IBM says it also saved $312 million in travel, lodging and classroom expenses through the third quarter by moving about 36 percent of employee education to the Web. About 90 percent of IBM's U.S. employees who enrolled for health benefits in 2000 did so via the company's intranet, which will result in another $1 million in savings on printing and mailing costs. But the company is a long way from cutting the multiple billions of dollars a year GE cites so frequently.
GE says it saved $40 million in travel expenses in three months after instituting an online travel approval process. GE Capital Fleet Services says it saved about $5 million a year by delivering reports and invoices electronically, instead of by mail. And other units point to savings here and there. But analysts say it will likely take a company the size of GE five years to completely move to electronic systems.
GE is just beginning to focus on using the Web to share information with suppliers. Doing that will help companies save plenty by reducing inventory and cutting the time it takes to build and deliver products - and receive payment for them. A recent report by AMR Research, a Boston-based consulting firm, suggests that manufacturers could improve operating margins by as much as 10 percent if they execute flawlessly. But Kevin O'Marah, research director of supply chain strategies and author of the report, says it will take 10 years to realize that improvement.
GE has certainly been a leader among big, old-line manufacturers in implementing Web technologies. But it hasn't actually made many bold moves, which is one reason it has had few embarrassing setbacks (aside from the always-chronicled travails of NBC, whose NBCi venture has been troubled). Connecting to its customers and suppliers via the Web should improve productivity and position the company for future growth. The work is akin to the massive bureaucracy-cutting Welch did in the 1980s, when he slashed GE's head count by 100,000. Or the other corporationwide initiatives Welch has launched - globalization, a focus on services and the vaunted Six Sigma quality control methodology, which paved the way for the success the company is enjoying today.
But moving internal processes online and creating Web sites where customers can place orders and suppliers can check account information doesn't radically transform a business. It doesn't alter the fact that sales of aircraft engines, turbines and even home appliances are subject to cyclical demand. And it doesn't create the much-ballyhooed first-mover advantage. Given the amount of time it will take GE to completely digitize its businesses, competitors will have plenty of opportunity to catch up.
Shifting many of its business processes to the Internet could position GE for a dramatic transformation into a true e-business down the road. But the company's recent offer to buy Honeywell International, a big manufacturer of industrial and aviation equipment, for some $45 billion suggests it's not thinking along these lines. E-business transformation is about unloading assets and making money from information and brand. Cisco has almost no manufacturing facilities. And Enron, the Houston-based energy wholesaler, deals with virtual inventory and has no trucks or planes for shipping the commodities it trades.
The purchase of Honeywell is a conventional old-economy play: It will enhance GE's position within the aviation industry, and after spending money to integrate the two companies, GE should be able to boost profits by eliminating redundancies. But the acquisition makes GE bigger, more capital-intensive and more dependent on economic and industry cycles.
E-business isn't a magical elixir that makes the slow fast and the old young. It's a communications method that lets companies share information more effectively with customers and suppliers. A handful of companies such as Cisco and Enron have figured out innovative ways to use the Web to transform their businesses. GE isn't there yet - and despite its chairman's tendency to hype its Internet strategy, he knows it has a long way to go. "Against our competitive playing field, we're ahead of the game," Welch said in one interview last year. "Against an absolute standard, we're behind the game." This time, he's not exaggerating.
