By Ted Mann and Thomas Gryta

In early 2014, the High-Impact Innovation Team in General Electric Co.'s Connecticut headquarters received an urgent call: It was time to present one of their apps to Jeff Immelt. The chief executive had an expanding interest in tech, having promised an "industrial internet" that GE would help build for the world.

It was the job of the HIIT team to develop apps for use within the company -- such as an iPad app to connect lighting engineers with the lighting sales force, and a web-based application for employee performance reviews. The division's public relations staff pitched the team's innovations to the business press.

Employees jumped at the chance to show Mr. Immelt their hard work, reinforcing his vision of overhauling the conglomerate in the image of a software skunk works. But in 2014 there was a small problem: the app in question wasn't built yet. The team had digital design files -- mock-ups of the way the program might eventually look -- but nothing running on a real machine to show the longtime CEO.

Supervisors waved away these concerns. One employee was told it was time to "fake and bake." Designers in Fairfield went to work animating flat visual designs, inserting enough movement to give the appearance, for the duration of one PowerPoint presentation for the boss at least, of an app that worked.

Word came back the next day. Mr. Immelt loved it.

The CEO wanted GE to be known around the world for more than just jet engines and MRI machines, power plants and nuclear reactors. Deep costs, employee confusion and delusions about what it would take to reposition the company for a digital future would make it more difficult to turn Mr. Immelt's vision into a profitable business, according to former board directors, GE executives and employees.

A representative for Mr. Immelt said funding for the digital business came from cost cutting elsewhere in the company and Mr. Immelt knew building a digital business would be difficult. In response to Mr. Immelt being shown a simulated app, the representative said, "Jeff Immelt also doesn't know how to design a turbine blade, but he helped build one hell of a jet engine business."

Mr. Immelt stepped down as CEO in 2017, as GE's stock began a multiyear decline from which it has yet to recover. The board has since fired Mr. Immelt's replacement in favor of a new CEO, replaced executives and company directors, and jettisoned portions of its industrial portfolio to focus on reviving its core businesses, including power turbines and aircraft engines.

A GE spokeswoman, when asked to comment about this account of GE's digital ambitions, said "we are focused on our future -- strengthening our businesses, serving our customers, and driving long-term value for our employees and shareholders."

A Massive Experiment

To Mr. Immelt, the future of industrial companies was in software and hard-core computing. Even now, that vision is widely considered to be correct and other industrial company leaders, including those who laughed at GE initially, are increasingly following the same path.

As technological innovation shrank the size and cost of digital sensors, they would be embedded in more machinery of every conceivable type. Huge streams of data would be harvested, not just from smartphones and WiFi-enabled thermostats, but from the massive machines at the center of the developed economies around the world. Data could be captured from gas-fired power turbines, jet engines on passenger aircraft, MRI machines and sonograms, the rumbling diesel-electric locomotives hauling freight across the American plains or down the core of the Indian subcontinent from Delhi to Bangalore.

Mr. Immelt said GE would know best which data to gather and how to interpret their meaning because it knew the machines. Its staff designed and built and repaired them for decades. They knew how they worked, and when and why they failed. Engineers empowered with the right digital tools could begin to learn new things from their own machines, the CEO said. "Big data" would help GE better predict when critical parts in engines and turbines were likely to wear out and break. These applications would run on a GE-developed software platform called Predix, which would reside in a new division: GE Digital.

In meetings of the GE board of directors, these grand plans received a blessing of silence, according to people close to the decisions. The board, made up of current and retired business executives and academics, liked Mr. Immelt and didn't like to challenge him. They appreciated his gargantuan work ethic, his optimistic spirit, and his eagerness to articulate far-reaching visions about the company's strategy.

A representative for Mr. Immelt, who also served as GE's chairman, said the board was regularly briefed about the digital effort.

The board tacitly blessed Mr. Immelt's digital dreams and his plans to stand up a software company inside General Electric, but never decided -- much less voted on -- a critical question about such a massive experiment: How much money were they going to spend on this?

The Selling of GE Digital

The marketing of GE Digital was just as important as turning it into a viable business, if not more so.

That job fell to Beth Comstock, who had a taste for black leather biker jackets and a gift for lofty rhetoric that belied her quiet manner.

Ms. Comstock had spent her career in media relations, rising through NBC to the corporate parent, when Mr. Immelt tapped her to be GE's chief marketing officer in 2003. The company hadn't had such a position for two decades. She rose to become a vice chair of the company, molding her own brand as a change maker who was rethinking the American icon. The digital operation was no different.

A series of broadcast television spots introduced a young computer programmer, the titular Owen, who informed increasingly perplexed groups of his friends and family that he had taken a software coding job -- at General Electric. The Owen ads spoke to some of the truth of GE Digital. Notwithstanding some claims that GE was making to investors about its success in luring young programmers away from jobs at Facebook or Apple, in fact, outside recruiters said, the response in Silicon Valley had been not unlike Owen's fictional brunch table.

In time, "digital" suffused the company's vast marketing operation, the adjective having swollen to crowd out all others in everything from Mr. Immelt's public speeches to Ms. Comstock's PR work. The communications office revised the boilerplate attached to every press release, the corporation's description of itself, to pronounce GE the world's first "digital-industrial" company.

Ms. Comstock declined to comment.

Mr. Immelt proclaimed in 2015 that GE would be a "top 10 software company" by 2020, with $4 billion in annual revenue from its new Predix software alone. GE Digital reported revenue of $3.6 billion in 2016, largely from operations in its industrial units, and targeted $15 billion by 2020. But the pledge to turn General Electric into a major software company was slightly more challenging than Mr. Immelt had made it sound.

Some executives at the company thought the obvious answer was to form a partnership. There were already massive, global companies that for decades had been building a software infrastructure to host and influence virtually every aspect of human life, communication, and business. Google. Oracle. Microsoft. Amazon. GE's knowledge of the machines it made and the needs of its customers was unmatched, but that didn't make it the most obvious candidate to construct the scaffolding of code on which the "industrial internet" would rest.

GE first launched Predix in 2013, calling it a "first-of-its-kind industrial strength platform that provides a standard and secure way to connect machines, industrial big data and people."

It was perhaps telling that as GE rolled out a product it claimed would change the way industrial machinery and major economic sectors operated, the company's executives couldn't even agree on how to pronounce it. Mr. Immelt extolled the potential of a product he pronounced as "Pree-dix," sometimes then turning over the microphone directly to an executive whose version sounded more like the verb "predicts." GE Digital was on track to spend $5 billion by 2016, according to people close to the operation -- a massive sum even by GE standards, equivalent to about half the R&D budget for a new, clean-sheet jet engine.

Saluting the Flag

GE didn't just pour money into Predix -- it smothered the project with cash. But without a coherent strategy and well-thought-out processes, the product development path was a wasteful one, according to former executives at GE Digital and corporate headquarters. GE's plan to move fast, produce a viable product, and then perfect it in the field got bogged down partly because of the size of the effort. GE hired armies of new employees and gave them all the resources they wanted to build its vision. It was like an auto company building an assembly plant, hiring workers, and leaving them standing on the production line, waiting for the vehicle to be designed.

Instead of charging a small team with developing the best product and then letting the operation grow with the product's evolution, GE set up a huge organization that wasn't quite needed yet. Development was often paused or delayed to start the process over entirely or just to stabilize the systems. Leading executives said the digital operation was designing custom software for individual customers -- inverting the usual industry model of engineering a single piece of software that can then be sold and resold, recouping the cost of its design and reaping profits.

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07-18-20 0014ET