|
|
|
|
Top-down Innovation at General Electric 15 August 05
“[Traditional] professional management isn't going to give you the kind of growth you need in a slow-growth world.”
General Electric CEO Jeff Immelt, in Business Week, 1 Aug 05
For the past several years, General Electric has been undertaking a thoroughgoing effort to improve its innovation performance that is emphatically driven from the top. Beth Comstock, GE’s first-ever Chief Marketing Officer, is leading the drive, while Jeff Immelt, GE’s CEO, has budgetted a considerable portion of his time to pushing GE’s innovation initiatives.
Beth Comstock, GE’s first ever Chief Marketing Officer
According to Technology Review, GE spent $2.4 billion on Research and Development in 2004, around 2 percent of sales. This was an increase of about 16 percent over levels in 2003, but is low relative to other industrial conglomerates. Siemens spends more than $6 billion, or 7 percent of sales. 3M, a much smaller company than GE, spends 6 percent of sales on R&D.
To increase the effectiveness and focus of its R&D spending, GE has developed new tools and approaches, like “imagination breakthroughs” and “dreaming sessions.”
Ø Imagination breakthroughs represent big bets for the company – markets that have a potential for incremental sales of more than $100 million in five years. They represent a tangible expression of GE’s commitment to new products and services, as each project is fully funded and visible within the company. There are more than 20 imagination breakthrough projects ongoing at GE.
Ø Dreaming sessions are sessions in which GE invites some of its most senior customers to discuss and debate market trends with Immelt and other senior GE executives. GE uses these sessions to help prioritize R&D project spending. Immelt provided a recent example:
“We had the railroad CEOs in with their operating people. We spent half a day, grounding ourselves on where the industry is, where we are, what their trends are, and then said, "Okay, here are some things to think about: higher fuel, more West-East shipments because of imports from China." And then we'll ask, "If you had $200 million to $400 million to spend on R&D at GE, how would you prioritize it?" Jeff Immelt, in Fast Company, July 05
GE’s approach revolves around picking winners – determining the areas where the company should be making major investments so as to have big new businesses in the near future. It is concerned about initiatives that have the ability to “move the needle” -- specific kinds of innovations that can deliver big economic benefits within a reasonable period of time.
For GE, innovation is driven by technological breakthroughs, and its areas of focus for new development are some of the big targets of technology.
“Our challenge is to take nanotechnology into the future. We've got to do personalized medicine. We've got to do renewable energy.” Jeff Immelt in Fast Company, July 05
In renewable energy, for example, GE established a wind power division in 2002. It expects the division’s revenues to surpass $2 billion in 2005, an increase of 300% over its revenue in 2002. It has achieved this revenue growth via a combination of acquisition and new product development.
Last week’s update discussed Best-Buy’s bottoms-up innovation, which was all about “popcorn stand” experiments. Best Buy is a distributor of technology, not a developer. Its successful innovations reflect an ability to better tailor its merchandising to its customers. Best Buy customizes its innovations by store and even by sales associate. Each innovation on its own has a small impact, but the many new initiatives add up to strong growth in sales and earnings.
This is quite a contrast to the approach taken by GE. The table below captures a few differences between Best-Buy’s bottom-up and GE’s top-down approaches:
Innovation: Top-down and Bottom-up
Bottom-up innnovations often reflect a deep operational understanding of the business and its current customers. The innovations coming top-down reflect strategic decisions made by the company’s senior executives.
These two approaches are not mutually exclusive, and most companies will want to use some combination of both.
Best Buy, for example uses both approaches. Its overall “customer-centric” strategy is driven from the top, and entails systematic re-modeling of its stores and selling approach. The top-down customer-centric approach complements the bottom-up experimentation that the company encourages.
Top-down innovation can crowd out the bottom-up kind, however, leading a company to reject worthy innovations because they did not originate at the top. In July, 2004, for example, I wrote about a process innovation at McDonald’s – the ability to outsource order-taking at its drive-through stands. This innovation came from one of the company’s franchisees, and was actively resisted by McDonald’s Corporate.
Top-down initiatives come naturally to GE. The more random nature of bottom-up innovation may require some recalibration for the company. As Beth Comstock told Business Week:
"Creativity is still a word we're wrestling with. It seems a bit undisciplined, a bit chaotic for a place like GE."
GE is famous for its disciplined and focused management. Is there a place in the company for people like Chris Applegate, the Best Buy sales associate I wrote about last week who “changed the face of Southern California” by promoting Vonage services? In the slow-growth world envisioned by Jeff Immelt, this kind of bottom-up innovation needs to be encouraged as well.
More Information:
6. Technology Review’s annual survey of R&D spending |
|
All content on this site licensed under a Creative Commons License.
|
