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General Electric’s Lessons in Product Innovation

Tracking the milestones in a century of strategic commitment.

(originally published by Booz & Company)

Title: The Evolution of GE’s Product Innovation Strategy

Authors: Heath Downie and Adela J. McMurray (both RMIT School of Management)

Publisher: Proceedings of the 19th International Business Research Conference

Date Published: November 2012

Of the 12 firms that constituted the original Dow Jones Industrial Average in 1896, General Electric Company (GE) is the only one still on the list. For more than a century, it has been one of the most successful companies in the world, admired for its products, culture, and series of strong chief executives.

This paper focuses on one of the key reasons for that success: GE’s commitment to product innovation. The authors reviewed all of the company’s annual reports—from 1892, the year GE was founded, to 2011—to tally direct and indirect references to its innovation strategies. (They note that it wasn’t until the 1949 report that the first formal reference to innovation appeared, a reflection of the pioneering work performed during the previous decade by economist Joseph Schumpeter, who defined the concept.) Though the only specific company they focused on was GE, the researchers also studied the general body of literature on innovation that has accumulated over the years.

In creating a timeline of milestones at GE, they show how the company’s innovation strategies adapted to shifting market conditions and advances in technology. But the chronology also reveals the unwavering nature of GE’s commitment to breaking new ground—in big steps or small, and eventually with services as well as products—a stance that has paid off in “sustained growth, wealth creation and global competitive positioning,” the authors write.

The company’s story offers long-term lessons to other large global firms, the authors say, on “the evolution of innovation strategy building for success.” At its core, they add, GE’s success has been underwritten by large investments in research and development, with an emphasis on “repeated, continuous innovation.” The investments have been made in good times and bad; the company regularly plows a high percentage of sales into R&D. And when globalization took hold, the investments went global as well—in recent years, GE has opened R&D centers in Brazil, China, Germany, and India, the study notes.

The consistency of GE’s commitment to product innovation was made possible by the steadiness of the company’s leadership, say the authors, who point out that the company has had only 10 chief executives in its long history. Leader after leader shared a vision for growth that emphasized the “quality, speed, [and] execution” of GE’s innovation efforts. Their involvement went beyond allocating funding; each CEO devoted a great deal of attention to the development of new products, services, and processes in a variety of ways.

For example, Charles Coffin, who led the company from its founding until 1922, pursued rapid growth through fast-paced invention, backed by aggressive patent protection. In 1900, he opened GE’s first R&D lab. One of its earliest projects was to defend the company’s primary asset at the time, incandescent lighting, through innovation. The result was the development of the ductile tungsten filament, which made the lights more durable. The filament “secured GE’s technological leadership,” the authors write, and epitomized both the importance of research-driven innovation at the company and the company’s ability to bring that innovation to the marketplace.

Under Coffin’s leadership, GE began to design products “to meet novel conditions,” which is to say it developed a strategy of product differentiation. And it started to leverage its core technologies to create new businesses, eventually moving, decades later, into power turbines and jet engines. R&D became essential to GE’s innovation strategy, the authors say, because the company understood that basic and applied research was fundamental to every field it wanted to explore. 

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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