New economy companies are not the only ones that are successfully benefiting from e-commerce initiatives. Those old economy companies that have management teams that are willing to look critically at their existing systems and processes can successfully use this medium to their advantage. General Electric is one company that is adapting quite well.

By Phil Weiss (TMF Grape)
August 08, 2000

Intel's (Nasdaq: INTC) Andy Grove once said that he expects that there will be no Internet companies in the future, only companies that use the Internet and those that have been crushed by competitors that do. Many people believe that the world of business is increasingly divided into old and new economy companies. This has made it incumbent on the old economy companies to find a way to modify their business practices to compete effectively with the nimbler new economy ones.

In an interview with the Wall Street Journal earlier this year, Grove described what he sees as the three phases in the evolution of e-commerce. The first is a simple one: It merely involves companies making information available on their websites. In the second phase, companies begin selling goods and services via the Web, to consumers and to each other. The third phase, which is not yet well-defined, includes the automation of traditional business decisions through the linkage of internal supply and demand systems with those of external suppliers and customers.

Many of the traditional old economy companies are being forced to examine the way that they do business in order to successfully compete in an environment that is rapidly changing. A prime example of a company that is failing to adapt right now is Lucent Technologies (NYSE: LU). Lucent has made a number of missteps and, as a result, has had a difficult time keeping up with many of its competitors, such as Cisco Systems (Nasdaq: CSCO) and JDS Uniphase (Nasdaq: JDSU).

One of the old economy companies that appears to be doing a good job of integrating the advantages of the Internet and e-commerce into its existing business model is General Electric (NYSE: GE). One of the keys to GE's success has been its destructive behavior.

You might wonder why I'm calling GE's destructive behavior a key to its success, as that sounds like it would have negative rather than positive effects. Here's the story: GE's CEO Jack Welch has his managers envision how the future could hurt them. This has led to an exercise that he refers to as Destroy Your Business (DYB), which has been instituted in every GE business unit. DYB evolved from Welchs mandate in January 1999 that GE transform itself into an Internet business.

The DYB process involves having GE's managers find the weaknesses in their business models before someone else does. Teams make presentations to the company's top executives about a hypothetical Internet-based business plan that a competitor could use in order to erode GE's customer base. The managers then follow this business plan with a proposal of how they would change their own business model in order to combat the threat.

The result has been GE's ability to utilize features of e-commerce in ways that have saved both the company and its customers money due to increased efficiency, the generation of additional revenues, and use of the Internet for businesses that would not typically be associated with it.

One example of a business that has benefited from this initiative is GE's Appliance Division. As part of the DYB exercise, GE wondered whether its competitors would simply cut retailers out of the process altogether. GE believes that the order fulfillment and delivery aspects of its business model provide it with a significant advantage over its competition, as it is able to take products made in its factories and ship them anywhere in the U.S. virtually overnight on a cost-effective basis. It also believes that consumers have higher expectations when they order over the Web than over the phone. These beliefs led the company to look at whether or not it could deliver appliances directly to consumers, using retailers to facilitate the transactions.

The result: GE signed a deal with Home Depot (NYSE: HD) earlier this year to sell GE appliances in Home Depot stores -- but without carrying the related inventory in its warehouses. Instead, GE delivers the appliances directly to consumers' homes. Both GE and Home Depot win as a result of this relationship. Home Depot is able to offer its customers a huge variety of appliances, for example. Customers win from this relationship as well, as it is more convenient for them to schedule an appointment to have refrigerators delivered directly to their homes. Best of all, since customers key in their orders over the Internet right there in the Home Depot stores, this process demonstrates a way to sell over the Web that can be used at any place in GE's business, including the virtual stores on NBCs Snap.com portal and NBCis Xoom.com.

GE's appliance unit is now on schedule to take in 45% of its sales ($2.5 billion) via the Internet. GE's transaction costs have fallen substantially as well, as they are now a tenth of what they were when appliance stores, builders, and others phoned or faxed in orders. Errors have also decreased.

Another business that has benefited from the DYB initiative is GE Plastics, a business that does not seem readily adaptable to the Internet. GE Plastics determined that the business that could destroy it would be one with a product catalog, discussion forums, and a website with a strong transaction capability. PlasticsNet.com was an aggregator that made GE wary. GE believed that a sense of community, something that PlasticsNet was missing and had been trying to build since 1995, was something that could preempt PlasticsNet's position with customers.

GE's work in this area centered on offering customers (primarily product design engineers) advice on how different plastics could best be used. GE installed technology on its website that allow these engineers to design products using GE's materials. GE now has tools that provide product engineers with a sense of which materials to use as well as how much they will cost. In a few hours, a customer can have a fairly extensive matrix of what products could work in a given instance and a reasonable estimate of the cost.

The result: A significant head start in the product design process. By adding value-added services, GE has come up with a way to differentiate itself from its competitors, which should give it a leg-up on staying ahead of the competition in an otherwise commodity-based business. In addition, GE is now able to reach a much larger audience than its traditional sales force could reach by foot.

Among the other businesses at GE to benefit from Web-based initiatives are GE Medical Systems and GE Power Systems. The latter now captures up to 70% of new turbine orders, a dramatic increase from the 50% it was realizing up until 1998.

GE's efforts to utilize e-commerce in its business have met with surprising success. Welch recently told shareholders that while dot-coms are energizing business today, much of their resources are directed towards establishing brand, products, and order fulfillment. These have all been elements of GE's business for centuries. Welch believes that "digitizing a company and developing e-business models is easier -- not harder -- than we ever imagined."

The bottom line here is that it is possible for old economy companies with management teams that are willing to adapt to change rather than resist it can and will find ways to use e-commerce to their advantage. Such companies will also benefit from the fact that they can focus on building the appropriate model, rather than allocating resources to establish the brand and the related systems.

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