GE's Jeffrey Immelt: All Boxed In

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In fact, some pundits believe that what Immelt should do right now is make the entire conglomerate smaller. Analysts were debating whether GE was too big at $107 billion a year in sales, the level when Immelt took over in 2001. Last year it rang up more than $180 billion. Immelt has long argued that scale gives GE an advantage. But University of Western Ontario business professor Stewart Thornhill argues that "beyond a certain point, scale becomes an impediment, because it's just too big to manage effectively."

ANXIETY AMONG THE TROOPS

Immelt can't offload units—even the iconic appliance and lighting businesses didn't attract buyers when he tried to sell them last year—but he can do more restructuring. Ronald N. Ashkenas, managing partner at Stamford (Conn.) consultancy Robert H. Schaffer & Associates, thinks carving up the industrial businesses into smaller units could help GE become more entrepreneurial. "Whenever you have very large businesses," he says, "somebody's often 8 or 10 steps away from people who actually make a decision."

Given the prospect of leaner times for the foreseeable future, what might happen to GE's famous talent pool? Its long tradition of differentiating among employees and rewarding top talent with stock is tough at 10 bucks a share. Managers who came of age in a culture of success may be taking a hard look at their options. Bill Conaty, GE's former human resources chief, who retired in 2007 after 40 years with the company, says energizing staff has to be one of Immelt's key priorities. The GE chief has pledged to spend $1 billion on leadership training this year, the same as in 2008. But he has put the long-term cash compensation plan on hold, instead granting stock options to reward and retain top performers. GE says that turnover among the executive ranks is stable. Still, Chicago-based recruiter Peter D. Crist finds GE executives in their late 30s and early 40s are more responsive to his calls these days, although "right now they're staying with the devil they know."

Immelt is clearly in what University of Michigan Ross School of Business professor Noel M. Tichy calls "the fight of his CEO life." All he can really do is control risk, cut costs, and limit investments in the businesses he'd like to shed, while keeping stronger businesses humming to generate more cash. Given the state of the market right now, that's not a bad approach. In fact, many would argue it's pretty good. But for now, GE no longer exudes the same aura of greatness.

With Mara Der Hovanesian and Dean Foust

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McGregor is BusinessWeek's management editor.