May 9, 2013

The Next Industrial Revolution

GE is investing big in Big Data. Leading its finances is Keith Sherin ’91 (EMBA), who for three decades has helped the firm chart new territory.

By Jen Itzenson, Photographs by Don Hamerman

When Keith Sherin ’91 (EMBA), CFO of General Electric and a member of the School’s Board of Overseers, is asked about the next trend on the horizon, he talks about the “industrial Internet” — or how his company, among others, plans to harness the power of data collected by machines ranging from aircraft engines to CT scanners.

Managing digital intelligence, or Big Data, might be the next revolution in technology, the industrial counterpart to the consumer Internet, the domain of companies like Google, Facebook, and Amazon. GE, one of the biggest manufacturers of equipment used in transportation, power generation, and medical imaging, predicts that analyzing the enormous amounts of data produced by industrial machines will translate into real dollars — for the company, its clients, and the economy.

Whereas the consumer Internet connects people, the industrial Internet connects machines. Through sensors embedded in hundreds of thousands of jets, turbines, and medical equipment, GE can collect and analyze vast quantities of data, with a goal of helping its customers increase profits and reduce waste. These sensors can help optimize flight times, signal the need to repair or replace a wheel, and help prevent power outages.

“We ask ourselves, ’What if there were 1 percent more efficiency in the grid?’ For airlines, a 1 percent gain in fuel efficiency is worth $30 billion over 15 years,” says Sherin. Likewise, reducing inefficiencies by 1 percent in the rail industry would mean faster trains, lower carbon emissions, and fuel savings of $27 billion in the same period. And 1 percent fuel savings for gas-fired generators would reduce costs by $66 billion, according to a recent report from GE.

The Internet is both a new territory and a significant area of investment for the company. GE plans to invest $1 billion in its new high-tech center in San Francisco by 2015. It has hired more than 200 software engineers in the last two years and plans to hire 200 more. “We’re working from the equipment up,” Sherin says. “The industrial Internet is about increasing performance. We’re fixing our customers’ equipment before it breaks.”

A Three-Decade Career

Sherin, who is in his 32nd year at GE, has a long history of helping the company pursue new opportunities. He has served as its CFO since 1998 and as vice chairman since 2007 — years in which the company faced some of its greatest challenges, including the recent financial crisis. From a spot on the corporate audit team, he worked his way up to a CFO position in Europe and other CFO roles back in the United States, completing his MBA seven years in.

It is quite the career arc for someone who finished his undergraduate degree with a major in math and a minor in Russian. “When I graduated, I was really worried about what I was going to do,” Sherin says. Fortunately, he found his way to GE and enrolled in its training program. “I thought, ’What could be more perfect?’ They were going to pay me to go to school.”

Every six months, Sherin rotated through a different job. After two years, he joined the corporate audit staff, which reviewed the company’s internal processes. Each quarter he was placed on a team in a different part of GE. Soon after his promotion to a leadership role on the audit team, he experienced his first setback.

After completing a three-month project and leading a team of 10, Sherin gave a presentation to the division’s CFO. “We thought we had done a good job,” he recalls. “But at the end of it, the CFO said to me, ’That was intellectually unstimulating and emotionally unpalatable.’”

At first, Sherin was angry; later, he realized that he’d spread his resources too thin. “It was a crushing summary of three months of effort,” he said. “I had to do a lot of work to change how I planned, how I operated, and how I communicated.”

Capturing Opportunities

Missing the mark also taught him the importance of self-appraisals. “I was getting reviews twice every quarter, but no one ever told me that I didn’t have enough corporate finance capability or experience in capital markets,” he says. “I was a math major with a few training courses auditing general managers who had MBAs. I knew I had a huge skill-set void.” That was when he applied to Columbia Business School. “Getting my MBA was a game changer for me. It gave me all the skills that I needed to build on.” Back in his early days at GE, Sherin was certain of only one thing: he was never going to work in the company’s aviation business. “Every time I did a stint in aviation, they’d send me to a trailer or a basement, and I’d spend my whole week in some little room — and it usually had mold,” he says. “I told all my friends that aviation was the last thing I wanted to do.”

Yet seven years after he joined the company, and soon after earning his MBA, he got an offer to be the CFO of GE’s commercial engine business. “I didn’t even hesitate,” he recalled. “It was a great position, so I said, ’That would be fantastic — it’s exactly what I want to do.” He believed then, as he does now, that the best opportunities are often those that fall outside of one’s expectations.

And this was an opportunity that paid off; his first CFO role within the company soon led to another. In 1992, Sherin was named the CFO of plastics in Europe, a position that required moving to the Netherlands. Three years later, Sherin moved to Milwaukee to become CFO of the healthcare division. He was spending nearly threequarters of his time on the road and found a way to differentiate himself by taking up business development. “I did the research and met with the companies,” he says. “And then I made the offers to buy them.”

In late 1998, Sherin got a call to come to GE’s headquarters in Fairfield, CT, and become the head CFO of the entire $220 billion corporation.

The New Role of the CFO

For Sherin, who had moved around the globe with GE, taking on the CFO position was a chance to put down roots. He and his family moved to Connecticut, where his daughter is now in high school; his two sons are now in college. On weekends, he could ride one of his two Harleys from Weston to Albany, close to where he grew up. But his new job was unlike any other he’d had at GE. He soon found that there was no way to truly prepare for the role of the CFO. “You’re dealing with analysts, investors, the board of directors,” he says. “These are all external relationships. There were so many things I had to learn.”

He jokes that he has used up all of his nine lives as CFO. In 2008, he helped steer GE through the financial crisis, raising cash even as the market tightened and bad news seemed to accumulate by the hour. He also had to be the public face of the company when it missed its earnings during the crisis. In the last decade, the role of the CFO had expanded outward. “The CFO today has a significant responsibility around external information,” he says. “The role is a conduit between the company’s performance and the external marketplace. Back when I started, our earnings communications was a press release, and there weren’t any conference calls.”

His colleagues describe his leadership style during this volatile period as inspirational. “When you look at what happened in 2008, you see that he was instrumental in everything the company had to work through,” says Brian Worrell, vice president of corporate financial planning and analysis. “He remained calm, communicated effectively, and was not afraid to make a decision. During a time of crisis, that was critical.”

After the worst months of the crisis, the company began to recover; now, with its industrial Internet project, GE is looking to the future. Last fall, at its “Minds and Machines” conference in San Francisco, GE unveiled some of its new technologies and forecast that increased productivity and reduced costs could boost growth in the United States back to levels not seen since the late 1990s. And if the rest of the world experienced even half of these gains, it would add $10 to $15 trillion to global GDP by 2030. “We’re talking about significant change,” Sherin says. “By leveraging the industrial Internet, we can drive productivity and cost savings around the world.”

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