GE has invested in a multibillion-dollar initiative that it calls the industrial
ID: 2812681 • Letter: G
Question
GE has invested in a multibillion-dollar initiative that it calls the industrial Internet. This initiative is revolutionizing the way in which GE creates and captures value. "GE's initiative proposes an open global network of machines, data, and people to generate a plethora of new business opportunities and outcomes-based business models. It focuses on providing data synthesis and analysis and designing real-time and predictive solutions to optimize the complex operations of its customers. Along with sensors and microprocessors, GE already had significant embedded software running a host of equipment across its businesses, including power plants, jet engines, hospitals and medical systems, utility companies, oil rigs, rail, and other industrial infrastructure worldwide. As the scope of the opportunity became apparent, CEO Jeffrey Immelt recognized that the company would have to build new capabilities. "It would need a global center to develop and support software applications uniformly across the businesses and it would need new and innovative approaches to managing customer relationships-including how to sell and service the new offerings."3 GE's wind farm deal with E.ON illustrates how the selling process and the customer relationships change. Rather than selling more turbines to customers, GE used E.ON's massive operational data to run advanced analytics and determine a different solution. The analysis indicated that E.ON could meet the demand for power with a relatively modest purchase o equipment to connect all the turbines through software that provides for dynamic control and real-time analytics. GE creates value by gathering useful data and uses that information to optimize performance, utilization, and maintenance. In turn, GE captures value by receiving a percentage of the customer's incremental revenue from mproved performance (1.e., an outcomes-based business model) This discussion draws on Marco Iansiti and Karim R. Lakhani, "Digital Ubiquity: How Connections, Sensors, and Data Are Revolutionizing Business," Harvard Business Review 92 (November 2014): pp. 91-97 2Tbid., p. 94- Ibid P. 94 For a GE salesperson, describe how an outcomes-based business model changes what they sell, how they sell, and to whom they sell.Explanation / Answer
As per the proposal given above, GE has big bet on the induatrial internet with the convergence of machines and data and the internet. The company is putting sensors on gas turbines, jet engines, and other machines; connecting them to the cloud; and analyzing the resulting flow of data.
Outcome-Based Pricing
When a customer purchases any thing from GE, be it aircraft, machine etc., GE and the company will arrange for a 10-15 year of contract that allows the GE to connect to and monitor that machine, perform basic maintenance and diagnostics, and provide fixed-interval repairs. If GE keeps the equipment running at a certain agreed-upon threshold, the company receives a bonus payment.
This outcome-based pricing will increase the confidence of its customers. However, for the salesperson this outcome-based pricing will change the dynamics of what they sell, how they sell and to whom they sell. They will have to keep the customers confidence into first priority and the quality of their service before they sell the products. Major customers over here will be big businessman, industrialists etc. so their target audience also changes.
As one of the GE persons said, “We believe deeply in subscription models being the future, so we’re trying to build subscriptions that are priced based on the value that they deliver, If we’re talking about taking cost out of the service agreement and providing a subscription to an app that has a set of analytics to help do that, then it’s outcome-based.”
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