Digital Transformation Requires Leadership

*Originally published on August 6th, 2018 on LinkedIn.

The internet has had a massive impact on consumer and enterprise markets. However, it has had little effect on industrial businesses or healthcare. In fact, most IT investments on platforms such as ERP, CRM or EMR led to improved communications or compliance but not substantial enhancements in productivity, quality or growth.

That could change, but success is not assured. The next wave of tools is transformative: data, analytics, digital twins, robotics, automation, AI, RPA, blockchain, and additive manufacturing. Industrial companies can now offer customers the promise of “no unplanned downtime” – a simple declaration that is worth millions. And, there is the opportunity for radical improvements in productivity. But it requires leadership from the top.

Digital transformation requires hands-on risk-taking, new talent acceleration, and different metrics, not consulting studies or fancy charts for the board. CEOs need to lead a journey where the end point is unknown. Benefits cannot be delivered through packaged projects executed by outsourced resources. This is about an enterprise-wide, highly focused strategy in which operating managers deliver outcomes assisted by new technology.

Digital was never a buzzword for me. I chose digital transformation at GE because I thought it could radically improve the performance of our products for our customers. The combination of physics and analytics could radically change outcomes. More importantly, if we didn’t lead these new technologies would allow third parties to come between us and our customers. It was about overcoming an existential threat.

As a venture partner at New Enterprise Associates, (NEA), I see every day the disruptive companies that want to take value from incumbents. I know that applications, like asset performance management, have as much value as new jet engines or MR scanners over time. Leadership is essential.

A digital transformation must be driven from the core of the company. At GE, we built a belief system to value and control data. We recruited new talent, seeking to hire the best from the tech industry, making GE a good place to work for digital talent. We created new metrics and measure -- new ways to work that valued speed and impact. We changed our business model, with a focus on generating customer outcomes. We built digital relationships across our customer base with great companies like BNSF, BP, and China Eastern. We empowered the front line because it was important that the team knew the “art of the possible.” I was extremely hands-on because this is the next wave of productivity.

We produced strong results. GE’s analytical platform, Predix, has an order run rate of $1.5 billion, doubling from year to year. It has been consistently ranked in Gartner’s Industrial Internet of Things “Magic Quadrant.” GE was a leader in Asset Performance Management and service tools. Moreover, our leadership in digital led to higher share of our core products. GE’s last “Minds and Machines” conference hosted more than 5,000 customers and developers. GE got out ahead of competitors, which are now following suit.

As you consider your digital transformation, there are a few organizational and cultural choices need to make:

• Do you create a digital group (outside the core) or make it everyone’s job? It is impossible to escape legacy in technology and culture. It is faster to dedicate and empower a digital team but, in the end, everyone must play.

• Should a digital initiative be led by IT? No. Let’s face it, we outsourced the “technology” portion of “information technology” a long time ago. This is a technical initiative and should be led by technologists and owned by operations. A best practice is to unify IT and digital around a technical framework.

• How should you invest? It is important to assess the “next-gen” technologies against your work force and customer needs. In the case of GE, I believed that data was essential to drive customer outcomes. I considered that a “make.” At the same time, process automation could drive massive productivity, but the technology was not essential to us. That was a “buy.” It is important to map technologies versus their impact on workers to create an investment map.

• How do you build platforms? It is easy to get trapped between point solutions and platforms. But there is nothing wrong with experimentation. My sense is that the platforms of the past – ERP, CRM – will be obsolete; they will be reconfigured into data-rich systems that focus on workers and assets.

• Where will the decisions be made? The CEO must take risk and push decisions down in the organization to the front line. You want your team to “invest and deliver outcomes,” not be delayed by some gatekeeper.

• What about cyber? Again, a digital transformation brings security concerns into focus. The CEO should lead cyber tasks directly. In this way, you can understand the technology and set risk tolerance at the right level.

Digital is the next gateway for quality, growth and productivity but it takes a complete transformation that can’t be scattered across an organization. It must be led by the CEO and engage the entire enterprise.

It is always hard for leaders to drive change when the journey is unknown. It is easier to give up -- and many will. But in this era, when new technologies will forever change customer value, the highest risk is a failure to lead.

Jeff Immelt is former chairman and CEO of General Electric, a venture partner at NEA and the executive chairman of athenahealth.