GE learns new tricks in India
This July, John Flannery, the new General Electric chief in India, and his six division leaders headed into a conference room in GE's John F. Welch Technology Centre in Bangalore, the newest and largest research location for the giant $157 billion US corporation. Their calendars were blocked for three days for a 'Session T'. T stands for technology, but the import of the meeting was not lost on anybody in GE India. It was for the first time that such a face-off for new products and solutions was being held in India. The presentations at such sessions, held regularly at other GE research centres in Munich, Shanghai or Niskayuna in New York, can be tough and intense and the Bangalore session was no different.
At the starting blocks, rules for the Bangalore contest were clear: for one, ideas dreamt up in a lab were not welcome. "We had our market-facing people working with the tech folks at Bangalore," says Flannery, 49, a GE veteran of 23 years. Dozens of ideas were presented and were prioritised by yardsticks that were nuanced, if not entirely new, in the GE research and development culture. In health care, for instance, the lens was brought to focus on whether a new product would reduce cost, improve quality and increase access, besides the usual questions around investment, market size and payback.
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Twenty product ideas across health care, wind energy and water purification were short-listed at GE India's first Session T and are in various stages of development today. If successful, they will add substantively to the small number developed or manufactured here and sold in India (see What's Changing at GE on page 58) and other emerging countries.
These are early days still, but the ground beneath GE in India has begun to move. The world's 13th-largest company has historically been unafraid to change, and it is moulting yet again in its most ambitious markets. This time, the change hinges on emerging economies that will account for the bulk of the growth in its business globally as the developed world hobbles out of a near-Depression and the risk of national bankruptcies . The Organization for Economic Cooperation and Development predicts that developed economies will have a 43 per cent share in global GDP by 2030, down from 60 per cent in 2000. Earlier this month, the International Monetary Fund noted that India and China are leading a robust global recovery.
The test-bed for GE in this ambitious change is India. A market the company believes will be a gateway into emerging markets as diverse as Lima or Luang Prabang, and Banjul or Banda Aceh as populations in under-developed countries gain more purchasing power and are able to afford new products and services. To be sure, GE is not the first US corporation to make India the centre of gravity in its globalisation effort.
Technology companies such as Cisco and IBM have been pushing the envelope for some years now. Cisco has its No. 2 ranked executive Wim Elfrink and a globalisation team based in Bangalore while one-third of IBM's workers are in India. The difference is that GE is the first manufacturing leviathan - it towers over IBM's $100 billion revenues and Cisco's $36 billion - to make that leap of faith into India, and to wager that its biggest revenue earners, industrial products like gas and steam turbines, jet engines, and health care devices, will also add muscle to India's sinew.
GE Teaches ItselfGE did not exactly ease into its "Go India" mode. It was forced into it. For Chairman and CEO Jeff Immelt, the 2008 financial meltdown and this year's Eurozone scare made clear that businesses focused on just developed markets will have to strain very hard to grow. (See interview with Immelt "India a $10 billion Market in Five Years" on page 64.) For any American CEO scouting India, it was evident that gross domestic product, or GDP, growth of more than nine per cent had to happen because some parts of the country were roaring away at rates of between 15 and 20 per cent to balance the backward pockets. GE was not capitalising on this opportunity, white-hot even when compared with China, and Immelt saw the writing on the wall when the slowdown almost sank GE's financial services business.
For Harvard Business School alumnus Immelt, it was clear that GE needed to be nimble-footed in India. GE India's heads of businesses such as energy, infrastructure, health care, aviation, and capital had traditionally reported in to faraway global managers. Time and management bandwidth was wasted on decisions that should have been made locally. Immelt, who worries that his senior executives do not take a tough "my way or the highway" posture often enough, did not hesitate.
"Our traditional structure was not doing justice to the opportunity here," says David Lobo, Director of Human Resources, GE India. What that meant was an overhaul, leading to a structure that would have the business heads in India reporting into a local CEO with a dotted-line relationship with the global heads of those businesses. In other words, a separate profit and loss centre was created in India within the GE universe, not subsumed in parts into various businesses.
WHAT'S CHANGING AT GE Localisation Dominates Agenda
Made in India for the World
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"If John (Flannery) and we can grow this market at 30 per cent for five years, you know what? We are going to organise other regions like we organise it here," Immelt says. (See www.businesstoday.in/immelt for the full transcript of the interview)
Immelt is serious, and his choice of Flannery underlines his seriousness: the India CEO, who started work from the company's Gurgaon headquarters in January, is a senior officer of the vice president level - one of the 20 or so executives in the core leadership group globally.
In picking Flannery, Immelt addressed what many thought was a weak link in GE India. Tejpreet "TP" Singh Chopra, the incumbent National Executive, was a bright star but at 39, seen as too young in the system and not sufficiently connected to GE's global business heads. Flannery came in from being Asia Pacific President and CEO of GE Capital, the company's financial services business.
Scott Bayman, a GE veteran who anointed Chopra as his successor in India in 2007, is candid in hindsight. "TP was not as senior within GE, didn't have the experience that I had or John has. Frankly, my view is that he may have moved too quickly into that role. Maybe we needed a more senior guy. I think from an organisation perspective, it would have been more effective," he said in a phone interview from Chicago. Chopra, who now heads his own cleanpower firm, Bharat Light and Power, did not want to react to that assessment.
GE's India numbers show a mismatch with the targets it set itself. In a Business Today cover story (archives.digitaltoday.in/businesstoday /20050605) in June 2005, the company's revenue goal for 2010 was $5 billion. The India business today is a shade under $3 billion. The company clearly thinks the numbers could have been better. Lobo, the HR head, believes that two projects - the business process outsourcing arm that is today Genpact and the Bangalore R&D centre - took a lot of management attention and GE "didn't focus as much as we should have on operating businesses".
The Future is Local
All that is going to change, insists Flannery. Immelt has set a 30 per cent growth target for GE India over the next five years - in effect, grow the India business to over $10 billion by 2015. Even after discounting the "stretch" element while such targets are set, that might seem a tough number for most. For Flannery, though, they are achievable. "It is not as if we have to split atoms, it is execution that counts," he says in his office, which has cardboard cartons from his earlier assignment still piled up against the window. Immelt has told him to "push hard and break some glass", he adds.
Flannery, who confesses to being maniacal with what he calls a "growth playbook" for GE India over the next three years, gives an example from the company's wind energy line on what focus and localisation can do for a business. In five years the company had sold one turbine in India. "Everything about it was wrong; it was slow, it was expensive," he says.
About four months of a redesign and local component sourcing later, GE has two orders and is negotiating a third. The localisation agenda is being pushed further: GE will open a manufacturing facility later this year in Pune and has plans to take localisation levels up to 80 per cent, says Kishore Jayaraman, President and CEO of GE Energy, India Region. He will not say what the level of local sourcing the business is at currently, but Flannery says most businesses in India are running at a 10 to 20 per cent range and he intends pushing it up to 60 -85 per cent in three to five years.
Ajay Singha, a long-time watcher of US companies in India, compares the big GE push plus its plans to heavily procure locally with Suzuki Motor Co.'s joint venture in India in 1983. Maruti Suzuki triggered a revolution in India's automobile and auto components industry that today accounts for about onesixth of all manufacturing output in the country.
In addition, "think of the standardisation, quality assurance and everything the GE culture will bring to India," says Singha, Executive Director of the American Chambers of Commerce in India, a business lobby representing US firms.
This push on localisation is critical to GE's efforts to ramp up the pace of growth in India. The feedback the company persistently got from its customers was that its products were expensive, many features were not relevant locally, servicing was a multi-layered process and the company was slow to deal with. The oil and gas business - GE offers everything from oil well drills to refinery machinery - at the end of 2009 had 10 service engineers.
Vivek Venkatachalam, Country Leader for GE Oil & Gas, says: "After the customer complained, we'd raise a request, an engineer flew in from somewhere else ... it would take at least a week to get to the site. It was a very sub-optimal solution, especially if the customer did not have back-up equipment." Today, Venkatachalam has a team of 65 engineers and aims to expand to 200 in two years.
Another area that will thrive on a local focus, especially in other markets, is R&D. "We have to be open to the local market and do things for products locally," says Mark Little, Senior Vice President and Director for GE Global Research. "The 5,000 technologists at (JFWTC) Bangalore are spreading the benefits of India to the world."
A prime example is VScan, a portable ultrasound machine, whose development was led in India. The idea for the product came when Manipal Hospitals, a Bangalorebased customer, told GE that a scanning device as simple as a cellphone would have a huge market in rural India where most diagnosis is carried out with a thermometer and a stethoscope.
After the specifications were drawn up at Bangalore, GE had to go to Norway for telematics expertise, France for the user interface, the US for system integration, and China for manufacturing mojo. What has emerged is a device a little bigger than a smartphone, which assists physicians with point-of-care imaging capabilities. Each device costs Rs 5 lakh, but experts such as Navi Radjou, Executive Director of the Centre for India & Global Business at the Judge Business School at Cambridge University, predict that the retail price will halve when some feature iterations are made and the next version rolls out of China.
The speed of a local management, meanwhile, is evident in other areas. Over the past six months, GE India has signed four joint ventures (JVs) with Triveni Engineering in steam turbines, Bharat Heavy Electricals Ltd for centrifugal compressors , Kirloskar in reciprocating compressors, and Bharat Pumps. Two more are in the works, as is a 500,000 sq ft multiproduct facility that will make energy, health care, water and other products from the GE portfolio, in a yet to be identified location.
All this will see GE investing between $80 and 100 million. This does not include a surge in manpower; the India sales force is set to rise to some 2,200 from the current 700. Also not counted is fresh investment needed if a locomotive deal that GE has been doggedly chasing for several years or a nuclear energy deal come through. And then there could also be acquisitions.
So it is change, and more change, in store at the company, whose motto is "Imagination at work". India is just one of 160 countries where the Fairfield, Connecticut-based GE operates, and it will certainly test the "GE Way" that Immelt's predecessor Jack Welch stamped into management lore. If Immelt and Flannery pull it off, India will not be a new trick in GE's playbill: it will be the main act.
