Anatomy of a $4B Failure

February 3, 2020

For decades, GE was known as one of the world's most effectively managed companies.  Their leadership training programs were the envy of most of the Fortune 500, and GE alumni could command a significant premium in the job market.  Now it looks like those days are long gone.


Recently, the Wall Street Journal broke the news that General Electric would be putting its digital unit up on the auction block.  What was once a signature project of former-CEO Jeff Immelt has become surplus to requirements, and signals a sea change at GE.  Considering the magnitude of investment into the project, this has to be considered one of the most significant failures in GE’s (or corporate America’s) recent history.  


So the important question is: what happened?  


GE Digital’s premier initiative is Predix, a software platform designed to help customers like utilities gather and analyze data.  It is AI for industrial companies looking to digitize.  Utilities face growing operational costs, regulatory pressures and changing consumer demands.  These issues are made worse by the fact that there are significant inefficiencies embedded in the current electrical grid, and the existing workforce will be poorly equipped to handle the problems of the future.  


Meanwhile, the availability of cheaper sensors and industrial-strength platforms to digest data at scale, then run analytics at high speeds will enable intelligent digital solutions across the energy industry.  The strategic evolution that will imminently take place is among the most important business opportunities of this century.  In short, Immelt pursued a great opportunity but ultimately failed to capitalize on it.  There are a few driving factors behind this.  


Entrenched organizations like GE, which was founded in 1892 and employs over 300,000 people, have massive inertia.  Any change in strategic direction requires not only buy-in from those in the C-suite, but a change in both culture and expectations among the rank and file.  While GE Digital may have operated as a startup within a 126 year old company, it remains nearly impossible to prevent the existing culture from permeating any new division.  It’s also the case that GE’s recruiting prospects are fundamentally different than those at tech powerhouses like Google or Amazon.  The tip of the spear is pretty sharp when it comes to AI / ML research and implementation, and GE simply isn’t as exciting a destination for those at the top of the field.


As a result, GE doesn’t have the same built in organizational competency to build software tools for this purpose when compared to the dominant players in the field.  Despite pouring billions into relevant acquisitions for inventory management and workforce scheduling with companies like Meridium and ServiceMax, the digital unit rapidly reverted to the GE mean… and in this case the mean simply isn’t good enough.


The issue was further exacerbated by a powerful headwind: the disaggregation of the services landscape.  Industrial customers are increasingly comfortable utilizing different SaaS platforms for each functional silo.  While interoperability will become a major issue over the next decade, for now the increased efficiency driven by specialized tools wins the day.


While GE was busying trying to build SaaS offerings that couldn’t compete against best in class specialized tools, they should have realized that their core value proposition for the digital utility of the future isn’t a suite of proprietary software.  The real secret sauce is their entrenched integration and service relationships with many of the biggest customers.  


How different might the future look if only GE had partnered alongside best in class SaaS platforms to offer a cohesive suite of services, using their defensible distribution channels, instead of reducing the value of those relationships by over-promising and under-delivering?  It’s difficult to say, but I suspect we’d be looking at a company on the cusp of another great run… instead of one that has lost half it’s value in the last year.

"If you want to build a ship, don't drum up people to collect wood, don't assign them tasks and work, but rather teach them to long for the endless immensity of the sea."
Antoine de Saint-Exupery
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