GE CEO – we’re going to be “digital on steroids”

SUMMARY:

GE’s CEO John Flannery wants to reinvent a 125 year old industrial company to become a digital powerhouse for the next century. Wall St’s not so sure so far.

John Flannery

The future’s digital. The future’s GE. And GE is the digital future.

A mile high summary of the elevator pitch to the turnaround strategy statement outlined by GE’s CEO John Flannery, 30 years at the firm and just over 100 days settled into the top job. His mission – to revive the fortunes of the firm that just lost its status of being the US’s largest manufacturer by market cap.

The big problem? Even as Flannery was talking investors through his plans, Wall Street took fright and sent the share price down. While the CEO was talking disruption and revolutions and cultural re-invention, many analysts weighed in complaining that he hadn’t gone far enough or been radical enough in his thinking.

The most startling element of the Flannery plan was an announcement that GE will look to sell or spin off Chicago-based transportation division, although a similar intent for the lighting division is perhaps more symbolic, given that GE was founded 125 years ago by Thomas Edison!

This then is an industrial powerhouse that’s trying to work out what it wants to be and then convince the world that it can deliver on that ambition. Flannery made no bones about the fact that there’s clearly been a lot of internal contemplation going on:

The gift part of the first 100 days is in reality I was forced to confront a lot of other sort of deeper questions about the company. What’s the essence of this company I love so much, I have been here for 30 years, why do we exist, how do we impact the world for the next 100 years the same what we have for the last 100 years.

He rattled through GE former glories – the first light bulb, the first x-ray, the first jet engine, the first CT, the LEAP – arguing that the firm is “constantly a technological breakthrough company”. But it’s time for change, he added, pitching this as:

the opportunity really of a lifetime to reinvent an iconic company.

Opportunity knocked?

OK, so what does that reinvention involve? What will the GE of the next hundred years look back on? Flannery made a straightforward enough pitch to investors:

The GE of the future is going to be more focus on industrial company, it will leverage a lot of really game changing capabilities in digital, in Additive [Manufacturing], in industrial research. The culture of the company [will be] much more open, much more transparent, much more connected.

There will also be a narrowing of focus on market sectors in which the firm believes it can make a real impact, said Flannery:

We’re focused on strong end markets in areas where we have competitive advantages, areas where there is opportunity for digital disruption, areas where we can earn premium returns. That’s where we want to concentrate our resources going forward.

He cited the example of healthcare as a case in point:

There is good global growth in healthcare and there is a lot of opportunity and optionality in our life science business. I think on the challenging side in healthcare right now there is a lot of digital disruption in the business. We are extremely active ourselves in it. No one really, I’d say a good economic model to do that. But I think this digital disruption in the healthcare business is inevitable and is really here now.

The power industry is another opportunity, Flannery pointing to GE Power’s digital diagnostics capabilities:

Right now, they are tracking conditions that opened 900 different power plants, 60 countries around the world, 350 million people being served by those power plants. They are ingesting 2 billion pieces of data every single day coming off sensors and about 500 turbines and generators. So, this is digital, when you think digital industrial capability, this is it on steroids.

That’s crowd-pleasing rhetoric for GE staffers of course, but Wall Street’s cool reaction suggests that there needs to be some more work done on the messaging here. Flannery went out of his way to insist upon GE’s digital track record as a corporate asset:

The main message from me about digital is a much more focused strategy. We are still deeply committed to it, but we want a much more focused strategy. We’re going to focus on a handful of applications… We’re going to focus our platform investments on the things that really differentiate, things like the age of cloud, things like Digital Twins and then we’re going to sell these focused platform and applications things to our installed base. That’s where we want to focus now.

So, when we look at that, the productivity and traction that our sales people get turning those products into our installed base is extremely high, twice high, cycle time long. Deal size, four of five, six times larger than the average deal. And we’ve only penetrated a small percentage of the installed base right now. So, we look at this as a focus. It will allow us to spend less money in 2018. We’ll spend about $400 million less on this, but we see an accelerating traction in the area that we’re focused on.

All of that’s to come and the devil is clearly going to be in the detail of strategic execution. That was a point made by Flannery on TV appearances after the stock price began to tumble – this is a long game and it will take time for the results to show through. For now, the challenge is to steady the ship while charting its new course. That brings us back to the inspirational and aspirational ‘staking a claim’ statements. Flannery said:

The world fundamentally is going to run on the back of the G.E. It’s going to move on the back of GE. It’s going to heal. Babies are going to be born on the back of the GE. This is the business we want to focus on. It will be a smaller business, simpler business, delivering amazing solutions to the world like we always have done. This is what the company has always been.

He concluded:

We will end up making a future that no one frankly can even imagine right now, like we have always done.

My take

Can you radically re-invent a company from within by putting a multi-decade executive in charge of the transformation? Or does it demand fresh blood and a fresh eye to think the unthinkable and be ready to put it into practice? You can look to IBM to see a strong argument that the first option is viable – Ginni Rometty is effectively an IBM lifer but has delivered some kick-ass changes for the better there.

GE’s new boss has a big task in front of him. While it didn’t get off to the best of starts with investors this week, the new strategy deserves time to bed in before being written off. 2018 will be year to watch.

Image credit - GE

    1. greg misiorek says:

      sounds really weird, considering that GE Digital division has effectively been shut down, after a successful advertising campaign, without launching one successful product unless you consider Predix a success.

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