What GE’s Woes Can Teach Electric Utilities

In just two years, General Electric has gone from being lauded as a digital “startup” to being trashed as an “astonishing mess.” Those two labels were applied by cover stories in Bloomberg Businessweek in March 2016 and February 2018.

How could one of the largest multinational conglomerates be praised for its audacious reinvention as “The Digital Industrial Company” one year and just two years later be painted as a victim of its own overreach? The big picture story of the corporate giant’s tribulations is being told in the general business press; my interest is the potential lessons for the utility sector.

Even though GE and today’s electric utilities are demonstrably different sorts of enterprises, both owe their origins to Thomas Edison, both have a history of overreliance upon past success, and both face the necessity of adaptation to a more digital future.

Here are five lessons that might resonate with utilities and those who work with them.

1. Don’t Confuse the Destination with the Journey

GE has long been known for its industrial equipment, home appliances, and the humble light bulb that started it all. In recent years, the company sold off the more quotidian of those business lines. When then-CEO Jeffrey Immelt pivoted to digital a few years ago, the company required rebranding. To build that new brand, GE’s formidable marketing and advertising machine went into overdrive.

Not only did they have splashy new displays at every power industry event I attended, they also ran an entertaining TV campaign that included a bright-faced Millennial software developer explaining to his clueless friends and family how excited he was about going to work for GE. That was a necessary move to recruit tech talent to an industry not known for its digital savvy.

But today, the company is in financial turmoil, has been disappointed by modest uptake of its digital services, and that shiny tech juggernaut is tarnished. Sadly, this episode in GE history could make it even harder to attract the next wave of tech recruits.

It is true that GE used the journey metaphor in many of its presentations and statements over the past few years. But it’s also true that use of the present tense in presentations could have given the impression that all the pieces of the new ecosystem were already in place.

How to get customers and stakeholders excited about a new vision while setting realistic near-term expectations?

Utilities have had their own conundrum: How to get customers and stakeholders excited about a new vision while setting realistic near-term expectations? We’ve seen the challenge most obviously with smart meters, which can enable multiple customer and utility benefits—over time. However, the promise of smart meters has been largely unfulfilled, in part because customer benefits often depend upon as-yet-unavailable time-of-use rates, dynamic pricing, and other tools. Even where time-of-use rates are available, smart meters haven’t always delivered as expected.

“The power company” used to just deliver electricity. Now the proliferating attributes of that electricity and ways of interacting with it are pushing utilities into a different sort of business. Gaining buy-in for new options without overselling them is no easy task, especially for an industry adapting to a more dynamic customer relationship.

2. Don’t Assume Size Correlates with Business Stability

The largest, most apparently successful companies don’t always choose the best strategies or execute them perfectly. When big enterprises fail, the fallout can be destabilizing on multiple fronts. The February Businessweek article includes a graph showing that “GE has been the worst-performing stock in the Dow Jones industrial average for more than a year.” That trend has had workforce consequences.

When I visited the GE corporate website this week, the dynamic scroll on the search bar offered this as one of the options: “Interested in a GE career?” That struck me as sadly ironic in the face of the 12,000 layoffs globally in just its power business that were announced in December 2017. (It bears noting that GE rivals Siemens and Mitsubishi Hitachi also announced layoffs in their power divisions in recent months.)

Most utilities also are large, and with the latest mergers, some are growing larger. It’s hard to imagine that such powerful businesses, especially those whose earnings are protected by state regulatory commissions, could suffer the sort of fate facing GE today. Then again, it was hard for many, including those at GE, to imagine that its scope and influence might seriously contract.

3. Don’t Ignore the Signs

A familiar phrase in investment disclosure statements warns that, “Past performance is no guarantee of future results.” Though nobody can predict the future, the present does give us signs of where current trends might reasonably lead, so it’s dangerous to expect the future to resemble the past. One example: Developed nations over the past decade have seen essentially flat load growth as well as plummeting costs for solar, wind, and battery power. Where might that lead?

On the power side, where turbines, balance-of-plant equipment, and service agreements have been GE’s bread and butter, renewables have been named and blamed for the business downturn. However, the company also has stakes in renewables, representing about one-tenth of annual revenue, so global price drops for renewables should have come as no surprise.

Until recently, it seems that GE, like many other companies and power industry experts, assumed that flexible gas turbines and fast-start engines would be needed to “smooth out” the variable generation from growing wind and solar resources. However, around the world, a combination of market forces, technology improvements, and adjustments in grid operation is changing the equation.

Notice that the threat to GE’s business-as-usual assumptions wasn’t a single factor. It was a complex reconfiguration of many small elements. Small changes, aggregated together, can have oversized effects.

Small changes, aggregated together, can have oversized effects.

Utilities can’t predict precisely where all of today’s small shifts will lead, so they need to keep their eyes on all the signs of change ahead.

4. Don’t Confuse the Message with the Market

GE has long been adept at branding and marketing. In the case of its pivot to digital, that success may have contributed to overestimating the market’s readiness.

When GE rebranded itself as The Digital Industrial Company, it did so to position the multinational as the leader in building out and providing the preferred cloud-enabled platform—called Predix—for the Industrial Internet of Things (IIoT). I covered those plans in my January 2016 cover story in POWER about how the digitization of power plants, big data, and analytics promised to deliver cost savings and efficiencies across the sector. I noted that the digitization of power generation had been with us for several years and was developing in incremental steps, with conversations from analog to digital control rooms, the increasing use of wireless sensors, and the development of remote monitoring.

But that natural evolution, as it might be called, wasn’t enough for GE. Under Immelt, the company created a vision of a totally digitized, cloud-enabled ecosystem for monitoring and analytics across industrial sectors. Admittedly, it was described in some presentations as a transformation achieved over a number of stages, but the graphic trajectory gave the impression of inevitability. I had a first-hand look at the promotion of this vision when I attended the company-hosted Minds+Machines event in the fall of 2015.

Prior to that event, GE had made several moves to acquire the raw materials required to execute its digital vision. It brought entire companies into GE—including the Canadian cybersecurity firm Wurldtech, it established a physical presence in Silicon Valley, and it hired several individuals with tech pedigrees for new leadership positions that had the words “Digital” and “Software” in their titles. That GE had bought into the Silicon Valley way of doing business was even evident in the corporate uniform: no ties, several leather jackets, and even a few black turtlenecks—the quintessential Steve Jobs tribute.

The event’s presentations displayed high production values and were inspiring, as they promised exponential improvements in everything from safety to power plant maintenance savings. But I was struck by how much the present tense was used to describe what was largely a vision of the future.

I was also surprised by the assumption that GE’s Predix platform would be the platform for the IIoT that GE saw as the inevitable future. I asked several non-media attendees about their take on this positioning, and they agreed that GE appeared to be staking claim to Master of the IIoT Universe.

Two years later, it’s clear that few have bought into GE’s vision of a highly accelerated move to digitize everything under the industrial sun. Design News last month published an assessment whose title says it all: “Huge Digital Divide Between IIoT Promise and Practice.” The lede reads: “GE Digital has released research that highlights a gap between the executive outlook for digital transformation and the actual initiatives companies are putting in place. GE’s survey of IT and OT leaders found that while companies see the Industrial IoT as presenting significant opportunities for growth and competitiveness, the vast majority of companies are not yet taking actions to implement this technology.”

The results surprised the GE researchers, but they probably don’t surprise anyone at a utility. Cost, security, and privacy were cited as the biggest drawbacks to digital transformation. Workforce challenges and change management were others.

The potential benefits of digital transformation are now obvious to most corporate leaders—including some utilities that have been early travelers on the digital journey, among them, Exelon and New York Power Authority—but so are the risks. Startup maxims like “move fast and break things” may be (mostly) fine for the latest free consumer app. Not so much for technology that wants to embed itself in the most complex and essential systems on the planet—our power grids, which encompass everything from power generation sources large and small to refrigerators and infant incubators.

I’m not saying that GE misrepresented its prospects, but there was certainly an element of “fake it till you make it” at work in its digital disruption campaign. Enthusiasm for the vision may have fueled unrealistic expectations. It’s a risk faced by startups of every size.

I have no doubt that GE’s IIoT offerings and those of its competitors will be more widely adopted over time, but not nearly as quickly as GE anticipated. Evidence of GE’s revised expectations can be seen in the 148 layoffs at its San Ramon, California, digital division that were announced last November and the additional 80 people in the digital division in Norwalk, Connecticut, who were let go. The departures have included C-level staff.

Don’t confuse marketing splash with business success.

The lessons for utilities are obvious but not easily applied: Manage expectations—don’t confuse the goal with the often arduous process required to achieve it—and don’t confuse marketing splash with business success.

“Digital transformation” remains a buzz phrase in the industry, especially among consultants, but it’s a transformation that won’t happen at the speed seen in the consumer market.

5. Don’t Equate Failed Strategy with Bad Ideas

GE’s reach exceeded its near-term grasp, but that doesn’t mean it was completely wrong about the digital future.

GE’s stumbles are no excuse for utility inaction. Asking lots of questions—about security in particular—and requiring proof of claims needs to be part of the transition. (In fact, “transition” is a more accurate term than “transformation”; the former acknowledges the necessary process, whereas the latter implies a virtually instantaneous, even magical change.)

There are countless opportunities for low-risk changes. As staff across functions become more familiar with new ways of working and see the benefits of greater digitization, utilities can ramp up the speed of change and level of complexity while they retrain or add staff to ensure the safe and secure operation of ever-more-digital tools. Many are already doing this. Whether they can adopt an optimal speed of change remains to be seen.

Does anyone seriously believe utilities can escape the digital future forever, while everything around them is moving in that direction?

Regardless of your take on GE’s recent fate, here’s the ultimate question: Does anyone seriously believe utilities can escape the digital future forever, while everything around them is moving in that direction?

Gail Reitenbach, PhD (gail@righthandcom.com) is a writer, editor, and communications consultant whose firm, Right Hand Communications LLC, also produces independent reports on events of key importance for the energy and utility industry (righthandreports.com). She is the former editor of POWER, among other publications.