Bloomberg Businessweek (North America)
OVERLOOK ING HUDSON RIVER
in Ossining, N.Y., there’s a grassy, 59-acre campus owned by General Electric. It’s an executive training center where the company holds management and leadership classes, some of them led by the chief executive himself. Jack Welch, who ran GE in the 1980s and ’90s, would arrive by helicopter. He’d make his way to a windowless auditorium known as the Pit where a group of managers waited. They used to call him “Neutron Jack,” because he was known for firing so many people that only the buildings were left standing. Neutron Jack and his executives would engage in an aggressive form of corporate group therapy, raising their voices as they aired their frustrations with the company and each other. Later, they would have drinks at the White House, the campus bar. It drove business magazines wild with excitement. “The class sits transfixed as Welch’s laserblue eyes scan the auditorium … , ” wrote Businessweek in 1998.
Today, GE executives—sorry, team members—take classes in yoga and meditation and suminagashi, the Japanese art of painting on still water. The White House has become a low-key place where visitors can sip artisanal coffee rather than martinis. The Pit has a window through which the sun shines.
It’s part of a much larger transformation at GE orchestrated by Jeff Immelt, Welch’s successor as chief executive officer. Most notably, GE is moving its headquarters from suburban Fairfield, Conn., land of golf and bonuses, where it’s been since 1974, to Boston, the Athens of America. The company is selling off its division that makes refrigerators and microwave ovens. Now it’s focused on electric power generators, jet engines, locomotives, and oil-refining gear. And it’s made a significant bet on developing software to connect these devices to the Internet. There’s a term for this trend of adding network connections to hardware not usually considered computers: the Internet of Things. GE believes its opportunity lies in what it calls the Internet of Really Big Things.
In the past five years, GE has hired hundreds of software developers, created its own operating system, and fashioned dozens of applications that it says will make planes fly more efficiently, extend the life of power generators, and allow trains to run faster. GE’S plan is to sell this software to other manufacturers of Really Big Industrial Things, and to be a top 10 software company by 2020. That would put it in the same category as Microsoft, IBM, and Oracle, an ambition that some have difficulty swallowing. “Top 10? No way,” says David Linthicum, senior vice president of Cloud Technology Partners, a consulting firm in Boston.
GE is also revising its managerial rhetoric, something it’s also historically produced in prodigious quantity. The company was officially founded in 1892 when Thomas Edison merged his operation with a rival electric light manufacturer. In the 1950s, CEO Ralph Cordiner promoted the theory of decentralization, which turned 120 business heads into mini-ceos. In the 1970s, Reginald Jones championed “strategic business planning,” which treated the company’s many ventures as an investment portfolio. As a sloganeer, no one matched Neutron Jack’s ferocity. He was an evangelist for Six Sigma, a numbers-driven quality-control method that he didn’t originate but grabbed hold of and turned into a boardroom craze. He wanted GE to be a “learning enterprise” with “a boundaryless culture.” He also called it “the greatest people factory in the world,” one that welded together managers who could run anything from the plastics division to a television network. (Welch spent several years dispensing management advice in the pages of this magazine a decade ago, after retiring from GE.)
Immelt, who took over in 2001, tried to promote his own management methods. He brought in cultural anthropologists to study employee behavior. He tried to get his executives to submit “imagination breakthroughs” that would galvanize GE and generate growth. GE held “idea jams” to foster creativity.
Nothing seemed to work. GE’S shares were mauled in the recession of the early Aughts. Meanwhile, its GE Capital division morphed into one of the world’s largest providers of commercial real estate debt and aircraft leases. During the financial crisis of 2008, Immelt was forced to seek the protection of the Federal Depository Insurance Corporation, which guaranteed about $60 billion of GE Capital’s debt. The same year, after GE missed its quarterly earnings projections, Welch declared during an appearance on CNBC that Immelt had “a credibility issue” and threatened to get a gun and shoot him if he did it again. The Financial Times reported that Immelt complained to a group in Washington that he had the misfortune of managing GE in a turbulent time. “Not only could anyone have run GE in the 1990s,” Immelt groused, “his dog could have run GE. A German shepherd could have run GE.”
an analyst at Sanford C. Bernstein & Co. “But that’s exactly what’s happening.”
Immelt enters a conference room at GE’S 53rd floor office in Rockefeller Center in New York. He’s 60, 6 feet 4 inches with wavy white hair, and still exudes youthful confidence and self-deprecating charm. He’s a former Dartmouth football player and fraternity president who once told this magazine that he won the Earl Hamilton Varsity Award for friendship and character, adding that it probably went to the campus beer-drinking champion.
Although he often wears jeans to the office, Immelt has a board meeting later this February morning, so he’s dressed in a light gray suit, pink shirt, and green tie. After some breezy small talk, he starts going into GE’S transformation, which began in the depth of the financial crisis. To hear him tell it, he didn’t spend time second-guessing earlier decisions. “I never sat there and said, ‘Oh, crap, why do we have so much commercial real estate?’ ” he says.
Instead, he started thinking about data. Many of GE’S corporate customers were putting sensors on their machines to collect information about them. That often meant a lot of information: A jet engine, for instance, spits out roughly a terabyte’s worth of everything from fuel usage to heat levels to the size of the specks of dirt that fly through the engine on a trip across America. What were GE’S customers supposed to do with all that data? Immelt considered teaming up with a tech company to create software that would analyze vast amounts of the stuff, but when the tech company figured that out, what would it need GE for? He thought GE would be better off developing this software on its own. If nothing else, the company would be able to use the technology to improve its own productivity; if things went well, GE would be able to sell it as an add- on to service contracts with industrial customers. “I said, ‘Look, we need to start building analytic capability, big data capability, and let’s do it in California,’ ” Immelt says. “That was as sophisticated as my original thinking was.”
His own knowledge of the software business was limited. Along with doing whatever it took to win a character award at Dartmouth, he graduated with a dual degree in economics and applied math in 1978. After getting his MBA at Harvard, he turned down a job at Morgan Stanley to work at GE. He ended up running the health-care division in the 1990s, which opened a software center of its own in Wisconsin. Because of that, he says, he knew enough to ask the right questions about software.
If GE was going to set up shop in Silicon Valley, Immelt wanted a local to run the operation. He went after William Ruh, then a vice president at Cisco Systems. Ruh was astonished to get a call from a recruiter who was coy with him about the company she represented, asking him to guess which one it might be. “I named a name, and she said no,” he says. “And I named another name and she said no. She said, ‘Name another.’ I said, ‘No, I can’t name anymore. Just tell me, who is it?’ And she said, ‘GE.’ I said, ‘It can’t be. They don’t know anything about software.’ ”
Ruh found it hard to believe that GE would be willing to invest the kind of money it would take to build a successful software business. Silicon Valley is full of little startups, but creating software at an industrial scale would require billions of dollars. He also couldn’t see GE, with more than 300,000 employees, making the cultural changes needed to compete in the Valley.
Despite those qualms, he traveled to Fairfield in