Interview

GEs Jeff Immelt on digitizing in the industrial space

In this first installment of our two-part interview, General Electric chairman and CEO Jeff Immelt
explains why industrial companies are now in the information businesswhether they like it or
not.October 2015
Five years ago, US corporate giant General Electric had to decide how to respond to the
digitization of the industrial sector: build or buy? As chairman and chief executive officer Jeff
Immelt reveals in this interview with McKinseys Rik Kirkland, GE decided to build, and has
since added thousands of staff and embraced data and analytics as the driving force
transforming its operations globally. Its a bold push driven by Immelts belief that the storied
company, founded 123 years ago in Schenectady, New York, must shape its own future in a
rapidly evolving industrial landscape. An edited transcript of his comments follows.
Interview transcript
Digitizing in the industrial space
We think about this as digitization of the industrial world. We as a company didnt go to bed one
night and say, We cant be an industrial company anymore. We need to be more like Oracle. We
need to be more like Microsoft. It happened more on an evolutionary basis, really based on the
industries were in and the technology we serve.
You think about a jet engine today or a locomotive or an MRI scanner. A new jet engine might
have a hundred sensors on it. These sensors have the capability to take continuous data about
the heat of an engine, fuel consumption, the wear of the blades, the environment its taking off
ina series of things. And one flight between New York City and Chicago produces a terabyte of
data.
So industrial companies are in the information business whether they want to be or not. This is
going to happen in the industrial space. Now, add to that a series of decisions every company
needs to make: Do I outsource all of that? Do I do it myself? Do I change my business model
accordingly? The decision weve made is that we just want to be all in.
We want to treat analytics like its as core to the company over the next 20 years as material
science has been over the past 50 years. We can hire the talent. We can evolve our business
model accordingly. We need to treat our service agreements to share outcomes with our
customers the same way an IT company might approach that in the future. So, in order to do
that, we have to add technology, we have to add people, we have to change our business models.
We have to be willing to do all those things.
But the point Id make to people is, if you think about today, 15 percent or 20 percent of the S&P
500 valuation is consumer Internet stocks that didnt exist 15 or 20 years ago. The consumer
companies got none of that. When you look at retailers, banks, consumer-product companies,
they got none of that. If you look out 10 or 15 years and say that same value is going to be created
in the industrial Internet, do you as an industrial company want to sit there and say, I dont
want any of that. Im going to let a Newco or some other company get all that? Is that really
what youve relegated yourself to?
So I think all these things led us to say, Lets build it. Lets see if we can be good at it. We may
be wrong. We dont think so, but we may be wrong. But lets not sit back and just say, Look,
thats somebody elses job, or Were not good enough to do it, or We cant change. Were
unwilling to take that as a fait accompli.

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Building versus buying
We went through a process of make versus buy, in versus out. We basically said, Look, do
we want to make a big acquisition in analytics or IT? And we analyzed a bunch of different
cases and said, We dont have the foundation inside the company to do a big acquisition. Do we
want to partner, or do we want to do it ourselves? We have lots of good software partners, but,
basically, we said, We need to do this ourselves. Lets err on the side of seeing if we could
approach it in that way. That was 2010. So we brought people in from the outside. We built a
center in California. We started populating our businesses. Roll forward, we started doing
applications with customers. We started building it into our service business, things like that.
I could give you a bunch of different analogies, but in the case of our locomotive customers, they
have a phrase called velocity. Every CEO of a railroad could tell you their velocity. The velocity
tends to be, lets say, between 20 and 25 miles per hour. This tends to be the average miles per
hour that a locomotive travels in a day22. Doesnt seem very good. And the difference between
23 and 22 for, lets say, Norfolk Southern, is worth $250 million in annual profit. Thats huge for
a company like that. Thats one mile [per hour]. So thats all about scheduling better. Its all
about less downtime. Its all about not having broken wheels, being able to get through Chicago
faster. Thats all analytics.
Being a platform company and an app company
Inside in the company, were about $5 billion in revenuethis is from software, analytical
applications, things like that. Weve built up a population of applications; were approaching
$500 million of productivity a year. Now what were trying to do is push that back inside the
company. Were selling it, but we want to get our own internal company on the same basis, on
the same platform, using the same skillswhat we call the digital thread. We want the digital
thread to go from engineering all the way through our installed base.
Weve made the decision that were going to try to be both a platform company and an
application company. So we have a platform called Predix, and were building applications on
top of that. Were probably the only industrial company thats actually trying to do its own. And
were opening up our platform to our customers. Were saying to our customers, Look, if you
want to write apps, applications on Predix, youre free to do it.
I always think risk first, like most CEOs. I basically say to investors, Look, if all we did is we got
more productivity, higher service sales, applications, you guys are going to love this. If we end
up having the platform that works, its a whole new company, you know? So you get that for
free.
But thats why I circle back and would say to any CEO, industrial or nonindustrial, that where
we are right now is going to be the most important thing that youre going to work on, at least in
this era. And you give up your latitude at your own peril.
Hiring the right people
We have probably hired, since we started this, a couple thousand data scientists and people like
that. Thats going to continue to grow and multiply. What weve found is weve got to hire new
product managers, different kinds of commercial people. Its going to be in the thousands.
So what youre going to do is youre going to blend them with the GE team, and then were going
to recruit differently. When we go to college campuses, were going to look for different skills.
Were going to put them in different training programs. Its a combination of weve got to bring
our culture along, but thats not enough. Weve got to bring thousands of people in from the
outside. Thats the only way were going to get there fast enough.

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This is something I got wrong. I thought it was all about technology. I thought if we hired a
couple thousand technology people, if we upgraded our software, things like that, that was it. I
was wrong. Product managers have to be different; salespeople have to be different; on-site
support has to be different. Weve had to drill and change a lot about the company. And I just
think its infecting everything we do. Its infecting our own IT. Its infecting our own
manufacturing plants. Its infected everything were doing, I think in a positive way.
Changing company culture
When you think about internal changeculture, people, leadership developmentagain, heres
a time where multiple things happened at the same time. We started our digital initiative maybe
five or six years ago. Weve also, as a companyand I dont think GEs uniquelived through the
financial crisis. And were an old company. We live in highly regulated industries. What we
found was our culture was too complicated to get the work done the way we needed to get our
work done, both in terms of how we were trying to digitize and how we were trying to survive in
terms of a more highly regulated world. And just think about our footprint and the complexity of
running a global operation: even since I was CEO, GE has gone from 70 percent inside the
United States to 70 percent outside the United States.
So what weve tried to do inside the company is really just drive what we call a culture of
simplification: fewer layers, fewer processes, fewer decision points. Weve adapted the lean
tools in what I would call a Silicon Valley approach, what we call Fast Works. Weve embraced
some of the Silicon Valley tools in terms of putting everything on the clock, bringing commercial
intensity into the company. The way I describe that is, like most big companies, were willing to
take all kinds of market risk so that we dont have to take internal risk, right? We try to say,
Look, lets actually be aggressive in the markets, and lets count on our own execution to risk
reduce inside the company. And broadly, getting to digitization, were democratizing
information inside the company; getting IT tools that were contemporary in a mobile setting,
and we call these things the culture of simplification.
My notion is were in a permanently complex world. And this historical organization chart with
lots of processes is a thing of the past. Weve basically unplugged anything that was annual. The
notion is that, in the digital age, sitting down once a year to do anything is weird, its just bizarre.
So whether its doing business reviews or strategic planning, its in a much more continuous
way. We still give a lot of feedback. We still do a lot of analysis of how youre performing. But we
make it much more contemporary and much more 360-degree. So somebody can get
interactions with their boss on a monthly basis or a quarterly basis. And the data you get is being
collected by your peers, the people who work for you, in a much more accurate and fluid way.

About the authors

Jeffrey R. Immelt has been the chairman and CEO of General Electric since 2001. Rik Kirkland is the senior managing editor of
McKinsey Publishing and is based in McKinseys New York office.

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GE To Take On IBM In The Race For IOT Dominance
SEP 15, 2015 @ 02:59 AM 10,034 VIEWS; Theo Priestley ,CONTRIBUTOR
I write about enterprise technology, startups and disruptive trends
General Electric announced yesterday the creation of a new unit with the aim to become the leader
in the Industrial Internet of Things race. GE Digital will integrate GEs Software Center, the
expertise of GEs global IT and commercial software teams, and the industrial security strength
of Wurldtech. This new business model will be led by Bill Ruh, formerly GEs Vice President and
Global Technology Director and now newly appointed as Chief Digital Officer.
As GE transforms itself to become the worlds premier digital industrial company, this will
provide GEs customers with the best industrial solutions and the software needed to solve real
world problems. It will make GE a digital show site and grow our software and analytics
enterprise from $6B in 2015 to a top 10 software company by 2020, saidJeffrey Immelt,
Chairman and CEO of GE.
This is a direct aim at the announcement from IBM, also timed yesterday, with the creation
of two new business units that will apply Big Blues portfolio in Big Data, analytics and cognitive
computing (aka Watson) to the Internet of Things (IOT) and Educations markets, respectively.
Harriet Green, formerly CEO and executive director of the Thomas Cook Group, has been
appointed Vice President and General Manager for the new units, and will be responsible for
developing these and other new growth businesses.
But this is nothing new for GE who have been developing predictive maintenance and industrial
internet applications under Ruhs leadership for years now.
In a typical industrial example, an electric turbine generates power but also 500Gb of data a day.
That data is extremely useful if used in the right way but the machine itself is not considered
smart. Now imagine how that turbine that can communicate in advance when it could
potentially have a critical failure. In industrial situations a machine can advise other systems
when its likely to fail due to being monitored against performance and tolerance levels. GEs
platforms such as Predix caters for these types of scenarios. The process can schedule
maintenance in advance before the event occurs through the data its receiving, but not only this
it can tell other turbines to take a spread of the load during the maintenance and then switch
back again once the repairs are completed. To the outside world nothing has happened because
it was all seamless and taken care of by the platform.
GEs move towards a more coherent digital and IOT strategy has been building for years. In
2013 they announced a major investment in Pivotal. Its well known that a lot of our profits
come out of the services that support our machines, said Ruh. Machines are getting smarter,
and our customers are demanding greater productivity for their machines and their people.
Were taking a lesson from the consumer side of the internet the Googles, Facebooks and the
Amazons, said Ruh. These businesses figured out how to manage large volumes of information
and utilize it to provide new kinds of services.
Both GE and IBM are squaring off directly now for dominance in the IOT ecosystem. GEs
strengths are more towards the the Industrial Internet but with a keen eye on how consumer
and business focused technology in this space is growing, they could become a real threat to IBM
within the next 12 months.