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Published: February 28, 2006

 
 

Sharpening Your Business Acumen

What do we have to do to play a role?
For GE to become a general store for emerging markets, it had to recognize that selling infrastructure products and services in those countries was not the same as selling power plants to utilities in America. For one thing, a government’s decision-making process is very different from that of a corporate buyer. Government agencies are often fragmented, and key people turn over regularly. And many nations have no financing. Each contract could entail a long process fraught with financial and political uncertainty. To succeed in this milieu, GE would need a mind-set, a set of competencies, and an organizational form different from those of its past.

So GE began to shape its business around marketing, selling, building, installing, financing, and servicing infrastructure products. In the summer of 2005, GE consolidated its 11 business units into six, including the newly formed GE Infrastructure, which combines the aircraft engines, energy, oil and gas, rail, and water technology businesses. Mr. Immelt also moved the requisite GE Capital financing skills into GE Infrastructure, recognizing that financing is a fundamental element behind selling big-ticket infrastructure solutions.

But creating a new organization means more than reshuffling reporting structures. For GE to be able to build a leadership pipeline uniquely qualified and experienced in emerging markets, many new hires had to come from within these markets themselves. With an increasing number of employees from non-U.S. locations, GE faces a new set of diversity issues that affect how the company hires, develops, rewards, promotes, and fires leaders. Today, half of the participants in the highest-level executive development class at GE’s famed Crotonville leadership center come from outside the U.S.

Another important competency to build is risk management. GE Infrastructure faces risks such as delays caused by political machinations or the volatility of currency exchange rates over the five or 10 years that a contract might last. Incorporating GE Capital’s expertise in risk management, the Infrastructure unit developed this competency, too. Few companies in the world can match the competitive advantage that General Electric is building, step-by-step, as it puts all of these competencies together.

What do we do next?
Whether it’s lobbying European governments for uniform emissions standards, pinpointing acquisitions to build a financial-information provider business, correctly determining the pricing and digital rights of music downloads, or developing new competencies to operate in emerging markets, companies should begin to execute their new priorities with a plan for the coming 12 months.

The process of executing the new direction often begins with resource allocation. When Ivan Seidenberg, chief executive of Verizon, announced in 2004 that the company would make a huge investment — initially $2 billion — to replace the copper phone wires coming into America’s homes with fiber-optic cable, Fortune magazine wondered if he was “pulling a megabluff.” It was a risky move, but Mr. Seidenberg could see the big picture.

Technological change and deregulation in the telecommunications industry had changed every bit of Verizon’s business. The phone business is no longer the voice business; telephone companies, cable companies, satellite television providers, voice-over-IP telephony services, and upstart technology firms had each begun to offer a wide portfolio of telephony, video, and Internet services — and content.

In addition, Verizon’s sophisticated marketing metrics indicated that “we were losing control and influence with our customers,” Mr. Seidenberg later recalled. Broadband fiber optics allowed so many attractive new applications that he saw “no end to the desire for speed, bandwidth, and customer choice — and the change only excites us to move faster.”

This investment will not generate net profits in the next quarter’s or even the next year’s earnings statement, so Mr. Seidenberg had to convince investors and executives of the importance of the investment. He also had to lay out operating metrics for the fiber-optic build-out, a different set of measures from those used by other operating divisions. To monitor progress, the company had to learn to track and analyze answers to such questions as: When will the build-out be completed in specific areas? Is it on time and on budget? What are the customer adoption and churn rates? What is the pricing plan and what are customer usage rates? What collaborative arrangements are needed with whom regarding content? What competitive reactions from nontraditional competitors might there be, and when?

 
 
 
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Resources

  1. Kenneth R. Andrews, The Concept of Corporate Strategy (Dow Jones/Irwin, 1971): Classic strategy manual, still relevant in a turbulent world.
  2. Larry Bossidy and Ram Charan, Confronting Reality: Doing What Matters to Get Things Right (Crown Business, 2004): How to define an ongoing, external-world-savvy strategy.
  3. Ram Charan, “Boardroom Supports,” s+b, Winter 2003: How governance and leadership development can align. Click here.
  4. Randall Rothenberg, “Ram Charan: The Thought Leader Interview,” s+b, Fall 2004: On building better executives and continuous transformation. Click here.
  5. Jack Welch with Suzy Welch, Winning (HarperBusiness, 2005): Guide to acumen in practice.