GE Finds Its Inner Edison

Jeffrey R. Immelt

Issue: Amidst tight profits and a snaillike economy, how to grow GE’s highly diversified $132 billion operation, with businesses in everything from power generation to medical imaging, appliances, aircraft engines, and financial services-and preserve the company’s century-old reputation for innovation.

Jeffrey Immelt: We’re inheriting a slow-growth economy, a slow-growth world. There’s a lot of excess capacity, but companies want to grow market share and margins. And in the future, that will be done by funding innovation that reflects customer needs and developing technologies over a long period of time. I started my career selling, and I made this profound discovery that whenever I had good products to sell, I always did better than when I had lousy products to sell. So we’re closing the door on a decade that was about capital markets and acquiring things and opening the door on a new period that’s more about developing things. The companies that know how to develop things are ultimately going to create the most shareholder value. It’s as simple as that.

TR: How does GE’s global expansion figure in, with your new research labs opening in Munich and Shanghai?
Immelt: The new labs bring technology development closer to our global customers and help us tap into talent that exists outside the U.S. We have three new R&D centers: Bangalore, India, which opened in 2000; Shanghai, China, which opened earlier this year; and Munich, Germany, which will open in 2004. Each place brings something different. India graduates around 10,000 electrical engineers every year, so you get this incredible wealth of talent. Our Bangalore lab is strong in computer modeling and analysis, advanced materials, and medical visualization. Then you go to Munich. The cost of an engineer is more or less the same as in the U.S., but the engineering schools in Germany are among the best in the world, and you get innovation in renewable energy, sensors, advanced medical imaging, and automotive technology. Plus, it brings us closer to our European customers. And then you look at Shanghai. You get a great market capability in China and a relatively economical technical base; China is doing a lot of work in power electronics, manufacturing technology, and ceramics and metallurgy. So I firmly believe in global technology development, where you can really tap into the best ideas around the world.

What we’ve insisted on is that when we globalize, we globalize products and systems and technology. So that India, for instance, becomes the world leader in a certain domain, versus just being a sliver of somebody else’s program that’s run from the U.S. Unless you’re willing to do that, you never get the global capability you really need.

TR: You spoke of the need for GE to develop its own businesses, as opposed to acquisitions. Can you explain more fully how technology fits into your plans for growth?
Immelt: Organic growth is the driver. I measure our teams basically on organic growth. Acquisitions is secondary to that. It’s a luxury we have because we generate a lot of cash.

In GE, everybody grows up, whether they know it or not, in a technology-based company. The genius of Edison was that he was both an inventor and a very good businessman: he understood the importance of innovation that fulfilled needs in the marketplace. Let’s take energy. The big market needs in energy are high fuel efficiency, competitive cost, and reducing emissions. We’re looking at all the fossil fuel energies, plus wind, photovoltaics, hydrogen, nuclear, almost every possibility. Now, I sit here and say, “Will photovoltaics exist as a generator of power?” I believe the answer is yes-and GE will be a part of that. It could be in 2015, 2020, 2050, depending on innovation, the price of oil, the regulatory environment-and a lot of those things you can’t predict. But we know what the needs are; it’s up to us to invest in new technologies that will meet those needs. There’s going to be a lot of new businesses in the coming decades, but they’re going to be fulfilling a need that exists today only in a different form. I want us to have a solid foundation in all those technologies that could transform these industries. We’re going to own the future technologies that meet those needs.

As we develop technologies, an industry that doesn’t exist today might be created. For example, we have a significant investment in technology across the company-for our medical business, our power business, and a bunch of other businesses-around nondestructive testing and predictive failure-the ability to test and evaluate the physical structure of an asset without taking it apart. That’s going to be an industry in and of itself. You’re going to be able to look at a chemical plant and remotely monitor it, understand when the pipes might fail, a whole series of events that could impact your production. It’s not a business we’re fundamentally in today, but it’s a business we will be in in five or 10 years. It’s not a natural growth of any individual business, but collectively, we have such a great expertise in this area-that’s where it grows from.

Immelt: Because it’s so much the heritage of the company, I can’t really categorize it as different. If you look at our medical business, for instance, we always have done things that have been 10 or 15 years ahead of where we needed to be. But let’s say it is different: we are investing more R&D dollars on longer-range programs. I’d say one of the things that I personally believe is that I can’t sit around a company like GE and see us want to go out and pay a startup $100 million for technology that if we had just spent $2 million a year for 10 years, we could have done a better job at.

I hate that, I just hate that. I really hold our leaders accountable to figure out our markets, figure out our customers, and invest in where we see the market going. You know, I look in the mirror every day and see my banker. So I have great engineers and a good banker, and we know as much about the market as anybody else. I don’t see why we can’t do just as good a job of innovation as anybody else. So I do have a real hot button on that one. And I’ve been driving that one really hard.

TR: What areas get you most excited?
Immelt: Molecular imaging-the ability to see disease start at the cellular level-will absolutely transform the medical-imaging business and diagnostic medicine (see “A Sharper Picture of Health,” TR September 2003). All the things happening in the energy industry, from wind power to hydrogen as a fuel source. And nanotechnology, because it’s the materials our products are made of that make jet engines more powerful, imaging systems more accurate, and power turbines more efficient. Nano has the potential to open the door to all-new material properties that we haven’t been able to achieve before.

TR: How do you pay for all this research?
Immelt: The individual businesses contract with the R&D center on enabling technology projects that let the businesses develop their next-generation products and services. That’s about 60 percent of the budget. Thirty percent comes from me, for longer-range technologies-stuff five to 10 years out. The final 10 percent comes from external contracts, typically with the U.S. government.

One thing I’ve done is, two or three years ago our lab might be running as many as 400 projects. Now we run about 50 or 60, so we do fewer, higher-impact projects that the businesses have a clear line of sight on and interest in.

For something like nanotechnology that has the potential to impact four or five businesses but takes long-term, high-risk research to realize that potential, it’s impossible for me to expect any one of our CEOs [each of GE’s 13 business units has its own chief executive] to invest in it on their own. So I fund those types of programs-in nanotechnology, photovoltaics, molecular imaging, hydrogen energy, advanced propulsion. Those would be minimally $10 million a year each; some would be more than that. Typically, they would have NIH [National Institutes of Health] or Department of Energy or some kind of government funding associated with them. Inherent in it is a commitment of multiple years: these aren’t things you start and stop. But by the same token, nothing is set in stone. There comes a point in time where stuff might not make as much sense, and we have to cut it, or I might have to double the bet in others.

Basics of growth: GE’s research spans (left to right) nanowires for creating new materials, advanced propulsion systems, and solid oxide fuel cells.

TR: To help do all this, you announced a $100 million expansion in the global research center, near Schenectady. Can you explain the plans to also use the center to help exchange ideas between GE’s businesses and customers?
Immelt: We’ve always had our management development center in Croton-on-Hudson-about 50 miles [80 kilometers] north of New York City-which has been a hub of change for the company for a long time. It has been a big part of creating the culture in the company. What I’ve wanted to do is make our global research center also a hub for driving change. I want it to be the place where we talk about and develop our technology strategy, a place where we keep our business leaders educated about the developments in the latest technologies. So we’re building facilities, like a new conference center and lodge, to enable our leadership team to spend some quality time at the R&D center. I really want a generation of leaders that are never intimidated by technology.

Our business leaders are spending time at the center learning where technology is going, while at the same time educating scientists about where the market is going and what is most important to our customers. I really want that to be part of the global research center. That way, it’s not an island. One of the big fears is that you develop this blue-sky place that’s totally isolated from reality. I want a whole series of leaders to be able to come through there and share that reality, while at the same time they become better technology managers. Another reason we’re building the conference center and lodge is that I expect customers to be 30, 40, 50 percent of who comes up there. Customers will come there to hear about potential technologies and how they might impact their markets.

And the customers will be able to tell us firsthand how they see technologies impacting their businesses. It will help shape some of our R&D efforts and keep the voice of the customer in our technology development.

TR: Let’s go back to the first question. At a time when the prevailing trend is to shorten product development cycles and hunker down, won’t focusing more on longer-term technologies risk missing market opportunities today?
Immelt: Our cycle times of developing new products shorten every year-we’re in great shape on that. That is an important initiative, to fill the pipeline.

But if you look at the heart of the industrial side of GE, we are the world’s preeminent infrastructure company. And much of our stuff takes place over relatively long cycles. We’ve been in the energy business for 100 years. So if we want to stay in it another 100 years, we’d better have a pretty good understanding of what kind of technologies people could be using to generate electricity 30 to 40 years from now. If we’re going to fly people, we’d better have a pretty good understanding of that. If we’re going to image people, we’d better have a pretty good understanding of that. And all that requires long-term understanding of technology leadership. It comes from the old salesman in me: it’s always easier to sell the things you’re selling today if you can also captivate customers with what the future brings. That’s just a truism.