dose GE have the best IT

dose GE have the best IT - Transcript

t General Electric s annual meeting in Greenviile S C in late April Jeffrey tmmeit tine company s CEO and chairman had to deai with some contentious issues Shareholders complained that GE was manufacturing its iight bulbs offshore instead of in the United States A conservative group pressed GE to stop giving charitabie donations to groups connected with the Rev Jesse Jackson A nd some GE pensioners were less than happy with their retirement payouts But t he o verriding concern a t Greenville was t he company s stock performance Since Immelt took over from John Jack Welch in 2001 GK shares have flatlined dropping 7 while the Dow Jones Industrial Average has shot up 35 More recently GE shares were down 6 in 2006 while the Standard
24

Poor s 00 Index climhed 4 7 Is it frustrating Sure it is but the thing investors will always respond to is c onsistent earnings growth Immelt said just before the meeting Less than a m onth later GF announced a deal t o sell tor 11 6 billion its plastics division GE plans t o use the bulk of the proceeds from the sale t o fund a buyback of as much as S8 billion of its own stock this year The sale is part of Immelt s ongoing

strategy t o overhaul t he company s business portfolio shedding slowergrowth businesses in favor of t hose that are poised t o surge returning greater profitability Some institutional investors and analysts argue that t he businesses that make u p the g iant conglomerate which has a market capitalization of S386 billion on May 2 are worth more separately than under the conglomerate s umbrella GE has six main divisions Infrastructure Commercial Finance GE Money Healthcare NiSC Universal and Industrial but under each ot t hose divisions are major businesses such as GE Real Estate Aviation Financial Services ilC Plastics and Universal Studios theme parks Breaking u p the house that Jack

WWW BASELINEMAG COM

Welch built sounds unthinkable And clearly that s not the approach Immelt favors On the GE Web site he reminds visitors in a video presentation that through good times and bad CE has generated double digit earnings growth and has consistently increased its dividends for 31 straight years Last vear the company netted S2o 8billioninprofit making it the country s fifth most profitable company on revenue of 163 billion And what s been driving this sustained growth A key factor that has always set iE apart competitively is the company s vaunted information technology capabilities The company s savvy has created increased savings efficiencies and productivity for the company

GE s information technology strategy and performance mirror the company s corporate philosophy to be the best in the markets in which it operates But how good is it And what happens to GE s I T if the company is split apart iE did a benchmark with us ot all their worldwide operations including finance procurement human resources and I T and they came out as world tlass says Scott Holland I T practice leader at The I lackett Group a strategic consulting firm It s astonishing to me for the vast size of GE just how good they are with their I T operation Without a doubt they pride themselves at being the best and are looked at as being the leader in this area

Others have also recognized GE s X T as being among the best Indeed lE has won anv number of I T best practices awards in the past few years many of them for customerfacing technologies and processes Last year as an example its Consumer Finance Division received a best practices award for its customer relationship management CRM from The Data Warehousing Institute TDWI The award recognized GK s success in using master data management which provides single source and consolidated views of all of the company s data assets across customers products and vendors The challenge is that there are many flavors of customer data integration definitions of master data and competing business functions y

0

ul

Z
Zl

Z
LU
C D

25

WWW BASELINEMAG COM

CASE DISSECTION GENERAL ELE

HEADQUARTERS

3135 Easton Turnpike Fairfield CT 0M31 PHONE 203 373 2211 BUSINESS One of the world s largest conglomerates with business units and divisions in a variety of industries including financial services entertainment medical imaging power generation and jet engines CHIEF I NFORMATION OFFICER Gary Reiner F INANCIALS I N 2OO6 163 billion in revenue 20 8 biilion in profit CHALLENGES Facing mounting pressure from restive investors seeking a breakup of the company get the stock price up by focusing on high growth businesses that bring a higher return to shareholders BASELINE GOALS Further leverage strategies such as Lean Six Sigma to boost net earnings per share growth to 10 to 13 for 2007 versus a 2 increase in net earnings per share for first quarter 2007 Use the Internet to boost digital ad revenue at NBC Universal to Si billion by 2009 from 200 million in 2006 t Create new products and technologies such as power efficient devices and wind turbines to increase eco imagination revenue to 20 billion by 2010 from 6 billion In 2006

understanding I T costs offers Dean McMann a one time consultant to GE and CEO at McMann and Ransford a consulting firm in Sugarland Texas They re not hoodwinked and they don t just look at developmentaJ costs They factor in training costs rollout costs and the rest of it so they understand the cost structure much better and much earlier than most ot the companies I ve worked with The Hackett Group s Holland concurs GE s business unit CIOs are all about driving costs out of there he says When they do a justification for a project there has to be a payback in one year If you say you are going to save X million dollars with a project the next year your budget is cut by that amount Those I T savings along with other administrative cost reduction efforts have contributed greatly to GK s long term record of profitability GE s net profit margin over the last decade of 10 89 is almost seven times the average of a handful of large conglomerates around the world including United Technologies in the U S Germany s Siemens and Mitsubishi of Japan CiE s rate of return on equity is more than double that of its peers To be sure the I T management strategy supporting this juggernaut of profitability is efjualiy impressive The company maintains a balance of centralized data centers and shared I T services that provide a backbone of common systems supporting its half dozen diverse multibillion dollar business units Most business applications for instance are run at various central data centers many of the company s business units tend to have just file and print servers on site Help desk support some applications development and other non core business applications are outsourced with most of the work handled by GE s semi captive outsourcing unit Genpact in India GE does a great deal of outsourcing Holland points out noting thar the company was one of the first to take advantage of low cost labor overseas for applications support It was also one of the earliest corporate giants to outsource

that must reach consensus Hence achieving accuracy timeliness and relevance with customer data in various business contexts calls for a well thought out process and architecture TDWI said in announcing the award In 2005 GE Commercial Finance Fleet Services maintenance control center was recognized as a center of excellence for customer service by Purdue University s Center for Customer Driven Quality Certification is given to customer service call centers that rank in the top 10 for effectiveness and efficiency Based in Eden Prairie Minn GE s team of 107 technical advisers handles more than 5 000 calls a day helping customers control costs by directing fleet drivers to preferred vendors and negotiating repair costs Fleet Services was the first in the fleet industry to receive this certification The previous year Fleet Services also received a CRM excellence award from Gartner on the basis of its strong commitment and solid illustration of a balanced and integrated approach to customer relationship management Gartner defines CRM as a business strategy with outcomes that optimize profitability revenue and customer satisfaction
26

by organizing around customer segments fostering customer satisfying behaviors and implementing customer centric processes And among other Iarge global conglomerates GE s Information Productivity based on a scale developed by Paul A Strassmann a former technology executive at General Foods Kraft Xerox the Department of Defense and NASA and a recognized authority on the value of using l T for business results is near the top With an IP value of 29 1 the average for all 2 836 firms analyzed in a broad Baseline sample is 1 2 GE ranks behind only United Technologies which has an IP value of 36 1 and Mitsubishi at 32 Other global conglomerates IP values were 20 6 for Sumitomo Tyco International 2 2 Siemens 4 1 and General Motors 9 8
WHAT MAKES CE SO GOOD

In keeping with the Fairfield Conn based conglomerate s renown for instituting stringent cost controls over literally everything it does GE s six business units each with revenue of 16 billion to S47 billionmust carefully justify LT project spending and track their results They re very aggressive at

WWW BASELINEMAG COM

much of its I T service operations to low cost markets such as India GE has been very cognizant of I T and other infrastructure costs and did not w mt non core functions to grow their expenses I Iolland says There are companywide standard systems for general ledger and human resources selected hy corporate CIO Ciary Reiner the architect of GF s I T infrastructure but no coqx rate standard system tor enterprise resource planning in fact some units such as GV Real Estate don t even use ERP Reiner sets what are going to he the corporate systems but the husiness unit CIOs have some leeway for choosing their own businessand industry specific systems 1 Iolland explains Kach business unit as well as each of the unit s operating divisions has its own CIO who works closely with the unit s general manager to decide the tt ihnologics they purchase or custom build GE s I T management strategy and the capability with which it is executed is so admired in fact that numerous corporations have hired away CIOs who cut their teeth as l T leaders at one or more of GE s husiness units or divisions within those units see lOs on the Move p 28 Additionally some companies have shaped their own I T management philosophy and operations in the image of iK s in hopes of duplicating its performance According to some GE businessunit CIOs the corporate Goliath achieves this excellence through four key in form at ion tech no logy practices J Using I T to leverage its enterprisewide Lean Six Sigma philosophy while embracing the Information Technology Infrastructure Lihrary lTlL a set of standards that GE is using to improve its centralized I T processes which provide services companywide Striking a clever haiance hetween ttntralized and decentralized I T management structures and systems frameworks G uses this K practice to free up its businessunit and division CIOs to focus

GARY REINER
CIO GE

mm

Named CIO by then CEO John Jack Welch in 1996 Reiner was not oniy put in charge of corporate l T operations but aiso made responsibie for managing GE s then fiedgling Six Sigma program a framework for improving processes Reiner oversees the information systems that support GE s far flung business units and their respective operating divisions The architect of the company s balanced mix of centralized and decentralized IT operations Reiner delegated CIOs at the business unit and division leveis to make their own decisions on technologies they need to purchase or build to grow their businesses

JEFFREY IMMECT
CEO GE

Saddled with the toughest act to follow in corporate America retiririg legendary CEO and best selling business book author jack Welch immelt took over in September 2001 Despite growing GE by 65 and doubling earnings Immelt has had a bumpy ride that could get bumpier Over the past five years GE stock has underperformed the Dow Jones industrial Average despite posting solid yearto year gains in revenue and eamings Immelt faces pressure from some uneasy investors who believe they could realize greater shareholder value if GE were broken up

JOHN JACK WELCH Former CEO GE During his tenure from 1981 to 2001 GE s market capitalization increased from 13 billion to S400 billion Welch admits he came late to the e business revolution but nonetheless valued the role technology plays in business in 1996 he appointed CiO Reiner to head up the company s Six Sigma quality program reasoning that technology could be used to streamline and automate processes He now teaches a leadership course at MIT s Sloan school of Management

SIGAL ZARMI Managing Director and COO GE Energy Financial services Formerly CIO of GE s Financial Guaranty insurance Co Zarmi serves as the Energy Financial Services unit s chief information officer zarmi is responsible for operational due diligence acquisition integration and optimization of investment companies to realize maximum benefits from both process and technology improvements

LAWRENCE BOSSIDY Retired Chairman Honeywell Bossidy excited Welch about the potential benefits of Six Sigma welch invited Bossidy to attend GE s corporate executive council meeting in June 1995 where he shared the tienefits that AlliedSignal which merged with Honeywell in 1999 had achieved with it if GE could achieve similar gains Bossidy estimated that cost savings could be as great as S10 biiiion

HANK ZUPNICK CIO GE Real Estate A financial industry veteran haying worked at Bankers Trust and Citibank before joining GE in 1995 zupnick is responsible for nianagtng GE Real Estate s information technology activities supporting the business unit except for shared services provided by centralized l T He also is responsible for finding ways to use Lean Six Sigrpa to improve business processes with the help of information technology

V N TIGER TYAGARAJAN EVP Genpact In 1997 GE created a large callcenter workforce in India called GE Capital International Sen ices GECIS which became the company s captive outsourcing unit In late 2004 GE sold off a 60 stake in GECIS to two investment groups it was renamed Genpact A former CEO of GECIS Tyagarajan was tapped by the company to head up its sales and marketing efforts as it seeks to expand its business beyond GE
27

www UAbtLINtMAG CuM

CASE DISSECTION GENERAL ELECTRIC

on projects that harness l T t o boost their bottom line Training I T executives alongside their business executive counterparts which ensures that GE division CIOs think of themselves as business managers first and technology leaders second Expecting business unit and division t IOs to serve as change agents for their businesses instead of caretakers ot I T systems and processes resulting in an enterprise that can move more swiftly to capitalize on business opportunities Few corporations have the size and breadth of t his conglomerate But for CIOs seeking to achieve I T excellence across a diverse organization fielding a variety of products and services there is m uch t o be learned from a close examination of GE s approach

improvement programs that were hot in t he 1980s Welch had viewed them as too long on slogans and too short on results Then one day Welch heard his longtime friend Lawrence Bossidy boast about the gains he was getting from a quality program Six Sigma atAIliedSignai wherehewas CliO in the early 1990s Bossidy had gotten the program from its creator Motorola and had plenty of benefits to sbow in t erms of reduced costs productivity gains and more profitable operations Welch had Bossidy make a p resentation t o GE s executive management in June 1991 n the rest is history Perhaps less well known than how he came t o believe in it was Welch s decision to lodge the prime responsibility and accountability for deploying t he c ompany s gargantuan Six Sigma quality improvement campaign under newly appointed CIO Reiner in 1996 when the program was less than a year old Weich shrewdly reasoned that Six Sigma and I T should be made t o work hand in glove with the technology often providing people with the tools to replace several previously mimual

steps or tasks with a few strokes on a keyboard Six Sigma is a five step p rocess s tated Reiner in an a rticle in Baseline s sister publication CIO Insight in 2002 Six Sigma uses a s tandard set of steps such as defining goals for improving a process to meet customer demands measuring the current process and gathering information for future comparison Teams then use those results to determine how a process can be improved or o ptimized and once implemented new designs are continuously measured to ensure goals are being achieved Six Sigma Reiner said gives you t he t ools you n eed t o k eep improving At its heart Six Sigma is a system of practices designed to systematically eliminate defects which are defined as units that are not members of the intended population It could be related t o a process such as a mortgage approval that tiikes six hours t o complete instead of two hours Or it could be a defect related to manufacturing such as a brake pad that wears out after six months of regular use instead of the intended two years

BEST PRACTICE 1
POWERING SIX SIGMA WITH I T

A number of books have been written about the management philosophy and style of former GE chieftain Jack Welch For many years an avowed skeptic when it came to the qualitv

m I ll nil urn
General Electric has proved to be a f ertile training ground for CIOs who are highly valued for their management expertise and training Former GE CIOs have gone on t o i mplement many of t he company s technology best practices in their new roles including the adoption of Lean Six Sigma and training programs for new technology hires modeled after GE s Information Management Leadership Program

hen i t comes t o l T management turnover GE might well have the slogan What GE Makes the World Takes Numerous former GE unit level CIOs as well as general managers have moved on t o other companies t o assume equal or higher positionsBut if GE is such a great company why do so many GE trained highly capable I T executives depart for what they must perceive t o be either greener or more challenging pastures Observers say there are at least a couple of reasons for the trend Eor one thing the big fish little fish syndrome may induce GE unit CIOs t o accept job offers outside the company if only t o get their own smaller pond in which t o take charge of h ow they swim And certainty GE is a w ell known pit stop for any headhunter worth his or her BlackBerry stuffed with executive level candidates The GE telephone directory is t he prize possession of every headhunter says Paul A Strassmann a f ormer technology executive at General Eoods Xerox and the Department of Defense and an expert on how companies use l T for business results If an aspiring l T manager is not going t o move within GE they find out very quickly

28

WWW BASELINEMAG COM

The widely accepted definition of a Six Sigma process is one that produces no more than 3 4 defective parts per million opportunities Using the brake pad example for every million brake pads produced only 3 4 may be defective to achieve Six Sigma quality Under Welch and Reiner s leadership Six Sigma has become embedded into the GV culture Since its introduction in 1996 more than 00 000 projects have been cttmpleted using Six Sigma and more than 100 000 employees have achieved various levels ot belts A Six Sigma black belt for example is awar led to an employee who has been fully trained in all aspects of the process and who can in turn lead a Six Sigma project Master black belts are awarded to those who can teach Six Sigma and mentor black belts In 1997 iK credited its Six Sigma efforts with generating 300 million in additional operating income By 1999 it had climbed to as much as 2 billion a year Some analysts such asjennifer Murphy of Morgan Stanley estimate the annual benefit to GE from Six Sigma today to be greater

than 6 6 billion while GE s own estimate runs as high as 10 billion The original Six Sigma program fostered by Welch more than a decade ago has since been expanded to include the principles of lean manufacturing pioneered by Toyota Motor Lean manufacturing places an emphasis on eliminating wasted effort and materials But the corporate mantra of Six Sigma especially as its rubber hits the road in CiE s I T fiinction remains much the same Today GE s renamed Lean Six Sigma strategy is applied within l T for everything from reducing network downtime to improving helpdesk service This ability to take the best ot various uality and process improvement strategies has been one of GE s strengths says George Eckes CEO of Eckes Associates a tirm in Superior Colo that trains companies on the use ot Six Sigma In the early days Six Sigma was used as a tactical tool to systematically go out and remove defects adds Eckes who has trained C F workers since 1996 But GE allowed the process to evolve so it not oniy became a defect removal tool it became a process improvement enabler

But the real benefit and the greatest impact on corporate performance say GV CIOs comes when Lean Six Sigma is used by the I T department to assist business units in achieving their corporate goals Lean Six Sigma involves speeding up the cycle time by reducing the work involved says Hank Zupnick CIO of the C Real Estate unit We use black belts in Lean Six Sigma to help determine how to shorten the steps in our processes A lot of times you do that by applying technology There are some good synergies between quality operations and I T says Jeffrey Balagna C O and customer technology officer at Carlson Cos and a former general manager of operations and CIO at GE s Medical Systems Americas division Quality operations put an intense demand on information technology or a demand for information both in understanding the problem and when you go to remediate quality issues At GE Energy Financial Services a business unit headquartered in the leaty city of Stamford Conn business unit CIO Sigal Zarmi points to

Another reason is that despite its gargantuan size GE simply may not offer enough high level l T management roles to satisfy the internal demand it creates among its hardcharging up and coming executive ranks As Strassmann puts it All of the GE people I ve met v ere extremely aggressive

GE s Influence Spreads Across Industries
GE Alumnus

Position at GE
CIO GE Power Systems CIO GE Consumer Motors and Controls CIO GE Energy Services 1T and Business Development Manager GE Aerospace CIO GE Ligllting CIO GE HealtlTcare Financial Services CIO GE insurance CIO GE Oil Gas CIO GE Industrial Systems CIO GE Healthcare CIO GE ventJor Finance

Current Position
CIO Coca Cola CIO Carlson Cos CiO Wynn Las Vegas CIO Unisys CIO United Technologies Tech VP webMetfiods CIO Washington

Jean Michel Ares Jeffrey Balagna Scott Carclllo John Carrow John Doucette KIran Garimetia Debora Horvath Kathy Lane Patricia Morrison 5tuart Scott Robert Webb

While GE s career development program is extensive some former managers say the fact that only a select few get to proceed to the upper echelons is a factor in why so many good CiOs and senior managers leave the company They are highly courted yes says Kiran Garimella t echnology vice president at webMethods and former CIO at GE Healthcare Einancial Services but Business if it is apparent their careers have Beverages stalled it makes sense to look elsewhere for opportunities Travel and hospitality conglomerate I think part of the reason people move on is that GE is a Travel and tourism huge company that gives you a iot IT services software of training but sometimes it gets and hardware tough to move on to a higher level Conglomerate with aircraft within the company Garimella helicopter elevator businesses says If you are ambitious to get Computer software your own sandbox to play in it can be tough
Banking Electricity and natural gas distribution Communications Computer software Credit and financial records management

Mutual
CIO National Grid CIO Motorola CIO Microsoft CIO Equifax

Garimella offers another reason the fact that GE trained managers and executives are highly prized The offers GE people get are unbelievable and in many cases impossible for people to turn down D B and M D

WWW BASELINEIMAG COM

CASE DISSECTION GENERAL ELECTRIC

a 2o foot long whiteboard to demonstrate exactly how I T and Lean Six Sigma work together to achieve business goals The entire length of the whiteboard is covered in yellow orange pink and purple sticky notes Each color of note is used to describe work involved in a particular process the people or organization involved in performing the work and associated metrics such as time spent performing the work wait times for

documents or computer processing to be completed and the so called Big Y s measurements in percentages of how well a process is meeting its goal usually in relation to the customer s expectations The notes are the result of a Lean Six Sigma project undertaken eight months ago to streamline the unit s processes for closing debt financing deals GV Energ Einancial Services whichfinancesoil gas and electrical projects as well as alternative ener

gies such as wind power will invest about 8 billion in project financing this year Much of the initial work according to Zarmi involves mapping out each step of the business process from originating a loan through to structuring payments and eventual closing of the deal and identifying where and how work is perfornietl The role of the technology team in this process Zarmi says is to first contribute to understanding how

General Electric
SETTING THE PERFORMANCE BAR
GE is in good company among the world s largest conglomerates but its tight focus on m eeting financial targets and being No 1 or No 2 in its markets has produced superior results

1996
GE CONSISTENTLY GROWS REVENUE EVEN WHEN PEERS FALTER

General Electric annual revenue

Baseline Average annual revenue of six conglomerates

AND GE DOES A BETTER JOB OF PUTTING THAT MONEY TO WORK

GE s return on equity

Baseline Average annual return of six conglomerates

AS A RESULT THE COMPANY CONTINUES TO PUMP OUT THE PROFITS

GE s profit margin after taxes

Baseline Average annual profit margin of six conglomerates

tepiesenls results of UnrtHtl Tefhnologies Corp Tyco International Ltd MitsubisHii Coip Mil ur Co Ltd Sremen AG and Sumrtomo Corp

WWW BASELINEMAG COM

CASE D I S S E C T I O N GENERAL

ELECTRIC

work is performed such as which applications are involved and which computer systems are utilized The next job is to help understand where the roadblocks or wait times are encountered You have to stabilize and understand the process before you can begin the work of automating or digitizing it she says Once the mapping is completed the technology team is expected to offer suggestions on how to streamline or automate work the lean part of the equation and eliminate defects or errors the Six Sigma piece In the debt financing project the Lean Six Sigma team deter

the use of a document management system called the Deal Room to all users within Energ Financial Services The Deal Room serves as a central repository for documents associated with a financing deal Zarmi says it was created using proprietary technology incorporating a commercial version of the Google search engine as the primary means to search for documents across multiple databases andfileserver systems As a result of improvements and the wider use of the Deal Room by all units within Energy Financial Services the unit reduced cycle time for financing approvals by more than 20 The exact time required

with the Information Technology Infrastructure Library standards to further improve its 1 7 processes ITIL is a framework designed to promote best practices in l T service management from adopting a common vocabulary for discussing quality of service to establishing performance metrics ITIL defines the what of service management and Six Sigma defines the how of quality improvement writes Molly Bott a c i 1 1 Solutions enterprise consultant in a GE white paper titled Combining ITIL and Six Sigma to Improve Information Technology Service Management at General Electric

YOU ARE
mined that a large amount of time was spent waiting for documents associated with a deal to be shuttled between departments employees or the GE loan processing Center of Excellence in Norwalk Conn GE established the center to act as a service bureau for handling the more complicated aspects of approvingfinancing such as setting interest rates hased on credit ratings and structuring loan payments Some of the delays and wait times associated with the project were a hangover from a merger of debt financing units in 2004 that created GE Energy Financial Services A key solution was to extend to approve deals can vary greatly depending on the size and complexity of the financing A S75 million investment in the world s largest solar power plant for example which went live in Portugal this March involyed numerous priyate companies and government agencies A GE CIO is first and foremost a business leader Zarmi says They are constantly thinking about the business processes the business strategies and the business yision and how they are going to contribute to the growth of the company These days GE is also combining the rigor of Six Sigma s process improvement methodology Bott co authored the paper with I T consultant Malcolm Fry GE IT Solutions Enterprise Planning Strategy Consulting Group was assigned to spearhead the improyement of I T seryice practices internally with the goal of bringing its I T operations to full ITIL compatibility with the help of Six Sigma When the project was completed the results included J Reduced costs resulting from less potential downtime and adverse effects of system network and application failures jJ Better decision making due to greater access to information throughout the organization and

U ARE VOIP AS YOl
B ASELINE J UNE 2007

WWW BASELINEMAG COM

1

companywide use of information outputs from deyices such as cross functional l T seryice dashboards Improyed I T seryice leyels resulting from operational efficiencies and an T service management process loop for measuring and controlling seryice performance

BEST PRACTICE 2
BALANCING CENTRALIZED DECENTRALIZED I T

At its core GE s I T strategy is built on a carefully defined balance of both centralized and decentralized systems A centralized set of

divested in 1993 and now senior yice president for strategic client deyelopment at Unisys This allows for flexibility in the business units I think Reiner has achieyed the right balance Adds I T consultant and former CIO Strassmann This decentralized strategy enables GE to be highly adaptable Thi5 approach explains why GE s I T operations are so effectiye obseryers say By affording the business unit and diyision CIOs a leyel of freedom from daily operations they can spend most of their time working with their general managers to create ways to energize the business through the use of dif

dence Garimella adds GE s I T management scheme hasn t gone unnoticed elsewhere for sure The GE plan is followed by other companies especially those with multiple large business units producing diyerse products and seryices I m yery familiar witb the GE I T structure whicb Is yery similar to ours says Gary Cantrell yice president and CIO at Textron an 11 5 billion conglomerate with seyeral diyerse businesses including helicopters business jets golf carts automotiye fuel systems and resort property financing We haye a CK for each business unit and an appli cations staff at each unit

VOIP ARL VOIPIB
technologies including computer hardware and companywide software applications seryes as the I T backbone In addition each business unit has a largely autonomous CIO working with the unit s general manager to determine which applications should be purchased or built and run locally in support of its business goals The centralized I T goyernance model Reiner adopted has the I T strategy set from the top but at each business unit there is an independence of execution obseryes John Carrow formerly a systems engineer and later a general manager in GE s Aerospace division ferent technologies I didn t haye to worry about data center management says Kiran Garimella technology yice president at webMethods and former CIO at GE Healthcare Financial Seryices They remoye any kind of lower leyel distraction from their CIOs at GE by haying a core network infrastructure including data center management under shared seryices The costs for this infrastructure are tben charged back to the various husiness units It s a yery good balance of responsibilities because otherwise 1 wouldn t have been able to do some of tbe initiatiyes I accomplished as a result of tbat indepen Our I T management strategy is to leyerage our brand focus and to do that you haye to haye some autonomy for tbe CIOs at the business unit level Cantrell adds Interyiewed by Baseline in April at The Hackett Group s Best Practices Conference in Atlanta Cantrell points out that at the same time Textron s information technology operation proyides its business units with a common consolidated infrastructure and centralized shared services such as warehouse and transportation management systems used by all its business units You ye got to have tbat balance he says and GE does

w B ASELINE J UNE 2 007

WWW BASELINeMAG COM

Ul

CASE DISSECTION GENERAL ELECTRIC

BEST PRACTICE 3
TRAINING CIOS FOR EXCELLENCE

GE has long been lauded as a breeding place for top management talent and indeed many of its business and technology executives have gone on to lead other Fortune 500 companies Jean Michel Ares a former CIO of GE s Power Systems unit is now the CIO at beverage giant CocaCola Stuart Scott former CIO of GE Healthcare is now CIO of Microsoft Debora Horyath a former GIO of GE Insurance is currently CIO of Washington Mutual This reputation for breeding top management does not come by chance GE carefully and some eyen say ruthlessly educates develops and trains its managers at every step of their career Management development programs are fine tuned to match individual disciplines such as information technology or finance and training in such core practices as Six Sigma is expected for promotion In technology the training begins as soon as an employee is hired out of college New technology staff hires are enrolled into IMLF short for Information Management Leadership Program It s a two year program in which new staff rotate through different GE businesses such as GE Plastics or GE Healthcare and are exposed to a variety of aspects of IT A new recruit might for example work in an infrastructure environment maintaining network reliability for six months then move into application development By the time you graduate out of IMEP you generally become a highly sought after commodity within GE says Carlson s Balagna While most of the learning in the program takes place within a business unit employees also take in some classroom training in such things as project management and finance the amount yaries from Indiyidual to indiyidual at the John F Welch Leadership Deyelopment Center at Crotonyille N Y GE opened t he Crotonyille institution on a 53 acre campus in tbe Hudson Riyer Valley in 1956 and originally named it the
38

GE Management Deyelopment Institute It seryes as the primary training site for future GE leaders The campus features training rooms as well as three amphitheatres one of which is affectionately known as The Pit It was bere that Jack Welch would often engage in oneon one debates with GE executives over the company s future Once staff graduate from IMLP they go on assignment for a period of two years They are closely evaluated by their bosses during that time and take part in annual reyiews where they are assessed to see if they exhibit fiye traits deemed as key to becoming a leader at GE imagination clear thinking or the ability to take imaginatiye ideas and turn them into business actions inclusiyeness which often translates into being able to include key personnel from GE s far flung global operations in decision making external focus or the ability to understand the larger market and domain expertise If employees are evaluated highly in those areas senior managers recommend them for further management training Management candidates go through a new manager s course and are placed in a superyisory or management role within six months to a year of graduation Later in their careers they wili go through a manager development course where they are taught eyerything from finance to sales and economics marketing public relations and leadership qualities The training isn t focused on becoming a good I T leader but on becoming a good business leader It becomes increasingly difficult to climb through each level of training as only a handful of candidates may be recommended for the top levels As a result senior management talent is culled from the mass of GE s 319 000 worldwide employees Management training is one of the things GE does better than almost any company Balagna says They develop you and then as Jack Welch used to say let you take a big swing Your big swing may be

being placed at the head of a multibillion dollar GE business unit where you are expected to produce mandated results By the way if you swing and miss the results for you aren t thatgooti Balagna adds It s a very Darwinian culture but it gives people the opportunity to take their best shot In Balagna s case he was targeted to rise to the upper echelons of GE management He was eventually selected hy his then boss at CK i Medical Systems division current CEO Jeffrey Immelt to enroll in the business management course

SOME EVEN SAV RUTHLE55LV ANP m i N 9 IT9 ATEVERVSTEPOF

designed for leadership candidates who have been targeted to run a GE business unit Across the entire operations of GE only 20 to 30 people may be selected to take this course each year Candidates are pulled out of their current positions and put on a special assignment by the CEO and GE s Corporate Executjye Council Balagna who went through the program in 1998 and his classmates were directed by Welch to go to Russia and Ukraine for one month and to determine GE s business strategy for the developing former Eastern Bloc economies Should Cili invest there source material such as steel or parts or stay out In the end Balagna and the other managers in the program recommended that GE should oniy source materials giyen instabilities in the region It was a recommendation Welch accepted and proyed at the time to be fortu

WWW BASELINEMAG COM

CASE DISSECTION GENERAL ELECTRIC

itous as the Russian economy was hit hard in the wake of the Asian financial crisis in 1998 The ruble lost 70 of its value against the U S dollar Following completion of the course Balagna was promoted from his CIO position to general manager of GE Medical Systems He has gone on to implement many of the education and training programs used at TE when he joined medical deyice maker Medtronic and then Carlson including replicating lMl P for his new technology hires For the people who work at GE there s one thing that s understood execution is everything Fyerything else is conyersation Balagna says That s the GE culture

that they could be more effective by focusing not on every single tenant equaliy but instead by focusing on only the most desirable ones whose leases were expiring The property managers time was put to more effectiye use concentrating on the best tenants We want to identify ways to get them to stay on with us Zupnick adds At GE CIOs are expected to take the initiative bringing business growth projects to bear whenever possible in this instance Zupnick and his team deyised a system that provides metrics on the tenants It has a number of flags such as sending off e mails and followups alerting property managers when the most desirable tenants have leases that are coming up for renewal Zupnick says the impetus for the custom husiness systems his department builds often comes from his own staff s initiative In one example the l T group came up with an idea to use technology to giye the sales team more information on properties under consideration for investment We have been working for a number of years with a company called Maplnfo in Troy N Y on special mapping We developed and integrated mapping with our loan portfolio This enables our salespeople to see what other deals we have in say Walnut Creek Calif It also helps them understand the other issues in the area things like the crime rate growth projections and mass transit access to the site whicb is very important

poorly than other deals in the areahased on its location The businesspeople might have come to that idea five years from now Zupnick admits But my 1 T people with their knowledge of spatial mapping brought tbat idea forward and said Let s go for it
WITHER I T IN A CE BREAKUP

BEST PRACTICE 4
CIOS AS CHANGE AGENTS

The business unit CIOs because of their relative freedom from daily I T operations tend to focus their attentions on using technology and Six Sigma in combination to improve their businesses For example GE Real Estate CIO Zupnick is always in tbe hunt for ways to boost efficiencies and magnify business opportunities by trimming unnecessary steps in a process One of my people may be involved in a Six Sigma event process or a Six Sigma hlack belt in the company will come to us and seek our help in reducing the work steps in a process Zupnick explains This is when we identify opportunities to eliminate say four steps at once or we use a new screen to handle or store data that is done manually now He calls these lean events Zupnick sees his role as the CIO ot a GE division as a business driver helping the general manager find ways to use I T to streamline processes and foster growth by enabling the unit to moye more quickly to seize business opportunities Five weeks ago I was in Paris with a group of our property management people who were trying to reduce the steps in the tenant process he says In this case the tenant process includes a variety of steps property managers take to qualify and retain high quality tenants in the real estate developments they manage We helped them realize
40

In response to the stock s sluggishness and the perception that the company is hindered by slow growth CEO Immelt continues to push Gl into faster growing businesses such as health care and aerospace while shedding older industrial lines such as plastics that have put a drag on financial performance Between 2003 and 2006 E acquired businesses worth 80 hillion and sold off units worth S35 billion But those moyes may be too little too late for GE shareholders

Regardless one big question remains How would GE s I T operations fare if tbe company s half dozen business units and possibly eyen some of its larger operating divisions within those units were spun off to stand on their own or sold to other companies or investment groups I think that CiE s I I would farewell especially versus the average company s IT because of the E mind set says 1 Hackett Group s 1 Iolland They are all accustomed to have the same kinds of control structures in place and if put on tbeir own they would go out and create aimost the mirror images of what they had with the mother ship According to Zupnick his department turned the application into an The loss of certain efficiencies internal GE product called Market at enabied through shareti services a Glance A salesperson might have 50 though wouid i e an added cost thai deals under consideration but have the various spun off businesses would only fiye or six under close watch haye to absorb If tbey were operating Market at a Glance helps them focus as independent separate husiness on that one deal and its area and see for units there wouid be a huge cost assoinstance if four out offiyeother deals ciated with that because of the synerwe haye in that area are outperforming gies tbey had been leveraging under the market or maybe only two out of GE Holland observes six are outperforming the market he In the meantime breakup or no Cil s says In other words the system allows I T strategy embracing Ix an Six Sigma the sales staff to immediately compare a centralized decentralized management the chances of a deal outperforming structure and a progressive corporate the market or lonverst Iy li ing more training regimen for CIOs that is second to none stands alongside its Piease send questions and comments on j stellar record of profitability as this article to editors baseiinemag com standard for 1 r manage J ment practices

WWW 6ASELINEMAG COM