How does a company become successful and stay successful? Certainly not by playing it safe and following the traditional ways of doing business! Taking a strategic risk is what General Electric (GE) did when it launched its Ecomagination strategic initiative in 2005. According to Jeffrey Immelt, Chairman and CEO: Ecomagination is GE’s commitment to address challenges, such as the need for cleaner, more efficient sources of energy, reduced emissions, and abundant sources of clean water. And we plan to make money doing it. Increasingly for business, “green” is green.
1 Immelt announced in a May 9, 2005, conference call that the company planned to more than double its spending on research and development from $700 million in 2004 to $1. 5 billion by 2010 for cleaner products ranging from power generation to locomotives to water processing. The company intended to introduce 30 to 40 new products, including more efficient lighting and appliances, over the next two years. It also expected to double revenues from businesses that made wind turbines, treat water, and reduce greenhouse-emitting gases to at least $20 billion by 2010.
In addition to working with customers to develop more efficient power generators, the company planned to reduce its own emission of greenhouse gases by 1% by 2012 and reduce the intensity of those gases 30% by 2008. 2 In 2006, GE’s top management informed the many managers of its global business units that in the future they would be judged not only by the usual measures, such as return on capital, but that they would also be accountable for achieving corporate environmental objectives.
Ecomagination was a strategic change for GE, a company that had previously been condemned by environmentalists for its emphasis on coal and nuclear power and for polluting the Hudson and Housatonic rivers with polychlorinated biphenyls (PCBs) in the 1980s. Over the years, GE had been criticized for its lack of social responsibility and for its emphasis on profitability and financial performance over social and environmental objectives. What caused GE’s management to make this strategic change?
In the 18 months before launching its new environmental strategy, GE invited managers from companies in various industries to participate in two-day “dreaming sessions” during which they were asked to imagine life in 2015—and the products they, as customers, would need from GE. The consensus was a future of rising fuel costs, restrictive environmental regulations, and growing consumer expectations for cleaner technologies, especially in the energy industry.
Based on this conclusion, GE’s management made the strategic decision to move in a new direction. According to Vice Chairman David Calhoun, “We decided that if this is what our customers want, let’s stop putting our heads in the sand, dodging environmental interests, and go from defense to offense. ”3 Following GE’s announcement of its new strategic initiative, analysts raised questions regarding the company’s ability to make Ecomagination successful.
They not only questioned CEO Immelt’s claim that green could be profitable as well as socially responsible, but they also wondered if Immelt could transform GE’s incremental approach to innovation to one of pursuing riskier technologies, such as fuel cells, solar energy, hydrogen storage, and nanotechnology. 4 Other companies had made announcements of green initiatives, only to leave them withering on the vine when they interfered with profits.
For example, FedEx had announced in 2003 that it would soon be deploying clean-burning hybrid trucks at a rate of 3,000 per year, eventually cutting emissions by 250,000 tons of greenhouse gases. Four years later, FedEx had purchased fewer than 100 hybrid vehicles, less than 1% of its fleet! With hybrid trucks costing 75% more than conventional trucks, it would take 10 years for the fuel savings to pay for the costly vehicles. FedEx management concluded that breaking even over a 10-year period was not the best use of company capital.
As a result of this and other experiences, skeptics felt that most large companies were only indulging in greenwash when they talked loudly about their sustainability efforts, but followed through with very little actual results. 5 CEO Immelt had put his reputation at risk by personally leading GE’s Ecomagination initiative. Skeptics wondered if the environmental markets would materialize and if they would be as profitable as demanded by GE’s shareholders.
Would a corporate culture known for its pursuit of the Six Sigma statistics-based approach to quality control be able to create technological breakthroughs and new green businesses? If Immelt was correct, not only would GE benefit, but other companies would soon follow GE’s lead. If, however, he was wrong, Immelt would have led his company down a dead end where it would be difficult to recover from the damage to its reputation and financial standing. According to a 25-year veteran of GE, “Jeff is asking us to take a really big swing . . . . This is hard for us. ”