It's an article of faith in the new economy: The nimblest and most forward-thinking old-line companies will use the Internet to transform their businesses and crush not just the arrogant newbies of the startup world, but slow-moving competitors as well.
No company represents the resurrection of the traditional economy more than General Electric (GE). Founded in the late 1800s by a guy named Edison, it has managed to convince the world that it's figured out how to use the Internet to reinvent itself. For some time now, GE has been telling anyone who will listen that e-business is helping it boost revenue and slash costs - on a scale measured in billions. GE is one of the few companies that has a public relations person expressly dedicated to promoting its e-business efforts. It has produced a slick CD-ROM called E-business @ GE in which the narrator intones: "This will completely change the way we do business."
The disc features a parade of GE unit chiefs boasting about how much business they're doing online. "In 1999, 30 percent of our orders came in via the Web," says Marian Powell, senior vice president for e-business at GE Capital Fleet Services. "This year, we'll have over 60 percent. That's over a billion dollars in orders."
One billion is an attention-getting number, and GE executives aren't shy about using it when talk turns to their e-business initiatives. "In 1998, we did next to nothing in Internet orders," Gerry Podesta, general manager of e-business for GE Plastics (dossier), says on the CD-ROM. "In 1999, $100 million. In the year 2000, we expect to exceed a billion dollars." And Joe DeAngelo, COO and vice president of e-business for GE Appliances (dossier), says retailers and home builders are using his unit's Web site to buy products "at a pace of $2.6 billion annually."
And it's not just sales. GE says it's achieving huge savings by moving procurement and other internal tasks online. In the middle of 2000, legendary Chairman and CEO Jack Welch told analysts GE could cut as much as $10 billion in overhead costs over two years. "Every day we uncover hundreds of millions of dollars in efficiencies," he recently told one newspaper.
Many companies are more reluctant to throw numbers around like this, saying it's not possible to determine exactly what new sales or cost savings are attributable to e-business and what are the result of other factors. Not GE. The company is out to convince the world that it's no longer a stodgy, slow-moving giant. On the surface, of course, this Fairfield, Conn.-based, $112 billion colossus is still an eclectic collection of assets that includes not just high-profile NBC, but business units that sell aircraft engines, medical systems, plastics, power turbines, construction supplies, home appliances, light bulbs, financial services and more. The hype, however, says the company is being transformed by e-business into an agile organization with the heart - and growth potential - of a startup. In his letter to shareholders in the company's 1999 annual report, Welch described e-business as the "elixir" that "came along and changed the DNA of GE forever." He said digitizing a company "puts a small-company soul into that big-company body."
But here's the rub: When carefully examined, it turns out that the company's efforts to connect to buyers and suppliers via the Web has so far contributed little to the bottom line. GE's e-business record does little to justify Welch's serial boasting. The company offers scant evidence that it has boosted revenue by attracting new customers or by getting existing customers to spend more. For a company to cut costs by moving business processes online, it must eliminate - or redeploy - a significant number of employees. GE hasn't. And for productivity gains to reach the bottom line, a company must show it's using the Web to substantially cut overhead. GE hasn't.
In short, to say that the Web alone transforms companies might be taking the digital revolution too far. Using the Internet is merely a step in a technological evolution that's been going on in American business for two decades - the latest in a series of new methods of data-sharing, which include everything from bar codes to PCs, from enterprise resource planning to customer relationship management. These changes often can take years to accomplish, and they suit some businesses better than they do others. And in any case, the benefits of the Web often aren't found in actual cost savings as much as in better and more convenient service for customers.
GE isn't budging from its high-flying rhetoric about revolution, however. Though Welch declined to be interviewed for this story, company spokeswoman Pam Wickham responded via e-mail: "We are experiencing quantum change on a monthly, if not a daily basis." She maintains that it's a mistake to evaluate the company's digitization on a "buy" or "sell" model based on growing revenues and cutting costs. That's an "old dot-com" way of looking at it, she writes. Rather, GE is engaged in internal "make-side" activities and the productivity they engender. Senior VP and CIO Gary Reiner, who is spearheading the companywide e-business effort, adds, "Make no doubt about it, we are not talking about incremental change. We're talking total transformation."
