Jack Who?

By Daniel Eisenberg With Reporting by Julie Rawe/New York

For a guy taking over the reins from Jack Welch, one of the most acclaimed CEOs of the 20th century, General Electric's incoming chief, Jeffrey Immelt, 45, doesn't seem at all fazed. "Believe it or not, I know, operationally, how to do this job," says the towering, outgoing Immelt. He knows how to do a lot of jobs, having spent almost 20 years at GE. Most recently he ran its medical-systems business. "It's not like I have to go up on the mountain for 40 days and come down with a bunch of stone tablets," Immelt says.

On the eve of his ascendancy this Friday, when Welch, 65, will formally end his storied, two-decade run at a board of directors' meeting, Immelt was clearly rarin' to get started. At times, this sharp, self-deprecating Midwesterner could barely contain his enthusiasm, peppering his conversation with exclamations of "I dig it!" or "I'm all over that like a beast!" "Inside the company," he declared, as movers cleared out Welch's Rockefeller Center office to make way for him, "the transition's already over."

But outside the company, particularly on Wall Street, where GE stock has enjoyed a hefty Welch premium, Immelt knows it's just beginning. Following a successful CEO is never easy. Consider such CEO casualties as Coca-Cola's Doug Ivester and Xerox's Rick Thoman, who followed high-profile bosses--Roberto Goizueta and Paul Allaire--and barely got a chance to make a mark before the long knives came out.

It doesn't help matters that Immelt is starting his tenure at the end of an unprecedented bull market and in the midst of a global economic slowdown, when GE businesses from lighting and appliances to NBC are slumping and, some critics suggest, cash cows like power systems and aircraft engines may be peaking. Even the political climate has changed. In Europe, regulators scotched GE's proposed $43 billion deal with Honeywell (last week they moved on to Microsoft). In the U.S., the Environmental Protection Agency is forcing GE to clean up the mess it made dumping PCBs into the Hudson River.

GE has been the exception to the rule that conglomerates are clumsy beasts doomed to underperformance. In the two decades since he took the helm from Reginald Jones, another legend, the wiry, intense Welch, son of a train conductor from Salem, Mass., has turned a sprawling $27 billion-a-year industrial conglomerate into a $130 billion-a-year diversified dynamo that sells everything from aircraft engines, power turbines and CT scanners to life insurance, sitcoms, light bulbs and dishwashers. He exited businesses that GE couldn't dominate, from semiconductors to toasters, and earned the nickname "Neutron Jack" for his massive layoffs.

Welch wasn't perfect--retailer Montgomery Ward and brokerage Kidder Peabody were businesses that blew up on his watch--but GE stock has risen close to 4,000% and the company has consistently delivered 10% to 20% in annual earnings growth. Even during the current downturn, GE posted a healthy 15% rise in second-quarter earnings, though its stock has fallen 33% since its most recent high of $60 last August. No wonder, then, that as Immelt put it at the company's annual managers' meeting in Boca Raton, Fla., in January, "everybody at GE thinks they work for Jack; every customer of GE thinks they buy from Jack; every political person thinks they deal with Jack."

Immelt jumped a big hurdle in getting the job. Succession is practically papal at GE--Immelt is only the ninth chairman in the company's 123-year history--and a close three-way race emerged among Immelt and two other senior executives, Robert Nardelli, 52, and W. James McNerney Jr., 51. Immelt was the youngest of the three, and the fact that he could serve as CEO for two decades may have nudged him ahead. As for the losers, within weeks they were running FORTUNE 500 companies. Nardelli took over retailer Home Depot, and McNerney now heads 3M, a tech and consumer products company more like GE.

In a sense, Immelt's campaign for the top spot didn't begin until after he won it. Living on airplanes, where he devours mystery novels and biographies (including David McCullough's John Adams), he has crisscrossed the globe to meet with employees, key customers, suppliers and investors, morphing the company's public face from Jack to Jeff in person. "I've used the time to transfer relationships," he says. "It's got to be done retail, face to face, and you've got to keep doing it."

Not all the votes are in, but insiders are blown away by how many employees Immelt seems to know, though he's worked in only three of the company's 10 main businesses and never overseas. "I've seen him under fire and under grace, and his instincts are all right on the button," Welch said from his vacation home on Nantucket, where he's getting in some golf before his much anticipated book, Jack: Straight from the Gut, hits stores next week. "My report card comes out in another five years, when Jeff has taken this company to a whole new level, and people are saying, 'Is that all Jack did?'"

The primary strategic mission for Immelt is to hasten GE's transformation from a low-margin manufacturer to a more lucrative services company that sells solutions as much as stuff. In GE's world there are fewer but bigger customers, so there's a vital need to maximize the relationship--to milk them for all they're worth. GE now gets 70% of revenues from services, compared with about 15% when Welch took over. The bulk of it, however, comes from its giant GE Capital subsidiary, with $370 billion in assets.

Immelt believes that "services are still in their infancy" at many of the company's other divisions. Rather than just sell aircraft engines, for instance, GE can help airlines maintain them, even remotely monitoring performance from the ground while the jets are in the air. Power systems, currently enjoying a $40 billion order backlog, can work with utilities to maximize efficiency and eventually offer forecasting technology to better predict electricity demand. Medical, which Immelt transformed from a $4 billion imaging-equipment vendor into a $7 billion, full-fledged systems provider, not only sells MRI machines to hospitals but also monitors the hardware over the Internet and supplies software to manage billing, create digital patient records and reduce errors. "[Immelt's mandate] is to see 20% to 30% of their revenue come out of intellectual content--software and other information that can enhance productivity," says Nicholas Heymann, analyst at Prudential Securities and a former GE auditor.

There is plenty of work yet to do on the portfolio that Welch created. GE's long-cycle businesses, such as power and aircraft, where orders are locked in years in advance, are in good shape. Not so the short-cycle divisions, such as appliances and lighting. Many observers expect Immelt to get out of the cutthroat business of selling dishwashers and refrigerators, which Welch was unable to do. Still, "having a few consumer brands is worth something," says Noel Tichy, a University of Michigan management professor who ran GE's famed Crotonville executive-training center in the mid-1980s. Immelt wants to quicken the pace of innovation at GE, and a year-old R.-and-D. center in India--along with China, the key global market he'll have to tap for growth--should help. He also plans to push the company's continuing move into the digital age, expanding the use of online auctions to cut costs.

A potential stumbling block is, quite simply, GE's size. At some point, skeptics argue, GE will find it nearly impossible to continue its torrid pace of growth. "Ultimately, the law of large numbers will have to win out," William Fiala, an analyst at Edward Jones, wrote in a report on GE that came out last week. He means that to increase sales just 10%, GE will have to find $13 billion in new business this year and $14.3 billion next year. Not surprisingly, Immelt, who sees GE as a collection of smaller pieces with lots of room to grow, doesn't agree. "I don't feel burdened by size. A great idea at GE is worth a billion dollars, not a million."

GE typically makes 100 acquisitions a year--fuel for much of its annual growth over the past 15 years. That pace may have to quicken. Earlier this summer, GE Capital paid $5.3 billion for Heller Financial, which should give it more access to financing small and medium-size businesses. Capital's only possible "missing link," Merrill Lynch analyst Jeanne Gallagher Terrile points out, is a thriving business managing money for aging baby boomers.

The economic slowdown has been feeding time for GE Capital, which is busy scooping up distressed assets, but it's a decidedly different experience for the $6.8 billion-in-sales NBC network. Like all other media, the network is suffering through a painful advertising slump. The current woes, however, haven't convinced Immelt, who's being counseled on the vagaries of the broadcasting business by NBC boss Robert Wright, that he has to marry NBC to a wider media portfolio, whether a Hollywood studio or a cable company. He says he has no plans to sell NBC, though he'd like to acquire more stations.

Perhaps, in retrospect, Immelt should have dressed a little snazzier for his coming-out party last November. Despite the fact that he and his boss both showed up wearing the same casual outfit--slacks, sports jacket and blue open-collared shirt--Immelt isn't a Welch clone. Where Welch is known for a blowtorch temper, Immelt is low-key and understated--more likely to tease employees than scold them to get his point across. "If you, say, missed your numbers, you wouldn't leave a meeting with him feeling beat up but more like you let your dad down," says Peter Foss, a longtime friend and colleague of Immelt's and president of GE Polymerland, part of its plastics business.

But underneath, friends and colleagues say, Immelt is no less intense or competitive than Welch, possessed of the same abiding passion for new ideas and perfectly willing to wield the ax, as he recently did with the company's flagging no-load mutual-fund business. "He is startlingly open-minded," says Shelly Lazarus, CEO of advertising giant Ogilvy & Mather, who joined the GE board in January.

Immelt has GE in his blood. Not only did his father work nearly 40 years as a middle manager at the company's aircraft business, but Immelt also met his wife Andrea on the job, when both were sales reps in the plastics division in the early '80s. As an undergrad at Dartmouth, it should come as no surprise, he was a classic overachiever--double major in applied math and economics, president of his fraternity and offensive tackle for the football team.

To start his foray into business, Immelt returned to his hometown, Cincinnati, Ohio, and went to work for Procter & Gamble, the cradle of brand management. There he shared an office and a mischievous streak with Microsoft's perpetually overstimulated CEO Steve Ballmer. "We were incorrigible," Immelt recalls with a laugh. After getting his M.B.A. at Harvard, he started his ascent at GE in 1982, spending a year in corporate marketing at its Fairfield, Conn., headquarters, where for six months he lived practically rent free in the pool house of a suburban estate. Immelt spent most of the next 15 years in various sales and marketing positions at the company's plastics group--the same place, incidentally, where Welch got his start.

But it was during a brief stint at GE Appliances, a low-margin business that can test the mettle of any executive, that Immelt, in his own words, "went from being a boy to a man." In the late 1980s, as head of service, he had to handle a massive, messy recall of more than a million faulty refrigerator compressors, and in the process he evolved from a quiet to a vocal leader. To help boost morale, Immelt would occasionally climb up on a forklift on the shop floor and give a rousing speech. More than a few times, he donned a uniform, got in a truck and went house to house with the techies to fix the problem. The stress took its toll. Immelt, a nervous eater, ballooned to 280 lbs., but has since dropped 60 lbs. and kept it off. When he left Appliances, his colleagues gave him a cartoon depicting him at his desk, harried and surrounded by junk food.

At GE Medical, possibly the company's most high-tech, global business, Immelt became a star--persuading a growing number of cash-strapped hospitals to trade in their old-fashioned equipment for digital machines that were capable of generating more dynamic images much faster. He inked lucrative, long-term deals with such hospital giants as HCA and Premier, and bought a number of smaller companies to round out his product line, all the while growing GE's market share from 25% to 34% and moving the company into services such as data mining.

Welch was particularly impressed by Immelt's ability to design products with the active input of customers, in one case producing an ultrafast CT scanner. As if that weren't enough, Immelt raised GE Medical's local community profile, leading a company-wide effort to help clean up and repair local public schools.

It takes an enormous ego to want to run an outfit like GE, and while Immelt has plenty, he manages to keep it in check. Whether reviewing a potential multi- billion-dollar acquisition or relaxing with his family at their vacation home in South Carolina, Immelt seems able to laugh at himself. He likes to get to the 19th hole first so he can heckle his golfing buddies from the clubhouse, and apparently can't get enough of lowbrow comedy flicks like Caddyshack and Tommy Boy.

"I know how serious the job is," he says, lest anyone think he's too laid back. "Still, I've always found humor a great way to keep things in context." That might be hard to do, of course, in his new position. But shareholders hope that 20 years from now, Immelt, like Welch, will still be laughing.

--With Reporting by Julie Rawe/New York