GE CEO Jeff Immelt on the Future of GE-and of American Manufacturing
Not long ago, materials were cheap and labor was expensive. Today, the reverse is true, which is why it makes sense to re-shore production in many sectors. But more importantly, the product is increasingly part of the process, driving more companies to embed their know-how and innovativeness with the product itself, says GE CEO Jeff Immelt. That and the prospect of cheaper energy due to the fracking revolution will boost manufacturing in America.
March 10 2014 by JP Donlon
And the last one is regulation. If we want jobs, we have way too much regulation. It’s grown geometrically over the past 20 years. Those are the four things that any government must stay focused on. And this is true globally. If you formed another council today, there are not 17 other ideas besides these four that would be as critical.
Did you ever mention the necessity to roll back regulation to the White House? What reaction did you get?
I’m not here to go down the political path. What we try to do is show projects, not debate policy or philosophy about the EPA or FDA or things like that. But, for example, when you go to do a deep seaport in Charleston and it takes eight years to get permits for it, there’s something wrong. Civilization has been doing deep seaports since the ancient Egyptians. So there ought to be a better way to get things done. Eight years isn’t what success looks like.
The U.S. has one advantage in the fact that states are now the entrepreneurs. If Texas is getting all the jobs and Connecticut isn’t, maybe that should tell us something. GE is so broad that we’re in every state; and let me tell you, there are a lot of differences between Connecticut and Texas. If you’re not willing to hustle and compete every day, you’re going to lose. Government is now the same way. Those of us who are global travelers and see what the world is doing see the opportunity cost of doing nothing. Our job [as CEOs], is to be able to look our employees in the eye and say, ‘you’re going to be able to compete any time, any place, with anybody. We’re going to make that commitment to you.’ That’s the best we can do as business leaders.
You have said it might not be possible to do a whole jet engine using 3D printing but that one can do enough content to shrink development by as much as 50 percent and maybe even take 25 percent of the cost out of the engine. What has been your experience, not just with engines but other parts of your business?
Most of what’s happening with additive manufacturing has been in consumer products. For example, how do you make the iPad casing better or things like that. This is going to take maybe a decade to evolve. But we’ve got 10 parts that are going into the next-generation engine—let’s say the G90 or Leap X engine. The most sophisticated case we have right now is a fuel nozzle that’s going from 28 parts down to 1. The scrap and time savings are huge. A decade from now, you might see as much as 25 percent of an engine made through additive manufacturing. It will likely begin with uniquely shaped parts, like a calumniator and a CT scanner. These are very highly welded that normally involve a lot of scrap. In addition, we acquired a company called Morris Engineering in Cincinnati because it is an entrepreneurial manufacturer. We needed some entrepreneurial manufacturing spirit inside GE, so we had to acquire some of that talent. We may have to acquire more.
The second thing we’ll see is a lot of opportunity for 3D printing in repair shops. We do a lot of locomotive repairs and a lot of healthcare engine repairs. The ability to do a one-off part in a continuous flow will offer great advantage over the next decade.
In addition to additive manufacturing, we’ll be spending a lot of R&D on materials, novel processing, welding and braising. Five years ago, we spent $50 million a year on manufacturing technology—pure technology. I bet now we spend close to a half a billion dollars a year on manufacturing technology. Let me explain. Each time you launch a new engine, you go down a learning curve. If we can take six months out of the learning curve, that’s tens of millions of dollars of profit at GE. So we’re spending a lot of time trying to think of how to better achieve that [opportunity].
A lot of readers tell us that it’s increasingly difficult to find skilled workers. Maybe you don’t feel it as acutely as they do, but describe the worker who we need for the future and what steps GE is taking to try to secure that type of person.
Waves of skilled workers have been retiring, starting at least 30 years ago. It’s particularly acute in industries like the oil and gas business. About two or three years ago, we initiated apprenticeship programs like those in Germany and those we had in GE going back decades. In addition, we embrace the community colleges in a very significant way. For example, in Schenectady, New York, we have Hudson Valley Community College and in Cincinnati we’ve got Cincinnati College. The kids work four hours and then attend school six hours. The community college programs are critical for us.
Thirdly, we’ve made a commitment to hire 1,000 veterans every year. We’re now finishing our second year with three more years to go. We’re trying to provide the bridge between what they’ve been trained to do and what they can do next. About a month ago, I was up in our aviation plant, in Burlington, Vermont. The stations now are a combination of automation and physical work. But without a strong computer background, you’re not going to be able to do what’s required. Tomorrow’s production worker will have to know lean manufacturing, teaming and any number of social skills in addition to physical skills and computer skills.
GE is among the few companies that can handle this [situation] by ourselves, but big businesses and small businesses alike ought to be working together on ways to get these pipelines really working. There are anywhere from 1.5 to 2 million jobs open in the U.S. as we sit here today that are not being filled. For example, GE Capital has a lot of customers who run trucking companies. There isn’t a trucking company in the country that doesn’t have dozens of open jobs that they can’t find people for.
You once said that using big data productively is the Holy Grail for you, particularly since GE has invested $1 billion in creating big data services. Share some of your experience about getting one’s arms around this [opportunity].
This is actually something worth thinking about if you’re an industrial company. I can’t say there was any one day when suddenly something became obvious, but it had been gnawing at me for a while. I became increasingly aware that more and more sensors and computing devices have been integrated into our products. Let’s say you’re flying in a Boeing 737 and you look out at the engine. It has maybe 20 sensors in it. Gas turbines might have 50 sensors, a numeric scanner has continuous data. One turbine blade is probably capable of generating a couple gigabytes of data a day. So you have this incredible data coming together on one site. The physical world and the analytical world are coming together. This is a big theme.
Number two, from a customer standpoint, increasingly our customers talk about their relationship with us in terms of the ability to not have any unplanned downtime. So increasingly in the businesses we’re in, there are these critical infrastructure technologies where the entire customer relationship is defined in terms of availability, productivity and output—with more of our service agreements being aligned with [these issues].
Coming to grips with this is hard. So this is how we’ve thought about it. We went to Silicon Valley and hired 1,000 people who joined GE to help us with this. Our thesis is, “yeah, you could go to work for the next social media site or you could come to work for us and figure out the future of flight or the future of healthcare.” So far, we’ve been able to attract people. We embed it in our service agreements. We don’t look at this as an adjunct business; we look at this as a way to enhance the value of our service business. We’ve launched maybe 30 different applications; we’re at about a $6 million run rate at the end of this year of new value in our service contracts. Everything I’ve seen so far says if you’re an industrial company, this is something you better understand, you’d better own, you better think about.
Who’s going to have the analytical layer around your products? We’ve decided that we need to fight for that and it’s taken a lot of time and effort. Now, we don’t want to be an Oracle or Microsoft. But I want our gas turbines to operate better than anyone else’s because we have all the information about how the analytics work around that asset. And in order to do that, we had to make incremental investments in data science and user interface to make it real.
What role does the “Internet of Things,” or what GE calls the “Industrial Internet,” play in GE’s future?
If you run an industrial company, analytics are going to be a part of your future. So if you’re thinking that you won’t have to become astute on data, software and analytics, you’re in the wrong place. It will permeate all of our industrial businesses.
The second thing I’d say is you will probably have to go outside to get the right talent to allow you to make it as successful as it can possibly be. And the third thing I would say is get on with it now. No matter what you call it, it’s going to have a meaningful impact in your customer interface and the way you treat employees.
Sensors are in all our products, so we get continuous data off of our installed base of gas turbines, jet engines and MR scanners. You have to reach agreements with your customers about how the data gets used and how it gets treated. For example, if we can save one percent on fuel efficiency in our installed base of jet engines, that’s worth $3 billion to airlines around the world. In the industrial world, small changes have a huge impact in terms of the outcomes for customers. And that to me is where the significance lies. For most of my GE career, I thought there were industrial companies and software companies and never the two shall meet. And all of us have software suppliers. Oracle has been a GE supplier for a long time. They’ll say to you, “Don’t worry about any of this stuff, we’ll do it for you.” But if you abdicate to that point, if you leave the analytics to your software supplier, you will lose your customer interface. And maybe [you’ll] lose your customer value proposition. You’re not going to be able to generate the right outcomes for your customers. You do this at your own peril.
In recent speeches, President Obama advances the issue of income inequality. One can barely avoid media reports comparing CEO compensation to the lowest-paid worker. Switzerland, of all places, just had a referendum about capping CEO compensation. Is this something that CEOs should be concerned with? And what, if anything, should they do?
The answer to the first question is yes. If you’re in this room, you know one of the things you never learn until you’re CEO is the importance of context. I knew how to run a business when I became CEO of GE. But I didn’t really know how GE fit within the world until I became CEO. You can’t teach people; you’ve got to kind of learn it on your own. So if you look, broadly speaking, people have been through a lot. They’ve lost their faith in big institutions, big companies and government. So we’re naive in this room if we don’t think that people are pissed and that’s going to last a while and it manifests itself in a lot of different ways.
Then you say, okay, what’s the road out? What is the pathway to a solution? If you reduce CEO compensation and double everyone else’s salary and the growth of the U.S. is zero, there’s not one problem that gets solved. Wealth and equity, healthcare, social security—I could go down the list. Not one of these problems gets solved. If the economy can grow 3.5 percent consistently, then we’ve gone a long way to resolve this.
So from 1982 to 2007, the U.S. economy grew 4 percent a year with no inflation. Give us a few of those years and you’ll see more jobs, better paying jobs, lower deficit and more opportunity. We will all have to do it in our own way in our own companies and be thoughtful about it, and none of us can complain about the way people feel.
But the only way out ultimately is to make the economy grow faster. And that means competitiveness; it means exporting and it means all kinds of things that the people in this room can do more about than the government can do over time.