BUSINESSWEEK ONLINE : DECEMBER 18, 2000 ISSUE
PEOPLE Heir Today, Gone Tomorrow How top-flight execs McNerney and Nardelli left GE with breathtaking speed It took all of five business days for Corporate America to snap up two of the most sought after CEOs-in-waiting, General Electric Co. alums W. James McNerney Jr. and Robert L. Nardelli. The two veterans, both top contenders for Jack Welch's CEO job, were expected to leave their posts. But their swift departure only underscores the urgent need for top-flight talent at some of the nation's largest and most vaunted corporations. Indeed, Welch noted that only one hour after GE announced Jeffrey R. Immelt as his successor, headhunter Heidrick & Struggles was on the phone inquiring about the two also-rans. And for good reason. Both men have impressive resumes and endured test after tough test from Welch. But the GE pedigree also means they will face soaring expectations from investors--just look at the 11% jump in 3M's share price the day McNerney signed on. So now comes a new test: Can these men deliver outside the confines of GE? McNERNEY: A SHORT JUMP FROM GE TO 3M As he sprints through a series of get-acquainted calls with the media, W. James McNerney Jr., the newly named chairman and chief executive of 3M (MMM), begs for more time before laying out his action plan. Only nine days earlier, McNerney still was in a three-man race to succeed his legendary boss at General Electric Co. (GE), chairman and CEO John F. Welch. Now, after losing out at GE, he is set on Jan. 1 to become the first outsider to run 3M in its 98-year history. ''I've been here only three hours,'' McNerney pleads. It shouldn't take the former president of GE's $10.5 billion-a-year aircraft-engines unit long to feel right at home. Although clearly dwarfed by GE, 3M is a whole lot like the industrial powerhouse McNerney, 51, left behind on Dec. 5 after 18 years. 3M is highly regarded for its premium brands, market dominance, global reach, and diverse operations. Indeed, the St. Paul (Minn.) conglomerate boasts a lineup of more than 50,000 products, from Post-it notes and O-Cel-O sponges to those familiar lime-yellow highway signs and a new family of immune-response drugs. ''This is very similar to the company that Jack Welch took over 20 years ago,'' observes William Fiala, an industry analyst with Edward Jones. Like GE, 3M is ''a well-respected company that is chugging right along.'' And with McNerney in charge, investors foresee even better times ahead. Known for his skills at rallying employees and attention to key customers, McNerney turned his division into the most profitable industrial unit at GE. Add in the management expertise that all of Welch's proteges are known for and McNerney was like a star quarterback on the free-agent market. He'll have a lot of great assets to work with at 3M. The company has been able to regularly reinvent itself, thanks to a research-and-development budget that tops $1 billion a year, and a knack for rifle-shot acquisitions. Already, a third of its sales come from products introduced within the past four years. An example: Abrasives that had been used in everyday sandpaper have been refined and now are used to polish semiconductors. Notes McNerney: ''A big mistake I could make would be to declare these businesses mature before their time.'' SHARP FOCUS. After an embarrassing stumble in 1998, when management was blindsided by Asia's financial collapse, 3M is again posting double-digit sales and profit growth. The corporation expects its operating earnings to hit $3.15 billion in 2000, up more than 10% from 1999, on record sales of $17 billion. Meanwhile, its share price is at an all-time high, hitting $119 on Dec. 5, as investors celebrated McNerney's appointment. McNerney will attempt to improve on that stellar performance with management practices he learned from mentor Welch. Among them: a sharp focus on quality improvement, cost-cutting, and consistent, best-in-industry sales and profit growth. ''What he needs to do--and what he will do--is inject some of GE's performance-minded culture into 3M,'' predicts Jack L. Kelly, an analyst with Goldman, Sachs & Co. 3M's board began its search for a new chief executive last spring, when Chairman and CEO Livio D. ''Desi'' DeSimone confirmed his intention to step down by July, 2001. But 3M directors essentially put the process on hold until GE's board declared Welch's successor. That finally happened on Nov. 27, when GE went with Jeffrey R. Immelt, president of the company's medical-services unit. McNerney, a popular and athletic Harvard MBA grad who considered Lucent Technologies Inc. before agreeing to move to 3M, says that he will need months before he puts together his team and ''stretch'' goals. But he says two units have already caught his eye. One is the $3.4 billion health-care division, where sales and earnings are forecast to grow more than 10% a year, thanks in part to its pipeline of pharmaceuticals. The other is the $2.5 billion electro and communications unit, which is expected to grow 25% annually on the global buildout of the telecom and power-generation industries. The businesses may not approach GE's scale, but those are growth rates that even GE would like. By Michael Arndt in Chicago NARDELLI: TAKING ON A FIXER-UPPER Can Robert L. Nardelli, who made his name at General Electric Co. selling $40 million turbines to utilities, make the switch to selling 3 cents washers and screws to weekend handymen? This is the question, now that Nardelli--a runner-up in the John F. Welch succession sweepstakes--has been tapped to head up Home Depot Inc. (HD) in Atlanta. For all his successes in reviving GE's locomotive and turbine divisions, Nardelli has little experience in consumer businesses, much less the hardware retailing market that Home Depot has come to dominate. STUMBLE. That's part of what makes the appointment, which was announced on Dec. 5, so fascinating. In any case, Nardelli won't have much time to learn the ins and outs of the retailing business. After a two-decade run, during which Home Depot pushed many rival retailers into bankruptcy, its recent stumbles--it has already signaled that it will miss earnings expectations for a second straight quarter--have left the company's stock trading 35% below its high of last March. Nardelli ''is coming in at a time when the company is facing its greatest challenges in many years,'' says Mark D. Mandel, an analyst at Robinson-Humphrey Co. brokerage in Atlanta. While Home Depot co-founder Arthur M. Blank, who stepped aside as CEO, has ascribed the company's problems largely to the industrywide collapse in the price of lumber, which makes up nearly 20% of Home Depot's sales, many investors are fearful that the chain, whose sales are expected to hit $46.5 billion this year, with $2.7 billion in net income may have hit the same wall that hampered other power retailers such as Toys 'R' Us Inc. (TOY) and Gap Inc. (GPS) For his part, Nardelli readily admits that he'll have almost no honeymoon period. ''We can't run the risk of anything falling through the cracks in this transition,'' says Nardelli, who says he intends to ''understand at a granular level'' every dollar spent at Home Depot's warehouse stores. Despite retailers' traditional reluctance to reach outside their industry for new leadership, those who know Nardelli believe he's up to the job. They see his achievements at GE as being comparable to the home-improvement chain's ambitious plans to more than double its size to 2,300 stores in the next four years. Above all, the 52-year-old former college football player is known for setting ambitious goals and motivating his troops to meet them. ''He's a good teacher,'' notes Josef Schmee, a professor at Union College and a GE consultant. ''He follows Jack Welch's advice that half your time be spent teaching others.'' Under Nardelli, GE Power Systems in recent months installed five times the number of turbines as it did a year ago--a logistical feat that required Nardelli to place unprecedented demands on suppliers. He launched an exhaustive review of 250 suppliers, sending audit teams to 85 of them to determine their ability to meet GE's increased demands. The result: Prudential Securities Inc. analyst Nicholas P. Heymann estimates that GE's Power Systems unit will generate $2.7 billion in operating profits, more than twice the result two years ago. ''My ability to really analyze the core business, look at strategic investments for growth, and levering e-business are the kinds of skills that are very portable,'' says Nardelli. HOT PROPERTY. Still, his choice took Wall Street by surprise. Home Depot's situation wasn't considered particularly dire yet, and Blank, 58, wasn't known to be considering stepping aside. Blank had taken over as CEO when co-founder Bernard Marcus resigned from that job three years ago. Now they will be co-chairmen. In fact, Blank has been searching since last summer for a strong No. 2 executive. Nardelli became available in late November, when GE decided to replace Welch with Jeffrey R. Immelt, head of its medical-imaging division. That decision instantly turned the other two contenders for the job--Nardelli and W. James McNerney Jr., head of GE Aircraft Engines--into America's most eligible CEO candidates. But when Home Depot approached Nardelli, he made clear he was interested only in the top job. Blank then agreed to step aside. ''Realizing that we had a terrific opportunity to add a business superstar to Home Depot, we moved quickly,'' Blank said in a press release. Given Nardelli's forceful personality and strong work ethic, Home Depot officials believe he will adapt quickly to the company's tough-love culture, which many other outsiders have found intimidating. ''He has the same values and outlook on life we have,'' says Kenneth G. Langone, who sits on the boards of both GE and Home Depot. For his part, Nardelli has no doubt that that his broad experiences at GE will serve him well in his new job. And the truth is, serving weekend handymen probably looks like a walk in the park compared with satisfying Jack Welch. By Aixa M. Pascual in Atlanta, with Pamela L. Moore in Connecticut and Nanette Byrnes in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Heir Today, Gone Tomorrow TABLE: 3M: GE Junior TABLE: As Growth Slows...Profits Are Taking a Hit Tinker, Tailor, Soldier, Headhunter INTERACT E-Mail to Business Week Online

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