{"id":19092,"date":"2016-11-18T16:15:03","date_gmt":"2016-11-18T21:15:03","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/ges-big-bet-on-the-industrial-internet\/"},"modified":"2016-11-18T16:15:03","modified_gmt":"2016-11-18T21:15:03","slug":"ges-big-bet-on-the-industrial-internet","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ges-big-bet-on-the-industrial-internet\/","title":{"rendered":"GE’s Big Bet on the Industrial Internet"},"content":{"rendered":"

Background<\/strong><\/p>\n

GE was founded in 1892 and has a long history as an industrial manufacturing company. By the 1980\u2019s GE had become a large international conglomerate that focused on \u201cselling industrial products and repair services\u201d [1]. One field that GE had ventured into was oil and gas. At the refinery where I was employed as a production engineer, GE had two full-time engineers who sold us various chemistries that improved the performance of the refinery.<\/p>\n

Business Model Changes<\/strong><\/p>\n

Shortly after 2010, GE recognized the threat of analytics, disruptive data, and the internet of things and decided to jump on board [1]. GE\u2019s CEO Jeffery Immelt said, \u201cIf you went to bed as an industrial company, you\u2019re going to wake up this morning as a software and analytics company.\u201d [2] GE\u2019s vision is to collect lots of data from machines and then use that data to improve the performance of those machines.<\/p>\n

GE attempted to sell one application of their new digital company to the refinery where I worked. At my refinery, one responsibility of a production engineer was to work with GE to specify how much of certain chemicals should be added to a desalter. The correct amount of chemicals to be added varied with multiple factors (outside temperature, current crude oil composition, crude oil throughput rate) and required a thorough understanding of management\u2019s goals, chemistry, and specific knowledge of refinery equipment. Specifying too much chemical addition was a large economic waste and too little could cause costly tower performance issues. GE proposed adding a lot of sensors to input and output flows to better understand the system. Using all of this data GE could to use its digital platform to continuously calculate the ideal amount of chemical additions. I became convinced from this presentation that if the system was installed and data was collected from our refinery for multiple years, GE\u2019s system would likely work more effectively than an engineer\u2019s estimate. This would save the refinery a lot of money and reduce the need for onsite engineers. Similar to the change GE was making as a whole company, GE proposed changing the business model at our refinery to one focused on the industrial internet.<\/p>\n

Operating Model Changes<\/strong><\/p>\n

To accomplish the company\u2019s very large business model change, GE has spent a lot of money and made a lot of changes to their operating model. In 2016 GE is spending $1 billion on Predix, their cloud based industrial operating system. Additionally, GE has a goal of having 20,000 people developing the platform and writing the code for applications for Predix by the end of the year [3]. They need to hire or collaborate with those 20,000 developers. Third, to increase its software portfolio and software talent GE has been acquiring many software companies such as Bit Stew and Wise.io that are related to its mission. They have also been setting up partnerships with companies like Box and Ericsson to have more programmers on their platform [4]. Finally, GE is also trying to focus on its mission of being a digital company by divesting parts of the company not related to its new mission. GE is divesting 60 percent of the company they held in 2001 [5]. GE is getting a large overhaul to make their business model a reality.<\/p>\n

At the refinery I worked at GE would also need to change their staffing to support the application of digital optimization of the refinery. The current staff at the refinery were chemistry and relationship experts, not network, modeling, or programming experts. GE will have to change their operating model at my refinery and all of the world to implement their new digital business model.<\/p>\n

Path Forward<\/strong><\/p>\n

GE has a compelling new business model, but they need to work quickly to turn that model into profits. It is completely possible for GE to build great products, but that they will not be able to monetize them. For example, even though the ROI for GE\u2019s proposed project at my refinery was likely excellent, the company decided not to pursue it due to its high upfront costs. A recent report claimed that GE\u2019s industrial improvement software was behind multiple competitors in both technology and market share [6]. I think GE needs to quickly focus on finding profit sources to make sure they are getting enough short-term revenue from digital applications to fund their long-term growth plans. I would also recommend buying out some of their largest competitors to make GE the market leader. In many digital applications, only market leaders have been able to grow and survive (ex. iPhone vs Microsoft phone). GE is making a large gamble on the industrial internet that will likely lead to either fantastic growth or fantastic failure and their operating and business decisions will influence that outcome.<\/p>\n

(798 words)<\/p>\n

\u00a0<\/strong><\/p>\n

\u00a0<\/strong><\/p>\n

Sources<\/strong><\/p>\n

[1] Ravi Vij, \u201cHow GE Make Money, Understanding GE Business Model.\u201d revenuesandprofits.com<\/em>. June 14, 2016, http:\/\/revenuesandprofits.com\/ge-makes-money-understanding-ge-business-model\/<\/a>, accessed November 2016.<\/p>\n

[2] \u201cAbout GE Digital.\u201d GE. <\/em>http:\/\/www.ge.com\/digital\/about-ge-digital<\/a>, accessed November 2016.<\/p>\n

[3] David M. Katz. \u201cGE CFO Eyes \u2018Infinite Returns\u2019 from Industrial Internet.\u201d cfo.com. <\/em>July 12, 2016, http:\/\/ww2.cfo.com\/capital-allocation\/2016\/07\/ge-cfo-eyes-infinite-returns-industrial-internet\/<\/a>, accessed November 2016.<\/p>\n

[4] Stephanie Condon, \u201cGE Digital Builds Up its Global Presence with Acquisitions, Partnerships.\u201d zdnet.com<\/em>. November 15, 2016, http:\/\/www.zdnet.com\/article\/ge-digital-builds-up-its-global-presence-with-acquisitions-partnerships\/<\/a>, accessed November 2016.<\/p>\n

[5] Craig Resnick, \u201cGE\u2019s Industrial Internet of Things Journey\u201d GE<\/em>. February 4, 2016, https:\/\/www.ge.com\/digital\/sites\/default\/files\/GE%20Industrial%20Internet%20of%20Things%20Journey%20(1).pdf<\/a>, accessed November 2016.<\/p>\n

[6] Katie Fehrenbacher, \u201cGE\u2019s Industrial Internet is a \u2018Baby Startup\u2019 Says Report.\u201d Fortune.com. <\/em>July 8, 2016, http:\/\/fortune.com\/2016\/07\/08\/ge-predix-weak-report\/<\/a>, accessed November 2016.<\/p>\n

Cover Photo from https:\/\/twitter.com\/ge_digital<\/a>, accessed November 2016.<\/p>\n","protected":false},"excerpt":{"rendered":"

GE is spending a fortune creating the industrial internet. One application of their industrial internet could replace my former job at an oil refinery. 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