A New CEO for General Electric: Betting on Digital?
General Electric is among the most iconic, respected names in business history. It has drawn top talent and a rabid fan base of business school thinkers for decades. This week’s news brought notice that Jeff Immelt, GE’s CEO for 16 years, will be replaced by John Flannery on August 1.
The discussion surrounding this new leader comes under a cloud of concern, however, as the company’s stock price has faltered and activist investors hover. Is GE on the right track, and will Flannery be able to satisfy Wall Street? Answering these questions depends heavily on the view one takes about digital, and in particular, the long-term value of blending operational technology (OT) and information technology (IT).
GE’s Units and the Role of Digital
Steve Lohr, a top business journalist for The New York Times, broke down GE’s businesses in an article this week. It is helpful mainly because it starts at the core (engines and generators) and works outward through oil and gas equipment, transportation, health care and lighting, before settling on GE Digital as “An Unknown”. The angle (and Lohr is among the best at finding it) is that digital will end up determining what flies and what doesn’t. I couldn’t agree more.
Our data on disruptive and important technologies for supply chain shows how quickly the cluster of emerging operational technologies like the internet of things, 3D printing and robotics is rising in business strategy. Compared to classic information technologies like cloud, data analytics and digital supply chains, the current uptake is twice as fast. This is not to say OT is more important than IT, but that their synergistic potential is suddenly becoming clear.
Staying the Course
Immelt has been a champion of the industrial/digital strategy for a long time and the business portfolio as it stands now reflects that. Flannery brings extensive background on the finance side, including a stint leading deals, plus general management experience as head of both the Healthcare unit and the India business. The succession has reportedly been handled with abundant forethought and in no way should be construed as a reaction to investor pressure.
And yet, the pressure is real, which means Flannery’s mission must include cashing in on digital. His career path could be just what is needed since much of the opportunity for GE lies in solving growth challenges arising with the transition from 20th century industrial economies to 21st century information economies. Consider Flannery’s resume:
- Healthcare: An obvious growth industry, both in the developed world and in emerging markets. It is also one in which digitization is quickly bleeding into everything from diagnostic equipment to implanted devices and which benefits from cloud, mobile apps, data analytics and more.
- India: One of the massive infrastructure opportunities attached to bringing once poor countries in to a better life. India is emblematic of the growth prospects for GE and everyone else who sells power, water, transportation and healthcare to underserved populations. Digital is central to getting this done sustainably and cost effectively.
- Finance: Perhaps the most important arrow in Flannery’s quiver, this ingredient will be essential to identifying, structuring and harvesting value from deals that will need to be struck. Value creation in a digital economy is much more about establishing platforms and then monetizing benefits of using the platform over time. This requires creative financial arrangements with both customers and partners on pricing, intellectual property ownership and risk sharing.
This is all speculation on my part since Flannery has so far promised only a “fresh look” at the company with plans to reveal some direction this coming fall, but I see reason for confidence. Immelt’s pioneering efforts to lead GE into the future with digital business at the core of strategy looks right when viewed through the lens of technology trends and demographics. The company’s stock price performance says that investors don’t totally agree, but maybe it’s just a matter of time.
Digital business is a huge, but still ill-defined force of change in the world economy. Taking the lead on blending digital and industrial was a bold move. I believe Flannery can make this boldness pay off for everyone.