General Electric, or GE as it is commonly known, is the second largest company in the world, according to the FT Global 500 2006. With a Market value of $362,526.60 (millions) and turnover of $148,019.00 (millions) it is easy to see why it is in the top two.
Brief History
GE was formed in 1892 by the merger of two companies, Edison General Electric and the Thomson-Houston Company. The Edison company was formed by the one and only Thomas Edison, inventor of the light bulb. Indeed, the company can thank Mr Edison for the diverse range of industries it is involved in today including lighting, transportation, plastics and medical equipments.
GE - Business & IT Strategy
As we are studying Management Information Systems, I want to look at how GE used Information Technology (IT) historically to achieve its business goals. Although IT Infrastructure and strategy are familiar terms presently, it was very much a different case in the early 1990’s. Prior to 1996, GE didn’t have much of an IT Strategy, this was still very much new to almost everyone. This was due to the fact that IT was seen as a function rather than a competitive tool as stated in GE’s Annual Report of 1996. However, by 1996, Jack Welch and his board had realised that IT could give the company a competitive advantage. This was to be done in one of two ways.
As a horizontal growth opportunity – GE had IT businesses that had revenues in 1995 of $6 billion. GE’s goal was to double that figure in 1997 and continue to grow the businesses with double-digit growth.
The IT role within each business of GE – As Jack Welch stated in the Letter to Shareholders of 1996, “[Information Technology] is making the huge transition from the “function” …… to the indispensable competitive tool, the central nervous system of virtually every operation in the Company.”
These two key points above were to assist GE in one of its Business Goals – growth. GE’s belief in 1996 was that growth was helped by the organisations behaviour and its people and that the behaviour was driven as follows –
“Our behaviour is driven by a fundamental core belief: the desire, and the ability, of an organisation to continuously learn from any source, anywhere – and to rapidly convert this learning into action – is its ultimate competitive advantage.”
Source: GE Letter to Shareholders 1996
In order to help GE achieve these goals, Jack Welch appointed Gary Reiner as GE’s first Chief Information Officer. His goal, as he stated in an Article for Information Week Magazine in 1996 was to “make [information technology] a competitive advantage for GE.”
GE had spent a lot of money on Technology, Information Week estimated $758 million, but had not seen a return on this investment. Having worked for GE in the past, I agree with Tim Smarts assessment in the Information Week article that GE had not been using computing strategically enough. Computers were viewed as a necessary tool, not a strategic one. Each business had its own IT structures and software with no commonality. Therefore, it was extremely hard for diverse businesses to share information and learn from each other.
It appears from the literature of the time that both GE’s desire to learn and use IT as a competitive advantage were intrinsically linked. The IT infrastructure would allow GE employees to share best practices and therefore learn from each other and the businesses they were in, which in turn gave GE the competitive advantage over its competitors. An example of this is stated in the Information week article entitled “Jack Welch’s Cyber-Czar”-
“GE Medical Systems, for example, has a program that dials into Magnetic Resonance Imaging (MRI) machines and remotely diagnoses faults, in some cases before they cause trouble. Now that same setup is being adapted to other products, starting with turbines for generating electricity and extending to jet engines and motors.”
The final piece of Reiners jigsaw in 1996 was to move GE into eCommerce. Not only in terms of offering it to customers, but using the technology itself to allow GE to purchase from their suppliers. This would reduce the cost of the sales transaction. The goals stated in the Information Week article were –
To purchase at least $1 billion worth of its goods this way in 1996 and
50% of the total by 2000.
As Tim Smart states, all of these targets have one goal in mind, “reinventing the way this $70 billion company [GE] uses information technology.”
The IT strategy developed from above was, I believe, as follows –
To help the company grow by allowing learning and sharing of knowledge to take place
To give the company a competitive advantage by developing eBusiness, not only for customers but for GE itself.
Re-invention or Lack of Invention?
The question to be asked now in 2006, is, has GE re-invented the way it uses IT and has it contributed successfully to the business goals of General Electric? The simple answer is a resounding yes.
Looking at the first point above, that of learning and sharing of knowledge. GE had stated that by learning from each other and being able to share knowledge, the company would grow and become more efficient and effective. As is stated in the Annual Report of 2000 –
“The innovation that keeps every one of our businesses – from Aircraft Engines to Medical Systems – at the leading edge of their industries occurs much more rapidly because of the technology that flows rapidly back and forth across our Company in countless streams….”
This statement above, seems to underline the belief in 1996, mentioned previously, that Digitisation would bring about this change.
An example of this efficiency and time saving I know from personal experience, which Reiner stated would happen in his interview in 1996, is detailed below –
“At GE Aircraft Engine Services in Prestwick, we used to work with very large and numerous volumes of Engine Manuals. These were the manuals that we had to, as a regulation, work the engine to. Around about 1998, GE started moving the manuals from paper to electronic format. This electronic format allowed us to do so much more with the manuals, so much quicker, from finding certain pages, words and diagrams, to orientating the diagrams to the way you needed to view them.”
Moving on to point two above, although Jack Welch put in place the CIO in 1996, the drive to enable eCommerce took some time to gather pace, three years in fact at the end of the 20th Century. It has already been stated that GE’s goal was growth, in fact it was more than that, it was to globalise. eBusiness was a core tool to allow this to happen. In fact, the GE Annual Report of 1999 states –
“The efficient harvesting of intellectual capital, which is the state-of-the-art of the globalisation initiative, is impossible without the Internet, and GE products are today being designed collaboratively online around the globe 24 hours a day…”
By the following year, the eBusiness/Digitisation initiative had grown significantly. The Letter to Shareholders of 2000 highlights some of the changes that had taken place since Reiner took over in 1996. Gone is the eCommerce term which is replaced by the new buzz word ‘Digitisation’. The letter states that it had energised every corner of the Company making GE faster, leaner and smarter. As a result, the numbers they were looking for in 1996 began to materialise. $7 billion worth of goods and services were sold over the internet, compared with a target of $1 billion in 1996, an increase of 700%. The letter also stated that digitisation would generate over $1.5 billion in operating margin improvements in 2001. By 2002, the digitisation savings figures being quoted were annual productivity savings of $2 billion and a forecast of generating nearly $30 billion in operating cash flow.
To further highlight the influence that digitisation had on GE, I found an interesting article at the address below –
http://www.line56.com/articles/default.asp?ArticleID=4086&pg=28&topicID=0
This article focuses on one particular business of GE, GE Plastics. To highlight the rapid development of the IT strategy, GE plastics online sales went from $10 million in 1998 to over $4 billion in 2002, a significant result under any analysis.
As can be seen from the above figures, GE did grow and they continue to grow to this day with the help of Information Technology and the IT Strategy, therefore helping GE to achieve, in terms of numbers, its business strategy.
Today, GE’s goal is still to grow and become bigger. In their own words, “Big is beautiful….Our goal is not just to be big, but to use our size to be great.” Although no longer mentioned in great detail in Annual Reports, the IT Strategy will still contribute to this goal. Thanks to this IT Strategy that was re-invented in 1996, GE has rejuvenated the way it conducts its business, with some startling results.
Brief History
GE was formed in 1892 by the merger of two companies, Edison General Electric and the Thomson-Houston Company. The Edison company was formed by the one and only Thomas Edison, inventor of the light bulb. Indeed, the company can thank Mr Edison for the diverse range of industries it is involved in today including lighting, transportation, plastics and medical equipments.
GE - Business & IT Strategy
As we are studying Management Information Systems, I want to look at how GE used Information Technology (IT) historically to achieve its business goals. Although IT Infrastructure and strategy are familiar terms presently, it was very much a different case in the early 1990’s. Prior to 1996, GE didn’t have much of an IT Strategy, this was still very much new to almost everyone. This was due to the fact that IT was seen as a function rather than a competitive tool as stated in GE’s Annual Report of 1996. However, by 1996, Jack Welch and his board had realised that IT could give the company a competitive advantage. This was to be done in one of two ways.
As a horizontal growth opportunity – GE had IT businesses that had revenues in 1995 of $6 billion. GE’s goal was to double that figure in 1997 and continue to grow the businesses with double-digit growth.
The IT role within each business of GE – As Jack Welch stated in the Letter to Shareholders of 1996, “[Information Technology] is making the huge transition from the “function” …… to the indispensable competitive tool, the central nervous system of virtually every operation in the Company.”
These two key points above were to assist GE in one of its Business Goals – growth. GE’s belief in 1996 was that growth was helped by the organisations behaviour and its people and that the behaviour was driven as follows –
“Our behaviour is driven by a fundamental core belief: the desire, and the ability, of an organisation to continuously learn from any source, anywhere – and to rapidly convert this learning into action – is its ultimate competitive advantage.”
Source: GE Letter to Shareholders 1996
In order to help GE achieve these goals, Jack Welch appointed Gary Reiner as GE’s first Chief Information Officer. His goal, as he stated in an Article for Information Week Magazine in 1996 was to “make [information technology] a competitive advantage for GE.”
GE had spent a lot of money on Technology, Information Week estimated $758 million, but had not seen a return on this investment. Having worked for GE in the past, I agree with Tim Smarts assessment in the Information Week article that GE had not been using computing strategically enough. Computers were viewed as a necessary tool, not a strategic one. Each business had its own IT structures and software with no commonality. Therefore, it was extremely hard for diverse businesses to share information and learn from each other.
It appears from the literature of the time that both GE’s desire to learn and use IT as a competitive advantage were intrinsically linked. The IT infrastructure would allow GE employees to share best practices and therefore learn from each other and the businesses they were in, which in turn gave GE the competitive advantage over its competitors. An example of this is stated in the Information week article entitled “Jack Welch’s Cyber-Czar”-
“GE Medical Systems, for example, has a program that dials into Magnetic Resonance Imaging (MRI) machines and remotely diagnoses faults, in some cases before they cause trouble. Now that same setup is being adapted to other products, starting with turbines for generating electricity and extending to jet engines and motors.”
The final piece of Reiners jigsaw in 1996 was to move GE into eCommerce. Not only in terms of offering it to customers, but using the technology itself to allow GE to purchase from their suppliers. This would reduce the cost of the sales transaction. The goals stated in the Information Week article were –
To purchase at least $1 billion worth of its goods this way in 1996 and
50% of the total by 2000.
As Tim Smart states, all of these targets have one goal in mind, “reinventing the way this $70 billion company [GE] uses information technology.”
The IT strategy developed from above was, I believe, as follows –
To help the company grow by allowing learning and sharing of knowledge to take place
To give the company a competitive advantage by developing eBusiness, not only for customers but for GE itself.
Re-invention or Lack of Invention?
The question to be asked now in 2006, is, has GE re-invented the way it uses IT and has it contributed successfully to the business goals of General Electric? The simple answer is a resounding yes.
Looking at the first point above, that of learning and sharing of knowledge. GE had stated that by learning from each other and being able to share knowledge, the company would grow and become more efficient and effective. As is stated in the Annual Report of 2000 –
“The innovation that keeps every one of our businesses – from Aircraft Engines to Medical Systems – at the leading edge of their industries occurs much more rapidly because of the technology that flows rapidly back and forth across our Company in countless streams….”
This statement above, seems to underline the belief in 1996, mentioned previously, that Digitisation would bring about this change.
An example of this efficiency and time saving I know from personal experience, which Reiner stated would happen in his interview in 1996, is detailed below –
“At GE Aircraft Engine Services in Prestwick, we used to work with very large and numerous volumes of Engine Manuals. These were the manuals that we had to, as a regulation, work the engine to. Around about 1998, GE started moving the manuals from paper to electronic format. This electronic format allowed us to do so much more with the manuals, so much quicker, from finding certain pages, words and diagrams, to orientating the diagrams to the way you needed to view them.”
Moving on to point two above, although Jack Welch put in place the CIO in 1996, the drive to enable eCommerce took some time to gather pace, three years in fact at the end of the 20th Century. It has already been stated that GE’s goal was growth, in fact it was more than that, it was to globalise. eBusiness was a core tool to allow this to happen. In fact, the GE Annual Report of 1999 states –
“The efficient harvesting of intellectual capital, which is the state-of-the-art of the globalisation initiative, is impossible without the Internet, and GE products are today being designed collaboratively online around the globe 24 hours a day…”
By the following year, the eBusiness/Digitisation initiative had grown significantly. The Letter to Shareholders of 2000 highlights some of the changes that had taken place since Reiner took over in 1996. Gone is the eCommerce term which is replaced by the new buzz word ‘Digitisation’. The letter states that it had energised every corner of the Company making GE faster, leaner and smarter. As a result, the numbers they were looking for in 1996 began to materialise. $7 billion worth of goods and services were sold over the internet, compared with a target of $1 billion in 1996, an increase of 700%. The letter also stated that digitisation would generate over $1.5 billion in operating margin improvements in 2001. By 2002, the digitisation savings figures being quoted were annual productivity savings of $2 billion and a forecast of generating nearly $30 billion in operating cash flow.
To further highlight the influence that digitisation had on GE, I found an interesting article at the address below –
http://www.line56.com/articles/default.asp?ArticleID=4086&pg=28&topicID=0
This article focuses on one particular business of GE, GE Plastics. To highlight the rapid development of the IT strategy, GE plastics online sales went from $10 million in 1998 to over $4 billion in 2002, a significant result under any analysis.
As can be seen from the above figures, GE did grow and they continue to grow to this day with the help of Information Technology and the IT Strategy, therefore helping GE to achieve, in terms of numbers, its business strategy.
Today, GE’s goal is still to grow and become bigger. In their own words, “Big is beautiful….Our goal is not just to be big, but to use our size to be great.” Although no longer mentioned in great detail in Annual Reports, the IT Strategy will still contribute to this goal. Thanks to this IT Strategy that was re-invented in 1996, GE has rejuvenated the way it conducts its business, with some startling results.
