These are challenges that, with our resources and technologies, we simply could not walk away from."

To handle those problems and opportunities, Borch and his three vice chairmen will exercise tight control over an operation that has lately been split into ten groups and 48 divisions--up from five groups and 29 often overlapping divisions. That change recently won a compliment of sorts from rival Westinghouse (estimated 1968 sales: $3.3 billion). Three weeks ago, Westinghouse Chairman Donald C. Burnam named three vice chairmen, and picked four presidents to take charge of what Westinghouse calls four "company-like" units. By subdividing to achieve smallness, the giants of electricity hope to get their arms around the nettlesome new technologies.

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