GE’S DIGITAL TRANSFORMATION UNDER JEFFREY IMMELT

1. THE TRANSFORMATION PROCESS

General Electric (GE) was a multination, industrial behemoth of a conglomerate with business
in a diverse range of sectors ranging from aviation to financial services, with a footprint in 180
countries. Jeffrey Immelt took charge as CEO in 2001 and led the organization of 300,000
people through 6000 days, encompassing recessions, bubbles, geopolitical risks, new
competitors, and new business models. When he stepped down in 2017, GE not only
persevered, but rather

He pursued a strategy that drove GE to become a more service and customer-oriented

organization. In 2003, he appointed Beth Comstock as the first chief marketing officer (in 20
years) and together created a new marketing function for GE. Immelt also started a new
Leadership Program within the organization that came to be known as Executive Commercial
Leadership Program. He headed the Commercial Council to bring together the sales and
marketing leaders from across the GE businesses for the transfer of best practices within the
organization. Immelt’s idea was to play on GE’s strength (i.e. industrial side) and leverage
opportunities. Under Immelt, GE exited from the businesses that did not fit its portfolio; for
e.g. GE Plastics, insurance and few financial services businesses as well. While he focused on
the core businesses and grew them through acquisitions. During his leadership, service
business continued to grow and Immelt drove its team to focus on Contract Service
Agreements (CSA). CSAs marked the shift from traditional break/fix model to a more flexible
service package. (Refer Exhibit1, for evolution of GE’s service model).i CSAs offered total
operation management of an asset and were designed to meet specific customer needs.
Through CSA, GE offered a solution wherein it would reduce the total cost of ownership thus
sharing risk with its customers. This continued until 2013, when GE reported a backlog of $223
billion and CSAs accounted for 3/4th of GE’s total backlog and had 75% contribution towards
industrial earnings. CSA thus evolved into a long-term and recurring revenue stream for GE.
Immelt had the vision of building an Industrial Internet. He believed that the massive installed
base of GE, its core hardware and years of industry experience gave GE an advantage over its
competitors. By 2011, GE’s capabilities reached a level wherein they had assets with
embedded software, sensors and microprocessors running across various industrial sectors
like power plants, hospitals, utilities, oil rigs, rails, jet engines etc. This meant that GE had
access to huge industrial data sets wherein they also have the experience of operating these
assets from a long time. They believed that analytic solutions that could be built on the
backbone of these data sets could significantly enhance their customer’s business. Under
Industrial Internet initiative, GE aimed at using this enormous data sets at an aggregate level
to create value for its customers. With the scale and scope of the industrial internet
opportunity becoming clearer, Immelt knew that GE would need a Global Software Centre
and a driven leader. For this, he appointed Bill Ruh. With customer needs rapidly changing,
he looked for the gaps in the existing GE system. He focused on building a team of software
developers and then a common language for these software experts to communicate. He led
his team towards building a cloud to which services and capabilities can be moved. Getting to
a common platform seemed to be the next big challenge for Immelt and Ruh. Ruh had the
vision of creating a platform wherein they can integrate the new offerings across GE and its
various customers in a very coherent, simple and intelligent manner. The idea was to let
individual business unit of GE maintain their existing platform while they would develop an
underlying platform, that would host the entire ecosystem of GE’s ongoing software services.
Since, GE operated across wide variety of industries, with this common platform they wanted
to offer a unified user interface to its customer while being in a position to meet their varied
data and analytics needs. While working on this goal, Ruh and his team came with a unique
portfolio analysis process called tenX that enabled the industrial business of GE identify the
untapped opportunities. It helped them evaluate their portfolios, identify upcoming
opportunities and figure out if they these businesses that right software resources. It also
helped businesses identify the areas where they had the scope of creating greater value for
their customers.

It was in November 2012, GE software came up their first set of solutions under the brand
name of Predictivity. With this, GE offered a common set of data and analytic solutions to its
customers present across diverse industries. Predicitivity offered asset optimization and
operations optimization solution that ran on its common software platform called Predix. By
combining industrial equipment, software and internet-linked sensors on a global network, it
offered real-time and predictive solutions to its customers by monitoring their performance.
The Predictivity platform enabled GE to connect their equipment, devices, machines, people
and existing systems onto a single cloud platform through which industry wide analytics could
be run to deliver real-time operational insights, enabling better operational control. Predix
provided outcomes-based services to its customers.

With GE software’s team working to revamp and modernize their system, they realized that
keeping the underlying architecture and platform same for their businesses and adding a layer
of customized software to each business line was the way forward. They knew with machines
getting connected and becoming more intelligent, they would deliver better outcomes to
their customers. To further commercialize their offering, Ruh followed a mixed-model
approach. The products representing legacy offerings stayed with the business unit. They
were given right support by helping these units hire the right talent, manage their
infrastructure and create shared services. These software developers worked with GE
software’s team but reported back to their respective business units. In other case, Ruh’s
team would hire and manage the talent themselves.

How the sales process at GE evolved?

With Predix, it was not about GE offering a product or service rather it was about GE offering
business outcome to their customers and therefore it wasn’t just about sales. Predix was
about involving with the customer for the whole life cycle right from invention until
fulfillment. It was about marketing, sales, product management, commercial operational as
wells as delivery. The entire sales process at GE was revamped. As a part of the pre-sales
offering Solution Architecture came into picture. It involved working closely with your target
customers, digging deep into how they make money, identify gaps in their operations and
passing on the information to sales team. The sales team would then knit together the
capabilities at GE by combining hardware, software and services and build a customized
offering for the customer. The team would usually work by bringing all the aspects of product
management, product marketing, account management and sales into one coherent picture.
The shape of the deals at GE also changed. Instead of listing features along with their prices
and discounts being offered, the deals were now based on the value that customer would
derive from their Predix offering. The sales team at GE now worked on convincing the
customers that their integrated software was well equipped to reduce their risk and would
deliver guaranteed performance outcomes.

Evolving Ecosystem:
Since GE operated across varied industrial sectors, with each of them in a different state of
maturity and different legacy issues, they faced certain limitations with respect to the
readiness for Industrial Internet benefits. In a quest to develop their Predix ecosystem further
GE partnered with various players. It entered into a 50-50 Joint Venture with Microsoft in
2012 to form Caradigm. With Caradigm, the two players got involved in developing software
for healthcare sector. GE and Accenture formed a JV that came to be known as Taleris. It
developed and software and analytics solution for managing an entire airline. These joint
ventures helped GE in the sense that it dramatically increased their speed of development
and further helped them reduce the time to market. For the growth of its ecosystem, GE also
relied on the support of companies like Intel, Amazon Web Services and Cisco etc. To support
internal R&D efforts, GE also looked for crowdsourcing the innovation opportunities.

The scale and scope of the industrial internet attracted various competitors. Players like
Philips, Siemens, Honeywell and IBM were seen making similar investments in their R&D.
Many players took the route of acquisitions while Google and IBM posed greater threats for
GE due to their expertise in big data and deep analytics. These companies were more flexible
because their focus was entirely on software development and operated on asset light model.
Apart from lingering competition, another challenge that GE faced was with respect to
commitment from various business units. With customers need undergoing rapid changes,
GE faced a greater challenge as to how fast the company could be moved and how will each
business unit keep up with this pace.

2. TAKEAWAYS ON IMPLEMENTATION
The backdrop of Leadership Choices: GE was a classic conglomerate at the time Jeff Immelt
took charge; present in a diverse range of industrial sectors, facing new non-traditional
competitors that were threatening to take away their long standing customers. IBM, SAP and
Big Data startups had begun to offer analytics and services on GE assets. This was a time of
global economic uncertainty, and declining GE hardware sales. GE was a firm that was
comfortable selling big iron, capital goods that could be shipped in boxes (any software
included was a give-away with the hardware), through purchase and contract service
agreements. This business model was under threat from new-age tech-enabled players who
could add technology stacks to physical assets for higher operational monitoring and
performance calibration and capture more of the value than the assets GE sold to customers
than GE themselves, at much lower marginal cost. At the same time, GE had their strengths;
their scale and scope encompassed billions of equipment and devices in operation across the
globe – from aviation to healthcare – each with local condition monitoring software
capabilities. In this environment of declining focus on hardware CapEx and more on asset’s
performance and OpEx, Immelt and team began pursuing a more service and customer
oriented organization, and service agreements grew to 75% of earnings.

GE’s assets had embedded sensors and software, and collected massive amounts of data per
machine. In a deflationary environment with focus on productivity, the ask amongst GE’s
customers often was about availability, reliability and performance. Here Immelt saw a
window of opportunity, which was to capitalize on their strengths and meet the new
competition chipping away at the fringes of their competitors by aggregating the data –
globally and temporally – to optimize operational performance of the assets. They could bring
all of GE’s assets onto a single cloud-connected, contextual, hyper efficient platform. This
culminated with a new organization-wide focus on Industrial Internet (pegged to be a $1.3
trillion market by 2020) and choosing to morph into a focused conglomerate with a set of
diverse but synchronous service-oriented businesses that saw their traditional businesses in
a new light. The fundamental change was a new business model, where GE would sell
software-enabled, outcomes-contingent offerings. Software and analytics would be at the
core of this business model, which would be coupled with deep expertise and familiarity with
each customer and their sector, their asset manufacturing capabilities, their massive installed
based, and drive long-term engagements with customers. This also meant that they had to
get customers, who were used to buying machines, to be more outcomes oriented.

DRIVING BUSINESS MODEL INNOVATION: IMPLEMENTATION ASPECTS

Once this choice was made, Software as a Service presented a whole set of implementation
challenges. We look at how the implementation was carried out through the 7-S framework:

• Structure – GE combined its foray into Industrial Internet solutions with intense
organizational changes starting in 2013. This included the setup of GE Software under
 Bill Ruh and the new software headquarters. GE Software served as the backbone
during the entire process of developing the Predix platform. It coordinated with and
acted as the glue between businesses, identified common goals and an architecture
that could be common to each business. Interestingly, it did not have a P&L; it was
funded by Immelt and GE Global Research. GE Software also supported intermittent
business needs of each business. Its CFO worked with each business unit’s CFO to map
revenue streams.
Immelt also led organization wide changes such as less administration, shorter cycle
times, decentralized decision making, let people who are deep in the organization and
close to the markets take risks without multiple reviews. The “Global Growth
Organization” group gave local and regional managers significant powers to drive GE’s
growth in emerging markets. The structure was modified to become less hierarchical
and more agile.
OUTCOME: The autonomy, support and insulation given to GE Software allowed it to
focus on long term organizational goals rather than respond to short term bottom-
line pressures. Co-location of the new team of developers avoided the loopholes of
distributed development and allowed close monitoring and cohesion in the team. The
dotted line relationship between CFO of GE Software and other CFOs allowed GE
Software to be cognizant of the revenue mix, business model and goals of each
business early in the development process.
• Systems – There was significant heterogeneity in GE’s technical and commercial
assets; so far each business unit and even product had chosen software based on local
conditions to optimize success without a coordinated strategy. Every product had a
different platform, architecture, technology and vendors. Each business worked in
silos. Only 17 software systems were generating profits, and the time to market was
too high to keep pace with customers’ changing needs. GE identified the need to
coordinate on two fronts: software and customer relationships (mainly selling and
servicing). This began with the establishment of GE Software, whose first mandate
was to design a system that could bring all of GE’s machines onto one platform. This
platform had to be a common language regardless of the diversity of businesses, on
which each of them could build. Immelt decided to let each business keep their
software while designing architecture that could host the ongoing software services,
and a user-interface that was uniform. This common platform was Predix, and
Predictivity was finally the first uniform product that ran across all businesses, and
provided a common set of analytics and data solutions to clients across industries –
running on the Predix platform. GE opened the platform to third party partners and
developers in 2014. GE also came up with the tenX process, a portfolio analysis tool
for its businesses, that helped them choose focus areas where they could provide 10X
value, stay away from incremental change, identify clear metrics, and prioritize
initiatives that would impact future growth the most.

There were also some internal barriers to the Predix implementation. For example,
the accounting treatment of software development in the businesses. Additionally,
the new sales focus on outcomes for the client needed a rehash of their solutions
architecture, including an elaborate presales discovery function and solutions
architects to build an offering from the ground up.
 double R&D investment to $4.8 Billion, refocus as a technology company. Major
investment in new tech capabilities, particularly software. One of the systemic
changes was the launch and implementation of a common technology platform across
GE’s diverse industrial businesses.

OUTCOME: Designing a middleware platform, instead of radically uprooting all

existing platforms, helped meet the purpose of initial back end coordination without
dictating decisions to the SBUs and actually getting new products out to market faster.
This stabilized the transformation process until Predix was actually ready. The tenX
process helped prioritize competing goals with the future in view. The new sales
process helped understand where value can be unlocked for the clients due to the
deep engagement at the presales stage, and the solutions architects’ tailored
solutions allowed GE to pitch their novel outcomes based contracts with confidence.
The sales team had to demonstrate how risk was reduced, revenue/cost was
impacted, and hardware and software were being integrated. Opening the platform
to partners helped further entrench the ecosystem.
• Style – Immelt had a 5-oint approach to the transformation. Be disciplined and
focused. Rewire your brain before starting as a leader. Get the organization to see the
need for change as essential. Be resilient in your transformation plan through tough
times. Listen and act simultaneously. Embrace new talent.
• Staff – Immelt used GE’s councils to get a buy-in for his proposed changes, including
the software council, service council and commercial council. The company went on a
massive spree of hiring of young digerati across the board. Developers with cutting
edge talent, data scientists, sales and marketing representatives were hired
aggressively. Appraisals shifted from annual performance reviews to continuous
development reviews. GE’s growth values were replaced with the more
entrepreneurial and dynamic GE beliefs. When GE Software was set up, Immelt asked
Bill Ruh to head it because of his service-oriented approach (that aligned with the
global strategy) and allowed the firm a start-up environment. While the Predix
initiative was centrally controlled by GE Software, they identified a need to get other
business units on board. This was driven through internal websites and community
building to make “everyone feel a part of GE Software”. Business units were assured
that since GE Software does not have a P&L, it does not compete with them; their
purpose is only to deliver business impact to others. Immelt also set up a commercial
center of excellence as a central function to build sales capabilities and brought in Kate
Johnson as Chief Commercial Officer, in their marketing function.

OUTCOME: The change in staffing, including the hiring, synchronized with the
organizational strategy of moving towards tech-driven growth. The knowledge based
of the collective leapfrogged a generation, and the new tech core helped push the
digital transformation agenda. The entrepreneurial value system and the existential
question was embedded in the organization’s beliefs, and leaders were hired
accordingly. The effort to get a buy-in and onboard various business units eliminated
the sense of competition and focused on collaboration. An interesting development
to have a commercial officer in the marketing function. It highlighted the importance
of the central role of customized commercial contracts in their new outcome based
 model, and early engagement of the commercial team in tailoring solutions for clients
right from presales and proposal stage.

• Skills – The first skill to be addressed in the new business model was developer talent.
GE’s developers had experience only with previous generation technologies and relied
extensively on outside vendors. Extensive hiring of developers coupled with in-house
skill development focused around GE Software helped them take a hold of the cutting
edge. The nature of software development was also changing. Agile and Extreme
Programming were the new models of the time, and while they brought significant
productivity and cycle time benefits, they required new and different skill sets. GE
started this transition with organizations that were already amongst the more agile
ones, could change rapidly, and had the means to do so. This then percolated to the
peers.
Secondly, as GE Software identified opportunities in the outcome-based model, it
became imperative that business units’ sales, delivery and servicing capabilities had
to evolve. The sales approach, that was thus far focused on a line item in the client’s
budget, now had to be focused on diagnosing unique customer problems,
understanding consumption, identifying value, and provocation-based selling. Dealing
with acquisitions was another problem. Many of GE’s acquired capabilities had
defined their competitive positioning in various markets. Clients had to be pacified
that the new platform would not hurt those capabilities but rather build on to it; at
the same time GE had to ensure to integrate those isolated capabilities within their
platform.

Among other initiatives, GE initated FastWorks, their lean startup approach.

OUTCOME: The early investment in in-house software development capabilities

rather than outsourcing was critical to software-based service being at the core of
their new digital business model; since it was their new competitive advantage, the IP
had to be with GE. Using GE Software as a central resource and offering shared
services led to the diffusion of skills across businesses, while a core team focused on
Predix. The decision of beginning the implementation of agile models with the more
dynamic businesses led to peer pressure and a domino effect; instead of reacting
negatively to change, other businesses rushed to adopt the new methodologies once
they saw their peers doing better.

• Strategy - Divest from slow growth, low-tech, non-industrial businesses. From classic
conglomerate to industrial conglomerate. Focus on industrial internet and additive
manufacturing, invest and divest (financial services, media and entertainment,
appliances) accordingly. Due to slow growth in developed markets and the expansion
of emerging markets, GE decided to expand globally. Reduce costs, free up resources
for investment. Additionally, GE tied up and expanded their relationship with tech
giants like Cisco, Accenture, and Intel.

GE’s focus on the Industrial Internet solutions like Predix and Predictivity platforms
meant a fundamental shift in how clients perceive value. Two schools of thought on
business models existed. One was a commercial business model, where Predix would
 be a platform-as-a-service, providing a range of services from remote monitoring and
diagnostics to data management. The other was consumption business models, which
would be focused on outcomes-based solutions, revenue sharing, risk sharing, flexible
service contracts etc. Immelt and GE decided to make it about analytics and
outcomes, not licensing out a software product. Product, price and sales strategies
were aligned accordingly. On the product side, GE’s assets generated tremendous
number of data points; the question was how to market the benefits of analyzing this
data. It could be bundled with their existing service contracts, sold as a separate
service, or given away for free in the next software upgrades. GE realized that bundling
had clear advantages. Their experience with the data could help optimize asset
performance, while giving them insights into consumer painpoints to tailor future
offerings.
Pricing was a big challenge in selling this outcomes-based service. It had to be decided
on a customer-to-customer basis, depended on who was involved in the purchase
decision (CIOs were now increasingly looped in to ensure GE’s software tied-in to their
existing infrastructure), and pain points specific to the customer and the industry.
Parallel to this, sales strategy emerged as a critical factor. Sales teams had to focus
very specifically on customer problems rather than GE’s equipment specifications,
understand what value addition was required, invest presales resources, tailor custom
solutions on the predix platform, and postsales support.

BUILDING CORE CAPABILITIES

We can identify how GE built new core capabilities by looking at the interplay of four
dimensions.

Problems Solving
- Common software platform
- Merging architectures
- Identifying unique client value
propositions
- Divesting unrelated businesses
- Integrating hardware and software
- New contractual relationships

Integrating and Implementing

Importing Knowledge - A diverse set of software products
- External hiring of manpower New Core Capability - A common “language”
(developers, sales) - Advanced analytics and - Sales, commercia, product and pricing
- External hiring at senior management cloud based, real-time, strategies
level contextualised asset - Hardware, sensors, software, data and
optimization solutions the cloud

Experimenting
- Start with the most agile businesses
- TenX portfolio analysis to prioritize
projects for experimenting
- Entrepreneurial, agile, approach to
software development

IMPLEMENTING A DIFFERENTIATION STRATEGY

- Operational excellence
- Customer responsiveness
 - Performance superiority

IMPLEMENTING A DIGITAL TRANSFORMATION (see class framework)

ASCENDING THE VALUE CURVE

i
https://hbr.org/2014/11/digital-ubiquity-how-connections-sensors-and-data-are-revolutionizing-business