John L. Flannery, who will take over as the new CEO of General Electric on August 1 is unlikely to initiate any dramatic changes in GE’s business strategy, but will step up its focus on digital technologies, according to John Rice, the company’s vice chairman. Flannery, 55, will succeed current chairman and CEO Jeffrey Immelt, and will become chairman in January 2018. His goals for GE will be consistent with the strategy changes Immelt’s team made in recent years, which included an exit from financial services, and major acquisitions and alliances, Rice said.
Flannery joined GE Capital in 1987 and held a succession of roles in Latin America, Asia-Pacific and India before his current role as president and CEO of GE Healthcare, an $18 billion business. Rice, who heads GE’s global operations from Hong Kong, shared his thoughts with Knowledge at Wharton on how GE’s operations in Asia could change under Flannery, at the Wharton Global Forum held in June in Hong Kong.
An edited transcript of the conversation follows.
Knowledge at Wharton: Your company very recently got a new CEO and a new chairman. Since you are running a lot of GE’s Asian operations, what will the new leadership mean in terms of a changing strategy in Asia?
John Rice: At face value, [it changes] nothing. I look at our leadership team – Jeff [Immelt], and the senior leaders of the company. Their fingerprints are on everything that we do. So, on Day One, I don’t think John Flannery will make an abrupt change to anything. Over time, he will think about the world, his knowledge of the businesses, and his perspective. That will begin to influence what we do. But not in a big, dramatically different way. Jeff has put a different portfolio together than we had in the 1980s and 1990s.
“On Day One, I don’t think John Flannery will make an abrupt change to anything.”
Knowledge at Wharton: He got rid of what got GE into trouble during the 2008 financial crisis.
Rice: And the world changed, right? The GE model worked so well in the 1980s and 1990s – a combination of industrial and financial businesses, a [stock] market that was willing to pay full value for all those earnings. After the global financial crisis, everything changed. That model was not really well-accepted. So, we, with Jeff’s leadership and the support from the board, completely changed the face of the company, [getting] out of financial services, and putting more of that capital into high technology infrastructure businesses.
Knowledge at Wharton: I understand that a lot may not change quickly. A lot of your projects are long-term. But you’re talking now about 3D printers, and your commercials are about digital technology and how fast the world is changing. There must be some [aspects of your business] that are likely to at least shift a bit.
Rice: Things will change. But I don’t think they’re necessarily going to change because John Flannery’s perspective is radically different than Jeff Immelt’s.
If you go back five years, we’ve changed a lot since then, just because Jeff and we have developed different perspectives. [Take] the importance of digital. That’s one of the other areas that we’ve really tripled down on. We were thinking about it, five, six years ago. But in the last five years, we have become even more focused.
Whether it’s the work that we did to exit the GE Capital businesses, the [November 2015] acquisition of Alstom (its power and grid business), or of Baker Hughes in the oil and gas business [in October 2016), those are all things that we weren’t thinking about five or six years ago. Now, we are, or have done that.
So, the world will change. We will change with it. And John’s leadership will be a big part of that. But it’s not going to be the only reason we do things differently.
Knowledge at Wharton: When you talk about digitalization and where it’s going, what are some of the specific products and services that you see becoming a bigger part of your business in that realm?
Rice: Our idea, at one level, is relatively straightforward. We have been designing, building, servicing and monitoring jet engines and gas turbines and locomotives, for decades. So, we have a ton of data and information, and the ability to extract that from these operating assets. What can you do with this deep domain knowledge and data that comes from 30,000 jet engines that are in flight every day, taking off and landing in all sorts of ambient conditions?
What we’re developing in this digital journey is marrying that vertical concept with an operating system. We call it Predix [GE’s cloud-based platform for digital industrial businesses]. It’s the industrial equivalent to the iOS or Android system that’s operating your smartphone. There’s nothing like that in the industrial space.
We think that we can, with the help of many partners and companies around the world, develop the standard for an industrial operating system. You marry that with that deep domain competence that we’ve talked about. We can create tremendous value for our customers and shareholders, across other companies and other industries. [The Predix operating system] is open source. Anybody can work on it. We really believe it can be the standard.
Knowledge at Wharton: It’s a little bit of software as a service, is it?
Rice: Absolutely. You marry that with the knowledge and data that comes from the work that we do in our industrial businesses, and all the assets we have around the world that we’re already servicing and monitoring. You can develop an asset-performance management application. Today, we do that in Qatar, at Ras Laffan, which is the largest LNG train (for liquefaction and purification of liquefied natural gas) in the world. There are some 2,000 assets on that site that we monitor [at Ras Laffan]. Only 20% of them are ours. Eighty percent of them come from other companies. We can provide information to the operators of that facility, which allow for preventive maintenance and predictive failures, and reduce the number of unexpected outages over the course of years. It saves them millions of dollars. Any day where they don’t have an outage saves them millions.
Knowledge at Wharton: It sounds especially telling for companies or products where an outage is particularly costly. You don’t want an elevator to fail, for example.
Rice: You don’t want an elevator to fail. You don’t want a jet engine to fail. If you’re counting on the electricity, you don’t want a gas turbine to fail. You don’t want a piece of diagnostic imaging equipment to fail in a hospital, because you’ve got 50 people lined up that week to come in and have some important work done.
We’re doing some of this work with steel manufacturers, and helping them connect to their customers, who use steel in all sorts of applications, including the ones you mentioned. The work that we do with them will help them operate their equipment more efficiently, manage inventory and forecast demand. It will help them do the things that they need to do to be a better supplier to their customers.
There’s no limit to the possibilities. [But] we have to walk before we run. We have 50 target customers around the world that we’re working with on specific applications.
Knowledge at Wharton: You’re in Asia and a specialist in the region. We’ve had many changes in U.S. trade policies and so forth. We’ve dropped out of the Trans-Pacific Partnership trade agreement. You commented at the session here about some trade-related policies you disagree with.
“You’re better off jumping in and participating, and helping to write the governance rules than to sit on the sidelines.”
Rice: We thought TPP was a good thing. As a company, we operate in 180 countries. If the world’s going to be more bilateral, then we just have to make our way in a bilateral world. That’s okay with us because we have relationships in all of those countries. The comment I made was about the U.S. deciding not to participate in the launch of the Asian Infrastructure Investment Bank [in 2015]. I thought that was a mistake.
At the time, there was concern about the governance [at the bank], and what the rules and procedures were going to be. You’re better off jumping in and participating, and helping to write the governance rules than to sit on the sidelines. Today, 56 have signed up to support that important initiative to provide funding for infrastructure projects. I believe the U.S. should have been one of them.
Knowledge at Wharton: China has become more involved in providing capital for countries and projects in the region. Does this mean the U.S. – unless things change – is bound to lose some influence in the region economically, and perhaps in other ways?
Rice: Not necessarily. Clearly, China has stepped up in the last five years. In many respects, that’s good. I don’t think it necessarily means that the U.S. is less influential. If I look at the first few months of the Trump Administration, the President is regularly engaging with foreign leaders. He does that more on a one-on-one basis. There’s no reason to think that it will be worse for the U.S. I think it might be better. We don’t know yet.