Immelt's Four Rules For Fostering Innovation

Smart technology is imperative to the growth of businesses. But how do companies foster an environment where innovation can take place? Speaking in a keynote speech at Technology Review magazine's Emerging Technologies Conference at MIT on Thursday, Jeffrey Immelt, chairman and CEO of General Electric, outlined the four ways to lead innovation in a big company.

First, said Immelt, "good leaders prepare the organization to innovate." At GE, that has meant reorganizing the company to be more aware of technology and its repercussions. A few years ago, only seven of GE's 175 officers were engineers--a small fraction of the number of lawyers. So GE tripled the number of technology-oriented positions, creating new CIO and technology officers. The company has also altered its business processes and tried to change its culture to one that puts a high priority on technology. "We've prepared GE to innovate by making it central to our business process," Immelt said. "Our leaders know we have to innovate."

Good leaders also "pick the right places to innovate." It only does so much to orient your company for research and development, said Immelt--you have to know where innovation is needed in the market and what's going to make you money. "We're constantly looking for global change, and placing bets on things that we think we can do uniquely," he said. GE is looking at emerging technologies, including molecular medicine, alternative energy sources, and nanotechnology as areas likely to show lots of growth.

But once innovation is in place, you've got to find a way to please your bosses, and that's why "good leaders know how to make innovation pay for innovation." It's critical, said Immelt, that innovation has a measurable return--and that companies have a strategy to exploit their strength and make money off their R&D. At GE "we've built our competency about taking a business from $50 million to $1 billion," he said. While the company may engage in long-term research projects--photovoltaics, for example may take more than a decade to make any money, according to Immelt--GE knows how to use its size, brand, and global distribution to explode the business once it does get into the black. "That's how investors get their payback," he said.

That's also part and parcel of the final way good leaders promote innovation--"by knowing how to use size as an advantage." There's often the perception that small companies and startups are the companies that do the most innovation and invention, Immelt said. But there are also big advantages to being a huge business like GE--including the ability to generate your own cash to fund investments. In the mid 1990s, GE's gas turbine business was suffering through the worst market it had ever seen. But thanks to its size, GE was able to double down on investments, watch the number of competitors fall from five to three, and emerge with a stronger business. Not every organization has that luxury. But whether a company is a multinational conglomerate or a six-person startup, it's essential to understand the advantages of size, he said.

These abilities are crucial in order to drive growth in a business. But they're also the characteristics that will help solve the great social and political problems. "Innovation is a social imperative today and never was it more important," Immelt said. "I think the only answer for us today is innovation."