GE and Digital Transformations: Don’t jump to conclusions

It’s open season on GE. BusinessWeek has a cover article and calls it an “astonishing mess”. Competitors are gloating they are getting GE resumes in droves. My friend Brian Sommer recently tweeted “3 1/2 yrs. ago, I gave a copy of GEs annual report to an accounting professor. I asked if his grad students could pierce the veil of the myriad special purpose entities within it. When financial statements are this opaque, what is being hidden?”

Worst of all, I am starting to hear consultants tell clients – Don’t attempt Big D – Digital Transformations. Do something safe – may be accounting in the cloud, get adept at digital marketing. Don’t be like GE.

I think that is poor advice, at least when it comes to digital transformations.

Read the BusinessWeek article and GE’s woes come from a series of poor acquisitions – Telemundo in entertainment, Abersham in pharma, WMC Mortgage, Edwards Systems in building security, Dresser and  Lufkin in oil and gas, Alstom in power. That section in the article describing nearly $ 40 bn in acquisitions is titled “Big Dreams, Small Returns”

Then there is the drag of GE Capital, which almost took the company under in the Deep Recession. The company continues to pay the price for its (over) exposure to financial services sectors.

About GE Digital, it was over hyped but did anyone realistically expect to become truly significant, like 20-30% of revenues in a couple of years?

The real power of GE’s digital efforts comes from the fact that it makes the locomotives, turbines, aircraft engines, MRI scanners, blowout preventers and has started to embed them with technology. And that it has deep domain knowledge in the sectors where these products are used. And it is willing to price based on performance not just traditional product pricing.

It opened our eyes to rethinking four aspects of business – asset management, field service, product design and business models.

People have tried sensory networks for a while. BP had them in its refineries and on tankers for a decade – I wrote about them in The New Polymath. Railroads have had sound and vibration sensors on tracks to monitor wheel noise and detect impaired ball bearings and other flaws before they become catastrophic.

GE’s broad Industrial Internet vision showed us assets – especially big, complex ones can talk to us and tell us when they need help. Asset management is no longer just about depreciation accounting and scheduled maintenance. It is about predictive maintenance and better lifecycle management. It has led to a new category of companies – Uptake, C3 and others which are helping customers mine IoT data. Field Service is now about tracking and servicing these assets in the wild. Last year, the fastest growing job in the US was that of wind turbine technician. The constraint today is networks – wait till communications improve and we can get realtime data from planes in the sky, from rigs in obscure places. Product design has evolved dramatically in the last few years. Any product which is not embedding sensors, software, antennas is likely passe. When I started to write The New Technology Elite I thought about 15 sectors – automobiles, medical devices etc. were embedding technology in product and services. The book ended up with examples from over 75 industries. Finally there is the business model change – we increasingly expect to buy outcomes and experiences, not products and services.

Go ahead and malign GE. Short its stock. But don’t ignore what it has shown us as possible when it comes to Big D. If you get timid and go with small d projects you will make the same mistake so many companies made in the 90s. Instead of proper process reengineering we took the easy way out – so called best practices embedded in packaged software. We ended up with massive overruns, bloated costs but not much better processes. With small d, yes you will feel good about being in the cloud, but your products, field service and business models will not have evolved.