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Digitization at General Electric (GE)

More than any other institution, GE has mastered the art of digitizing while conducting business. GE is a 124-year-old diversified technology, manufacturing, and services company, committed to achieving leadership in each of its key businesses. GE's multi-business success comes from its competitive corporate culture, shared strategic priorities, and ability to find new and more efficient ways to run the business.

To reach and maintain the leadership position, GE's ongoing growth and strategy is focused on four key initiatives: WorkOut, Six Sigma, Services, and Digitization.

WorkOut—Globalization

WorkOut, the oldest initiative at GE (going back to the early 1980s), has become so ingrained in GE's culture that it's less of an "initiative" now and has simply become the way the firm operates. Globalization began as a search for new markets for GE's products and services. This quickly expanded to include finding the most competitive sources of finished products, components, and raw materials. When the globalization initiative began, the company derived more than 80 percent of revenues within the United States; today, more than 40 percent of GE's revenues are generated outside the United States. GE is a truly global company, always strengthening its international presence with new local operations, acquisitions, and joint ventures.

Six Sigma—Improving Manufacturing and Service Quality

During the 1990s, many companies utilized Six Sigma to eliminate process variability and optimize quality. Six Sigma—virtually defect-free processes, products, and services (3.4 defects per million)—takes its name from the Greek letter "sigma," which is used in statistics to indicate standard deviation. GE uses Six Sigma to help distinguish between work that is absolutely necessary versus work that is nice to do but not critical to quality.

Through this quality methodology, GE claims that it has been able to develop and deliver much-improved products and services. Six Sigma builds on the old quality principle that employees often have the best ideas about what tasks can be simplified or eliminated. It is estimated that GE has trained more than 100,000 people in Six Sigma and completed 500,000 projects.6 Six Sigma has helped changed GE's focus from inside to outside, namely to the customer. This change in perspective has undoubtedly helped improve products and services in new ways. (For more information on Six Sigma, see Chapter 10.)

Services—Converting Products into Solutions

In parallel to the Six Sigma efforts, GE is transforming itself from an engineering company into a services firm. In some areas, it is going even further by moving from services to total solutions (that is, providing products, services, and financing). What's more, GE is focusing on creating service platforms to support high-tech products and equipment. For instance, part of GE's medical strategy is to provide services for a digitized hospital that has no paper files, no traditional nurses' stations, and no medical records department. Instead, all the information about a patient is available on computers and kiosks located strategically throughout the hospital. Critical information like diagnostic images and medication are available instantly. That means less time tracking and documenting patient information, and more time for patient care.

By developing leading-edge technology and then driving it back into the installed base of equipment, GE is aiming to increase its customers' productivity. For customers, this enables them to become more competitive at lower investment costs. For GE, this has created a rapidly expanding services business, which is expected to grow substantially for decades to come.

Digitization—Increasing Productivity and Profitability

GE is using Six Sigma to evaluate all the work it does and to shed, streamline, or simplify tasks that aren't critical. The logical next step of Six Sigma is process digitization. The digitization goal: to utilize Internet-based workflows wherever possible to eliminate process friction and streamline the operations of GE. The digitized GE expects to have smaller administrative "back rooms," reduced waste, and faster decision making.

Its financial goal is expanded productivity and profitability. It has invested $10 billion in IT since 1998 to make digitization a vital part of the company. GE is reserving spending for all sides of the business—from the "make" side of internal process digitization, to the "buy" side of sourcing and procurement, to the "sell" side of customer transactions and service.7 Anything to do with customers and growing revenues is receiving digitization priority.

Digitization is a "game changer" for GE because it improves the competitive position. Consider how Internet and Web technology are allowing GE to reallocate back-office processes. At GE, 60 percent of the resources are in the front office—customer facing, manufacturing, selling, and accounting. The other 40 percent of the resources is in the back office—billing, receivables, and call centers. GE plans to take out $10 billion of its SG&A costs by 2005. Simply optimizing the working capital situation—faster recovery of receivables, reduction of liabilities, and reduction of inventories—would produce an ROI in the billions range as a direct result of GE's digitization effort.8

Digitization Themes at GE

At GE, digitization is the conduit through which globalization, Six Sigma, and product services strategies are shaping a leaner conglomerate. The purpose of digitization at GE is to implement corporate strategies that can be distilled into seven themes:

  1. Make yourself Easy To Do Business With—present one face to the customer.

  2. Develop a process enterprise—integrate around the customer.

  3. Create an outside-in service focus, rather than an inside-out product view.

  4. Anticipate customers' needs through services—build value around how the product is used.

  5. Integrate virtually, not vertically, using flexible business process outsourcing.

  6. Make the business agile—do less planning and more "sense and respond" to uncertain economic events.

  7. Include measurement as part of management, not accounting—utilize digital cockpits (a report where managers can view an aggregate of customized company statistics) to monitor, act, and control events.

Once formulated, these enterprise-level themes must be converted into business processes, which are then mapped into applications and systems. All this must be done more quickly and cheaply than ever before. Translating an organization's strategic objectives into processes and applications that in turn drive operational results is the critical role of management.

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