General Dynamics History: How a Vision Became a Legacy

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What made General Dynamics Corporation so successful? Did the short terms of its CEOs make a difference?

General Dynamics Corporation is one of the largest and best known major companies. Discover General Dynamics’ history, how General Dynamics thrived, and how they applied lessons from one of its most successful CEOs, Bill Anders.

General Dynamics: New Vision for an Old Company

General Dynamics history shows that it is an aerospace and defense corporation. After the end of the Cold War, it and many other defense companies faced a large contraction of spending as US national defense priorities shifted. Incoming CEO Bill Anders successfully led a turnaround that made General Dynamics the industry’s profit leader, instilling fundamentals that continue to this day.

General Dynamics Performance

From 1991 to 2008, General Dynamics history showed a 23.3% annual return rate, compared to 8.9% for the S&P 500 and 17.6% for major conglomerates. 

$1 invested at the beginning would have been worth $30 by 2008. This outperformed the S&P by 6.7 times, and its peers by 1.8 times. 

General Dynamics History

In 1989, the Berlin Wall fell, and with it fell the US defense industry’s business model. Accustomed to selling large weapons systems such as missiles and bombers, the defense industry now found its wares obsolete amidst new national priorities. Within 6 months, the price of leading defense companies had fallen 40%.

General Dynamics’ history as a defense company meant it was one of the worst affected companies. In 1991, it had $10 billion of revenue but negative cash flow, as well as $600 million of debt, and thus had a market capitalization of just $1 billion. That year, Bill Anders joined as CEO. 

Bill Anders: 1991-1994

Anders was an air force fighter pilot and astronaut who held the rank of major general at NASA and was well-respected at the Pentagon. At 45, he left government for the private sector, first for General Electric and then for conglomerate Textron. An independent thinker and blunt communicator, he was a misfit for bureaucratic cultures.

In 1989, he was made an offer to join General Dynamics company, first as vice-chairman for one year and then to rise to CEO. He spent the year studying the industry with fresh eyes, where he came upon his strategic insight: during the Cold War, defense companies had become bloated with excess capacity. Now that much of their wares weren’t needed, defense companies had two options: 1) shrink down dramatically to retain margins, or 2) acquire businesses to grow.

In turn, his strategy for General Dynamics Corporation had three key ideas:

  1. The company would only stay in businesses where it could be #1 and #2 (a famous Jack Welch idea).
  2. The company would leave commodity businesses with low returns.
  3. The company would stick to its strengths. Namely, it would leave commercial businesses and stick to defense and government contracts.

In his three years as CEO, Anders implemented a rigorous focus on margins and generating more cash:

  • He found that the mindset of the company was to make bigger, faster weapons to grow revenue, with little care for shareholders and financial performance. He moved to instill a new mindset of financial performance, emphasizing cash return on capital.
  • He made large personnel adjustments. He replaced 21 of the top 25 executives, reduced headcount by 60%, and cut corporate staff by 80%.
  • He promoted Jim Mellor, a business unit head known for enforcing results, to COO.
  • He and Mellor tightened operations by reducing inventory and capital equipment. They found a systemic problem of excess inventory (for instance, having dozens of F-16 plane canopies in a facility that made just one plane a week) as well as duplicate machinery. 

These moves produced fantastic returns—$2.5 billion in cash, and a market-leading return on assets.

The other major move Anders employed was selling non-core businesses to other defense companies. He found that competitors were willing to pay premium prices to grow their businesses. Within two years, Anders sold the majority of their business lines, including their F-16 fighter plane division to Lockheed for $1.5 billion. This was unprecedented in the defense industry, and certainly unheard of in General Dynamics history—observers say Anders was only able to do this because of his credibility in Washington as a military veteran. These sales generated another $2.5 billion in cash.

General Dynamics History: How a Vision Became a Legacy

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Carrie Cabral

Carrie has been reading and writing for as long as she can remember, and has always been open to reading anything put in front of her. She wrote her first short story at the age of six, about a lost dog who meets animal friends on his journey home. Surprisingly, it was never picked up by any major publishers, but did spark her passion for books. Carrie worked in book publishing for several years before getting an MFA in Creative Writing. She especially loves literary fiction, historical fiction, and social, cultural, and historical nonfiction that gets into the weeds of daily life.

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