Invest & Deliver Every Day
GE 2007 Annual Report

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 financial 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 financial 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 above. 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 significantly 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 responsiveness. 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 execution, 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 fortified the fourth most valuable brand in the world, valued at $52 billion in Interbrand’s 2007 “Best Global Brands” survey, as depicted below.

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-efficient 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 profit 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 management, material cost out, simplification, Lean Six Sigma, and capital allocation. This process can be seen in the Operational Excellence diagram above.

Achieving sustained improvement in margins and returns requires teamwork among product management, engineering, and supply chain. We have set detailed margin and cycle time goals for the top 30 product lines in the Company, representing 75% of our earnings. Our work is already delivering results. The most critical area of focus in these inflationary times is on reducing material cost. GE purchases about $40 billion of material each year. Despite inflationary pressure, we should reduce our material cost by $1 billion in 2008.

Aviation is a leader in reducing material costs. We have a full order book due to the technical and commercial success of our engine product line. We have a $19 billion backlog of engine orders, the highest in our history. Many of these are for the GEnx engine, which offers our customers a 15% efficiency gain and a dramatic reduction in emissions. Now we must deliver these engines on time and with high quality. But that is not enough.

David Joyce (Product Management), Scott Ernest (Supply Chain), and Jeanne Rosario (Technology) are working together to deliver more for our customers and investors. Their cross-functional teams are improving design, yields, supplier agreements, and global best-cost sourcing. We will meet our customer delivery dates and technical specifications. And, we also have robust productivity plans to meet our profit goals.

Initiatives work in a multi-business company. Our teams are trained to share ideas with each other and they love to compete. At GE, a single best practice can generate billions of dollars in savings, earnings, and revenues for investors.