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Ge Digital Revolution


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Ge Digital Revolution

  1. 1. Section C Group 8GE‟s DigitalRevolutionStrategic Change Process
  2. 2. General ElectricGE a $130B, 110 year oldcorporation, structured into 3 businesssegments OVERVIEW BUSINESS KEY FINANCIAL STATISTICS• Founded in 1889 by Thomas Alva Edison Revenue (2000): $ 130 Billion as Edison General Electric Company • US(70%), Europe (19%)• Multinational conglomerate corporation • Services (75%), Product(25%) based in US • CAGR („96-00): 13%• With presence in 130 countries, it‟s the Net earnings (2000): $ 13 Billion 3rd largest corporation as per Forbes • CAGR („96-00): 15%• No. of employees (2000): 313,000 • Net earnings margin: 10%Business segments: KEY EXECUTIVESShort-cycle Long-cycle Fin. services• GE Power • GE Appliance • GE Finance• GE Medical • GE Lighting • Card services• GE Aircraft • GE Plastics • Real Estate• GE Transport • GE Industrial • Fleet Services • GE Specialty • Re-insurance Jack Welch Gary Reiner Gerry Podesta Materials • Mortgage Chairman Chief Info. VP Americas, insurance and CEO Officer GE Plastics
  3. 3. General ElectricReturned 23%/year to shareholders (1981-2000) 1998-2000 •Launch of DYB 1995-98 and evolvement to GYB •Announced •GE Plastics 1990-95 target for Six online revenue Sigma rose 1100% •Focus on being - From $0.1B in 1985-90 •40% of total 1999to $1.2B in a “boundary revenue from 2000 less company” •Initiated strategy international •Focus on •GE rated #1 on of globalization operations 1981-85 services top e-business - Business to be #1 •67% of revenue list by Internet or #2 globally - To offset•Jack Welch to slowing growth from services Week CEO •Work-out sessions of industrial - As against •Achieved 23% - 2 day offsite to segment 15% in 1980•Sold/closed 200 average annual improve businesses •Launched shareholder effectiveness of processes return over 20•Acquired 370 years new businesses
  4. 4. 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 Boundary less Software Initiative Company • Offsite meetings • Stretch GE‟s with groups of • Benchmark activities performance targets frontline employees against world class • Managers incentivised to improve through external to achieve stretch operational focus targets effectiveness • Facilitate inter-unit • “Using dreams to set • Employees transfer of new business targets, with empowered and to ideas rapidly no real idea of how to initiate implement get there” creative ideas
  5. 5. General ElectricKey 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)
  6. 6. General ElectricGE established a series of managementdiscussion called „Operating System‟ Operating •Priority reviewed Managers Meeting •Best practices celebrated Corporate •Follow up on initiative Executive Council •Feedback and recommendations •Welch visit to GE business locations Session C •emphasis on continually improving skill set •Identify Key opportunities and threats Session I •Driven by broad stretch goals Corporate Officers •Discuss challenges of next years operating Meeting budgets Session II •Operating planning review for next year
  7. 7. General Electric Welch implemented four key strategic initiatives - 1Welch challenged organization torenew itself strategically andimplemented four key strategicinitiatives  Growth through Globalization 1 (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 Growth through Globalization annual growth rate Global(„87- ‟98) was 15% Vs 6% Domestic.
  8. 8. General ElectricWelch implemented four key strategicinitiatives - 22 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 Growth in GEs Service Business  Revenues exceed $12 Billion
  9. 9. General ElectricWelch implemented four key strategicinitiatives - 3 Six Sigma(1996)3 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 Cost and Benefits of Six Sigma Program $1.5 billion was forecasted
  10. 10. General Electric The Fourth Drivers of E- Launch of E- Strategy: 4 E-Business Business Initiative Business at GE The Internet Revolution and the dot- “GE’s reluctance to embrace com boom of the late 90s e-commerce Welch‟s growing personal interest in the was seen as a Internet and e-commerce space sign that its CEO was past his CEC‟s conclusion that GE was prime” vulnerable to E-Business initiatives by 1 start-ups/competitors Amazon‟s attack on Barnes and Noble “There was a fear was viewed as an important lesson. It that talented brought a sense of urgency to executives would implement e-business initiatives at GE flee old giants to join high-flying start-ups” 2
  11. 11. General Electric The Fourth Strategy: Drivers of E- Launch of E- E-Business Business Initiative Business at GE1994 : Late entry to the web. General Electric launches its and GEplastics.comJanuary 1999 : Welch announces company-wide E-Businessstrategic initiative 1999 Boca Meeting : Each business is expected to explain how to become an e-business leader Launch of „Destroy your Business‟ – dyb/cannibalization initiative April 2000 : All GE businesses expected to identify an E- Business leader, supported by a task force June 2000 : E-business was officially adopted as GE‟s fourth strategic initiative along with Globalization, Services and Six Sigma
  12. 12. General ElectricImplementation of E-BusinessJan „99, Boca •Each Business to find way to be No. 1 in e-Biz in its industry Meeting •Take the initiative with urgency CEC Meeting, •Appoint a e-Biz leader in each March business by Session C with a task force •Priority to identify vulnerability •Focus on internet as a CIO, Gary sales opportunity Reiner to •Facilitate online support the transaction •Provide Value added business heads services
  13. 13. General Electric Implementation of E-Business in GE Plastics CEO Plastics •17yrs old veteran in GE Gary Rogers , •Plastics Engineer appoints Gerry •Knew Plastics businessPodesta as Div‟s •Understood how GE e-Biz GM works •Includes 7 person team Forms a Team of •25 Developers 62 people •30 People to create Global content •Buy Team •Design and Subdivision of Research Team Team •Interact Team
  14. 14. General Electric Strategic Shift in E-BusinessE-SellWhat worked in favor? Internet as a sales channel, riding on the E-Sell 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 E-Make E-BuyWhat did not work? Powerful websites were important defensively, but they did not translate into major sales boost Jan 2000: 5% online sales Target: 30% online sales Cannibalization of traditional business model Internal scepticism and career concerns for many employees
  15. 15. General Electric Strategic Shift in E-Business E-Buy E-Make With no credible “Amazon”  Internal productivity thrust threat, evolved into  Automating touch-points to reduce SG&A expenses by Emphasis now on growth 30 percent Online purchasing as an E-  Distinguish front-room value business growth/profit opportunity adding activities from back was explored room support activities GE developed its own in-house auction hosting service which was quickly adopted in every GE businessTarget 100% of purchases from suppliers Targeted savings of $10 billion in 3 yearsthrough GE Web based E-Buy initiative
  16. 16. General ElectricGE Plastics can be valued on thefollowing 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
  17. 17. General ElectricRelevance for replication of themodel in other business units Buy and interact related features could be used by others Design and research has to be done explicitly by each team Participation in development of synergy and communication
  18. 18. General ElectricEffectiveness of E-business implementation inGE plastics Growth in Online Sales Online 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
  19. 19. General ElectricChange Process behind e-business - 1 • Scaring top executivesUrgency • Personal involvement of CEO • Active support from CEOLeaders • People appointed as e-business leaders • E-business leader in its industry Vision • Pre-empt Amazon like scenarios
  20. 20. General ElectricChange Process behind e-business - 2 • Creation of „dyb‟ teamsConvey • Used their Operating System to good effect • E-business leaders set BU strategyEmpower • Getting the best people • Not allowing performance dips Short • Having clear short term commitmentsterm wins
  21. 21. General ElectricChange Process behind e-business - 3 • Direction for e-business teams • Integration into mainstreamConsolidate • Possibly did not happen • Change in leadershipInstitutionalize • All talk of digitalization disappears from ARs from 2003
  22. 22. General ElectricPossible 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
  23. 23. General ElectricFuture direction of DYB has 3 alternatives;integration seems most promising DYB Team‟s Future Maintain Status Return to regular Integrate into Quo responsibilities mainstream• Resistance from • Loss of • Makes e- BUs momentum business integral• Possibility of • Declaring victory to decision autocracy too early making • Unlikely its significance will be lost
  24. 24. General ElectricFuture direction of targets include 2 keyaspects 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
  25. 25. General ElectricWhat possibly transpired In2002 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
  26. 26. General Electric Thank You“DYB and GYB were the wrong strategies, since these teamswere isolated and not integrated into the rest of theorganization.” -Jack Welch, Lexicon of Leadership, 2003