PSI : GE Energy and GE healthcare

GE Energy and GE healthcare : using information technology to Create Strategic Customer Relationships.

when the global network that is the internet arrived on the scene alongside rapidly advancing capabilities for large-scale storage and data analysis, most companies in the world were not aware of the strategic impact of the confluence of these information technologies. but a few proactive IT-savvy companies spotted the shift in the economics that these new IT developments provided. now their products could be networked and accessed at their customers' sites, and this connectivity was cheap enough to permit continual monitoring of them anywhere in the world. even a company like General Electric, already the premier model for downstream service expansion , saw unprecedented opportunities for strategic relationships and return.

Look at GE’s power turbine business, for instance. Its customers are major utilities and they good reason to hate equipment failures. At the least, any downtime creates huge opportunity cots for these customers; often it means they have to pay hefty regulatory compliance fitness. To reduce that risk, GE (and its competition) invests heavily in information technologies for remote monitoring and diagnostics so it can deploy a technician or engineer a head of a failure as opposed to on a planned schedule, based on assumptions about the maintenance needed by each type of turbine, or, even worse, after a turbine fails and the power has gone off.

This strategic investment in IT has a dramatic effect on the profitability of GE’s maintenance service. Most manufacturers cannot charge more than $90 to $110 per hour for their technical support because of price and benefit pressures from local competitors. But GE Energy, because of its efficient network-enabled remote servicing, can charge $500 to $600 per hour for the same technician. Even more important the information generated by its continual monitoring allows GE to take on additional tasks, such as managing a customer’s spare part inventory or providing the customer’s and GE’s service and support personnel with complete access to unified data and knowledge about the status of equipment.

Customers now look to GE not just for high-equality energy equipment but also for help in optimizing their ability to supply consistent and high-quality power, to their customers. So GE has created a significant amount of customers dependency for its services, which has allowed GE to tie its pricing to the business benefits it provides (“power by the hour”), for instance, rather than the products themselves.

The same kind of economics are at work at GE Health-care. It’s typical customers is a medical radiology clinic in the market for a new MRI (Magnetic resonance imaging) machine. But these customers have not purchase such machines in years. Given the rapidly obsolescent technology involved and the quirks of hospital finance, they’ve tended to lease the machines. Now event conventional leasing has gone by the wayside as companies like GE offer to install the equipment at no upfront cost and instead charge for its ongoing upkeep and use. Think, for example, off all the activities associated with the life cycle of an MRI scanner :

1. Determining requirements and whether having a scanner justified.
2. financing the scanner.
3. installing the scanner.
4. Testing, calibrating, and validating the scanner.
5. maintaining and replacing parts.
6. Replenishing materials (gases and imaging media)
7. training personal to use the scanner.
8. Determining a patient’s need for a scan (preliminary diagnosis).
9. preparing the patient for scan.
10. scanning the patient.
11. interpreting the scan.
12. updating the software.
13. upgrading the hardware.

Because of the high value, complexity, and cost MRI scanning, most of these activities represent a business opportunity for a scanner manufacturer. (only activities 8-11 are primarily medical matter and not to province of a manufacturer). But that still leaves nine activities that are economic opportunities for scanner makers. This scenario is precisely the situation GE Healthcare has stepped into, positioning itself as a complete solution provider for its customers.

The strategic business result is a longer-term relationship than a traditional product sale would have yielded. Under the old model, a customer bought or leased a product ang got some kind of warranty and support package with it. Then a sales person would come back within a predictable amount of time to tray to sell an upgrade or extension to the product or support service. Under the new model, the customer simply signs up, typically for a five-years –plus relationship with a major asset. All the support and replenishables related to that machine are handled, through individual transaction, as par of the managed service. By analogy, imagine not buying or leasing the car of your choice but in the stead paying for its use by the mail.