For more than 20 years, I have wondered what GE would do when we applied our operating disciplines to generating growth. I was convinced that the combination of operating excellence with an exciting growth culture could propel GE to new levels of valuation.
GE’s historic organic revenue growth rate has been 5% per year. This is a respectable number, above the growth of the broader economy. But I realized from my first day as CEO that investors wanted to see a faster-growing GE. The changes we have made in our portfolio will boost our growth, but achieving our potential will require us to treat growth as a process.
For many years, GE’s process disciplines, like Six Sigma and digitization, were operationally based. Today we are bringing these GE strengths to bear on organic growth. We have invested in broad capability in technology and services. We have enhanced our approach to customers around the world through commercial excellence. We have built a Company-wide process for innovation called Imagination Breakthroughs. Each of these process steps leverages the totality of GE to accelerate results.
Based on this, we are increasing our aspirations for organic revenue growth to 8% per year. We are aiming to hit this rate in 2005.
Capability in Technology and Services
Technology is the foundation of GE’s growth. Today we invest considerably more in technology than we did in 2000. We have a rich pipeline of new products, based on key market trends, that can win.
GE leads in energy efficiency through more economical power-producing systems, including those that use renewable resources. In 2004, we and Bechtel began feasibility studies with Cinergy Corp. and American Electric Power for coal gasification power plants. This “Cleaner Coal” technology will generate power in a cost-effective way using abundant coal resources, with dramatically fewer emissions than traditional coal plants.
GE leads in personalized healthcare through a technical focus on prediction, diagnosis and information linked to treatment. In our product pipeline today are advanced technologies capable of extremely early detection of cancer, heart disease and Alzheimer’s disease.
GE leads in advanced water technology. With Ionics, we will have a broad array of filtration systems and membranes. We are taking this in two directions: toward the sea with desalination projects and into the home with advanced filtration systems.
GE leads in advanced security systems. We are the only company that can combine digital surveillance, advanced detection and bioscience. We have been awarded funding by the U.S. Transportation Security Administration for the next generation of security systems, which will combine material and explosives detection.
Our technical leadership is supported by four Global Research Centers where we can spread ideas across the GE businesses. Good examples are the transfer of our leading medical imaging technology to new uses in homeland defense and the leveraging of our materials technologies across our locomotives, aircraft engines and turbines. Global Research filed for more than 450 patents in 2004, including 25 for nanotechnology.
Each of these new products will add to our installed base, which has more than doubled since 2000.
Built on this high-tech installed base, our services revenues totaled $26 billion in 2004, growing 12%. Services represent about 30% of our industrial sales and have the potential to grow at double-digit rates for the foreseeable future. Services are a powerful growth engine because our technology is long-lived and we focus on making the customer more profitable.
Services drive energy efficiency. Transportation now offers upgrade programs that save up to 10% on fuel. Energy’s service packages can improve the efficiency of the installed base by up to 10%.
The most exciting services growth opportunities we are driving today focus on our customers’ workflow. We expect about $1 billion of orders in healthcare clinical workflow, energy grid decongestion, aircraft engine control technology and railroad movement planning. A good example is our work with Indiana Heart Hospital. This all-digital hospital has used our technology extensively to improve its clinical workflow. We are sharing our knowledge across our businesses so that our customers can realize considerable productivity gains.
Commercial Excellence Around the World
We match our capabilities with great teams that can create value for customers. Over the last four years I have spent more time with our sales and marketing teams than with any other group in GE.
CEOs cannot delegate growth or customer satisfaction. I try to spend at least five days each month with customers or being otherwise involved in the selling process. I get involved with important new growth activities, such as the partnership we formed with Dillard’s on its consumer credit card. And twice each month I do “town hall meetings” with several hundred customers to share ideas on the direction of GE and listen to their thoughts on what we can do better.
One of the more enjoyable parts of my job is holding “dreaming sessions” with key customer groups, trying to think about where our businesses will be in five or ten years. Charlene Begley and I recently spent an afternoon with the CEOs of the North American rail industry. The purpose was to apply GE solutions to the issue of rail network capacity. GE can bring an entire array of solutions to our rail customers, from more reliable locomotives to information that improves network velocity to intelligent yard systems to financial capacity.
Another way I try to stay in the middle of the action is by leading the Commercial Council that we have had in place since 2002. It is composed of our best sales and marketing leaders. Our mission is to drive the functional excellence in sales and marketing that we need to hit our growth goals.
For the first time, we have Company-wide commercial leadership programs where we take college recruits and experienced new hires and put them on a sales or marketing career path as we’ve done for years with other functions like finance or engineering. We have also added more than 1,000 marketing professionals across the Company, making marketing a critical “line function” to drive growth.
We have used the Council to bring customers into the center of our strategies. Every business now has a value equation that links growth initiatives with customer profitability. For the first time, customer satisfaction will impact how leaders are compensated.
We are using the Council to create cross-Company capability for driving growth. We now have “vertical” teams in Healthcare, Energy, Water and Rail. Through enterprise selling, we can create far-reaching collaborations with customers and better serve them as “one GE.”
Mike Neal at Commercial Finance is a thought leader in this activity. Mike has GE’s largest marketing and sales team. He has 11 commercial experiments under way, all testing new ways to structure sales forces to satisfy our customers and grow faster. For example, he has unified his lending and leasing sales forces in Chicago so they can offer customers complete solutions.
The breadth of GE has helped us accelerate our globalization. Global revenues grew 18% and reached $72 billion in 2004. The most exciting global opportunities for GE are in the developing world, where our 2004 revenues were $21 billion, a 37% increase.
We believe that 60% of our growth will come from developing countries in the next decade versus about 20% for the past 10 years. It is important for us to understand future customers, suppliers and competitors in these regions, where we believe GE has a meaningful competitive advantage.
China remains important, and revenues there should exceed $5 billion in 2005, another year of strong double-digit growth. We have won more than 70% of commitments for turbines in China over the past two years. Advanced Materials grew revenues 40% in 2004 and is the second-largest GE business in China today. Last year we won a commitment from the East-West Rail line for almost 80 locomotives and control equipment. The Beijing 2008 Olympic Games are a great multi-business opportunity for GE.
Our opportunities also stretch into Russia, India, eastern Europe, southeast Asia, the Middle East and South America. GE is a great infrastructure company, virtually alone in the breadth of world-class technology in energy, transportation, healthcare, water and security that we can offer. Beyond that, we bring the capabilities that help these regions develop, including financing, compliance structure and leadership development. We have changed our approach to look at countries as customers.
Qatar is a great example. GE has landed portions of Qatar’s liquid natural gas projects. We are pursuing a major order from Qatar Airways. We plan to help develop desalination capability in the country. We will invest in service technology and people development there. Under the leadership of Nabil Habayeb, our new president and CEO for the Middle East and Africa, we will develop a “company-to-country” relationship that generates growth over the long term.
Funding Innovation
We have launched a process for innovation called Imagination Breakthroughs. Each Imagination Breakthrough (IB) project has the potential for at least $100 million of incremental growth. Today, we have 80 IBs in four categories: technical innovations; ideas that create value for customers and GE; opportunities to expand markets; and projects that make great ideas commercial products. They are funded and supported by great teams. Some will happen this year and others may take 10 years to reach full commercialization. Some just may not fly. Over the next four years, we plan to invest about $5 billion in Imagination Breakthroughs, and they could deliver $25 billion of incremental revenue growth in that time.
All of the Breakthroughs represent unique GE solutions. The Dual Card was launched in 2004 and combines store cards with consumer credit. It is a win for retailers and their consumers. The portable ultrasound, Vivid™ i, also was launched in 2004. It combines advanced imaging technology with ease of use. Vivid i could be the next stethoscope, improving healthcare globally with advanced diagnostics. The Hybrid Locomotive could save up to 15% over our Evolution locomotive’s fuel consumption, and we are working toward achieving a commercial partnership in 2006.
You can see examples of our Imagination Breakthroughs throughout this report. They are bringing GE discipline to the innovation process as a way to accelerate growth.
New Benchmarks for Growth
There are pure “numerologists” in the world who say that a company like GE is too big to grow. Our job is to turn this around and prove that size will spur GE’s growth. We have used our financial strength to build a fast-growth portfolio. Now we are using our breadth and depth to create unique GE solutions in technology, services, commercial excellence and globalization. We are using our process skills to make innovation more reliable. Our 11 businesses will grow one customer at a time.
Is 8% too lofty an aspiration? We are in markets that are growing faster than the overall economy. We have robust initiatives in services and globalization that represent a substantial portion of the Company’s future revenues. Our technical pipeline and our approach to customers have great momentum. We have a series of innovative breakthroughs that are fully funded and that leverage GE process rigor. We can do this.
Most importantly, we have developed a new generation of growth leaders who are passionate about making this aspiration a reality.
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