General Electric’s new approach: localization in a globalized economy
By J. F. Hannes Meckel
If I took just one thing to focus on in terms of being proud, it would probably be the global footprint.” Jeffrey Immelt, CEO of General Electric Company, to analysts on FY2013 performance.
GE: the story of a transformation
Last year, General Electric (GE) generated revenues of $142 billion globally with its 330,000 employees. Meanwhile, and even though GE is still much more of a household name in the United States largely thanks to its appliances and light bulbs familiar to generations of American families, 60 percent of those revenues is generated outside of the United States. GE’s diverse product and services portfolio includes aircraft engines, power generation equipment such as steam, gas and wind turbines, medical equipment, locomotives and financial services products. Most of its business divisions are big enough individually to make it into the Fortune 500 list and are larger than many DAX 30 companies. While GE has a very strong culture, historically, all of these divisions have been run fairly independently out of their own global headquarters—typically in the United States—by their own global and regional staff, supported by their own legal teams. As they grew, their teams grew, mostly in the United States and Europe. To the extent that a business was sizable enough, structures were also created in developing markets, with each business pursuing that expansion strategy on its own. More often than not, this meant that the local teams in the regions operated in a centralized structure that was built at a time when their business was half its current size and not present in many of the developing markets that are so important for our growth today. One consequence of the traditionally U.S.- centric structure was that our documents tended to be mostly in English, written in U.S. style (so rather lengthy with CAPITALIZED SECTIONS) and subject to U.S. law. Approvals for commercial transactions with customers had to be obtained from U.S.-based headquarters. This meant that getting a deal done with a customer located in a remote, non-English speaking jurisdiction required translating deal documentation and setting up multiple reviews with the U.S. headquarters teams over several time zones to get the approvals necessary to execute a local deal in, say, Angola. A time- and resource-consuming process, no doubt.
All business is local: Global Growth Organization
As these units grew significantly, acquiring businesses with operations based outside the United States, and GE as a whole expanded globally, our customers increasingly demanded that a company the size of GE be able to do business locally, in the local language, with local teams that are knowledgeable and capable of executing transactions on the ground. With global competition intensifying in the foreign growth markets, our ability to do so became a real competitive factor. The U.S.-centric and vertical business unit structure was not nimble and local enough to meet those demands. Our customers told us that we were too slow, too bureaucratic and too cumbersome to do business with. Something had to change. That was when, in late 2010, GE CEO Jeffrey Immelt decided to form a new unit that he called the Global Growth Organization, or GGO. Led by Vice Chairman John Rice out of Hong Kong, a move to signify that our international business had to get its impulses from outside of the United States, GGO established its own infrastructure outside the United States, including support teams in finance, marketing, human resources and legal affairs, to fuel growth in such regions as sub-Saharan Africa, Middle East/North Africa/Turkey, India, Russia/CIS, Southeast Asia, Latin America, China and Australia/ New Zealand. We also put special emphasis on growing our business in developed markets like Germany, Japan and Korea. The mission of GGO is to _ See new business earlier, _ Enable us to be faster and more responsive to local needs, _ Enhance portfolio profitability and supply chain efficiency, _ Connect capital to customers, _ Simplify the GE structure and _ Create a local leadership pipeline. For the legal teams, both in the businesses and in GGO, the principal tasks were to simplify and localize the way we interact with our customers in the regions. This meant doing four things first and foremost:
1 _ Hire top legal talent in places like Algeria, Angola, Abu Dhabi and Venezuela
2 _ Localize our transaction documents into local language and style, but also make them subject to and enforceable under local law
3 _ Reduce complexity in ourprocesses that were connected to getting a deal done in a region
4 _ Empower local decision-making Each of these four elements was interdependent and equally important to achieve our objectives. Yet it soon became clear that the first and fourth areas were the most critical and the most difficult to get done because they take time and require cultural change. We had to bring new colleagues on board in faraway places, educate and train them, and work with the businesses to build trust in the local team’s capability.
Business headquarters had to invest time and resources to get to know those lawyers and educate them on their business, products, processes, risk profiles and “the way we work.” And they had to learn to let go to a certain extent, delegating some of their authority to the teams in the field. This is not something that can be achieved overnight, and it cannot happen with the same speed everywhere in the world. We had to take a long-term view and an incremental approach.
The journey goes on
Starting in the more established markets like Germany, where GE has been present for 130 years and employs nearly 8,000 people, or Australia, where we have had a sizable presence for decades and mature local legal teams, we worked with the businesses to introduce them to the lawyers with whom they were not already familiar. We worked with the businesses to localize their legal documentation and rather than debating how much authority the local teams would need or get, we asked another question: “How much authority must remain at the headquarters level?” And then we assigned everything else to the region. Usually, there was only a handful of these items, the so-called enterprise risks or policy matters—uncapped or extensive liability, environmental and pollution risk or exposure to nuclear liability. If these issues do come up, it is not unduly burdensome to get the right people with the right expertise in headquarters involved to resolve them—and that is, by the way, also what the local teams prefer given the magnitude of the risk involved that the business has to assess. >> The world is a big place, and success requires us to be global and local at the same time << In Germany, for example, we moved from 45 percent in-country approvals to more than 80 percent in-country approvals, significantly reducing cycle time and allowing the local teams to give the required approvals on the same day they are required. In other regions such as sub-Saharan Africa, this process will take longer, quite obviously. We have hired more than 20 lawyers in that region over the last two years. The businesses have done a terrific job educating them on their products and processes, but it will take time to fully integrate them into our processes and ensure that the businesses are sufficiently comfortable with their local capabilities. Yet we are now better equipped to do large transactions locally, like a $2.7 billion power generation equipment and services deal in Algeria last year. The results we have achieved since we began this journey speak for themselves. As we told our investors after the end of the 2013 financial year, GE grew orders in these growth markets by 17 percent, which is more than three times the GDP growth rate. Our global (non-U.S.) order pipeline grew by a factor of 4. In 2013, GE booked orders in 171 countries with 63 percent of our industrial (noncapital) orders coming from outside the United States. We booked orders worth over $1 billion in 21 countries outside of the United States. The above-mentioned growth markets delivered over $45 billion in industrial orders taken together. We delivered $10 billion in orders from 74 countries considered to be the hardest markets to do business in, according to the World Economic Forum Competitive Index—up 34 percent from 2012. Our order backlog grew to a record $244 billion.
The way we work: “all in”
This is all impressive. But what is more important for our legal teams and our customers is that the local teams are now empowered and capable of making decisions locally, in real time, in the local language and in front of the customer. The number of internal reviews and our deal cycle time has gone down significantly. Without question, a key success factor in a transformational change such as this is a high level of engagement by all teams, perseverance and commitment. Furthermore, this would not be possible without truly cross-functional, cross-business and international teamwork. Everybody needs to be “all in” to get this done. The world is a big place, and success requires us to be global and local at the same time—including in the legal department.