HomeChannelsNewsRegret, but no surprise – the market responds to the demise of GE Digital

Regret, but no surprise – the market responds to the demise of GE Digital

The market’s response to reports of the impending sale of GE Digital combined both regret, that the company’s barnstorming run as a digital-change agent is potentially over, and a distinct lack of surprise, that its parent’s performance and culture has finally told against it.

Reports, stemming originally from a piece in the Wall Street Journal, claim the company has retained the services of an investment bank to auction off certain parts of its digital division.

The for-sale items include its field service management company ServiceMax, acquired for $915 million in 2016, machine analytics firm Meridium, acquired for $500 million in 2016, and its industrial IoT platform Predix, built by GE from scratch, according to the blueprint for digital transformation set out by former chief Jeff Immelt.

Immelt, who left last summer, had pushed a strategy to make GE a top 10 software company by 2020. The sale of GE Digital, based in San Ramon, California, reveals an unwinding, or repositioning at least, of his strategy, set against the backdrop of its parent’s “larger corporate meltdown” during the past 18 months.

Commentators noted the seminal work GE Digital has done to make industrial transformation viable for enterprises.

“The larger organisation as a whole has faced a lot of problems, and this has been a long time coming for GE Digital. I find it sad, because it seems that right as GE Digital started to get its act together, it’s being sold piece by piece,” commented Pierce Owen, principal analyst at ABI Research.

Its early marketing over-promised and under-delivered, he said. But the GE Digital had found its groove, delivering an increasingly expansive roster of digital transformation services. More than this, its bluster and vision in the market had showed the way for rival firms, he said.

“GE Digital failed to live up to talk at first, until very recently. But after five years of talking, its put together an excellent array of technologies and partners, and a legitimate platform.

“I also think it’s bad for the smart manufacturing movement as a whole. As poorly as GE Digital did at first, it served as a catalyst and a wake-up call. We wouldn’t see ABB Ability and Siemens MindSphere making progress now if GE hadn’t kicked the whole industry into gear.”

Owen added: “As it is, I think the sector has enough momentum now that this won’t affect adoption of new technologies very much, but I for one will miss GE Digital, flaws and all.”

GE has invested over $4 billion on acquisitions, platform building, and partnerships, noted Chris Kocher, a 30-year veteran of Silicon Valley, and founder and managing director of venture consulting firm Grey Heron.

“It wants to slim down; it can’t keep funding GE Digital at the current rate. Something’s got to give,” he said.

“The evidence of GE’s frustration has been piling up for the last six-to-nine months, with ongoing losses, planned cost cutting to Predix, and engineering layoffs in San Ramon. It should come as no surprise GE is being forced to make tough decisions. The interesting question is what approach it will take, and what parts or pieces to keep, sell or spin out.”

He suggested interested parties will include private equity firms like Vista Equity Partners and Silver Lake Partners, industrial firms with similar platforms and industries like Bosch, Siemens, Schneider Electric, and Honeywell, and technology giants like Microsoft, Amazon and Google, which are already heavily invested in enterprise cloud systems and communities.

A fourth group, comprising traditional software companies servicing similar vertical markets, including SAP and Oracle, could also be interested. “Let the games begin,” he commented.

GE Digital has repeatedly stated the importance of data analytics and industrial intelligence to its own operations. GE Digital delivered its parent $500 million in productivity gains across its factory set-ups in 2015, followed by $730 million in 2016 and $1 billion in 2017.

“It worked for us so we took it to market,” said Deborah Sherry, senior vice president and chief commercial officer at GE Digital, at Internet of Things World Europe in London, in June.

Eddie Amos, vice president of platform and applications and chief technology officer at GE Digital, told Enterprise IoT Insights the business is its own ‘living lab’.

“We use the tech in our own manufacturing facilities – with condition based monitoring and smart analytics. If you look at our power monitoring and diagnostics centre, that’s all based on our as- set performance management applications. We’re just extending what we’ve already done in the manufacturing realm,” he said.

Its digital-transformation proposition, built around the Predix platform, has helped many others: SSE has saved £10 million on unplanned outages, Deutsche Bahn has reduced service failures by a quarter; Noble has reduced on-rig costs by 20 per cent; RasGas has slashed volumetric downtime by six days per year.

In an interview with Forbes, GE chief digital officer and GE Digital chief executive William Ruh notes digital change programmes often come unstuck because of a lack of a failure of culture, leadership, and talent.

But Alex Moazed, founder and chief at ‘platform innovation company’ Applico in New York, notes in Inc magazine that a traditional corporate structure and culture makes it impossible for innovation to thrive.

“Digital transformation initiatives don’t need thousands of people. They need a small team with very little time and very little money. Even worse, GE Digital was saddled with a quarterly P&L, which oriented its business around short-term revenue growth rather than long-term strategic objectives. This setup is the exact opposite of what digital transformation initiatives need to thrive,” he writes.

While GE may be scaling back its digital transformation ambitions, there’s no reason it can’t still be successful, he says. But it needs to structure its digital business correctly.

“A platform business could gain a lot of traction in two particular areas: health care and the smart factory. GE already has control over the data running its hardware and software in these industries. Opening up that data to third-party app developers could create a lot of value for their end customers.

“For these initiatives to succeed, GE Digital will need to be unchained from its current structure. Shackled to a quarterly P&L, it will continue to be unable to make the kind of long-term investments and strategic decisions needed to capitalise on these opportunities.”

At writing, GE maintained a silence on rumours of a sale. At the same time, the business maintained it is exploring a mix of technical, go-to-market and investment partnerships to enable continued growth.

John Flannery, chief executive at GE, commented: “I want to be clear. GE Digital will continue to grow its strong commercial business, focused on both GE and its industrial customers. We see strong long-term growth in our core industries. We also will leverage our partners to pursue the strong digital growth opportunities we are seeing beyond our core industries. The future is digital and GE will play a key role in it.”

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