Ge E-Business Caselets

After virtually ignoring the Internet for several years, the giant awakened in early 1999. At a meeting of the company’s top 500 managers, CEO Jack Welch mandated that each division form independent teams to “Destroy Your Business:” identify an existing online competitor or dream up a hypothetical one that could steal market share from GE, and then devise countermeasures. What did they find? “It turned out there wasn’t much other than Web sites. The business models weren’t good, and the fact is people still need to go to an aircraft engine manufacturer to buy an aircraft engine.

But the tools some of these companies were using were tremendous, and we believed they could have a big impact on our productivity. ”[1] The “Destroy Your Business” efforts swiftly turned into “Grow Your Business,” and e-Business became the fourth and final company-wide initiative of Welch’s tenure as CEO. The following caselets describe how four different GE businesses are adopting e-Business tools and principles. As you read them, think about how the activities fit into the “Sell-side, Buy-side, Inside” framework we have been using in class—a framework that is precisely how GE is approaching e-Business.

GE Plastics This $7. 8B division manufactures and sells high-performance engineered plastics to a global customer base primarily consisting of other manufacturers. The plastics business is highly commoditized and tightly competitive, dominated by a few huge global players. GE Plastics was one of the first GE businesses to sell its products online, starting in mid-1997 through its captive distribution company Polymerland (no, the name is not a joke—check out www. polymerland. com).

“We saw the Net as a big curiosity,” says Polymerland’s president Peter Foss. “None of us really know what was going to happen. ”[2] In 1999 Polymerland. com began to face challenges from aggregators like PlasticsNet, and weighed joining one of several such B2B exchanges to remain competitive. Instead they went in another direction, that of using the Web to improve their customers’ purchasing experiences: getting timely information about products they needed, the status of an order, or even customized services.

An example of the latter is online wizards that allows customers’ product design engineers to select materials and colors for plastic pellets, mold a digital representation of a custom-designed part, and get cost estimates for materials. A critical part of the online functionality is the ability to verify specifications on the resins being purchased, a process that used to typically take several phone calls and was prone to error. Says GE Plastics General Manager for E-commerce Gary Podesta, “In the end, we’re doing design assistance.

It’s a value-added service…for us to be able to touch thousands of customers online rather than hundreds of customers [with the field sales force] is a big win for us. ”[3] Similar wizards are now in use at each of GE’s manufacturing businesses. Online sales at Polymerland have grown from $60,000 a week at the site’s inception, to $7MM a week in 2000, to a projected $1. 5B in 2001. Moreover, by linking the ordering systems with production and delivery, call center volume has decreased by over 20% and on-time deliveries by 50%.

Says Podesta, “you must have a world-class fulfillment capability to operate successfully on the Internet. You will lose customers on the Web if they get a late shipment. ”[4] GE Medical Systems This $7. 9B division manufactures and distributes medical imaging equipment (e. g. magnetic resonance (MR) and computerized tomography (CT) scanners and X-ray machines) and related services, such as equipment monitoring and repair. Its customers include hospitals and other medical facilities worldwide; its competitors are primarily other global giants such as Toshiba and Siemens.

Previously headed by GE’s new CEO, Jeffrey Immelt, Medical Systems has a reputation within GE as being the most technologically advanced and innovative of GE’s manufacturing businesses. With the advent of sites such as WebMD and Healtheon—content aggregators who provide unbiased information about Medical Systems’ products as well as its competitors’ products, and who sell used medical equipment via auctions—GEMS feared becoming “lost inside a cloud of undifferentiated medical equipment providers.

”[5] One response was to auction their own used medical equipment along with their competitors’ (to which they already had good access via their servicing operations and upgrade offerings). Another action was to use online sales as a complement to the existing sales force, focusing on formerly untapped markets such as small domestic clinics and hospitals in developing nations. Perhaps most importantly, GEMS also pioneered technology to monitor its equipment at customer sites via the internet; this allows the company to perform remote diagnostics and even remote maintenance and upgrades.

A new $70MM revenue stream in 2001, based on this technology, involves gathering this usage data and selling insights and productivity improvements to customers. Says GEMS CIO Joe Ekroth, “We offer a full range of solutions that go beyond online transactions. These are all big productivity adds for the hospital. ”[6] The remote monitoring technology has since been adapted by Aircraft Engines and Power Systems for similar uses; meanwhile, GE Plastics uses it to track plastic pellets in customer silos and automatically trigger an order when inventory gets low.

By the end of 2000 the division had moved 50% of its purchasing online, employing both reverse auctions and straight purchases via a system originally developed at GE Transportation Systems. In addition to the potential for savings, then-vice president of e-business (now COO) Joe Hogan says e-purchasing “improves quality, because a lot of the time invoices are wrong, specifications are wrong. You do it online, and it takes a lot of the touch time and the opportunity for defects out of the system.

”With respect to GE’s go-it-alone approach to auctions—in contrast to many companies who have partnered with dotcom startups operating auctions as a service—Hogan comments: “We don’t see any reason to have another hand in the till. Why do you want anyone to stand between you and your supplier? That’s one of the advantages of being part of a big business. ”[7] GE Appliances GE Appliances is a $5. 9B business that manufactures and sells household appliances such as dishwashers, clothes washers and dryers, and electric and gas ranges.

GE Appliances and each of its primary competitors—Maytag, Whirlpool, and Frigidaire—each own roughly 25% of the appliance market. Appliance manufacturers traditionally go to market through large retailers like Home Depot, small ‘mom-and-pop’ appliance stores, and construction contractors. Faced with having its products further commoditized on big retail and auction sites, GE Appliances began considering how it could use the Internet as a new channel, maintaining customer awareness of the GE brand without alienating its existing partners or cannibalizing current channels.

[8] GE Appliances’ vice president of e-business, Joe DeAngelo, formerly headed GE Appliance’s Six Sigma quality initiative. He thus spent the late 1990’s improving the companies logistics system, an extensive network that provides delivery, installation, and service: “We know that [order fulfillment and delivery is] an element of our business model that the other guys don’t have…We are able to take products from our factories and get them shipped anywhere in the United States virtually overnight on a cost-effective basis.

”[9] One of GE Appliances’ primary sell-side initiatives leverages this capability while still involving existing channel partners. Customers shopping at Home Depot and other retailers can ‘kick the tires’ on various models and then purchase the dishwasher of their dreams on a Point-of-Sale terminal that is connected to GE’s inventory and distribution systems. The system then allows the customer to make an appointment to have the appliance delivered and installed at their convenience—often within a few days.

The retailer gets paid a commission on the sale. “This gets retailers out of the game of carrying inventory on their floors…What we basically did was interconnect and take the excess inventory out of the traditional retail model to make it a better shopping experience for the customer and a better process experience for the retailer. ”[10] In the meantime, nearly 100% of GE Appliances’ sales now come in over the Internet, at a cost of $. 20 versus $5 for the older call-center-based process.

Says GE’s overall CIO Gary Reiner: “What we have found is that aggregators in most of the businesses in which we play are not going to survive. The reason is that most industries have only a few big suppliers. If one of the big players doesn’t play, the aggregator will lose creditability fast. When the aggregator doesn’t aggregate everyone, it doesn’t add much value. ”[11] GE Capital Services GE Capital Services began several decades ago as a way to help sell appliances by offering attractive financing.

It has grown primarily by acquisitions until it is now made up of 28 different business units that together make up close to half of GE’s total sales. One of the focuses of the widely heralded Six Sigma quality initiative was to apply process improvement techniques outside of the manufacturing settings where they have traditionally been deployed. Most GE Capital businesses—insurance, credit cards, mortgages—have labor-intensive “paper factories” that literally push around mountains of paper such as customer applications and statements.

Though Six Sigma was helpful in understanding and improving these internal business processes in terms of cycle time and quality, e-Business has the potential to radically change the costs associated with them. Some of the examples thus far: • GE Capital Fleet Services provides commercial fleet leasing and management services to small- and medium-sized companies. In May of 2000, “Fleet” began providing its data analysis services via the Web. Previously, these services were provided “through boxes and boxes of materials and reports we shipped,” according to Fleet Services’ product manager for e-commerce Ken Schneider.

[12] • At GE Capital Mortgage Services, which originates and processes its own mortgages as well as processing mortgages for competitors, the process for opening a mortgage contains more than 200 steps. Up to 60% of those steps are now being Web-enabled, dramatically improving productivity; while some employees are being laid off, many are being redeployed to other areas of the business. “We want to take out mundane work and replace it with value-added processes,” says former GE Capital president of e-business Joe Parsons. [13] Study Questions:

• Why is GE being held up as a prime example of an old economy stalwart successfully adapting to e-Business? • What were the keys to GE’s success? What takeaways can you apply to other businesses? • Does e-Business really “change everything” for GE as Jack Welch has been quoted as saying? • Do GE’s successes in e-Business support Porter’s arguments, or Tapscott’s? How? ———————– [1] Q&A: Gary Reiner, CIO and Executive Vice President, General Electric Company, ZDNet. com. [2] Cheryl Dahle, “Adventures in Polymerland, Fast Company, issue 34, p.

352. [3] Meridith Levinson, “Destructive Behavior—Special Report: E-Business Strategies,” CIO Magazine, July 15, 2000. [4] David Joachim, “GE’s E-Biz Turnaround Proves That Big is Back,” internetweek, April 6, 2000. [5] Levinson. [6] Levinson. [7] Joachim. [8] Levinson. [9] Levinson. [10] Levinson. [11] Levinson. [12] Marianne Kolbasuk McGee, “Wake-Up Call: GE and GM pumped up E-business services and overhauled their old-line businesses to aggressively counter competitors,” InformationWeek. com [13] McGee.