In this book, Scott Davis discusses how two dozen titans of the finance world have reached their success by making a few pivotal decisions in their lives. Are you willing to listen and learn from the mistakes these individuals made? If so, then this is one book that will make an impact on your life.
“Lessons from the Titans” is a book by Scott Davis that explores how businesses, organizations and individuals can learn from the successes of others to improve their own performance.
Are you seeking for a synopsis of Scott Davis’s book Lessons from the Titans? You’ve arrived to the correct location.
After reading Scott Davis’s book, I wrote down a few significant takeaways.
If you don’t have time, you don’t have to read the whole book. This book synopsis gives you a quick rundown of all you can take away from it.
Let’s get this party started right now.
I’ll go through the following points in my Summary of the Book Lessons from the Titans:
What is the plot of Lessons from the Titans?
Lessons from the Titans is a documentary that explores the tale of 10 American industrial businesses. GE, Boeing, Honeywell, and United Rentals are among the companies studied to see which strategic choices led to success and which fatal blunders led to new difficulties. We can learn which firms are more likely to thrive — and which will not – by doing so.
Who wrote Lessons from the Titans and how did he do it?
Scott Davis has over 25 years of experience as a Wall Street analyst. The managing director of Morgan Stanley’s Global Industrials Research Group worked there for 16 years. As Chairman, CEO, and main research analyst, Davis is in charge of Melius Research’s operations. Davis’ first book was co-written by Carter Copeland and Rob Wertheimer of Melius Research.
What is the purpose of Lessons from the Titans?
Lessons from the Titans is not a book for everyone. It could be perfect for you if you are one of the following categories of people:
- Experts in business
- Entrepreneurs that want to expand their company
- Economists
Summary of the Book Lessons from the Titans
Introduction
What makes some businesses fail while others thrive? Disruptors like Uber and Airbnb are often cited as the solution to this issue. Arrogant management cultures, on the other hand, are more commonly to blame. Some businesses may seem to fail unexpectedly, yet their demise is frequently the result of years of planning.
Here are a few examples of successful industrial enterprises that rose from the bottom to the top, and vice versa. Management choices that resulted in growth and profit, as well as those that reversed years of hard work, are disclosed.
You’ll also learn how some indicators, such as cost management rigor and modest corporate cultures, might contribute to these developments.
Lesson 1: Jack Welch’s RCA transaction catapulted GE to supremacy in the industry.
In 1986, Jack Welch revealed that General Electric had paid $6.3 billion for Radio Corporation of America, or RCA. The transaction perplexed Wall Street experts since GE already had a consumer electronics company.
When Welch became CEO of GE in 1981, he inherited the company’s bloated executive structure. He spent the following few years concentrating on cost-cutting. Despite a 25% reduction in employment, annual sales of $37 billion were up 30%.
Even yet, the RCA agreement didn’t make sense to me. However, owing to Welch’s ability to leverage the acquisition like never before, GE’s growth would outperform analysts’ predictions.
One of the components of RCA that Jack Welch was interested in was NBC. However, GE’s consumer electronics divisions and other RCA assets were sold for more than the purchase price. GE gained money by retaining NBC for free. Welch then put the excess money towards expansion initiatives.
The first is related to aviation travel. According to Welch, globalization has resulted in a rise in the number of regular flights between cities. As a result, Boeing modified its 737 jets to keep up with the trend.
Welch secured the contract to construct the CFM56 engine for the 737 by outbidding rivals. By 2020, GE had sold over 32,000 CFM56 engines, making it one of the most profitable products in American history. Boeing and GE teamed up to improve the 737’s fuel efficiency and reduce engine noise, and by 2020, GE had sold over 32,000 CFM56 engines, making it one of the most profitable products in American history.
The efficiency of the F series power turbines was Jack Welch’s second significant gamble. Because power consumption fluctuates with the seasons, the F series turbines were built to accommodate these surges, such as on hot days when air conditioners are in high demand. On days when demand is low, energy surpluses are utilized to power steam turbines.
Because of GE’s rising service expenses, it became a high-margin product rather than a low-margin sale. Because it was a clean alternative to coal power, investors sought for a share of its long-term profitability.
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Lesson 2: GE Capital’s success could not be maintained.
GE’s previous CEO, Jack Welch, took many chances throughout his 20 years in the position. Many of these turned out to be lucrative. Welch restructured GE, enhanced cash flow, established Six Sigma quality control systems in manufacturing, and removed all dead weight.
By the year 2000, GE had a market capitalisation of $600 million. In 2020 dollars, Apple, Microsoft, Google, and Amazon would have a market capitalization of $1.34 trillion.
These astronomical achievements, on the other hand, contributed to the arrogant corporate culture that finally led to GE’s demise as an industrial powerhouse. GE was already in decline when Welch departed in 2001 and gave the keys to his successor, Jeffrey Immelt. GE Capital was a big contributor to the decrease.
In 1932, GE began offering consumer loans for items such as refrigerators and washing machines, which led to the establishment of GE Capital in 1943. Gary Wendt, the president of GE Capital, and Jack Welch agreed in 1984 to adopt a more aggressive approach to increasing revenue in GE’s industrial companies.
GE Capital, unlike banking institutions, was scarcely regulated. Capital’s AAA credit rating let investors to borrow money at low interest rates while earning greater returns than US government bonds.
Capital was lending all over the place by the 1990s, from funding private equity to leasing airplanes, railcars, and medical equipment. It even issued credit cards with the store’s logo on them. When Jeffrey Immelt became CEO in 2001, GE’s Capital segment accounted for 40% of the company’s overall profits. Because it accounted for 55 percent of profits by 2007, the enterprise was highly hazardous.
There was, however, one facet of this triumph that was overlooked. In the 1980s, Welch discovered that GE had the capacity to choose when and how to announce its profits and losses. GE Capital’s profits might enhance overall earnings if GE’s companies have a bad quarter. Revenues from other main companies might potentially help Capital’s profitability.
This gave the idea of consistent revenues, and success seemed inescapable. Immelt and his management utilized this creative accounting to justify more hazardous initiatives with no apparent benefit, despite the fact that the underlying statistics were far more unpredictable.
Lesson 3: Jeffrey Immelt created a company culture that valued big ideas above practical investments and shunned criticism.
The collapse of General Electric may be linked in part to GE Capital’s questionable accounting practices. Furthermore, even as fractures started to develop, they made it look abrupt.
The financial statements of GE perplexed even the most seasoned analysts and debt rating specialists. The Securities and Exchange Commission, or SEC, never became involved. It was just too huge for GE, and as it grew, so did its lobbying strength.
Under Welch’s leadership, questioning Jack Welch or his managers was discouraged, and Jeffrey Immelt permitted this to continue. GE continued to falsify the books, but in this climate, preserving GE’s – and Immelt’s – image took precedence above everything else, including quality control. What about ethical considerations? They went unnoticed.
Intimidation and arrogance pervaded GE’s culture well beyond corporate gates, and what began as lobbying eventually turned into threats. In his first year as an analyst, Scott Davis, for example, got a daily call from an investment banker warning him that GE might damage his career chances if he made any errors with his financial reports.
Due to these scare tactics, GE’s stock was not the only one to get a buy recommendation. Investors thought they were investing in a sure thing when they bought shares in more and more firms, but they were instead inflating a bubble that burst in 2008.
The fall of the economy hit GE especially hard since it had taken on so much debt via GE Capital. Under Immelt’s leadership, the GE stock dividend, which was used to distribute dividends to certain shareholders, including retirees, was abolished in 2009.
The stock price peaked at $60 in 2000, dropped to $40 in 2008, and then to $6 in 2009. If the US government had not intervened and Warren Buffett had not made a crucial investment to save the firm, it is unlikely that it would have survived the financial crisis.
Though GE’s reputation has been rebuilt in recent years, dubious acquisitions have slowed the company’s complete comeback. Alstom Power, for example, which it bought for $17 billion in 2015, was on the verge of going bankrupt. This decision marked the end of Jeff Immelt’s tumultuous term as CEO.
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Lesson 4: Boeing has had varying degrees of success in decreasing risks and increasing profits.
Boeing was about to launch its brand-new, high-tech 787 Dreamliner airliner on July 8, 2007, and it had great expectations for it. It was, however, far from finished. There were even portions of the wings that were gone.
The first 787 did not go to the skies until 2009, and customers did not get their jets until 2011. By the time the 787 turned profitable in 2016, Boeing had lost more than $50 billion. Boeing CEO Jim McNerney reacted by launching a “de-risking the decade” initiative.
To limit risk and liability, Jim McNerney instructed Boeing to stop taking on new high-risk projects. Contracts that were not profitable were also terminated. After becoming Boeing’s CEO in 2015, Dennis Muilenburg established a strategy to boost the company’s profitability from 5% to 15%. The company’s cash flow increased from $3 billion to $15 billion over this time.
As part of Muilenburg’s aim to reduce production costs, he requested external suppliers to drop their pricing. As a negotiating tactic, he started procuring components for Boeing jets. Boeing’s own factories were 30 percent cheaper than suppliers’, despite the reality that the contrary was most likely true, since suppliers had spent years improving their processes, which Boeing couldn’t duplicate quickly.
When Boeing rapidly expanded manufacturing of the 737 MAX passenger plane in 2015 in order to compete with Airbus’s A320neo plane, it created a dilemma. The automatic flight control system, or MCAS, was a major flaw in the MAX. In flight, MCAS drove the plane’s nose down to maintain the right angle. Two MAX aircraft crashed in 2019 as a consequence of forcing their noses down while flying at low altitudes.
Boeing’s new CEO, David Calhoun, made modifications in the same year. Boeing’s existing MAX fleet has been grounded. After the MAX was recertified, the business took on billions of dollars in debt to keep building additional jets. Because of the COVID-19 epidemic, 90% of all flights were grounded, causing the plan to be disrupted.
Lesson 5: Dave Cote revitalized Honeywell by lowering expenses, introducing new products, and expanding into new markets.
Dave Cote was hired as Honeywell’s CEO in 2002 not because he was qualified or experienced, but because no one else was interested.
It’s understandable. The corporation was facing various lawsuits over asbestos liability, as well as mounting indebtedness, in addition to its unorganized plants. Cote became CEO immediately after the dot-com boom crashed, as if that wasn’t enough.
Cote was able to turn Honeywell around despite the odds being stacked against him. By the conclusion of his tenure, the firm employed over 114,000 workers.
Cote recruited David Anderson as CFO in 2003. The majority of Honeywell’s asbestos claims were resolved as a consequence of Anderson’s changes. Cote’s multipronged approach to Honeywell’s other issues was equally successful.
The first task was to cut expenditures. In most circumstances, this would imply layoffs and factory closures. Despite this, Cote hired a large number of new personnel, the majority of whom were assigned to sectors with strong development potential, such as business jets and environmental goods.
Between 2002 and 2016, the company’s personnel expanded by 15%, while sales and earnings climbed by 75%.
To save expenses, Cote concentrated on localizing production rather than outsourcing it. A product sold in the United States was also manufactured there, as was a product sold in China. Honeywell wanted to grow into China, so Cote recommended hiring local workers and using local suppliers.
Cote incorporated superior production methods and quality control standards using the Honeywell Operating System, or HOS, which offered plant managers with real measures to monitor success, such as faults per million units and delivery time timeliness.
High-growth items, such as software to make aircraft more efficient and generating more environmentally friendly gases for air conditioners, were also given research and development monies. These techniques, when combined with an aggressive acquisition and selling effort, helped Honeywell achieve a profit margin of over 20% in 2017, the year Cote departed.
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Mike Kneeland turned United Rentals around via reforms, continuous improvement approaches, and regional collaboration.
So far, we’ve looked at manufacturing companies that create and sell goods to consumers. United Rentals, on the other hand, performs none of these things; it leases out industrial equipment to other companies.
Aerial work platforms and industrial dehumidifiers, for example, serve no use in terms of purchasing and maintaining equipment that is only utilized once or twice a month. The services of United Rentals are in high demand.
When Mike Kneeland took over as CEO in 2008, the stock price had plummeted from $20 to only $3. Kneeland planned to buck the pattern by taking advantage of the poor rental market during the Great Recession and restructuring the firm from the bottom up.
Unified Rentals’ first 11 years were marked by a corporation that was only united in name, the consequence of the purchase of over 200 rental firms.
One factor was the pay scales for branch managers. Kneeland substituted a profit-before-expenses compensation scheme. Rather of conserving money and borrowing equipment from a neighboring branch, this compensation structure pushed managers to buy a lot of unnecessary equipment.
Kneeland, on the other hand, encouraged branch collaboration by attaching 70 percent of managers’ pay to district outcomes rather than branch results.
The next step was to decide on a price. There was no established price system. Prices were estimated on a case-by-case basis utilizing mobile devices. Kneeland used new IT systems to digitize and consolidate contracts, orders, and insurance policies.
Finally, he employed kaizen — a Japanese business concept that emphasizes incremental improvement – to enhance processes and establish a continuous improvement culture. United hosted more than 500 kaizen activities in 2014 and 2015. These workshops aided in the discovery of cost-effective solutions to minor issues.
They discovered that prepping delivery equipment ahead of time saved time, labor, and space. After taking up the truck, the driver just had to locate the proper location, load the vehicle, and exit the rental yard.
When United bought four of its rivals, their systems had already been streamlined, making it simple to incorporate them into United’s operations.
The debt owed by United Rentals has increased from $3 billion in 2008 to $12 billion in 2018. These enhancements take time and effort to achieve. Profits, on the other hand, grew at a far greater rate.
Lesson 7: A successful organization controls costs and risks, boosts cash flow, and invests capital resources efficiently.
Uber and WeWork may operate in very different businesses than General Electric and Honeywell, but they nonetheless confront the same profitability and risk management concerns.
As it turns out, the new economy of today and the old economy driven by industrial firms have a lot in common. The success or failure of a business is often decided by the same core factors. General Electric, Boeing, Honeywell, and United Rentals, as well as their competitors, share a few fundamental characteristics.
Lean manufacturing processes are how successful organizations like Boeing and GE manage their costs and risks. Lean manufacturing minimizes waste in the manufacturing process, and effective application of its principles frequently results in quicker production rates, greater quality, and fewer errors.
Honeywell’s enhanced productivity as a consequence of implementing lean concepts resulted in decreased risk, better cash flow, and higher profit margins.
Under Jeffrey Immelt, on the other hand, GE suffered because it did not pay enough attention to its production processes. Immelt’s team took on more hazardous bets to compensate for the decline in productivity and quality.
Finding and retaining the proper personnel is an important component of reducing risks, which requires a business culture that is modest yet realistic. When asked what makes a firm so successful, CEOs often highlight their employees.
However, since not everyone is endowed above-average, it is even more critical that all workers strive for continual development. According to Dave Cote of Honeywell, the excellent ones need to be paid for both their current job and the work they will obtain in the future.
When it comes to safely investing funds, it may seem self-evident, but it’s better to adhere to the numbers: invest in successful ventures. Mergers and acquisitions have played a significant role in the growth and decline of huge industrial businesses.
United Rentals demonstrated that buying hundreds of businesses does not guarantee increased profit margins or market share. It is critical to invest in organizations that will provide a measurable return while avoiding those that will just pull the rest of the company down.
Final Thoughts
Older industrial behemoths with a history of ups and downs may teach us a lot. General Electric, formerly one of the world’s top corporations, is now on the brink of bankruptcy. Before Boeing was able to earn a profit on the 787 Dreamliner, a devastating manufacturing flaw on the 737 MAX caused numerous lives.
Honeywell and United Rentals have gone from being on the verge of bankruptcy to having some of the most promising future possibilities. We know that cost control, efficient procedures, and effective utilization of cash flow are crucial to long-term profitability after studying these and other firms’ triumphs and failures.
Additional Reading
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