Rail to be next Reverse Innovation from India: Jeffrey Immelt, GE’s Chairman & CEO

Chairman of the Board and Chief Executive Officer of General Electric Company Jeffrey Immelt (3rd from left, in striped tie) and GE India President & CEO John L Flannery (second from right) with employees at Taj Mansing Hotel, New Delhi.
Chairman of the Board and Chief Executive Officer of General Electric Company Jeffrey Immelt (3rd from left, in striped tie) and GE India President & CEO John L Flannery (second from right) with employees at Taj Mansing Hotel, New Delhi.

Jeffrey R. Immelt, Chairman and CEO of GE, by his own admission believes the $148-billion conglomerate with a diverse portfolio ranging from light bulbs and power equipment to healthcare and locomotives is witnessing its biggest transformation in history. Immelt, one of the most celebrated CEOs in a company which has been the most scrutinized and applauded in equal measure by students of business as well as management thinkers, recently decided to exit the finance business housed under GE Capital and focus a lot more on industrial internet, big data and software. The software division has a turnover of $6 billion now and the infrastructure engineering behemoth is said to be looking at a top 10 position by 2020.

In India, it’s betting big on renewables, healthcare, power equipment and software but perhaps its biggest bet is the railway locomotives contract, for which it’s been waiting for over a decade. In India last week to review the company’s $2.5-billion operations, the 59-year-old chief executive, who took charge of the company in 2001, spoke exclusively to media on the new GE and where India fits into his game plan. Excerpts …

A recent McKinsey report suggests that the 30-year period of unprecedented profits is coming to an end as competition intensifies and technology disrupts the business landscape. So how does GE disrupt itself before somebody else does? Also, what’s your vision for the new GE way?

Companies have to be willing to innovate and be brutal about cost at the same time. I want us to have a cost structure that’s lower than India and China. Because if you can’t do that, then McKinsey might be right. But I watch company after company that can do one or the other or neither, but very few companies are willing to do both and keep investing in good times and bad recognizing that you are only as good as how efficient you can be.

Immelt (centre, in striped tie) and Flannery (second from right) with the top leadership team at Taj Mansing Hotel, New Delhi
Immelt (centre, in striped tie) and Flannery (second from right) with the top leadership team at Taj Mansing Hotel, New Delhi

When I think about the company, I think about four big elements. The first one is portfolio; so we’ve just completed Alstom, we are selling GE Capital; we are really defining ourselves as the great industrial infrastructure company of this age. The second is what I call the GE Store. We have these big horizontal initiatives in technology, globalization services, and things like that make us work. I think India is a prime example where the totality of the company is so much stronger than any individual business. The third is digital industrial. And I think by and large, industrial companies need to drive more digitization inside their company. But if you look outside the company, you know a new gen engine has 100 sensors on it; a new locomotive is a rolling computer. So we need to be as keen on the analytics and software side as we’ve been on the material science side. The last one is just a re-exploration of our culture to say, look in order to do all the above in 175 countries, we have to be leaner, communicate faster, empower people, have faster processes… and so those four things are really what’s defining GE today.

What’s the rationale of still having healthcare and lighting in GE’s portfolio?

We have never been afraid to sell things or buy things; we’ve sold almost half the portfolio. When you travel around most parts of the world, healthcare is considered infrastructure and makes society productive. So, in many ways, it’s a natural fit. And by the way, it’s going to be 20% of the world’s economy. I think lighting is a different story completely. If all the lighting was a consumer incandescent business, we would have sold a long time ago. But in the world of LEDs, it’s really a high-tech infrastructure, business… it’s going to be the lead in terms of how we go after energy efficiency with some of our consumer industrial.

There is a lot of talk around diversity in board rooms and pressure is building on companies around it. What is GE doing on it?

You just have to be committed to being a meritocracy and to being a company where the best people get the best jobs. Just last month we promoted our first woman to be vice-chairman (Beth Comstock) and we just promoted a woman to run the locomotive business (Jamie Miller). So, we have exceptional diversity but it really gets down to meritocracy, not just gender or race or things like that.

When do you foresee a woman taking over as GE CEO, or for that matter someone of an Indian origin?

I never predict things like that, but I would say we have very good talent of both inside the company today. Both are extremely possible in the GE I see today.

GE is going through a transformation in its people policies as well. You have a new appraisal system, bonus policy. Do you think you have been late in catching up when GE usually leads in areas like these?

I think we have always been willing to blow up the company and so I think we are always culturally astute. We are still very outcome-focused, because we are very performance-focused. But we want to make the feedback very contemporary, more constant, more 360-degrees. We don’t aspire to be either ahead or behind, we just aspire to be really great. Everybody is working on how you make size an advantage out of a disadvantage. We would like to think we are in the lead in that area.

What kind of reverse innovations are happening from India?

I always believe in India. When we talked about reverse innovation almost 5 years ago, it was really with healthcare in mind. So we are trying to pivot what we learn in India and make it the platform by which we grow the globe of business.

A customer here talked of using invertors between wind and solar technology. His idea is how we can design the product that would be as robust to wind and solar in a medley instead of having two different products. That is a unique idea that could fit almost anywhere in the world. A lot of what we are doing in wind are the things we can sell globally. The rail project, when it goes forward, will be another example of India playing the source of innovation for the global system.

GE has put a big emphasis on big data. But the managers are largely from the old economy …

If we sit here 15 years from now and 15% of the market cap of S&P 500 is the industrial internet and GE gets none of that, I would consider myself to be a horrible failure. And, in order to do that, to your point, we have to bring in people that know the technology, know the business model, move at the right pace and, that is critical. So the guy (William Ruh) who is showing us the way is from Cisco. I am willing to change the company to do whatever we need to do to win in the industrial internet.

Would you say that this is perhaps one of the biggest transformations in GE’s history?

No doubt. I think industrial companies made a mistake 15-20 years ago to say ‘software is somebody else’s business, and our business is iron’. Today, it is embedded. So, if you are still thinking like you were in the 1990s, you are going to get smoked. And that is not the way we think of where the world is going or the role we have to play in it. It is fundamental to the company and our strategy. And, it is one we can’t lose in.

You have talked about being patient in countries like India. Is it your experience with the Railways?

It is the just the way globalization takes place; it comes in spurts. We did a JV with Godrej in 1988 for appliances… then we did the BPO GECIS and the Bangalore Tech Centre. In the last decade, we did a lot around infrastructure, but then we discovered manufacturing. Do I wish I had a magic wand and could make all the reforms that Jeff Immelt and GE would like in India? Sure I do. But that’s not the way the systems work. The best companies always find a way to persevere.

Of all your businesses, which are the two or three businesses which you would see growing much faster in India over the next five years?

Rail would be a significant opportunity for a company like GE. I think oil and gas could be an incredible sector for us from virtually zero a couple of years ago. Wind energy is massively growing. Though we have been here a long time with healthcare, it could be a good growth opportunity. And the one that I am not mentioning is the one that is the biggest business in GE – power generation. The fifth one I would add is military aviation. If there is an indigenous fighter, that would be great. India is going to be a big hub for our industrial internet and I would see more software for India as well for us.

And what would this entail?

We are building our own operating system called Predix and so what we would have in India is a more substantial group that is doing applications on the Predix, probably in the power and energy sector.

What are some big changes you’d want to see in India? What are the things that need to move faster?

I think we just have to reform the bureaucracy. The regulation is just not conducive to the massive kind of investment that needs to be made in the country. And as part of that, you just need to open up transparent markets. On the business side, we have to do a better job of creating broader opportunities for more people in India – whether that is through manufacturing or bringing water and healthcare to rural areas. And, I think that those two need to happen more or less at the same time.

The crisis in the Middle East and the slowdown in China are among the factors that could impede growth in businesses. Do you see any other?

We just really live in slow growth and volatile times and that’s been true for a long time. So the only kind of balancing force is that the US economy is much better. The Middle East, North Africa, Turkey region is going to have 15% growth this year, one of the highest in the company. Egypt is going to spend $2 billion with us on electricity. So there are opportunities out there if you have real solutions for your customers and for society, and that’s what businesses like us have to go out and get. Courtesy:TOI