GE the startup
General Electric is an icon of corporate America, a multinational corporation operating in a diverse array of sectors such consumer capital finance, energy, technology infrastructure and industrial finance. Founded in 1892 as a result of the merger of the Edison Electric Company, Schenectady and the Thomas-Houston Electric Company. GE has grown to become one of the largest and most influential business organisations globally, with a gross revenue of over $119bn in 2016.
Adapt or Die
General Electric seemingly seems to be the embodiment of the modern successful business conglomerate. So if everything is going so well why would GE need to dramatically change how they do business? The answer to this is simple, the relentless approach of the fourth industrial revolution. The fourth industrial revolution can be described as a range of new technologies that are fusing the physical, digital and biological worlds, and impacting all disciplines, economies and industries. Central to this revolution are emerging technological breakthroughs in the fields of artificial intelligence, robotics, the internet of Things, autonomous vehicles, 3-D printing and nanotechnology.
If GE needed a reminder of what happens when a corporate titan does not keep up with innovation, they only have to look to the story of Kodak. For nearly a century, no company commercialised the camera as successfully as Kodak. But Kodak’s storied history began to turn sour with the advent of digital photography and all the printers, software, file sharing, and third-party apps that Kodak mostly missed out on. By 2010 the price of Kodak stock was 96% below its peak in 1997.
A new way of doing business
General Electric decided to embrace Lean Startup methodology in order to fend of any potential of Digital Darwinism. Lean Startup is a methodology for developing businesses and products, first proposed in 2008 by Eric Ries, using his personal experiences adapting lean management principles to high-tech startup companies. The methodology aims to shorten product development cycles by adopting a combination of business-hypothesis-driven experimentation, iterative product releases, and validated learning. The central hypothesis of the lean startup methodology is that if start up companies invest their time into iteratively building products or services to meet the needs of early customers, they can reduce the market risks and sidestep the need for large amounts of initial project funding and expensive product launches and failures.
Eric Ries outlined five central principles of Lean Startup:
Entrepreneurs are everywhere - The concept of “an entrepreneur” includes anyone who works within the definition of a startup: a human institution designed to create new products and services under conditions of extreme uncertainty.
Entrepreneurship is management - A startup is not just a product but also an institution, and so requires a new kind of management geared to its context of extreme uncertainty.
Validated learning - The sustainability of a startup can be validated by running frequent experiments that allow entrepreneurs to test each element of their vision.
Innovation accounting - Focusing on: how to measure progress, how to set up milestones, and how to prioritise work, can improve entrepreneurial outcomes and hold innovators accountable.
Build-measure-learn - The turning of ideas into products, measure how customers respond, and then learning whether to pivot or persevere, is the fundamental activity of a startup. Accelerating this feedback loop is the goal.
Innovation is for the big boys too
GE’s foray into the world of Lean Startup methodology began when Eric Ries approached GE with the simple question of “Is this something you can use to make things like turbines and jet engines, as well?” The answer to his question was resounding “yes”. It quickly dawned on GE the application of Lean Startup methodology to their organisation would require a cultural shift within the organisation. To facilitate this shift GE created its FastWorks program — geared towards the successful adoption and use of lean startup philosophy across GE.
FastWorks represents a new direction for GE, a company that has spent decades refining internal processes through programs such as Six Sigma and the continuous improvement strategy. While GE still uses those quality-control techniques, it has rolled out FastWorks across its business units.
GE Appliance’s applied FastWorks techniques in order to create a refrigerator with French doors for their high end “Monogram” line. Instead of the traditional approach in which salespeople give design requirements and then leave, customers were involved throughout the development process. The customer feedback from the MVP was at first negative, however after several product iterations, a version was produced that customers liked. Several iterations later GE Appliance’s had produced a version with a projected wide scale release date, with further versions to be released on an annual basis.
Fastworks techniques were also involved in a $500m project to upgrade GE’s H-class gas turbines. CEO Jeffery Immelt called for the FastWorks approach to be applied, starting with a $25m proof-of-concept exercise. Which according to GE should result in an upgrade that should be ready in two years for half the original cost.
GE’s use of Lean Startup methodology also extends to their investment in and joint ventures with other startups. GE uses “Open Innovation”, the idea that internal inventions not being used in a firm’s business should be taken outside the company, in the form of collaborations and joint ventures, in order to faster find new ideas and potential markets. Both Open Innovation and Lean Startup methodology utilise MVP, however with Open Innovation MVP is less about lowering risk and more about supporting the value of early stage technology. In other words, risk isn’t just in over-investing but in under-investing as well — both in terms of technology maturity and market understanding. GE has created a number of “ecosystems” with startups, for example:
In advanced manufacturing, GE turned to GrabCAD, utilising their expertise to redesign a metal jet engine bracket with the goal of making it 30% lighter while preserving its integrity and mechanical properties like stiffness. Participants from 56 countries submitted nearly 700 bracket designs, and the winner was an engineer from Indonesia who reduced the weight of the bracket by 84%. Central principle number one, Entrepreneurs are everywhere.
Embracing and applying Lean Startup methodology has ensured a titan of corporate America remains forward thinking and innovative as the forces of the fourth industrial revolution change are world beyond recognition.
References
http://money.usnews.com/money/blogs/flowchart/2010/08/19/10-great-companies-that-lost-their-edge
