How GE applies Lean Startup practices

We are all lean now – or soon will be. As the world becomes more digital, generating more information about products and services and speeding up processes, companies large and small in every line of business, even manufacturing, are facing greater competition, just like the software development field, with short product life cycles and fast decision-making.

GE has responded to this trend toward speed and the need to align itself with customer needs through a new technique called “FastWorks.” It is a framework for entrepreneurs, based on Eric Ries's “Lean Startup.” Lean Startup is an approach to new product development that grew out of “agile” software development, with “sprints” (rapid deliveries) and fast learning. It is now being tested in manufacturing because GE and other companies believe that rapid learning cycles will reduce the risk of making something you can't sell.

There is a lot at stake here in GE's operations strategy. As I wrote in a previous article, GE Appliances is on a journey to prove that manufacturing can be brought back to the United States and can compete at a high level. In 2008, GE corporate decided to invest one billion dollars in its 5.6-billion-dollar kitchen, laundry, and appliance manufacturing business, and also decided to transform everything – launching eleven new product platforms, building or revitalizing six plants, and hiring three thousand new employees.

GE Appliances' first attempt at applying FastWorks was to create a French-door refrigerator (doors that open in the middle) for its high-end “Monogram” line. In January 2013, Chip Blankenship, CEO of GE Appliances, gave the newly formed team a challenge: “You will change every part the customer sees. You won't have much money. It will be a very small team. There should be an initial product in three months. And you should have a product ready for production in eleven or twelve months.”

The cross-functional team was put in one room. They became a close-knit group as they visited the shop floor, built products, and looked at market research together.

Instead of the traditional approach in which sales people provide the design requirements and then walk away, customers would also be involved. Getting the team to listen to customer feedback was a big change, especially for the engineers. At their training center in Louisville, they launched product ideas and prototypes without the help of retail salespeople, who had been brought in to learn about GE products. They also went to Monogram's design centers in New York and Chicago to test products with designers who were visiting to obtain specifications and product information for their clients.

It was hard for the engineers to hear the feedback, but it had a big impact on them. In January 2013, the team came up with a “minimum viable product.” They made it available to customers and… customers didn't like it. The first piece of information they got was that the stainless steel was too dark. So they made it a lighter shade of gray. Then the lighting test didn't go well. They revised it and tested again. They did several iterations of the product. By August, they had the fifth version, which customers began to like. They made seventy-five units of the sixth version in January 2014, and the response so far has been positive. They are now working on the eighth version, which they will produce in October, and on the tenth version, with better lighting, and there is also a design for 2015. They intend to launch new products every year.

Historically, GE revised its products every five years, and it kept its new products secret. But, as Kevin Nolan, vice president of technology, said: “With FastWorks, we are learning that speed is our competitive advantage. How do we become much more open and collaborative with customers? You can't do that if you want to keep secrets.”

To make FastWorks work, changes were made in several areas, including supplier relations, finance, and roles and responsibilities.

Supplier relations. The new product team knew they needed to quickly engage their suppliers in the product development process and also on a more continuous basis. At the end of January 2013, they went to the plant to explain what they were trying to do, and their suppliers were in the room. The suppliers, not surprisingly, were pleased to have been asked to get involved and provided greater flexibility in the development process.

Finance. VicRoos, Lead Purchasing Program Manager, explained: “We put a finance person in the room. He helped us challenge the big-company mindset. Sometimes we moved much faster than the company would normally allow. Sometimes we drove the materials manager crazy.” David Schofield, Design Manager – Refrigeration, said: “Normally, we needed a payback of between one and two years. 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 initially put in our financial numbers, they looked bad. This year, we won't worry about program and product costs to calculate payback. That took a lot of pressure off the team so they could focus on execution, not cost.” Traditional financial systems are dangerous tools that get in the way, and they usually have no relevance to speed. These systems often don't calculate how much money is lost because you don't get the product to customers early enough, or because of the risk of going out of business.

Leadership responsibilities and roles. VicRoos explained: “You have to turn the pyramid upside down. There were times when we were moving so fast that people outside our team were worried. There was one group that was having trouble moving as fast as we wanted. The CEO came to a meeting, and that wall came down. I always felt we weren't isolated; the organization worked around us and helped us.” Dave Schofield: “The leaders also gave us more autonomy. Normally, we would need approval for pivots (deep, rapid changes). They gave us the autonomy to make those decisions.”

The results GE Appliances has achieved so far are impressive: half the program cost, twice the program speed, and it is currently selling more than twice what it used to.

Todd Waterman, GE corporate's lean leader, is using GE Appliances' ideas in other GE units. For example, they recently hosted between seventy and eighty young high-potential GE people at GE Appliances. And GE seems to put a lot of faith in FastWorks. Together, they have introduced nearly a thousand GE executives to Lean Startup principles. GE has also launched more than a hundred FastWorks projects around the world. They range from innovative healthcare solutions to new gas turbine designs; they have also extended it to non-manufacturing disciplines in the business. GE plans to expand the program to five thousand executives and launch hundreds of new projects this year. “GE is an ideal laboratory for applying lean practices because of its scale,” says Ries. “This is, without a doubt, the largest deployment of Lean Startup ideas in the world.”