9-302 001

gFV- MAY 2i.

CHRISTOPHER A BARTLETT
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MEG CL1NSKA

GE s Digital Revolution: Redefining the E in GE

Ln early 2001
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observers were trying to understand the implications and impact on the company s strategy. Starting f a transformational
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as GE marked the second anniversary of the launch of its e-business initiative,

with a Web-based sales push in 1999, CEO Jack Welch had raised expectations o shift in GE's customer relationships and selling approach. A year later, with Internet saaes coining
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productivity through "the digitization of processes,,. Once again, Welch s

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more slowly than initially expected management began emphasizing on line purchasing. When tnis, too, generated less bottom-line impact than first expected, attention shifted to improving internal
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enthusiasm was

unbounded

suggesting that digitization alone could bring $10 billion in savings.

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and his 60-person team had achieved a huge amount, making Plastics a benchmark e-bu=inSD division within GE. Yet, as he prepared his input for the business's annual organization ar.a leadership review with Welch in April 2001, Podesta was wondering whether to recommend
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Throughout this period nobody was more aware of the potential and the challenges o: the e-bus-ness opportunities than Gerry Podesta general manager for e-business at GE Plastics. Since mid-1997, h<e
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disbanding his e-business team and folding the responsibility and the staff back into tne operating units and other functional groups. Would this dispersed group have the expertise and influence to
support GE s evolving e-business strategy? And was the organization ready to embrace the two-yearold strategic initiative as part of its ongoing activities?

Welch's Two-Decade Legacy

In a speech to his final annual shareholders meeting as CEO, Jack Welch proudly announced that GE had been named Fortune magazine's "Most Admired Corporation in America" and The Times "Most Admired Company in the World/' both for the third consecutive year. Since becoming
CEO in 1981, Welch had seen GE generate a total return to its shareholders of 23% annually for almost two decades. (Exhibit 1 summarizes the era s financials.) It was an enviable record and
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Welch,s widely admired leadership of this traditional industrial company's transformation had led Fortune to call him "Manager of the Century." His numerous strategic organizational and cultural
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change initiatives, summarized briefly here, provided the background for his final strategic thrust-keeping GE's businesses competitive in the Internet Age.

When the 45-year-o,d Jack

recess,on
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We,ch became CEO ,n Apr,,

1981, the U.S. ecOTamy

businesses

the funds generated to acquire 370 new businesses. bureaucracy stripping away layers of hierarchy, and
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didn't meet his strategic standard of being the #1 or #2 competitors

he restructured its diverse portfolio by selling or closing more t tan ** in their mdustne.,
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Seeking to improve the operating performance and strateg,c comp _

was fPg
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increased only modestly from $272 billion to $29 2 billion in his first five years as CEO, net
defied the economic downturn
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a downsizing effort that resulted in the elimination of over 100 000 -positions.

. Welch focused on e Simultaneously, radically shrinking the me of corporate s~

ff

proms

rising from $1.6 billion to $2,4 billion, j

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yU'W

[mc

pr < i.r n n Revitalizing the Culture

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Having created a solid business base Welch was eager to move past the drastic restructuring stage that earned him the nickname "Neutron Jack/' In the late 1980s he shifted focus. "A company

can t>oost productivity by restructuring removing bureaucracy, and downsizing/ he said, "but it cannot sustain high productivity without cultural change In 1989, he articulated the core elements
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of the organizational culture he wanted to create-one characterised by speed, simplicity, and selfconfidence, In the years that followed Welch launched several major initiatives that would redefine
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what he came to call GE's -'social architecture

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Work-Out was an initiative designed around a series of two-day offsite meetings in which groups of frontline employees were asked without, management present how to Improve the effectiveness of their particular operations. Following these deliberations their managers returned to listen, then make on-the-spot;decisions about the proposals Welch described its objective m ""empowering our
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people and releasing their creativity and ambition," Over 200,000 employees participated in WorkOut sessions which were credited with boosting productivity growth from an average annual rate of
2% between 1981 and 1987 to a 4% annual improvement between 1988 and 1992*

Then, in the early 1990s, after a decade spent focusing internally on the competitiveness and
become a "houndaryless company/, A Best Practices program encouraged managers to focus
externally and benchmark their activities against world class while internally new channels of communication and forums of exchange were created to encourage cross-unit idea transfer Welch,s
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productivity of GE/s individual businesses, Welch challenged the organization to open up and

vision was to create a competitive advantage out of GE s diversity by making the company "a vast

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laboratory whose principal product is new ideas that are spread rapidly throughout the company/
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In a third "software initiative" that challenged GE's old cultural norms, in 1992 Welch introduced
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Backed by incentives and supported by an encouragement to try radical new ideas managers made huge changes that allowed GE to achieve Welch's "impossible challenge" just one year beyond the
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the notion of stretch to QE's performance targets. In an approach he described as "using dreams to set business targets with no real idea of how to get there," his first challenge to the organization was to increase GE's long-term historic gross margin of around 10% to a stretch goal of 15% by 1995.
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target date. (By 2000 GE's gross margin approached 19%,)

Together, these cultural changes formed what Welch described as GE's "social architecture
became embodied in an evolving set of values that
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the

platform from which he launched the company's transformation. Many of the embedded beliefs

that they were "the drivers of GE's performance numbers and the bedrock on which we will build our future/ Welch devoted his entire final shareholders' letter to elaborating on those values
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by 20Q0, were those outlined in Exhibit Z Stating

Developing the People

Crotonville education
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long-established HR poUcies and processes wc cuiq

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f&3t'UCf"rWg period, Welch continued to invest heavily in GE's .?1 }"* h! b&a" mafi"0 Wa'f . '1f tour initiatives stand out:
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cognizing that some managers were unable to engage in the empowering management
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HS<\ >

k g required by the WorkOut process Welch began removing what he called "Type 4" nranagers-the autocrats who got results by "kissing up and kicking down."

He then stretched Crotonville s role beyond traditional management training into action k&mmg Qr3n*2at*Qn development. For example mid-level classes were challenged to go mto the company and identify major problems or opportunities, then make their recommendations directly to the quarterly meeting of GE's top 35 executives.
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Next/ he insisted that all GE managers must be A Players/' defining their profile around 4Es: energy, the ability to energize others the edge to make tough calls, and execution,
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Ieu4, *

Find1y' Welch overlaid an evaluation process and designed what he called a

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Vitality Curve/' designed to - continually raise the bar of people quality All managers were required to categorize their employees as top 20% high-performance middle 70%, and bottom 10%. And
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the bottom 10% were to be moved out--every year

Redefining the Processes

From his easiest days, Welch had chipped away at the bureaucratic systems that he felt frustrated people, slowed down decisions, and focused the organization inwardly/' Over the years he transformed GE's paper-driven systems and control-oriented reviews into a carefully-sequenced calendar of freewheeling discussions that he described as the company s operating system/' (See Exhibit 3 for a representation.) Among the key meetings and reviews were:
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The Operating Managers Meeting, held each January in Boca Raton, was the forum where GE's
f

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presented to the 600 top executives who would drive them through the businesses,
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priorities were reviewed, best practices celebrated, and new corporatewide initiatives

At the Corporate Executive Council (CEC) the company s 35 top business and corporate leaders v Vy? "V met quarterly to follow up on initiatives, exchange best practices, and listen to reactions and recommendations from the participants at GE s quarterly course for front-line managers
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j *
VS
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each GE business location to engage with those assigned to key initiatives to review businesses leadership development, and to drive the vitality curve -based evaluation
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In April and May, for Session C-the Organization and Leadership Review-Welch visited
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the

July's Session J-the 3-Year Strategy Review-framed five simple strategic questions, and required each business to present its response in terms of key opportunities and threats and

J
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not precise numbers, and were supported by a small packet of charts and talking points, not the thick document-driven analysis of an earlier era,
At the Corporate Officers Meeting in October, the company s 150 vice presidents previewed the challenges for next year s operating budgets and engaged in. a dialog about GE s key learning,
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its plans to deal with them. These shirtsleeves meetings were driven by broad stretch goals,
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Then ;-ach November

Unlike uacuhonal budget reviews, these sessions were driven by stretch targets and calibrated agsinsr nbjtrtive criteria (e g., market share relative costs, last year s results) rather than
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Session 11-the Operating Planning Review for next year-was held.

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ar umeius a; out line item expenses based

Welch
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on internal forecasts and projections.

this series of face-to-face dialogs served less as a control system than as a series of touch pcinrs" wher*> be could engage people throughout the company to take their measure, sense the progress anc reinforce the values Just as important, they provided multiple forums of open exchange that formed what he called the fabric of GE's learning culture/,
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Renewing the Strategy

businesses were #1 or #2 not just measured domestically but globally. Taking advantage of Europe s
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oiganiza on to renew itself

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While he was revitalizing the culture, people, and processes, Welch was also challenging the

strategically In 1987, his globalization initiative required that all GE

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ei.tmoiruc downturn

a t

crisis in 1997-98

the peso c jIJapsed the company acquired 16 companies in Mexico. And as Asia slipped into
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GE Invested $17.5 billion in the region between 1989 and 1995. Then, in 1995=96,

spent S15 billion or acquisitions in 6 months By 1998, international revenues were $42.8 billion, representing over 40% of the company s total, up from about 20% in 1985- More important, global revenues were growing at almost three times the rate of domestic sales. (See Exhibit 4.)
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Welch urged his managers to view it as a buying opportunity. In Japan alone GE

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in 1994, Welch launched a second strategic initiative designed to reduce GE s dependence on its
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traditional industrial products In the early 1980s he had acquired financial service companies such as Employers Reinsurance and Kidder Peabody, but now he wanted more. During his annual
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strategic reviews

Welch challenged his managers to offset slowing growth for GE products by

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supplementing them with added-value services, By 1998 GE's product services businesses--medical equipment support aircraft engine maintenance, power equipment servicing-=-=exceeded $12 billion and were growing much faster than their underlying product businesses (See Exhibit 5.)

The third big strategic initiative came after Welch learned how a Six Sigma program had helped Allied Signal dramatically improve quality, lower costs, and increase productivity A detailed study
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found that GE was operating at error rates ten thousand times the Six Sigma quality level of 3.4

defects per million operations-a conclusion that implied $8 billion and $12 billion a year in
inefficiencies. At GE's 1996 Boca meeting, Welch announced a goal of reaching Six Sigma quality levels company-wide by 2000. After two years, GE had invested $500 million to train the entire professional workforce of 85,000. Returns of $750 million over the investment exceeded expectations, and the company was forecasting additional returns of $1.5 billion in 1999 (Exhibit 6).

One Mote Strategic Initiative: Embracing E-Business

In the late 1990s, after a remarkable two-decade tenure as GE's CEO, Welch was on the doorstep
of retirement But the Internet revolution and the dot-com boom were in full force, and some saw

GE/s apparent reluctance to embrace e-commerce as a sign that its CEO was past his prime. Neweconomy zealots were predicting that the most talented executives would flee Old Economy dinosaurs like GE to join management-starved high-flying startups. In January 1999, Welch silenced his critics by announcing his fourth company-wide strategic initiative.

Late to the Web

Even though GE began registering key domain names as early as 1986, it was only in late 1994 that it launched ge com as its corporate website Welch, however, did not show much interest in his
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organization's nascent Web-based activities Famous for his handwritten follow-up notes and
Forum in 1996
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performance reviews, he was proud of his personal management style. He told the Fortune 500 CEO
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I don't have a computer in my office and I don t need a computer.

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corresponding, trading stocks and planning their vacations online. Welch s interest peaked On
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But everyone around him was using one including his wife, who for years had been

vacation in 1998 when she showed him Yahoo investor sites where people were engaged in vigorous
debates about GE
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its stock, and its CEO. Soon, he was hooked. That fall, he bought a CD-ROM and
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taught himself how to type

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After the Christmas season of 1998, when out office was buying

everything online I realized that if I didn't watch it, I would retire as a Neanderthal," he said.

surprised when the GE veteran beat the young entrepreneur ) The two struck up a friendship, and Welch became so impressed with his new friend that he nominated him for a seat on GE's board,
By the January 1999 Boca meeting Welch was ready to act.
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Welch's growing interest in the Internet and e-comrnerce was further stoked by conversations with Sun Microsystems, CEO Scott McNealy. The two got acquainted in the summer of 1998 when McNealy, whom Golf Digest had named the number one CEO golfer challenged Welch, who was listed as number two to a round of golf, (Those who knew Welch s competitive nature were not
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-business initiative

Announcing a companywide he told his top 600 executives that by the June Session I strategy reviews he
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expected each business to explain how it would become tine e-business leader in its industry. At the March Corporate Executive Council (CEC) Welch followed up on his Boca challenge by inviting Joe Liemandt, CEO of Trilogy Systems to make a dinner speech. Privately, he asked Liemandt to scare . the daylights out of his top team. In discussions that followed, the CEC concluded that their first priority had to be to acknowledge their vulnerability. ("Look how Amazon attacked Barnes and Noble/') Recognizing that this might require them to cannibalize their traditional business models
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they committed to a "Destroy Your Business.com" (or dyb.com as it became known).

Welch emphasized the need to allocate sufficient quality resources to implement the e-business initiative with urgency, and told his top team that by the Session C organization and staffing reviews in April he expected each business to have identified an e-business leader supported by a dyb com task force. But he warned them that GE would not enter the bidding wars with dot-coms that were offering technical experts huge numbers of options that he called wampum.
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Jump-starting dybxom
As they launched dyb.com, the business heads'were supported by GE's Chief Information Officer
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helped implement corporate-wide programs. Reiner suggested.e-business leader candidates have

Gary Reiner, an ex-BCG consultant who also ran the 20-person Corporate Initiatives Group that

three attributes; a strong marketing background (important in the focus on selling via the Internet) good project management skills (vital to the complex task of building an innovative website), and a passion for the Internet (but not necessarily Web-based experience or technical expertise).
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moves or countermeasures. Teams were authorized to break all the rules with the exception of the principles defined in the company values. At the same time, however, Reiner and his staff

market share from GE-as Amazon had from traditional book stores-then to devise preemptive

The first task of dyb.com teams was to understand how a hypothetical Internet company could take

encouraged the new e-business leaders to focus on the opportunities the Internet providediasaBa facilitated online trans channel. The immediate

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provided value-added services. By mid-1999 all GE businesses had operating websites.

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priority was to develop websites that

As the initiative gained momentum Welch began referring to the opportunities and threats created by the Internet as "the biggest change I have seen at GE, and "number one, two, three, and four on my agenda At the June CEC meeting he told his leadership team that e-business was now officially GE's fourth strategic growth initiative, joining Globalization, Services, and Six Sigma. In
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typical fashion

them how much they were selling over the Internet and what more they could be doing. It s a great job because Jack is into it," said one And it's a terrible job because Jack is into it.
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there was sufficient urgency

he began calling personally on the newly appointed e-business leaders to ensure ld ask
and boldness in their actions. And at every encounter he wou

regularly with a young manager who was coaching him on the Internet. Welch was so impressed that immediately on returning to the United States, he asked GE s top 500 executives each to get an
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on e-business. In one such encounter, a senior executive in Europe described how he was meeting
Internet mentor
Meanwhile
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And Jack was into it Everywhere he went

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he asked GE's leaders whether they were up to speed

preferably someone under 30. He even found one for himself.

e-business leaders were responding to the expectations placed on them to drive GE's newest strategic initiative through the company. Nowhere were the efforts more focused and intense than in GE Plastics the $7 billion business Welch had rim before becoming CEO.
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GE Plastics: GE's e-business First Mover

When Welch announced his latest initiative GE Plastics was already an acknowledged leader in ecommerce within the Company having built GE's first website-geplastics.com-in October 1994. Like most early websites this one was strictly information-based. But in 1997, GE Plastics' in-house
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distribution division created the company's first transaction-driven website at* gepolymerland com. Activity grew from a base of 64 transactions in 1997 to 332 in 1998. In January 1999 when Welch
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annoynred the e-business initiative, Polymerland was booking about

lss. $50 000 a week in s

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LLaunching the Initiative

Itime resources to the new initiative, GE Plastics CEO Gary Rogers began reviewing candidates to lead
the implementation. By the April Session C reviews he was ready to recommend Gerry Podesta to become his division's general manager of e-business. (See Exhibit 7 for organization.) A 17-year GE veteran running GE Plastics Southeast Asian business unity Podesta was a 41-year-old plastics
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After the March 1999 CEC meeting where Welch emphasized the importance of committing full-

engineer with no IT training or Internet experience. He said:

I didn,t have an e-business background and I certainly didn't have a strange haircut or wear an earring. But GE hates to recruit outside for initiatives so Gary was looking for someone who knew the plastics business, understood how GE worked, but also was willing to be irreverent-to push the envelope and challenge the status quo.

On reporting for work at GE Plastics' Pittsfield head office/ Podesta,s urgent task was to decide how he wanted the e-business priorities reflected in July's Session I meeting. He concluded that

I existing activities in the eight plastics business units were fragmented, underresourced, too narrowly

3U/-UU1

"1&n S*Q - He decided that; have to &ain rnl gam control of these dis

in addition t:o creating a dyb team, he would

persed resources and activities.

r QSet competit> e 1"1re3t5

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world C 1c ass

existing e-business

\ Ver aUglobalize, and relaunch geplastics.com. About half of the new group would come from
activities
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gamza ion he envisioned consisted of a new 7-person dyb.com team 25 people to develop actions capability and upgrade polymerland .com and another 30 to focus on technical content
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St1StGgy Was to focus on three priorities-to initiate a dyb review of * kuild Qn the proven transaction capabilities of polymerland.com, and to create content centered on online e ngineering and design-all with a global focus. The

p astics business units. Describing his initial challenge, Podesta said:

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but half had to be recruited from the best and brightest in each of the

<J0

v\cA*-)

As we prepared for SI (Session I) there was a lot of tension. Here I was, an outsider in a staff role planning to centralize activities take their best people, and drive the strategy on a

high profile initiative that the business units wanted to own. But while 1 would be calling the
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shots and committing the resources, they would still be responsible for the results. The SI

preparation became a. huge forcing function. . . . Some managers weren't happy, but you can't afford to be a naysayer or to sit on the sidelines during an initiative in GE. You just won t
survive.

Dyb.com @ GE Plastics
The seven-person dyb.corn team was housed in a space designed by an outside consultant to encourage creativity and non-traditional thinking Many old-line managers raised their eyebrows at
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the pool table, foozballs and coffee machines, but with, such strong top-level support, few openly criticized the team's counter-culture activity.
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The team soon identified a few Internet-based competitors that represented potential threats. For example, PlasticsNet was a nascent online marketplace for plastics from all sources that focused the dyb team on the threat of so-called "aggregators." The conventional wisdom held that big companies should cooperate with these specialized sales sites, or at least form an industry-supported site that could offer a competing open marketplace. The dyb team s analysis, however concluded that if they
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did so they would be giving up much more than they would get. Believing that GE had the best brands (Lexan, Noryl, etc.), the best customer service, and the best fulfillment capability, Podesta asked, Why should we give away those competitive advantages?" The team,s intuition was supported by Reiner and strongly endorsed by Welch s beliefs ( The cardinal rule is never allow anyone between you and your customers ), which developed into a general GE policy.
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The dyb exercise also led Podesta and his team to begin surfing successful sales websites outside
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other industries (e.g. online automobile sales), the dyb.com team established
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e plastics industry. By calibrating competitive capabilities and highlighting best practice from
a vision and set a

standard for the other parts of the plastics e-business initiative to follow. For example, they identified

the use of a natural language technology on the new Ask Jeeves website as a valuable tool-something later incorporated into Ask Edison" on their own applications.
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would make its Web pages a virtual meeting place for the industry. It was here that the dot-com start-ups were most often ahead, and where GE would be vulnerable unless it moved quickly to
ca ture the

Another conclusion they reached was that GE would have to expand its thinking beyond building efficient online transaction processes to creating an engaging customer interface. Not only did this imply more features and improved functionality, but also the development of a community that
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emerging online community of engineers, designers, and buyers in the plastics industry.

Building a Better Mousetrap

Meanwhile
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strategy starting with a total overhaul of the geplastics.com w team,s competitive benchmarking this activity was divided into design tea
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a parallel development effort focuse

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d on reth ink. P"3S ebsite. Us g P

fo r k

end-user functions-Buy

Design, Research, and Interact.

Basic online transaction functionality had been developed design team aimed higher than more efficient online selling;

I of their suggestions integrated into the final design were the dispatch of automatic confirmations or tracking
order entry and order shipment
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they wanted to create positive online relationships and build customer loyalty. The team actively solicited input from its customers purchasing agents in designing the site, the interface, and the supporting services. Among the scores |
feature

on polymerland.com. But the

and the ability to order by the customer's part number rather than GE s
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downloadable printouts of quality certifications, a shipment

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years of information on the technical characteristics and properties of its products, making it
accessible to customers in an attractive
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Meanwhile, those working in the Design and Research areas began exploiting files containing 30 I
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I I were relaunched in early 2000, they included not only technical answer databases but also a toolbox of wizards" set up as design aids and processing guides. For example, a Color Specs Wizard allowed customers to match color chips online while a Chemical Compatibility Wizard gave

useable form. When the website s iJesign and Research areas

| guidance on potential problems with material interactivity. (See Exhibit 8.) In a couple of hours, a
differences might be using different products or designs.

design engineer could not only select the most appropriate material for the specific application, but I also could determine how many molds to build for each part and what cost and performance

Finally, a team working on the Interact area of the- website was developing features designed to create a link to the plastic community and to make GE Plastics a destination site. It provided .an extensive industry directory reported industry news, hosted discussion groups, and even provided a career center featuring extensive jobs listings and career support for the plastics industry. i
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Making Commitments, Stretching Ambitions

In November, Podesta was asked for his input to support Plastics CEO Gary Rogers, Session II presentation. He recalled:

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We got three pages of Gary's 25-page SII presentation to tell how we were going to drive online sales. . . Beyond describing programs we also had to commit to numbers. The word commitment has very clear meaning around here. Vou set your objectives, then you get measured against them. Period. For example, you could never walk into our SII and say, I missed my number because you told me to do the e-business initiative. Gary has to find a
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way to absorb my extra people and a few million dollars of cost and still meet this year,s
commitment.

Podesta and his team struggled to decide what level of online transaction to commit to for 2000. Go in too low and he and his boss would be confronted, challenged, and perhaps embarrassed by | Welch and his staff who had already expected increases. Podesta explained his decision:
In the end, we decided to commit to $1.2 billion online but to talk out loud about setting our sites on a stretch target of $2 billion . . . Stretch is difficult to explain in our culture. It s what
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might happen if everything went perfectly-a great economy, no breakdowns, no problems.

But we set our sites on it to make sure we make our commitment.
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Linking Leveraging and Learning

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As implementation of the initiative continued across GE's 20 businesses, Gary Reiner and his team of the key role they could play in identifying and transferring best practice. In doing so they harnessed GE's regular forums processes, and systems. But they also supplemented the deeply embedded "operating system" calendar with several more targeted meetings and
were conscious
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measurements desi

gned to spark e-business initiatives and spread successes rapidly. One thing you realize quickly is that you can t over-communicate," Reiner said. In any organization, you ve got to get a lot of people hearing the same thing over an extended time."
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Spreading the Wealth

them to compare experiences and build peer-to-peer relationships. He also used those forums to tap into ideas from a variety of internal and external sources. For example, the source of geplastics.com s

From the early days of the initiative Reiner arranged meetings of GE s e-business leaders to allow
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Wizards was an e-business meeting to which Reiner invited the operations VP from Cincinnati Milacron to present what Reiner's e-business experts had determined to be "best practice" in Webbased customer service. The guest demonstrated his company's creative way of leveraging scarce
customer service resources by building tools they called "Wizards that allowed customers to answer common questions and solve problems in a self-service manner. Everyone was impressed, said Reiner. "The next day we all committed to building Wizards on our sites.
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The meetings were supplemented by monthly conference calls, hosted by Reiner, at which all ebusiness leaders would report on progress ask for assistance, and share successful ideas. This became a key forum to encourage the transfer of best practice directly. For example, on one conference call, Podesta explained how the plastics business had done much to overcome salesforce and customer resistance by creating an eight-person team of field growth leaders" whose only role was to visit customers and train them on the use of the website. The effort was reinforced by paying the salesforce a higher commission whdn their customers ordered.*online. Soon, the Plastics e,
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business team was being contacted for advice by other GE businesses. "We must have heard from 15
of the 20 businesses over the next three months,
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said Gerry Podesta. "It's a natural thing around

here to want to help them."

Reiner also used the "operating system,s" calendar of meetings and reviews to great effect. For example, at the quarterly CEC meetings he regularly updated GE s top executives on the initiative In addition to discussing emerging corporate policy on e-business (e.g. refusing to deal with
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aggregators), he presented operating detail and shared best practice such as Plastics adaptation of
Wizards or its innovative "field growth leader" concept. He explained his objective: We tried to give the business CEOs enough background to go back and have productive
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conversations with their e-business leaders. So we would show them the attributes that made

a site compelling for a customer-what it takes to make a personalized experience how to make transactions user friendly, and so on. We armed them with good questions to ask good
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challenges to throw out.

Another opportunity to leverage GE's "operating system" came when Welch asked Reiner to
prepare an agenda for October s" Corporate Officers Meeting In the tradition of recognizing role models in front of GE s 150 corporate officers Reiner was able to reward some key people while
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simultaneously highlighting transferable best practices

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president of Polymerland, whom he asked to describe his very sophisticated website arid how it was able to grow from booking 11 orders worth $60 000 a week in January 1999 to 300 orders worth over

Among those he tapped was Peter Foss

land's achievements, Welch urged $5 million a week in September. .As he heaped praise on Polymer heat even more. others to match its performance- then nudged Foss to turn up the

New Frontiers: Birth of e-Auctions

no GE business had found a credible "Amazon Threat" from a dot.com company. Indeed by year s

By the end of the first year of the e-business initiative, a few lessons had begun to emeige. First,
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emphasis on reinventing business models had evolved to a focus on growth, and dyb.com evolved to gyb com. The second major conclusion was that, while building powerful websites was important defensively it was not going to translate into a major sales boost. This growing
end the dyb com
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realization gave credence to the internal skeptics, and made some e-business team members about their career choice in signing up for this initiative.
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nervous

In response in late 1999, several businesses began exploring online purchasing as an e-business profit opportunity. In the December CEC meeting John Rice, head of GE's Transportation Systems, demonstrated a Web-based auction tool built by two recent graduates working with his e-business team on an IT internship program. Recognizing its potential, Reiner asked Global Exchange Services
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for other businesses

businesses
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(GXS), GE,s newly created in-house developer and vendor of B-to-B software
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to host the application

(See Exhibit 9.) To Podesta the e-auction tool was a gift. Like other GE
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the plastics e-business team had been evaluating auction hosting services and commercial
.

every GE business had it loaded on their system

$500,000 to $1 million to buy plus a usage or transaction fee So we were delighted when the transportation guys went off and wrote their own auction software for $20 000. Within 30 days
,
,

auction software but became frustrated by the cost. He explained: They were all pretty expensive:

"
.

Of Metrics Measurement and Monitoring

,

'

As with most activities at GE

performance and progress on the e-business initiative Was

measured. At SI and SII reviews Welch probed for the percent of transactions online and dollar sales online. After e-auctions were rolled out, data on percentage of purchases auctioned and dollarssaved in e-auctions were collected. And the CEO personally checked in on reported Drocress as Podesta quickly learned:

Because we were kind of best practice, Jack regularly checked our progress But we had some server problems in early 2000 when we were changing to a new system so for a while some customers had trouble logging on.. . . When our online volume dipped for a few weeks Jack started sending notes asking us what was going on. Boy, the pain associated with that dip!
.

By March 2000, Reiner had created a Web-based report that allowed all GE,s businesses to post results on what was becoming known as e-sell and e-buy. In addition to allowing top management to track performance, it created a transparent internal environment in which businesses could benchmark their progress against their colleagues,. With such cross-unit performance transparency, leaders and laggards soon became evident. And it didn t need a Session C review or a "vitality,

curve

"

analysis to identify those who did not meet performance expectations. Reiner explained:

Jack made it clear that he expected his business leaders to commit top quality resources to the initiative, and they knew he would be asking them to meet their e-business leader arid e~ perspective I could compare performance of e-business leaders across the organization

business teams. . . . One of my roles was to set the bar these people had to clear. From my
,

and a

couple of times I had to call the business leader and say, love him? If not we d agree it was time to replace him' ,

"

This guy's not cutting it. Do you

Reflections Corrections, arid New Directions

,

stock market

however, there was a growing confidence that, far from being threatened, its established operations had a significant advantage over their dot-com challengers. (See Exhibit
.

As the e-business initiative entered its second year the dot.com boom was sweeping through the
,

Within GE

10.) In the GE Annual Report dated February 2000 Welch described e-business as
,

"

an elixir, a tonic
"

that has changed the DNA of GE forever

"

"

and announced "We get it-we all get it.

However,

inside the company many remained skeptical while even the believers were still looking for ways to
monetize
"

e-business, to use the GE terminology.

,

transaction economics

The e-sell initiatives had some impact or but were not expected to boost the top line significantly. And the new e-buy
,
,

auctions were also expected to generate savings but not the "home run" the company had achieved through its Six Sigma program for example. After the dot.com stock crash in April 2000, as the skeptics grew louder the e-business teams continued their experimentation.
,

E-make: The Productivity

Push

A May 2000 Session C presentation by GE's mortgage insurance business marked the beginnings of a new phase of the initiative, an internal productivity thrust that became known as e-make. In.
their presentation of a major planned organizational change, they identified six core processes (selling, underwriting, claims management, etc.) that encompassed 2,050 "touch points"-places where one human passed information to another. Their analysis showed that if they could automate or eliminate these, they could reduce their selling, general, and administrative (SG&A) expenses by 30%. It was an impressive presentation that immediately got Welch, Reiner, and others thinking.
Their thoughts were furtiier stimulated by John Chambers, CEO of Cisco, who was invited to speak at the June CEC meeting. He, too, focused on the power of intranets to drive internal

productivity, but emphasized the need to shut down parallel processes in order to force the

digitization of activities. As Reiner explained, "That was a very, very big insight for us, especially
since we had previously heard a similar message when Lou Gerstner, the CEO of IBM, visited us.
"

Soon after the mortgage insurance Session C analysis, Reiner began dismantling embedded
corporate systems built on human intervention and replacing them with online processes. For

example, he required that all travel arrangements be made online, immediately generating
,

"

tens of

millions of dollars in savings. But the biggest potential for saving was in the businesses each of which was asked to come to the June-July Session I strategy meetings with ideas on how it could

digitize processes to take 30% out of its SG&A. After reviewing the SI presentations Welch began talking about a companywide potential savings of $10 billion in three years describing the digitization process of e-make as the big impact the company had been seeking.
,
, *

America's Top e-business?

In July 2000, just 18 months after Welch launched the e-initiative Internet Week magazine elevated GE to the number one position on its "Internet 100" list of top e-businesses In naming GE America's top e-business company ahead of the dot-com start-ups and high-tech players the magazine
,
.

commented,
e

"

Big is back, and no company makes that point more convincingly than GE where
"

-business experimentation is paying off in a big way.

s potential when coupled with Welch's high profile optimism about the Internet unpac!, OF, pi formance, invited media scrutiny When GE s results for 2000 were published sc-xe began to raise questions about how much it had really achieved, just nine montns a
Such accolades
,

'

noiu\ci:v ir$ award

.

even Internet Week seemed a little less enthralled.

In an artic e

bc.iieF uack

; cr.aly;:ed GE,s reported results and concluded that the company had a en s o o widely expected performance in e-business. For example, while its $7 billion in online sales c ear y P1': J-nrp tier f Internet-based traders it represented only 5% of sales far short of the 30 o potential Welch had talked about in the early days of e-sell. And while the company was b dealing -based
,

with 25% of its 30 000

,

this was significantly less than the 100% of We pu. chase:, it had targeted when its e-buy initiative started Finally, productivity savings from
suppliers online
,
.

e-m

nke s digitization of processes were forecast at over $1 billion for 2001, but to Internet Week this ned like a modest start towards the potential $10 billioni of ings Welch had talked about. of sav savings
"
-

Dismissing what he saw as small minded sniping by the press, Welch proclaimed, We are ahead of any objectives we have ever had by a significant amount. The 30% of sales, the cost savings, and the supplier numbers are all long-term objectives Far from backpedaling, he was pushing the ebusiness initiative harder than ever in his final months as CEO In a softening market, while other companies cut back on information technology investments, Welch increased GE s IT spending by 12% to billion in the 2001 budget "Don t cut back," he told his team. "Use the downturn to widen the ap. And with recession-hit suppliers like Sun discounting servers by up to 60%-and laid-off IT specialists job hunting Welch believed it was an ideal time to invest.
"
.
.

'

'

GE Plastics: New Challenges

In early 2001 GE Plastics was clearly one of GE's success stories-a fact confirmed by .Gerry Podesta,s invitation to make a presentation at Boca in January. From $100 million in online sales in 1999, Plastics bouked $1.2 billion on its website in 2000 and was forecasting $4 billion for 2001 The
,
,

business believed it could achieve 90% of transactions online reasonably quickly. This success caught the eye of GE's competitors, and"in October 2000, DuPont,-Dow Chemical BASF, and Bayer launched Omnexus, a new online marketplace that promised buyers better choice and more competitive prices from multiple plastics suppliers. GE was invited to join the consortium but declined.
,

Plastics was also aggressively tackling the e-make challenge of digitizing internal processes. Seeing this as a chance to apply deeply embedded Six Sigma process analysis skills, Polymerland's general manager, Peter Foss, convened a number of WorkOuts to analyze each of his business s core processes. The output was a matrix with processes on one axis and key process owners on the other,
,

and a detailed plan-month by month and process by process-of how each process owner was going to digitize" activities. (See Exhibit 11.) "It was another example of best practice from this
"
"

group,

said Reiner. "It became a template for the rest of the company."

In one symbolically powerful.decision triggered by the process changes, management removed 200 network printers from the Pittsfield head office building and donated them to the local high
school. New orders for paper were also put on hold.
< As managers
"

We just don,t print much anymore," said

"

Podesta. "Everyone just walks into meetings with a laptop, not paper files.

began examining the effectiveness of their processes, they began questioning the way all work was done in GE. Gradually, the focus centered on distinguishing front room direct value-adding activities (product development, sales, production, etc.) from "back room" support then became to make all back room activities (scheduling, IT, billing, etc.). The objective of e-makeas it became known was hard, and activities more efficient. But the "digitization of processes/
'
,

Podesta felt that the opportunit ies for plastics would be different from those in GE s financial services businesses He explained:
'
.

Businesses like mortgage insurance or credit card services have back rooms with thousands o people Practically their whole business is backroom. But you don t see that here. I have 80
'
.

customer service

people doing $2.5 billion in sales. Now even if I take out 50 people, we re not going to cut 30% from SG&A expenses So, our focus with e-make has been on improving processes for service, speed and customer satisfaction.
.

'

Gil s e-business Initiative: At a Crossroads

In early 2001 as the e-business initiative marked its second anniversary, Reiner began to consider even more radical changes It had evolved a long way from its dyb.com origins, and he wondered if
,
.

digitization''* priority might be implemented more effectively through new structures and processes. Specifically he wondered if the time had come to disband e-business teams and fold them back into the day-to-day operations
'

-make

"

s new

Podesta sensed the change as well but had some different concerns:
,

We folded our dyb team then exhausted the gyb group. We expanded our focus from e-sell to e-buy to e-make. Through all this we had to keep the e-business team s motivation. You
, '

t let them feel that they are failing or are outside the mainstream. . . . My people keep asking, What's my role? Where am I heading? I'm on an Internet project, but GE will never be an Internet company/'. . .When e-make came, the stress went up again. Some felt they were But I have responsibility for those 60 people who put not qualified to drive digitization.
can
/ "
.

their heart and soul into this initiative. I have to ensure they emerge as winners.

Another important question was whether the organization was ready to absorb these e-business

champions back into the mainstream. Or if other functional and unit managers were ready to take up
the slack. With just two years of experience behind the initiative, some were concerned that it would lose momentum or even retreat if delegated to line managers unsure of the value of e-business and
_

stretched by many other demands. These were among the issues occupying the thoughts of Podesta
Reiner, and Welch in early 2001.