GE, of course, is not alone in claiming that e-business is bringing tremendous benefits. Oracle (dossier) has built an entire advertising campaign around the claim that it saved $1 billion using its own Internet-enabled software. Cisco (CSCO) does 80 percent of its business online, and says it saves more than $800 million annually by using the Web for everything from inventory control to recruiting. And IBM (IBM) says it's saving hundreds of millions of dollars each quarter by serving its customers and selling and buying online. Even old-line manufacturers such as Herman Miller (MLHR), the office furniture maker based in Zeeland, Mich., talk about using the Internet to reinvent themselves.
Each of these companies offers some evidence of success. Oracle kept operating expenses flat for fiscal year 2000 while boosting revenue by 15 percent. As a result, the company's operating margins rose steadily each quarter. Cisco has used the Web to become a virtual company. Since it doesn't make most of its products and sells mainly through the Web, it doesn't have all the costs associated with factories, plant workers and a big sales force - the sort of expenses that drag down Lucent and Nortel. Accordingly, Cisco's operating margins and sales per employee are well above those of its competitors.
IBM reduced its SG&A (selling, general and administrative) expenses to 24 percent of revenue from 26.8 percent when it launched its e-business efforts in January 1998. And Herman Miller boosted sales by reaching a new market over the Web: small businesses. The company expects to sell $134 million worth of goods online, or 7 percent of total sales, in fiscal year 2001, which ends May 31, and most of that is new business, the company says.
Through the third quarter of 2000, GE still hadn't demonstrated any significant improvement in its financial results that can be directly attributed to e-business. GE isn't even in the same class as Oracle and Cisco in using the Internet, but has been loudly trumpeting the benefits it "will" get.
Why, then, is GE spinning like this? It might be playing to investors, who could applaud high online sales and lower administrative costs and give GE's stock a higher valuation. The company's share price rode up along with the tech surge, then held firm when the techs fell back. But several leading analysts who cover the company on Wall Street said in late November they hadn't factored GE's claims of huge potential gains from e-business into their price targets for the stock.
Still, the company is beginning to win over Wall Street. During an annual meeting with sell-side analysts and top GE investors in December, Welch said he expected cost-savings associated with e-business to add 10 cents to the company's earnings per share in 2001. Michael Regan, a financial analyst who follows GE for Credit Suisse First Boston (DLJ), was at the meeting and says Welch's comments give him confidence that the company can sustain its 16 percent normalized earnings growth. "They don't throw out estimates of savings willy-nilly," he says. "They would only talk about these savings if they had confidence that they could deliver."
Whatever the impact on the stock market, the PR campaign has been a triumph. Magazines, newspapers and trade journals have been awed by GE's e-business "transformation." In July, Forbes named Jack Welch to its "E-Gang," alongside such established e-businesses luminaries as Cisco's John Chambers and Enron (ENE)'s Jeff Skilling. Business Week e.biz named GE to its "Web Smart 50." And InternetWeek, a trade journal, declared GE "E-business of the Year."
The story goes something like this. In late 1998, Jack Welch noticed GE employees shopping online. At home, his wife was buying gifts on the Web for the grandchildren. Suddenly, Welch "got" the Net. At an annual meeting of 500 of GE's top executives in Boca Raton, Fla., in January 1999, Welch ordered everyone to come up with a strategy for moving their businesses online. The executives were to set up "Destroyourbusiness.com" teams. The aim: Reinvent each unit's business before some upstart in a Silicon Valley garage did.
But the execs knew nothing about the Web. So Welch took an idea he'd heard about while visiting a subsidiary in Europe and made it a corporationwide mandate: Some 1,000 Web-savvy employees were assigned to mentor senior executives about the Internet. Even Welch got a mentor. Armed with the wisdom of people like Stuart, the red-haired slacker who tutors the old-line executive in the Ameritrade commercial, the remaking of GE was under way. The teams got beer parties and brightly colored offices, an attempt to create a proper dot-com aura. Eventually, they discovered that there probably weren't any Internet entrepreneurs hiding out in Silicon Valley devising ways to sell turbines or aircraft engines online. With that fear laid to rest, the teams were transformed into "Growyourbusiness.com" units. Later, they were disbanded altogether, and e-business was brought into the mainstream of GE's operations.
