General Electric Written Analysis of Case PDF

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GE and the Industrial Internet CEO Jeff Immelt considers whether GE is moving fast enough on its new Industrial Internet initiative. This case includes building out an Industrial Internet, connecting machines and devices, collecting their data and operations, and providing services to clients based on analytics of this data and information. It considers the implications of such an initiative across all 6 of GE's business units, and how best and how quickly to execute the strategy. The firm has committed $1b in investment, building out a new software center in California, and a commercial sales function at headquarters to deploy the new products and services. General Electric was founded in 1892 by Thomas Edison, a genius and a world class innovator. With this level of innovation, GE managed to manufacture products ranging from aircraft engines to medical equipment. In 2014, General Electric’s top executives; Jeff Immelt, Beth Comstock, and Bill Ruh are concerned of GE’s new Industrial Internet Initiative. “The Industrial Internet Initiative proposed an open, global network that connected machines, data, and people, and provided data synthesis and analysis allowing for real-time and predictive solutions to optimize the complex operations of GE’s varied customer base.”

Issue: The fundamental question that the executives need to answer- is GE, an industrial manufacturer of machines, ready to sell outcome- based services based

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2 on analytics and software? Given this initiative, is the company moving fast enough or not? GE focus of shifting to the “internet of things” and transforming from a successful manufacture of machines to software requires a major change to their business model and strategy. With many other companies utilizing analytics and data, GE needs to be sure that this initiative will allow the company to dominate in this sector while remaining competitive.

Deciding Factors The executives have three choices for the initiative to pursue; 

GE should develop software capabilities and give them away for free.



GE should license these offerings as separate a product.



GE should embrace the initiative and pursue software and analytics

investments that enabled new, outcome-based service offerings.

Price Volume Matrix The price volume matrix below is adapted from Hayes and Wheelwright (1979) which identifies the standard variety volume mix, which shows how in recent years there is a move towards strategic management approach. Overall, GE have eight different business units which includes Power & Water, Oil & Gas, Energy

Strategic Management Area

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3 Management, Aviation, Healthcare, Transportation, Home & Business Solutions and GE Capital, with constant emphasis on innovation and the volume that it caters it is justified to place GE at high volume and high variety in the above graph in the place of Innovation and Continuous Improvement.

Analysis: It is evident that GE is a differentiator in its industry. Manufacturing various products for many different industries is one that GE dominates in. In addition, using these machines to record real time data and predictive solution in order to improve operational performance is a unique proposition and shows the true innovation of the company. By analyzing the strategic position of the company using the SWOT analysis, we can assess the company’s business model to see if it is a right fit. StrengthsGE’s strength is very strong. The company is financially stable, and it is receiving good amount of revenue on its operations. GE does not have direct competitors in this industry which allows the company to continue innovating while dominating the sector. Some of its customers are benefiting from the connected machines. For instance, improving the airline engine efficiency by 1% resulted in $2 Billion in annual savings. Weaknesses- the executives are not certain about the new initiative. They seem to believe that they are moving faster than their vision. In addition, the company will have to adapt to the changing business model which may take time and might be a challenge. Opportunities- with the new initiative, GE obtained promising agreements from its 6 lines of businesses and will be able to optimize their business performance. Threats- the threat of new market entry such as start-ups can potentially take over in this market. We can conclude that Ali Bin Tahir - 07124

4 performing the SWOT analysis for GE, the company is in a change position and its strength outweighs its weaknesses.

GE's Industrial Internet initiative GEs industrial Internet Initiative was more of a necessity to maintain a competitive advantage over its competitors as CEO mentioned “if they don’t do it, someone else will”. They had a good top management to realize that they faced competition from top players like IBM and SAP, rather than the traditional business.

Advantages of Industrial Internet: 1.

Competitive advantage in terms of the offerings by GE. Rather than a

traditional model of a service they sold more of an outcome-based service which also helped them to increase their contribution margins. 2.

Centralization: GE mostly operated in a decentralized model with different

business units and sometimes it even became difficult to identify the offering of GE. The initiative provided a common platform on which different layers could be build up according to the needs of the different units. 3.

Help in faster delivery: The platform was built upon the premise that it

would only help in the faster delivery of the products rather than dictating the terms of the offerings. It helped them to get out of the legacy mindset of “It can’t be valuable if it’s not hard” 4.

Identifying the Root cause of loss in offerings: The platform helped in

identifying that out of 136 software offerings only 17 were making profit for GE. The main cost incurred was in the development of a platform rather than the application. Ali Bin Tahir - 07124

5 5.

Increase in Revenue: GE could attribute $800 million directly to this

initiative with only one year of launch, and the projections showed over $1 billion in the next year. 6.

Generation of economic value: The initiative was poised to create an

economic value of $14.4 trillion according to experts by 2020. 7.

Customer Relationships: It also leads to the increase in revenues for the

clients by increasing efficiency which also lead to a decline in the costs for them.

Challenges The major challenges faced are listed below. From these we can assess that as the market size was growing and it had a huge potential, the initiative was a great opportunity which GE had capitalized on. 1.

Change in the sales pitch as they were not accustomed to sell software or

platform as a service 2.

Hiring talent in the competitive industry (Software)

3.

Huge cost of deployment initially

4.

Data Privacy and regulations

5.

Creating awareness/ developing an ecosystem The market for the industrial internet is continuously growing. We can say

that industrial internet has already ready to provide intelligent solution to the different business sectors. As per the case study, 50 billion people will be connected to internet by 2020. It indicated great market potential for the GE. The study also showed that industrial internet spending will reach $514 billion. Therefore, from the

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6 perspective of the business and economic growth, it was the right decision for the GE to enter into this market. The biggest advantage for the GE, was their presence in various sectors and high customer base. This presence allowed them to understand how the different sectors work and what kind of functionality is needed in the software to approach the customers. They have an availability of the large data set. Another advantage for them was their presence in the market for the long period of time. This allowed them to understand the importance of the changes in the business, so they could focus on the adaptability of the software over the period.

Short-term and long-term strategy For the next step in the Industrial Initiative GE could do the following:

Short Term: 1.

Leverage its huge presence to increase the awareness which will help

them monetize their offerings in a more efficient way. 2.

They need to hire talent and develop competencies in handling data

privacy related regulations as they vary in different countries. 3.

Phase out approach to implement the offering internally, they need not

force the initiative to any unit rather use training and KPIs to show effectiveness of the Initiative.

Long Term: 1.

Strategic partnerships and JV or acquisitions to acquire expertise in this

software business. IBM with its $1Billion acquisition of Watson was already threatening GE and so was Google which had huge expertise in data analytics. Ali Bin Tahir - 07124

7 2.

Consolidation by entering into partnerships with IBM or Google. GE can

provide valuable data which they don’t have access to, and the tech giants can provide the core competencies in analytics. In the present scenario, each entity of the GE was operating on its own software system as per their need. To remove this heterogeneity, Industrial Internet was the solution. Service sector of the GE is growing with a high pace compare to their product sector. This is an indication of the future business opportunities and therefore the industrial internet initiative will be a next big thing in the business world.

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