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James Flanigan

GE's Broad Vision May Transform Media

September 07, 2003|James Flanigan

Six years ago, the head of General Electric Co.'s Medical Systems division asked his customers -- the nation's hospitals -- why they were experiencing such a high failure rate when they treated patients with magnetic resonance imaging systems.

The reply: Folks were too badly injured or too claustrophobic to lie still for 15 minutes inside the MRI machines that GE supplied.

The response led GE to push the development of the LightSpeed imager, a contraption that can scan the entire body in a few minutes without having the patient enclosed in a massive tube. It was a big breakthrough -- for the medical community, for the company and for the executive who championed the product: Jeffrey Immelt.

Thanks in part to the success of LightSpeed, Immelt went on to become the chairman of GE, taking the reins of the Fairfield, Conn., conglomerate two years ago from the legendary John F. "Jack" Welch Jr.

Last week, under Immelt's direction, GE struck a tentative agreement to merge its NBC television unit with Vivendi Universal's entertainment properties. Wall Street applauded the move, and for good reason: GE, which would control 80% of the new NBC Universal operation, would get a lucrative television production shop, well-managed film studio, cluster of cable channels and rich library of TV and movies for a good price. Indeed, the deal calls for GE to put up only $3.8 billion in cash upfront.

But it is GE's broader vision -- driven by a dedication to the kind of technological innovation seen with the LightSpeed project -- that could turn the Universal transaction into a truly big winner.

As Nicholas Heymann of Prudential Securities noted in a report last week: "Immelt wants to use technology to meet ever-changing customer lifestyles, in ways that never become a mere commodity."

If GE succeeds, the consumption of information and entertainment will one day be far different from what we know now. By employing interactive digital communication, GE hopes to be a major player in the delivery of customized programming to homes across America and the world.

It doesn't plan to stop with TV shows and movies, either. GE's fare might well include security services through the alarm and protection companies it has acquired in recent years, as well as health care through its Medical Systems division and financial services through its vast GE Capital Services unit.

"Technology is the heart of the strategy," Immelt told shareholders this year, "because it drives valuable growth."

Of course, GE is no stranger to the power of technology. It was founded 125 years ago by Thomas Edison, the inventor of the light bulb.

Yet during the 1980s, under Welch's tenure, the company did pull back from its dedication to cutting-edge research and development. During that period, GE shifted its focus from manufacturing to services and from long-range R&D projects to ones that could yield profits more quickly.

Immelt, notably, has reversed course on R&D.

He has increased GE's research budget 30% over two years to $2.6 billion. He also has redirected the mission of the company's venerable research laboratory near Schenectady, N.Y., back to long-term research on subjects such as molecular imaging, hydrogen energy, nanotechnology, advanced propulsion and the conversion of light to energy. GE also is opening research labs in China and Germany, in addition to two research centers it already operates in India.

Much has been made in the last week about GE's exacting, tightfisted management style -- and how it may play in Hollywood, where people are used to running things in a way that's, shall we say, a bit looser. Six Sigma, the famous GE management system that tolerates only 3.4 errors per every 1 million operations, seems laughable in a town where directors are known to yell "Cut" 3.4 times in a five-minute stretch on the set.

NBC, purchased by GE in 1986, saw its own sensibilities shaken up after the industrial giant acquired it. Noel Tichy, who worked at GE at the time and is today a professor at the University of Michigan Business School, recalls going into the cushioned world of network television executives in New York. "Three-martini lunches," he says, gave way "to working and achieving."

But far more intriguing than how GE may transform Universal's corporate culture is how it may use technology to transform the way entertainment is packaged and delivered.

To be sure, it won't happen overnight. As Immelt well knows, LightSpeeds don't happen at the speed of light. But one day, we may all look back at GE's merger of Universal and recognize that it was the beginning of something revolutionary.

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James Flanigan can be reached at jim.flanigan@latimes.com.

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