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Will GE stay on digital path following CEO's departure?

GE CEO Jeffrey Immelt is stepping down after boldly paving the company's digital path. He stuck to his guns and CIOs should too. Also: Amazon to buy Whole Foods.

General Electric is losing its greatest digital advocate and CIO ally. What now?

That was the salient question when Jeffrey R. Immelt announced this week that he was stepping down on August 1st as GE's chairman and CEO, after serving 16 years at the helm.

Much of the commentary focused on the fact that GE's stock performance and profit growth had languished under Immelt's tenure in recent years, intensifying calls for change from investors. John Flannery, the current president and CEO of GE Healthcare known for his deal-making skills, will take Immelt's place as chairman and CEO.

CIOs no doubt viewed this news through a different prism. Immelt not only launched the company's bold digital transformation plan -- stating in 2015 that GE was on track be a "top 10 software company" by 2020 -- but he was also a champion of CIOs and their role in the new economy, encouraging them to become active leaders and claim a seat at the table.

"You've been too passive for too long. You're not conceptualizing how important you are in your company," Immelt told a room full of CIOs at the 2015 Gartner Symposium.

By then, Immelt was immersed in paving GE's digital path, investing heavily in software engineering; building sensor-embedded and internet-connected turbines, jet engines and other machines; developing Predix, a cloud-based industrial digital platform that collects and analyzes data to improve efficiency; backing emerging concepts like digital twins and acquiring a string of AI startups.  

"Jeff Immelt was a catalyst for GE’s pivot to becoming a digital enterprise. He took over a workforce that had been indoctrinated through adherence to process excellence and was able to instill a culture of creativity and innovation," said Shawn Banerji, managing partner for the Technology, Digital and Data Leaders practice at Caldwell Partners.

Banerji said he feels sure Immelt will be viewed as a central player in GE's history, current shareholder displeasure notwithstanding.

"This was an absolutely herculean task and I believe that it will ultimately be his legacy," he said.

No turning back from digital

GE CIO Jim Fowler said as much at the recent MIT Sloan CIO Symposium, sharing that Immelt is his biggest ally as well as a hands-on leader when it comes to digital transformation, tracking digital efficiency and revenue targets with GE business unit leaders on a monthly basis.

With Immelt gone, the extent to which GE will continue his legacy remains to be seen, but Banerji and others I spoke to say there's no stopping the digital transformation train now.

"It's unlikely that GE will scale back its digital efforts in the wake of Mr. Immelt’s departure," said Banerji.  While GE's clever commercials tout the company's digital transformation to Millennials as a done deal, its re-invention has really just begun.

"Despite its excellent marketing, the company's investment in IoT is still in the nascent stages relative to a longer journey of digital transformation. The most compelling returns on those investments are in GE's future. A deviation under the new CEO is possible, but a wholesale stoppage won’t happen," Banerji said.

Isaac Sacolick, principal at consulting firm StarCIO and a former CIO, agreed, saying it would be a mistake for GE to slow down now and cede a leadership position in the industrial internet of things. But it would not surprise him if incoming CEO John Flannery elects to adjust GE's digital path and "rebalance the portfolio toward specific industries."

Indeed, Flannery told the Washington Post that the company will be focused on what investors want -- "growth, margin and cash."

"Activist shareholders don't care about the survival of a firm," said R "Ray" Wang, principal analyst at Constellation Research. "They want their returns in 18 to 24 months. … This activist investor only wants to pilfer the coffers of GE instead of focus on long term investment."

'Culture of experimentation, continuous delivery'

Wall Street's impatience with GE's returns had to be unsettling for CIOs in the thick of blazing a digital path for their companies. CIOs -- like the digital-minded Immelt -- are under enormous pressure from the business unit and external forces to deliver profitable, short-term results from digital transformation efforts. The odds -- and the metrics -- are sometimes stacked against them, Banerji said.

"One of the biggest challenges that CIOs who own digital transformation face is that most legacy companies seeking these changes persist in measuring IT spend through traditional investment metrics," he said.

What's a CIO to do when feeling the heat from the business unit to show them the money? It helps to have a CEO in your corner, said Sacolick.

"CIOs have to develop exceptional relationships with the CEO to get help aligning other executives on the rationale behind transformations, defining organizational responsibilities, promoting culture changes, and occasionally stepping in to handle disputes," Sacolick said.

Of course, not every CIO has as strong a business advocate as Immelt and an executive shakeup can throw a wrench in established connections.

Sacolick believes that the CIOs who have the best chance of delivering the short-term results investors want and the longer-term digital capabilities their companies need are those that drive "a culture of experimentation, agile delivery and continuous deployment."

"CIOs can't expect to please every stakeholder or business leader when executing transformation programs," he said.

CIO news roundup for week of June 12

Jeff Immelt's imminent departure as CEO of GE wasn't the only news that was grabbing headlines this week; here's what else made news:

Amazon scoops up Whole Foods. The online retail giant said Friday that it plans to acquire Whole Foods Market, an upmarket grocery chain based in Austin, Texas, for 13.7 billion in cash. "This partnership presents an opportunity to maximize value for Whole Foods Market's shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers," John Mackey, Whole Foods Market co-founder and chief executive, said in a statement. The deal, which is expected to close during the second half of 2017, gives Amazon a major foothold in the brick-and-mortar retail space. Among Amazon's many retail experiments was the launch of AmazonFresh Pickup -- a drive-in grocery pickup service -- in March. In other acquisition news, Bloomberg reported Thursday that Amazon is also eyeing workplace chat and instant messaging startup Slack, valued at $9 billion.

Facebook is using AI to counter terrorist content. The social media giant is stepping up its efforts to remove extremist content from its platform, the company said Thursday. Facebook is employing AI technology and machine learning algorithms to automatically detect and stop potential terrorist propaganda videos and photos from being posted on its site, the company revealed. "We're currently experimenting with analyzing text that we've already removed for praising or supporting terrorist organizations such as ISIS and Al Qaeda so we can develop text-based signals that such content may be terrorist propaganda. That analysis goes into an algorithm that is in the early stages of learning how to detect similar posts," Facebook's Monika Bickert, director of global policy management, and Brian Fishman, counter-terrorism policy manager, wrote in a blog post. Facebook is also using AI to detect fake accounts created by repeat offenders, the company added.

Nike's digital path. In a move designed to leverage the "power of digital," Nike unveiled a new business strategy Thursday. "Through the Consumer Direct Offense, we're getting even more aggressive in the digital marketplace, targeting key markets and delivering product faster than ever," Mark Parker, Nike chairman, president and CEO, said in a statement. The new focus is fueled by what the footwear and apparel company calls a "Triple Double strategy" -- revving up innovation, cutting product creation cycle times in half and enhancing direct connections with customers. The digital push is also expected to result in a reduction of 2% of its global workforce.

Assistant editor Mekhala Roy contributed to this week's Searchlight.

Next Steps

Check out our previous Searchlight roundups on the Argyle CIO Leadership Forum, the MIT Sloan CIO extravaganza and the WannaCry ransomware attack .

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Is Immelt’s departure a referendum on digital transformation?
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I would not consider this a referendum. Jeff understood the need to evolve or die and the digital transformation represents a commitment to a direction that has a high potential payback. The process to replace Jeff started 4 years ago so I would not align his departure with digital. While Flannery could and should implement his vision of GE, the investment and promise of the Digital Thread presents GE with a great opportunity to leverage industrial expertise and generate income from source with unlimited potential.
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