OPERATIONS

How GE Applies Lean Startup

Practices
by Brad Power
APRIL 23, 2014

We are all lean now or soon will be. As the world becomes more digitized, generating more
information surrounding products and services and speeding up processes, large and small
companies in every industry, even manufacturing, are starting to compete more like the software
industry, with short product lifecycles and rapid decision-making.

GE has responded to this drive for speed and need to align more closely with customers needs by
using a new technique called FastWorks. Its a framework for entrepreneurs, building on The
Lean Startup by Eric Ries. The Lean Startup is an approach to developing new products that came
out of Agile software development, with sprints (quick deliverables) and fast learning. Its now
being tried in manufacturing since GE and others believe that rapid learning cycles with customers
will reduce the risk that you build something you cantsell.

There is a lot at stake here for GEs operations strategy. As I wrote in a previous post, GE Appliances
is on a journey to prove that it can bring manufacturing back to the U.S. and compete successfully. In
2008, GE corporate decided to invest $1 billion in the $5.6 billion manufacturer of kitchen, laundry,
and home appliances, and transform everything launching 11 new product platforms, building or
revamping 6 plants, and hiring 3,000 new workers.

GE Appliances rst attempt to apply FastWorks has been to create a refrigerator with French doors
(doors that open from the middle) for their high end Monogram line. In January 2013, Chip
Blankenship, CEO of GE Appliances issued a challenge to the newly formed team: Youre going to

change every part the customer sees. You wont have a lot of money. There will be a very small team.
There will be a working product in 3 months. And you will have a production product in 11 or 12
months.

The cross-functional team was thrown into a room together. They became a tight group as they went
down to the factory oor and built products together and looked at market research together.

Instead of the traditional approach in which salespeople give design requirements and then leave,
customers would be involved throughout. Having the team hear customer feedback rsthand was a
big change, especially for the engineers. At their training center in Louisville, they bounced ideas
and product prototypes o of retail salespeople who came to learn about GEs products. They also
went to Monogram design centers in New York and Chicago to test products with designers who
were visiting to get specications and information about products for their clients.

The feedback was hard for the engineers to hear, but it made a huge impact on them. In January
2013 the team came out with a minimum viable product. They put it out in front of customers,
and the customers didnt like it. The rst feedback they got was that the stainless steel was too
dark. So they made it a lighter shade of silver. Then the lighting tested poorly. They revised it and
tested it again. They cycled through several product iterations. By August they had version 5, and
customers started to like it. They built 75 of version 6 in January 2014 and response so far has been
positive. Theyre now working on version 8, which they will produce in October, and version 10,
with better lighting, and there is a design projected for 2015. They intend to launch new products
every year.

Historically, GE revised products every ve years, and they would have kept their new products
under wraps. But as Kevin Nolan, vice president of technology, said, With FastWorks were learning
that speed is our competitive advantage. How do we become much more open and collaborative
with the customer base? You cant do that if you want to be secretive.

To make FastWorks work, changes have been made in several areas, including supplier relations,
nance, and roles and responsibilities:

Supplier relations. The new product team knew they needed to engage their suppliers sooner in the
product development process, and also in a more continuously ongoing way. At the end of January
2013, they went to the factory to explain what they were trying to do, and their suppliers were in
the room. The suppliers, not surprisingly, were grateful to be asked to be involved, and have
provided more exibility in the development process.

Finance. Vic Roos, Lead Purchasing Program Manager, explained, We let a nance guy in the room.
He helped us challenge the big company mentality. At times we moved much faster than the
company would normally allow. At times it drove the materials manager crazy. David Schoeld,
Design Manager Refrigeration, said, Typically we needed to have a one- or two-year payback.
That model doesnt work when youre moving fast and when you dont know what the customer will
like. And its hard to put a dollar value on that learning. When we rst put up our nancial numbers,
they looked bad. For this year, were not going to worry about the product and program costs in
calculating the payback. It took a lot of pressure o the team so they could focus on execution and
not on cost. Traditional nancial systems are risk mitigation tools, and there is typically no
weighting on speed. These systems often dont calculate how much money is wasted because you
dont get products in front of customers soon enough, or the risk of going out of business.

Leadership roles andresponsibilities. Vic Roos explained, You need to invert the pyramid. There
were times when we were moving so fast that people outside our team were concerned. There was a
group that was having trouble moving as fast as we wanted. The CEO came to a meeting, and that
wall was knocked down. I always felt that we were not put out on an island, the organization worked
around and supported us. Dave Schoeld, The leaders also gave us more autonomy. Normally we
would have had to get approval for pivots. They gave us the autonomy to make those decisions
ourselves.

The results GE Appliance has achieved so far are striking: half the program cost, twice the program
speed, and currently selling over two times the normal sales rate.

Todd Waterman, GEs corporate Lean leader, is leveraging GE Appliances insights with other GE
units. For example, they recently hosted 70-80 young GE high potentials at GE Appliances. And GE
appears to be placing a big bet on FastWorks. According to their 2013 Year-in-Review, in the rst
year, Ries trained 80 coaches exclusively dedicated to FastWorks. Together they introduced almost

1,000 GE executives to Lean Startup principles. GE also launched more than 100 FastWorks projects
globally. They range from building disruptive healthcare solutions to designing new gas turbines;
they also extend to non-manufacturing disciplines across the business. GE plans to expand the
program to 5,000 executives and launch hundreds of new projects this year. GE is an ideal
laboratory for applying Lean practices because of its scale, Ries says. This is undoubtedly the
largest deployment of Lean Startup ideas in the world.

Brad Power is a consultant who helps organizations that must make faster changes to their products,
services, and systems in order to compete with start-ups and leading software companies.

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William Miller

a year ago

Spanning decades, there is a history of the application of spiral processes in innovation management. GEs FastWorks
is an adaptation of much earlier applications of a spiral process to support lean innovation.
Since 1900, there have four generations of innovation management to emerge as best practice. The fourth generation
(4G) of innovation management began to be recognized as best practice since 2000. 4G has twelve principles that

support innovation such as the creation of a Chief Innovation Ofcer.

4Gs principle #6 supports faster, leaner innovation with a nested combination of iterative spiral processes.
Customers need to experience and test the value of a radical innovation that is new to the world by actually using the
innovation in real world applications before they can realistically understand and appreciate any need for it and
accurately evaluate its value. That requirement for a potential customer to test a radical innovation by using it is the
reason that traditional market research fails to discover unmet needs for a radical innovation by using methods such
as the Voice of the Customer (VOC) or focus groups.
In the late 1970s and 1980s, Motorola used 4G principles including an iterative spiral process to accurately see and
serve the emerging phone market . AT&T in the 1980s and 1990s never accurately forecasted the size the market
because they relied on traditional market research . The failure led to AT&T being acquired by SBC in 2005. Apple
used 4G principles including an iterative spiral process to see the market for smart phones and then capture and
establish a leading dominant position.
Part 1 of 4Gs Principle #6 says - Manage innovation with a new nonlinear model with parallel paths for discovery and
development. Driving mutual learning at customers and suppliers inside the paths is an iterative spiral process of
customer and supplier capability development based on experiments that test the value of the capabilities to satisfy
both customer and supplier needs. The paths (1) reveal customer and supplier needs, business opportunities for
suppliers and the requirements for new capabilities at customers and suppliers, (2) develop and acquire new
capabilities at suppliers to server customer needs, (3) test business models for suppliers, and (4) reveal and test an
industry structure with a value chain and new types of market channels that connect customer with suppliers.
Part 2 of 4Gs Principle #6 says - Manage an ABC pipeline of projects for capability and architecture development in
which A capabilities are applied now, B are in development to be added next year, and C are being researched
to then be selected for development next year. Architecture determines the modularity of products/services and how
capabilities are combined and linked with processes to form services, projects, organizations, business models, the
applications of products/services, and industry/market structures such as supply chains and distribution channels.
The 4G iterative spiral process for capability development (SPCD) forms the core of a 4G innovation process, which
has several steps that discover problems and their root causes and then develop and validate a solution which
includes a business model for suppliers based on acquired new capabilities (people with knowledge, tools,
technology and processes) .
Management methods for decades have used an iterative spiral process as GEs FastWorks has recently promoted.
The history of spiral process applications include:
(1) Beginning the mid-1990s, discovery-driven planning (DDP) was developed with an iterative spiral process top test
assumptions related to markets and a suppliers business model. R&D with any required technology was assumed to
have already been completed. An adaptation of DDP is an integral part of the 4G spiral process when projects have
high uncertainty as the typical situation in most radical innovations.
Reference - McGrath, R. and MacMillan, I. The Entrepreneurial Mindset: Strategies for Continuously Creating
Opportunity in an Age of Uncertainty. Harvard Business School Press, Boston, MA, 2000
(2) John Boyds OODA loop
http://en.wikipedia.org/wiki/OODA_Loop
(3) In a 1986 paper while he was a professor in software engineering at USC, Barry Boehm described a breakthrough
spiral model for software development because user requirements are frequently not adequately known until a
prototype is demonstrated and therefore requirements cannot be accurately determined without an iterative
process. http://en.wikipedia.org/wiki/Spiral_model
(4) In 1995, Nonaka and Takeuchi described an adaptation of the spiral model for knowledge management that
describes an iterative spiral process for learning that integrates the development of both explicit and tacit
knowledge for individuals and groups. The model has four phases in the process Socialization (learning from shared
experiences such as apprenticeship which transfer tacit knowledge by a tutor in a demonstration) , Externalization

(learning by communicating verbal or written concepts by analyzing and expressing the tacit knowledge gained from
experience) , Combination (discussing and integrating concepts such as building prototypes to test in experiments) ,
and Internalization (learning by doing in a personal experience) and is commonly called the SECI model.
http://www.12manage.com/methods_nonaka_seci.html
(5) Since 2012, Steve Blank, an adjunct professor at the Stanford School of Engineering and the U.C. Berkeley Haas
School of Business has described a Lean Start-up Model (LSM) that is becoming best practice in entrepreneurship.
Blank applied an iterative spiral process for discovery of customer needs and development of a business model to
serve those needs assuming R&D has been completed for the required technology and the spiral process can then be
supported with concurrent agile prototyping of products and services.
http://steveblank.com/
Blank described an iterative process - based on his experience as an entrepreneur - for market and business
development that replaces the old linear waterfall process for business, product/service and market development
in start-ups in which development was guided from launch with a largely unchanged business plan. The LSMs
iterative process for customer and business development is similar to the 4G iterative spiral process for capability
development (SPCD). The customer development iterative process in LSM discovers customers with a problem and
validates a solution by testing a minimally viable product/service and making required changes in a business model.
The points in time when the business plan is changed based on experiments that produce negative feedback from
customers are called pivot points.
10

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