Hacking GE

GE has a long history of innovation. The multinational manufacturing giant is committed to living up to the example of its founder, Thomas Edison, who pioneered the hacker way at his Menlo Park research lab decades before the dawn of the computer age. Recently, however, GE has struggled to match the speed and customer focus of smaller, more nimble competitors. For decades, the company maintained its market lead by mass producing products across its four global divisions (GE Energy, GE Aviation, GE Capital and GE Healthcare). When market research revealed a growing desire for artisanal products and personalized experiences, CEO Jeff Immelt realized that this strength had become a weakness. GE’s innovation processes were not set up to deliver on these new customer expectations, certainly not at the speed that startups could bring products to market. GE’s innovation processes needed to be rewired. The company as a whole needed to be hacked.

Responding to this crisis, Immelt reached out to Eric Ries and invited him to come on board to explore how lean startup method could be applied in GE’s manufacturing divisions. Immelt was impressed by how lean startup method increased speed to market in the software industry, and reduced the risk of products that didn’t sell. Immelt was also aware that the costs and demands of heavy manufacturing were wildly different from those of the software industry. He wasn’t sure the lean approach would work at GE. But he was willing to run an experiment.

Immelt put Ries on a team with Viv Goldstein, GE’s Director of Global Innovation Acceleration, and Janice Semper, GE’s Culture Transformation Leader. Together, they assembled a broader team of leaders from GE Business Innovations and HR to head up a pilot project. Ries stressed the importance of testing their riskiest assumption, namely, that lean method would work applied to heavy machinery. Accordingly, the team decided to start by testing lean method itself, applying it to the development of the Series X diesel engine, a complex project with a 5-year business plan.

The Series X was a heavy-duty piece of industrial equipment. For Ries, this made it a highly atypical project, ‘far removed from the world of software and apps’ (Ries, 2016: 319–320). It also made it the perfect test case to determine if lean startup method would work at GE.

Lean startup method doesn’t work at all without the right mindsets and values in place. Ries’ initial task was to culture hack the creative resources for the project. Ries assembled a talented, cross-functional team, uniting people from engineering, design, product management, sales, marketing and legal. He put the team through a three-day ‘Lean Startup’ workshop, introducing them to the build–measure–learn cycle and the basics of entrepreneurial management. The workshop challenged the team to embrace mistakes and learn from failure, and to engage customers early in the process. Ries pushed the value of experimental method and encouraged the team to get an MVP to market fast.

Ries worked closely with the team as they started building mockups and running experiments. His coaching skills were in much demand. The challenges of applying lean startup method to heavy machinery quickly became apparent.

Prototyping physical objects with multiple moving parts is considerably more difficult than prototyping web apps. The engineers on the team had to rethink what they did, how they did it and how they felt about it. Ries pushed them hard, subjecting them to stringent deadlines and forcing them to adapt their ways of working. He taught them to whip up visual approximations of their ideas, sketching concepts on the fly, rather than sitting down and drafting designs. He challenged them to build mockups out of cardboard, packing materials and whatever happened to be lying around, so they could produce prototypes in a matter of hours, rather than spending days fabricating models out of plastic and steel.

The engineers soon discovered that this was a lot of fun. The hands-on, playful approach loosened up the engineering crew, who were accustomed to a more exacting and precise approach to design. It helped everyone get into the spirit of hacking and experimentation.

Another challenge lay in overcoming the engineers’ discomfort about sharing MVPs with customers. Years of marketplace dominance had convinced them that they knew exactly what customers wanted. Seeking feedback on early-stage prototypes was a major change (Power, 2014). No one likes being told their baby is ugly. The engineers found it hard to take feedback at first, especially when their prototypes were only rough mockups.

Ries worked hard to convince the engineers that it was worth sitting and listening to customers as they used (and abused) their prototypes, rather than wait until later, when details had been locked in and lots of time, money and resources had been spent on the project. Ries explained to them how getting feedback early enables you to iterate and pivot on your design, and identify a winning concept fast. The engineers realized that criticism wasn’t so bad when they could take a prototype back to the workshop and refashion it into something that delighted customers. By changing the way the engineers perceived their work, Ries taught them to see customer feedback as an enabling mechanism, helping them to create thoughtful products tailored to customer requirements.

The Series X pilot was a success. Through rapid-fire hacking and customer experimentation, the team got a test engine to market in a fraction of the time it would have standardly taken to design and produce such a product. By putting an MVP in customers’ hands, the team was able to gain valuable market insights, while stoking interest and even scoring some advance orders (Ries, 2017: 154).

The success of Ries’ pilot program validated the applicability of lean startup method at GE. Building on this success, Ries scaled his training program into an internal startup at the company, called FastWorks. FastWorks has subsequently trained hundreds of project teams in lean startup principles, engaging people from a wide range of departments and divisions. The program has dramatically increased productivity at GE, accelerating the pace of enterprise resource planning by 77 per cent over 2010 levels (GE, 2015). By changing leadership mindsets and everyday behaviours, FastWorks has helped to drive a host of innovations at GE, in power, health care, transport, aviation and mining technology.

In 2015, GE launched FastWorks Everyday, a training program to introduce hundreds of thousands of GE employees to lean startup techniques and explain how to integrate them into their work (Ries, 2016: 328). No corner of GE has remained untouched by these initiatives. Together, FastWorks and FastWorks Everyday have culture hacked GE, transforming the deep systems of the company and changing the way it creates innovation.

Through a combination of culture hacking, transformational leadership and collaborative design, Ries introduced hacker culture and entrepreneurial management into GE, a massive, multi-divisional, manufacturing company build on command and control. This is a remarkable example of agile transformation done well. GE’s continuing success as an innovation leader, together with Ries’ account of his work in The Leader’s Guide (2016) and The Startup Way (2017), will have a major impact on how business leaders see their organizations and perceive their opportunities for systems-level change in years to come.

Culture hacking is a prerequisite for creating a dual operating system. To create an environment where teams can emerge out of the company hierarchy, self-organizing around urgent problems to experiment with innovative solutions, everyone in the company, from senior management to junior employees, must be familiar with the principles of hacker culture, so they can step out of their professional roles at a moment’s notice and participate on projects with people from across the organization.

To create this environment, someone has to head up a culture hacking campaign. At GE, the responsibility fell on HR. HR is (or should be) the natural home for culture hackers in any organization. Given its responsibility for managing ‘human resources’, HR is the obvious contender to lead a culture hacking campaign, and to embed hacker practices, mindsets and values at the foundation of the enterprise.

HR all-stars

Business leaders can be ambivalent about HR, especially in a downturn. HR departments seem superfluous when job seekers are hammering at the door (Capelli, 2015). Leaders who care about innovation, on the other hand, prioritize HR. They value HR’s unique skills and ability to cultivate and recruit talent, run change programs and build a living culture.

Tech companies like Apple, Google, Microsoft and Netflix give their HR departments free rein to explore ways of growing innovation cultures. Any company interested in promoting hacking and agility should follow their example. HR professionals must become hacker paradigm leaders, modelling trust, leading with purpose, cultivating collaboration and championing customer value. They must take responsibility for running diverse experiments in cultural change, making space for innovation at all levels of the company.

This calls for significant change within HR itself. HR has long had a reputation as the home of ‘administrivia’ (Capelli, 2015). In many companies, HR is responsible for perpetuating the tedious, bureaucratic mindsets and practices that need to be hacked. Thankfully, there are signs of an activist movement within HR, geared towards promoting a more agile and experimental form of human resource management. ‘Hacking HR to Build an Adaptability Advantage’, a 2011 hackathon run by the Management Innovation eXchange (MIX), offers a prime example of the change that is shaking up the discipline.

The MIX hackathon was an online event with over 1,700 participants, including leading management thinkers, and representatives from GE, IBM and LinkedIn. The organizers presented participants with two challenges: to determine what a truly agile organization looks like, and to devise a set of culture hacks for building internal capacity for agility and innovation. Working in teams, the participants produced a set of 150 culture hacks, which were whittled down to a short list of 60 ‘shovel ready’ hacks, which MIX shared on the hackathon website (MIX, 2011). Several hacks targeted HR itself. One example is ‘chuck out the chintz’, a proposal for HR departments to regularly review their processes and practices, and to strip out any unnecessary bureaucracy that is holding the organization back.

The MIX hackathon was a learning experience for the HR leaders participating in it. It taught them how to think and act like hackers, and to model the values, mindsets and practices they would need to take back to their organizations and instil in others. It impressed on these leaders the profound challenge of shaking up their departments and transforming their internal processes. It takes courage, discernment and ingenuity to culture hack an organization. HR must start by ‘chucking out the chintz’ in its own ranks. It must ruthlessly excise old-fashioned bureaucrats and limit itself to ‘all-star’ players. If the CEO is a Chief Experimenter, HR must be a Dream Team.

HR all-stars have three main tasks: (1) to make space for innovation, (2) to recruit an army of intrapreneurs and (3) to create a culture hacking program. We canvassed the first of these challenges in Chapter 5, without explicitly referencing HR. Let’s now briefly review some of the space-making strategies we discussed in this chapter, understood as HR hacks. These hacks are low hanging fruit for HR leaders embarking on a culture hacking campaign.

Two-fisted firms

A culture hacking campaign is only part of what’s required to hack a traditional company and turn it into an agile organization. Culture hacking primes people to tackle problems by proposing hypothetical solutions and designing experiments to test them. But it doesn’t clear a path for them to engage in these activities, or provide them with a set of targets, milestones and metrics to manage the work. Culture hacking cocks the gun, but it doesn’t show people how to aim it or license them to pull the trigger. To liberate employees to engage in innovation projects and capitalize on the disruptive energy created through a culture hacking campaign, companies must explore the ultimate hack and introduce entrepreneurial management practices into their organizational operating systems.

Entrepreneurial management enables hacker teams to emerge out of the company hierarchy, self-organize around urgent problems and work in a focused, disciplined and accountable way towards creating new products, services, processes and solutions. This system of practices complements, rather than replaces, the traditional management practices used to run organizations. It enables people to step out of the system of metrics and controls employed to maintain the day-to-day operation of the company onto an ‘island of freedom’, where they can pursue innovative projects and embrace the hacker way.

John Kotter calls this double structure a dual operating system. A dual operating system is a bifurcated structure with a management hierarchy on the one side and a self-organizing network on the other. The management hierarchy enables the organization to continue executing on established business operations. Meanwhile, the network enables employees to gather around problems and hack innovative solutions to address them. It permits ‘a level of individualism, creativity, and innovation that even the least bureaucratic hierarchy, run by the most talented executives, simply cannot provide’ (Kotter, 2014: 20).

Kotter’s model is an ideal framework for understanding the agile organization. It is a framework designed for ambidextrous organizations – ‘two-fisted firms’ that punch above their weight. Key features of Kotter’s account slot directly into the model of agile organizations developed in this book. Kotter highlights the intrinsic rewards of contributing to innovation teams. The benefits of volunteering on these teams ‘can be tremendous – though they are rarely monetary’, Kotter (2014: 36) claims. Individuals derive fulfilment from their sense of purpose, ‘pursuing a broader, enterprise-wide mission they believe in’. They appreciate the learning and reputational rewards that come from working with ‘a broader array of people than they ever could have worked with in their regular jobs within the hierarchy’, and contribute in exchange for the social and professional status they earn for the activity. Often, this work leads ‘to increased visibility across the organization and to better positions in the hierarchy’ (Kotter, 2014: 36).

Kotter is right to underscore the social and reputational processes that drive participation in collaborative ventures. But he tends to overstate the self-managing capacities of innovation teams. Kotter suggests that with the right leadership, traditional management is unnecessary. This is not to say that ‘no one pays attention to accountability’, he advises. Team members ‘hold each other accountable for playing their roles’ (Kotter, 2014: 159).

Kotter suggests this model of self-management mirrors the nature of work in ‘innovative, fast, and agile startups’ (Kotter, 2014: 157). While it reflects the nature of work in some startups, it is unclear that it reflects the management practices of the most effective startups, and even less clear that it represents a system appropriate to introducing startup innovation practices into traditional companies.

It is not an approach that Eric Ries recommends. In The Leader’s Guide, Ries (2016: 220) explicitly counters the view that Silicon Valley startups operate by eliminating management and letting teams do what they want. The most effective startups use entrepreneurial management, involving an ongoing process of negotiation between innovation teams and managers, who challenge teams to identify the assumptions in their ideas, and impose learning metrics and budgetary controls to hold them to their goals.

The disparity between these accounts suggests an opportunity to combine them, integrating Ries’ system of entrepreneurial management into Kotter’s dual operations framework. Combining these accounts creates a management model that is both strategically cogent and tactically secure – a framework that enables self-organizing teams, emerging organically out of the company hierarchy, to operate with a high degree of autonomy and flexibility without ‘going rogue’ and divorcing themselves from management oversight altogether.

In this version, the dual operations model is a matter of two management systems, working side by side: a hierarchically structured command and control system, comprised of bureaucratic practices, and an entrepreneurial management system, comprised of learning metrics, metered funding and timeboxed agile sprints. These two systems correspond to two distinct functions of the agile organization:

Managing hackers

We outlined (in Chapter 3) the key elements of Ries’ system of entrepreneurial management, including learning metrics, ‘islands of freedom’ and metered funding. Let’s now see how managers working in organizations that are otherwise governed by command and control can use entrepreneurial management to enable hacker teams to self-organize around urgent problems and create solutions fast. Ries’ system is purpose designed to enable managers to unleash the potential of hacker teams without sacrificing accountability and managerial oversight. The system holds teams to clear targets and keeps them on track. It works to weed out bad ideas and channels funding into promising projects.

Imagine that a group of employees in an assistive technology company hatch an idea for a software aggregation API that they believe represents a valuable opportunity for the company (Figure 7.1). Their idea is to combine several apps currently used by the company’s customers in a single mobile interface. They approach their manager to discuss the idea, citing research on the proliferation of apps for the mobility-impaired, explaining how this has become a problem and arguing that an aggregator is the solution. They suggest that their coworker, Jeff, who uses a wheelchair, would be an ideal person to test a prototype with. Indeed, they came up with their idea in conversation with Jeff, so he’s practically part of the team.

The manager is initially uncertain how to proceed. Making the call on a new product line is above her pay grade. But the team convinces her that this is a real opportunity that she could pitch to senior management. All they need is a little time off their regular duties to run some experiments, validate their ideas and build a business case.

The manager is convinced. She asks the team two questions:

The process of negotiation starts here. For the process to work, it requires that both the manager and the team understand the hacker way. The manager must understand how a series of smart, targeted hacks can produce valuable insights into the technical, commercial and logistical requirements for the project’s success. She should be excited by the prospect of enabling the team to enter a cycle of rapid learning and intrigued about the results, keen to find out how they might contribute to a genuine innovation.

For their part, the team must be prepared to validate their ideas hack by hack. If the team enters the process of negotiation trying to sell the manager on their blue-sky vision, they’ll get nowhere. They need to accept that their proposed project is full of uncertainties and risks. They must be prepared to single out these risks and test them one by one in order to convince their manager and her superiors that their project won’t be an expensive disaster.

Let’s assume the team members are aware of the assumptions they’re making that bear on the success or failure of the project. They put their heads together and decide they could test their riskiest assumption in the space of a week. The manager tells them:

Fine. I’ll give you an island of freedom of one week to test this assumption. I’ll also give you $500 to cover your costs. Come back to me at the end of the week with solid data that validates the assumption and we’ll talk about putting more funding in the meter.

An island of freedom is time out from work to engage in team-based hacking. In this time, the team can relocate to a dedicated innovation space or continue working in their office environment. From their manager’s point of view, it makes no difference (though other people in the office may object to having the team building prototypes on the office floor). From the manager’s point of view, the significant difference is that, for the coming week, the team works under the auspices of an entrepreneurial management system.

Shrugging off their professional titles and duties, the team members slip into hacker mode and start running experiments. They have seven days to validate their assumption. They brainstorm ideas, build prototypes and test them with Jeff and other users. They diligently gather data. They are laser-focused on learning whether their risky assumption is true.

During the island of freedom, the team should have full autonomy to determine the kinds of experiments they run and the kind of data they generate. Having established a learning metric for the team, the manager steps back and gives them space. Further down the line, assuming the team shows success in validating its foundational assumptions, the manager might set them loose on an extended island of freedom lasting several weeks or months. In this case, it makes sense for the manager to apply KPIs to the work, and perhaps set up a performance review process linked to bonuses and promotions. This set of controls should be specifically tailored to the nature of the work. The manager should design KPIs that promote hacker mindsets, values and practices. Bonuses and promotions should be clearly linked to innovation outputs and the behaviours that contribute to achieving them.

What the manager should not do, at any point, is try to micromanage the work. Under no circumstances should she shadow the team, questioning their decisions and behaviours. The manager should let the team take risks and make their own mistakes. Her only point of purchase comes at the end of the sprint, when the team returns to present their results.

The team has full licence to self-organize and determine how to tackle the challenges ahead. The way the team tackles these challenges will differ depending on the kinds of questions they are trying to answer. If the team needs to determine the level of customer interest in the product, a design thinking approach makes sense. The team might spend the week working with Jeff, trying to understand and empathize with his challenges and needs. Depending on how far they’ve advanced their idea, they might build a prototype and encourage Jeff to use it, observing his activities and considering his criticisms and responses.

Alternatively, if the team needs to validate the business case for the idea, a lean startup approach makes sense. The team might set up an online landing page and ask visitors to the page to click a button for more information, enabling them to gauge people’s interest in the product. They might do some price modelling and offer price points on the website to validate assumptions about how much people would be prepared to pay for the product.

What is crucial is that the experiments enable the team to gather hard data that validates their risky assumption(s). At the end of their island of freedom, they take this data back to their manager and say: ‘These are the questions we asked, these are the experiments we ran, and here is the data we got. Let’s talk about next steps.’

What if the team fails to validate its risky assumption? It doesn’t follow that the team’s idea is bad or unrealizable. It suggests, however, that the project contains deep uncertainties. It may not be an easy project to pull off. The bottom line is that the team has failed to make headway on the project. They’ve failed to meet their learning metric, and so they can’t expect their sponsorship to continue. Unless the team members can convince the manager to let them persevere with the project, they must concede that their experimental venture has failed and return to working at their normal jobs.

Let’s imagine that the team makes headway. When they present their results to the manager, she agrees they have made progress. The team has established that their risky assumption is correct, thereby taking a big step towards demonstrating the value of their idea. Assuming the manager commands sufficient resources to invest in the project, and can shuffle roles and responsibilities in the office to cover the team members while they continue hacking, there is no reason why she shouldn’t meet their request for a second island of freedom, enabling them to target another assumption and a different aspect of the project.

An entrepreneurial management system enables small teams, working within a traditionally structured company, to undertake exploratory innovation work with minimal resources and a steady eye on risk. The process proceeds in a series of timeboxed sprints. Each sprint has a clear learning metric, so the team knows exactly what it needs to achieve by when. The team is focused on learning and fully accountable for the results.

Both the manager and the team know why the experiments are important. If a senior manager asks questions about the project, it is easy for them to explain its purpose and the potential payoff. Each experiment reflects a sound investment from the company’s point of view. The work is transparent and auditable from start to finish.

Sometimes a good idea can go all the way. Well-managed startup-style projects can rapidly evolve into bona fide startups. If the project shows success over a series of sprints, the manager may want to refer it to the company’s business innovation department, so they can take the reins and incubate the project. The pilot team needs to decide at this point whether they want to take end-to-end responsibility for the project or pass it onto another team. Developing the project from this point involves significant challenges and responsibilities, including:

Clearly, a diverse range of skills is required to deliver on this list of responsibilities. Successful teams grow and diversify their personnel as they proceed on their innovation journey, adding members from relevant departments, expanding their cross-functional skill-set, and building a network of relationships inside and outside the company. The larger a project becomes, the more talent and resources it draws from the execution space of the organization, which ultimately depletes the organization’s capacity to deliver on its fundamental strategies and goals. To avoid the situation where fast-growing projects managed in an entrepreneurial way interfere with operations on the command hierarchy side of an organization, senior leaders should receive regular briefings on projects, and set up steering committees to determine how to manage budgets and resources to enable the projects to grow to scale.

Companies that combine command and control with entrepreneurial management systems need to establish a budget for experiments. Once a culture hacking campaign gets underway, leaders can expect a groundswell of employee interest in running innovation projects. The company must be prepared to accommodate a good number of these initiatives, or else they’ll douse the flames of innovation culture before the fire has started.

At the same time, companies should be cognizant of the risk of innovation budget blowouts. Where projects have significant potential to scale, it pays to implement a clear set of kill metrics at the start. It is important to ensure that ambitious projects do not morph into white elephants that are ‘too big to fail’. Before the project gets underway, project leads, in conjunction with management, should ask: ‘What are the company’s commitments regarding this project? Under what circumstances do we agree to kill it?’

Setting kill metrics may involve setting a time limit for the project, or a maximum spend. It may involve specifying the commercial conditions under which a project is viable, and the conditions under which it is not. With kill metrics in place, a team is able to proceed with a clear understanding of the limits of the project. Management can quantify the risk of the project, and try to offset this risk as much as possible.

What about disruptive innovation? Talented hacker entrepreneurs play a high stakes game. Given the chance to contribute to the company’s innovation portfolio, they’ll think first of products and services that could transform the company’s core line of business. To be sure, this is precisely what these entrepreneurs should be doing. If the company’s business model is vulnerable to disruption, it is vital that it gets there ahead of the competition. As Chief Experimenters, senior leaders should be constantly exploring ways of disrupting their business models from within. A network of hacker entrepreneurs, guided and enabled by entrepreneurial management, multiplies the disruptive capacity of an organization, putting it in a strong position to reinvent itself to engage the challenges of a changing world.

A dual operating system, combining entrepreneurial management and command and control, gives organizations a unique capacity to innovate, diversify, change and grow. Driven by the spirit of hacker culture, this system creates a dynamic capacity within organizations that gives them the means to proactively respond to external events while retaining strong core capacities that don’t change, enabling them to deliver on established strategies with the reliability and efficiency their customers expect (McKinsey, 2015). The system works to enable projects to be devised, developed and scaled by self-organizing teams, working under the auspices of entrepreneurial management. Successful projects are either spun off as independent startups or reinserted into the execution space of the organization as new business units, to be governed by command and control.

To date, only the largest and most ambitious experiments towards creating dual operating systems have made the news. But change is on the march. Consultant and Business Model Canvas author Alexander Osterwalder sees the dual operating system as the most important innovation concept of recent years. ‘Nobody’s there yet, from what I see’, Osterwalder observes. But many companies are working at building this kind of dual structure (Osterwalder, 2016).

The real test of a company’s commitment to innovation lies in how it restructures itself to engage its mission. This is a test of leadership and grit. Leaders who care about innovation show it by reorganizing the human fabric of the company to accelerate innovation. They transform their companies at a fundamental level to make space for innovation.

When a company combines vision and ambition with a manifest commitment to innovation, it triggers a mental shift in employees. No one has any doubt that the company is serious about its mission to create value and drive growth. This realization colours everything that people do. Work is not just about the bottom line anymore. Activities are infused with a powerful sense of purpose. Employees’ level of engagement, commitment and emotional investment rise. People feel inspired by what they do and set out to make a positive impact at work. They give themselves fully to challenges. They share their talents and give for greatness. They step forward with ideas for innovative projects. They step up to play leadership roles on these projects, working together to hack paths towards a brighter future.

Business leaders today have a unique opportunity to create the innovation engines of the future. Their careers coincide with an epochal technological and cultural shift, as hacker practices change the world. This book presents a road map to success. We have mapped a path for companies and organizations that are determined to thrive in an era of technological acceleration. We have offered examples of leaders who are disrupting their organizations from within, cultivating cultural change while implementing new management and leadership practices to capture the value created. Rather than try to stave off the tide of change, these leaders are diving headlong into the ocean. They are embracing the hacker way. They are building a new generation of agile organizations driven by hacker culture, capable of rapid learning and growth.

When our species looks back on the twenty-first century from the vantage point of the far-flung future, we won’t remember the products and services that fascinate most entrepreneurs and leaders today. The gadgets, devices, services and amenities of the current era will have faded into obscurity. People will remember the leaders who hacked whole systems. They will remember the companies that changed the way we lived, worked and created.

Is this a story you want to be part of? The chance to change the world is your birthright. Lift your eyes to the heavens. Affirm your role in the historical moment and hack.