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GE Makes a Big Bet on Manufacturing

4 minute read
Ideas

If one company mirrors the travails of American business over the past decade, it’s General Electric. The manufacturing giant founded by Thomas Edison in 1892–and the last of the original firms in the Dow Jones industrial average still listed on that index–grew into a multinational powerhouse that made everything from lightbulbs to locomotives as the U.S. became the world’s lone superpower. Its nickname said everything: Generous Electric. But by the time the 2008 economic crisis hit, GE had gone from being an industrial innovator to being the country’s sixth largest bank, relying on financial wizardry rather than engineering to satisfy investors.

Perhaps the most enduring quality of the broader economic recovery since then has been the gap between reality and perception. While growth and jobs are up, only about 1 in 4 Americans believes the economy is getting stronger, according to a recent survey by the investment firm BlackRock. The reason is clear: personal incomes aren’t rising, except at the very top. Historically, the key to achieving broad income growth has been creating more middle-income jobs. And those have traditionally come from the manufacturing sector.

Which is partly why, in order to save his company, CEO Jeffrey Immelt borrowed $3 billion from Warren Buffett and vowed to retool GE–away from complex financial schemes and back toward making things. GE, in other words, is trying to do what the U.S. as a whole needed to do: rebalance its economy and get back to basics.

So, six years on from disaster, how is it going?

Immelt has made progress. With the recent spin-off of GE’s consumer-finance division, which peddles financial products ranging from private-label credit cards to auto loans, the share of profits that comes from finance has gone from more than half to about 40%. The target is to get it back down to around 25%. As CFO Jeff Bornstein recently put it to me, “We had to decide whether we wanted to be a tech company that solves the world’s big problems or a finance company that makes a few things.”

GE’s executives are betting on a few megatrends, including the belief that emerging-market economies are entering a period very much like the post–World War II period in the U.S. Those countries will need new houses, bridges, roads, airports and all types of consumer goods in unprecedented quantities. The McKinsey Global Institute estimates that by 2025, emerging-economy nations will spend more than $20 trillion a year in this way. That means that future economic growth may well be centered on making things, rather than trading on their value.

To help capture its share of that action, GE is trying to copy some of Silicon Valley’s methods. The company has set up a “growth board” that operates like an internal venture-capital firm, vetting new ideas presented by employees and then dishing out a bit of time and capital to explore them. The result is that production cycles for projects like new oil-drilling equipment or LED lighting systems are shortening dramatically. An idea that once took two years to test might go from paper to production in 45 days.

The firm is also sourcing new ideas from the crowd. One recent design for a bracket on a jet engine came from a 22-year-old in Indonesia who had tapped into a website where the company posts problems and offers payouts to whoever can solve them.

Still, the big question is just how many good new jobs America’s industrial firms, small and large, will actually create in the coming years. So far, the trends are positive. In October, the Boston Consulting Group’s annual survey of senior manufacturing executives found that the number of respondents bringing production back from China to the U.S. had risen 20% in the past year. GE’s new hub in San Ramon, Calif., which was launched more than two years ago to explore the burgeoning “Internet of things” (i.e., machine-to-machine communication via the Internet), has gone from zero employees to more than 1,000. The company is also using more local small and midsize suppliers, thanks to new technologies like 3-D printing that let startups achieve more speed and scale.

Such trends at GE and elsewhere have yet to replace the 1.6 million manufacturing jobs lost in the recession. The good news about our postcrisis economy is that it is smarter and nimbler and growing in the right sectors. The bad news is that it still doesn’t have enough good jobs for those who need them. The way forward may be clear, but getting there is another story.

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