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7/31/18, 9)03 PMBuilding a Software Start-Up Inside GE

https://hbr.org/2015/01/building-a-software-start-up-inside-ge

OPERATIONS

Building a Software Start-Up Inside GE by Brad Power

JANUARY 29, 2015

Is your company ready to compete in a world of smart, connected products? For some time

now we’ve been living into a smarter world filled with Big Data and analytics, and a more

connected one that’s been described as “the internet of things.” In this world, customers

expect their suppliers to surround their products with data services and digitally

enhanced experiences. This means that many organizations and their leaders are running as

fast as they can to quickly build their software capabilities. How can these companies

overcome the inevitable leadership, organizational, and cultural challenges involved?

General Electric turns out to be an excellent case in point. It made a massive investment

(more than $1 billion) to build a software “Center of Excellence” in San Ramon, California to

manage the data explosion created by the increasing intelligence of its industrial machines.

CEO Jeff Immelt declared in 2011 that GE needed to become a software and analytics

company or risk seeing its hardware products become commodities as information-based

competitors took over. As Marco Annunziata, Chief Economist at GE, told me, “We’re no

longer selling customers just a jet engine, a locomotive, or a wind turbine; we’re bringing

data and actionable solutions along with the hardware to reduce costs and improve

7/31/18, 9)03 PMBuilding a Software Start-Up Inside GE

https://hbr.org/2015/01/building-a-software-start-up-inside-ge

performance.” So GE has hired 1,000 software

engineers and data scientists to provide

enhanced software and analytical skills across

GE’s many businesses. GE is now approaching

$1 billion in new revenue annually from their

expanded software and data activities. Here’s

a brief account of how GE quickly scaled up a

sizable software start-up within a big,

successful conglomerate.

Getting Started

After Jeff Immelt threw down the gauntlet for

building a global software center, GE faced

significant physical, organizational, and

cultural challenges. Who would lead it?

Where would it be located? How would it be

organized and how would it relate to GE’s

existing businesses? How would it integrate

into the culture of the larger organization?

Would the traditional host organization reject the new software center as an alien entity?

The first step was to hire someone to run it. Bill Ruh was selected in 2011. Key selection

criteria included experience in innovative software and service (versus product)

development, and an ability to manage a start-up in a very large, complex company. Bill and

his team set out to develop a system that could bring all GE machines onto one efficient

7/31/18, 9)03 PMBuilding a Software Start-Up Inside GE

https://hbr.org/2015/01/building-a-software-start-up-inside-ge

cloud-connected platform. In a departure from GE’s traditional control systems, the Center

was not set up as its own business unit with its own P&L, but rather was funded by a $1

billion investment by Jeff Immelt and became part of GE Global Research.

The next question was where to establish the software center. Though technology would

have allowed for a significantly virtual enterprise, it was important to Ruh to have a physical

building where people could actually be located together. It was also important to tap into

the start-up software culture of Silicon Valley. Together, these constituted radical moves for

an industrial company headquartered on the East Coast. San Ramon was selected because it

was close to Silicon Valley and had expansion potential. GE started on one floor of a large

office building in 2012 and has grown to take over all five floors. The interiors look like

Google’s spare, open office plan with concrete floors and airy workspaces (unlike other GE

facilities). A design studio is geared for collaboration and innovation work with customers

and partners.

Then they needed to decide what kinds of people to hire. Matt Denesuk, Chief Data

Scientist, told me, “Who you hire depends on your strategy. We said we were going to build

a technology platform in the ‘cloud’ that would provide data plumbing, high-value

analytics, and modeling content, so we hired the appropriate skills in software engineering,

user experience, and data science. We decided we wouldn’t hire people for some other

skills, such as systems integration and change management, and would use partners for

that, instead.”

Hiring for Growth

The biggest challenge was growing fast. Melody Ivory, a User Experience Product Manager,

told me, “I was about employee number 30 in February 2012. By June of 2012 we were close

to 100. By the end of the year we were 500 people. There was an explosion of demand. We

7/31/18, 9)03 PMBuilding a Software Start-Up Inside GE

https://hbr.org/2015/01/building-a-software-start-up-inside-ge

were a service organization in a big corporation, so we had ready-made customers. We

didn’t have enough people to respond, and we couldn’t scale up fast enough. We were a

startup, and like a startup, we grabbed quality people, were hands on, and wore many hats.

We grew faster than we thought we would. Yet we still aren’t as large as we need to be to

meet the demand from the businesses.”

Jennifer Waldo, Head of Global Human Resources, GE Software Center, was at the epicenter

of GE’s recruiting challenge. She told me how difficult it was. “GE didn’t have brand

recognition in software. 90% of the people we recruited didn’t know a GE software group

existed. And the market for software talent was hot hot hot. There were three competing

offers for each user experience expert or data scientist. We were competing with the cool,

Silicon Valley tech companies, yet at the same time we needed to find people who would fit

in GE’s culture.” To hit the aggressive growth targets (750 by the end of 2013 and 1000 by

November 2014) Waldo had to rewrite some GE rules. “We hired a talent acquisition leader

from the software industry, someone who really understood technology. And we

‘insourced’ the recruiting activity, hiring recruiters who knew where our target candidates

hung out and what appealed to them. We focused on passive candidates, people that

weren’t necessarily looking but could be a strong fit for GE. It also required us to amend our

compensation practices to be competitive in the technology space.”

I spoke to several GE Software employees, all filled with enthusiasm about their ability to

make a difference by combining GE’s industrial domain knowledge with the speed and

innovation of a software start-up. In making the appeal to potential candidates, recruiters

created a value proposition which emphasized GE’s brand, including GE’s reputation for

leadership development; a compelling vision of the “Industrial Internet” as the next big

thing; and the opportunity to work on meaningful challenges in fields such as healthcare

and energy.”

7/31/18, 9)03 PMBuilding a Software Start-Up Inside GE

https://hbr.org/2015/01/building-a-software-start-up-inside-ge

Integrating with the Mother Ship

One challenge, as you might expect, was introducing a software center that disrupted the

existing GE’s power structure, which resides in its business units, such as Aviation,

Healthcare, Power and Water, and Transportation. I spoke to Ganesh Bell, Chief Digital

Officer and General Manager, Software and Analytics, at GE Power and Water, who sits at

the intersection between GE’s Software Center of Excellence and one of its biggest business

units, to understand how a corporate startup can work effectively with existing units:

“It started with positioning. We created an expanded vision of customer partnerships

with big, market-driven outcomes that the company could rally behind. And we took a

stand on what the future holds: driving Industrial Internet solutions. If it were just

about software, it wouldn’t fly, but this is a much bigger, customer-driven play. Second,

we are incubating new software talent and [creating] software DNA. We have separate

funding, and we set it up so that the revenue we generate from software-led solutions is

recognized in the businesses. Our performance measures are aligned on driving

additional revenue in the businesses. And third, we embraced the fast approach to

innovation (“FastWorks”), which was already being driven across the company.”

It’s working. Bell told me that a cross-functional GE team, working with customers like

E.ON, used a software product (“PowerUp”), which is driving more output per wind turbine

– a 4% improvement at E.ON.

Despite the vision and potential, there have been other bumps along the way. Many

software developers at GE were concerned about reliability and security, which led some of

them to resist moving some of the capabilities to the “cloud.” Incorporating rapid

programming practices (“Agile” and “Extreme Programming”) to bring significant time-to-

7/31/18, 9)03 PMBuilding a Software Start-Up Inside GE

https://hbr.org/2015/01/building-a-software-start-up-inside-ge

market and productivity benefits also required new and different skill sets than what were

traditionally found within GE. And there were challenges moving people off old technology

and onto the new.

The Silicon Valley software ethic of running experiments to fail fast and learn has been a

cultural challenge for GE, where failure has been frowned upon. Successful companies like

GE tend to protect the business and perpetuate formulas that have worked well in the past.

An ingrained industrial mindset keeps things “within the yellow lines,” focused

on controlling operations or managing safety. Streamlining a process with Lean Six Sigma

fits this mental model: you focus your product development on making things perfect

before releasing them to the market. However, the mindset of software development and

Silicon Valley is quite different – you can try something and back it out if it doesn’t work.

You have a hypothesis, you try it, and learn. It requires systematic leaps of faith, risk-taking,

and potential failure as organic parts of the approach.

To overcome the resistance, Ruh and his team started by working with those businesses

within GE that could change quickly. When others started to see the rapid transformation of

their peer businesses, they couldn’t move fast enough to get on board. In a way, peer

pressure created a domino effect across GE. To quote Annunziata:

“We have moved very quickly from a little resistance and skepticism to seeing the value

embraced at all levels. We’ve brought a lot of people to San Ramon who have experience

outside of GE and who interact in a less structured way, like a startup. To get these two

cultures to work together, first we had a strong commitment from the top, from CEO Jeff

Immelt. Second, there has been a cooperative attitude from the people in San Ramon,

who are bringing new expertise and pushing the businesses, but listening. And the third

7/31/18, 9)03 PMBuilding a Software Start-Up Inside GE

https://hbr.org/2015/01/building-a-software-start-up-inside-ge

success factor has been setting the right priorities, especially choosing opportunities

that take advantage of the scale of our company, taking innovations from one place to

others.”

The software-enabled revolutions we see in our daily lives, such as navigation using Google

Maps or taxi service through Uber, are shaking up the industrial world, too. Machines are

getting smarter and smarter. Industrial companies that don’t rapidly scale their software

and data capabilities to leverage their hardware will be left behind. GE is one example of a

big, industrial company showing how you can quickly build software capabilities using an

internal start-up model. Going this route may mean breaking some rules, but ultimately,

that’s a fair cost to pay in order to survive and grow.