GE – Interesting perspectives on R&D strategy

The NY Times article For G.E. and Jeffrey Immelt, a Return to Basics has some interesting sound bites from the CEO Jeffery Immelt:

Strategies are useful, he says, but only if they can quickly adjust to nasty real-world surprises. “In the words of the great philosopher Mike Tyson,” Mr. Immelt says, smiling, “everybody has a plan till they get punched in the mouth.”

The focus seems to be adaptability in face of a rapidly changing environment

And what wisdom is on tap at the United States Military Academy? “Adaptability” and “resiliency” amid uncertainty, says Mr. Immelt — skills as vital to surviving in business as they are on the battlefield.

I think effective R&D planning and portfolio management is key to adaptability.  If market forces require a change in products under development, managers need to have detailed visibility into every single R&D project.  This access needs to be so comprehensive that executives can quickly perform what-if scenarios on what new products can be developed by minimal tweaking of existing projects.  More on this below.

The other GE strategic focus is Technology-differentiated Manufacturing:

He’s most animated talking about heavyweight products that take patience and piles of cash to develop, weigh tons and last for years — next-generation jet engines, power turbines, locomotives, nuclear plants, water-treatment systems, medical-imaging equipment, solar panels and windmills. Mr. Immelt notes, for example, that the cost of a good-sized solar-panel plant, about $70 million, is more than twice the total investment in Google in the six years before it went public in 2004.
The costs and complexities of such businesses, he adds, make it hard for just any company to compete. These are markets, he says, that have “big moats. They’re tough to get in.”

So, if there is significant investment (both capital and R&D) in developing these moats, then being adaptable is going to be rather difficult.  So, if the jet engine market shifts from higher efficiency / lower operating costs to higher speeds, how will GE be able to respond?  Or if the solar business sees new entrants with low cost organic cells, how will GE be able to change its $70M plant?  This will be rather difficult:

Despite the financial crisis and recession, Mr. Immelt has kept investing for the long haul. Research and development spending increased last year to $3.3 billion, and will be still higher this year. “It would have been easy to say times are tough and we’ll pull back on research spending and long-range projects, but he didn’t do any of that,” says Vijay Govindarajan, a professor at the Tuck School of Business at Dartmouth and a former consultant to G.E. “Jeff Immelt really held onto his technology-led-innovation agenda.”

 It is not just that the Mr. Immelt held onto his strategy, it is also that it is very difficult to change these strategies mid-stream.  Most differentiating technologies take years to develop and a start-stop-restart approach just will not work.  Furthermore, most R&D is still managed using gut feelings.  It is extremely difficult to adapt to new markets when one does not know what drove old decisions to start with…  We need a new paradigm to managing R&D!