What Makes GE SoBy Mel Duval | Posted 2007-06-12 Print
From its embrace of ITIL, its clever balance between centralized and decentralized IT, and its rigorous management training, General Electric's tech team follows best practices. It's won a number of IT awards. And it's helped GE grow into a $163 billion bGood?">
What Makes GE So Good? In keeping with the Fairfield, Conn.-based conglomerate's renown for instituting stringent cost controls over literally everything it does, GE's six business units each with revenue of $16 billion to $47 billion must carefully justify I.T. project spending and track their results.
"They're very aggressive at understanding I.T. costs," offers Dean McMann, a one-time consultant to GE, and CEO at McMann and Ransford, a consulting firm in Sugarland, Texas. "They're not hoodwinked and they don't just look at developmental costs. They factor in training costs, rollout costs and the rest of it so they understand the cost structure much better and much earlier than most of the companies I've worked with."
The Hackett Group's Holland concurs. "GE's business-unit CIOs are all about driving costs out of there," he says. "When they do a justification for a project, there has to be a payback in one year. If you say you are going to save X million dollars with a project, the next year your budget is cut by that amount."
Those I.T. savings, along with other administrative cost reduction efforts, have contributed greatly to GE's long-term record of profitability. GE's net profit margin over the last decade of 10.89% is almost seven times the average of a handful of large conglomerates around the world, including United Technologies in the U.S., Germany's Siemens, and Mitsubishi of Japan. GE's rate of return on equity is more than double that of its peers.
To be sure, the I.T. management strategy supporting this juggernaut of profitability is equally impressive.
The company maintains a balance of centralized data centers and shared I.T. services that provide a backbone of common systems supporting its half-dozen diverse, multibillion-dollar business units. Most business applications, for instance, are run at various central data centers; many of the company's business units tend to have just file and print servers on site.
Help-desk support, some applications development and other non-core business applications are outsourced, with most of the work handled by GE's semi-captive outsourcing unit, Genpact, in India. "GE does a great deal of outsourcing," Holland points out, noting that the company was one of the first to take advantage of low-cost labor overseas for applications support. It was also one of the earliest corporate giants to outsource much of its I.T. service operations to low-cost markets such as India. "GE has been very cognizant of I.T. and other infrastructure costs, and did not want non-core functions to grow their expenses," Holland says.
There are companywide standard systems for general ledger and human resources selected by corporate CIO Gary Reiner, the architect of GE's I.T. infrastructure, but no corporate-standard system for enterprise resource planning in fact, some units, such as GE Real Estate, don't even use ERP.
"Reiner sets what are going to be the corporate systems, but the business-unit CIOs have some leeway for choosing their own business- and industry-specific systems," Holland explains.
Each business unit, as well as each of the unit's operating divisions, has its own CIO who works closely with the unit's general manager to decide the technologies they purchase or custom-build.
GE's I.T. management strategy and the capability with which it is executed is so admired, in fact, that numerous corporations have hired away CIOs who cut their teeth as I.T. leaders at one or more of GE's business units or divisions within those units (see "CIOs on the Move," p. 28).
Additionally, some companies have shaped their own I.T. management philosophy and operations in the image of GE's, in hopes of duplicating its performance.
According to some GE business-unit CIOs, the corporate Goliath achieves this excellence through four key information-technology practices:
Using I.T. to leverage its enterprisewide Lean Six Sigma philosophy while embracing the Information Technology Infrastructure Library (ITIL), a set of standards that GE is using to improve its centralized I.T. processes, which provide services companywide.
Striking a clever balance between centralized and decentralized I.T. management structures and systems frameworks; GE uses this practice to free up its business-unit and division CIOs to focus on projects that harness I.T. to boost their bottom line.
Training I.T. executives alongside their business-executive counterparts, which ensures that GE division CIOs think of themselves as business managers first, and technology leaders second.
Expecting business-unit and division CIOs to serve as change agents for their businesses, instead of caretakers of I.T. systems and processes, resulting in an enterprise that can move more swiftly to capitalize on business opportunities.
Few corporations have the size and breadth of this conglomerate. But for CIOs seeking to achieve I.T. excellence across a diverse organization fielding a variety of products and services, there is much to be learned from a close examination of GE's approach.
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