GE 2007 Annual Report Download - page 9

OPERATIONAL EXCELLENCE
product
management lean
material
cost out
global
best cost
quality
simplifi cation
value gap
GE has great leadership businesses. But there are two aspects
of GE that are still under-appreciated. The fi rst is our fi nancial
strength. GE remains one of only fi ve “Triple-A”-rated companies
in the U.S. Our free cash fl ow — cash available after we pay our
dividend — was $19 billion in 2007. Our pension plans have
$67 billion of assets, with a surplus of $15 billion. Our fi nancial
discipline gives us tremendous strategic fl exibility and should
make our investors feel secure.
The second is the importance of diversity. Earlier this decade,
we were grappling with the collapse of the U.S. power bubble and
a tough commercial aviation cycle. But we could keep investing
in Infrastructure because NBCU, Healthcare, and GE Money
were doing great. In 2008, our businesses that rely on the U.S.
consumer will face challenges. However, they will be more than
offset by booming Infrastructure growth and steady progress
in Commercial Finance, Healthcare, and NBCU. Together, this
strong portfolio will deliver reliable growth for you.
We are a high-performance company
Investors often ask how we can execute in a company with
such diverse businesses. We do it by running the Company with
common initiatives around growth and fi nancial discipline.
We have established two Company-wide councils to drive results:
a Commercial Council and an Operating Council. Each has about
20 members from around the Company. We meet regularly to
learn from each other, challenge each other, and root for each
other. We know that superior execution stems from great leaders
aligned with common processes and focused on lofty goals.
We formed the Commercial Council in 2003. We felt that our
historic organic growth rate of 4% was too low. We focused
on building a process that could deliver organic revenue growth
at 2 to 3 times GDP growth. At 8% organic growth, we would be
safely ahead of our fi nancial and industrial peers.
For the last few years, we have executed our “Growth as a
Process” initiative. Our focus has been on the “Growth Wheel,”
depicted in the diagram to the left. Consistent execution — in
technology, commercial excellence, customer focus, globalization,
innovation, and developing growth leaders — has yielded excellent
results. Our organic revenue growth is improving: 2004, 6%;
2005, 8%; 2006, 9%; 2007, 9%.
This initiative is transforming GE. We have signifi cantly
increased our technical funding and have a rich pipeline of new
products coming to the market. We have applied GE process
skills, such as Lean Six Sigma, to improve our speed and respon-
siveness. We are using Net Promoter Scores to measure our
progress with customers. We have built strong engineering
and commercial teams around the world to tap into new
growth markets.
One area of focus has been on enhancing the value of the
GE brand. In 2003, we launched a new GE brand campaign called
“imagination at work.” Through consistent and superior execu-
tion, we rejuvenated the brand. In 2003, about 30% of thought
leaders viewed GE as an innovative technology company; in
2007, this number was 78%. Meanwhile, we have fortifi ed the
fourth most valuable brand in the world, valued at $52 billion
in Interbrand’s 2007 “Best Global Brands” survey, as depicted
in the exhibit on page 4.
Innovation is another element of our growth strategy. In 2004,
we launched Imagination Breakthroughs, a process to create a
pipeline of innovative organic growth ideas. Some of our pipeline
represents big bets such as the “very light jet” engine, low-cost
desalination, and energy-effi cient appliances. We are also focused
on adjacencies: untapped markets or technologies that are close
to what we do today. This mix allows us to execute on a steady
pipeline of innovation to drive organic growth.
Non-Destructive Testing (NDT), led by Caroline Reda, is a
great innovation example. This is an Imagination Breakthrough,
“Class of ‘04.” NDT is a part of Enterprise Solutions. It leverages
imaging technology from our Healthcare business to test the
structural integrity of infrastructure parts. NDT was a classic
“adjacency”; we understood the technology and the market, but
we were not in the business. I view this as easy growth for
GE. Today, we have a $700 million NDT business that is a global
leader. It is growing revenues 25% each year, drawing on
technology from our Global Research Centers and selling into
markets we know such as energy, oil and gas, and aviation.
Innovation is a key pillar for organic growth. Our team loves
to dream and see those dreams become reality. Through
our focus on Imagination Breakthroughs, we are developing 20
new “$1 billion businesses” inside GE at all times.
We were so encouraged by the work of the Commercial
Council that we decided to create its “twin,” the Operating Council.
Members include our best manufacturing, sourcing, engineering,
and product management leaders from across the Company
who share ideas and compete on results. Our goals are to
expand operating profi t margin to 18% by 2010 — up 140 basis
points from 2007 — improve working capital performance, and
achieve returns of 20%. To do this, we focus on product man-
agement, material cost out, simplifi cation, Lean Six Sigma, and
capital allocation. This process can be seen in the Operational
Excellence diagram on this page.
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