GE: How a non-startup applies lean startup ideas

We are all lean now — or soon will be. As the world becomes more digitized, generating more information surrounding products and services and speeding up processes, large and small companies in every industry, even manufacturing, are starting to compete more like the software industry, with short product lifecycles and rapid decision-making.

GE has responded to this drive for speed and need to align more closely with customers’ needs by using a new technique called “FastWorks.” It’s a framework for entrepreneurs, building on “The Lean Startup” by Eric Ries. The Lean Startup is an approach to developing new products that came out of “Agile” software development, with “sprints” (quick deliverables) and fast learning. It’s now being tried in manufacturing since GE and others believe that rapid learning cycles with customers will reduce the risk that you build something you can’t sell.

There is a lot at stake here for GE’s operations strategy. As I wrote in a previous post, GE Appliances is on a journey to prove that it can bring manufacturing back to the U.S. and compete successfully. In 2008, GE corporate decided to invest $1 billion in the $5.6 billion manufacturer of kitchen, laundry, and home appliances, and transform everything — launching 11 new product platforms, building or revamping 6 plants, and hiring 3,000 new workers.

GE Appliance’s first attempt to apply FastWorks has been to create a refrigerator with French doors (doors that open from the middle) for their high end “Monogram” line. In January 2013, Chip Blankenship, CEO of GE Appliances issued a challenge to the newly formed team: “You’re going to change every part the customer sees. You won’t have a lot of money. There will be a very small team. There will be a working product in 3 months. And you will have a production product in 11 or 12 months.”

The cross-functional team was thrown into a room together. They became a tight group as they went down to the factory floor and built products together and looked at market research together.

Instead of the traditional approach in which salespeople give design requirements and then leave, customers would be involved throughout. Having the team hear customer feedback firsthand was a big change, especially for the engineers. At their training center in Louisville, they bounced ideas and product prototypes off of retail salespeople who came to learn about GE’s products. They also went to Monogram design centers in New York and Chicago to test products with designers who were visiting to get specifications and information about products for their clients.

The feedback was hard for the engineers to hear, but it made a huge impact on them. In January 2013 the team came out with a “minimum viable product.” They put it out in front of customers, and … the customers didn’t like it. The first feedback they got was that the stainless steel was too dark. So they made it a lighter shade of silver. Then the lighting tested poorly. They revised it and tested it again. They cycled through several product iterations. By August they had version 5, and customers started to like it. They built 75 of version 6 in January 2014 and response so far has been positive. They’re now working on version 8, which they will produce in October, and version 10, with better lighting, and there is a design projected for 2015. They intend to launch new products every year.

Historically, GE revised products every five years, and they would have kept their new products under wraps. But as Kevin Nolan, vice president of technology, said, “With FastWorks we’re learning that speed is our competitive advantage. How do we become much more open and collaborative with the customer base? You can’t do that if you want to be secretive.”

To make FastWorks work, changes have been made in several areas, including supplier relations, finance, and roles and responsibilities:

Supplier relations. The new product team knew they needed to engage their suppliers sooner in the product development process, and also in a more continuously ongoing way. At the end of January 2013, they went to the factory to explain what they were trying to do, and their suppliers were in the room. The suppliers, not surprisingly, were grateful to be asked to be involved, and have provided more flexibility in the development process.

Finance. Vic Roos, Lead Purchasing Program Manager, explained, “We let a finance guy in the room. He helped us challenge the big company mentality. At times we moved much faster than the company would normally allow. At times it drove the materials manager crazy.” David Schofield, Design Manager — Refrigeration, said, “Typically we needed to have a one- or two-year payback. That model doesn’t work when you’re moving fast and when you don’t know what the customer will like. And it’s hard to put a dollar value on that learning. When we first put up our financial numbers, they looked bad. For this year, we’re not going to worry about the product and program costs in calculating the payback. It took a lot of pressure off the team so they could focus on execution and not on cost.” Traditional financial systems are risk mitigation tools, and there is typically no weighting on speed. These systems often don’t calculate how much money is wasted because you don’t get products in front of customers soon enough, or the risk of going out of business.

Leadership roles and responsibilities. Vic Roos explained, “You need to invert the pyramid. There were times when we were moving so fast that people outside our team were concerned. There was a group that was having trouble moving as fast as we wanted. The CEO came to a meeting, and that wall was knocked down. I always felt that we were not put out on an island, the organization worked around and supported us.” Dave Schofield, “The leaders also gave us more autonomy. Normally we would have had to get approval for pivots. They gave us the autonomy to make those decisions ourselves.”

The results GE Appliance has achieved so far are striking: half the program cost, twice the program speed, and currently selling over two times the normal sales rate.

Todd Waterman, GE’s corporate Lean leader, is leveraging GE Appliance’s insights with other GE units. For example, they recently hosted 70-80 young GE high potentials at GE Appliances. And GE appears to be placing a big bet on FastWorks. According to their 2013 Year-in-Review, in the first year, Ries trained 80 coaches exclusively dedicated to FastWorks. Together they introduced almost 1,000 GE executives to Lean Startup principles. GE also launched more than 100 FastWorks projects globally. They range from building disruptive healthcare solutions to designing new gas turbines; they also extend to non-manufacturing disciplines across the business. GE plans to expand the program to 5,000 executives and launch hundreds of new projects this year. “GE is an ideal laboratory for applying Lean practices because of its scale,” Ries says. “This is undoubtedly the largest deployment of Lean Startup ideas in the world.”

This post first appeared on the Harvard Business Review and has been lightly edited.