Summary essay

The Morphing Continues: The New Regional Strategy

As the locomotive contract negotiations were being finalized, they provided a convenient market entrée to other parts of GE’s transportation business. In particular, the sales and marketing peo- ple from the Services and Signaling P&Ls began using the Locomotive team’s contacts to introduce their own products and services. For example, Transportation’s Service P&L planned to link any new locomotive sales with a service contract to renew and refurbish worn components locally rather than replacing them with imported new parts. Not only could they promise to save the cus- tomer money, they could offer to transfer technol- ogy and bring employment to the country.

As initiatives such as this became the norm in markets where locomotive contracts had been signed, the management team of the Locomotive P&L began to explore whether an integrated regional approach to growth might be a more effective business model than the product-based Global Families approach. It was an approach that Comte believed had great value. As he grew the Transportation marketing staff from 14 people to 32, he began moving a sig- nificant number of them out of Erie and into the field where they could be closer to the customer. As part of a new geographic-based capability, he

deployed seven Regional Marketing Strategists, each of whom built his own local capabilities to support Transportation’s regional general managers. (See Exhibit 8 for Transportation’s marketing organization.)

In December 2006, when the message came down that the Commercial Council would like to see businesses submitting more IB proposals for new emerging countries, it gave support to the growing notion that there was a need to reconfigure the global locomotive IB project once again. One proposal was to morph the major thrust of the GLF project into three integrated regional IBs—one for China, one for Russia/CIS, and one for India—each respon- sible for driving growth by developing its market for an integrated package of GE locomotives, signals, services, etc. It was an intriguing idea with the po- tential to roll out to other regions, but would mark he third iteration of this IB in its young, less than 18 month life. Some were concerned that it might seem like project churning.

The Hybrid Engine Dilemma: To Be or Not to Be?

At the same December IB Review, the Transporta- tion business was also scheduled to present its latest plans for the Hybrid Locomotive IB. As the entire management team understood, almost three years earlier the Hybrid had captured Immelt’s attention as a perfect candidate to fit into the company’s just- announced Ecomagination program committed to environmentally responsive innovation. Indeed, it had been the CEO’s suggestion to elevate the re- search on the Hybrid engine and to give it IB status. As he had publicly stated, the Hybrid Locomotive represented “the right solution for the customer, for the market, for the environment, and for GE.”

The plans for the Hybrid were centered on a diesel-electric engine that would capture the energy generated during braking and store it in a series of sophisticated batteries. That stored energy could then be used on demand, reducing fuel consump- tion by as much as 15% and emissions by as much as 50% compared with freight locomotives already in service.8 But as the concept was translated into a product, it became clear that the battery technology at the core of its design was not able to achieve the proposed customer benefits or provide them at a cost that would make the project economical. As a result, three years into the program, there was no clear evidence that the Hybrid IB would be able to meet any of its original stated objectives—to add value to the customer, to provide returns to GE, and to allow access to new markets. This led some to suggest that the Hybrid should join of the lapsed IBs that had been declared “worthwhile experi- ments that did not work out.”

At Transportation’s monthly Growth Council preparing for Immelt’s December IB Review, Dineen, BeGole, and Comte explored the options. BeGole argued that with all the opportunities available in other product-line extensions and geographic expansions, the opportunity cost of the Hybrid project was very high. Specifically, he ex- plained that because of his limited finances and engineering resources (particularly the latter), committing to this option would mean postponing the rollout of some of the promising new interna- tional regional platforms for Evo.

On the other hand, as Compte reminded the team, the long-term trend away from fossil fuels and toward alternative energy meant that eventually GE would have to develop hybrid technology. Knowing Immelt’s commitment to the Hybrid project, Compte asked whether the team had done enough to understand how customer value could be created in different segments, to explore alternative technological solutions, or to pursue other sources of funding. On the last point, he explained that while his marketing organization had located some potential government funding for hybrid develop- ment, they had not applied for funds since this was not GE’s normal approach to project financing. In response to questioning, however, Compte acknowl- edge that even with such additional funds, investing in the Hybrid would mean diverting resources from other growth prospects that seemed more immedi- ately promising.

As Dineen summarized the discussions, he posed three alternative scenarios that could be presented at the December IB Review:

• The first option would be to explain that while the project as currently defined appeared to have very limited to short- to medium-term commer- cial viability, the business would commit to it as an IB and continue to explore alternative ways to make it successful.

• The second approach would be to acknowledge the Hybrid’s long-term potential, but suggest that it be placed on hold as an IB, perhaps by trans- ferring primary responsibility to the Global Re- search Center to work on the battery technology in collaboration with various GE businesses— including Transportation—that had an interest in its development. The final alternative would be to recommend that the company acknowledge the fact that after three years of hard work on Hybrid, neither the technology development nor the market accep- tance of the concept had indicated that it could be a viable commercial proposition in the fore- seeable future, and therefore that it be dropped as an IB.

As the management team talked through these options, they tried to balance the best interest of the business with what Immelt was likely to believe was in the best interests of the company. With 83 IBs now approved, and 35 already launched and generating more than $2 billion in additional revenues, the CEO and felt that the process of generating organic growth was established. But that did not mean that he was becoming less involved. He personally tracked every IB, and focused even more intently on those that had caught his attention—like the Hybrid Locomotive. But in true GE fashion, he also held each business responsible for its current performance. As Transportation’s management team realized, determining the Hy- brid’s future was a tough and vital decision that it must now make.