I

N A LOBBY AT THE GENERAL ELECTRIC COMPLEX

known as the House of Magic sits a desk that belonged
to GE founder Thomas Edison. There, under glass, are
copies of his notebook papers with sketches of his great-
est achievement: the lightbulb. Two floors below, GE re-
searcher Anil Duggal is working in a cramped, darkened
lab on a replacement for that iconic invention. Duggal
holds a flat, glowing 6-inch square that illuminates his face.
The light is created by a thin layer of organic light-emitting
diodes (OLEDs) sandwiched between two glass plates. Duggal
hopes they will eventually be printed on plastic so that flexible
lighting surfaces can be incorporated into wallpaper or furniture.
Just as the OLEDs convert electricity into light, they can also do
the reverse, and thus could someday become the basis for in-
expensive plastic solar panels. They could be produced much
like newspapersand newspapers are so cheap, we throw
them away, Duggal says. Think of the possibilities, adds his
colleague Sanjay Correa. What if your rooftop
were made of a cheap material that creates elec-
tricity, and then inside, your ceiling could take
By learning to manage innovation, Jeffrey Immelt
is remaking Americas flagship industrial corporation into
a technology and marketing powerhouse.
B Y E R I C K S C H O N F E L D
P H O T O G R A P H S B Y D A R R Y L E S T R I N E
WHERE BUSINESS IS GOING WWW. BUSINESS2.COM J ULY 2004
that electricity and turn it into light,hemus-
es, a broad smile spreading across his face.
The work in this basement lab stands as
a neon-bright metaphor for the transfor-
mation quietly under way at GE. Three
years into chief executive Jeffrey Immelts
tenure, its becoming clear that hes at-
tempting a radical and risky reinvention of
the 126-year-old flagship of American in-
dustry. Immelt, 48, is de-emphasizing some
of the tenets that his famous predecessor
Jack Welch used to build one of the most
formidable records ever compiled by a
CEO. Instead, Immelt has staked GEs fu-
ture growth on the force that guided the
company at its birth and for much of its
history: breathtaking, mind-blowing, world-
rattling technological innovation.
In a sense, Immelt has concluded that to
power his $134billion goliath forward, his
managers must view GE not so much as a
collection of huge, multibillion-dollar busi-
nesses but as a vast network of entrepre-
neurial, Silicon Valley-styleor better still,
Edison-styletech startups. Hehas ordered
them to grab the scientific lead on the far
technological frontiers of markets from clean
energy to medical diagnostics to nanotech
to security to jet-propulsion systems. And
he wants to harness that revved-up innova-
tion metabolism to a morehighly developed
and systematic marketing effort than GE
has marshaled in many years, if ever.
The result, Immelt believes, will be a GE
that looks like an entirely different compa-
nymore entrepreneurial, more science-
based, and generating much more growth
from its own internal operations than by
simply acquiring other companies. Con-
stant reinvention,Immelt says, is thecen-
tral necessity at GE.
And necessity is the mother of this re-
invention. GE has been going through one
of its rare troughs: Its stock is down 50per-
cent from its mid-2000peak, and in 2001it
broke a long streak of double-digit revenue
and profit growth, benchmarks that have
come to be seen as minimums for GE. In
2003the companys revenue grew just 1.5
percent; profit was up only 6percent. GE
has been hurt by the fallout from 9/11 and
the global recession, and its recent per-
formance has led some critics to question
whether Immelts plan can revive the com-
panys days of growth and glory. Mean-
while, cost pressures in many old-line GE
businesses, from appliances to plastics, are
fierce and worsening. Immelt himself sees
the threat clearly. Were all just a moment
away from commodity hell,he says.
Still, seeking salvation through capturing
the elusive, lightning-in-a-bottle instances
of innovation is tough for any company. It
becomes a monumental management chal-
lenge at a sprawling industrial empire with
11different major business lines, tens of
thousands of products, and 315,000em-
ployees in more than 100nations. Pushing
more of the entrepreneurial startup stuff
will probably result in morefailures at GE,
says Noel Tichy, a professor at the Univer-
High Hurdles
Immelts plan to turbocharge
GE through the marriage
of innovation and marketing
is ambitious to say the least.
sity of Michigan Business
School who ran GEs executive
education institute in the 1980s.
Spitting out a stream of entre-
preneurial ideas that mostly flop
in search of theonebig scoreis
an unnatural act for many GE
managers,he says.
Moreover, consider the sheer
scale of what Immelt is attempting: He has
set growth targets that would require GE
to generatemorethan $9billion in new rev-
enue annually from internal operations
alone. Thats likeadding thecombined busi-
nesses of eBay, JetBlue, MGM, and Star-
bucks. Few companies in history have been
able to consistently generate those kinds of
dollars without acquisitions.
The challenges of getting there by ignit-
ing innovation at a colossus likeGE arewrit
large, but in many ways they arent so dif-
ferent from the issues all companies face in
trying to unleash their latent entrepreneurial
power. How Immelt is going about it con-
tains broad lessons for managers everywhere.
And lets be clear about whats at stake for
GE. If Immelts reinvention doesnt work,
Tichy says, the almost unimaginable could
happen: GE could become just a tired, av-
eragecompany.Another probableresult of
failureis less difficult to envision. Immelt,
Tichy says, would be toast.
E
VERY CHIEF EXECUTIVE OF
GEand there have been only
10is expected to put his own
stamp on the company, even to
radically remakeit if necessary. Indeed, when
Immelt took over, Welch reportedly gave
him thesameadvicethat a previous GE boss
had given Welch: Blow it up.
Themarriageof technical innovation and
marketing is Immelts detonator, and hehas
been painstakingly wiring it up since he got
the top job. For one thing, he quickly be-
gan edging away from someof Welchs lega-
cy. Welch, of course, was a master innova-
tor himself, but mainly in the field of
financial management. He was to a large
degreea growth-by-acquisition man, buying
new businesses, many in high finance, and
mercilessly culling out underperformers. In
thelate90s,Immelt says, webecamebusi-
ness traders and not business growers. Today
organic growth is absolutely thebiggest task
Immelts Laws of Reinvention
1 CHASE BIG CHANGE
GE is targeting markets undergoing a
transformationenergy, health care,
transportation, securityfor potential
billion-dollar scores.
$
134B
1.5%
>10%
7%
$
9.4B
*
$
9.1B
GEs 2003
revenue
Revenue
growth, 2003
Annual revenue
growth target
Annual internal
growth target
(excluding acquisitions)
Annual internal
growth target
(excluding acquisitions)
Combined
2003revenue of
eBay, JetBlue,
MGM, Starbucks
*
Based on 2003 revenue. Source: Company filings
sors that can communicate with one an-
other. During the presentation, one veter-
an engineer familiar with how oil refineries
operatehad a lightbulb moment: Refineries
might have a use for such wireless sensors
even beforetheyrefingernail-size. Thegroup
then figured out that infrared sensors used
in microwaveovens could becombined with
wireless technology designed for security
systems to offer petrochemical plants a way
to remotely monitor trouble spots in their
electrical equipment and machinery. That
job was often done by a person walking
around with a thermal camera. The prod-
uct, called GearTrak, hit themarket in May.
Cross-fertilization also plays a role in a
broader effort to modify the digital X-ray,
ultrasound, and CT scanning gear GE
sells to hospitals, so that it can be used to
monitor a variety of industrial systems
from aircraft parts assembly plants to gas
pipelines. These so-called nondestructive
testing businesses, launched since 2001,
brought in $400million last year and could
hit $1billion by 2006just the kind of in-
ternal growth Immelt is after.
Some of the software used in GEs
medical-imaging devices is also inspiring
GEs security division, whose mainstay
products are alarm systems. Like many
companies, GE sees security as a potential-
ly huge growth area in the post-9/11world.
And as it turns out, the sophisticated sys-
tems that can identify a tumor in a lung are
similar to the software needed to detect an
intruder amid hundreds of hours of digi-
tal surveillance video. In a cluttered room
called the Visualization Lab, scientist Greg
Chambers eyes a screen showing people
moving around a parking lot. Theyre be-
ing tracked by software that puts a big yel-
low rectangle around each person. But
Chambers and his team dont merely want
to track and record movements. We want
to calculate human intent,Chambers says.
on a plane, or soundproofing homes along
a particular flight path to allow the use of
bigger, noisier jet engines.
Bolsinger boiled the ideas down to five
and then presented them to I mmelt. He
approved all five, including one that GE
finds particularly promising: making a new
class of small, superefficient jet engines for
a coming generation of air taxis. The
breakthrough piece here is not just that we
can serve the air taxi market, Bolsinger
explains, but I think that wecan help build
the air taxi market.She concedes that its
not clear air taxis will catch on, but adds
that if the market does develop, theres
not a company in the world that could de-
sign, build, or support it better than GE.
This isnt total pie in the sky: GE already
has a joint venture with Honda thats de-
veloping a compact, technologically so-
phisticated jet engine. By the end of the
year, Bolsinger expects one major aircraft
manufacturer to select that engine for a
new class of business jets. Certification of
the plane by the FAA will take at least an-
other two years. But if all goes well, she
says, the business of making small jet en-
gines could eventually bring in as much as
$500million a year.
Of the 50imagination breakthroughs
presented to Immelt, 35 were green-lighted,
including such novel ideas as mobile ultra-
sound machines and emergency water pu-
rification systems mounted on truck trailers.
Many of them will amount to nothing, of
course, but so what? Just those 35projects
have the potential for $5billion in revenue
by 2006, he says. Besides, Immelt has or-
dered his teams to come up with another
50. This summer.
T
HE HEAT FROM IMMELT FOR
fresh ideas has led manyGE man-
agers to scour their operations for
promising but sidetracked tech-
nologies, and to dream up ways to refash-
ion existing technologies for totally differ-
ent markets. I call it the J unkyard Wars
approach to innovation, says Joe Krisci-
unas, global technology manager at GEs
sensor business. What can you find in
your arsenal to meet new needs?
Last year Krisciunas led a brainstorming
session on industrial applications for an idea
dubbed smart dust, fingernail-size sen-
of every one of our companies. To make
that clear, Immelt has tied compensation to
internal growth. If wedont hit our organic
revenue targets, he says, people are not
going to get paid.
He has also brought in more big brains
to dream up innovations. GE has added
5,000engineers since 2001, and there are
now 21engineers among thecompanys top
175 officersup from only seven when Im-
melt took over. He has cut the acquisitions
team by two-thirds. To drive home the re-
newed focus on marketing, he appointed
Beth Comstock, a 15-year GE veteran, as
chief marketing officer. The position had
been eliminated under Welch. Immelt also
assigned a marketing leader to each of GEs
major business lines, another first. And he
has hired 5,000new salespeople.
By last year, however, it had becomefrus-
tratingly clear to Immelt that the message
was not taking hold fast enough. In Sep-
tember 2003hesummoned all themarketing
directors to a company conference room
and for hours hammered at the importance
of new innovations. Wehaveto put growth
on steroids,he told them. He ordered each
of them to come back with five ideas for
new growth businessesimagination
breakthroughs, he christened them. The
ideas could be for things totally new to GE,
or they could leverage existing assets to cre-
ate new products or business lines. But each
idea should generate at least$100million in
new revenuewithin threeyears. I want game
changers, Immelt told them. Take a big
swing.He gave them two months.
Some in the room were stunned. There
was a collective gulp across the organiza-
tion,Comstock recalls. Peoplewerethink-
ing, Is this real?
For LorraineBolsinger, a former engineer
who was named last year to head up mar-
keting at GEs huge aircraft engine division
($10.7 billion in 2003revenue), reality sank
in quickly. Within days of themeeting, Bol-
singer arranged the first of 20 brainstorm-
ing sessions that brought together engineers,
finance people, marketers, sales staff, and
research scientists. She barred herself from
the first round of meetings so people
wouldnt be afraid to sound silly in front of
the boss. Within six weeks, the group came
up with 354ideas, including somethat were
silly indeed: putting a million micro-engines
2 REPURPOSE EVERYTHING
GE managers have been ordered to find
new markets for existing products; modi-
fying medical-imaging technology to
monitor industrial systems, for instance,
is expected to bring in $1 billion in 2006.
Thecoders aretrying to develop software
that will sense minute deviations from nor-
mal patternsat a shopping mall, in an air-
port, at a sporting eventand sound an
alert when something seems out of order.
For instance, if things arent usually taken
off a warehouse shelf at midnight on Sun-
day, and suddenly they are, the software
could detect the abnormality and summon
security. To work, the software will always
have to stay one step ahead of crooks and
terrorists. There will be an arms race be-
tween us and them,Chambers says. Were
putting the pedal to the metal.
S
OME OF THESE INITIATIVES
could add hundreds of millions
or even billions of dollars to GEs
revenue in coming years. And as
Scott Donnelly, head of GEs global re-
search and development efforts, points out,
a whole bunch of $1billion things adds
up after a while. But they stem mostly
from adaptations of existing businesses or
technologies; they arent the jaw-dropping
breakthroughs that can create entirely new
businesses with gargantuan payoffs. Thats
the holy grail of Immelts reinvention cam-
paign, and its being hunted diligently in
the House of Magic.
More formally known as the Global
Research Center, the House of Magic has
a storied past. Originally set up in 1900
in a barn in Schenectady, N.Y., as a refuge
for brilliant minds, it is now situated on
525secluded acres nearby. Over the years
it has hosted big thinkers like Albert Ein-
stein and employed such celebrated sci-
entists as Nobel Prize-winning chemist
I rving Langmuir. Among the many in-
ventions it has pumped out are the X-ray
tube, synthetic diamonds, the high-fre-
quency alternator that enabled the first
radio broadcasts, and the plastic used in
CDs. But in recent decades, the place be-
came less central
to GEs opera-
tions, particularly
as the company fo-
cused more on fi-
nancial services
under Welch. One
of I mmelts first
moves was to
pump new life into
tors pinpoint plaque buildups long before
any current technology can.
GE scientists are also pouring resources
into the quest for clean energy. Immelt has
made a long-term bet that fossil fuels will
have to be supplemented because of dwin-
dling supplies and geopolitical and envi-
ronmental constraints. GE has a team of
80 scientists dedicated to working on
hydrogen-related projects, and theyre try-
ing everything. In one lab theyve rigged
up a lawn mower with canisters they want
to fill with a metallic powder that could
absorb and release hydrogen.
Closer to reality is GEs fuel cell, which
could be providing clean power to malls or
whole neighborhoods by the end of the
decade, and ultimately could transform the
way power is distributed. Long before you
burn hydrogen to make electricity in cars,
says Correa, head of GEs energy and pro-
pulsion research, you will have stationary
fuel cells. Correa says the companysfuel
cell will convert natural gas to electricity
more efficiently than any power system to-
day and produceless than 10 percent of the
nitrous oxide coughed out by GEs gas tur-
bines. Best of all, one of the by-products
is hydrogen. GE believes that the market
for clean power ultimately will be enor-
mousand isnt as far off as many people
think. We foresee a huge move to more
sustainable energy,Correa says.
I
MMELTS GOALIS TO GET GE BACK
on its double-digit growth path by ulti-
mately generating up to 7percent in
added annual revenue from internal
growth, making up the rest through acqui-
sitions. Though he intends to de-emphasize
buying growth, he hasnt turned his back
on thepractice, havingthis year madetwo of
GEs largest purchases evera $10billion
deal for British biomedical company Amer-
sham and a$14 billion purchase of Viven-
di Universal Entertainment.
But do the math: Immelts targets mean
that hes demanding that a $134billion be-
hemoth innovate its way to annual internal
growth of as much as $9.4billionand that
number will grow, year after year. Its stag-
geringly ambitious, which is why his plan
invites skepticism. Besides facing the law of
large numbers, GE also risks becoming dis-
tracted by having too many irons in thefire.
GEs pure research effort. He has upped
its budget 14 percent to $359 million,
spent $100million on a new laboratory
wing in Schenectady, and invested an-
other $100million to open research cen-
ters in Munich and Shanghai. He also
started requiring top managers and mar-
keters to regularly cycle through the
House of Magic to keep in touch with
the latest advances.
Though they do have plenty of room to
roam, GE hasnt given the science wizards
free rein. To manage the kind of innova-
tion werelooking for,Donnelly says, first
you have to have a strategy of where you
want your company to be, where you can
be a big player, and where technology can
make a difference.One of Donnellys first
moves after being named R&D chief short-
ly before I mmelt took over was to slash
the number of projects at the research cen-
ter from more than 1,000to just 100high-
ly focused ones.
Margaret Blohms nanotechnology work
is one of them. In her House of Magic lab,
she sets up a simple experiment to show the
novel properties of very small things. She
inserts a magnet into a test tube suspended
over a rust-colored solution of iron nanopar-
ticles. The solution flows upwardseem-
ingly defying gravityand collects around
thetest tube, forming a spiked ball of brown
liquid. Blohm believes that thebizarreprop-
erties of nanoparticles could eventually lead
to any number of profitable uses for GE:
lighter metals, less brittle ceramics, sensors
that can detect a single molecule of a given
gas (such as sarin), plastics that conduct elec-
tricity. For us, nano is the ultimate materi-
als science,she says.
In a nearby lab, Nadeem Ishaque is al-
ready working on one use for Blohms tiny
particles. Ishaque, head of GEs advanced
molecular imaging program, wants to pack
1,000 of them inside a biocompatible
polymer shell and
then attach an anti-
body that seeks out
early signs of arteri-
al plaque. Once in-
side the body, the
iron nanoparticles
would be picked up
by an MRI scan,
and thus help doc-
3 SELL LIKE CRAZY
Immelt created the post of chief
marketing officer, named marketing
execs for each of GEs 11 major
divisions, and added 5,000new
salespeople.
Generating all that internal revenue
growth is going to be tough,says analyst
Tony Boase of A.G. Edwards. On the oth-
er hand, GE has been generally masterful
at managing hundreds of different busi-
nesses at once. Even Tichy thinks Immelt
has a good shot. Jeff still has a lot more
levers to pull,he says.
Immelt points to what he sees as major
signs of progress: By next year he expects
what he has labeled GEs seven growth
businesseseverything but plastics, ap-
pliances, equipment leasing, and insur-
anceto account for 85percent of rev-
enue, up from 68percent in 2000. Last
year six smaller GE units, all relatively
new and encompassing things like water
purification, health-care IT, and wind
turbines (see Growing in the Wind,
page 85), generated combined revenue
of $9billion, up 50percent from a year
earlier. And Immelt strongly believes that
continued supercharging of the compa-
nys marketing machinewill go a long way
toward keeping thosetrends moving in the
right direction.
But, as he says, marketing is bullshit
without stuff. Back in the House of
Magic, Tony Dean, head of GEs ad-
vanced propulsion program, is working
on stuff that may lead to the ultimate
growth engine: a kind of air-breathing
rocket that many peoplenot just in-
side GEbelieve could revolutionize
aviation. I n a test chamber at the re-
search center, this pulse detonation en-
gineis fired, rat-a-tat-tatting like a how-
itzer spitting out thousands of rounds.
I nstead of the rotating turbines of to-
days jet engines, this one creates thrust
by sparking controlled explosions in a
steel tube filled with gas fuel. I n theo-
ry, it could power small airliners that
could fly at supersonic speedsmore
than twice as fast as todays passenger
jets. And its expected to use 5 percent
less fuel than a standard jet engine.
Thats worth many billions of dollars a
year to the airline industry, Dean says.
It doesnt take an Edison to figure out
what ideas likethat could mean for Jeff Im-
melt and GE.
Growing in the Wind
O
ne answer to GEs growth
challenges is already in
the air. Among the com-
panys hottest business-
es is a two-year-old unit that sells
wind-power turbines. GE Wind Ener-
gys revenue more than doubled to
$1.2 billion last year, and the compa-
ny has rapidly become the worlds No.
2 maker of wind-power systems.
That remarkable growth has come
from a combination of buying into the
business and bringing to bear tech-
nologies and expertise from all across
the company. GE acquired Enrons
wind assets in 2002 for $285 million
and immediately faced a big prob-
lem: The erratic nature of the power
sourcewind gustsis taxing on tur-
bine components, especially the gear-
box vital to transforming the spinning
of the blades into electricity. GE
knows gearboxes: Its transportation
division makes huge, highly efficient
ones, including those used in 300-ton
mining trucks. That expertise helped
GE develop more reliable wind-tur-
bine gearboxes.
Meanwhile, GE jet-engine scien-
tists began working on fiber com-
posites to lighten the giant blades
each nearly as big as the wingspan
of a Boeing 747and expect to cut
the blades weight 25 percent by
next year. GE al so has teams of
Ph.D.s in India and China working
on computer simulations to test
components for new wind turbine
models (there are 23 now, each de-
signed for specific wind conditions).
We really understand the physics
of the machine, says Steve Zwolin-
ski, GE Winds CEO.
All the work is paying off in wind
turbines that are far more durable
and efficient than they were when
GE acquired the business. Manufac-
turing costs have also come down
30 percent. With wind power likely
to become an increasingly impor-
tant part of the global energy pic-
ture, GE believes its set to see bil-
lions of dollars of future growth
breezing its way.
4 UNLEASH THE MAD SCIENTISTS
Immelt reinvigorated GEs famed House
of Magic research center, hiring
hundreds of new scientists to dream
up groundbreaking innovations.
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