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(originally published by Booz & Company)


General Electric’s Lessons in Product Innovation

Even during the Depression years, the company managed to find the money to back its belief in R&D. One way it kept the funds flowing was to create the GE Credit Corporation, in 1932, which helped finance the sale of the company’s appliances.

After World War II, GE decentralized its organization and adopted a strategy of diversifying its products and services. It could sell those products at lower cost than many of its competitors, thanks to efficiencies in production and knowledge from R&D that had accumulated over the years. By 1947, the authors note, “GE had formally established a policy of selling its products at the [lowest] possible price consistent with a yield of reasonable profit.”

In the 1950s, it stressed the need to be innovative in services as well as products, leveraging its manufacturing expertise to sell “a combined system of products and services jointly capable of fulfilling specific client demand.”

Under the leadership of Ralph J. Cordiner, the company’s product and service portfolio began an expansion in the 1960s that continued for decades, taking the company into areas as varied as space, electronics, automation, power plants, chemicals, plastics, computers, and nuclear technology.

The company’s innovation efforts morphed in other ways as well. Jack Welch used the 1990s, the authors say, to focus less on long-range programs of product development and more “on speed to market and inventions originating through acquisitions of other companies… [or] alliances.” And in 2000, after spending most of its history launching products in the United States and then quickly introducing them abroad, GE started to create products specifically for local and emerging markets.

Under the current CEO, Jeffrey Immelt, US$16 billion was earmarked for R&D between 2010 and 2012, a huge investment amounting to about 6 percent of the company’s industrial revenues. In the last few years, GE has funded efforts in reverse innovation and open innovation to prime its future growth.

GE’s competitive advantage has always been driven by research, producing countless incremental improvements and more than a few major breakthroughs, the authors conclude. The scope and reach of R&D across the company’s many diverse businesses has helped to keep its competitors at bay by “keeping the barriers to entry high.”

Bottom Line:
Since the company’s inception more than a century ago, General Electric has had a focus on product innovation that has been a key component of its success. The firm’s commitment to innovation, underwritten by large expenditures for research and development, has remained remarkably consistent over time.

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