It is easy to be uncertain as an investor today. The global economy is long on volatility and short on economic leadership. But GE remains a good investment. In a complicated world, we are simpler and more competitive. In an uncertain world, we are skilled in managing through tough cycles. In a risky world, we have cultural strength and a lot of cash.
We are tested. Companies that think they are perfect can get you in trouble in this environment. GE is not perfect, but we make progress every day. In 2015, we continued to take strong actions that make GE better.
We transformed our portfolio by exiting most of financial services while completing the purchase of Alstom, our largest industrial deal. This ends a period in which we refocused GE as a high-tech leader. To do so, we sold more than half the Company where we lacked competitive advantage and rebuilt our core franchises. Every GE business today rests solidly on a bedrock of deep domain competency.
The bold strategy to exit GE Capital came from Keith Sherin and his team. The plan was complicated, challenging and risky. It involved one of the largest corporate restructurings in history. Their execution has been flawless. The move says a lot about the GE culture: We are willing to take bold actions in the face of uncertainty; and our team puts the Company ahead of their own interests.
At the same time, we accelerated our transformation as a leader in the Industrial Internet, becoming a “Digital Industrial” company. In the Industrial Internet we see the next great wave of productivity—both for our company and for the customers we serve. We are a company that invests in broad industrial transitions, and they don’t come much bigger than the full application of data and analytics to machines and systems.
The essence of GE is the unique ability to create value from the intersection of horizontal capability with vertical expertise. Competing across multiple businesses and regions—“the horizontal”—requires strategic agility and culture, but it is increasingly valuable. This is how we create competitive advantage from size and diversity. A digital world facilitates more horizontal solutions for customer productivity and internal speed. A volatile world puts more of a premium on reducing risk through diversity, another horizontal skill. At the same time, companies must be deeper to drive low cost, achieving customer outcomes with high share–“the vertical.” New innovation will require deep science and, many times, new manufacturing techniques. There are not many companies on Earth that can develop high-tech infrastructure systems at scale, a vertical strength. Maximizing the valuable interface between horizontal and vertical is institutional, part of our leadership capability and embedded in our culture.
How We Performed Against Our 2015 Operating Goals
Operating Earnings Per Share1
GE Capital Verticals
Operating Profit Margins1,2
Industrial (with Corporate)
GE Capital Exit Plan
Asset sales (Ending Net Investment [excluding liquidity])
Free cash flow + dispositions1
Cash returned to investors
Non-GAAP Financial Measure. See Financial Measures That Supplement U.S. Generally Accepted Accounting Principles Measures (Non-GAAP Financial Measures) on page 95 in the Form 10-K.
Excluding restructuring and other & gains.
Executive Leadership Team
Jeffrey R. Immelt
Chairman of the Board and Chief Executive Officer
Senior Vice President and Chief Digital Officer
John G. Rice
Vice Chairman and CEO, Global Growth Organization
Senior Vice President and Chief Productivity Officer
Senior Vice President and General Counsel
Senior Vice President and Chief Technology Officer
Susan P. Peters
Senior Vice President, Human Resources
Keith S. Sherin
Vice Chairman, GE, and Chairman and Chief Executive Officer, GE Capital
Senior Vice President and Chief Financial Officer
In the midst of our transformation, we delivered good results. In 2015, we grew our Industrial earnings per share by 19%, expanded our segment margins by 80 basis points, and returned $33 billion of cash to our investors. Our Industrial return on total capital expanded 290 basis points to 16.9%. We won in the marketplace, finishing the year with $315 billion in backlog. Strong execution was reflected in our share price. GE’s total stock return was +28% in 2015, above the performance of the S&P 500, which grew by 1%, and the industrial index, which declined by 4%. We have solidly outperformed the broader indices over the past three years, when we grew by 64%, and five years, when we grew by 101%. GE ended the year as the eighth most valuable company in the world.
To sustain this performance, we will have to win in challenging global markets. Some say we are in an “industrial recession,” but I don’t really know what that means. I learn more from what I see in individual markets and hear from customers. Commodity prices are down significantly, primarily driven by oversupply. Resource industries and regions are restructuring. The dollar has strengthened, probably for an extended period of time. This puts pressure on American exporters. At the same time, commercial air travel is at a record high. Healthcare demographics and access will demand an increase in global spend. And one-third of the world’s population still lacks sufficient access to electricity. The global imperative for enhanced infrastructure investment has not changed. Growth is available, but you have to work at it.
What is unique in this cycle is the difficult relationship between business and government, the worst I have ever seen. Technology, productivity and globalization have been the driving forces during my business career. In business, if you don’t lead these changes, you get fired; in politics, if you don’t fight them, you can’t get elected. As a result, most government policy is anti-growth. In the U.S., we want exports but seem to hate trade and exporters; globally, governments love small businesses but then regulate them to death. And so, we perpetuate a cycle: slow growth, poor job creation, populism, low productivity, higher regulation, poor policy and more slow growth. We now live in a world where the most promising growth policy is “negative interest rates.” In the U.S., 2015 was the 10th consecutive year when GDP growth failed to reach 3%, a rate that used to be considered our entitlement.
We don’t try to pick a cycle, or time a market, or complain about elections. We will always act to get more out of this economy than our peers. We believe in “self-help.” We are aggressively managing our cost structure to capitalize on deflation. In 2016, we will fund a record level of restructuring. We have a very strong balance sheet with excess cash. This gives us the ability to create value: buy back stock, bolster your dividends or acquire distressed industrial assets. We have the ability to finance our industrial products, a huge advantage to support our customers. We can move production to the lowest-cost regions and capitalize on currency or excess capacity. And, we are continuing to invest. Our long-term commitments for R&D, globalization and investments like Alstom have built a valuable backlog. I encourage the GE team to just focus on what we can control to stay resilient and agile.
As uncertainty unfolds in front of you, this is what I want you to remember about GE: we have a great set of businesses. We are leading in this era’s biggest driver of industrial growth and productivity. We have operating momentum and cash flexibility due to sustained execution of our enterprise strengths. And we have a tested team who gets rewarded only when they deliver for you. GE should be a safe investment in a sea of volatility.
GE’s Global New Directions Team
CEO Jeff Immelt’s culture advisory group made up of promising GE employees from around the world
“We act. We learn. We get better. We insist on being more than we are today. Some companies are retreating; we are moving forward to become the Digital Industrial.” — Jeff Immelt
Meet the Team
A FocusedIndustrial Leader
Going forward, we are competing as a $130 billion high-tech industrial leader, filled with strong franchises collectively generating consistent growth with high margins and high returns. Every GE business feeds off enterprise strength in technology, brand, globalization and services. In a slow-growth world, there is no case for an unfocused conglomerate. Can anyone see GE acquiring NBC or Insurance today, businesses with no tangible fit? Yet, decades ago, this was applauded, and in the 1980’s and 90’s, it worked.
GE Credit formed in 1932 to provide installment loans to purchase GE appliances
GE Credit signs 8 millionth contract
Entered Aviation financing
Commercial lending and leasing launches
Real Estate launches
Energy Financial Services launches
GE Capital Retail Card Finance launches
GE Capital splits into 27 businesses
GE Capital revenues reach ~50% International; ~70% by 2006
Genworth IPO (largest IPO of 2004)
Financial crisis & new regulatory bodies
GE Capital Retail Finance IPOs as Synchrony Financial (2014)
Milestone Aviation acquired; first acquisition since financial crisis
Established GE Capital Verticals to better align with GE’s industrial businesses
Successful split-off of Synchrony Financial through largest-ever share exchange with 671M GE shares retired
$107B Capital Earnings since 1980
Capital Earnings since 1980
We are exiting most of our financial services platforms. This was not an easy decision. GE Capital was an important business for GE. It generated 60% of GE’s earnings growth from 1990-2005, at one point generating half of our earnings. Despite the volatility of the financial crisis, GE Capital emerged with its franchises intact. However, the business model for a large, wholesale-funded FinCo like GE Capital changed dramatically, and it was impossible to generate acceptable returns. I knew that meeting the requirements for Capital could not be contained and would hurt our industrial competitiveness. We determined that our financial businesses were more valuable outside GE.
We decided to exit all of the financing platforms not related to GE industrial businesses. We completed the split-off of Synchrony, a leader in retail finance. Synchrony as a public company is valued 30% higher than it was in GE. We returned $20 billion back to investors in the form of a share buyback. We are selling $200 billion of assets in 18 months, with 80% already signed. We are about one year ahead of our original plan. As we exit these businesses, we are generating $35 billion of cash, with $4.3 billion returned to the parent in 2015 and another $18 billion in 2016. We plan to use this cash to buy back shares.
Going forward, GE will retain a smaller financial services capability connected to our industrial core. This business should promote industrial growth and generate returns above our cost of capital. At this size, we will apply to de-designate GE Capital as a “systemically important financial institution,” greatly reducing the regulatory risk in GE.
We completed the acquisition of Alstom that we had begun in 2014. Alstom is a great strategic and financial fit for GE. We plan to generate $3 billion of cost synergy over five years; Alstom will add $0.05 EPS in 2016 and up to $0.20 by 2018. Alstom creates a more global and technical GE. It adds significant capability to our growth market footprint and project management capability. It gives us the potential for $5 billion of revenue through replacing suppliers with internal capability and by packaging complementary products for our energy customers.
Alstom makes GE more competitive. In Saudi Arabia, we recently won a 1.4 gigawatt order based on efficiency gains derived through combining a GE gas turbine with Alstom balance of plant. For this project, we were able to lower system cost through the use of Alstom’s project management capability. Alstom will expand our presence in important markets like India. Here, we have nearly doubled the size of our revenue, our capability and market potential. With Alstom, we become the world’s largest renewable player. In Grid, the combination of GE and Alstom makes us a stronger competitor. We believe the Alstom investment will generate a strong return.
GE Capital Deal Team
In 2015, the team signed $157B in GE Capital dispositions—a historic accomplishment and a critical piece of our transformation.
Pictured left to right: Jim Waterbury, Joe Nellis, Matt Vaughan, Sarah Hedger, Duncan Berry, Aneek Mamik, Keith Sherin, Jonas Svedlund, Aris Kekedjian, Evelyn McAdam, Ephraim Rudman, Mark Landis.
Meet the Team
We announced the sale of our Appliances business to Haier for $5.4 billion in the first quarter of 2016. This is a great outcome for GE investors and our team. The appliance market is globalizing, with the China market growing quickly. We think Haier is a long-term investor in the U.S., a good home for the GE team. We plan to work with Haier in China to build out distribution and develop the GE brand. We will redeploy this capital to higher returns.
We are seeing some good inorganic opportunities as economic volatility increases and valuations decline. Acquisitions will bolt-on to our existing businesses to make them more competitive and increase their growth rate. Unlike the financial crisis, in this cycle GE has substantial firepower to make strategic investments that create value.
We don’t count on acquisitions to grow GE. Rather, we are strong believers that we can grow organically over the long term. We invest more than $10 billion each year in R&D, capital expenditures and systems. We have a deep pipeline of new business platforms, each of which can generate substantial revenue over time. In Aviation, we are penetrating one of our largest “untapped” segments in turboprops. This has long been the domain of our competitors. This began with a small Czech acquisition in 2008. Over time, we leveraged our technical strength to produce an all-new engine design. This year we won the biggest application on the Textron Advanced Turboprop, set to certify in 2019. This will lead to $40 billion in revenue over 25 years, a long-lasting competitive win. GE Ventures is a key catalyst for investing in mobile monitoring and cell therapy, growth initiatives for our Healthcare franchise. And we spun our LED business into a new energy-efficiency platform called Current. At $1 billion in revenue, we are one of the biggest players in LED. By packaging this with other energy-efficiency technologies, controls and financing, we can build this to $5 billion in 2020. We are partnering with a great group of customers like Walgreens, J.P. Morgan and Simon Property. We will bring our business-building capability to all new investments, like Alstom.
Diversification is essential for consistent financial performance in volatile times. We navigated our Aviation business through the 9/11 crisis when engine shipments declined 20%. Since then, Aviation earnings have tripled and our share has grown. Our shipments of gas turbines declined by 65% between 2001-2004 as a “U.S. bubble” for power generation burst. Yet we have a stronger Power business today. Through those cycles, the “Big GE” protected the businesses and gave them strategic flexibility. That gives us confidence as we approach a difficult Oil & Gas cycle. Between 2014-2016 we expect our Oil & Gas earnings will decline 20-25%. Like past cycles, the strength throughout GE is being transferred to our Oil & Gas business. We are able to invest more in R&D, something our competitors can’t do. We are providing lower-cost solutions to our customers that allow them to sustain at current resource market pricing. And we can invest in new assets based on favorable economics. As in the tough times in Power and Aviation, our investment in Oil & Gas is a long-term proposition powered by the basics of a vital industry.
Our portfolio is set. Going forward, we will get more value from our market position by leading the digital wave that is reshaping the industrial world.
Managing Through Cycles
The GE Store harnesses the power of the Company’s diverse businesses to capitalize on industry cycles.
Creating theDigital Industrial
We are just beginning our transformation as the Digital Industrial Company. The Internet has had a massive impact on consumer productivity and commerce. Its impact on industrial markets is just now being realized. By 2020, 10,000 gas turbines, 68,000 jet engines, more than 100 million lightbulbs and 152 million cars will be connected to the Internet.
At GE, we have decided to generate and model this data ourselves—both inside the Company and with our customers. This is what we mean by becoming a Digital Industrial. Our Digital Industrial capabilities will expand our growth rate, improve our margins and bring us closer to our customers.
There was a time when every sale had a clear endpoint, followed only by routine service and maintenance. Now, sensors on our products send constant streams of data, analyzed and translated into upgrades that drive productivity in industries where even the smallest incremental efficiency can mean very large gains. Capturing it will be a mission in every one of our businesses. Our aspiration is to offer with every GE product a pathway to greater productivity through sensors, software and big-data analytics.
Why GE? I assure you we didn’t wake up one morning with “software envy.” We have been investing in software and accumulating data for decades. Competing will not require big acquisitions. Rather, the technology required to compete is in our sweet spot. So, why not us?
Our investments are aimed at delivering more productivity for our customers and GE. The performance, so far, of technology companies to generate industrial productivity has been subpar. Industrial productivity, which averaged 4% annually from 1990-2010, is only 1% today. This is because pure connectivity does nothing to create value. Operational productivity requires domain data, physical and digital engineering models, industrial analytics and the ability to modify machines to achieve different outcomes. Ask a hospital CEO how their results have changed once they implemented a new Electronic Medical Record System, and the answer is typically silence. They still lack the data that drives outcomes.
The “killer app” for the Industrial Internet is GE’s Digital Twin. GE is creating living digital profiles of 500,000+ industrial machines in the field to provide new opportunities for customer growth and productivity. The Digital Twin is a software model of a physical asset or process that will make it possible to manage more precisely than we ever thought possible and deliver better outcomes. The Twin will create new business models and services for GE’s customers and our businesses. On the GE90 engine, we have used Digital Twins to increase fleet availability while saving tens of millions of dollars in unnecessary service overhauls. In rail, we are using Digital Twin models of the Evolution Locomotive to enable our customers to minimize fuel consumption and emissions. The data economy for the industrial world has arrived, and GE is in a unique position to lead it. We enter it bringing decades of deep domain expertise about our industries and volumes of data about our machines and their processes that no one else can match.
The Formation of GE Digital
This year, GE announced the creation of GE Digital, a transformative move that brings together the digital capabilities from across the Company into one organization.
Pictured: Software developers and engineers at GE’s facility in San Ramon
CIO is King
A key driver of employee empowerment and productivity
Increased productivity for our customers
Digital Twin combines physics and analytics
Common systems strategy leveraging Predix™
Co-creating with customers, developers, partners
Culture of Simplification
Act with speed & new business models
Meet the Team
With this technical leadership, GE can become a top 10 software company by 2020. At the center of this effort is our cloud-based operating system, Predix™. Predix offers our customers complete situational awareness to monitor, and continually improve, equipment performance. In practice, it will assure everyone in a given enterprise–whether it’s an airline, a hospital, a railroad, an oilfield, or a wind farm–a real-time stream of relevant information, accessible on mobile assets. Everything we are doing in data and analytics comes together in this operating system.
GE is unique in developing its own operating system. We are doing this, first and foremost, because we need it for our own productivity. At our scale, we can drive a common platform across GE economically. As an industrial company–and the owner of the Digital Twin–we understand the requirements. We plan to open Predix to our customers and other industrial companies. This gives GE a unique opportunity to create value in the platform ecosystem. We launched Predix in the second half of 2015. By the end of 2016, we expect it to have 200,000 assets under management, 100 GE applications and 20,000 developers creating many more applications. Cyber security is essential for Predix, and we are building world-class capability. We have world-class partners like Intel and SoftBank who will help us develop and deploy Predix.
By the end of 2016, we expect Predix to have 200,000 assets under management
GE applications provide a show site for the Industrial Internet. This year we will generate $500 million of productivity by applying data and analytics inside GE. We will have 75 “brilliant factories” driving yield, cycle and uptime through model-based design. We are using model-based design on our New Product Introductions which allows us to develop and launch new products with reduced cycles, lower cost and higher quality. We can correlate material usage with product performance to change the work scope in a service agreement which drives productivity for GE and the customer.
The revenue for our analytical applications and software is $5 billion and growing 20% annually. We are offering our customers a complete range of software analytics that are positioned to achieve superior outcomes. In Power, we have digitized wind farms and power plants. These are software-defined products complete with a digital infrastructure including Predix and a plant suite including asset performance management and generation optimization. The value for our customers could be as high as $100 million per wind farm and $230 million per power plant. We launched a Healthcare cloud that gives radiologists anywhere access to analytics and images. Physicians can deliver superior outcomes by accessing data to spot disease patterns and by collaborating with multi-disciplinary teams. Our Healthcare IT installs are growing by 10%. Each of our industrial businesses is aiming to build $1 billion+ digital franchises.
Predix™: Creating Valuable Outcomes for Customers
A sophisticated rail traffic control system and logistics planner all in one, Movement Planner intelligently analyzes and optimizes traffic, allowing more locomotives to run on the same infrastructure at faster speeds, without laying new track.
Significant improvement in on-time performance
Comprehensive view of the network resulting in ~10% increase in network velocity and ~50% reduction in expired crews
Orders from two Class 1 railroads
GE Power’s SmartOutage eliminates 70+ applications and unites outage tasks and processes into a single mobile-friendly platform for a powerful productivity boost
Drove $150M of productivity in 2015; expected to drive $100M more in 2016
50% reduction in customer report delivery cycle time
Clarity with Pitney Bowes
Pitney Bowes uses Predix to power their new Industrial Internet software solution, Clarity. Clarity improves inserting and mail-finishing operations, and has helped Pitney Bowes lower costs and optimize machine performance
Machine efficiency improvement from 2-10% over time
Increased mail throughput productivity by up to 20%
GE Health Cloud
The GE Health Cloud is designed to be a scalable, secure ecosystem connecting software, hardware and medical devices
Will connect to hundreds of thousands of medical devices and machines from multiple vendors, including 500,000+ GE Healthcare imaging devices
With Predix, GE Aviation developed analytics to segment commercial fleets and provide in-depth asset condition and operational insights
More than $175M in customer benefits in 2015 via Predix-optimized maintenance
Improved fault detection accuracy by 10 percentage points, eliminating unnecessary disruption to more than 1,000 commercial flights
Our innovation is driving customer outcomes. RasGas is a Qatar-based world leader in natural gas. Our asset performance management tool will monitor the pipeline, delivering reliability that could save them hundreds of millions of dollars. At the National Health Service in the U.K., we are delivering enterprise imaging solutions on the Health Cloud. This will improve clinical collaboration and lower cost. The City of San Diego is executing an “intelligent city” powered by Predix with connected LEDs for efficiency. At AEP, we are executing an integrated distribution operating platform for enhanced productivity and uptime. At BNSF, we are executing on a movement planner that leverages data to improve asset utilization. At Emirates Airlines, we are using analytics to improve aircraft fuel performance and maintenance productivity. We are working solution-by-solution, customer-by-customer and country-by-country to deliver outcomes.
Our success as a Digital Industrial depends on partnering with our customers. We must access the data and deliver outcomes by working together. A key to this is the Industrial CIO, a forgotten and unappreciated role in most industrial companies. In retrospect, most industrial companies have outsourced too much IT capability. Competency must be restored to improve productivity.
Analytics provide a competitive advantage back into the way we design our products. The new products in our Oil & Gas business now are optimized by digital capability. In the future, our Onshore Solutions will embed reservoir characterization and visualization into submersible pumping, literally digitizing the rocks. We will have “smart iron” to provide precision drilling. We are finding ways to create an “invisible oil field,” one that can optimize downhole processing with improved environmental performance. We are creating a valuable cycle: Analytics will enhance our installed base; we can then use those analytics to improve our products, which grows our own share and provides a bigger base for our analytics.
Becoming a Digital Industrial will require investment and will test our culture. Our success is not a given. We are creating a $15 billion software and digital company inside of GE built on agile practices and new business models. We are plugging this software business into thousands of industry-domain experts and a $226 billion services backlog. There is no blueprint for what we are trying to do and, at times, it will be messy.
But the opportunities for value creation are boundless: in better products, leading to added market share; in faster growth in services; in more productivity and higher margins. Over the last 15 years, trillions of dollars in wealth have been created in all kinds of consumer Internet stocks; in the next 15 years, trillions in wealth will be generated across the Industrial Internet. My commitment to you is that GE will be better positioned than any rival to create that value and earn those rewards.
Intersecting the Horizontal and the Vertical
One of the main principles of a digital industrial is the intersection of the horizontal and the vertical –broad capabilities and domain expertise.
Powered byThe GE Store
A transformed GE is delivering for you. Over the next three years, we plan to grow our earnings to more than $2 per share, or roughly 15% each year. This is based on reducing our share count, integrating Alstom and growing our core operating profit. We plan to return roughly $100 billion to you in buyback and dividends from 2015-2018.
Further, as we execute our portfolio strategy and reduce the size of GE Capital, we plan to run GE with a more typical industrial balance sheet. This may allow us to increase leverage by more than $20 billion while still retaining a highly rated balance sheet. We plan to use this incremental capital for acquisitions or additional buyback, building shareholder value for the long term.
Our team knows exactly what they need to do in the future and are compensated to execute. They also have a competitive advantage that capitalizes on our unique depth and enterprise skill. We call this the GE Store. The GE Store captures our ability to share knowledge, technology and capabilities across the GE businesses. The Store delivers results. Over the last five years, our organic growth has averaged 5%, two times our industrial peer group. And, since 2011, our margins have grown from 14.8% to 17.0%.
The Store allows GE to innovate at scale, investing more than our peers and spreading the innovation across more businesses. The Global Research Center is investing to lead in the material science revolution that is transforming the way we make things. We recently invested $50 million in a 3D printing facility in Alabama to make a critical fuel-system component for LEAP jet engines. We will print 1,000 such components annually, with a target of raising production to 40,000. The component is designed to withstand high temperature and pressure, and was historically made from 20 different parts. Now, we are printing the component, with laser fusing of a powered “super alloy” composed of cobalt, chrome and molybdenum. It is 25% lighter and 5 times more durable than its predecessor. We are transferring this capability throughout GE.
The Store provides global scale and capability. Our global reach has taken decades to build; the talent, capability, partnerships and reputation can’t be matched. GE is one of the world’s largest multi-nationals, with global orders of $75 billion. Over the past five years, our global growth has been 7%, twice the GDP. We invest using a total-company approach, with most of our facilities used by all of our businesses. Our global backlog is $224 billion, with balanced business and geographic diversity.
GE is an experienced global competitor, and that really comes in handy as we navigate the changes in China. We will continue to be a full participant in China; we plan to have more than $10 billion in revenue and $10 billion in sourcing in the near future. The benefits of long-term investing and partnering are extensive. We work with China EPC on infrastructure projects in Africa. We can tap into China Bank financing to get global projects done. We are working with state-owned enterprises to build capability in China for the rest of the world. We are building a bioprocess manufacturing industry inside China, working with drug companies to create local capability. China will remain an important market, and GE is well-positioned.
Long-term Investment in China
GE has been in China for 100 years, and is continuing to localize, partner and go digital with strategic investments in its talent and economy.
60+ technology labs
34 joint ventures
Near-term goals: 10x10
$10B in revenue
$10B in sourcing
Pictured left to right: Gary Gu, Ming Tu, Diana Tang, Peter Li, Xiangli Chen, Rachel Duan, Fengming Liu, Weiming Xiang, Xiang Qian, Dan Yang, Jing Cheng
Meet the Team
The Store provides market solutions by tying together GE businesses. One of the best-known solutions in GE is to grow in clean energy and reduce the impact of climate change. Ecomagination has been a decade-long effort to solve one of the world’s toughest problems. We work with customers, like Statoil, to reduce flare gas in oil discovery or reduce emissions in subsea drilling. This will use multiple GE products and services for an innovative solution. In 2015 our Ecomagination revenue was $36 billion, up sixfold from where we started.
Increasingly, our customers want flexible solutions to support their technical programs, turning capex into opex. We recently completed an innovative partnership with Temple University Health System, a three-hospital academic health system in Philadelphia. Like most health systems, they are grappling with increased volume and lower reimbursement. GE Healthcare worked with Temple to focus on strategy and collaboration, not just equipment replacement. Using an outcomes-based approach, both Temple and GE are rewarded by lowering costs and improving patient care. Together, we are targeting $40 million in operational savings, which will help fund new technology. As part of the plan, we will provide Temple with comprehensive service, equipment, analytics and financing, totaling more than $80 million of future growth for GE. GE’s people are working in the facility to deliver outcomes. The GE Store is packaging financing, analytics and innovation to solve customer problems.
Ecomagination: Solutions for a new Economy
All Down 30%+
Partners That Will Drive Real-World Solutions
FOCUS Develop technology and techniques to increase resource efficiency and reduce emissions
OUTCOME More economical and sustainable solutions for Oil & Gas
FOCUS Pilot energy-neutral water treatment including data optimization in the UAE
OUTCOME Solution implemented across the Middle East
FOCUS Develop & demonstrate next-generation efficiency, renewables and digital solutions
OUTCOME Scaled solutions for wider commercial use
FOCUS Create hybrid cleaner energy systems for industrial use
OUTCOME Decreased energy costs and emissions
FOCUS Expand and finance industrial and municipal water reuse
OUTCOME Global adoption of water-saving reuse techniques
FOCUS Incorporate renewables, efficiency and data analytics
OUTCOME Lowered fuel costs and emissions in mining life cycle
FOCUS Develop advanced digital optimization techniques for manufacturing
OUTCOME Increased resource productivity in manufacturing
1. The reductions are from baseline years through the end of 2014
The Store spreads intellect by convening focused and accountable horizontal councils. Our Service Council has been operational for about 20 years. It is charged to grow our dollar per installed base by 3-5% and $1 billion of productivity. This year we will focus on gaining share of aged fleet, service analytics and advancing repair technology. Our businesses learn from each other.
The Store is backed by process tools. We are in the third year of training our teams on FastWorks, a tool that combines the best of lean manufacturing and entrepreneurial speed. We have trained 30,000 of the GE team. This work is being applied to increase NPI capacity, operational speed and variable cost productivity. FastWorks is becoming the way we work.
The Store is built on a legacy of leadership development. We have a common set of leadership expectations, framed by the GE Beliefs. We have contemporary leadership programs through our Crotonville learning center and globally develop the best and the brightest for our talent pipeline. We are constantly looking outside GE to recruit new knowledge and capability that will make the Company stronger. At the heart of the Store is a robust meritocracy.
We are driving margin programs at the Store. While we have made progress boosting service margins and lowering structural cost, our product costs are too high. At GE, we work with an $80 billion pool of product and service costs. Our plan is threefold: double our backward integration; expand our sourcing deflation to $1 billion, nearly twice what it was in 2014; and target $900 million of manufacturing productivity. In businesses like Healthcare and Power, we believe our product costs can be substantially lower in the future through improved design and advanced supply-chain strategies.
Working on product cost is forcing us to change the way we think about backward integration. We currently source about $30 billion in parts we design, and we pay substantially more than they should cost. With a huge and predictable backlog, backward integration offers incremental margin opportunity. In Power, we plan to leverage Alstom capability to grow our content. In Aviation, we have invested $5 billion in vertical integration at high returns.
We typically run our businesses well, but there is still room for improvement. In 2015, we invested in Renewable Energy, Energy Management and parts of Healthcare to restore them to the competitive position you expect from GE. We believe there is substantial earnings power from improved operating performance, regardless of the environment. A new, more highly leveraged, team-based incentive compensation plan creates even more alignment and accountability. GE leaders earn more as we exceed goals that align with shareholder value. And payouts are broadly differentiated based on business performance. In 2015, business payouts ranged from 63% to 130% of target compensation. Our teams want to win.
We are redefining what it means to govern a large, global company. Historically corporate was a “temple for reviews.” We want to make it smaller and intensify the impact of the GE Store. GE is an operating company, so the senior team will always enforce mutual accountability. But gone are the days when people would migrate to headquarters to report out and receive instructions. Rather, we must be in the world of ideas, so that we remain contemporary and paranoid. This is behind our move to Boston. We plan to keep our corporate costs low—less than 2% of revenue—but having a big impact. The GE Store is valuable for investors, a key reason you should own GE.
To accomplish all of this, we are embracing a culture of simplification. I have put together a team of early career GE leaders to coach me on our simplification journey. They inspire and motivate me; but listening to them is humbling. Through their eyes, I can see the evil nature of corporate bureaucracy; they are a good mirror for my own failings. The GE they want to work at is a deeper and simpler company—one where everyone is looking at opportunities out there for the taking. I want to make GE better for them.
Simplification is essential to become the Digital Industrial. We are leaving the world of professional silos, disconnected spreadsheets and bureaucratic workflows to agile teams that are mission-based. We are acknowledging that, to the next generation, speed and simplification are synonymous with quality and innovation. We have asked many outstanding people to join GE, leaving promising careers in IT companies. They do so because they share our vision for the Industrial Internet. I have promised them that we will lead in both technology and culture; that we will not be burdened by old industrial procedures that no longer are a foundation for success. Achieving a culture of simplification is a strategic imperative at GE and will define our leadership for the next generation.
The global oil and gas industry operates in challenging circumstances, especially with the sharp fall in oil prices over the last two years. As the signs point to still more uncertainty and volatility, the industry will need as never before to make the most of every asset, and of every dollar invested—all while continuing to make operations safer.
This cannot be achieved at sufficient scale by merely improving on traditional ways or familiar technologies. The industry needs new means of capturing hidden value at every point of production from reservoir to refinery. The challenge is to optimize performance and processes, safely and securely, across the full value chain.
The answer is digital technology, connecting machines, data and people. That is what we are doing at GE Oil & Gas, with results that are driving productivity and transforming the industry.
With our purpose-built digital technologies, equipment performs better and longer. Sensors and analytics provide actionable insights, so that the condition of equipment is constantly monitored, unplanned downtime is kept to a minimum and maintenance is conducted more precisely and preemptively.
Operations are greatly enhanced by the knowledge customers gain through our digital technology. When insights from equipment, sub-surface reservoirs and external data points are all brought together, operational planning and decision-making become more efficient and focused—with corresponding gains in performance and safety.
Using Predix, we now offer oil and gas operators an enterprise-wide management dashboard, which is proving a crucial advantage in very competitive conditions.
Other product applications include:
Field Vantage for monitoring and predicting performance of onshore fields to optimize production.
Pipeline Management Solution for data integration, visualization, and analytics for managing pipeline risk.
Unified Operations for full enterprise views and knowledge management for increased efficiencies.
GE Oil & Gas is applying digital technologies within our own manufacturing and service facilities to deliver better outcomes on cycle time, cost and quality.
In our Brilliant Factories, engineers are working from 3-D models and rapid prototyping, using virtual validation at both the component and assembly levels to accelerate the design process. This means we can deliver faster solutions to oil and gas operators—not on our timetable, but on theirs.
With analysis simulation, analytics and closed-loop learning, we improve yield performance and cost of quality. We now have a single, centralized system to create, manage, configure and integrate product-manufacturing data.
Changing Our Culture
We are also making sure to practice what we preach. The insights we derive from data and insights—whether in finance, supply chain or human resources—can enhance our decision-making and speed. In our workforce planning, we are looking at how we deploy talent with the flexibility and mobility that is needed to best serve customers. Financial algorithms and a contemporary CRM tool are helping us to eliminate meetings simply for the sake of ‘reporting-out’ and instead pull leaders together when there are actionable insights that will help us manage base costs or invest in R&D and localization. Our data lakes help supply chain teams compare common parts across product lines and boost their purchasing power and our productivity. We are also using the wisdom of the crowd to solve problems whether internally or externally. Crowd-sourcing events have uncovered creative ways to simply save on general administrative costs and even use less water in customer field operations.
To continue to push the boundaries of what digital can do, we’ve mobilized a brigade of digital ambassadors with diverse backgrounds. They are empowered to challenge outdated practices that will benefit from a digital approach. In all of this, as we bring digital insights to a vital sector, we are making sure that connectivity across systems never compromises security. A culture defined by digital innovation must also be devoted to unyielding cyber security. We at GE Oil & Gas intend to be first in meeting that standard.
Energy Connections, CEO
One-third of the world’s power is generated by GE—but all that energy means very little if it remains out of reach. Energy Connections links the brilliant machines, grids and systems that deliver energy to the people and places that need it most. For us, being a Digital Industrial starts with the customer.
We are continually streamlining the customer experience and improving their operating efficiency. To make it easier for customers to choose our products and services, we have launched a suite of online solutions configuration tools. And by improving our engineered product configurators for complex products such as switchgear and motor control centers, we’re cutting project lead-times by as much as 50%.
Extending these best practices to our customers’ operations, we recently launched a new industrial control offering, SCADA Edge IPC. It brings together GE’s Proficy supervisory control software and its rugged industrial computing platform that collects, optimizes and processes data from brilliant machines. Now our customers can monitor and control every aspect of their shop environment, equipment and resources under a single pane of glass—yielding better operator effectiveness and less downtime.
Taking innovation into the field, we are expanding our Software and Grid Automation businesses to drive better outcomes for electric utilities. These solutions sharply reduce the time it takes to gather, analyze and interpret equipment data, shave 30% off response times and reduce repair costs by as much as 75%.
Customers using our Smart Digital Substations can eliminate manual wiring and testing, thus reducing cabling requirements by more than 40%. This translates into total life-cycle labor cost reductions of over 50% for substation protection and control systems.
Energy Connections uses millions of connected assets and their insights to support mission-critical, real-time control systems for pipeline management, real-time energy market platforms, gas distribution systems and electrical transmission and distribution grids.
Our geospatial information systems connect multiple assets and improve performance. Having a comprehensive view of all their assets, customers have cut fault detection times by 92% and field staff by 40%.
We are also moving to the next stage in smart grids. In Nice, France, we recently completed the Nice Grid demonstration project, which integrated solar energy efficiently onto the grid.
In the marine industry, we are helping customers optimize their fleets. We recently launched SeaStream Insight, powered by Predix. This solution gathers and analyses data across an entire vessel, then uses prescriptive and predictive analytics to reduce downtime and service costs.
Changing Our Culture
Our team is completely centered on delivering in a digital world. We use Product Lifecycle Management tools to increase productivity and quality. 3D modeling and simulation tools compress the design cycle for new product development. The models are linked by the Digital Thread to our shop floor to ensure product efficiency and quality.
Once designed, these products will be built in our brilliant factories, where sensor-enabled equipment, automation and digital capacities improve efficiency and quality while lowering cost. One result is that our new product cycle and inventory will improve by 20%—a sign of progress for our company, and a model of success for our customers.
GE Digital, Chief Commercial Officer
By the year 2020, all critical industrial equipment will be connected and one exabyte (1 million terabytes!) of data per day will be available. Meanwhile, industrial companies overall productivity has declined from 4% over the last two decades to 1%.
Customers are demanding more than a traditional product and service portfolio. They expect world-class experiences and measurable business outcomes. They know that data and connectivity can help grow their top and bottom line through improved efficiency, productivity and safety, but they need a partner who can help tell them how. Enter GE.
GE Digital has assembled the people, process and technology required to deliver a broad range of digital capabilities. These capabilities yield new, compelling business outcomes for customers, such as more power at a lower cost, better health diagnostics per scan with reduced dose and increased velocity in transportation.
The Industrial Internet changes everything for our industrial customers. So for us, it’s about getting our customers connected, getting them insights and getting them optimized so that they can deliver on their business goals. The starting point is developing a “Digital Twin”—digital models of machines and processes. Using sensors, we help our customers transmit data from their assets to Predix. And using our applications or custom-built applications, we can provide insights that allow our customers to optimize their assets and operations.
Most importantly, we have enabled the commercial teams with the GE Store—knowledge of our assets and solutions from across the GE enterprise that have delivered outcomes in a variety of industries and applications. GE Digital customers can confidently partner with us knowing that we tested these products in our own company before taking them to market. Traditional software companies cannot offer the same.
Changing Our Culture
In GE Digital, almost all of our employees have a software background and therefore have what we call a “digital DNA.” They intuitively focus on speed of execution and rapid, measurable results. They understand the power of customer and partner ecosystems, and the potential multiplier effect these ecosystems can have on scalability and value generation.
Employees with digital DNA innately focus on driving customer outcomes rather than selling products. We are driving this DNA across GE through coaching, training and leading by example. Customers will not only receive the deep industrial domain knowledge and expertise that they already expect from GE, but they’ll also see a faster, more agile company focused on delivering more value than ever before.
In aviation, operating the finest engines, components and systems made anywhere in the world can be improved—by the use of data and analytics. A generation ago, a GE Aviation engineer would have been on the cutting edge of technology using small sets of data gathered after each flight to enhance the performance of our equipment in service. This was the limitation of the technology at the time, and the inherent limitation in learning. Today, digital connectivity is removing that barrier.
Our ability to harness large streams of data from aviation products provides incredible insights and real operational value for our customers. Together, we are unlocking opportunities to generate greater productivity beyond our traditional services, creating industry standards for cloud computing and strengthening our collaboration as we work on solving their toughest challenges. We are creating a new digital skill set focused on our customers’ competitiveness, speed and efficiency while differentiating our products, services and relationships.
We are applying data analytics and new digital technologies to advance our own operations. Digital design tools, additive manufacturing, advanced automated machining and advanced inspection, all are enabling our operations, partners and suppliers to dramatically reduce cycle time while improving quality. For example, our most sophisticated turbine blade design concepts are now on test in two weeks, not the nine months it once required, thanks to rapid prototyping and 3D printing.
In both our avionics and electric power businesses, we have reduced our software development cycle time by 60%, utilizing new intelligent modeling tools developed with GE Global Research. These tools analyze, learn and adapt software from requirements to code enabling our engineers to focus on speed to market.
Changing Our Culture
A digital industrial GE Aviation business moves at a much faster pace, with the confidence and speed enabled by a new reality where physics meets analytics, and our customers and shareholders win. Where our employees learning is paced not by the availability of information, but rather by their own ability to collectively solve the challenges of this generation, and we are creating a stronger culture where speed and simplification are synonymous with quality and innovation.
Only GE can leverage the innovative technologies of our global businesses through the GE Store, learn collectively from the opportunities each business faces, and put those solutions to work for our Aviation customers around the world.
GE Healthcare, CEO
An estimated 1% increase in healthcare efficiency—just a single percent—would save $63 billion in annual healthcare spending worldwide. As enormous as those benefits are, of course, the needs in healthcare go far beyond bending the cost curve. Every new improvement in medical technology can help to make treatments more accessible, more affordable for patients and more successful in their outcomes.
The healthcare industry is changing in fundamental ways, as providers and governments turn to data and analytics to improve clinical, operational and financial performance.
Digital health is the integration of advanced hardware, software and next-generation “wetware”—the data in DNA. In the field of medicine, the Industrial Internet means better population health management through data-driven, longitudinal views, so providers can deliver the right treatments at the right time.
GE Healthcare anticipated this shift toward digital health in three key ways:
First, we built robust digital expertise. Five thousand of our software engineers are now trained on one target: transforming endless streams of data into actionable insights—realizing that lives depend on every refinement of knowledge.
Second, we applied the digital-first mindset to internal operations. Just as clinicians want to spend less time navigating the system and more time caring for patients, GE employees prefer to give their time and energy to serving customer needs, instead of dealing with needless internal constraints. So we are connecting our own commercial operations with the supply chain and services organization on a unified digital platform, clearing away any roadblock that keeps us from solving our customers’ problems.
Third, we developed outcome-based solutions that cost less and make better use of clinicians’ time. Soon, doctors will be able to instantaneously sift through data from millions of diagnostic imaging scans, thereby spotting diseases earlier and more accurately.
With the first industry-specific cloud—our “GE Health Cloud,” powered by Predix—tech innovators can join a secure ecosystem where they can build, deploy and market their applications. These apps help doctors to manage complex data such as 3D imaging scans, while making clinical collaboration as simple and routine as social networking.
Innovations in connectivity are making all the difference in modern healthcare. Radiology departments in Texas are using data analytics to redesign workflows, adding potentially millions to the bottom line, while also reducing wait times and patient anxiety. Hospitals in Kenya and India are partnering with clinical specialists worldwide through smart devices to help reduce maternal and infant mortality rates.
Changing Our Culture
In perhaps no other sector are the implications of the Industrial Internet more in evidence, or more promising, than in healthcare. And no other company has adapted its culture more than we have to be the best partner possible for our customers as they work to solve the challenges ahead.
We are leaving the world of professional silos, disconnected spreadsheets and bureaucratic workflows to build communities of cross-functional teams that have a single focus: customer outcomes. We are investing in digital collaboration platforms that look and feel like social media, which creates instant connection between our commercial and services teams and fosters a customer-focused culture based on speed and trust. And we are leveraging this new internal culture to drive real external results—offering our customers more than just superior imaging and deep domain expertise, but also data analytics and innovative business models. In all this, we are building the future in life sciences, imaging and digital, and enabling the transformation of healthcare to value and outcome-based models.
Digital is a game changer—one of the biggest strategic shifts of our lifetime. Everything is being transformed. Mobile tools are enabling a better way to perform locomotive service, analytics and software are facilitating smarter maintenance and longer uptime, and embedded software and controls are delivering game changing equipment performance. And the greater our own knowledge of how our products and industries are performing, the better we can serve each customer.
Through digital technology, we are able to bring direct and immediate improvements to our customer’s operations. A few examples:
On our Tier 4 locomotive, the “smartest” on the market, more than 200 onboard sensors process over a billion instructions per second.
Our smart locomotives evaluate mission-critical data such as train length and weight, track conditions and grade, and driver response time to determine the optimal and most fuel-efficient way to run. Our Trip Optimizer product brings 7-9% fuel efficiency to our customers, and this year reached 100 million auto-control miles. That alone has saved customers some 56 million gallons of fuel and $197 million in fuel costs, while reducing greenhouse gases by 628 kilotons.
Our Movement Planner software solution looks at a railroad’s entire network and optimizes the routing of trains for improved capacity and velocity, without laying new track and infrastructure. It provides real-time train re-routing and network optimization based on current traffic and events.
Inside our business, digital has transformed how we work—giving us greater speed and agility, a laser-focus on driving impact—and has evolved our culture.
In our factories, we have sensor-enabled machines and we leverage standard global systems. We are eliminating re-work, optimally routing repairs, reducing downtime and improving quality. This means better service to our customers and greater productivity all around. A good example is placing sensors on critical equipment to monitor vibration; by doing so we’ve eliminated machine downtime, yielding productivity gains of 10-15% in those parts of the factory.
With our Services teams, we are increasingly leveraging a computer-based Digital Twin of our equipment to analyze individual asset performance, prevent failure modes and optimize maintenance throughout its life.
Because we already know the condition of locomotive engines through our digital models, we can route them for remanufacturing based solely on what needs to be repaired, rather than using a standard full remanufacturing spec for every engine. In our customers’ service shops, we know the exact maintenance to perform on a locomotive before it even comes in for repair.
Changing Our Culture
At GE Transportation, digital is not just another function; it is a driving mission of the entire business. Digital is at the core of our DNA, and it is being infused into every part of how we work and how we think.
We are breaking free of our traditional “functions,” with mission-based and agile teams—teams with singular purpose, empowered to leverage any discipline in our business to achieve their mission.
These teams work toward critical outcomes such as reliability, customer uptime and 'design for value'—moving fast, focusing on what matters and leveraging every person. Digital is at the core of this approach, leveraging new cloud-based tools, data, analytics and Predix. For example, we have teams working with some of our largest customers on projects such as using video analytics for equipment inspection and leveraging advanced technology for real-time monitoring of rail integrity.
More than ever, our success is critically aligned to that of our customers. And more than ever, because of our deep focus, technology and data science, our teams bring powerful solutions and performance to our industries.
Some of the world’s energy needs are very simple to state. Today, more than a billion people still live without electricity; another two billion have inadequate supplies. And 20 years from now, global demand for electricity will increase by 50%. Across power-intensive industries, utilities and power producers are seeking partners who can help them navigate through a complex and challenging environment and deliver the right balance of affordable, accessible, reliable and sustainable power.
At GE Power, we are fully engaged in the digital transformation of energy, building integrated software solutions for customers from generation through to transmission and distribution. Combined with our industrial know-how, our digital solutions span many forms of fuel sources of power generation and hardware helping customers connect every sensor, asset and piece of operational data to optimize outcomes across assets, operations and their entire business. We are leveraging all the creativity and insight of the GE Store and are the fastest growing portion of GE’s digital portfolio.
In 2015, we launched Digital Power Plant, a suite of software applications, powered by Predix, that helps deliver more power, higher reliability, greater efficiencies and lower emissions. The Digital Power Plant can generate up to $50 million of incremental value over the life of an existing plant, and up to $230 million for a new one.
We are co-partnering with our customers to use Predix-powered software and digital solutions to solve their greatest challenges. One such partner is Qatar’s RasGas Company Limited, one of the world’s largest producers of liquefied natural gas. We are using GE’s Asset Performance Management application to help them lower unplanned downtime, extend the life of their assets, reduce operating costs and optimize their supply chain. Another great example is Exelon, one of the largest and most innovative energy providers in the U.S. Exelon is one of our first customers to deploy the Digital Power Plant and implement a suite of enterprise-wide software technologies across three fuel sources—nuclear, gas and wind.
At the same time, we are transforming our very own business, creating end-to-end digital connections across our operations to benefit our customers. This Digital Thread weaves together several initiatives—design system integration, model-based enterprise and virtual manufacturing. The advantages of the Digital Thread are enormous: allowing us to “see” more and to deliver better outcomes for our customers, while generating nearly $900 million in productivity savings over the next three years.
Changing Our Culture
In GE Power we’re changing the way we work — embedding digital into everything we do. Leveraging a FastWorks mindset to empower employees to change their workspaces and create tools that facilitate collaboration; digitizing our processes and creating end-to-end connections; building brilliant factories that predict, adapt and react more quickly to better deliver for our customers. Our experience is showing that truly becoming digital requires a culture change—an environment of openness, information transparency, trust, candor, speed and clear accountability—all focused on being the best and most competitive in all that we do. This is what we stand for and in its essence is the new GE.
Renewable Energy, CEO
In our Renewable Energy business, the capacity to collect, store and share large amounts of data, as well as modelling and analytical capability, is transforming an already-transformative industry.
The experience of machines in the field, captured in a constant flow of data, is informing equipment design, improving operational performance and guiding maintenance planning.
The Onshore Wind Business has been pioneering digital systems, launching its Digital Wind Farm ecosystem in May 2015. Using the power of big data, wind farms are configured to maximize the performance of each turbine at each location according to the surrounding wind conditions. Their performance is monitored and adjusted in real time to ensure that the wind farm operates as efficiently as possible.
Turbines are equipped with sensors that feed into GE’s Predix software, which allows performance monitoring from data across farms or even entire fleets. As more data is collected, the system learns over time, becoming more predictive and hence more useful in setting preventive maintenance schedules. These capabilities have the potential to be rolled out all across our onshore and offshore wind operations.
In the Hydro business, predictive technology has also been used to test components on-site, and thus optimize long-term performance. For example, Hydro performed dynamic stress testing on one blade of a customer turbine runner. Seventy pressure sensors and strain gauges took readings from across the blade, giving engineers precise knowledge of the turbine’s behaviour, and with that better knowledge of the entire plant’s performance.
The ability to collect, store and process large amounts of information has also made for breakthroughs in data visualisation, so that Hydro customers can now make “virtual visits” to power plants before they are built, with a view to better operation and maintenance after they are built. Information taken from digital engineering drawings can be brought to life in full-scale 3D models that are used throughout the supply chain, from manufacturing and installation all the way through to service.
The business is also adopting digital innovation in its manufacturing processes, producing its first test runner using 3D printing. Applications are everywhere, from better planning in the use of expensive cranes, to improving factory machine plans.
Changing Our Culture
Energy is an industry in transformation—it must provide vital electricity to billions of people while also reducing greenhouse gas emissions. The Renewable Energy team feels a strong sense of purpose to enable reliable, accessible and affordable renewable power to people everywhere. You can feel the momentum as a new generation of employees, drawn by the renewable energy mission, bring a digital mindset to all aspects of their work. Employees such as Jean-Christophe Tawil, whose interest in 3D imaging led him to develop virtual hydro turbines and generators, that make on-site servicing more productive, and improve our total plant design process. More and more employees are looking at our operations, seeing opportunities for digital tools to improve our productivity and taking the initiative to act. They know that making renewable power more affordable will accelerate penetration and help tackle the energy challenge—for the benefit of people everywhere.
Simplification reinforces that outcomes matter. Companies need to blunt the momentum of “corporate political correctness.” It creates a sense that, if the processes are followed, outcomes don’t matter. In this world, it is easy to lose a sense for priorities and proportionality. When political correctness invades business, you lose your competitive edge. It doesn’t do any good to win awards for good governance if you are getting eaten alive by competitors. Our sole truth of performance is in the market, winning with customers and investors.
Simplification is making GE safer. Integrity is the foundation of GE. But I take a broader view, not just a legalistic one. We want GE to be morally sound, but also strong. The way we keep GE safe is by having great engineers who design reliable products; by taking cybersecurity seriously and holding senior leaders accountable to be cyber experts; by having a strong balance sheet that is impregnable in a crisis; by having open reporting of rule violations; by seizing growth opportunities in an uncertain economy; and by creating a culture of constructive conflict where everyone has a voice. This includes people who challenge procedures when they don’t make sense. Simplification has helped us improve risk management through operational excellence, not by multiple reviews that cheapen accountability.
Through simplification GE is more unified. It is important to take out layers so that leaders are in touch with their teams. We are reducing vertical reviews in favor of delegating decisions to experts who are closer to our customers. We have learned that even the best people will underperform when they have myopic goals. So we have simplified our metrics to better align our teams. GE has 333,000 employees working around the world. Simplification is essential to lead them with a unified purpose.
A simpler company is faster. Let’s face it, complex systems are put in place by bureaucrats to either stop progress or simulate perfection. FastWorks is becoming the way we work, favoring progress over perfection. Becoming the Digital Industrial will take multiple improvements. We are not exactly sure what every strategic step will look like. But, we will find out quickly; we will learn and adapt to win.
A simpler company is more empathetic. Simplification forces you to actually learn how your team works; to care more about their tools and productivity. Doug Folsom leads GE Aviation’s 50-year-old Hooksett, New Hampshire factory, which embodies the best of GE’s past and future. Here we have 700 motivated teammates driving a transformation in what we build and how we build it. They are embracing a fully digital factory, including new automated milling machines and 3D printing capability. More than half of GE’s employees are associated with high-tech manufacturing. We are investing in their future, and they are delivering advanced technologies to our global customers. It requires investment and empowerment to create valuable manufacturing jobs.
It is essential that GE continue to be relevant to the next generation of leaders. I have assembled a group of young leaders, whom I meet with frequently, to help me see GE through their eyes. It is my dream that every young person should want to come to work at our great company. I will never give up that dream. I have asked them to answer three essential questions: What does their GE do? What should their GE look like? And, Why not us?
What Does Our GE Do?
At our GE, every day we go to work to help save people’s lives. We solve the toughest problems in the world: lack of access to quality healthcare, power and water. When we put our minds into doing something that is right for our customers, nothing can stop us. We get it done. And we act with unyielding integrity.
We do what we say we are going to do. We said we wanted to build a GE Store to leverage technology, growth markets and services, and we are doing it. We said we would take risks and offer the market game-changing technologies, and we are doing it. We said we would transform GE into a Digital Industrial company that offers superior customer outcomes…and we are doing it!
Our GE recognizes that the global marketplace is changing fast and is ready for speed. It is willing to take more risk in new products, new markets and new technologies and is doing it faster.
Our GE understands that without customers, we don’t exist and because of that, we work horizontally, always focusing on customer output, using the GE Store as a competitive advantage. With the GE Store interwoven into our culture, the design-to-market process will move with increased agility.
Our GE is becoming a more horizontal company where everyone is focused on delivering for our clients, breaking down barriers and challenging unnecessary bureaucracy. Hierarchy is becoming less important when it comes to sharing relevant viewpoints. Our voices are being heard at all levels.
Our next generation of leaders is highly collaborative, connected and welcomes the opportunity to share information. In order to enable this change, our leadership is focusing on creating a more collaborative environment where ”getting things done” becomes easier every day.
Our GE is beginning to act more entrepreneurial. It is investing in amazing ventures, betting on new solutions and business models like Current. It is continuously searching for new ideas, striving to identify emerging needs and providing the best solution in the shortest time.
Our GE believes in its people and invests in their development in every corner of the globe. It recognizes the value of diversity and encourages constructive conflict in order to provide the best solution at all times.
Our GE is the place we want to come back to the next morning, the place where we want to work together with our colleagues, the place we want to be for the next 20 years.
How Should GE Work?
The GE we want will be a place where we cherish customer data. Assets will speak the same language— Predix—to drive the best outcomes for customers. Each asset will reveal how it needs to be groomed to perform at its best, resulting in the best experience, adaptive to the setting it evolves in. We will interpret this data and provide meaningful insights back to our customers, resulting in concrete, relevant outcomes.
One thing that will not change is our proven strength of picking great people and developing them to be great leaders. GE people are not just incredibly smart, they are also good people with strong values who are hungry to learn.
GE must use our generation’s technical skill and social culture as part of the strategy for future success. This will require dismantling functional silos, valuing horizontal thinking and accepting failure as part of the innovation process. Collaborative, shared risk/reward relationships with employees, customers and partners need to be enhanced.
GE will be a place that attracts abundant intellectual resources. We will gather the best, hungriest talents and grow them into the leaders of tomorrow. It will take time and iterations. We will encourage them, coach them and be their cheerleaders. They may fail at times. It would mean they had tried hard enough. If they fall, we will be there to catch them.
We will encourage leaders to go deeper in markets, and we will reward domain expertise in commercial and technical fields.
GE will be ever more global, with more leaders in growth markets. These markets will require the solutions that only GE can provide. As they grow, the face of GE will continue to change to reflect the markets where we have the most opportunity.
GE will be a place that ignites people’s passions, an exciting place with the spirit of camaraderie. Frontline teams will be empowered. Operations will be more transparent and efficient, and structured more simply.
Our teams will go beyond GE. We will collaborate with customers and other partners to develop new solutions. We will be mission-driven. We will be empowered to safely access, dissect and transform data into valuable and sharable insights for the world to see.
Our workplaces will look different: more flexible work environments with less formality. We are already seeing this change in many of our workplaces.
In the past, leaders were valued for their knowledge; in the future, it will be their ability to learn and share. We must lead the Digital Industrial by building real-time decision-making in our machine-to-machine connectivity. GE leaders will make decisions that are collaborative and outcome-driven.
Why not us?
The needle is moving. Our early FastWorks projects were met with reluctance because of our inherent culture to win the first time. However, the results from these projects were real and undeniable. This new methodology infiltrated our culture, and today’s GE is one where big swings are encouraged, failures are celebrated and a faster solution is reached.
We are re-inventing ourselves. Whether we’ve been with GE for 30 years or even one year, the Company we knew yesterday will not be the Company of tomorrow.
The question is, “Are we finished?” The answer is no. A GREAT GE is a simple GE, and we still have work to do.
We are committed to becoming the best Digital Industrial company in the world.
Come visit us and you can feel the change across the Company. GE employees are seeing the opportunities that are out there for grabs, and more and more of them are asking, “Why not us?” At stake is the digital transformation of industry, and the winners will win big as this transformation occurs.
So why not us?
A simpler company is better for our customers. Maria Claudia Borras recently joined GE as the Chief Commercial Officer in our Oil & Gas business. At GE, we have become too comfortable with fragmented approaches that work internally, but make customers miserable. She has reorganized our commercial efforts to provide solutions, broken down functional barriers and leveraged digital tools to improve our service.
A simpler company is good for investors. Good teams like the same things as good investors. Low-cost companies are better for your team and investors. It means fewer layers, fewer processes, more delegation of authority and better jobs. Information and transparency produce more speed and more accountability. Your team loves it and so do investors. Linking beliefs with valuable outcomes with compensation motivates our team and investors.
We have done a better job of being our own activist. Few companies can match our record of bold change. To be honest, I don’t think activists are necessarily bad for companies. They are able to take a fresh look. We like having smart investors in the stock, even when they have a point of view. Activists challenge companies to set priorities, stop wasting money and time, and work on what is essential. When a business team fails in GE, this is what you find: complicated accountability, too much cost in the wrong places, excessive priorities and low market awareness. These are factors activists point to when they criticize companies. Shame on us if we need help from the outside to find this out.
But let’s face it, every CEO and company should be proudest of long-term investing; of building something, not just managing it. I know I am. Everybody likes our Aviation business today. It has an awesome franchise, technical leadership and valuable customer relationships. But nobody liked it after 9/11 or during the financial crisis when we doubled our R&D. We have the finest Life Sciences business in the industry, one that is high margin and fast growth. Building this position was facilitated by an “expensive” acquisition that today looks like a bargain. It has prospered with the benefits of the GE Store. If we had waited for this to be popular, we would have missed the opportunity. For every company, there is a fine line between staying the course and listening to new voices; between short term and long term. GE is a 138-year-old company. Frequently, our investors hold our stock for only an hour, six months, three years. They are important, but can’t be the only voice. Not because these investors ask for too much, but because they ask for too little. Our strategic opportunities are vast. Our products, and more importantly our customer relationships, last for decades. At GE, we are builders.
Recently, several big investors publically criticized companies for being too short-term oriented. They may be right, but large institutional investors are to blame as well. They have allowed governance to become too legalistic, about politics instead of protecting the average investor. It is confusing for investors when they are told that company leadership is about filling out forms, not bold growth strategies. It takes strong leadership to bridge the divide between activist regulation pushing you backward and activist investors who want more right now. It is possible to be ultra-competitive, strategically bold and disciplined at the same time. But, it requires great people who want to make a difference. The most important culture change still ahead of us is to be completely intolerant of being nice for the sake of getting along. To fight for ideas; to fight for our customers; to fight for efficiency; to fight for people who are different.
I want our leaders to learn to ask, “Why not us?” I want them to dream about new levels of growth and performance. I want them to see the world both as it is and as it could be if we are determined to lead. Brad Mottier is one example. He is the architect of our big wins in turboprops. He built this business as an entrepreneur who leveraged the GE Store. Now, we are penetrating one of GE’s biggest unserved markets. We will change the game. Not every great idea in the future will come from a start-up in Silicon Valley. Some will come from big companies who ask, “Why not us?”
Similarly, companies can have a broader impact on the way the world works when we are not afraid to act. Two years ago, with the leadership of John Rice, we opened a business process outsourcing center in Saudi Arabia. Our vision was to tap into a pool of talented Saudi women to execute process support for our activities in 50 countries. Many people asked why. Now the center is growing and competing globally. It has created 700 jobs. It is led by a Saudi woman, Dr. Amal Fatani. Sometimes businesses can drive change faster than governments if they ask, “Why not us?”
I am really proud of the GE team. They are talented, global and driven; they, too, have been tested. The GE team will never be outworked, and we don’t give up. Last year, we won a $2.5 billion order to upgrade the India rail system. This was a project we worked on for 20 years. It required global teams, weekend travel and all the strength of the GE Store. One of the heroes who delivered this win will retire in 2016. His name is Dave Tucker. He was the commercial leader in our Transportation business. Like many GE leaders, he has lived the “American Dream,” becoming more than he thought possible. He grabbed every initiative and stayed contemporary. He hated to lose and rarely did. He had the best package of traits for a leader in the world today: He was a fantastic salesman, and he was a shrewd risk manager. He was always willing to change, lead and compete.
You never hear about the heroes who work at GE. They are not evil globalists or crony capitalists. They are your neighbors. We are part of an economic ecosystem that is the most competitive in the world. We create great jobs through private enterprise and ingenuity. We give back competency and innovation directed at solving the world’s toughest problems. We are all proud to work at GE, a purposeful company that makes a difference in the world.
That is the spirit with which I am asking investors to join GE as we transform and execute. We have delivered for you in the last five years. But we are still underowned by big investors. In this time of uncertainty, why not GE? We have great businesses, global scale and strong initiatives. We have a ton of cash that can protect you. And we will lead the Industrial Internet. We are the Digital Industrial. We have grit. Our leaders learned from the experience of economic volatility.
During the financial crisis, in 2008, we were frequently criticized about the size of GE Capital. Investors would ask, “Why do you have so much commercial real estate?” They had a point. But we knew that merely shrinking GE Capital would not create an enduring and valuable GE. So we challenged ourselves with a different aspiration: to reclaim our role as the world’s most valuable industrial company; one that will lead in innovation and value creation. We are delivering on that dream.
We act. We learn. We get better. We insist on being more than we are today. Some companies are retreating; we are moving forward to become the Digital Industrial. We are committed to deliver for you. Join us as we create the next wave of growth. Why not GE?
JEFFREY R. IMMELT
Chairman of the Board & Chief Executive Officer, GE February 26, 2016