When Jeff Immelt succeeded Jack Welch in late 2001, he laid out his plans to change the growth strategy of GE. His approach consisted of five major parts:
1.Technical Leadership
2. Services Acceleration
3. Commercial Excellence
4. Globalization
5. Growth Platforms
Immelt believed that GE should strive to be a leader in technical innovation. Since the days of the company’s founder, Thomas Edison, GE relied heavily on introducing advances in technology. I believe this should be a key component of GE’s overall growth strategy because the only thing to keep a company’s growth from leveling off is to make sure its portfolio of products and services do not mature. Once a product reaches maturity, it is difficult to extract growth from it.
Jeff Immelt’s idea of expanding its service offerings to its infrastructure products is a great way to drive growth. This idea allows GE to extract revenues from the entire value chain of their products. Previously, GE infrastructure customers would have to turn to other businesses to service their products. The benefit of GE providing these services as opposed to other service providers is that GE can provide additional expertise. The advantage for GE is that these types of services offer greater margins.
Immelt also decided to overlay his own personality and expertise on top of GE’s culture of engineers and finance by instituting an initiative of commercial excellence. This would give GE a greater level of balance between the technical world and the consumer world.
Realizing the great growth potential of globalization, Jeff Immelt believed that the continuation of GE’s ability to expand globally could lead to even greater growth potential. This expansion includes sourcing and developing access to new markets. Immelt wanted to find opportunity in areas that are underexploited.
Jeff Immelt also placed a great deal of emphasis on growth platforms. Growth platforms are business initiatives that would help propel innovation and help GE become the first to enter new market segments and capitalize on emerging trends. Immelt instituted several venues for identifying growth platforms including requiring a presentation of three growth platform ideas per manager every year. I believe this was a great move because people closer to the information are generally the people who have the most intimate level of knowledge and therefore insight into a particular issue. Farming ideas from people with a more detailed and experienced level of insight leads to ideas that are more likely to succeed.
The one area that I believe Immelt should, and was right to, keep in place, is GE’s commitment to process efficiency, especially through practices such a Six Sigma. Immelt realized that the best way to fund his new initiatives, especially in the economic climate GE faced, was through savings in process improvements. Immelt was able to identify new areas where Six Sigma could be implemented. One such area the Six Sigma experts at GE worked on was called “cash entitlement”. This focused on improving a number of areas such as inventory turn and days in receivable to levels that were twice as good as the industry standards. Immelt believed this could lead to an additional $7 Billion in cash.
Immelt also introduced Lean Six Sigma. This initiative reduced working capital and increased return on investment in industrial business. In commercial finance, Lean Six Sigma increased margin, aided in risk management, and reduced costs.
Immelt also introduced the concept of “simplification” where related business segments would share assets, and physical assets such as buildings were consolidated. Overall, Immelt wanted to see $3 Billion in reduced costs over a three year period.
In a business who’s scope is as large as GE’s is, maintaining the utmost levels of process efficiency and cost reduction one of the main ways to make sure each business segment stays on task. GE’s product portfolio ranges so greatly that it must be very difficult to keep them from operating as separate little businesses. According to Immelt, GE isn’t a conglomerate, it is a “company of diverse benefits whose sum is truly greater than the parts.” The success of Immelt’s new strategy hinged on keeping one of the major aspects of GE’s ascension in the 80’s and 90’s, getting the most out of every resource and finding the best way to do everything.
