The General Electric Case Study Can GE Remake Itself as a Digital Firm?

? Summarise the business and technology conditions causing GE to launch its Internet initiative. There were numerous conditions, which resulted in General Electric (GE) embarking on an Internet venture. These conditions were a combination of both business and technological motives. By the mid 1990s, the Internet had become a valuable Information System (IS). GE saw the benefits from business perspectives, which were evident in two different units, namely GE Lighting, and Polymerland (the GE Plastics distribution arm). GE Lighting introduced the Internet for purchasing in 1996, and as a result the purchasing cycle was reduced from 14 to 7 days. Another achievement was having supplier prices reduced by 10 to 15 percent, resulting from open bidding on the Internet from different prospective suppliers. (Laudon & Laudon 2002, p. 33). Senior management at GE saw utilising the Internet as a means to not only save money, but to expand the business. Jack Welsh (GE Chairman) stated, that by Internet-enabling its business processes, GE could reduce overhead costs by half, saving as much as $10 billion in the first two years (Laudon & Laudon 2002, p. 33). Previous to this statement, Polymerland had implemented a Website. This took weekly sales from $10 000 (in 1997) to $6 million (in 2000). (Laudon & Laudon 2002, p. 33). The objective to reduce costs would create two options GE. One would be to then sell products at a reduced price, without loss of margin and become more competitive in the marketplace. The second option would be to sell products at the existing price, which results in increased margins. Another reason for launching an Internet initiative was to achieve an advantage over GEs competitors. This was a characteristic that GE wanted to exploit. It was evident that the Internet was creating excellent results from GE Lighting and Polymerland, hence the decision to transform other units within the GE group. With respect to technology, Polymerland had essentially achieved supply chain management. In 1997 after the sales transactions site was developed,

customers were able to search for products, download product information, apply for credit, order products, track the shipment and even return merchandise (Laudon & Laudon 2002, p. 33). As previously mentioned, the impact on sales was remarkable. GE recognized that the Internet resulted in E-commerce for suppliers and customers, and E-business for management of the corporation. The introduction of IS was a driving force behind advancing GE technological attributes. Prior to Jack Welshs objective, GE had basic Information Systems in place, which were working efficiently, and effectively. This can be seen as a condition to launch the Internet initiative. How is GE using Internet technology in its internal and external business processes? GE is using Internet technology in its internal and external business processes by utilising Electronic Commerce (e-commerce) and Electronic Business (ebusiness). Essentially, e-commerce is the process of buying and selling products and services over the Internet, with computerised business transactions. (Laudon & Laudon 2002, p. 23) E-commerce can be divided in to more specific categories, which are used by many different GE units, as explained below: For external business processes, Polymerland implemented a Business-toConsumer (B2C) methodology. This is a process of electronically retailing products directly to the end user (Laudon & Laudon 2002, p 110), and enabled Polymerland sales to increase significantly. An aspect that GE Appliances was wary of, was disintermediation. GE Appliances could have sold directly to the consumer, thus bypassing distributors and retail outlets (Laudon & Laudon 2002, p 111). This would enable the product to be sold to the consumer for a cheaper price, and enable GE Appliances to increase the gross margin of the respective product. As a result, GE kept retailing through stores to maintain consumer loyalty to a specific GE brand (Laudon & Laudon 2002, p 34). GE Appliances simply introduced a basic enterprise system with the starting point being physically inside a retail outlet. The customer would enter an order in the store, and the product would be shipped directly to the consumers address. The store would be paid a percentage of the sale (Laudon & Laudon 2002, p 34). Some examples of internal business processes, which use Internet

technology (basically a form of e-business), include the issuing of internal newsletters and memos on-line. The installation of computer kiosks (Laudon & Laudon 2002, p 340) enabled all employees to access this information. GE Medical Systems even established iCentre, a Web-site that enables medical equipment to be controlled and monitored (Laudon & Laudon 2002, p 24) yet a further example of an external business process. What management, organisation, and technology issues did GE have to address in its Internet initiative? The General Electric Internet initiative required controlling issues that transpired from management, organisation and technology. GE management had numerous challenges that required strategic planning. A new venture will obviously require troubleshooting, and Jack Welsh (Chairman and CEO of GE from April 1981 to November 2001) recognised this. He expressed concerns that a GE weakness would become a competitors strength, and subsequently launched a project called destroy your business (DYB) (Laudon & Laudon 2002, p. 33). A result from this was that GE needed to reduce prices and increase value to the customer. The most effective way to do this was through the Internet initiative. Another management issue was to promote the Internet initiative. GE had forecast increased sales and decreased expenses; however this would not eventuate if the consumers were not aware of the resources available. GE had to encourage not only consumers and retailers, but also employees had to adapt to the new electronic procedures. They needed to embrace, be confident and proficient to the new systems. Instituting information systems, results in many challenges for managers. In particular, GE would have negotiated the Strategic Business Challenge. Research would have been necessary to ensure that utilising the Internet would result in becoming more competitive and effective (Laudon & Laudon 2002, p. 25). Other challenges faced would have been the information architecture challenge, and the responsibility and control challenge. On an organisational level, issues faced were quite comprehensive. Changing many (older) transactions and communications to electronic form required a great deal of administration. It would have been essential that Executive Support Systems (ESS) implement strategic decision making. After management of GE had predominantly determined the objectives of the

Internet initiative, they faced a number of technological issues. With the issuing of all internal memos and newsletters on-line, managers and staff required extensive training (Laudon & Laudon 2002, p. 34). GE Transportation (and later other GE units) established an auction site for suppliers, which was a technological achievement. Computer kiosks were installed to enable blue collar employees had Internet access (Laudon & Laudon 2002, p. 34), and with the ongoing expansion of the Internet initiative, GE had to initiate equipment training for its products online. Evaluate GEs Internet initiative. Is it successful? Is the company transforming itself into a digital firm? Why or why not? The General Electric Internet initiative was a massive project, in no uncertain terms. Implementing changes on such a scale will always result in challenging time constraints. One simply has to look at the GE (as a group) sales prior the initiative and compare them with the figures a small number of years later. Since 1999, earnings have grown more than 80 percent April 2003. For example, Polymerland weekly sales went from $10 thousand in
1997 to $6 million in 2000. Customers were obviously aware of the Internet facilities GE units provided as Laudon and Laudon (2002, p. 34) stated that 45% of GE Appliances sales were over the Internet. Not only were GE revenues increased, but also respective expenses were reduced as a result of the Internet initiative. For example GE Transportation commissioned live Internet actions for suppliers to win contracts in 1999. The initiative resulted in a $1.6 billion saving over 18 months, during 1999 and 2000 (Laudon & Laudon 2002, p. 34), a massive saving from a financial perspective. With the above-mentioned points, it is hard to argue that the Internet initiative was unsuccessful. The $10 billion savings that Gary Reiner predicted were audacious, however, he was estimating these figures for a new market, which was some what unchartered territory for most (if not all) companies, worldwide. According to the GE website, April 2003, the earnings for 2002 were $15.1 Billion. As a result of the Internet initiative, General Electric is transforming in to a digital firm. Laudon and Laudon (2002, p. 34) define a digital firm as an organisation where not only the significant business processes and relationships with customers, suppliers and staff managed through digital means, but corporate assets are as well. An example is Polymerland essentially introducing supply chain management successfully and also ebusiness and e-commerce being implemented across many GE units. (For example GE Capital Fleet Services stating that 30% of orders came in via the Internet). Opinions of Mark Roberti did state that the GE Internet initiative was not as triumphant as they claimed it would be, however the successful transformation cannot be denied. Key objectives of the initiative were to reduce expenses, and increase sales and efficiency. These objectives were definitely achieved.

Robertis comments cannot conflict with the fact that GE has had a successful Internet initiative, and the fact they are transforming into a digital firm.