Ge industrial internet case analysis

Management Information Systems 15e KENNETH C. LAUDON AND JANE P. LAUDON CHAPTER 3 CASE 1 SUMMARY INFORMATION SYSTEMS, ORGANIZATIONS, AND STRATEGY GE Becomes a Digital Firm: The Emerging Industrial Internet General Electric, one of the largest industrial manufacturing firms in the world, is attempting to transform itself into a software company, part of the Industrial Internet. In order to achieve this objective, GE will need to hire a new labor force, train a new management corps, develop new services that its customers will pay for, and create a new culture which is more collaborative, fast acting, and innovative. It will need to become a digital firm like other leading Internet firms such as Amazon, Google, Apple, and eBay. Systems GE’s Jeff Immelt on digitizing in the industrial space McKinsey Company URL CASE https://www.youtube.com/watch?v=hMa5YHOInIc; L=10:49 GE is one of the largest industrial manufacturing and engineering firms in the world, with revenues in 2015 of $117 billion. Founded in 1892 as an electrical equipment manufacturing firm producing generators designed by Thomas Edison and his Edison Machine Works Company, in 2016 it operates in 180 countries and has 333, 000 employees worldwide. GE’s industrial business is managed in eight segments: power generation, energy management, transportation, renewable energy, transportation, aviation, appliances and lighting, oil & gas, and healthcare. GE manufactures generators, power plant and grid controls, locomotives, airplane engines, wind mills, kitchen appliances, and cat scan machines, along with over tens of thousands of other products from switches to industrial controllers, as well as continued Chapter 3, Case 1 GE Becomes a Digital Firm: The Emerging Industrial Internet 2 consumer products. As it’s current CEO remarked, “We make heavy things that take tons of capital to build, and last for 20 years.” Under CEOs Charles Wilson (1940-1950), and Reginald Jones (1972-1981), GE grew to become the largest industrial firm in the US and world based largely on its engineering and manufacturing expertise. Most of its products were sold in the US. In the process it became a conglomerate of heavy industry businesses that were difficult to manage efficiently by a large bureaucracy, that was expensive and slow. Nevertheless, its management training for very large Fortune 500 firms was considered world class, and was the training ground for many senior managers throughout America. Jack Welch (1981 to 2000) succeeded Jones and began simplifying GE’s corporate structure, selling manufacturing businesses that were not dominant in their markets, and reducing headcount. He became known as “Neutron Jack” for eliminating so many employees but leaving the buildings intact. Facing slower growth in the US market for heavy machinery, Welch moved aggressively to turn GE into a financial services company, in part by providing financing for customers who bought its heavy machinery, but also by expanding into other loan and leasing activities typical of banks. Welch added a new division to GE’s roster of businesses called GE Capital. Welch reduced investment in the remaining industrial businesses, focusing instead on financial products and services that required less capital to operate and maintain. At the time, it was thought financial services could spike GE’s revenues and profit, increase its share price, and return GE to the ranks of “growth companies.” In 2005 half of GE’s profits were coming from GE Capital, and GE itself had grown away from its industrial base to become an unregulated financial services firm (a so-called “shadow bank”). By 2007 GE had become one of the top ten largest financial institutions in the United States, and the largest non-bank financial institution. Because it was not a chartered US bank, it was not regulated by the Federal Reserve or other federal agencies. It could take risks that regulated banks could not. And it did take these risks. The financial crisis of 2007–2008 ended the scenario of GE becoming primarily a financial services firm. It’s leases and loans declined in value as its customers could not make their payments on leases and loans. It could no longer borrow money to finance loans and leases without paying exorbitant interest rates. GE lost its triple A credit rating. In short, GE Capital was close to failure.