September 18, 2000

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Wake-Up Call

GE and GM pumped up E-business efforts and overhauled their old-line businesses to aggressively counter competitors

By Marianne Kolbasuk McGee

More on E-business transformation:

sidebar:General Motors' Go-To Manager sidebar:Reiner's Importance Rises With The IT Tide At GE Vendor Brings ERP Product Into E-Commerce World (9/4/00) Value, And Pain, In Integration (9/4/00) Ace Hardware Uses Kiosks As Virtual Shelf Space (7/31/00)

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or much of last year, discussion of E-business has focused on comparisons between dot-com startups and their brick-and-mortar predecessors. Are existing infrastructures and experiences an advantage or extra baggage? Can old-line companies adapt to Internet time? Who will win a particular market?

Increasingly, "click-and-mortar" alternatives--companies that straddle both virtual and physical worlds--are in vogue. Their aim: to build on brand recognition and experience with a strong online presence. That may sound easy, but it's a devilish transition. No two mainstream companies illustrate the challenges and results better than General Electric and General Motors. InformationWeek spent time with executives at both companies to see how their efforts are progressing.

Earlier this year, General Electric senior VP and CIO Gary Reiner installed a red siren in his office at GE's Fairfield, Conn., headquarters. The alarm sounds whenever an E-mail or a Web server goes down. Reiner isn't the only IT chief at GE with a personal siren--many of the company's dozens of business-unit CIOs and IT managers also have them.

The sirens are no joke; they're a very visible symbol of the urgency of IT at the company. Over the last year, chairman and CEO Jack Welch mandated that GE executives weave the Internet into every fiber of the 122-year-old company's business tapestry. A Web server that's down might prevent GE customers or suppliers from accessing extranets, and that's simply unacceptable. Even worse, it violates another major effort at GE: the 4-year-old quality-assurance program, Six Sigma, which puts the customer first at all costs.

Meanwhile, 670 miles away in Detroit, another brick-and-mortar icon, General Motors, is undergoing its own E-business transformation. Like GE, the automaker is trying to use the Internet to shore up market share and revenue, cut costs, and improve supply-chain inefficiencies. That's a tall order for the intensely bureaucratic GM, especially considering that it took VP and CIO Ralph Szygenda and his army of 200 IT managers and divisional CIOs nearly four years to revamp the company IT architecture--a business reengineering effort that prepared GM for its current E-push.

In late 1998, while the automaker was still buried in an effort to revitalize and standardize its overall IT infrastructure, Szygenda and then-GM North America president Rich Wagoner--who became GM's CEO this June--envisioned the impact the Internet could have. They launched a plan that later created eGM and other online initiatives.

While GE and GM are two distinct, century-old companies competing in different industries, both are counting on the Internet to radically reinvent their businesses. In addition to business-to-business and business-to-consumer initiatives, both companies are Web-enabling back-office processes to increase productivity and to refresh their cultures. Each is saturating its organization in Web technologies, from top executives to rank-and-file employees. But E-commerce also poses thorny disintermediation issues for GE, and even more so for GM, whose success depends on thousands of dealers selling millions of vehicles worldwide from their lots.

Each company competes in a range of markets. Though GM's primary focus is automotive, the $176 billion company also operates in financial services (GMAC loans and insurance), telecom and satellite through Hughes Electronics Corp., and entertainment via Hughes' Direct TV.

GE's businesses are even more varied. Best known for home appliances and lighting products, the $112 billion conglomerate also manufactures aircraft and locomotive engines, plastic, power systems, and medical equipment. In addition, it operates NBC. But most surprising is that GE's biggest revenue chunk comes from 28 financial and services businesses within GE Capital operations.

A little over a year ago, GM launched its independent business unit, eGM, to jump-start Internet initiatives in its tangle of divisions and businesses. The focus of eGM was fine-tuned to business-to-consumer initiatives that improve customer relationships and drive sales. The unit has forged alliances with America Online and Kelly Blue Book to lure visitors to GM's BuyPower and other sites geared at enticing vehicle sales. Over the last six months, BuyPower's traffic has doubled to about 1.2 million visits per month; Szygenda attributes the alliances with driving the traffic gains.

Alliances this year have also dramatically pumped up traffic at GM's corporate sites, as well as sites for the various GM divisions. Joyce Fierena, eGM's director of cross-branding, says that as of June, 75% of all online auto shoppers "touched" GM Web sites. Now, they want shoppers to do more. Next year GM will begin online build-to-order and vehicle tracking services for customers and dealers.

"GM has a strong vision for its Internet strategy," says Rob Desisto, a VP and analyst at Gartner Group. However, "the proof will be how well they execute their overall vision and how they work with their dealers," he says. For instance, although GM is moving to online build-to-order, its entrenched dealer network will still deliver the vehicles, and provide after-sale services. That requires tight integration between GM and its dealers, says Desisto. He thinks GM's pact earlier this year with Reynolds and Reynolds Co. will bolster those dealer-GM information-sharing capabilities. GM acquired 10% of Reynolds and Reynolds, the leading provider of dealer-management systems worth about $200 million, so it can integrate its supply-chain systems with the inventory management systems of its more than 8,000 North American dealers.

But there are certain areas that can't move ahead as quickly. Because franchise laws prohibit automakers from selling direct to consumers, dealers remain key players in the auto-buying experience. However, "dealer relationships will begin to shift to after-sale services," Desisto says, because consumers will come armed with GM price invoicing and other information regarding the specific vehicles they want. "The days of haggling over prices and options for many consumers are numbered," he says.

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Photograph of Reiner by Chriss Wade
Photograph of Hillman by Dwight Cendrowski

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