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In 2011, one of the companies I consulted with in the late 2000's, General Electric (GE), proudly announced that it had created GE Digital, a software unit based in San Ramon, California.  This was part of the then GE CEO's strategic vision of moving away from being an industrial and financial services behemoth and becoming a digital and internet leader.  Jeff Immelt, the CEO who left last summer, proudly announced then that his team had created a software unit that was based on its proprietary Predix Software platform.  This platform enabled industrial-asset performance management analytics.  The goal was to optimize operations by providing a standard, uniform way to connect machines, data, and people in addition to providing cloud services.  In other words, GE expected Predix to do for factories and plants what Google's Android and Apple's IOS had done for consumers with the mobile phone.   

 

The ultimate business objective was to use this PAAS (platform as a service) to pivot away from and eventually replace the revenue of the failed financial services division - which had proven to be a challenge since the 2009 financial crisis.  In 2015, to show its commitment to Predix, Immelt's team established it as a stand-alone unit, invested over $1 Billion in its development and decided to advertise this service heavily.  Linda Boff, GE's CMO for this division, created a series of humorous TV and internet ads that featured a millennial software engineer named Owen who spent his time trying to explain to people (family, friends, and parents) that, although he had been hired by GE, he would not be working on industrial products or heavy machinery.

 

Yesterday, GE announced that it has put the GE Digital division on the market.  It further explained that, although the unit has produced more than $500 Million in revenue, it has lost money every year since its creation.  How did GE, one of the top Fortune 500 companies fail in this crucial area?

 

There are actually three key reasons why creating its own IT Services unit was a large mistake for GE.  These are:

 

1.  Trying to create its own IT platform from the ground up - GE had no experience in creating an integrated, stand-alone system.  Although all GE divisions had an IT department, up to the creation of GE Digital, there was no unified service.  Thus, many of the people who were assigned to the division had a tactical point of view of IT, not a strategic one.  Additionally, the cost to do this was tremendously high.

 

2.  Utilizing only its own people to build the division - Although this is the model that GE had used to create all of its successful businesses, it failed to realize that IT is different.  Given that IT personnel all have different training, background, and education, a company has to be flexible in its approach to managing IT.  The best model is one where the personnel in a division can be scaled up or down as needed or can be replaced if necessary as different skills are needed.  This cannot be done with a fixed workforce.

 

3.  This area was not GE's core strength or skill - IT is one of the most complex skillsets to acquire.  Although Apple, Google, and HP have done a great job of creating technology-based companies, these have been organizations with technology as its core missions.  Although GE has always used technology, its core is industrial products; in other words - heavy machinery and hardware.  Thus, trying to migrate to pure technology was too large of a jump for GE.

 

What could GE have done differently?  It should have teamed up with or acquired a partner whose core strength is IT.  This action would have allowed it to maintain its costs under control; allowed it to maintain the flexibility to scale up or down as necessary; and allowed it to reduce its risks.  By working with a partner whose expertise is IT, GE would have been able to eventually acquire the expertise necessary to go it alone or would have decided that it was best to let another firm concentrate in IT and concentrate in ITS core strength - industrial products.

 

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Please do not hesitate to call me at 1 (617) 391-0347 or e-mail me at mariocastaneda@bluesailconsulting.com to talk about this or any other subject.  I always like to hear from clients and readers.  

 

Also, please don't forget to read my interview with BostonVoyager magazine.  To read it, click here.

 

Please contact us if you want to find out how Blue Sail, working jointly with our strategic IT partner Miratech,  can help you to concentrate in your core strengths and let us worry about IT strategy and implementation.

 

I look forward to seeing you again here in September!

 

Best Regards,

 

​Mario

Mario's Corner - August 2018.

GE's Digital Failure Proves Wisdom of Finding and Working With The Right IT Partner in Today's Environment.