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When it comes to castles, “big moats” are tougher and more costly to build — but they’re also much better at keeping people out. With manufacturing, big investments that bring to market advanced technologies can have the same effect — keeping the competition from ever getting close.
As The New York Times underscores in its in-depth story, ‘G.E. Goes With What It Knows: Making Stuff,’ a “big moat” manufacturing strategy is precisely what GE is successfully pursuing right now.
It centers on “heavyweight products that take patience and piles of cash to develop, weigh tons and last for years — next-generation jet engines, power turbines, locomotives, nuclear plants, water-treatment systems, medical-imaging equipment, solar panels and windmills. The costs and complexities of such businesses… make it hard for just any company to compete.” Essentially, these are markets, that have “big moats,’” GE Chairman and CEO Jeff Immelt told the paper. “They’re tough to get in.”
But the pay-off is that big-moat businesses can also be quite lucrative. “Mr. Immelt points to G.E.’s jet-engine business as an example, saying that it has higher profit margins and returns on capital than the leading banks. ‘It doesn’t happen every quarter or every year,’ he says. ‘But over a 10- or 20-year time period, the businesses that are hard to do had the best returns. So the arithmetic works over time.’”
That focus on “technology-based manufacturing” is also turning into jobs, with the Times noting that more than 4,000 have been created by GE over the last 18 months, including “new factory jobs in Kentucky, Ohio, New York, Alabama and Mississippi, for making products including energy-thrifty washers and dryers, fluorescent light bulbs, sodium batteries, environmental coatings and jet engines. And the company is opening a research center in Michigan for advanced manufacturing technologies.”
As Immelt explained, the key is focusing on what he calls “large-scale entrepreneurship” by “identifying long-term market shifts — ‘what’s next,’ he says — and then marshaling the company’s research, manufacturing and marketing resources to capitalize on the opportunity. “It’s about using the scale of G.E., the majesty of the company, to drive growth and change,” he says.
Even with the financial crisis and recession, “research and development spending increased last year to $3.3 billion, and will be still higher this year.”
“The underlying DNA of GE, going back a century, has been to invest for growth in its technology base,” Noel Tichy, a professor at the University of Michigan business school who once ran GE’s management school in Crotonville, N.Y. told the paper. “So by increasing R.& D. spending and with investments in manufacturing, Jeff Immelt is going ‘back to the future’ at G.E.”
Investing in downturns: For the story, The Times visited GE’s Batesville, Mississippi Aviation plant, seen above, where composite materials developed in GE’s labs are used to create the new fuel-efficient ecomagination GEnx jet engine for Boeing’s 787 Dreamliner and bigger 747 freighter. Click here to see a video that shows how the blades are made.
Learn more in these GE Reports stories:
* “GE’s New Plant Investments Now Top $1B; Create Over 1,300 Jobs”
* “In 1 Day: $128M for Manufacturing; 630 Jobs Created or Retained”
* “GE’s plan to add 830 jobs to Louisville draws VP Biden”
* “Re-inventing factories: The Kaizen/‘moonshine’ method”
* “GE’s new KY deal marks a great time to be in hot water”
* “American Renewal: Immelt addresses Detroit Econ Club” here