Ge Digital Revolution
Transcript of Ge Digital Revolution
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
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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”
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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
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Relevance for replication of the model in other business units
Effectiveness of E-business implementation in GE plastics
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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
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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
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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
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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