General Electric finds success in Florence’s ‘tough neighbourhood’
GE’s Italian operations teach three lessons: a buy-in from top management; key customers should be brought into the R&D process at an early stage; innovation can come through company-wide programmes.
Not many people would associate the scenic Italian city of Florence, where General Electric manufactures its turbomachines and compressors, with a tough neighbourhood. Yet at GE’s annual outlook investor meeting in New York city on 16 December 2015, CEO Jeffrey Immelt likened GE’s oil and gas market to such a place.
Mr Immelt made this revealing comparison because the financial expectations for the company’s oil and gas division are particularly cyclical for the coming year.
Studying how GE’s oil and gas division managed to brew their own recipe for success in this ‘tough neighbourhood’, and at the same time demonstrated how it is possible to drive innovation in a difficult environment, three lessons emerge; innovation requires the buy-in of top management, key customers should be brought into the research and development process at a very early stage and innovation can be empowered through company-wide programmes.
GE’s turbomachinery solutions (TMS) business, one of the oil and gas division’s most important product lines, is headquartered in Florence where its centrifugal compressors are manufactured. During the investor meeting with Wall Street analysts, Mr Immelt made a reference to the challenges facing “Lorenzo’s team”. He was referring to Lorenzo Simonelli, the president and chief executive of GE Oil & Gas, a division with 40,000 employees across 120 countries which is accountable for $19.7 billion in sales, representing 12 per cent of GE’s total sales in 2014.
On the outskirts of the Italian city lies an 86.5-acre facility that employs 4,500 workers wearing the familiar GE insignia on their safety helmets. The 175-year-old plant was bought by GE more than two decades ago when the visionary Jack Welch was in charge. Not a bad move for a chief executive who knew how to spot value—during his 20-year tenure GE’s value rose an astronomical 4,000 per cent.
Since the acquisition, the turbomachinery business—still widely known by its original name Nuovo Pignone, passed down from its Italian legacy—has contributed substantially to GE’s overall growth. Currently, the oil and gas industry is going through one of its most difficult cyclical downturns due to the dramatic fall in oil prices.
Nevertheless, the highly-trained mechanical engineers in Florence do know how to hold their own in hard times.