Will Jeff Immelt's New Push Pay Off for GE?
Not long ago, Katherine A. Findlay of Southwest Airlines (LUV ) Inc. noticed a change in the hard-charging folks from General Electric Co. (GE ) Along with aggressively selling and servicing her jet engines, they suddenly wanted to help the overall business. "They started asking: 'How can we help you be more efficient and cost-effective?"' says Findlay, who handles finance and contracts in Southwest's maintenance unit.
But when GE offered to send over a "black-belt" specialist from its Six Sigma quality program to work for several months at no cost on a problem that had nothing to do with GE products, Southwest balked. Who wants to share private information about one supplier with another? And few at the airline had time for the rigid, almost religious dogma associated with Six Sigma. Much as they liked GE, that kind of thing didn't fit Southwest's swashbuckling culture. "We try to have a little more comic relief," says Findlay, who boasts that she doesn't own a blue suit.
Even so, in mid-2000, Southwest executives relented and allowed Lori L. Kress of GE Aircraft Engines to come in to help solve problems with a component made by another company. While the problem didn't compromise safety, it was a nagging headache. Although Kress was taken aback by Southwest's balloons in the workplace, executives in shorts, and a welcome-aboard hug from Chief Operating Officer James C. Wimberly, she helped figure out and fix the problem. The part went from having 10 failures over the previous few months to none -- and Kress helped introduce Six Sigma concepts. "Lori even bought us a sandwich or two," says Findlay, whose airline has since let dozens of other GE folks work on projects, including financial analysis and invoice flows.
While Southwest execs are still more likely to chat about their weekends than Wiebull diagrams, they claim to have a new appreciation for GE. Says Kress, a pioneer in what ballooned to 10,000 similar projects last year: "The more successful our customers are, the more successful we will be."
SHAKING UP THE BEAST. That's clearly the BET of Chairman and CEO Jeffrey R. Immelt. Since he ascended to GE's top job two years ago, Immelt has tried to turn the $132 billion giant into a truly customer-focused organization, in part by sharing its best practices. But the revolution dubbed "At the Customer, For the Customer" -- or ACFC, in GE lingo -- isn't just fuzzy feel-good rhetoric. Immelt's push is changing how GE operates, including how its different units interact and how its profit-driven salespeople are measured. These days, everyone must answer up the line exactly what they've done for customers lately. Think of how Chairman John F. "Jack" Welch shook up the ranks with initiatives such as Six Sigma or Work-Out, which got employees from all levels involved in decisions. While Immelt himself won't quantify the cost or payoff of his push so far, he points to thousands of projects worldwide and says that up to 40% of clients already want to be on board. As he puts it: "There is not one person in GE who is not going to know how to do this."
The test is what all this love is going to do for the company. With GE struggling to grow -- its earnings fell 14% in the second quarter of 2003, to $3.8 billion, on flat sales -- Immelt has to do something to shake up the beast. The logic is simple: In an age when products can fast become commodities and service contracts go to the lowest bidder, companies are desperate to differentiate themselves and add more value in serving their customers. So why not make yourself indispensable by bringing your best people, resources, and skills to bear on customers' problems? As analyst Nicole M. Parent of Banc of America Securities argues: "Most companies don't have the culture, the resources, or the processes to offer this kind of thing."
True, but GE is operating in some slow-growth industries where it may be tough to grab more market share. And it's hardly the only company reaching out to customers. Rival United Technologies Corp. (UTX ) says it, too, is trying to share its best practices with customers. Meanwhile, Cardinal Health Inc. (CAH ) credits its customer focus with pushing the company to move beyond drug distribution into recordkeeping, managing drug dispensing, and even customizing medical-supply kits for surgeons. "Our goal is to be an essential partner with our customers and help them solve their most pressing issues," says Chairman and CEO Robert D. Walter. Cardinal's annual earnings have grown in the past 10 years to $2 billion from $47 million.
Companies from IB (IBM ) to beleaguered Xerox Corp. (XRX ) have also tried to turn their expertise into new services that enhance their mojo in the market. Even Hewlett-Packard Co. (HPQ ) is hawking its prowess as a consolidator and rabid cost-cutter based on its two-year experience in merging with Compaq.
Still, few companies have a history of driving management initiatives into the bones of every employee the way GE does. And few are as copied when those initiatives pay off. That doesn't mean persuading GE troops to become customer advocates has been easy. For one thing, these are people whose bonuses and careers have been tied to how much they sell, not how much they help their fellow man.
INTERNAL RESISTANCE. Immelt says that improving customer productivity is now a critical part of performance evaluations. But even he concedes that there has been some resistance to offering any help that doesn't immediately boost GE's bottom line. "The guys in our financial-services salesforce kind of said: 'You've got to be [kidding] me. Six Sigma?"' he recalls. "It's taken me a couple of years to say: 'This is your day job, and it can help you grow faster and it can make you more money."'
Making money, after all, is what this is all about. The bulk of GE's initiatives focus on companies that matter and projects that can be directly measured in terms of fewer breakdowns or higher customer profits. Shareholders such as Michael Holland of New York investment firm Holland & Co. aren't worried about the investment of GE's time and people. "There are some incredibly useful things that Jack left behind that can be packaged to help customers," he says. "And I bet it's all priced in."
Tapping into the knowledge base of GE is a negotiating tool or benefit of doing business, not an end in itself. Bringing customers to GE's research and development centers or famed training facilities in Crotonville, for example, is meant to improve productivity, not provide free field trips. "We have to make sure they understand it has value to them," says J. Jeffrey Schaper, GE's chief commercial officer. "We are not the world's most philanthropic company."
Nor, lately, has it been the world's most profitable. Despite a leadership position in most of its businesses, GE didn't crack the double-digit earnings-growth bar last year, growing 7%, to $15.1 billion, while revenues inched up just 5%, to $131.7 billion. This year has been worse. Raising prices on products and services simply isn't an option for many companies. Customers are too sophisticated, and competition is too great. The answer, says Adrian Slywotzky of Mercer Management Consulting Inc., is to grab extra share in slow-growth businesses, such as jet engines, plastics, or power turbines, by enhancing one's value to customers. "It's not enough to be customer-centric," says Slywotzky. "You need to become sophisticated about your customers' activities and internal processes."
Few CEOs understand that like Immelt. The former Dartmouth College football lineman and fraternity president grew up in sales, having jumped from Procter & Gamble Co. (PG ) to GE's marketing department after graduating from Harvard Business School. He tested those customer skills through stints at GE Plastics during a price collapse, GE Appliances amid a massive product recall, and, most notably, in GE Medical Systems, where he first pushed the notion of tapping the corporation's resources to give customers more bang for their buck. During his tenure from 1997 to 2000, Immelt increased the service portion of the medical business from 25% to 42% of revenues and increased profits threefold. That helped him develop a reputation as someone who could think big and deliver the numbers -- skills that were instrumental in the board's decision to name him CEO in late 1999.
Not surprisingly, GE Medical has been a showcase for the customer-centric approach. Take University Community Health System in Tampa, which had long bought medical equipment from GE. When the organization decided to build a state-of-the-art heart hospital and research center last year, GE joined in the bidding with some extra enticements. Not only did GE execs offer the usual equipment and services, they helped build a system around technology GE is developing that isn't even on the market yet. Hospital execs also got advice on leadership development, workplace design, and coordination with other units of GE to help build the facility.
STRATEGIC PARTNERSHIP. The payoff for GE? It will supply all of the new hospital's clinical information technology and over 80% of its diagnostic and imaging gear. The contract will also run up to seven years, vs. the usual one to five years for normal pacts. Other bidders didn't come close in trying to forge a strategic partnership, says COO Brigitte Shaw, adding: "We don't have the intellectual capital and resources to make this happen on our own."
It wasn't so long ago that GE was legendary for a different kind of ethic. University of Michigan professor and sometime GE consultant Noel Tichy notes that in the mid-'80s, GE was known for being "ass to the customer, face to the CEO." While Welch himself was a top salesman, having essentially created a market in what seemed to be the dying plastics industry when he led that GE unit, the company seemed to focus as much on itself as it did on customers during his tenure. First was the brutal restructuring of the 1980s, in which GE's workforce was almost halved from its original 402,000. Then came such initiatives as Work-Out, Change Acceleration Process for managing change, and Six Sigma. While all ultimately had an impact on customers, they dealt mainly with the way GE got things done. The company became renowned as a management laboratory and a money-making machine.
In some ways, GE's size and reputation present a challenge to the success of Immelt's push. Nobody is more infatuated with what GE has to offer than the folks who work there -- and that can breed a bit of smugness. It's hard to really listen to the customer when you're the one with the world-famous expertise, and you're used to working on your own timetable. Jim Current, one of about 200 young executives picked each year for the new commercial-leadership program, had to tell his bosses at GE to back off on closing one project because the customer didn't feel it was finished. "I had to push back at GE," says Current, sounding a little surprised by his own chutzpah. Chief Marketing Officer Beth Comstock, who is running the leadership program as well as a more integrated marketing effort, notes that the challenge is to "customerize GE, not GE-ize our customer."
After all, some of those customers already see more than enough of GE. If you have a quality-control program, for example, who needs a bunch of GE black belts running around? Plus, no customer wants to get in bed with just one supplier. John M. Samuels has felt the full brunt of GE's new customer push as senior vice-president for operations, planning, and support at Norfolk Southern Corp (NSC ). Samuels appreciates GE's valuable training and was taken aback by the time that was devoted to the railroad by Immelt himself. But while GE's help with programs such as Six Sigma has improved his profitability, Samuels says, the real test remains whether GE can "maintain a quality product at a competitive price." What's more, he adds: "GE would dearly love to be our only supplier, and that is not going to happen."
HARD-PRESSED CUSTOMERS. Meanwhile, it can be tough for GE employees to generate enthusiasm for helping customers when their own house is burning. Henry A. "Hank" Reeves, for example, is president of GE Plastics Americas at a time when a growing portion of plastics manufacturing is shifting to spots such as China. "My core processing customers are essentially dying," he says. For his people, being customer-centric can mean helping his own customers relocate to another part of the world where, he hopes, other parts of GE can get the business. Still, his hard-pressed customers aren't as receptive to GE's help as they were in his previous job at GE Mortgage Insurance. They're just trying to survive.
If Immelt's baby lives up to its hype, the push could lead to less business in some cases. Take GE Fleet Services, which brought some of its best practices to a large utility customer and found it had hundreds of excess trucks on the road. GE whittled the number from 9,000 to 8,000 -- saving millions of dollars, some of which would have gone to GE. "We used to try to get as many cars and trucks out there as possible," says unit CEO Kathy V. Marinello. "But the focus is now on how do we make them succeed."
Good question. For GE, of course, the larger question is whether pouring a lot more resources into customers will pay off for GE's bottom line.
By Diane Brady