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 weve been living into a smarter world
lled with Big Data and analytics, and a more
connected one thats been described as the
internet of things. In this world, customers
expect their suppliers to surround their
products with data services and digitally
enhancedexperiences. This means that many
organizations and their leaders are running as
fast as they can to quickly build their
software capabilities. How can
thesecompanies overcome the inevitable
leadership, organizational, and cultural
challenges involved?

General Electric turns out to be an excellent

case in point. Itmade 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 Je 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, Were no longer selling customers just a jet engine, a locomotive, or a wind
turbine; were bringing data and actionable solutions along with the hardware to reduce
costs and improve performance. So GE has hired 1,000 software engineers and data
scientists to provide enhanced software and analytical skills across GEs many businesses.
GE is now approaching $1 billion in new revenue annually from their expanded software
and data activities. Heres a brief account of how GE quickly scaled up a sizable software
start-up within a big, successful conglomerate.

Getting Started

After Je Immelt threw down the gauntlet for buildinga global software center, GE faced
signicant 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 GEs 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 rst 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 ecient
cloud-connected platform. In a departure from GEs 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 Je 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 signicantly 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 oor of a large oce building in 2012 and has grown to take over all ve oors. The

interiors look like Googles spare, open oce plan with concrete oors 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 wouldnt hire people for some other
skills, such as systems integration and change management, and would use partners for
that, instead.

Hiring forGrowth

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 were a service organization in a big corporation, so we had ready-made
customers. We didnt have enough people to respond, and we couldnt 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 arent 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 GEs recruiting challenge. She told me how dicult it was. GE didnt have brand
recognition in software. 90% of the people we recruited didnt know a GE software group
existed. And the market for software talent was hot hot hot. There were three competing
oers 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 nd people who would t
in GEs 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
werent necessarily looking but could be a strong t 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 lled with enthusiasm about their ability to
make a dierence by combining GEs 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 GEs brand, including GEs 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 elds such as healthcare
and energy.

Integrating with the Mother Ship

One challenge, as you might expect, was introducing a software center thatdisrupted the
existingGEs power structure, which resides in its business units, such as Aviation,
Healthcare, Power and Water, and Transportation. I spoke to Ganesh Bell, Chief Digital
Ocer and General Manager, Software and Analytics, at GE Power and Water, who sits at
the intersection between GEs Software Center of Excellence and one of its biggest business
units, to understand how a corporate startup can work eectively 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 wouldnt y, 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.

Its 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 signicant time-tomarket and productivity benets also required new and dierent skill sets than what were
traditionally found within GE. And there were challenges moving people o 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 beenfrowned 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
oncontrolling operations or managing safety. Streamlining a process with Lean Six Sigma
ts 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 dierent you can try something and back it out if it doesnt work.
You have a hypothesis, you try it, and learn. It requires systematic leaps of faith, risktaking, 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 couldnt move fast enough to get on board. In a way, peer
pressure created a domino eect across GE. To quote Annunziata:

We have moved very quickly from a little resistance and skepticism to seeing the
value embraced at all levels. Weve 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, rst we had a strong commitment from the
top, from CEO Je 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 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 dont 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,
thats a fair cost to pay in order to survive and grow.

Brad Power is an expert in technology-enabled process innovation who helps companies to speed up product
creation, services, and systems to compete with startups and leading software companies. He is a Watson
scholar and started his career at IBM.

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2 COMMENTS

Anselm Magel

a year ago

For the European plant construction and machine building industry embraching the industrial internet is a
huge challenge both cultural and business model wise. Challenges ahead require the post world war II
entrepreneurial spirit in combination with the leading edge approaches of the information age
00

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