Case Study: General Electric and Real Time

By Dave Lindorff  |  Posted 11-11-2002 Print Email
GE is squeezing time from the way it makes, buys and sells everything from plastic to jet engines. The cost savings are real. But going to real time will also trigger job losses and tougher management.

Gary Reiner, CIO of General Electric Co., leads a visitor over to the far side of his spacious office at GE's Fairfield, Conn., headquarters and takes a seat at a large table, on which the only objects are an unusually large keyboard and what looks like a PlayStation game controller. Before him, a huge, elongated flat-screen display panel is mounted on the wall. Like a kid at a game console, Reiner, in shirt-sleeves and open collar, punches a few keys. Suddenly at his fingertips and on display on the screen is an array of green, yellow and red which, on closer inspection, resolves itself into diagrams that signal the status of software applications critical to GE's day-to-day operations.

Reiner calls up the main screen for GE's plastics operation, which flashes a series of green lines (green is good) and a few yellow lines (which mean a certain operation is not running as efficiently as it could). At the moment, there are no red bars on the screen. Otherwise, Reiner says, he'd be pounding away at his own keyboard, sending an e-mail to the appropriate division manager asking for an immediate explanation.

Reiner's goal: to monitor, once every 15 minutes, GE's mission-critical operations—which, on his priority list, are sales, daily order rates, inventory levels and even savings from automation across the company's 13 different businesses around the globe. These "digital cockpits," graphical depictions of up-to-the-minute business performance across GE's landscape, are checked regularly by electronic robots that send test transactions through the system—tests that should take four seconds to complete, and which likewise trigger an automatic e-mail warning, or inquiry, when yellow or red becomes the color of the moment. "The idea is to respond faster to change, reduce cycle times and improve risk management," Reiner says. "We are not waiting for end-of-the-month or end-of-the-quarter or even end-of-the-week results anymore before we act. We now respond continuously."

Welcome to the frontlines of the real-time revolution, where response time means money. Since the dawn of machine automation, managers have sought to build processes that speed their ability to respond to change, but the real-time revolution promises to transform companies into complex sensing organizations that use everything from radio frequency sensors to global positioning satellites and worker-monitoring software to run everything from their in-house payroll departments to remote factories across the globe—and at speeds and split-second reaction times that, in some operations, will far exceed humans' ability to gather, process, analyze and respond on their own.

Driven by increasing pressure to cut costs and become faster and more responsive to increasing volatility in the marketplace, GE is one of a handful of giant corporations, from computer chipmaker Intel Corp. to Iberian fashion dynamo Inditex Group, that is fast becoming a digitized enterprise where every process, down to the activities of every production worker and the details of each minute financial transaction, is at least theoretically accessible to successive layers of plant managers and ultimately to top corporate managers.

It's a brave new world, and cockpits are just part of the equation: When GE started to digitize its business two years ago, it also began to buy and sell online and, more important, started creating a digital nervous system that connects anything and everything involved in the company's business—IT systems, factories and employees as well as suppliers, customers and products. GE's aim, says Reiner, "is to monitor everything in real time," whether by using sensors to gauge performance of jet engine machinery operated by GE's customers or tracking which customers paid on time and what it would take to get them to make their payments faster.

Reiner, who is leading GE's digitization drive and was the first GE executive to use the cockpit, calls GE's digitization strategy "e-buy, e-make and e-sell." E-make, using digital cockpits, is all about GE's effort to interact faster within its own operations. E-sell, on the other hand, aims to hasten interaction with customers: GE's Polymerland Web site, which helps customers research GE's resin products and prices, has been cutting phone calls to service reps by up to 300,000 calls per year, boosting the speed at which GE responds to customers while at the same time shrinking the unit's costs by 35 percent over five years, with more savings under way. By digitizing sales, says analyst Nick Heymann, who tracks GE for Prudential Financial, GE has also speeded up service—and has cut 60 percent from the costs out of selling GE's vast array of products, from dishwashers to polymers.

E-buy is also about interacting better and faster—but with suppliers. In 2001, says Reiner, GE saved more than $680 million through Web-based auctions. And there were time savings as well: "Before," says Reiner, "sometimes a buyer didn't quite know what was expected of him or her in terms of what they should buy for a particular commodity, and they'd go out and cut their own deal." Now, he says, such deals are no longer acceptable. The result? "The new system forces people to buy off prenegotiated contracts," Reiner says. "This saves time, saves money and keeps us from wasting effort on transactions that will ultimately have no value."

Speed gains also show up in billing. Steven DeLarge, manager for global financial planning at GE Power Systems, says that simply by collecting more data on customers who were late in paying their bills, GE was able to be more effective in getting them to pay on time, for a savings of $6 million in interest. "With this system, you can get the payment information to the front end faster, and then have the salesperson do the collection call instead of having to use a collector," DeLarge says.

But GE isn't the only company keen on getting faster. In years to come, many experts say, many more companies will use information technology to become a "real-time enterprise"—a company that can react within seconds to changes in its business. And as more and more firms wire themselves up and connect to their business partners, they make the entire economy faster. "What businesses like GE are creating is an explosive cocktail of time-based change that will rip out inefficiencies in our organizations based on our ability to gather, use and disseminate information," says Gartner research vice president Andy Kyte. "Wasting time will seem as stupid as wasting money itself."

To be sure, in the current lackluster economic climate, it's little wonder that vendor hype has sprung up around the concept of the real-time enterprise: Gartner's annual schmooze-fest in Orlando in early October was all about real time, as are nearly a dozen conferences in the coming year, from Chicago to Berlin. But while experts acknowledge that getting to real time will require, in many cases, significant new levels of technology investments, the push for real time isn't all hype, either. Indeed, in a cost-cutting climate, real time can mean real savings. For its part, GE estimates that its digitization efforts saved the company $1.6 billion last year. "We said we'd cut $10 billion in costs in five years, and we're already a third of the way there," Reiner says.

According to Gartner vice president and research fellow Roy Schulte, the elapsed time of individual processes at e-businesses around the globe is already beginning to accelerate. Responses to call-center inquiries, for example, have gone from eight hours as of a few years ago down to 10 seconds today; refreshing a data warehouse has accelerated from one month to one hour; and the time it takes to build a custom-made PC has gone from six weeks to 24 hours, to name a few examples. Schulte predicts this acceleration has just begun and that process times will speed up even more, triggering a huge impact on the inner workings of companies large and small. For the strategic CIO, he says, the movement to real time will mean "increasing the velocity of business processes, and to get this kind of speed the CIO is going to have to rethink how he or she designs computer systems."



 

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