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On a slushy late-January day in Boston, Jeffrey R. Immelt, chief executive officer of General Electric Co., stood before an audience of investors at Northeastern University and proclaimed: “We really believe we can take this company and grow [revenue] by 10 or 15 billion dollars every year.” Talk about pressure! What makes Immelt think he can possibly accomplish that task? The theory is simplicity itself: GE will help its customers succeed with their customers. GE (www.ge.com) won’t de-emphasize the manufacturing prowess that helped generate $126 billion of revenue in 2001 from what has been described as a blob of 35 operating companies that make everything from jet engines to light bulbs to locomotives to NBC sitcoms. Rather, GE will sell a host of services related to those products, to help customers ease operational snarls and improve relations with their own customers. For instance, at Home Depot (www.homedepot.com), GE Capital Corp. has installed systems that let shoppers apply for a home-improvement loan and know the answer in 10 minutes. Previously, Home Depot’s customers might have needed several days to line up a loan—by which point they would have left the store and might have lost the impulse to buy a bunch of tools and materials so they could get started. GE Appliances, meanwhile, has taken over responsibility for managing Home Depot’s inventory levels and has begun delivering GE ranges and refrigerators directly to Home Depot customers. GE Capital has also helped Home Depot cut costs by reducing to four, from more than 40, the number of people who stock GE products in each home-repair store. In the process, in addition to selling services, GE has greatly increased its share of Home Depot’s sales. GE expects to score similar successes with other customers by becoming more deeply involved in their operations. Management thinker Michael Hammer dubs this GE’s “growth strategy for a no-growth world.” GE is also planning to generate growth through acquisitions, but reaching Immelt’s target still won’t be easy. Although GE has increased its revenue by more than $50 billion over the past five years, growth slowed to 4% in 2001, and sales actually declined 2.9% in the fourth quarter. But Immelt can point to successes, despite the difficulties that beset the world economy last year. He boosted operating profit to 19.6% of revenue from 18.9% in 2000 by slashing GE’s payrolls, dumping some businesses, and chopping “back-office” costs—which he vowed will continue to decrease 7% a year. “It is clear that GE has an increased focus on the customer that can only result in better growth,” says William Fiala, an analyst with the investment firm Edward Jones (www.edwardjones.com). GE’s journey toward its current strategy—which it calls “at the customer for the customer”—began with its adoption six years ago of Six Sigma, a program for measuring and reducing defects in products and processes. The average company, like GE in the early ’90s, runs at about Three Sigma, or 66,807 defects per million. Operating at Six Sigma means there are only 3.4 defects per million, or darn near perfection. Last year alone, GE estimates, Six Sigma projects resulted in an estimated $1.5 billion in productivity and cost savings dropping to its bottom line. (Legendary GE CEO Jack Welch placed such emphasis on Six Sigma that Piet van Abeelen, GE’s vice president of Six Sigma Quality, occupies the only corporate staff vice presidency created in Welch’s 18-year tenure in the top job. Van Abeelen laughs and says, “I’m not sure I should be so proud of that.”) Despite the internal benefits, though, about three years ago GE realized—with more than a little embarrassment—that all its efforts were doing remarkably little to improve the lot of customers. Van Abeelen began encouraging GE’s executives to focus on what he calls “span.” The idea is that when GE services an engine for an airline customer, the airline doesn’t care just about how long the work takes within GE—which is what GE was measuring and trying to reduce under its Six Sigma program. Instead, the airline cares about the whole process, from the moment the engine is taken off the wing until the moment it is reattached. The variation between when the airline wants the engine back, and when it gets it, is what van Abeelen defined as “span.” Span reduction became a rallying cry. The plastics business reduced its span from 50 days to five. Aircraft engines’ span dropped from 80 days to five. Mortgage insurance span went from 54 days to one. In what van Abeelen calls “a pretty logical business extension,” GE is deploying its panoply of Six Sigma teachers to customer sites. Last year, GE conducted thousands of Six Sigma engagements for customers (the company said it doesn’t track the number companywide). Now GE’s customers are closing the gap with their customers by also reducing “span.” For example, at one hospital it once took as long as three weeks to confirm an MRI appointment. After training by GE, the process takes one call. Van Abeelen, who formerly ran GE’s global plastics-manufacturing operations, says customers average “somewhere around $100,000” in savings from each engagement. He declines to disclose just what GE charges customers but says bluntly, “We don’t do this for fun. We do this for them for the money.” With Six Sigma as the core, GE expanded efforts in 1998, providing customers with a broader array of consulting services and conducting joint product-development projects. GE Medical Systems, where the approach got its start, shows how GE is using Six Sigma to help customers as it makes its forced march toward the growth targets set by Immelt—who also told his Boston audience that GE Medical Systems will soon be two to three times larger than its current $7 billion in annual revenue. The GE unit’s customers face daunting challenges. The advent of managed-care organizations has meant the health-care sector now labors under much lower reimbursement levels and has gone through extensive consolidations. Nevertheless, their customers (patients) seek ever-higher levels of quality and service. And these customers have a lot more choices, hospital executives say. To help its customers ease some of the pressures, GE Medical Systems conducted 3,165 Six Sigma projects in 2001. Yale-New Haven Hospital in New Haven, Conn., represents what might be called the base level of Six Sigma support. The renowned teaching and research hospital, which just finished the first year of its work with GE, had the company train 15 teachers who will handle future proselytizing. GE had the teachers work on four training projects within the hospital. Some were mundane, involving whether the right surgical instruments were always available inside an intensive-care-unit operating suite, or whether a patient trying to schedule a radiology appointment got through to a human within 20 seconds of calling. Others involved more critical issues, such as staffing for the newborn-care unit and an effort to lower blood infection rates in another surgical unit. In each case, error rates began to show vast improvement, says Richard Stahl, associate chief of staff at Yale-New Haven. “You can’t take a step in Six Sigma without statistically valid data,” he says. “It keeps you from going down the wrong path.” In perhaps the most critical project, Dr. Stahl says that after a new procedure was designed the occurrence of infections “began an abrupt and dramatic change” for the better—and not just for Yale-New Haven’s patients. The added two weeks (on average) that an infected patient remains in the hospital tallies up to something on the order of $60,000 in extra costs that are absorbed by the hospital. The lengthened stay also represents lost revenue: Hospital beds remain full of recuperating patients, and new surgical admissions are booked somewhere else. Other GE businesses now offer similar help to customers. GE Capital first worked to cut to a few hours, from two days, the time it took to approve loans to office-equipment dealers. Then, it realized that the dealers barely noticed. The problem was that it still took the dealers an average of 47 days to get paid by their customers. So GE worked with the dealers to cut that time to less than 25 days. Dealers were delighted—and GE is getting more business from them than ever. Similarly, GE consultants worked with a small auto-parts supplier that buys raw materials and commercial equipment from the company. As a result, the supplier managed to collect an amazing $2 million in past-due receivables. GE Transportation Systems’ customers no longer just buy a locomotive. The unit helps run customers’ maintenance shops, assists them in routing and scheduling trains, and keeps track of each locomotive’s location, constantly. In a coals-to-Newcastle project, GE is even conducting Six Sigma work at Dell Computer Corp. (www.dell.com), which is justly famous for its slick, build-to-order business model. What can GE possibly teach Dell about efficient logistics? A GE spokesman says it’s “too early” to tell that story. Dell’s worldwide vice president of logistics declined to be interviewed on the joint effort. Hammer, the management authority, who has written extensively about GE’s practices, says companies often look at most of a customer’s problems and think, “We’re not responsible for that. The genius of Welch was [to say] we’re going to solve the problem anyway.” Arguing that an approach like GE’s can happen only if imposed from the top down, Hammer adds that “I don’t think the GE folks are intrinsically more innovative or ingenious than anyone else. It’s simply that Jack Welch really demanded [incredible] growth.” Michael Teasdale, the most senior Six Sigma teacher at GE Medical Systems, says that being so involved with customers means GE doesn’t end up simply asking customers what they want from, say, a new computer tomography scanner. Instead, it learns exactly how many images per second the CT scanner needs to generate to get a precise image for a heart examination, while still keeping the price under control. As evidence of the success of GE’s approach, he points to GE’s newest CT scanner, called LightSpeed, which is the first so-called multislice scanner, meaning it gives doctors numerous views at varying depths inside the body. With it, Teasdale says, a doctor can “travel down through the esophagus and look into the lungs.” The scanner provides greater definition in 17 seconds than a conventional CT scanner, which takes three minutes. “Working elbow to elbow with customers builds our internal knowledge of what makes the customer tick,” Teasdale says. “It improves customer satisfaction and loyalty. And it gives us a competitive edge.” Walter H. Ettinger, executive vice president of Virtua Health (www.virtua.org), will attest to the satisfaction part of that statement. He says that last year alone GE added about $6 million to the bottom line at Virtua, a nonprofit hospital network that serves southern New Jersey. Virtua has annual revenue of about $500 million and, if it is like most such organizations in the U.S., squeaks by on about a 3% margin—in other words, an operating profit of about $15 million a year before GE came along. Among other things, GE helped Virtua design a procedure for certain reimbursements. To explain: Managed-care companies pay hospitals a predetermined amount for each day of a patient’s stay. This is supposed to cover a hospital’s costs and profits. If an especially costly medication is required, hospitals are supposed to be reimbursed at cost. But Virtua wasn’t even attempting to collect those expenses because “we didn’t have a good method for recognizing [when reimbursable expenses were incurred] and billing the managed-care companies,” Dr. Ettinger says. Some $4 million a year wasn’t billed, and “we were eating all of that.” No more. Dr. Ettinger says the hospital system has learned a lot about running a taut ship. “We’ve worked with the best, highest-performing company in the world and adopted its business principles,” he says. Asked what he could do with Virtua’s $6 million in savings, Dr. Ettinger says: “There are so many things we need. I could build an emergency room. I could give all our nurses a significant raise. Or I could buy four state-of-the-art CAT scanners.” The last, no doubt, would be manufactured by GE.
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