1. What are the primary components of Jack Welch's current growth strategy, the "Third Revolution" at GE?
The "Third Revolution" at GE comes in response to Jack Welch's ability to recognize the need to provide quality service in order to compete worldwide. Companies like General Electric are realizing that a large percentage of their revenues and profits are coming from services, so GE decided to lead the charge, rather than follow the pack. The term "Third Revolution" describes a major thrust to move GE deeper into services. This includes every component of GE's business from aftermarket services for products GE produces such as medical imaging equipment and jet engines to financial services (GE Capital), broadcasting, management consulting, and other services as unrelated as health care and utilities.
2. Why is GE shifting into services? What types of services is GE focusing on, and where do the growth opportunities appear to be?
For starters, in 2000, GE was generating approximately 75 percent of its revenues from services. In most industries providing quality service is no longer simply an option. Jack Welch and GE understood that the quick pace of developing technologies and increasing competition make it difficult to gain strategic competitive advantage through physical products alone. Also, customers are more demanding and not only expect excellent, high-quality goods; they also expect high levels of service along with them.
GE is focusing their aftermarket services efforts on a broad array of business units, and plans to provide compliance training, solutions training, continuing education (videotapes, online credits, and education packages), technical service training, and degree programs such as the Distance Bachelor Degree Series and the Physician Master Series. Currently, there are several industries that appear as growth opportunities. Over the past several decades, many large service industries have been deregulated (airlines, banking, telecommunications, and trucking) and appear as areas of opportunity. Professional services (dentists, lawyers, accountants, engineers, and architects) have also demanded new concepts and approaches as these industries have become increasingly competitive.
3. What are the challenges GE faces in its "Third Revolution"?
The "Third Revolution" of GE faces those same challenges that have led consumers to believe that the overall level of service has declined. Some of those reasons are:
* More companies are offering tiered service based on profitability; hence many customers are getting less service in the past.
* Increasing use by companies of self-service and technology-based service is perceived as less service because of lack of human interaction.
* Technology-based services are hard to implement.
* Customer expectations are higher because of the excellent service they receive from some companies. They expect the same level from ALL companies!
* The intensely competitive job market results in less-skilled people working in front-line service jobs; talented workers soon get promoted or leave for better opportunities.
* Many companies give lip-service to customer focus and service quality, but they fail to provide the training, compensation, and support needed to actually deliver quality service.
* Delivering consistent, high-quality service is not easy, yet many companies promise it.
Basically, the service gap has been widened due to various factors, and GE is implanting their "Third Revolution" strategy in an effort to close the gap - they have many challenges ahead
Questions pertaining specifically to GE Medical Systems:
4. What are the services offered by GE Medical Systems? Who are their customers? What trends in the industry will affect their future growth?
GE has introduced a number of major new service initiatives, setting the company apart as a leader, they include: comprehensive multivendor services solutions, sophisticated software applications, biomedical services, and customer satellite TV training. GEMS' customers range from doctors' offices and clinics to large multihospital systems. Some of the major trends that will affect future growth are:
* Health care institutions are looking for ways to increase efficiency, but at a lower cost. Return on capital investments is of great concern. Assets need to be productive from day one. Many customers are putting off purchases of new equipment to squeeze out another year or two of use from existing assets.
* More health care is being provided beyond the walls of the hospital. This is creating a need for networks to link satellite clinics, doctors' offices, HMO's, etc.
* Hospitals and other major health care institutions are consolidating at an alarming rate to eliminate redundant costs and take advantage of economies of scale. Consequently, the number of potential customers is shrinking.
* Larger, more powerful health care institutions are looking for strategic partners.
5. Describe TiP and the philosophy/strategy behind it. What are the goals of TiP? How does it fit into GEMS' overall strategy?
The core tenant behind GEMS' TiP program is that a well-trained customer is a happy customer. GE's philosophy behind with the TiP program is to extend classroom learning into the job-to provide support before, during, and after the traditional onsite training. GEMS provides educational support throughout the life cycle of the product. The ultimate goal is to provide "just-in-time" training-training at the precise moment it is needed. TiP fits nicely into GEMS' overall strategy by developing a closer relationship with the customer. GE uses TiP to identify ways to add value to the customer-vendor relationship and seed future business.
6. Why has TiP been so successful? What are the benefits to customers? Does GEMS have a sustainable competitive advantage in TiP-TV?
In addition to the factors already covered in this case, TiP has proven to be extremely successful because of one tactical stroke of genius: TiP has created high-performance customers that are committed and loyal. GEMS has certain expectations of its customers. As such, customers act as "coproducers" of the services they receive. Even the name of GE's customer education denotes this philosophy: "TiP: Training in Partnership." GEMS even goes as far as taking corrective action when performance problems arise. Left untouched, low-performing customers become frustrated and dissatisfied. Customers that are "touched" (i.e. TiP customers) become advocates. A primary benefit to customers is that TiP offers educational opportunities that not only improve productivity, but also customers' knowledge base and growth. In an environment where "first-to-market" is often-times the key to gaining a sustainable advantage, it appears that GEMS does have a sustainable competitive advantage in TiP-TV. GEMS has already forged an agreement with several health care companies that have produced original programs to be aired on the TiP-TV network, even after four years of viability, no other medical systems company has a customer satellite TV training program!
7. What are the benefits of GEMS' service guarantee for on-site applications training?
TiP offers its on-site applications training customers an unconditional, easy to understand, and easy to invoke training services guarantee. No other medical imaging vendor has an explicit customer education guarantee. The message conveyed is that GEMS has confidence in its ability to deliver customer satisfaction and supports the notion of a committed partnership between GEMS and the customer. Five percent of GEMS on-site training centers invoke the TiP training guarantee, which GEMS still honors as part of its mission to maximize customer satisfaction. This "failed service encounter" is also another opportunity to turn a disappointed customer into an even more loyal partner.
8. Although TiP-TV can be purchased on a stand-alone basis, the majority (80%) of subscriptions sold include a GEMS service contract that "masks" the fee for TiP-TV. What must GEMS do to change its customers from a "free" to "fee" mentality? How can it overcome customer (and sales person) resistance to accept the need to pay for educational services? What are the arguments for and against "free" versus "fee"?
In order for GEMS to change its customers from a "free" to "fee" mentality, they must first conquer that same resistance in the sales force. The cost-benefit analysis laptop software is a good start, but the effort must extend further. Other ways to expedite the mental shift may be to implement award programs to sales personnel that sell the most "fee" based programs, and share customer-sent success stories of how much the paid-for education has benefited their organization. Once the sales force believes, it will be that much easier for the customer to invest time, money, and resources into training. Also, if the other services are transitioning from "free" to "fee", it will become more widely accepted for GEMS to contract accordingly.
Some of the arguments against fee-based educational training are:
* Customers believe the training should be free.
* GE has historically provided "free" application training.
* The customer wants to start running patients through its new $1.5 million systems as soon as possible to start generating revenue.
* Customers are not willing to invest time, money, and resources to training.
Some of the arguments for fee-based educational training are:
* Diagnostic medical-systems are large, complex, and expensive.
* It is not possible for technologists to use the equipment without training.
* The customer will save money because of reduced pilot error and image retakes, better equipment utilization, and improved diagnostic quality.
9. Should GEMS consider moving the TiP customer education organization from a cost center (with the primary goal of customer satisfaction) to a P&L center? What are the challenges?
With the GEMS customer education organization set up as a structured cost center, its mission is to cost-effectively create educational opportunities to improve customers' growth and productivity. A primary goal of customer education is customer satisfaction. If GEMS moves to a P&L center, there is the very real possibility of progressing away from this primary goal and towards the P&L bottom line. The main challenge for TiP-TV is how to maintain the stellar performance, and grow revenues that have already exceeded expectations. TiP-TV was not designed to be profitable, but is currently 81% of education revenue sources. While TiP-TV increases the number of times GEMS "touches" the customer, customer satisfaction and loyalty, and the improved skill of the customer, without getting the customer to regularly believe that it deserves to be a "fee" service, and paying that "fee", TiP-TV faces a lifetime of just "breaking even."