October 2003

GE Finds Its Inner Edison

Jeffrey Immelt, a former salesman now chairman and CEO of General Electric, tells why he has a "hot button" on technological innovation-and why he's beefing up R&D in nanotechnology, molecular imaging, hydrogen power, and more.

By Robert Buderi

Jeffrey R. Immelt

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Position: Chairman and CEO, General Electric

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Issue: Amidst tight profits and a snaillike economy, how to grow GE's highly diversified $132 billion operation, with businesses in everything from power generation to medical imaging, appliances, aircraft engines, and financial services-and preserve the company's century-old reputation for innovation.

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Personal Point of Impact: Since taking over in 2000, has placed high priority on creating new businesses. Has opened a research lab in China and is building another in Germany, pushing long-term projects in molecular imaging, nanotechnology, advanced propulsion, energy, and other areas. Upped central R&D budget from $286 million in 2000 to $359 million in 2003; seeks to make GE's main lab a focal point for strategic planning.

Technology Review: You've upped the ante significantly on R&D, placing heavy emphasis on longer-term research and homegrown innovation. What led you to it?
Jeffrey Immelt: We're inheriting a slow-growth economy, a slow-growth world. There's a lot of excess capacity, but companies want to grow market share and margins. And in the future, that will be done by funding innovation that reflects customer needs and developing technologies over a long period of time. I started my career selling, and I made this profound discovery that whenever I had good products to sell, I always did better than when I had lousy products to sell. So we're closing the door on a decade that was about capital markets and acquiring things and opening the door on a new period that's more about developing things. The companies that know how to develop things are ultimately going to create the most shareholder value. It's as simple as that.

TR: How does GE's global expansion figure in, with your new research labs opening in Munich and Shanghai?
Immelt: The new labs bring technology development closer to our global customers and help us tap into talent that exists outside the U.S. We have three new R&D centers: Bangalore, India, which opened in 2000; Shanghai, China, which opened earlier this year; and Munich, Germany, which will open in 2004. Each place brings something different. India graduates around 10,000 electrical engineers every year, so you get this incredible wealth of talent. Our Bangalore lab is strong in computer modeling and analysis, advanced materials, and medical visualization. Then you go to Munich. The cost of an engineer is more or less the same as in the U.S., but the engineering schools in Germany are among the best in the world, and you get innovation in renewable energy, sensors, advanced medical imaging, and automotive technology. Plus, it brings us closer to our European customers. And then you look at Shanghai. You get a great market capability in China and a relatively economical technical base; China is doing a lot of work in power electronics, manufacturing technology, and ceramics and metallurgy. So I firmly believe in global technology development, where you can really tap into the best ideas around the world.

What we've insisted on is that when we globalize, we globalize products and systems and technology. So that India, for instance, becomes the world leader in a certain domain, versus just being a sliver of somebody else's program that's run from the U.S. Unless you're willing to do that, you never get the global capability you really need.

TR: You spoke of the need for GE to develop its own businesses, as opposed to acquisitions. Can you explain more fully how technology fits into your plans for growth?
Immelt: Organic growth is the driver. I measure our teams basically on organic growth. Acquisitions is secondary to that. It's a luxury we have because we generate a lot of cash.

In GE, everybody grows up, whether they know it or not, in a technology-based company. The genius of Edison was that he was both an inventor and a very good businessman: he understood the importance of innovation that fulfilled needs in the marketplace. Let's take energy. The big market needs in energy are high fuel efficiency, competitive cost, and reducing emissions. We're looking at all the fossil fuel energies, plus wind, photovoltaics, hydrogen, nuclear, almost every possibility. Now, I sit here and say, "Will photovoltaics exist as a generator of power?" I believe the answer is yes-and GE will be a part of that. It could be in 2015, 2020, 2050, depending on innovation, the price of oil, the regulatory environment-and a lot of those things you can't predict. But we know what the needs are; it's up to us to invest in new technologies that will meet those needs. There's going to be a lot of new businesses in the coming decades, but they're going to be fulfilling a need that exists today only in a different form. I want us to have a solid foundation in all those technologies that could transform these industries. We're going to own the future technologies that meet those needs.

As we develop technologies, an industry that doesn't exist today might be created. For example, we have a significant investment in technology across the company-for our medical business, our power business, and a bunch of other businesses-around nondestructive testing and predictive failure-the ability to test and evaluate the physical structure of an asset without taking it apart. That's going to be an industry in and of itself. You're going to be able to look at a chemical plant and remotely monitor it, understand when the pipes might fail, a whole series of events that could impact your production. It's not a business we're fundamentally in today, but it's a business we will be in in five or 10 years. It's not a natural growth of any individual business, but collectively, we have such a great expertise in this area-that's where it grows from.