GE’s Digital Revolution

Strategic Change Process

Section C Group 8

BUSINESS OVERVIEW KEY FINANCIAL STATISTICS

GE a $130B, 110 year old corporation, structured into 3 business segments

• Founded in 1889 by Thomas Alva Edison as Edison General Electric Company

• Multinational conglomerate corporation based in US

• With presence in 130 countries, it’s the 3rd largest corporation as per Forbes

• No. of employees (2000): 313,000

Business segments:

Revenue (2000): $ 130 Billion• US(70%), Europe (19%)• Services (75%), Product(25%)• CAGR (‘96-00): 13%

Net earnings (2000): $ 13 Billion• CAGR (‘96-00): 15%• Net earnings margin: 10%

KEY EXECUTIVES

• GE Power• GE Medical• GE Aircraft• GE Transport

• GE Appliance• GE Lighting• GE Plastics• GE Industrial• GE Specialty

Materials

• GE Finance• Card services• Real Estate• Fleet

Services• Re-insurance• Mortgage

insurance

Short-cycle

Long-cycle Fin. services

Jack WelchChairman and CEO

Gary ReinerChief Info. Officer

Gerry PodestaVP Americas,GE Plastics

General Electric

Returned 23%/year to shareholders (1981-2000)

1981-85

1985-90

1990-95

1995-98

1998-2000

•Jack Welch to CEO

•Sold/closed 200 businesses

•Acquired 370 new businesses

•Initiated strategy of globalization

- Business to be #1 or #2 globally

•Work-out sessions

- 2 day offsite to improve effectiveness of processes

•Focus on being a “boundary less company”

•Focus on services

- To offset slowing growth of industrial segment

•Launched GE.com

•Announced target for Six Sigma

•40% of total revenue from international operations

•67% of revenue from services

- As against 15% in 1980

•Launch of DYB and evolvement to GYB

•GE Plastics online revenue rose 1100%

- From $0.1B in 1999to $1.2B in 2000

•GE rated #1 on top e-business list by Internet Week

•Achieved 23% average annual shareholder return over 20 years

General Electric

Organization culture focuses on employee initiatives, free flow of ideas and speed

Welch shifted focus on cultural change to sustain high productivity ( employed both Theory ‘E’ and Theory ‘O’ sequenced)

Theory E – boosted productivity by carrying out restructuring, removed bureaucracy, stripping layers of hierarchy and downsizing

Theory O - articulated speed, simplicity and self confidence as core elements of the organizational culture.

Jack launched several new initiatives that redefine GE’s “Social Architecture”:

Work-Out

• Offsite meetings with groups of frontline employees to improve operational effectiveness

• Employees empowered and to initiate implement creative ideas

Boundary less Company

• Benchmark

activities against world class through external focus

• Facilitate inter-unit transfer of new ideas rapidly

Software Initiative

• Stretch GE’s performance targets

• Managers incentivised to achieve stretch targets

• “Using dreams to set business targets, with no real idea of how to get there”

General Electric

Key HR initiatives included training, expelling autocrats Emphasis on training Gradually took up change in long term HR policy

(Theory O) Expelling autocrats from the system (Theory O) Rebuilding base (Theory E) Practical training approach (Theory O) Implementation oriented (Theory O) Continuous skill improvement with no scope for

complacency (Theory O)

General Electric

GE established a series of management discussion called ‘Operating System’

• Priority reviewed• Best practices celebrated

Operating Managers Meeting

• Follow up on initiative• Feedback and recommendations

Corporate Executive Council

• Welch visit to GE business locations• emphasis on continually improving skill setSession C

• Identify Key opportunities and threats• Driven by broad stretch goalsSession I

• Discuss challenges of next years operating budgets

Corporate Officers Meeting

• Operating planning review for next yearSession II

General Electric

Welch implemented four key strategic initiatives - 1

Welch challenged organization to renew itself strategically and implemented four key strategic initiatives Growth through Globalization

(1987): – All GE business to be either #1 or

#2 globally Took advantage of economic

downturn in Europe(‘89-’95), Mexico(‘95-’96) and Asia(‘97-’98)

Urged Managers to viewed it as a buying opportunity.

Spent more than $32.5 billion on acquisitions.

By 1998 international revenues represented 40% of total,

Up from 20%(1985). Average annual growth rate Global(‘87-’98) was 15% Vs 6% Domestic.

Growth through Globalization

1

General Electric

Reduce dependence on traditional products(1994):

Challenged Managers to offset slowing growth of GE’s traditional products

Product services experienced much faster growth rate compared to products

By 1998, GE’s product service business comprised Medical equipment support Aircraft engine maintenance Power Equipment Servicing Revenues exceed $12 Billion

Growth in GE's Service Business

Welch implemented four key strategic initiatives - 2

2

General Electric

Six Sigma(1996) Six Sigma (1996): Learnt how Six Sigma helped

Allied Signal to improve quality, lower costs, increase productivity

GE study found its error rates was 10,000 times the six sigma standard Lost $8 billion and $12 billion a

year in inefficiencies In 1996, Welch announced goal

of reaching Six Sigma quality levels

Made investment of $500 million in 2 years

Soon returns over investment exceed expectations

By 1999 additional revenue of $1.5 billion was forecasted

Cost and Benefits of Six Sigma Program

Welch implemented four key strategic initiatives - 3

3

General Electric

The Fourth Strategy: E-Business

Drivers of E-Business Initiative

Launch of E-Business at GE

The Internet Revolution and the dot-com boom of the late 90s

Welch’s growing personal interest in the Internet and e-commerce space

CEC’s conclusion that GE was vulnerable to E-Business initiatives by start-ups/competitors

Amazon’s attack on Barnes and Noble was viewed as an important lesson. It brought a sense of urgency to implement e-business initiatives at GE

“GE’s reluctance to embrace

e-commerce was seen as a

sign that its CEO was past his

prime”

“There was a fear that talented

executives would flee old giants to join high-flying

start-ups”

1

2

4

General Electric

1994 : Late entry to the web. General Electric launches its website GE.com and GEplastics.com

January 1999 : Welch announces company-wide E-Business strategic initiative

1999 Boca Meeting : Each business is expected to explain how to become an e-business leader

April 2000 : All GE businesses expected to identify an E-Business leader, supported by a dyb.com task force

Launch of ‘Destroy your Business’ – dyb/cannibalization initiative

June 2000 : E-business was officially adopted as GE’s fourth strategic initiative along with Globalization, Services and Six Sigma

The Fourth Strategy: E-Business

Drivers of E-Business Initiative

Launch of E-Business at GE

General Electric

Jan ‘99, Boca

Meeting

• Each Business to find way to be No. 1 in e-Biz in its industry

CEC Meeting, March

• Take the initiative with urgency

• Appoint a e-Biz leader in each business by Session C with a dyb.com task force

• Priority to identify vulnerability

CIO, Gary Reiner to support the

business heads

Implementation of E-Business

General Electric

Implementation of E-Business in GE Plastics

CEO Plastics Gary Rogers , appoints Gerry Podesta as

Div’s e-Biz GM

• 17yrs old veteran in GE

• Plastics Engineer• Knew Plastics

business• Understood how

GE works

Forms a Team of 62 people

• Includes 7 person dyb.com team

• 25 Developers• 30 People to

create Global content

Subdivision of Team

General Electric

E-SellWhat worked in favor? Internet as a sales channel, riding on the

Internet boom Websites that facilitated online

transactions Polymerland, for instance raised its online

sales from $60,000 a week to $5 million a week within 9 months

What did not work? Powerful websites were important

defensively, but they did not translate into major sales boost

Cannibalization of traditional business model

Internal scepticism and career concerns for many employees

E-Sell

E-Buy

E-Make

Jan 2000: 5% online salesTarget: 30% online sales

General Electric

Strategic Shift in E-Business

Strategic Shift in E-BusinessE-Buy

With no credible “Amazon” threat, dyb.com evolved into gyb.com

Emphasis now on growth Online purchasing as an E-

business growth/profit opportunity was explored

GE developed its own in-house auction hosting service which was quickly adopted in every GE business

Target 100% of purchases from suppliers through GE Web based E-Buy initiative

E-Make Internal productivity thrust Automating touch-points to

reduce SG&A expenses by 30 percent

Distinguish front-room value adding activities from back room support activities

Targeted savings of $10 billion in 3 years

General Electric

GE Plastics can be valued on the following parameters

Strategic Approach• Evaluation of threats, opportunity• Evolved the idea from e-sell to e-buy to

e-make

Customer oriented features• Customer friendly • Efficient transactions• Engaging customer interface

Approach towards business unit • Achieved Integration and eliminated

compartmentalization • conflict in terms of commitment and

performance of business units and the e-business

• Took away some of the best talent from the business units

General Electric

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Relevance for replication of the model in other business units

Effectiveness of E-business implementation in GE plastics

General Electric

Growth in Online SalesOnline Sales increased from $100

million to $1.2 billion and forecasted $4 billion in

Created a positive online relationship with customers and

build loyalty.

Improved process for service, speed and customer satisfaction

E-buy option was expected to generate savings

Change Process behind e-business - 1

Urgency •Scaring top executives•Personal involvement of CEO

Leaders •Active support from CEO•People appointed as e-business leaders

Vision •E-business leader in its industry•Pre-empt Amazon like scenarios

General Electric

Convey •Creation of ‘dyb’ teams•Used their Operating System to good effect

Empower •E-business leaders set BU strategy•Getting the best people

Short term wins •Not allowing performance dips•Having clear short term commitments

Change Process behind e-business - 2

General Electric

Consolidate

• Direction for e-business teams• Integration into mainstream

Institutionalize

• Possibly did not happen• Change in leadership• All talk of digitalization disappears from ARs from

2003

Change Process behind e-business - 3

General Electric

Possible pitfalls

Leadership is changing – Jack Welch exits

Lack of dyb teams’ integration with BUs Initiative losing steam too early Possibility of change failing to stick Strategic fit of the initiative

E-sell is not universally applicable (aviation) Small base of ‘backroom’ to push down SGA

in some businesses

General Electric

DYB Team’s Future

Maintain Status Quo

Return to regular responsibilities

Integrate into mainstream

Future direction of DYB has 3 alternatives; integration seems most promising

General Electric

• Resistance from BUs

• Possibility of autocracy

• Loss of momentum

• Declaring victory too early

• Makes e-business integral to decision making

• Unlikely its significance will be lost

Pursue the current targets Targets need to be mapped against

realities Targets need to be business specific since

some of cost/sales/procurement targets may not be feasible for certain businesses

For instance, E-sell may not be a feasible option for aviation

Future direction of targets include 2 key aspects

General Electric

In 2002 Digitalization saved $2bn Post 2002 no annual report specifically

mentions Digitalization as a core focus Possibly new leader’s focus is different Digitalization comprising of e-sell, e-buy

and e-make may have plateaued Thus, the change may have failed to stick

or the projections were inflated

General Electric

What possibly transpired

Thank You

General Electric

“DYB and GYB were the wrong strategies, since these teams were isolated and not integrated into the rest of the organization.”

-Jack Welch, Lexicon of Leadership, 2003