Ecomagination at GE
GE's strategy to compete in a marketplace impacted by climate change
The Dow Jones Industrial Average (DJIA) was first established in 1986, comprising primarily of railroad companies which had been established to support the trans-national trade of manufactured goods that emerged from the Industrial Revolution in the decades prior (CNBC). Today, there are no railroads in the DJIA. Instead, the index’s components have been replaced by American multinational companies ranging across several different industries. While the components have changed 51 times over the last 120 years, one company has far outlasted all others after spending 109 years as part of the index, General Electric (GE).
GE is distinct from many of the companies which have come and gone from the DJIA in that it has long been a conglomeration stretching across several industries rather than focusing on one area. GE’s diverse portfolio is a reflection of the larger global economy and has enabled it to continually adapt its core businesses to compete in an ever changing environment. Today, climate change presents an unprecedented sea change impacting the global economy in ways that we do not yet fully understand. As a conglomerate, GE’s various business segments are impacted by climate change in many different ways. In order to prepare to compete in a future impacted by climate change, GE launched an initiative in 2005 called Ecomagination.
“Ecomagination is GE’s growth strategy to enhance resource productivity and reduce environmental impact at a global scale through commercial solutions for our customers and through our own operations” (GE)
Ecomagination is embedded within each of GE’s business segments today to ensure its businesses are sustainable and continues to be a point of differentiation with competitor’s technology. In an effort to promote sustainability, GE is introducing new technology within its water business to improve desalinization techniques and increase global access to fresh water.
Within the company’s energy division, Ecomagination means promoting renewable energy sources and developing new technology to reduce carbon emissions. This strategy enables the company to compete in countries with increasingly strict regulatory environments and take advantage of carbon tax credits. Within the aircraft engine division, Ecomagination means increasing efficiency to reduce gas consumption in order to make engines more attractive to customers in the face of rising gasoline prices.
GE view’s its Ecomagination strategy as a way of investing not only in cleaner technology but also business innovation in the global marketplace as it is impacted by climate change. Despite its efforts, some of GE’s efforts to promote sustainability have not been positively received and have been criticized for not being truly eco-friendly and leaning more towards business innovation.
“By stretching ecomagination into areas that many people clearly don’t consider very green, GE may be risking a valuable business and brand asset.” (Winston)
This critical view is primarily in reference to GE’s position within the Oil & Gas industry, where it has been working to develop “alternative water technologies for fracking natural gas”. While marginally better than the established methods, fracking is a common target for environmentalist’s fight against climate change. If GE intends to show its commitment to promoting sustainability and reducing climate change, then it should distance itself from this business line. Recently, GE struck a deal to acquire Oilfield Service firm Baker Hughes, which will put its Oil & Gas division on par with its largest competitor, Schlumberger (Reuters).
This new competitive landscape appears to signal that the company is just as committed to growing its position in “dirty tech” as it is committed to Ecomagination. However, it also presents an opportunity for the company to spin-off this consolidated platform and distance itself in order to preserve its valuable brand. While it would be a significant change in strategy for the 130-year-old industrial giant, divesting its Oil & Gas assets would become another point of differentiation from other members of the DJIA, which today includes two other companies in the Oil & Gas space (Exxon and Chevron).
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References
CNBC. http://www.cnbc.com/2014/07/02/history-of-dow-30.html. 2 August 2014. Web site. 2 11 2016.
- https://www.ge.com/about-us/ecomagination. 2 November 2016. 2 November 2016.
Reuters. http://fortune.com/2016/11/01/ge-baker-hughes-deal-oilfield-sector/. 1 11 2016. Web site. 2 11 2016.
Winston, Andrew. https://hbr.org/2014/08/ges-failure-of-ecomagination. 1 8 2014. Web site. 2 11 2016.
Charlie, you raise an interesting point about the challenges of maintaining a consistent climate change policy across a large conglomerate, particularly one that has grown as organically over as long a period as GE. It would be fascinating to be in a leadership position in this company and try to forge a business model that supports a cohesive climate change policy out of its many diverse component businesses. Based on some quick research, I found that GE has a policy not to undertake “any energy savings or sustainability project for the sole goal of seeking carbon dioxide emissions reductions due to climate change concerns, except as required by law.” (http://www.sustainablebusiness.com/index.cfm/go/news.display/id/25546) This suggests that GE is committed first and foremost to maximizing profits, while sustainability and their Ecomagination campaign is a second order concern. It doesn’t strike me that GE would be willing to divest its “dirty tech” businesses simply out of commitment to Ecomagination. Only if these businesses become unprofitable, or GE’s overall reputation begins to suffer due to inconsistencies in its climate change policy, would I expect the company to follow your recommendation.
Very interesting read Charlie! It’s heartening to read that large conglomerates take sustainability seriously enough to drive transformational changes in their business. To the point BunnySlope raised above, I would be curious to understand how the Ecoimagination team fits into the corporate structure at GE. Are they considered advisors to the core business or is it a mandate for sustainability that rests within every division? I wonder whether it is a second class citizen to GE’s dirty tech business? If that is the case, it might actually be more worthwhile for them, to set up the Ecoimagination team purely as advisors to their clients and other external businesses. Thanks again for writing this!
Building on Shivika’s comments, I am wondering whether (and how) the Ecoimagination initiative is related to another transformational initiative at GE: the Internet of Things (IoT). In the Silicon Valley, GE has been hiring aggressively for developers and industrial designers to create “digital twins” for a majority of GE’s home appliances. By 2020, an average US household is expected to have 10+ smart devices interconnected and constantly cross-talking. The surge of IoT, if managed inappropriately, would mean millions of energy-intensive and data-hungry devices seeping through every corner of the United States and the world. It would be interesting to see how GE plans to align the Ecoimagination initiative with the development of their army of next-gen smart devices.
Thanks Charlie for your information and insights!