Is 1% Improvement Boring, Or A Breakthrough? - InformationWeek

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10/30/2014
09:36 AM
Chris Murphy
Chris Murphy
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Is 1% Improvement Boring, Or A Breakthrough?

To tap the Internet of Things, CIOs need to bridge the gap between the culture of grinding out small wins and the Silicon Valley disrupt-or-nothing mindset.

Here's how two business cultures react to a 1% improvement in a company's operational efficiency:

General Electric: Holy crap!

Silicon Valley: Yawn...

How do you feel about a 1% improvement in your business? I got to thinking about this idea of incremental improvement as I listened this week to GE CEO Jeffrey Immelt trumpet the potential of the Internet of Things, what GE calls the Industrial Internet.

The Internet of Things requires companies to put sensors on the right devices, machines, and other "things," analyze the data that comes in, and change a process to become more efficient or to offer a new and better end-product. To get there, and generate commensurately higher revenues and profits, companies will have to combine emerging tech with established processes and products.

CIOs are in the right spot to lead their companies onto this cultural tightrope walk, to mix the tactics of the 1% grinders with the Silicon Valley disruptors.

But make no mistake, we're talking vastly different cultures here.

Silicon Valley thrives on disruptive change. Incremental improvements are the devil, tempting you to settle for small ideas. The blind spot, though, is a sense that there's not much to learn from even huge companies in places like Omaha, Houston, Charlotte, and Detroit.

Immelt -- speaking at this week's user conference for GE Intelligent Platforms, GE's growing software business -- alluded to this cultural gap when he said, "Sometimes in Silicon Valley there's a notion among software companies that machines don't matter. In the world we live in, in the industrial world, machines count."

On the other side, the culture that respects those 1% gains, established companies know the profitable power of grinding out small wins, year after year, and applying them at massive scale. That's what GE is selling with its 1% story, like saying that if data analytics could drive a 1% improvement in fuel consumption on all GE jet engines it would bring $3 billion in added profit for airlines. "Small changes in the industrial setting, given the value of the equipment and the assets, are worth tens of billions of dollars," Immelt said.

Providing a real-world example, Jeff Slagle, GM of propulsion engineering at Delta Air Lines, described how Delta analyzes jet engine performance daily, using performance data collected from sensors on the engines. He pointed to a small spike on a graph that showed one engine that wasn't at peak efficiency, and thus would burn more fuel -- about $14,000 worth a month, for just one of the 1,400 engines Delta runs every day.

But industrial companies know that 1% can cut both ways, that tech-driven change gone badly at scale also can burn up billions of dollars -- by shutting down a factory, refinery, or freight train, or running them afoul of regulators. So the bias among these 1 percenters is toward slow and safe. Their blind spot is that large-scale, software-driven innovation can wait until tomorrow, when someone else has worked out the bugs.  

GE is trying to bridge this gap between the industrial grinders and the Silicon Valley disruptors by setting up a major software development center in San Ramon, Calif. Rich Carpenter, CTO of the GE Intelligent Platform software group, says the company wouldn't have tackled Hadoop for big data analysis of industrial systems without a push from its Silicon Valley culture. Sure, GE had data scientists before opening the San Ramon center, "but they were squirreled away in the labs," Carpenter says. "They weren't mainstream. They weren't the cool job they are today."

But companies don’t have to set up a Silicon Valley office to bring together the disruptors and the grinders. Innovation labs, hackathons, data science teams, Agile development teams, embedded IT specialists -- CIOs can use all of these approaches to make their IT organizations more responsive and open-minded to business needs and the possibilities of new technology.

Immelt argued that every industrial company must become a software and analytics company to compete. "The product, the machine, is kind of table stakes. It's the foundation. But those machines are now surrounded by analytics," he said.

Getting there will require companies to embrace the disruptive thinking Silicon Valley thrives on, but without becoming a snob about those hard-fought 1% gains that pay the bills.

While there's a role for PhD-level data scientists, the real power is in making advanced analysis work for mainstream -- often Excel-wielding -- business users. Here's how. Get the Analytics For All issue of InformationWeek Tech Digest today. (Free registration required.)

Chris Murphy is editor of InformationWeek and co-chair of the InformationWeek Conference. He has been covering technology leadership and CIO strategy issues for InformationWeek since 1999. Before that, he was editor of the Budapest Business Journal, a business newspaper in ... View Full Bio
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Laurianne
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Laurianne,
User Rank: Author
10/30/2014 | 12:57:39 PM
Data analysis pros
A good reminder of how analytics and data analysis gurus are needed outside of Silicon Valley -- and as one recruiter recently noted to me, you can have much more impact at some of these companies outside of the Valley. Do you want to be one of X at facebook or the star at the packaged goods or manufacturing company?
Gary_EL
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Gary_EL,
User Rank: Ninja
10/30/2014 | 1:40:02 PM
1%
This makes a lot of sense. If revenue is 101 and expense is 100, profit is 1. If you cut expenses by 1% to 99, profit is 2 - a 100% increase in profit! You may not have changed any paradigms, but you've mad A LOT of money for your shareholders.
Li Tan
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Li Tan,
User Rank: Ninja
11/3/2014 | 4:53:17 AM
Re: 1%
Exactly - sometimes 1% impovement will make significant difference. It also depends on the base. If you increase from 0% to 1%, then it means a signifcant breakthrough from nothing to something.
zerox203
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zerox203,
User Rank: Ninja
10/30/2014 | 1:42:44 PM
Re: 1% Improvement?
This is an idea we've been hearing about for a while, but it's nice to have some bite to go along with the bark - that is, it's nice to hear some real execs from both sides share their insights on real and specific cases, rather than just a bunch of rhetoric. They're right, too - saying that both sides have something to learn from the other might sound a little trite, but it really is the case here. That quote from the GE exec lays it all out pretty niceless - you're entitled to whatever worldview you want... until you try to do business in the real world. In the real world, machines matter. Specifics matter.

I wonder if there's need for some kind of organized body to bring these two parties together. Certainly, there's some room here for consultancies or agile startups to carve a niche out for themselves bringing the agile ways to the big companies. I wonder if there's an room for some consortium of big business execs and silicon valley startups to share their knowledge and resources in a way that's beneficial to everyone (maybe one already exists). As you rightly point out, Chris, in the age of the IoT, we're going to need both these kinds of companies working seperate angles on seperate goals to bring that big picture together. A little cooperation will go a long way.
SunitaT0
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SunitaT0,
User Rank: Ninja
10/30/2014 | 10:37:53 PM
Re: 1% Improvement?
"I wonder if there's need for some kind of organized body to bring these two parties together. Certainly, there's some room here for consultancies or agile startups to carve a niche out for themselves bringing the agile ways to the big companies. I wonder if there's an room for some consortium of big business execs and silicon valley startups to share their knowledge and resources in a way that's beneficial to everyone (maybe one already exists). As you rightly point out, Chris, in the age of the IoT, we're going to need both these kinds of companies working seperate angles on seperate goals to bring that big picture together. A little cooperation will go a long way."

Since IOT is already a big deal, I expect companies will be working together, and there could be mediating companies (like zerox203 said) that could bridge the gap between two major companies working on the same project. The entire smart grids of IOT are very difficult to build, not only because it needs thousands of sensor array networks, but also it stretches over a huge patch of land, and that could create a tension in company vs municipality and this needs to be solved by mediating companies.
ChrisMurphy
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ChrisMurphy,
User Rank: Author
10/31/2014 | 9:30:19 AM
Re: 1% Improvement?
I wonder what do those 'mediating companies' might look like. Are they big consulting companies like Accenture, or small, digital  development groups, or innovation consultants, or some new breed? They need to really understand business needs on an operational and technical level, and also get what Silicon Valley is up to on the cutting edge. It might be more like a new kind of in-house innovation lab -- where they're more researcher and match-maker, combing the company for unmet needs and possible external fixes, rather than hands-on emerging tech tinkerer.  
Laurianne
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Laurianne,
User Rank: Author
10/31/2014 | 11:26:04 AM
Re: 1% Improvement?
I'm guessing it's innovation labs that make an impact here. this is an interesting statement: "...wouldn't have tackled Hadoop for big data analysis of industrial systems without a push from its Silicon Valley culture." Is your company open to the idea when that push happens? Also, lots of people far from the valley are pushing for agile and speedy operational models. Talk to people in the Boston big data community and you'll hear the same urgency.
ChrisMurphy
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ChrisMurphy,
User Rank: Author
10/31/2014 | 2:54:02 PM
Re: 1% Improvement?
Interesting that you honed in on that Hadoop statement, Laurie. I pushed Mr. Carpenter on that, because I know GE software has been looking at these big data analytics concepts and tactics for awhile. But one thing this S. Valley mindset brings, and one thing GE felt it needed to add, is an emphasis on speed -- do it sooner, do it now.
yalanand
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yalanand,
User Rank: Ninja
10/31/2014 | 1:44:58 PM
Re: 1% Improvement?
"I wonder what do those 'mediating companies' might look like. Are they big consulting companies like Accenture, or small, digital  development groups, or innovation consultants, or some new breed?"

They'll vary in functionality and form. For example: If you are talking about tying up Big Data to a sensor system, you'll have to mediate between the municipality, the data mining company and the sensor issuing company. I don't think having third parties that facilitate mediation through logistics would be hard o find in the coming days.
kstaron
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kstaron,
User Rank: Ninja
10/30/2014 | 5:33:36 PM
A question of size
1% to your saving account with 1000 bucks, well 10 bucks isn't very exciting, but in a maxed out 401k that's got 500000 in it, the 1% improvement of $5000 sounds a lot better. Silicon valley companies, at least many of them can't begin to compare thier scale to industrial giants like GE. So not only does the improvement look alot better to Ge, there is also the issue to larger companies that big disruptive style changes are so much harder to implement. A small incremental shift is more managable and less costly that some major overhaul across every site and department. The smaller you are the bigger improvement you tend to look for. What about your company, would 1% be enough?
SunitaT0
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SunitaT0,
User Rank: Ninja
10/30/2014 | 10:22:56 PM
Re: A question of size
"Silicon valley companies, at least many of them can't begin to compare thier scale to industrial giants like GE. So not only does the improvement look alot better to Ge, there is also the issue to larger companies that big disruptive style changes are so much harder to implement. A small incremental shift is more managable and less costly that some major overhaul across every site and department. The smaller you are the bigger improvement you tend to look for. What about your company, would 1% be enough?"

GE puts a lot of effort in improving the policies of business, aquiring markets, and at the same time, spending on research and development (which is more than what silicon valley companies invest in their R&D) and therefore improvement for GE would greatly be celebrated.

GE has tough strategies for the IOT and has already coined the term "industrial internet" and GE has designs for IOT as well. The author makes a right point, gradual increase in IOT would have more outcome than exponential increments, because IOT is a huge sector.
yalanand
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yalanand,
User Rank: Ninja
10/31/2014 | 1:47:54 PM
Re: A question of size
"GE has tough strategies for the IOT and has already coined the term "industrial internet" and GE has designs for IOT as well. The author makes a right point, gradual increase in IOT would have more outcome than exponential increments, because IOT is a huge sector."

@SunitaT: I personally believe that even though IOT is a huge sector, trying to convert every existing system into an IOT one can increase its scope, however this would also render IOT useless when it is replaced by newer technology. Also, expanding the IOT universe requires thought out strategies because if we try to tie up everything in an IOT, that has amazing complexity, be it space, time or funding.
BruceHarpham
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BruceHarpham,
User Rank: Apprentice
11/3/2014 | 10:32:44 AM
Depends What You Improve
The significance of 1% is interesting. If you`re running an organization with +$1 billion in sales, a 1% improvement is significant. Aside from revenues and profits, a 1% improvement may be not that significant. If you make your website load 1% faster on mobile devices, that may have limited impact (unless you keep making it 1% better each month).
jastroff
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jastroff,
User Rank: Ninja
11/3/2014 | 10:58:15 AM
Six Sigma
I wonder how many companies mentioned here, other than GE, have Six Sigma as part of their culture? None? One? And how does Six Sigma set GE's thinking apart from Silicon Valley/Tech Companies?

 
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