The Network ImperativeIn an article about innovation at GE, Authors Barry LibertMegan Beck and Jerry (Yoram) Wind examine how industrial companies can learn to refashion their business models and become digital disruptors. The three co-wrote a book entitled, “The Network Imperative: How to Survive and Grow in the Age of Digital Business Models.”

In this article, the fourth in a series for the Wharton School at the University of Pennsylvania, the authors examine how GE is tackling innovation. Here’s an excerpt from their article:

“… The mental model behind GE has been rooted in manufacturing for decades.

GE logo“That’s why Jeff Immelt, CEO of GE, is working so hard to change his own mental model of the industrial giant that he runs, along with his hundreds of thousands of employees, customers, suppliers and shareholders. His approach to changing his mental model is simple: State the obvious. Digital platforms and virtual networks are changing everything — customer purchasing (think Amazon), employment (Uber), investments (Betterment and Wealthfront) and value creation. Based on this digital reality, Immelt is creating a compelling future state for GE that is exciting for all his stakeholders. In the process, he is also distancing himself from the predecessor company Jack Welch created.

GE CEO Jeff Immelt

GE CEO Jeff Immelt is driving innovation to ensure the company’s future.

“’We can’t be an industrial company anymore,’ Immelt said in a recent interview with McKinsey & Co. ‘We need to be more like Oracle. We need to be more like Microsoft.… We want to treat analytics like it’s as core to the company over the next 20 years as material science has been over the past 50 years. We can hire the talent. We can evolve our business model accordingly. We need to treat our service agreements to share outcomes with our customers the same way an IT company might approach that in the future. So, in order to do that, we have to add technology, we have to add people, we have to change our business models. We have to be willing to do all those things.’

“But this is not just about GE or its strategy. This is about the emerging war among business models — where organizations of the past are facing digital networks and platforms of today and tomorrow. According to research from McKinsey and others, 15% to 20% of the S&P 500’s valuation consists of consumer internet stocks that didn’t exist 15 or 20 years ago. The legacy consumer companies that were in this space didn’t see these new business models and therefore didn’t capture any of the excess customer surplus that was available to them …

“‘At GE over the past years, we’ve redefined our approach to innovation, focusing on R&D as well as co-creation, open collaboration and partnership, which has allowed us to engage new audiences and develop a following across various industry sectors. Today, a new era of manufacturing is dawning — and with Local Motors, we are pioneering the future of work, fast tracking a new model for the manufacturing industry, and improving and expanding GE’s product offering to better meet future customer needs,’ according to Steve Liguori, GE’s executive director of global innovation.

“The digitally enabled network, FirstBuild, was officially launched in the summer of 2014 and is the home for a global community of innovators to prototype, iterate and refine existing GE products, as well as surface new designs. The most popular innovations may then be selected for testing, rapid prototyping and small volume production at the microfactory, which will be open to the public.”

Here’s the complete article on GE’s approach to innovation.