Wednesday, January 6, 2016

Jeff Immelt: Building versus buying

We went through a process of “make versus buy,” “in versus out.” We basically said, “Look, do we want to make a big acquisition in analytics or IT?” And we analyzed a bunch of different cases and said, “We don’t have the foundation inside the company to do a big acquisition. Do we want to partner, or do we want to do it ourselves?” We have lots of good software partners, but, basically, we said, “We need to do this ourselves. Let’s err on the side of seeing if we could approach it in that way.” That was 2010. So we brought people in from the outside. We built a center in California. We started populating our businesses. Roll forward, we started doing applications with customers. We started building it into our service business, things like that. 
I could give you a bunch of different analogies, but in the case of our locomotive customers, they have a phrase called “velocity.” Every CEO of a railroad could tell you their velocity. The velocity tends to be, let’s say, between 20 and 25 miles per hour. This tends to be the average miles per hour that a locomotive travels in a day—22. Doesn’t seem very good. And the difference between 23 and 22 for, let’s say, Norfolk Southern, is worth $250 million in annual profit. That’s huge for a company like that. That’s one mile [per hour]. So that’s all about scheduling better. It’s all about less downtime. It’s all about not having broken wheels, being able to get through Chicago faster. That’s all analytics.
Reference: GE’s Jeff Immelt on digitizing in the industrial space.

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