To make sure it stays that way, CEO Jeff Immelt has developed a unique strategy: bring employees and customers together to dream up the future.
The more things change, the more they look the same. In December 1981, when Jack Welch became chief executive office of GE, he found the company healthy, but in his view also dangerously complacent and bureaucratic. Twelve layers of hierarchy separated the boardroom from production. Welch, a chemical engineer, also soon identified a number of business units that made GE bigger, but would not contribute to its competitive survival long term. Welch started a cultural revolution. He sold unprofitable units, cut out several layers of management, laid off every fourth employee, expanded profitable divisions, acquired and integrated many new companies – and turned GE into one of the most valuable corporations in the world. In the two decades of Jack Welch's reign, GE's market valuation more than tripled.
In September 2001, when Jeff Immelt took charge as the new CEO of GE, the company was in the prime of health, but in his view lacking key drivers for growth. The product spectrum of the world's largest conglomerate ranged from light bulbs, home appliances, and financial services to power plants, aircraft engines, plastics, medical devices, and information technology products. The team around the new CEO had a wealth of experience, talent, motivation, and success – but no imagination. As Immelt, a mathematician by education, saw it, what GE needed most was an infusion of creative energy and a vision for the future. He began by reorganizing the company – initially into eleven business units, then six. "GE has to become more innovative," Immelt proclaimed – and started a cultural revolution.
While that may sound like rhetoric typical of any new manager at the top, the reality is that Immelt's change process has taken hold. It is intended to ensure that twenty years from now GE is still "the world's most admired company" as US business magazine Fortune wrote last year. Unlike his predecessor, Immelt is after more than just growth by acquisition. His vision: growth fueled by the power of ideas. He calls it a venture culture, and he means it literally: GE should venture into new and unfamiliar areas and markets. While continuing to run the core business successfully, GE's prime directive now is to create something new that will enable the company to grow two to three times faster than global GDP. Jeff Immelt wants to position GE to profit from the megatrends of the future. To do so, he needs people with experience and ambition. But even more, he needs people with imagination and a spirit of adventure.
It must have started sometime in 2003 – looking back now, no one can say exactly when it began. But having kicked off initial restructuring measures and sorted out the divisions, the top team around Immelt started looking more intently at the question of GE's future and how it would grow. The company was successful, but was it equipped for the future? The bulk of GE's revenue streams were coming from the Group's traditional strongholds: would the same old divisions still be GE's top sales engines in ten to fifteen years?
Nani Beccalli, President and CEO of GE International, has been with the Group long enough to at least be skeptical: "In the 1980s and 1990s, some of our businesses were able to grow almost effortlessly. And if you're the undisputed Number One in an industry," he says today, "you're probably not constantly thinking about how to find new customers." Back in 2003, he and his colleagues were of one mind: without a fresh approach, GE would run the risk of losing its top ranking internationally. The world is changing rapidly, shaking up the criteria for success for every company. What had made GE great under Jack Welch would not be enough to satisfy the requirements of the future. So much was certain. But everything else at that point was unclear.
Along with Immelt and Beccalli, a small group made up of the heads of some of GE’s 36 businesses began talking about issues that could become more important in the future – and identified four trends that GE would have to grapple with. The world's aging societies will need new healthcare services and new efforts to prevent disease. The classic sources of energy, oil and gas, will have to be used more efficiently. Water will become one of the most important and rarest of resources. And the need for security will grow – in every respect.
These megatrends crystallized relatively quickly. What followed was a process that would need time, but one that should make GE more innovative, bring it closer to the market, and make it more competitive. And one that has continued to push many executives to the limits of their performance. Jeff Immelt broke with iron-clad traditions. The hallmarks of GE management had been discipline and process optimization; the watchwords for the new millennium were imagination and entrepreneurship. The change in direction was dramatic – and driven forward by a few key people.
Beth Comstock, formerly Chief Marketing Officer, is one of them. Now president of Digital Media and Market Development in the NBC-Universal division at GE, Comstock, 45, describes herself as a "little bit crazy and quirky." Jeff Immelt promoted the PR expert to CMO, a position that hadn't existed at GE previously. In her new function, Comstock was the first to attempt to build an overview to come to grips with the changing environment. Recognizing that a fresh perspective from outside GE could help, Comstock called in a group of anthropologists to study GE's corporate culture. Their report praised the work ethic prevailing at GE, but gave the company poor marks for the clear lack of "exciting projects" – compared with the wealth of ideas that Thomas Edison had brought to the company he had co-founded in 1892.
Ideas Sought – And Found
Comstock tried to learn what made other corporations successful and analyzed the innovation processes at companies such as Procter & Gamble and Fedex. And she arranged a number of new experiences for her team. In seminars, she confronted GE managers with futurologists, designers, and representatives from Play Inc., a small "creative consulting company" based in Richmond, Virginia. "Big companies drown in bureaucratic processes," Play CEO Andy Stefanovich says, whose business card has the direction-setting title: "In charge of what's next." In the end, Nani Beccalli recalls, Comstock connected the dots and came up with a great idea, and he smiles as he tells the story. From his Brussels office at Rond Point Schuman, he can reach the major European institutions in minutes. "Institutions like the European Commission will be more and more important in the world of tomorrow," he reflects. "The same is true of a number of regions and issues that GE did not pay much attention to in the past."
Having talked to a huge number of people in various fields and recognizing how important thrift and efficiency were to them, also regarding environmental protection, Comstock set out in search of such products at GE – and found a number that – though not originally intended for the purpose – turned out to be better than anything competitors had to offer in the specific industries: a light bulb that saves energy, plastic that emits no toxic gases when burned, aircraft engines that were more fuel efficient with lower emissions, and much more. This discovery was like a catalyst, Beccalli says. It showed that the businesses of the future were indeed there, along with plenty of potential for innovation, provided GE succeeded in getting people to switch from the old ways to a new way of looking at the world.
Ecology + Technology + Imagination = Business Idea
GE christened the new business area that emerged "ecomagination," to reflect the combination of ecology and imagination. Ecomagination rapidly caught on, and the term is now more than the name of a campaign: it has become synonymous with the transformation occurring at GE. Ecomagination was an immediate hit: GE's focused entry into the water business and solar and wind power are direct consequences of the idea, as is the development of new substances to increase efficiency in energy generation and consumption, cleaner and more efficient transportation, and new materials that save resources.
Within the first year, the list of new "green" products expanded from 17 to around 30 today, and order volume for ecomagination products shot up from USD 9 billion to USD 17 billion in the same period. Ecomagination also provided the impetus for GE's announcement that it intends to reduce the intensity of the Group's greenhouse gas emissions by 30 percent by 2008. By 2010, GE therefore wants to double its budget for research and development into green technologies to USD 1.5 billion annually. By then GE, hitherto known among environmentalists mainly for its power plants, aircraft engines, and diesel locomotives, wants its businesses in wind energy, water treatment, and environmentally friendly turbines alone to generate revenues of USD 20 billion – twice as much as in 2004.
Is it as easy as all that? A little internal and external research, a punchy name for a compelling idea and – presto – the aging company is transformed into a modern young innovator?
Nothing about it was easy. But change isn't possible until one recognizes the cause of a problem. If there is one thing the people driving the change at GE are certain of, it is that the company's years of success had put it on the road to inertia. Instead of reinventing itself and using its strengths to develop new businesses and products, GE had been pursuing an acquisition strategy. With each new purchase, it bought more innovative resources – yet, over time, began to lose the ability to tap into its own powers of research and development. Colin Sabol, Chief Marketing Officer at GE’s water division, recalls that when Jeff Immelt took over as CEO in 2001, he was regularly sent a list of the potential acquisition targets GE was tracking. "But there was no comparable list of opportunities for organic growth."
Today, Nani Beccalli describes that as "too little room for the free play of ideas," and puts the goal in words: "We want to institutionalize a permanent process that breaks with old habits and encourages our employees to try out ideas at the margin." Jeff Immelt, whom observers described as diplomatic and charismatic, is spearheading this movement and regularly initiates events within GE aimed at coming up with ideas for new businesses.
The events are called "dreaming sessions," and the name encapsulates the program. Launched in mid-2004 and lasting one day or several, the dreaming sessions bring employees together with external experts and GE's most important
customers for brainstorming, discussion, and dreaming up the products of the future. Immelt frames the assignment this way: "If you had a couple of hundred million dollars in GE research funding, what area would you invest in?" This question typically generates many answers – some only as keywords, some as nebulous ideas, some as little more than an inkling. And some of them hit the bull's eye.
Direction-Setting Questions – And Lucrative Answers
There had been no lack of conferences with customers, government officials, and experts from NGOs in the past, of course, but they were not so fruitful. Lorraine Bolsinger, head of ecomagination, says her experience was that meetings with customers usually focused on problems that both sides had been wrestling with for some time. The small-group discussions typically revolved around specific issues such as deliveries, prices, or quality. In larger groups, customers worry about revealing internal information that could give the competition an edge, while politicians are wary about publicly commenting on controversial topics. And every group, no matter how professional, is familiar with the classic idea killers. Hence, GE's dreaming sessions were given three ground rules: No shooting down of suggestions, no matter what the objection is. No questions about implementation. And: people from GE should spend most of their time listening.
One topic that dominates the dream sessions is, of course, technology, but the questions are very fundamental: How do we imagine the future? What do we want it to be like? What's missing? Bolsinger explains that, to spark discussion and build trust, GE role-models the kind of openness it would like to see – for example, by presenting "the latest findings from our research labs." Bolsinger recalls a dream session with an important customer in the US energy industry at which GE executives presented their plans for a new coal gasification turbine, an innovation that significantly reduces CO2 emissions from coal-fired electric power plants. Jim Rogers, CEO of the US energy group Cinergy, which recently merged with Duke Energy, hailed the invention as pathbreaking and publicly lauded GE's "visionary leadership."
Every good idea that emerges from the dream sessions is turned into a project. And there are a lot of them, many of which become "Imagination Breakthroughs," i.e., projects designed to help innovative ideas complete the journey from creative idea to commercial success. To qualify, the new idea needs to show evidence of being able to generate revenues of USD 100 million within three to five years. In the past two years, around a hundred of these projects have been set up across a wide range of businesses. For example, the transportation division is working on a more efficient aircraft engine; orders for 600 have already been booked. The water division is developing low-cost membrane filters for desalinization of sea water. Another team is working on a "hybrid locomotive," which will be powered by a diesel-electric motor, much like a hybrid car. The energy released with braking can be stored and used for propulsion, so that the locomotive uses 15 percent less fuel than the predecessor model.
Once an innovative project gets the green light, it also gets plenty of funding and management attention. The unit behind the idea assigns responsibility for bringing the project's business plan to fruition to a management team, which also gets a discrete budget and direct access to the best engineers and scientists at GE's four international research centers. "We turn the projects into companies within the company," GE Water CMO Colin Sabol explains. "That boosts their chances of success." It also boosts the pressure on the project to succeed: the project teams report to the board every six months on their revenues, competitors, and forecasts. Chairman and CEO Immelt personally reviews a handful of projects every month.
Since around 70 percent of the new business ideas meet the Group's high expectations, GE intends to increase the number of Imagination Breakthrough projects. Having more than proved its merit, the basic approach for the joint GE/customer dream sessions is now being rolled out as a "creativity drive" to the organization as a whole. For example, a few months ago, GE organized a "Megatrends 2015" event at its research center in New York, bringing together 75 engineers, scientists, and marketing experts to speculate for a day about "the next big thing." The conference organizers primed the pump for discussion by contributing the results of a worldwide survey of GE's researchers on the topic of demographics. Plenary discussions with futurologists, such as James Canton, the founder of the Institute for Global Future, and work in small breakout groups generated a list of critical trends, which an illustrator circulating among the teams attempted to capture in brightly colored drawings. In the evening, the researchers distilled their ideas into five major topics – aging, food safety, waste management, mega-cities, and disaster management. One of the five will be selected for GE to pursue as a top priority, but precisely which one remains under wraps.
The resoundingly positive response to the Megatrends 2015 event has provided further impetus to continue expanding the search for ideas and projects. Nani Beccalli mentions a similar event held a few weeks ago along the now-familiar lines: Jeff Immelt invited a group of around 150 internal managers and about 50 external guests, including government ministers, consultants, and customers, to Delhi for three days to learn, discuss, and imagine the future. Ideation and dream sessions are meanwhile being held by every GE subsidiary. GE works with various future institutes, which typically scan around 80 publications for trends and ideas for possible innovations. Justin Luber, GE's Corporate Market Research Leader, features many of them in his electronic newsletter "Emerging Trends," which he started last year and publishes every quarter. No idea is too odd for Group-wide consideration. One recent headline in GE's electronic idea dissemination tool asked readers to ponder the question: "Could compost piles be the next microwave?"
Here, too, Nani Beccalli remains realistic. The dream offensive will not transform GE into a new company. But it is liberating something that was long buried – and that he believes GE urgently needs: "People who have the courage to make difficult and risky decisions and who are willing to shoulder responsibility for others and for the environment. And who are very motivated to meet the expectations of their bosses – but only when it really makes sense for the customer and the company."
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