GE chief turns surfer at 64

By SELWYN PARKER

A legendary chief executive's "voyage of discovery" into the internet has changed the way America's fifth-largest corporation does business.

A 64-year-old chief executive should be much too old for the age of the internet.

How could a man who spent his entire working life in an old-fashioned manufacturing company possibly learn how to refashion the business with the internet? Especially when he is a couple of years from retirement.

Ninety-nine per cent of chief executives on the verge of the golden handshake would throw up their hands, quietly sit out their final months and leave the job to the next generation.

But not Jack Welch.

This is the same Jack Welch who runs General Electric, America's fifth-largest corporation, with revenues last year of $US112 billion ($229 billion).

He heads a company that, apart from owning financial services and broadcasting interests, makes just about everything from engines for trains and planes to hospital scanners and light bulbs. Not exactly dotcom territory.

But a couple of years ago, Mr Welch realised that he did not know enough about the commercial potential of the net and set about finding out. What he learned could help just about every other manufacturer, large or small.

Until a few years ago, Mr Welch did not even have a computer in his office. His voyage of discovery began around 1998 when he realised that his wife, Jane, was buying Christmas presents on the web and this had implications for GE.

"I realised that if I didn't watch it, I would retire as a Neanderthal," Mr Welch told Fortune magazine.

So he began reading everything on the internet he could find, and learned to type, practising at weekends. He surfed, dropping into the websites of competitors and chat rooms where GE was discussed. He started e-mailing, and handles around 40 to 50 a day, not counting a couple of dozen direct reports.

Mr Welch was so impressed by what he learned that he instituted a sort of inverted mentoring programme.

A thousand of GE's internet-smart young executives were matched with senior managers for a few hours a week. In that time, they taught their bosses how to navigate the internet. Mr Welch's mentor was a young woman from corporate HQ.

"We got the benefits and transparency of an upside-down organisation," says GE's legendary chief executive. As the top people got a feel for the internet, the benefits began to accrue all over GE but especially in its long-established industrial businesses.

"We're taking all the databases of information we have on operating the turbines and engines and instruments that we make, and using them offensively," says Mr Welch.

"Now we can download improved software on to machines for [customers] or they can buy a service that lets them compare online the performance of their machines with similar ones around the world."

That is for everything from CT scanners to jet engines. For example, GE works constantly online with Southwest Airlines, which buys its jet engines, to help make the engines work more efficiently so Southwest can meet its profit targets.

"That's an information-based service as much as a product," says Mr Welch.

Customers also use the online information to compare the performance of what they buy from GE with competing products. That suits the company fine.

For example, GE's new MRI imaging machines may cost 40 per cent more than the old ones but hospitals are buying them by the truckload because the online data tells them they work much better. "That gives us incredible leverage," says Mr Welch.

GE also cheerfully uses the net to cut out the middleman.

"We don't need something between us and our customers," Mr Welch says bluntly.

"Our job is to be the ones that make that centre guy evaporate. We don't want to pass our products through somebody else if we don't have to."

As Mr Welch told Fortune, a lot of the dotcom companies are just "trying to jump into the middle between the supplier and the customer."

There are risks, as well as rewards, in putting a manufacturing company online because it means the company becomes more transparent and cannot hide its weaknesses from customers.

GE gets around that in part with its Six Sigma quality program - a product development system that works backwards from the customer's critical quality issues.

But the internet also exposes a company's prices for all to see and compare.

As Scott McNealy, chief executive of Sun Microsystems and a GE board member, says: "Dotcomming your business is not all that hard. But it is scary, because it really does expose you to a real market place. That market place is a bid-ask thing, not a here's-my-price-list-and-long-term-contract thing."

So how do you keep margins viable?

According to Mr McNealy, you use the internet to drive down costs at the same time as you sell your products online, which can also have the effect of driving down prices.

"Take all your purchase orders, auction them and cut the price of supplies 10 to 15 per cent," he says. "Then you go and auction your actual product with a better gross margin."

The internet must be doing something for GE because its profits jumped by 15.3 per cent last year to $US10.7 billion, ranking it top in the Fortune 500.

Not bad for a dinosaur.

* Selwyn Parker is available at wordz@xtra.co.nz.