Chapter
eneraT Electrlc (GE), one of the world's largest industrial companies with products ranging from turbines to jet engines to medical
equipment, has been transitioning to a much more
technology-centric business strategy and business
model. Jeffrey Immelt, GE's CEo from 2000 to 2017,
wanted to turn GE into a top 10 software company
by 2020.In 2015 GE set up GE Digital as its own
buslness within the industrial conglomerate for this
purp0se.
GE has been focusing on electric power generators, jet engines, locomotives, and oii-refining gear,
and the software to connect these devices to the
c1oud. The company is using sensor-generated data
from industrial machines to help customers monitor
equlpment performance, prevent breakdowns, and
assess the machines' overall health. This emerging
technology opened new opportunities for GE customers to anaTyze tl-reir IoT data while also helping
to transform GE from a tradltional manufacturer to a
modern digital business.
In a number of industries, improving the productivlty of existing assets by even a singie percentage
point can generate significant benefits. This is true of
the oi1 and gas sector, where average recovery rate of
an oi1 well is 35 percent. That means 65 percent of a
well's potential is left in the earth because avaiiable
technoiogy makes it too expensive to extract. If technology canhelp oil extraction companies raise the
recovery rate from 35 to 36 percent, the world's output will increase by 80 billion barrels-the equivalent
ofthree years ofglobal supply.
The oil and gas industry is aiso deeply affected
by unplanned downtime, when equipment cannot
operate because of a malfunction. A single unproductive day on a platform can cost a liquefied natural
gas (LNG) fucility as much as $25 mi11ion, and an
average midsized LNG facility experiences about five
down days ayear. That's $125 to $150 million 1ost.
Minimizing downtime is critical, especially considering declining revenues from lower energy prices. GE
sees a $1 billion opportunity for its IoT software.
The foundation lor all of GE's industrial Internet
(1oT) applications is Predix, a software platform
launched in 2015 to collect data from industrial sensors and analyze the information in the cloud. Predix
9 Decision
Making and Business
lntelligence 323
can run on any cloud infrastructure. The platform
has open standards and protocols that a11ow customers to more easily and quickly connect their ma-
chines to the Industrial Internet. The platform can
accommodate the size and scale of industrial data
for every customer at current levels of use, but it
also has been designed to scale up as demand grows.
Predix can offer apps developed by other companies as well as GE, is available for on-premises or
cloud-based deployment, and can be extended by
customers with their own data sources, algorithms,
and code. Customers may develop their own custom applications for the Predix platform. GE is also
building a developer community to create apps that
can be hosted on Predix. Predix is not limited to industrial applications. It could be used for anaTyzing
data in healthcare systems, for exarnple. GE now has
a Health Cloud running on Predix. Data security is
embedded at all platfbrm application layers, and this
is essential for companies linking their operations to
the Internet.
GE currently uses Predix to monitor and maintain
its own industrial products, such as wind turbines,
jet engines, and hydroelectric turbine systems.
Predix is able to provide GE corporate customers'
machine operators and maintenance engineers with
real-time information to schedule maintenance
checks, improve machine efficiency, and reduce
downtime. Helping customers collect and use this
operational data proactivel)r would lower costs in
GE service agreements. When GE agrees to provide
service for a customer's machine, it often comes with
a performanco guarantee. Proactive identification of
potential issues that also takes the cost out of shop
visits helps the customer and helps GE.
In early 2013, GE began to use Predix to
analyze data across its fleet of machines. BJ, identifylng what made one machine more efficient
or downtime-prone than another, GE could more
tightly manage its operations. For example, by usir-rg
high-performance analytics, GE learned that some
of its jet aircratt engines were beginning to lequire
more frequent unscheduled maintenance. By co1lecting massive amounts of dala and anaTyzing the
data across its entire fleet of machines, GE was able
to cluster engine databy operating environment.
324
Part Three Using lnformation
Systems for Competitive ,Advantage
The compan5, found that the hot and harsh enr-jronments in the N{iddle East and Chir"rar caused engincs
to c1og, heat up, and lose r:fIicienc1,, so they rcquired
more maintenance. GE fbund thi,rl engines had far
fer,i.er of theser problems il iher.were u,ashecl rnore
frequerntlv. Flect :lna1,vtir:s hclpr:d GE inc,reasr: engine lilttime and recluce enginc rnaintenanc:r:. Ther
company thinlis it r:an save its clrsrorncrS .r1 ;l\r€rilgc
of 57 n-riilior-r of jet airplane fuel annuall)r be causc
t.ireir engines lr,i1i br: morr: e fftoient.
Predix is starting to provide solutioirs lor GE customers. The Neu. York Pou,er Authority, the rration's
largest state-o1^/ned utilit]", has beerr n,orkiirg u,ith
GE Digiial to build apps that lrnpr"ove the efficicncv
of its power generatioll and distribr-ition nctr,r.orh.
Pilot projects u,ith GE havc sarrecl tire utilit). $3 million in costs. 'I'he goal is 5500 million in s;rvings ovt'r
the next decade. British oi1 ;rnd gas cotxp;111y I3Ir p1c
su,itr:hed irr:rn its owrt softr,rrate to Preclix to monitor
conditions in its oil wr:l1s. B-V thc end of Z015, Lll'had
equippecl 650 of its ihousaiids of oli r.r.r:lls r,r.lth GE
sensors linlicd to I'redix. Each r,r.e11 \ ras outfitied ivitl-t
20 to ll0 sensors lo me;rsure pressLlre and tclrperatu1'e , translnitting 500,000 dafur points to thel Preciix
c:loud errery l5 secor-ids. 131'l-ropes to use the data to
prcclict n'e1'1 flou,s arrci the r,rsefui iite o1'caoh u,e1l,
ancl ultimatcly te u5,rtn an enterpr:jse-i.riic1e vjeu. o1'
its oi1 flelcis' performancc.
GE identiflecl pipeline risk management as a
m;rjor challenge fur tire oil ar-rd gas industry. 'l'irere
aire 2 million milcs ol transmission pipe througltout
the globe, moving liquicl oi1 or gas fiom its poir"rt of
r:xtr;rct.ion to rcfining, processing, or nrarket. I'ipeline
spil1s are not fir:qur:nt, hLrt r.vhen they or,cur, they
cause sr:rioLrs e:conom'ic i,rnc1 environme nt;rl damage
as u,ell as bad publicity fbr plpelinr: ofierators anci enel'gv colnpi)nics. Pipclinc operalors ate alw.tJrs ;rnxious to l<nr:w wherr: thr;ir lext rupture rrri11 1;c', hr-rt
thc\r Ibrmcrly lackccl the clata to measLire pipelir-rc
fltness. Operators had nci rt,av of inrogr:rting rrultiplc
soLlrces of data into one place so t1-ret,c.oulc1 see and
understand the risk in thr:ir pipellnes.
CiE clevelope d a pipeline-m;rnagelrlent softu.are
suite lbr accessirrg, managing, and integrating critical
data for the safe managernt: 1rt of plpel jnes, includirg
a rlsk assessmeni tool to monitor zrging ir-rfi-astluctule. GE's risk-assessmr:nt solutlon combincs intel'na1
:rnd external faotor"s (sr-rch as flooding) to provicie an
accurElte, up-to-the rninnte visual replesentatlolt of
r,r,hert: risk exists ln a plpcline . Tirls risl< assesslnLrnt
iool enablcs pipelirre operators to see how recent
cvents aflcct thoit'risk ilnd m;rl<e real-tirne decisions
a1:out',r.hctc flelcl ser:vice cre r,r,s should be deploye d
aiong rlrc pipelinr:. T'he risli assessment tool visualization and anahriics r:apahiiities r:url on Itrredix.
GE is alsc"r prrliing rlata fiom l^.,eather systems and
clig-rt-:porting slrrviccs to provide a nrore compre-
hcr:sivc vier,r, oi'ii pipeline retu,ork. \&'eather h:rs a
sizai:le lrnpact on risk fbr pipelines in areas prone to
sr: i srtit: acti vi tr,,, tr\rii te rura\rs, and w'as1'routs. Ch cki n g
\^ieathel: piittcll'ns :rlong thor-isands of miles of pipe fbr
ralrr or-flooci zont:s, and integrating t1-rose data rt,itl-t
other complcx pipeline clata sets is verl,'difficr-rlt to
e-:
pr:rll>rrn mannallv. ISut by bringing;r1l relevant dat;r
togethcr irr ont: pliicc, GII gives pipellne opt: rators
easict access to inforrnation to help thcm address
areas r,r,ith thr: gro:rtest pr teniial impact.
Ilt:side-s being :ible to exarnine all curent risk,
pipciinr: opcl";rtors r,vould. bcnefir frorr-r a "r,r.hat-if" ca1culation tooi to rnociel ]11.pethetic;r1 scenarios, sr-rch
;rs assessing thc impact of adjustlng operating prcssules or addlcss1r-rg particular arears of corrosive piptr.
[iE it or"rid girrc lhem the tools for a color-cocied view
of-hou, those actions afl'ect pipeline dsk.
Althouglr fen, businesses have the capital r:r infi'astructurc to operate a plattbln, fbr: integrating
arnd ;rnat1,r-zing lo'f c1ala, GE iat-:r:s competilion fiom
nl;ln\r sources, inclucling giant cloud serrvices supp1ler:s iike Amazon, Microsoft, and Cioogle; major
b,;siness softu.are companie s like Oracle, SAR IllM,
ancl SAS insritute; industr"ial conglomerates 1il<e
Siemens, ;1e16;yrvei1, and ABB; anci star"t-nps like Clil
Io! Uptake , anci FogIlorn Svstems. GE's aclvantagc is
its iongstancling relationsi-rips rvith customers. So far,
onlv 8 pe rcont r-ri'(iE's inclustrial clistome rs are using
Predlx poftfblio products.
1n Novembr',r 2017 ,.leff Fiannerr,, n ho had succcedcd lmr-nelt as GE's CEC], announcecl that spi:ndins on C[i Digitai :rnd Predix u,ould be cut by nrore
than 25 pcrcont, or 5,100 r-r-ril1ion. Digital iniiiatives
are still crltic;rl to the conrpanv nerrertheless, and
Flaitnetlr r,,,,ants Predix to genel"ate $l billion in annltal ierrenue. I-ionrerrel Flannery v,ants this accornpiishe d vier a "more fircused" strateg\r. In Ji:1y 2018
the compan\i allnounced it r,r,as seeking a bu3ie r fbr
kev peirts of lts digital unit.
(lE had grr:;it1y nndcrr:stimated the c1-rallenges
of r:rcatirrg a1l tlre soltlrare nr:t:c1cc1 ft;r anal_rrzirrg
lntcnrct of'T'hings [io'l) data to improve businoss
lli'ocesses across a r^rids ratrge of iirdustries. GE's
tcchnical expe rtistl lies in designing and manufacturing machir-res lilce pnrver jet enginr:s, plant turbines,
andmedical imaging equipment andin creating
the specialized software to control machines in factory operations. It \ /as too much of a stretch for GE
Digital to move quickly into cloud-based software to
handle all kinds of sensor and machine data andbig
dala anaTyltcs for the enlhe Industrial Internet. GE
also faced difficulties adapting its own legacy applications for Predix. GE has many algorithrns for monitoring its machines, but they mostly were wrltten
in different coding languages and reslded on other
slrstems in GE businesses. This made converting
the software to run on Predix time consuming and
expensive. Predix has been pared back to be primari1y a set of software tools to help write applications,
as opposed to connecting to layers ofcode to autornate data analysis. GE Digital now focuses on selling
products for specific industrial applications tailored
to GE's existir-rg industrial customors rather than allpurpose software for the wider industrial worid.
Cimilucca, Dana Mattioli, and Thomas Gryta, r'GE Puts
Digital Assets on the B1ock," WaJl Sffeet Jout'nL7l, July 30, 2018; Steve
Sources: Dana
Loh4 "GE Makes a Sharp'Pivot'on Digital," New YorkTimes, Apri1.
19, 2018; y/ww.ge.com, accessed May 3, 2018; Couflney Biorlin, "GE
Predix Platform's Focus Narrows as Flannery Cuts Digital Spending,"
Intemet of Things Instttute, November 75, 2017; Alwyn Scott, "GE
Is Shifting the strategy for Its $12 Billion Digital Business," Reilfsrs,
August 28, 2077; LawaWinig, "GE's Big Bet on Data and Analytics,"
MIT Sloan Management Rnuew, February 2016; Devin Leonard and
Rick Clough, "How GE Exorcised the Ghost of Jack Welch to Becorre
a 124-Year-O1d Starlup, " Bloomberg Businessweelt, March 21 , 2O16; and
Hol1y Lugassy, "GE Leverages Pivotal Cloud Foundry to Build Predix,
First Cloud for Industry," CloudFoundry,org, May 11, 2016.
CI\sE STUDY OUESTIONS
9-1
How is GE changing its business strategy and
business rrrodeT? What is the role of information technology in GE's business?
9-2
On what business functions and level of decision making is GE focusing?
Describe three kinds of decisions that can be
supported using Predix. What is the value to
the firm of each of those decisions? Explain.
?-3
9-4
Tb what extent is GE becoming a software company? Explain your answer.