Destructive Behaviour

Some executives like to conceive their company's future through strategic-planning exercises. Not Jack Welch. For him, strategic planning is too safe, too theoretical. Instead, Welch had his business units envision how the future could hurt them. He called the exercise Destroy Your Business (DYB).

The DYB moniker captures the urgency that spread like atomic fallout throughout the US-based company after Welch mandated that General Electric transform itself into an e-business in January 1999. This was no small feat for a technology, services and manufacturing company with a 122-year-old brick-and-mortar legacy and more than three dozen businesses spread across 100 countries. Welch knew that hundreds of guerrilla companies (mostly dotcoms) were in the process of trying to destroy GE's business models, and if his company didn't identify its weaknesses then someone else would.

To quantify the vulnerabilities, DYB was instituted in every GE business unit. Each unit assembled a cross-functional team that benchmarked competitors and examined how their businesses operate, the products and services they offered, and the economics of ordering through the Web versus ordering through the sales force and call centres. The teams' goal was to present GE's top executives with a hypothetical Internet-based business plan that a competitor could use to erode GE's customer base. In addition, the teams proposed how they would change their existing business model in response to these threats. This latter part of the exercise came to be known as GYB - Grow Your Business - because its objective was to find fresh ways to reach new customers and better serve existing ones.

The exercise came not a second too late for some of GE's business units. GE executives in the plastics and medical systems businesses, for instance, were concerned that they would be forced to join the rapidly proliferating B2B exchanges where their products and services would be commoditised. But the exercise resulted in retooled Web sites, new deals with suppliers and partners, new markets and better service. "When we have an initiative around here, it becomes an all-consuming thing," says Gary Reiner, GE's senior vice president and CIO.

Reiner served as the sounding board for all of GE's e-commerce leaders during the DYB process, bringing them together to share best practices. "We viewed e-commerce with a lot of trepidation," he says. "We thought [online marketplaces] were doing something special and mysterious - that they were going to take our customers away or redirect them to somebody else. Now we're a lot smarter."

Your company may not have the resources to change course as swiftly as GE did. But even if you can't change now, you can at least get a sense of what you're in for by doing your own version of DYB. Chances are, if a company is crazy and ambitious enough to figure out how it can destroy GE's $US122 billion business, there are probably 10 others that are scheming against your company. Read on to learn about the best practices that emerged from DYB/GYB in three of GE's businesses: plastics, appliances and medical systems.

It Bends, but It Doesn't Break:

GE Plastics

"We have a rule here: Don't put something on the Internet unless it has a value proposition that is better than over the phone," advises Gerry Podesta, general manager of e-commerce for GE Plastics in Massachusetts.

He should know. GE Plastics' product catalogue has been on the Web since 1995, and the company has been conducting transactions on GEPlastics.com since 1997. Podesta understands how difficult it is to ensure that a customer can find what he's looking for on the Web site faster than he could get the same information over the phone. In 1999, GEPlastics.com's strong sales of $US2 million to $US3 million a week were partly a result of using the phone test to vet online business processes.

Considering those sales figures, it would be safe to assume that GE Plastics, which manufactures the raw plastics used in products like cell phones and auto parts, wouldn't have much to learn when it started the DYB exercise in June 1999. But it did. Aggregators like Plastics-Net.com, which began transacting business on its site that year, were springing up all over the place. Revenue wasn't the issue here - of course GE had the edge. This would, however, be a duel of business models. Rather than stand pat, GE Plastics realised it would need to relaunch its Web site with more features and enhanced functionality to compete with some of the more innovative models out there.

The business that could destroy them would have a product catalogue, discussion forums and a strong transaction capability on its Web site. Though GEPlastics.com's commerce capabilities offered a competitive advantage over PlasticsNet, the GE site lacked a community feel - something that PlasticsNet had been building since 1995 and that a lot of the Internet startups were trying to do by adding features such as chat rooms and Yellow Page directories to their sites.

"There was no emerging site that was driving the majority of eyeballs in the industry," says Podesta, "but we felt that if we didn't step up in that area of community, someone else might pre-empt our position with our customers."

By looking only at Web sites in his own industry, Podesta knew he would not be able to create something that would blow away the competition. So DYB team members began surfing consumer sites for inspiration, particularly auto manufacturers' sites, where visitors could use configuration tools to customise their cars.

Podesta and his team thought that they could bring customisation to their customers (primarily product design engineers) by giving them advice on how plastics could best be used. Enhancing its site with smart technology would allow these engineers to design their products with GE's materials while reaching a much wider audience than the field sales force ever could on foot.

To develop the technology that would let engineers test different materials, GE Plastics put together a design engineering team (separate from the DYB team) consisting of individuals from IT, engineering and R&D. The group spent four months, beginning in October 1999, researching the services GE Plastics provided its customers and sifting through 30 years worth of information on the properties of the materials it manufactures. From these studies, the team built the engineering design centre of GEPlastics.com, which launched in February 2000.

Much of the technology on the site comes from the PC applications that sales people showed off when visiting customers. The most popular of these, the data sheet, helps product engineers determine a material's properties - like tensile strength, modulus and melting point. Having the PC applications drastically reduced the development time for the Web tools, but it wasn't a slam dunk. The IT challenge in getting them online, says Podesta, was first Web-enabling the PC formats and then creating databases of material properties to power the online features.

The new tools let product engineers get a sense of which materials they should use and how much they will cost. For example, a product engineer at a cell phone manufacturer plugs the dimensions of his product into GE Plastics' system and selects four different materials he's interested in using. GE's system then helps him determine how many moulds he has to build to make a part. "When he's done in a few hours," says Podesta, "he has a fairly extensive matrix of what products would work and a ballpark figure on costs. It gives him an enormous head start on the process of designing the product."

For three decades, GE Plastics engineers had been helping customers select the right materials for their products, in spite of the fact that GE Plastics' primary business is manufacturing, not services. "In the end, we're doing design assistance," says Podesta. "It's a value-added service; it's not a part of the key sale. For us to be able to touch thousands of customers online rather than hundreds of customers [with the field sales force] is a big win for us."

Service might not be its primary business, but all of GE - not just plastics - is realising that in order to increase customer loyalty, value-added services are an increasingly important way for the company to differentiate itself from competitors, and perhaps the only way it can stay ahead in commodity businesses like plastics.

Nuking the Supply Chain:

GE Appliances

"What would our business model look like if we were to go around the partners between us and the end consumer?" asks Joe De-Angelo, vice president of e-business for GE Appliances, explaining his business unit's No. 1 concern during the DYB/GYB process.

For the $US5.6 billion business in Kentucky, the big DYB issue wasn't whether aggregators would hurt appliance retailers, it was whether its primary competitors - Maytag, Whirlpool and Frigidaire - would cut retailers out of the picture entirely. Before the Internet, these four manufacturers, which each own 25 per cent of the appliance market, had only one way to bring their products to market: through large retailers like Home Depot and small mum-and-dad appliance stores. The Internet threatened to fragment that traditional model and make GE appliances commodities on big retail and auction sites. As part of the DYB exercise, GE Appliances had to ask itself how it could use the new Internet channel to maintain consumers' awareness of the GE brand without alienating GE's retail partners or cannibalising existing channels.

GE spent years during the early part of the 90s perfecting its logistics system through a rigorous quality initiative known as Six Sigma. Implemented companywide, Six Sigma was an attempt to eliminate inefficiencies in GE's processes. DeAngelo led the Six Sigma initiative before becoming the vice president of e-biz for GE Appliances - his team focused on ways to leverage GE Appliances' edge in logistics during the DYB exercise. "We know that [order fulfilment and delivery is] an element of our business model that the other guys don't have, and we're going to build off that," he says. "We are able to take products from our factories and get them shipped anywhere in the United States virtually overnight on a cost-effective basis," DeAngelo adds.

But as good as the system is, Reiner thinks Web customers will expect better, given the instant gratification of software downloads and book purchases that consumers get on the Web. "We're sensing that customer expectations are higher when they order over the Web than when they order over the phone," says CIO Reiner. "We are using Six Sigma in every one of our businesses to improve the fulfilment capability."

DeAngelo started DYB by looking at whether GE Appliances could deliver appliances directly into consumers' hands, using the company's most valuable asset - the retailers - as a sort of go-between. At the heart of the new system is a point-of-sale (POS) terminal that is installed at a Home Depot. When customers want to buy a GE fridge, they enter the order into the POS system, which is connected to GE's inventory and distribution systems. It allows consumers to buy appliances directly from GE through Home Depot and schedule an appointment to have the refrigerator delivered and installed at the customers' convenience. Home Depot gets a cut of the action and stays happy - really happy, according to DeAngelo.

"This gets retailers out of the game of carrying inventory on their floors," he says. "[Home Depot] was sucking up floor space with inventory, and we were able to free up that space. What we basically did was interconnect and take [the excess inventory] out of the traditional retail model to make it a better shopping experience for the consumer and a better process experience for the retailer." By helping them reduce the amount of inventory they carry in their stores and warehouses, GE Appliances helps its retailers cut their costs.

"It's a format that we can use everywhere," notes DeAngelo. Indeed, GE uses essentially the same system for its virtual stores on NBC's portal Snap.com and NBCi's Xoom.com. "We've been in the process of selling appliances over our corporate intranet to GE employees for several months. That enabled us to create store capabilities that we can utilise any place," he says.

X-Ray Vision:

GE Medical Systems

"Individually, they were just popcorn stands," says GE Medical Systems CIO Joe Eckroth, referring to online information aggregators - such as Neoforma, MediBuy, WebMD and Healtheon - that hit his radar screen when his business embarked on DYB in early 1999.

Eckroth could afford to be flippant at the time. GE Medical Systems, the $US6.2 billion Wisconsin-based manufacturer of MRI, CT scan, ultrasound and mammography equipment, was leading its industry and was selling, as it always had, directly to doctors and medical technicians.

But then the popcorn stands started popping - they grew quickly, had frighteningly large market caps and the money to do just about anything they wanted. "What got scary was when they started making partnerships and when WebMD and Healtheon actually merged together," Eckroth says.

Suddenly, Medical Systems became lost inside a cloud of undifferentiated medical equipment providers. Sites such as WebMD were aggregating unbiased information about all companies like GE Medical Systems, including its traditional OEM competitors Toshiba and Siemens, together on a single Web site. The sites reached both current GE customers and untapped prospects. To these buyers, GE looked like just another vendor.

A troubling scenario, to say the least. But if GE Medical Systems could offer the same level of service on the Web that its salespeople provided in person, and could transfer its system for fulfilling orders to the Internet, the equipment manufacturer could ensure its leadership position by offering another way to serve customers and attract new ones.

For instance, the aggregators auctioned used medical equipment on their sites. If Neoforma could do it, the DYB team surmised, GE Medical Systems could do it better because of its logistics capability. The Web auctions would also allow GE Medical Systems to reach formerly untapped markets: smaller domestic clinics and hospitals in Third World countries that don't have the money to spend on state-of-the-art stuff. "E-commerce opened up a whole new way for us to touch our customers, while the sales guys are still out there continuing to grow their marketspace."

Along the way, Eckroth and his team developed unique services specifically for the Internet. One such service allows medical technicians to download and test software for upgrading their MRIs off GEMedicalSystems.com. If they like it after the 30-day trial period, they can buy it. GE Medical Systems can now also monitor the productivity of its customers' equipment in real time via the Web; so if a machine goes down, GE Medical Systems' specialists are aware of the problem and can immediately work to bring it back up. On top of the real time monitoring, GE Medical Systems also posts diagnostic information such as the run rate and throughput of a machine online, which customers can access every morning through their personalised Web pages, to find out whether their machines are running at capacity. "We offer a full range of solutions that go beyond online transactions," says Eckroth. "These are all big productivity adds for the hospital."

Web-enabling services that enhance the productivity of customers is key to all GYB strategies. Take Tip TV, Medical Systems' satellite television network that broadcasts programs to teach doctors and clinicians how to use GE equipment to perform medical procedures. Eckroth's crew made the network accessible from any browser.

Before it went on the Web, doctors and clinicians had to sign up to attend a Tip TV class six weeks prior to ensure a spot. After the class, they would have to wait another several weeks before they received the results of their exams.

Tip TV went online at the end of December 1999. Doctors can now sign up for Web-based classes online any time, take tests in real time, get their results immediately and manage their credits - doctors and clinicians take 24 credits' worth of classes every two years to stay current on GE equipment. Medical Systems expanded the content by partnering with Internet startup HealthDream, in which it took equity stake, and with New England Journal of Medicine, which provides educational material.

"The Internet really wouldn't have destroyed our business, but the economics and the consolidation in health care would have," says Eckroth. "The Web helps us find a brand-new avenue to keep our business alive and to continue to make money out of it."

DYB Means Do It Yourself,

Only Better

Through DYB, GE's business units confronted risks and threats head on, transforming them into opportunities to open new markets, reach more customers, enhance services and develop technologies that could be applied across all businesses.

Rather than striking fear throughout the company, DYB helped give GE's old-line businesses new confidence that they can survive and thrive in the face of the Internet onslaught. "What we have since found is that aggregators in most of the businesses in which we play are not going to survive," says Reiner. The reason is that most industries have only a few big suppliers. If one of the big players doesn't play, the aggregator will lose credibility fast. When the aggregator doesn't aggregate everyone, it doesn't add much value."

The Internet hasn't changed the basic wants of customers, argues Reiner. "We concluded that the biggest thing customers wanted was fulfilment and brand. An aggregator can provide neither of those. PlasticsNet is a Web site. They've got nothing else but that."

Meet the Wizard

As part of GE's effort to improve the way it serves customers - and prevent its merchandise from being completely commoditised - the company has developed wizards, applications that give customers answers to their questions about GE products over the Web. GE uses its wizards to dazzle all of its customers, from amateur chefs who want to know the best way to roast a chicken in an Advantium oven to medical technicians who hunger to improve the efficiency of their MRI equipment.

GE Medical Systems is using wizards to boost the productivity of its customers and make money. Joe Eckroth, CIO of the Wisconsin-based business, explains that in an effort to cut their costs, hospitals are insourcing the support and management of equipment that they had previously outsourced to GE. Though they're doing the maintenance internally, the medical technicians still need advice on how to maintain their machines. To address this need, GE developed a self-service system for its Web site where technicians can find answers to their questions, such as how to improve the output of their MRI. All they have to do is indicate the results they're currently getting, then the wizard guides them through ways to they can improve the performance. It also shows the technician the results from other hospitals that use the same equipment.

"It's a better value proposition for the hospital and for us," says Eckroth. "They continue to get more productive, and we find a way for them to continue to need us. As they buy this intellect over the Web, we continue to have a revenue stream." -- M LevinsonGE's Best Practices Focus Your e-business applications should focus on how your customers can grow their business, streamline processes or reduce costs.

Speed Matters Make sure what you're offering customers via the Web, whether they're B2B or B2C, is faster, cheaper and better than any other delivery mechanism.

Value New Internet services should enhance value for existing customers rather than simply reaching new ones. -- M Levinson

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