In 2005, when GE’s CEO Jeff Immelt announced that the industrial giant was putting significant resources into a program called Ecomagination, designed to emphasize energy efficiency and ecologically friendly products, you wouldn’t have been wrong in scoffing. GE was considered one of the most notorious polluters in American corporate history, infamous for ruining large sections of the Hudson River with run-off from its factories. And a decade ago, revamping an enormous business in the quest to produce less carbon wasn’t a mainstream proposition. At best, you might have said Ecomagination was a PR ploy, designed to gloss over GE’s environmental record and continuing production of industrial machinery.
Ten years later, Ecomagination has proved the skeptics wrong. It has become the lynch pin of a remarkably successful reinvention of GE, the foundation of the company’s future, and the vanguard of the global movement towards corporate environmentalism. It’s a slogan that seems perfect for a moment when corporate customers are investing heavily in the products the program is building, when governments seem to be on the verge of major environmental agreements that will funnel government dollars toward clean energy, and when the idea that businesses can do good for the planet has been widely accepted. GE expects that corporate purchases of eco-friendly machinery will drive enormous changes over the next five years. It predicts that fuel cell installations will grow by 400%, that two-thirds of all new electric power added to the grid will be from renewables, that shipments of LEDs will quadruple, that global transportation will become 10% more efficient, and that one in every four new jobs in the energy sector will be focused on clean technology. To be an environmental leader at a moment like this seems like a significant business edge.
But the program–which GE says has generated over $200 billion in sales, while also serving as the spur for cutting its own water usage and greenhouse gas emissions by 42% and 31%–didn’t succeed because of great slogans or radical new ideas. It succeeded because of the painstaking way GE delivered on some of the most basic tenets of business management. Ecomagination is a great reminder of the fact that innovation means nothing without consistent, thorough execution.
Between 1947 to 1977, GE factories alongside the Hudson River discharged hundreds of thousands of tons of toxic PCBs, which had been used as machine cleaning fluids, into the waterway. The chemicals–which have been associated with everything from cancer to genetic mutation in fish–devastated the Hudson, leading New York State to ban fishing in much of the river. When government regulators finally ordered GE to clean up the river, the company denied responsibility, disputed the science on the toxicity of PCBs, and launched one legal effort after another to delay the project, or at least diminish its extent. Eventually, the company launched a massive cleanup, but environmentalists still debate whether GE’s extensive dredging of the river has done enough to repair the damage.
It’s hard to imagine a less likely candidate to announce that its future would lie with a program focused on the creation of environmentally efficient products. But that’s exactly what CEO Jeff Immelt announced on May 9, 2005. “Green is green,” he proclaimed: GE would start remaking its entire product line, from driers and light bulbs to gas turbines and jet engines. The program would be called Ecomagination, an offshoot of its new corporate logo, “Imagination at Work,” which had replaced the world-famous “We Bring Good Things to Life.” Skeptics sneered. A Vanity Fair piece in 2006 noted that one Green Party representative called Ecomagination, “just another attempt to [disguise] years of despicable pollution.” The wariness didn’t just come from outside the company. “We knew we had to be careful,” says Beth Comstock, GE’s former chief marketing officer who was recently appointed the company’s vice chair in charge of efforts to accelerate new growth, “and there was a lot of skepticism internally. We didn’t want to be seen as greenwashing.”
“At a company full of engineers, a business initiative can’t just be a feel-good plan,” says Lorraine Bolsinger, the executive Immelt tapped to run Ecomagination. “Setting hard targets made it an honest GE initiative.” GE promised to do four things: double its $700 million R&D investment in clean technology by 2010; double its revenues from Ecomagination products; reduce its own greenhouse gas emissions by 1% by 2012; and cut its own use of water by 20% by 2012 (this last goal was added in 2006). It was a bold bet. GE’s annual revenues at the time were $170 billion, and the products that are certified to fit under the Ecomagination umbrella (including efficient wind turbines, jet engines, MRI systems, appliances, power plants, and hybrid locomotives) only accounted for $10 million.
Still, the challenge of solving complex, global puzzles stirred up the engineers “There was plenty of skepticism,” says Michael Bowman, who leads research into sustainable energy. “But the younger, newer employees were excited.” Today, Ecomagination has blown past these initial goals. By 2010, GE had invested $5 billion in clean tech R&D. It had reduced its greenhouse gas emissions by 22%, and water use by 30%. Best of all, revenues from Ecomagination technology had reached $85 billion. In early 2014, GE announced a new set of targets for Ecomagination: by 2020 it promises to invest another $10 billion in clean technology R&D, and to reduce its own greenhouse gas emissions and water usage by 20%.
Cutting its own resource usage wasn’t just an exercise in making employees feel connected to Ecomagination. It was a key way to figure out how GE could help customers with their existing facilities. As Bowman explains, “On the one hand there’s developing new products for sale; when you design a new jet engine you can adjust all the design parameters you want. Whereas if you try to make massive improvements in something that already exists, like a factory, say, that’s extremely challenging.” Many GE engineers, including Bowman, were tasked with finding efficiency improvements in existing plants and processes. “We started doing what we called ‘treasure hunts,’” says Bolsinger. “[We would see] if there were ways to use own products at our own facilities to improve efficiency.” That might mean replacing a factory’s old sodium halide lights with CFL bulbs. (When Bolsinger was moved out of Ecomagination to head up the Aviation division, the first thing she did was inspect the overhead light bulbs in her own office; she quickly had them changed to more efficient models.) A facility in Ohio uses millions of gallons of gas to generate electricity for testing aircraft engines; a team there figured out a way to save 3 million gallons of fuel per year by moving tests inside, reducing run times, and better calculating the fan balance weights. All these tactics were then passed along to GE customers, so they too could cut down on energy usage.
Ecomagination leadership was well aware that many a corporate initiative has fallen flat without buy-in from mid-level managers and their staffers. So they built processes into the initiative that put Ecomagination at the front and center of product development. At GE, products don’t get launched until assessments of several criteria, such as cost benefit to customers, price tag compared to other industry offerings, and time to market, have been analyzed. Managers now give equal priority to Ecomagination criteria, such as environmental impact and resource efficiency.
It’s a simple step to ensure that the goals of engineers (solve problems that benefit customers) match up with the goals of the finance side (maximize profits). To ensure that launches aren’t slowed down by the potential bureaucracy created by all these assessments, GE also changed another process. In the past, the company would do one assessment after another, bringing in, say, the water experts first, followed by the gas team, followed by the environmentalists. Now GE attacks all the assessments simultaneously with a cross-functional team of staffers drawn from all different departments. It’s a faster, more efficient approach, which can iron out problems created by the different priorities of different departments earlier. It also reflects the fact that GE’s customers are more concerned with the environmental impact and resource savings of new purchases than they were in the past. They want that data up front, instead of being surprised by those consequences later.
When Immelt bet that GE’s future was in selling clean, efficient products, he made several assumptions about the future. Not all of them have come true. In 2006, David Slump, then general manager of marketing, said to Vanity Fair: “The only way we’ll ever get a return on our investment in these technologies is if greenhouse gases have a monetary value.” The theory was that wary corporate customers would only be motivated to buy green if there was a market for carbon credits. But the Bush administration gutted that idea in the U.S. by fiercely resisting the cap-and-trade regulations set forth in the Kyoto Protocol. And European efforts to create a market were sabotaged by the recession of 2008-2009. It’s possible that the world may finally put a price on carbon after the climate change talks in Paris, and Slump (who left the company in 2007) and Immelt weren’t totally wrong, just a decade early. James Cameron, a lawyer on Ecomagination’s advisory board who has been involved in many major climate change negotiations, says, “Now that China has signed on, there are plans in place that will cover 80% of the the global economy by next year.”
Immelt also bet that the stock market would reward GE for its shift, understanding the intelligence of this forward-looking bet. But that never happened. Immelt’s predecessor, Jack Welch, who left in 2001 after a 20-year run, was famous for sending GE’s market value sky-high.GE’s return to shareholders. Shareholders haven’t fared nearly as well under his successor, Immelt. Shareowners who held the stock from 1980 to 2000 enjoyed a 23% average annual return. In the decade following, the stock price dropped by half. But this, too, may be due for a reversal. GE has made itself a more focused company by divesting itself of its finance arm, GE Capital, and many analysts see great potential for the stock in the years ahead. “The investment community didn’t provide a reward in the stock price for what GE is doing,” says Cameron. “But the leadership persevered anyway. In time, this will be looked back on as one of the great corporate decisions. It was such a really intelligent way of understanding how the world was changing.”
Over the years, “Ecomagination” became a rallying cry within the company, and GE used it heavily in its marketing. But customers? None of them were buying products because of GE’s flashy portmanteau. “When you sell,” says Steve Bolze, CEO of the $28-billion-a-year Power & Water division, “customers want quantifiable terms.” So when Bolze’s salesmen pitch a new gas turbine to utilities, they come armed with tons of specifics. How much gas will the utility save because of the turbine’s efficiency? Better yet, how much money will the utility save because it isn’t using all that gas? Even better, how much will it save plus how much more will it earn, thanks to the turbine’s greater output? That’s the stuff that closes a sale. The products may be new and flashy and clean, but selling them is the same down-and-dirty, bottom-line-driven business as always.
By following the tenets of Ecomagination wherever they lead, GE has completely revamped its product mix. Now that the company has sold off its GE Capital division, which once accounted for 50% of the company’s revenue, Ecomagination products deliver some 30% of total sales. Environmentally-friendly products are high-growth sellers across the business. (The bulk of GE’s sales still come from products—ranging from power supplies to drilling motors and oil field equipment—that aren’t part of Ecomagination, though a company spokesman says that GE aims to keep increasing the division’s portfolio.) In 2005, sales of wind turbines accounted for less than $2 billion in sales. Wind turbines (which typically cost around $1 million per megawatt, according to Windpower Monthly) now bring in around $6 billion a year; GE Wind installed 4,624 megawatts of turbines in 2014, versus 2,056 MW in 2005. GE’s recently launched 1.6 MW, 100-meter rotor turbine had sales of $1.5 billion in its second year on the market. The new H-model gas turbine, which puts out record low emissions as it generates electricity for utilities, governments, and large corporate customers like Mars, debuted just 18 months ago and already has $1 billion worth of back orders lined up.
Bowman believes these kinds of efficiencies will drive GE’s future products as well. While the company claims that 98% of the wind that hits the its turbines is turned into power, he and his researchers still wanted to figure out how to marshal that last 2%. The dead wind is at the very center of the turbine, so for the past year his team has been experimenting with a technology that deflects those gusts out to the blades, where their power can be harnessed. It’s the same kind of efficiency search that the wind team was working on a decade ago, but each marginal gain inspires another effort.
Immelt’s bet has positioned the company perfectly to take advantage of what might well be the next great industrial leap forward: The Internet of Things. Sensors that are integrated into the company’s products can report all kinds of data: fuel usage, speed, down time, efficiency, and so on. Once that data is sent to a central processing unit, commands based on the data can be sent back to the jet engine, or the locomotive, or wind turbine, adjusting its performance for maximum efficiency. Writing for Fast Company last year, Jon Gertner cited the example of GE’s new Trip Optimizer software, which helps locomotive operators save millions of dollars every year in diesel costs by improving the efficiency of freight train travel. Those kinds of savings can also be applied to wind turbines, or to a pair of GEnx jet engines on a Boeing 787 Dreamliner, which spin out a terabyte of data every day. All those terabytes can help a utility better manage how much power to supply from wind sources vs. coal vs. solar.
At its best, digitization leads to decarbonization, says Bolze. Digitizing its products will also have a profound impact on the way GE serves its customers. As more and more of its products get sophisticated software capabilities, GE can update them just the way Apple updates the software on your Mac. The result for an airline, for example, is longer life for its existing engines. “Instead of buying the part,” says Deb Frodl, the current global executive director of Ecomagination, “they get an upgrade kit.” That’s a major shift in thinking: In the future, GE may find itself selling outcomes as much as it is selling products. Bolze’s unit has has generated over $1 billion from an upgrading service it offers to its gas plant customers. And this fall the company introduced a new business called Current, which helps customers customize a blend of energy technologies, from efficient light bulbs to solar power, to drive down their power costs. Intel, HCA and Hilton are some of the early customers of Current, which GE hopes to turn into a $5 billion-per-year business.
“This is a different playbook from the Hudson River,” says Comstock, using language that hints at the company’s past battles to avoid its environmental responsibilities. “We’ve had to work more with customers, countries, NGOs and other companies. We released our performance metrics. Ecomagination has forced us to open ourselves up more.” GE’s future increasingly depends on partnering with outside companies to solve industry-wide global problems. It works with Intel on creating smarter factories, Walmart on extending the reach of renewable products, Total on creating hybrid clean energy systems, and even a mining company on lowering emissions. It works with natural gas companies to lower the environmental impact of fracking. And it works with Silicon Valley in a way it never had before. GE employs thousands of programmers in a facility in San Ramon, and has tried over the years to insinuate itself into Valley culture. It’s even making good fun of itself (and the Valley) in its recent “What’s the Matter with Owen?” ads, where a young man fails repeatedly to explain why his programming job at GE fits with the company’s industrial legacy or is as cool as a gig designing apps where you put things on cat’s heads.
In retrospect, it’s clear that Immelt set GE’s sights too low back in 2005. GE hasn’t convinced all its skeptics—in its 2014 “Green Rankings” of 500 American corporations, Newsweek placed GE at number 180. But the launch of Ecomagination has proved to be a turning point in the evolution of corporate environmentalism. As Lee Scott, the former CEO of Walmart, said in 2006, “”There’s no question that [Immelt] has taken a leadership role and come to be seen as a Pied Piper of sustainability.” By pushing ecological priorities down the supply chain to its thousands of suppliers, Walmart is just one of many companies that have proved as aggressive on the environmental front as GE. Driven by gains in efficiency, fear of government regulation, and the clear emergence of a real market, many companies followed GE’s lead. “The success of all the high-quality products and services that have emerged from Ecomagination is something that other businesses can understand and follow,” says Cameron. “It’s been an exercise in myth-busting. GE has proved that so many of the reasons companies give to not invest in this kind of stuff is just plain wrong.”