In a period of crisis you have to cut costs. But if there was one budget that we didn’t cut it was the Research and Development budget, because we believe that technology is the seed for the future prosperity of our business. Nani Beccalli-Falco
Ferdinando 'Nani' Beccalli-Falco, President and Chief Executive Officer of GE International highlights some of the ways in which investment in R&D has helped his company create successful new products and expand into new international markets, even in times of economic hardship.
Read the transcript below.
Nani Beccalli-Falco, President and CEO, GE International
There is no question about the fact that in the period of time between 1981 and 2007 the world enjoyed a period of growth that was second to none. And if we research the reasons for this growth there are several, but I would like to highlight two of them that I consider to be the most important. The first one is the advent of new technologies. Think about the internet, think about telecommunications, think about all what came around during this period of time that really improved the productivity, allowed things to move faster, the communication became easier and so on; created a lot of new jobs, basically created a new industry. And the second one was the process of globalisation. The globalisation that allowed hundreds of millions of people in what we used to call developing countries, and that I now find offensive to call developing countries and I would call emerging countries, allowed hundreds of millions of people in these countries to become – I'm not saying rich – but to begin to be consumers and so to start up a certain kind of economy.
Then we had this profound crisis, this perfect storm of 2007, 2008, 2009 and a piece of 2010. A profound crisis that we are not so sure we are really out of yet, and what this did, it certainly changed the approach of many businesses, of many industries to their markets. We have seen some of the data here from Terry. Some of them are really concerning, I have to tell you. But it changed the approach. It forced people to change business models and in certain cases it did accelerate the need for continued new technology and for continued globalisation.
There is one aspect of this that I would like to explore with you this morning. By the way, as a parenthesis, it was interesting to hear Terry talking about the fact that cost cutting was one of the measures that was very important, and of course, a lot of people did cost cutting the Research and Development department. I can tell you that we, as every company, we did cost cutting because in a period of crisis you have to do it, you have to meet certain requirements for margin and profitability. But if there is one budget that we didn’t cut it was the Research and Development budget because we do believe in technology. We do believe that technology is the seed, the cradle, for the future prosperity of a business like ours.
So, if we talk about globalisation, let me just give you a little bit of the view of globalisation, I’ve been with the company for 35 years so I think that I’ve got a pretty good perspective of what happened. And I can say that in the beginning of my stay in the company, it was 1975, the company was very much of the East Coast of the United States kind of company with small operations which were mostly sales operations in the UK, in Canada, in Latin America. All parts of the world that we were, shall we say, 'comfortable' for that period of time. Then in 1981 Jack Welch came onboard, I mean became the CEO, and then he started a much deeper process of globalisation that involved investments, and his globalisation was in areas that were developed areas. So, we made big investments in Western Europe, we made big investments in Japan, we made big investment in areas that had a certain kind of business approach that was similar to the United States. Then there is a third phase of globalisation which is today’s phase with Jeff Immelt at the helm, which is the one where we really need to penetrate areas that are different than the areas where we were before, and I say different not in the bad sense of the word, but I say different because some of the market needs, some of the behaviours, are definitely different from the ones that we were used to in the '80s and '90s.
So, if we continue a technological discussion similar to the one that we had in the '80s and '90s in a market, say, like India or China, we’re going to be able to conquer only a small share of that market. Let’s say, for instance, the healthcare industry; if you look at diagnostic imaging, if you look at the big MRI that you produce which are pieces of equipment that cost millions of dollars, in that case it is clear that selling to the Indian market we’re occupying 5, 6, 7% of the market and no more because that market cannot afford that kind of technology. In the meantime I have to say that in the process of globalisation we created two big important technology centres in China and in India. As a matter of fact, today the biggest technology centre that the company has, that GE has, is in Bangalore in India where we employ between 4 and 5,000 PhDs that are working on developing new technologies.
So, looking at this, looking at the market, let’s take healthcare in India, continuing this example, looking at this market as a market to penetrate, we really came up with the idea that the products that were designed in the centres in the Western world were not good for that market and the people who were designing those products were not able to design a product that would’ve been satisfying the Indian market. So, we commissioned, if you wish, the Indian Research and Development to look at the product line of healthcare, and by the way not only healthcare but several other products, and tried to create products, to develop technologies that were going to meet the requirements of that market. So, if you take, for instance, the ultrasound machine, an ultrasound machine is something that is as big as this podium. It is very complex. It’s got lots of bells and whistles and it’s got screens and all this kind of stuff, and it’s something that you cannot take around and bring into one of the villages in the remote part of India where you need to have that piece of equipment. So, they came up with an ultrasound machine which is the size a little bit bigger than this one. It is transportable. Anybody can carry it anywhere. It is a much simpler piece of equipment, the screen is definitely smaller than one that there is on the big piece of equipment. But it is suitable for a first screening of patients so that you can go into a village, you can go into the countryside, you can check the people, and you can start dividing the people between 'You don’t need any care, you better go to a major hospital because you do need care.' So, that you begin to do a pre-screen of the people.
This was the, if you want, this was a big step for a company like ours. Now, the interesting thing that is happening, and I think that this is a benefit that we didn’t figure out and we didn’t think about, which tells you that sometimes business assessors are a little bit the result of luck, shall we say, is that this piece of equipment, small, portable, rugged, can be re-exported into the developed world and it can be used as the new stethoscope for UK, for the United States, for France. So, we found a totally new market in the development world for a piece of technology that was developed for a certain specific use in India. I think this is thinking out of the box. We called this one reverse innovation because it is going totally against the old beliefs that the company had.
Now, if we can apply this one to today’s situation in Western Europe and particularly in the UK. I think that the principle, the learning, out of this experience is the fact that you need to think totally out of the box. You need to think of new solutions, wiping out the old beliefs that you have, even when you work in a field which, you know, like diagnostic imaging, is a field that is very well known and it is very well exploited. So, in a period of crisis generally, when the going gets tough, the tough gets going, periods of crisis generally the ones that allow the big thinkers, the creators, the designers of the future, the visionary to do something about it, and sticking your head in the sand only cutting costs or doing this kind of things that sometimes people think unnecessary, is not just... is not enough, is not good. So, my encouragement to all of you is be creative, be good thinkers. Thank you very much.