3 Reasons General Electric Company Wants to Act Like a Start-Up

GE catches start-up fever.

Mar 17, 2014 at 5:45PM

In the world of manufacturing, General Electric has a lot going for it. The industrial giant boasts nearly $90 billion in cash with which to go "elephant hunting," a footprint in 24 countries generating $1 billion in revenue, and a global research center with six locations to lure the world's top scientists and engineers. Not a bad resume if you ask me.

But, lately, GE seems to be in the middle of an identity crisis. Despite being the oldest company in the Dow Jones Industrial Average, GE just wants to be young again -- to dive into the start-up craze that's taking America by storm.

CEO Jeff Immelt alluded to it in last year's shareholder letter, but this year the start-up mentality seems to be picking up steam inside GE's walls. Here are three key reasons why.

Ge Industrial Internet

The Internet of Things will connect data to real-world machines like airplanes and locomotives. Source: General Electric.

1. Technology's disrupting manufacturing
GE's been on the forefront of manufacturing for over a century, but the industry's about to transform in a way that even GE has never seen.

For background, consider the strengths of GE under the leadership of Jack Welch. During his tenure, GE beat its competitors by delivering high-quality products more efficiently through greater scale. Buzzwords like "Six Sigma" took GE and the broader corporate landscape by storm. In their respective industries, Dell and Wal-Mart could claim similar advantages over the competition due to their unparalleled scale of operations.

But scale alone cannot create a moat wide enough to fend off disruptive technologies. In the retail and tech industries, other companies replicated Dell and Wal-Mart's supply chain over time. Low-cost prices became an inadequate differentiator. And then the Internet and the power of customer information allowed tech-savvy retailers like Amazon.com to run circles around the competition.

That's about to happen in manufacturing. My colleague Aaron Bush summarized this transformation nicely in a post on the South by Southwest festival over the weekend:

As society has continuously found ways to pair new technologies to old routines, it has given all touched industries the ability to change at unprecedented rates. Sustaining innovations improve at arithmetic rates, but as soon as technology (especially microprocessors) finds its way into the equation, Moore's Law (the observation that technology becomes twice as capable (both smaller and powerful) at half the cost over the course of ~18 months) takes action and drives change at exponential rates.

Manufacturing's one of those "old routines." The Internet of Things is one of those "technologies." GE knows it. It's why the company's set up a GE Ventures shop in Silicon Valley last year. It's why GE Garages aims to bolster the "maker movement."

These are all concepts that need to incubate in the world of start-ups to really thrive. Pretty soon, yet another industry will become no country for old manufacturers.

2. Speed is of the essence
At one level, industry forces are changing GE's approach. On another, its customers are.

In the age of big data and real-time feedback, customers demand newer and better solutions to run their businesses. And they want them yesterday. GE outlined a "simplification" movement that's currently under way to address these customer-driven market forces in its latest annual report.

We are transforming GE around the "culture of simplification." This is not
a reorganization or an initiative. Rather, it defines the way we make decisions, work together and work with our customers. We are focused on efficiency, speed and market impact. We are driving decisions closer to markets and making our teams accountable for outcomes, not process.

Over the next few years, GE aims to reduce its new product introduction cycle by 30%. It has a slew of similar objectives that aim to chip away at the layers of bureaucracy so prevalent at large companies. Those layers of bureaucracy can prevent innovative products from reaching the market. And they simply don't exist at start-ups. If GE wants to compete with the nimblest of companies, it has to become one itself.

3. Start-ups have fewer distractions
GE's not known for its simplicity. Right now, it employs 307,000 people around the world and operates with more than 100 subsidiaries. That is simply staggering.

Further, it's a daunting challenge to try to focus a company with so many moving parts. Immelt can't possibly steer every GE team, so he recognizes the importance of delegating the appropriate tasks and granting ownership to others -- just like an entrepreneur would. He summarized his thought process in last year's annual report:

Entrepreneurs simplify everything. They are purpose-driven. They focus on customers, people and solving problems. They do fewer things, but with bigger impact. They don't delegate important decisions; rather, they position decision-makers close to the action. There is no headquarters, no layer of "checkers." They use judgment, they move fast, and they are accountable.

To this end, GE aims to reduce the staff at its headquarters in Fairfield, Conn., by 45% over the next few years. If you're not next to the action, you're not behaving like an entrepreneur.

Foolish takeaway
Almost simultaneously, technology and a need for speed and simplicity are changing the way old-world manufacturers go to market with their products. They're requiring typically slow-moving ships like GE to tack and pivot with greater agility. Changing the status quo won't be easy at a large organization, but it's a must if GE wants to stay relevant in an increasingly fast-paced environment.

And, in some ways, it will be business as usual for long-tenured employees like Immelt. When I visited the company's 30 Rockefeller offices last year, I remarked about how leadership must enjoy working in New York City due to the palpable energy and setting 50 stories above Manhattan. "Not Jeff," responded the communications team, "If he could, he'd spend all of his time meeting with GE's customers."

If you're an international airline looking to spend a few billion dollars on GE engines, that's a good thing to know.

Chummy Ge Employees

GE employees. Source: General Electric.

How you can play the long game and beat the market
In its letter to shareholders, GE refuted the claim that all companies fade over time. Instead, Immelt stated, "When we make progress, our investors are rewarded." So far, that's been absolutely true. Those companies that evolve effectively drive huge returns for shareholders. No one recognizes this more than our CEO and Motley Fool co-founder Tom Gardner. He's betting his own money on time-tested stocks and permitted us to reveal "The Motley Fool's 3 Stocks to Own Forever." These picks are free today. Just click here now to uncover the three companies we love.

Isaac Pino, CPA owns shares of General Electric. The Motley Fool recommends and owns shares of Amazon.com. It also owns shares of General Electric. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers