9-302-001

gFV- MAY 2i.

CHRISTOPHER A- BARTLETT

MEG CL1NSKA

GE s Digital Revolution: Redefining the E in GE

Ln early 2001, as GE marked the second anniversary of the launch of its e-business initiative,

observers were trying to understand the implications and impact on the company's strategy. Starting

with a Web-based sales push in 1999, CEO Jack Welch had raised expectations of a transformational

shift in GE's customer relationships and selling approach. A year later, with Internet saaes coining

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 internalproductivity through "the digitization of processes,,. Once again, Welch

's enthusiasm was

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

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

and his 60-person team had achieved a huge amount, making Plastics a benchmark e-bu=in£SD-

division within GE. Yet, as he prepared his input for the business's annual organization ar.aleadership review with Welch in April 2001, Podesta was wondering whether to recommenddisbanding his e-business team and folding the responsibility and the staff back into tne operatingunits and other functional groups. Would this dispersed group have the expertise and influence tosupport GE

,s evolving e-business strategy? And was the organization ready to embrace the two-year-old 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 thatGE had been named Fortune magazine's "Most Admired Corporation in America" and TheTimes "Most Admired Company in the World/' both for the third consecutive year. Since becomingCEO in 1981, Welch had seen GE generate a total return to its shareholders of 23% annually

, foralmost two decades. (Exhibit 1 summarizes the era'

s financials.) It was an enviable record, and

Welch,s widely admired leadership of this traditional industrial company's transformation had ledFortune to call him "Manager of the Century." His numerous strategic, organizational and culturalchange 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 We,ch became CEO ,n Apr,, 1981, the U.S. ecOTamy was ÿfPgfg

recess,on. Seeking to improve the operating performance and strateg,c comp _ , sbusinesses

, he restructured its diverse portfolio by selling or closing more t tan ** -didn't meet his strategic standard of being the #1 or #2 competitors in their mdustne., .

the funds generated to acquire 370 new businesses. Simultaneously, Welch focused on e

bureaucracy, stripping away layers of hierarchy, and radically shrinking the me of corporate s~

a downsizing effort that resulted in the elimination of over 100,000 -positions. ffincreased only modestly from $272 billion to $29.

2 billion in his first five years as CEO, net proms

defied the economic downturn, rising from $1.6 billion to $2,4 billion, j l\ [mc

pr < i.r n n yU'WRevitalizing the Culture ÿ

Having created a solid business base, Welch was eager to move past the drastic restructuringstage 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 elementsof the organizational culture he wanted to create-one characterised by speed, simplicity, and self-confidence, In the years that followed, Welch launched several major initiatives that would redefinewhat he came to call GE's -'social architecture

.

"

Work-Out was an initiative designed around a series of two-day off site meetings in which groupsof frontline employees were asked, without, management present how to Improve the effectivenessof their particular operations. Following these deliberations, their managers returned to listen, thenmake on-the-spot;decisions about the proposals. Welch described its objective m ""empowering ourpeople and releasing their creativity and ambition," Over 200,000 employees participated in Work-Out sessions which were credited with boosting productivity growth from an average annual rate of2% 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 andproductivity of GE/s individual businesses, Welch challenged the organization to open up andbecome a "houndaryless company/, A Best Practices program encouraged managers to focusexternally and benchmark their activities against world class, while internally new channels ofcommunication and forums of exchange were created to encourage cross-unit idea transfer, Welch,svision was to create a competitive advantage out of GE

'

s diversity by making the company "a vastlaboratory whose principal product is new ideas that are spread rapidly throughout the company/

'

, In a third "software initiative" that challenged GE's old cultural norms, in 1992 Welch introducedthe notion of stretch to QE's performance targets. In an approach he described as "using dreams toset business targets, with no real idea of how to get there," his first challenge to the organization wasto increase GE's long-term historic gross margin of around 10% to a stretch goal of 15% by 1995.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 thetarget date. (By 2000, GE's gross margin approached 19%,)

Together, these cultural changes formed what Welch described as GE's "social architecture,

* theplatform from which he launched the company's transformation. Many of the embedded beliefsbecame embodied in an evolving set of values that, by 20Q0, were those outlined in Exhibit Z Statingthat they were "the drivers of GE's performance numbers and the bedrock on which we will buildour future/ Welch devoted his entire final shareholders' letter to elaborating on those values.

Developing the People

Crotonville education f&3t'UCf"rWg period, Welch continued to invest heavily in GE'slong-established HR poUcies

,

and

"ÿÿ.?1ÿ ÿ }"°* h! b&®a" mafi"0 Wa'°f .° '1fÿ wc» cuiq processes. tour initiatives stand out:

1 ÿcognizing that some managers were unable to engage in the empowering management. \ff tt k g required by the WorkOut process, Welch began removing what he called "Type 4"HS<\ > nranagers-the autocrats who got results by "kissing up and kicking down."

He then stretched Crotonville'

s role beyond traditional management training into actionk&mmg Qr£3n*2at*Qn development. For example, mid-level classes were challenged to gomto the company and identify major problems or opportunities, then make theirrecommendations directly to the quarterly meeting of GE's top 35 executives.

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,

Ieu4, * Find1y' Welch overlaid an evaluation process and designed what he called a "Vitality Curve/'designed to - continually raise the bar of people quality. All managers were required tocategorize their employees as top 20%, high-performance middle 70%, and bottom 10%. Andthe 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 yearshe transformed GE's paper-driven systems and control-oriented reviews into a carefully-sequencedcalendar of freewheeling discussions that he described as the company's "operating system/' (SeeExhibit 3 for a representation.) Among the key meetings and reviews were:

. The Operating Managersf Meeting, held each January in Boca Raton, was the forum where GE's

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

* At the Corporate Executive Council (CEC) the company'

s 35 top business and corporate leadersv 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.

j * In April and May, for Session C-the Organization and Leadership Review-Welch visitedeach GE business location to engage with those assigned to key initiatives, to review the

VS businesses leadership development, and to drive the "vitality curves-based evaluation

. *

* 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 andits plans to deal with them. These shirtsleeves meetings were driven by broad stretch goals,not precise numbers, and were supported by a small packet of charts and talking points, not

J 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,

- Then ;-ach November, Session 11-the Operating Planning Review for next year-was held.

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 thanarÿumeius a; out line item expenses based on internal forecasts and projections.Welch

, ÿthis series of face-to-face dialogs served less as a control system than as a series of

ÿ

"

touch pcinrs" wher*> be could engage people throughout the company to take their measure, sensethe 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/,

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

oiganizaÿon to renew itself strategically. In 1987, his globalization initiative required that all GEbusinesses were #1 or #2

, not just measured domestically but globally. Taking advantage of Europe'

s

ei.tmoiruc downturn, GE Invested $17.5 billion in the region between 1989 and 1995. Then, in 1995=96,

a t» the peso c jIJapsed, the company acquired 16 companies in Mexico. And as Asia slipped intocrisis in 1997-98

, Welch urged his managers to view it as a buying opportunity. In Japan alone GEspent 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, globalrevenues were growing at almost three times the rate of domestic sales. (See Exhibit 4.)

in 1994, Welch launched a second strategic initiative designed to reduce GE'

s dependence on itstraditional industrial products. In the early 1980s, he had acquired financial service companies suchas Employers Reinsurance and Kidder, Peabody, but now he wanted more. During his annualstrategic reviews. Welch challenged his managers to offset slowing growth for GE products bysupplementing them with added-value services, By 1998, GE's product services businesses--medicalequipment 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 helpedAllied Signal dramatically improve quality, lower costs, and increase productivity. A detailed studyfound that GE was operating at error rates ten thousand times the Six Sigma quality level of 3.4defects per million operations-a conclusion that implied $8 billion and $12 billion a year ininefficiencies. At GE's 1996 Boca meeting, Welch announced a goal of reaching Six Sigma qualitylevels company-wide by 2000. After two years, GE had invested $500 million to train the entireprofessional 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 doorstepof 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. New-economy zealots were predicting that the most talented executives would flee Old Economydinosaurs like GE to join management-starved high-flying startups. In January 1999, Welch silencedhis 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 hisorganization's nascent Web-based activities

. Famous for his handwritten follow-up notes and

performance reviews, he was proud of his personal management style. He told the Fortune 500 CEOForum in 1996

, "

I don't have a computer in my office, and I don't need a computer.

"

But everyone around him was using one, including his wife, who for years had beencorresponding, trading stocks, and planning their vacations online. Welch s interest peaked Onvacation in 1998 when she showed him Yahoo investor sites where people were engaged in vigorousdebates about GE

, its stock, and its CEO. Soon, he was hooked. That fall, he bought a CD-ROM andtaught himself how to type.

"After the Christmas season of 1998, when out office was buyingeverything online, I realized that if I didn't watch it, I would retire as a Neanderthal," he said.

Welch's growing interest in the Internet and e-comrnerce was further stoked by conversationswith Sun Microsystems, CEO, Scott McNealy. The two got acquainted in the summer of 1998 whenMcNealy, whom Golf Digest had named the number one CEO golfer, challenged Welch, who waslisted as number two

, to a round of golf, (Those who knew Welch's competitive nature were not

surprised when the GE veteran beat the young entrepreneur ) The two struck up a friendship, andWelch 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. Announcing a companywidee-business initiative

, he told his top 600 executives that by the June Session I strategy reviews heexpected each business to explain how it would become tine e-business leader in its industry. At theMarch Corporate Executive Council (CEC), Welch followed up on his Boca challenge by inviting JoeLiemandt, 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 firstpriority had to be to acknowledge their vulnerability. ("Look how Amazon attacked Barnes andNoble/') Recognizing that this might require them to cannibalize their traditional business models,

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-businessinitiative with urgency, and told his top team that by the Session C organization and staffing reviewsin 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 wereoffering technical experts huge numbers of options that he called "wampum.

"

Jump-starting dybxom

As they launched dyb.com, the business heads'were supported by GE's Chief Information Officer,

Gary Reiner, an ex-BCG consultant who also ran the 20-person Corporate Initiatives Group thathelped implement corporate-wide programs. Reiner suggested.e-business leader candidates havethree 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 apassion for the Internet (but not necessarily Web-based experience or technical expertise).

The first task of dyb.com teams was to understand how a hypothetical Internet company could takemarket share from GE-as Amazon had from traditional book stores-then to devise preemptivemoves or countermeasures. Teams were authorized to break all the rules with the exception of theprinciples defined in the company values. At the same time, however, Reiner and his staff

encouraged the new e-business leaders to focus on the opportunities the Internet providediasaBales

channel. The immediate priority was to develop websites that facilitated online trans

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

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. Intypical fashion, he began calling personally on the newly appointed e-business leaders to ensurethere was sufficient urgency and boldness in their actions. And at every encounter he would ask

them how much they were selling over the Internet, and what more they could be doing. It s a greatjob because Jack is into it," said one

. "And it's a terrible job because Jack is into it.

"

And Jack was into it. Everywhere he went,

he asked GE's leaders whether they were up to speedon e-business. In one such encounter, a senior executive in Europe described how he was meetingregularly with a young manager who was coaching him on the Internet. Welch was so impressed thatimmediately on returning to the United States, he asked GE,s top 500 executives each to get anInternet mentor

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

Meanwhile, 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 intensethan in GE Plastics

, the $7 billion business Welch had rim before becoming CEO.

GE Plastics: GE's e-business First Mover

When Welch announced his latest initiative, GE Plastics was already an acknowledged leader in e-

commerce 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-housedistribution 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 Welchannoynred the e-business initiative, Polymerland was booking about $50,000 a week in sÿlss.

LLaunching the Initiative

After the March 1999 CEC meeting where Welch emphasized the importance of committing full-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 tobecome his division's general manager of e-business. (See Exhibit 7 for organization.) A 17-year GEveteran running GE Plastics'

Southeast Asian business unity Podesta was a 41-year-old plastics.engineer with no IT training or Internet experience. He said:

, , I

I didn,t have an e-business background and I certainly didn't have a strange haircut orwear an earring. But GE hates to recruit outside for initiatives so Gary was looking forsomeone who knew the plastics business, understood how GE worked, but also was willing tobe 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 decidehow 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

have to &ai-n rnlÿ ÿ"1&n S*Qÿ- He decided that;, in addition t:o creating a dyb team, he wouldgam control of these dispersed resources and activities.

competit> ÿ1 ÿr°ÿQSetÿ St1StGgy Was to focus on three priorities-to initiate a dyb review ofworld 1c

e "1re3t5' *° kuild Qn the proven transaction capabilities of polymerland.com, and to create

C ass content centered on online engineering and design-all with a global focus. Thegamza ion he envisioned consisted of a new 7-person dyb.com team, 25 people to developfactions capability and upgrade polymerland .com, and another 30 to focus on technical content\ °Ver aUÿ globalize, and relaunch geplastics.com. About half of the new group would come from

existing e-business activities, but half had to be recruited from the best and brightest in each of the

p astics business units. Describing his initial challenge, Podesta said: <J0 v\cA*-)

As we prepared for SI (Session I) there was a lot of tension. Here I was, an outsider in astaff role planning to centralize activities

, take their best people, and drive the strategy on ahigh profile initiative that the business units wanted to own. But while 1 would be calling theshots and committing the resources, they would still be responsible for the results. The SIpreparation became a. huge forcing function. . . . Some managers weren't happy, but you can'tafford 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 toencourage creativity and non-traditional thinking. Many old-line managers raised their eyebrows atthe pool table, foozballs, and coffee machines, but with, such strong top-level support, few openlycriticized the team's counter-culture activity.

The team soon identified a few Internet-based competitors that represented potential threats. Forexample, PlasticsNet was a nascent online marketplace for plastics from all sources that focused thedyb team on the threat of so-called "aggregators." The conventional wisdom held that big companiesshould cooperate with these specialized sales sites, or at least form an industry-supported site thatcould offer a competing open marketplace. The dyb team's analysis, however, concluded that if theydid so they would be giving up much more than they would get. Believing that GE had the bestbrands (Lexan, Noryl, etc.), the best customer service, and the best fulfillment capability, Podestaasked, "Why should we give away those competitive advantages?" The team,s intuition wassupported 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.

The dyb exercise also led Podesta and his team to begin surfing successful sales websites outside>th

.e plastics industry. By calibrating competitive capabilities and highlighting best practice fromother industries (e.g. online automobile sales), the dyb.com team established a vision and set a

standard for the other parts of the plastics e-business initiative to follow. For example, they identifiedthe use of a natural language technology on the new Ask Jeeves website as a valuable tool-somethinglater incorporated into

"Ask Edison" on their own applications.€<

Another conclusion they reached was that GE would have to expand its thinking beyond buildingefficient online transaction processes to creating an engaging customer interface. Not only did thisimply more features

, and improved functionality, but also the development of a community thatwould make its Web pages a virtual meeting place for the industry. It was here that the dot-comstart-ups were most often ahead, and where GE would be vulnerable unless it moved quickly to

ca ture the emerging online community of engineers, designers, and buyers in the plastics industry.

Building a Better Mousetrap

Meanwhile, a parallel development effort focused on rethink.ÿÿ®P"3Sÿ

strategy, starting with a total overhaul of the geplastics.com website. Us g P ÿ foÿr k Iteam,s competitive benchmarking,

this activity was divided into design teaend-user functions-Buy, Design, Research, and Interact.

Basic online transaction functionality had been developed on polymerland.com. But thedesign team aimed higher than more efficient online selling; they wanted to create positive online

relationships and build customer loyalty. The team actively solicited input from its customerspurchasing agents in designing the site, the interface, and the supporting services. Among the scores |

I of their suggestions integrated into the final design were the dispatch of automatic confirmations ororder entry and order shipment, downloadable printouts of quality certifications, a shipment trackingfeature

, and the ability to order by the customer's part number rather than GE's.

Meanwhile, those working in the Design and Research areas began exploiting files containing 30 Iyears of information on the technical characteristics and properties of its products, making itaccessible to customers in an attractive

, useable form. When the website's iJesign and Research areas

I were relaunched in early 2000, they included not only technical answer databases but also a toolbox Iof "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| guidance on potential problems with material interactivity. (See Exhibit 8.) In a couple of hours, adesign engineer could not only select the most appropriate material for the specific application, but Ialso could determine how many molds to build for each part and what cost and performancedifferences might be using different products or designs.

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

Making Commitments, Stretching Ambitions IIn November, Podesta was asked for his input to support Plastics CEO Gary Rogers, Session II

presentation. He recalled:

We got three pages of Gary's 25-page SII presentation to tell how we were going to driveonline 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 getmeasured 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' way to absorb my extra people and a few million dollars of cost and still meet this year,s i

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 oursites on a stretch target of $2 billion . . . Stretch is difficult to explain in our culture. It's what

might happen if everything went perfectly-a great economy, no breakdowns, no problems.I_

But we set our sites on it to make sure we make our commitment. _ _

Linking, Leveraging, and LearningAs implementation of the initiative continued across GE's 20 businesses, Gary Reiner and his team

were conscious of the key role they could play in identifying and transferring best practice. In doingso they harnessed GE's regular forums, processes, and systems. But they also supplemented thedeeply embedded "operating system" calendar with several more targeted

ÿ

meetings andmeasurements designed 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."

Spreading the Wealth

From the early days of the initiative, Reiner arranged meetings of GE,s e-business leaders to allow

them to compare experiences and build peer-to-peer relationships. He also used those forums to tapinto ideas from a variety of internal and external sources. For example, the source of geplastics.com sWizards was an e-business meeting to which Reiner invited the operations VP from CincinnatiMilacron to present what Reiner's e-business experts had determined to be "best practice" in Web-based customer service. The guest demonstrated his company's creative way of leveraging scarcecustomer 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."

The meetings were supplemented by monthly conference calls, hosted by Reiner, at which all e-business leaders would report on progress, ask for assistance, and share successful ideas. Thisbecame a key forum to encourage the transfer of best practice directly. For example, on oneconference call, Podesta explained how the plastics business had done much to overcome salesforceand customer resistance by creating an eight-person team of "field growth leaders" whose only rolewas to visit customers and train them on the use of the website. The effort was reinforced by payingthe salesforce a higher commission whdn their customers ordered.*online. Soon, the Plastics e-business team was being contacted for advice by other GE businesses. "We must have heard from 15of the 20 businesses over the next three months," said Gerry Podesta. "It's a natural thing aroundhere to want to help them."

Reiner also used the "operating system,s" calendar of meetings and reviews to great effect. Forexample, 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 withaggregators), he presented operating detail and shared best practice such as Plastics adaptation ofWizards or its innovative "field growth leader" concept. He explained his objective:

We tried to give the business CEOs enough background to go backhand have productive

conversations with their e-business leaders. So we would show them the attributes that madea site compelling for a customer-what it takes to make a personalized experience, how tomake transactions user friendly, and so on. We armed them with good questions to ask, goodchallenges to throw out.

Another opportunity to leverage GE's "operating system" came when Welch asked Reiner toprepare an agenda for October,

s" Corporate Officers Meeting. In the tradition of recognizing rolemodels in front of GE,

s 150 corporate officers, Reiner was able to reward some key people whilesimultaneously highlighting transferable best practices. Among those he tapped was Peter Foss,

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

$5 million a week in September. .others to match its performance-

As he heaped praise on Polymerland's achievements, Welch urged

then nudged Foss to turn up the heat even more.

New Frontiers: Birth of e-Auctions

By the end of the first year of the e-business initiative, a few lessons had begun to emeige. First,no GE business had found a credible "Amazon Threat" from a dot.com company. Indeed by year

'

s

end the dyb.com 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 growingrealization gave credence to the internal skeptics, and made some e-business team members nervous

about their career choice in signing up for this initiative.

In response, in late 1999, several businesses began exploring online purchasing as an e-businessprofit 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-businessteam on an IT internship program. Recognizing its potential, Reiner asked Global Exchange Services(GXS), GE,s newly created in-house developer and vendor of B-to-B software, to host the applicationfor other businesses

. (See Exhibit 9.) To Podesta the e-auction tool was a gift. Like other GEbusinesses

, the plastics e-business team had been evaluating auction hosting services and commercialauction software but became frustrated by the cost. He explained: "They were all pretty expensive:$500,000 to $1 million to buy plus a usage or transaction fee.

"

So we were delighted when thetransportation guys went off and wrote their own auction software for $20,000. Within 30 days,

every GE business had it loaded on their system.

"

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 salesonline. After e-auctions were rolled out, data on percentage of purchases auctioned and dollars-saved in e-auctions were collected. And the CEO personally checked in on reported Drocress asPodesta 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 thatdip!

By March 2000, Reiner had created a Web-based report that allowed all GE,s businesses to postresults on what was becoming known as e-sell and e-buy. In addition to allowing top management totrack performance, it created a transparent internal environment in which businesses couldbenchmark 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 tothe initiative, and they knew he would be asking them to meet their e-business leader arid e~business teams. . . . One of my roles was to set the bar these people had to clear. From myperspective I could compare performance of e-business leaders across the organization

, and a

couple of times I had to call the business leader and say, "This guy's not cutting it. Do you

love him? If not, we

'

d agree it was time to replace him-

Reflections, Corrections, arid New Directions

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

stock market. Within GE

, however, there was a growing confidence that, far from being threatened,its established operations had a significant advantage over their dot-com challengers. (See Exhibit10.) 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. The e-sell initiatives had some impact or»

transaction economics, 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 achievedthrough its Six Sigma program, for example. After the dot.com stock crash in April 2000, as theskeptics 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 beginningsof 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"-placeswhere one human passed information to another. Their analysis showed that if they could automateor eliminate these, they could reduce their selling, general, and administrative (SG&A) expenses by30%. 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 tospeak at the June CEC meeting. He, too, focused on the power of intranets to drive internalproductivity, but emphasized the need to shut down parallel processes in order to force thedigitization of activities. As Reiner explained, "That was a very, very big insight for us, especiallysince 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 embeddedcorporate systems built on human intervention and replacing them with online processes. Forexample, 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 ofwhich was asked to come to the June-July ÿSession I strategy meetings with ideas on how it coulddigitize processes to take 30% out of its SG&A. After reviewing the SI presentations, Welch begantalking about a companywide potential savings of $10 billion in three years, describing thedigitization 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'stop e-business company ahead of the dot-com start-ups and high-tech players, the magazinecommented, "

Big is back, and no company makes that point more convincingly than GE wheree-business experimentation is paying off in a big way.

"

Such accolades, when coupled with Welch's high profile optimism about the Internet s potential

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«

.noiu\ci:v ir$ award, even Internet Week seemed a little less enthralled. In an artic e 6

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-n- r°p 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 dealingwith 25% of its 30

,000 suppliers online, this was significantly less than the 100% of Web-based

pu. chase:, it had targeted when its e-buy initiative started. Finally, productivity savings frome-mnke 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 billion of savings Welch had talked about.i of savings Welch had talked about.

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, andthe supplier numbers are all long-term objectives.

" Far from backpedaling, he was pushing the e-business initiative harder than ever in his final months as CEO

. In a softening market, while othercompanies cut back on information technology investments, Welch increased GE

's IT spending by12% 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 ITspecialists 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 .GerryPodesta,s invitation to make a presentation at Boca in January. From $100 million in online sales in1999, 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 caughtthe eye of GE's competitors, and"in October 2000, DuPont,-Dow Chemical, BASF, and Bayer launchedOmnexus, a new online marketplace that promised buyers better choice and more competitive pricesfrom 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'sgeneral 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 wasgoing to "digitize" activities. (See Exhibit 11.) "It was another example of best practice from thisgroup,

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

In one symbolically powerful.decision triggered by the process changes, management removed200 network printers from the Pittsfield head office building and donated them to the local highschool. New orders for paper were also put on hold.

"We just don,t print much anymore," saidPodesta. "Everyone just walks into meetings with a laptop, not paper files.

"

< As managers began examining the effectiveness of their processes, they began questioning theway 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" supportactivities (scheduling, IT, billing, etc.). The objective of e-make then became to make all back roomactivities more efficient. But the "digitization of processes/

' as it became known, was hard, and

Podesta felt that the opportunities 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 thousandso people. Practically their whole business is backroom. But you don

't see that here. I have 80customer 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 improvingprocesses 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 considereven more radical changes. It had evolved a long way from its dyb.com origins, and he wondered if .e-make's new

*"

digitization''* priority might be implemented more effectively through new structuresand processes. Specifically,

he wondered if the time had come to disband e-business teams and foldthem back into the day-to-day operations.

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-sellto e-buy to e-make. Through all this, we had to keep the e-business team

's motivation. You

can/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 neverbe an Internet company/'. . .When e-make came, the stress went up again. Some felt they werenot qualified to drive digitization... . . But I have responsibility for those 60 people who puttheir 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-businesschampions back into the mainstream. Or if other functional and unit managers were ready to take upthe 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 andstretched by many other demands. These were among the issues occupying the thoughts of Podesta,

Reiner, and Welch in early 2001.