Reiner addressed those results and GE's view of the Net with BusinessWeek's Pamela L. Moore via e-mail. Here are edited excerpts of their conversation:
Q: How will the Net be used to create economic value?
A: The Web is contributing economic value to us through the cost-out, growth, and share-gain benefits we're realizing. For example, we anticipate taking out $1 billion in costs by digitizing our internal processes and streamlining our workflow. We'll also get [$600 million] in cost reduction from our suppliers via online auctioning. Combined, these efforts will equal [$1.6 billion] in cost-out and 10 cents EPS growth direct to our bottom line in 2001.
Q: In considering the impact of the Net overall, does the positive outweigh the negative? Harvard Business School prof Michael Porter, for example, argues in a provocative new paper that "most of the trends are negative [and that] while deploying the Internet can expand the market, doing so often comes at the expense of average profitability."
A: Absolutely. The pure dot-coms have struggled to gain profitability in a startup mode. They've had to struggle with infrastructure, personnel, brand, and fulfillment. They had no differentiation other than price, which put pressure on profitability. We didn't have these problems -- we already had the infrastructure, personnel, brand, and fulfillment. So, while a more traditional online model may
struggle through the first years, we've been able to capitalize on the opportunity. That's the value of size. The reality is that the Internet makes many things, including cost, more transparent from a customer's perspective. As a result, differentiation has become paramount -- you must differentiate on brand, fulfillment, product. This is dead-on with our business strategy; it hits our "sweet spot" in terms of what we deliver to customers.
Q: Has your view of the promise of the Internet changed since GE embraced it -- notably since the dot-com crash?
A: No. If anything, we see greater promise than we did just two years ago. We had already decided
prior to the dot-com crash that the real value of the Internet was in productivity and cost-out, not in creating new businesses. The crash just confirmed what we already believed -- the Web is a tool and not a new business model. We've seen small investments resulting in tremendous growth and productivity. The results we see today, [$1.6 billion] in cost-out, 10 cents EPS contribution, $15 billion in online sales...these are all just the beginning of the big gains we expect to see in the coming years.
Q: Look forward five years or so -- what's biggest impact of the Net going to be at GE?
A: The biggest impact will be on productivity. By digitizing key processes and workflow, we are removing unnecessary steps, time, and waste from our businesses. The more we learn in this area, the more we translate directly to our customers' workflow as well. We become more productive, our customers become more productive, and the old growth models get tossed out the window. The reality is that the Web and digitization are having a huge impact on how we think, how we interact with customers, how we operate. We see the Web delivering quantum change to our company over the next few years.
Q: In the future, where does it make the most sense for GE to invest its IT dollars -- that is, where is the big payoff likely to be in Internet projects?
A: We're investing in three specific Internet areas: the buy-, make-, and sell-sides of our Web initiatives. On the buy-side, we're using IT investment to create and leverage auction tools that will help lower our base costs across the board. On the make-side, IT investment is helping to create tools and programs that will remove backroom jobs and provide significant improvements in productivity. On the sell-side, IT investment is focused on getting us completely connected with our customers for all our transactions and interactions. It's these investments that will help create a new GE, a fully digitized company with no boundaries.