OVER­LOOK ING HUD­SON RIVER

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Bloomberg Businessweek (North America) - - Focus On / Mba -

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

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