Exceeding Expectations — General Electric

by Tim Walker
25 September 2007

The easiest thing for a well-entrenched company is to dig in its heels as it defends its market turf. That temptation could be even stronger for General Electric, which is entrenched not just in one big market but in several. GE is a top maker of aircraft engines, power turbines, large appliances, locomotives, and lighting systems -- among many other things -- as well as a major power in commercial and consumer finance.

But hunkering down carries its own risks, since often it means missing market shifts while you try to bear down harder on the same old activities that have brought you success so far. GE has thrived across the past three decades not by hunkering down, but by embracing change and pushing itself to think ahead and undergo constant renewal. During this period, legendary former CEO Jack Welch and his hand-picked successor Jeff Immelt have tweaked GE's corporate DNA to incorporate several major initiatives.

Welch preached the gospel of market dominance, according to which GE must be the #1 or #2 player in every business it's in. This meant selling off big parts of the company, including the nuclear-reactor business that Welch had helped to build, but it has led to huge returns for the company in the long run. Welch also set GE on the path of Six Sigma, an operations protocol that aims to eliminate defects in products and services. Following this program made GE an even better manufacturer than before -- and therefore an even bigger headache for its competitors.

Since he took over the company in 2001, Immelt has launched the Ecomagination initiative, which aims to make GE a leader in environmentally savvy commerce. Part of the focus is internal, since the company is pushing energy efficiency into all of its own operations. But GE is also devising products to meet growing environmental demands in the marketplace. For example, GE's industry-leading locomotive business has developed superefficient diesel and hybrid engines, which appeal to railroads trying to control operating costs in the face of high petroleum prices. Similar stories are playing out in other large units within GE, resulting, for example, in more fuel-efficient aircraft engines and power turbines. The company is also expanding its wind power business, and offering new kinds of environmentally oriented lending through GE Commercial Finance.

Ecomagination has not arisen from any strong environmentalist convictions on Immelt's part. It comes, instead, from his conviction that the customers GE serves care more and more about environmental issues, and especially the threat of climate change. Since oil prices have stayed at historically high levels for years now, and don't seem likely to come down soon, promoting energy efficiency seems like an easy choice, especially for a company like GE, which has a large footprint itself and which makes huge machines that burn lots of fuel. But the company's openly stated expectation -- even welcome -- of greater governmental regulation of carbon has taken GE well beyond the usual manufacturer's mantra of efficiency. GE's reading of the economic, political, and scientific tea leaves tells it that now is the time to lay big bets in areas like wind power.

In a larger sense, Ecomagination is another remaking of the company's DNA. Like Six Sigma -- which remains a cornerstone of GE's business practice -- Ecomagination tends to drive efficiency across GE's sprawling operations. That tends to fight another tendency of huge companies: besides hunkering down and defending their turf, they tend to get bloated and slow. As Jeff Immelt conceives it, Ecomagination isn't just about doing right by the environment or making some money from improved efficiency. It's about keeping GE nimble -- and exceeding expectations -- in the decades to come.

More companies making big changes to improve their environmental friendliness include:

• DuPont, which has made huge strides in reducing its own emissions and capping its energy use.
• PG&E Corporation (parent of Pacific Gas and Electric), which has expanded its portfolio of renewable power sources.
• Wal-Mart, which has made a big push for compact fluorescent bulbs and which now sells low-cost organic foods.
• Ikea is offering more organic foods and has started programs to minimize use of plastic bags in its checkout lines; flat-packing also saves on the fuel used in transportation.
• BP now says that its initials stand for "Beyond Petroleum" rather than "British Petroleum"; the company has made big commitments to developing alternate forms of energy alongside petroleum.