From Products To Services – How do they do that?
In today’s WSJ there is an article on GEs focus on services. GE is slowly transforming itself from selling products to selling value added services to augment the product sales. This is similar to what IBM, Xerox and HP have been doing in the technology arena. This sort of services model might be something Dell might consider to grow its margins to alleviate its current problems discussed in my last blog. GE’s industrial base and the capital business complement each other quite well in the service based model. The aforementioned article is about GE’s aircraft engines. Most of the GE engines on the aircrafts owned or leased by the airlines are on a service model whereby the airline pays for hours operated and GE has complete ownership (used to be GE capital, but may have been brought in house to aviation). Optimizing the repair cycles actually benefits GE since essentially GE is maximizing the margin by controlling the cost of owning these engines (this is a win-win since it also minimizes down time for the airline or the power plant). Also, GE (capital) is the biggest lessor of aircrafts to the airlines – this also is a service model. There are synergies with the Energy business in this business model called contractual services business which now accounts for 40% of GE’s earnings (not revenue) I think (between Energy and Aviation). The optimization of the repair cycles involves lot of analysis, engineering and Program Management which is where I worked when at GE Energy. This is an excellent business model and is along the lines of IBM’s transformation from products to services.
Shaker Cherukuri
Principal
Process Improvement Solutions Inc.
3209 W. Smith Valley Road, Suite 224
Greenwood, IN 46142
317-258-3552
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