New Delhi: John L. Flannery, president and chief executive officer, GE India, refers to himself as an experiment in the company’s management history. Flannery could make history if some of GE’s top management’s ideas on organizational structure in India work. Flannery talked to Mint during the World Economic Forum’s India Economic Summit to explain the changes in the company. Edited excerpts:
Kaushik Basu (finance ministry’s chief economic adviser) has told us that he’s begun to see signs which suggest manufacturing in India has moved to another level. GE is big in this area. From GE’s standpoint, what are you seeing on the ground?
We see more and more high calibre in manufacturing. I see rapid improvement, and frankly, I think a lot of manufacturing is better than India gets credit for. Maybe it’s not as grassroots as you would see in a developed country. In the US, a lot of small manufacturers are pretty good. I don’t see any reason why India won’t make the same progress in manufacturing as it did in services. We notice it dramatically in the market, just observing it.
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Secondly, for GE, we are trying to increase our own manufacturing capability. We intend to do more manufacturing here. We are just finalizing site selection. We are going to construct a 500,000-sq. ft facility. Hopefully, we will ramp up site selection this year. We are using multimodal facilities, we are going to share it across several business lines. So, we intend to do more ourselves.
I look at the Indian picture overall and it is so great right now. You look at manufacturing and say that really hasn’t reached its potential at all. It can be another engine of growth for India over the next couple of decades.
I believe you are undergoing a fair bit of transformation in India. What is the transformation all about?
It’s really simple. Basically what we are doing is changing the reporting structure that we traditionally used in the company. So, all around the world businesses have reported to their global product lines. Healthcare, energy have reported not to the country they are in, but to the global business they are in.
At the beginning of this year, we changed that for India only. Now all of the businesses report directly in to the India business. That’s when I came into the role. That’s the change in the basic organization architecture, if you will.
It is referred to as an experiment. Our CEO (Jeff Immelt) calls it… Let’s see how it works in India. He’s quite happy with how it’s going so far. I am as well, but his opinion matters more than mine.
India, prior to this, is probably plus or minus 5% of anybody’s global business. Its 110% of my business. You just get a focus level. On customer focus, when you live here, you see these guys every week, when you make a customer really happy, when you make a customer really frustrated, you internalize in a way that is different from when you see the customer once a year. My level of understanding customer need is much higher I think, my level of anxiety that they get what they need is much higher.
We have delegated a lot of decision-making authority. We are making a lot of day-to-day decisions here. I think any time you increase focus, increase speed, all those are going to help any business. It’s helped ours a lot here.
I keep preaching inside our team and also back in the US, it’s not a zero-sum game, it’s not about transferring control to India. It really is about making the customer happy.
That was a bit of a rock-the-boat move on day 1. In practice, it hasn’t turned out to be that traumatic. For us, in India, it’s been a better way to do things.
This new structure fits in well with your intent of increasing localization.
Absolutely. First and foremost, localization is a customer strategy, it’s not a cost arbitrage or whatever. What does the customer want, not have, and you just cannot get that sitting 8,000 miles away. I think you will see more and more this type of structure because if you are out of touch with the customer, you are dead.
In this structure, when it comes to capital investment, what do you do?
We go through a process. Most companies would call it a three-year, market-based strategic plan. It’s really an outward-in process, and from there, we develop, hey, here’s where we need to go. We did that this year, including what investments we need. We took about $80-100 million of investment. We got that approved in a sort of macro framework. On a day-to-day basis, we invest the money here purely on a day-to-day basis. We don’t go back to the US for every $5 million. We do all that here. Speed’s critical, but it is context. When you have lived here, you get a better sense for the need for solutions. When a customer is really not happy, it’s a very unpleasant experience.
I am not saying it is a cure-all for everything, but I am saying it was a good, maybe jolt, out of the world we were in before.
Why did GE pick India for this kind of experiment?
I wasn’t part of the deliberation process, but it’s an incredibly important market. Our focus on emerging markets is acute. More than 60% of the business is outside the US. We have really staked our future on globalization. India is really a dominant force today with more to come. In the grand scheme of things, it is important we succeed here.
The other thing coming out was how good the private Indian companies are—how fast they have grown, how much they have started to expand their business models outside India into Europe and US.
I want to learn and replicate that before someone does that to me in the developed markets. We have had a lot of learnings. We have been feeding a steady stream of information bytes back to the US. Jeff Immelt…he has a mindset of whatever works. Something works, I am counting on the local teams to bring that forward and make a case for that.
I wasn’t party to the decision, I just got a phone call to go India (smiles).
I want your personal view on this. You have had a chance to study Indian companies. If you were to pick one management approach that’s impressed you, what would it be?
That’s easy. Speed and guts. I see Indian companies day after day say I am going to change, I am going try something different, I think I see an opportunity and then they just do it. Big companies like ours, the multinationals, we need to be faster to see the opportunity, we need to be more intuitive about exploiting it, taking action. We tend to analyse a lot, and try to figure out every detail. Indian companies are very quick to get to the 80-20 factor… Listen, there are two or things that really matter, I have checked those things out, I am not going to mess around with the last 20% of detail, I am much better off if I just get started. So, Indian companies are beyond world class in speed and guts in moving forward. We can use more of that.
Many of them are family-controlled and some of them are massive now. You look at a Reliance or Mahindra, they are huge. They still fundamentally move with the speed of a small family business. That’s an amazing combination, we would like to emulate that. If we were more like an Indian company, we would be better off. That’s what we are focused on.
Are you unhappy with India’s civil nuclear legislation? It would be reasonable to expect GE to be a competitor for business here.
It is a very, very complex issue in any country. Not just India. You have suppliers, regulators, consumers, and international agencies. It’s a very serious issue. So, when we look at it, it is not an atypical process of alternative development framework that works for all constituents involved. What is clear is India needs safe, reliable dependable energy. Nuclear clearly fits that Bill. I think it is going to be a big business in India. It is a business we are in globally. At the end of the day, it is not a GE issue. Anyone participating in the industry that doesn’t have the backing of a foreign government, which would be our case, has to be certain they are not putting the entire company at risk. So, I think it is a lot of noise, but is a fairly typical process trying to make everyone comfortable with it. I am hopeful it turns out in a way we can participate in it. But I understand the sensitivities and everyone has to be comfortable. People will coalesce ultimately around something that works for everybody.
How is the financial services business doing?
Our financial services has been in better shape than it has been in years. We have de-emphasized some areas, especially the consumer area and emphasized some areas where we have a really strong profit outlook for the year. I feel after two or three years of struggle we are in very good shape.
Healthcare financing, aviation financing, infrastructure, we have a very good business. It is a symbiotic relationship with what our industrial activity is.
Our partnership with State Bank of India on the credit card business has turned profitable. That is going to be a tremendous asset five, 10 years down the road. Couldn’t have a better partner from a distribution and brand name perspective than State Bank of India.