GE`s Anti-Recession Weapon

“Bubbles burst and excess ends in an ugly fashion.”

You would expect such a dire statement from a market analyst or economic pundit, especially in light of the news of Bear Stearns’ dramatic collapse and the subprime mortgage crisis. But it’s the opening line written by Jeffrey Immelt, chairman and CEO of General Electric, in his company’s 2007 annual report to investors. And it’s not a melancholy observation of the current deteriorating market conditions, but rather a prelude to an optimistic future. 

Immelt is one of the most admired CEOs , and GE continues to lead all industries in its management style and systems. Even as the domestic economy continues to slip into recession, he reflects in his annual report on the investments GE has made in emerging technologies and markets that will, in his words, enable the company to reach its 2008 financial targets even under challenging conditions.

How can Immelt be so optimistic? In a word, he has faith in his technology and business operations processes.

As one of the world’s largest manufacturers, GE is in the business of selling technology. It produces everything from light bulbs to massive electrical generators, jet aircraft engines and high-resolution medical scanners. It sells products and services to customers in every corner of the globe, and it manages a worldwide supply chain and distribution network. Underlying this massive operation is technology that produces innovations, manages manufacturing, yields business analytics, and enables communications between partners and customers.

“Management and the board spend a significant amount of time defining what makes a great GE business,” Immelt writes. “We invest in leadership businesses that reflect the essential themes mentioned earlier and leverage our key capabilities: brand, technology, content development, globalization, people and financial strength. We like businesses where good management results in superior financial results. We like broadly diversified businesses with multiple ways to grow. We believe that our process skills create a competitive advantage. We like businesses where we can ‘retool’ our strategies to capture new opportunities for profitable growth.”

GE is one of the best examples of a company that leverages technology for both its products and its operations. When the company was founded by Thomas Edison more than a century ago, it was in the business of supplying equipment to factories for powering assembly lines and tool shops. As time passed, GE morphed into a conglomerate that uses information technology as the underpinning of every device and piece of equipment it sells.

*To go deeper on GE, read the Baseline article Does GE Have the Best I.T.?

For its $3 billion annual investment in technology research and development, GE is reaping tremendous rewards. It’s seen a 39 percent increase over the last three years in infrastructure products—wind turbines, engines and locomotives—and $100 billion pipeline in service orders. There’s a lot of technology driving that business: computer-aided design and product lifecycle management software for engineering, ERP for order and supply chain management, financial analytics for reporting, and scores of communications and collaboration applications that link the company’s global workforce of 170,000 employees.

But think beyond the light bulbs and dishwashers. Efficient management and profitable operations rely increasingly on good information management. As Jack Welsh, Immelt’s predecessor once said, “If it can’t be measured, it can’t be managed.” GE goes to great pains to ensure that it captures every micron of data about its operations—from design to manufacturing, marketing, service delivery and, ultimately, customer satisfaction. Nothing moves in GE without having an analytic attached to it. That philosophy is summed up in two words: “operational excellence.”

“We have significantly increased our technical funding and have a rich pipeline of new products coming to the market,” Immelt writes. “We have applied GE process skills, such as Lean Six Sigma, to improve our speed and responsiveness. We are using Net Promoter scores to measure our progress with customers. We have built strong engineering and commercial teams around the world to tap into new growth markets.”

Let’s go back to the economic conditions in which GE is operating.

Bear Stearns recently collapsed and was sold to rival JPMorgan Chase for a fraction of its former value because—in part—it and scores of other banks and financial investment firms like it failed to adequately manage information. Without fully appreciating the risks they were undertaking in the subprime market, they wrote billions of dollars in shaky loans and then resold them to investors.

JPMorgan, like GE, uses sophisticated analytics to understand its business and market conditions. It’s made huge investments in technology to help navigate its business through troubled markets, putting it in a position to weather the economic storm and rescue its one-time rival. While the acquisition is still fresh, JPMorgan is already signaling that its new property will require a massive technology overhaul—probably a reflection of the poor infrastructure and processes that sank Bear Stearns.

What GE and other successful companies have figured out is that they may make refrigerators and electronics, but their real commodity is information. How enterprises invest in the systems that manage information and how management then acts on that intelligence will ultimately determine their long-term viability.

  
Lawrence M. Walsh is editor of Baseline. Share your thoughts on how technology can help businesses weather the coming recession at lawrence.walsh@ziffdavisenterprise.com.