Applying the GE Mantra to Medical Systems

To keep pace with market changes and the slow growth in many of its core businesses, GE Medical Systems (GEMS) has been expanding its role as a maker of diagnostic modalities and monitoring equipment to include clinical systems and productivity solutions for its customers. In keeping with GE's overall business philosophy, emphasizing information technology, GEMS is using the Internet to improve productivity for itself and its customers. By establishing itself as the best-in-class provider of products and services, GEMS expects to take market share from its competitors. But as GEMS moves into new hospital departments and up the hospital hierarchy to the CIO and CEO, it must not lose touch with what got it where it is--selling radiology, and more recently, cardiology, systems. The extent that GEMS can effectively grow its business using that model is unclear. Such systems and services may be limited to being an adjunct to the core business of selling imaging equipment, not the cornerstone for growth of a billion-dollar, information-propelled business.

General Electric is betting that information technology will drive productivity and quality improvements to enable its Medical Systems business to maintain a 20% growth rate.

by Mark L. Ratner

• To keep pace with market changes and the slow growth in many of its core businesses, for the past three years, GE Medical Systems, or GEMS, has been expanding its role as a maker of diagnostic modalities and monitoring equipment to include clinical systems and productivity solutions for its customers.

• In keeping with GE's overall business philosophy, GEMS' strategy emphasizes use of the Internet to improve productivity for itself and for its customers, and application of Six Sigma quality measurement tools.

• By establishing itself as the best in class provider of products and services, GEMS expects to take market share from its competitors. But as it moves into new hospital departments and up the hierarchy to the CIO and CEO, will it lose touch with what got it there?

• The extent that GEMS can effectively grow its business using that model is also unclear. Such systems and services may be limited to being an adjunct to the core business of selling imaging equipment, not the cornerstone for growth of a billion-dollar business.

First and foremost, the GE Medical Systems division of General Electric Co. is a GE company. The corporate modus operandi—to maximize opportunities by developing the service side of mature technology businesses, with an emphasis on better serving customers through productivity and workflow improvements—permeates the unit's business strategy and practices. In fact, in 1995, GEMS, as it is known, was the first unit within GE to embrace Six Sigma, the statistics-driven tool for quality measurement adopted by GE chairman Jack Welch and widely acknowledged as a key factor in GE's overall success. That first Six Sigma project, which cost almost $50 million over three years, resulted in the 1998 redesign of the tubes that emit EM radiation, which were incorporated into its LightSpeed CT scanner. Along with extending tube life five-fold, from 20,000 to over 100,000 slices per tube, the LightSpeed could perform a CT procedure four times faster than its competitors. The project's success has been widely reported and is used as a primary example of Six Sigma's value.

Indeed, one would be hard pressed to find a better arena for applying Six Sigma than the current hospital-based diagnostic imaging market, which, at least in the US, continues to reel from the effects on hospital spending of two decades of cost-containment efforts, culminating most recently in the 1998 Balanced Budget Amendment. Like its competitors, principally Siemens Medical Systems Inc. , a division of Siemens AG , and Philips Medical Systems International BV , a division of Philips NV , in radiology and Agilent Technologies Inc. , the Hewlett-Packard Co. spin-out, in patient monitoring, GEMS faces a hospital market characterized by slow or no growth in overall spending on capital equipment.

At the same time, advances in information technology are driving an expansion of capabilities for capturing and transmitting patient data, from wireless monitors to Web-based data archiving and retrieval, thus creating new opportunities for companies to differentiate themselves. And providing systems and services that enhance customers' productivity and workflow makes it easier for them to justify buying decisions. In this manner, GEMS wants to differentiate itself in two ways: (1) by keeping pace with market changes through an expansion of its established role as a maker of diagnostic modalities and monitoring equipment; and (2) by establishing itself as the best in class provider of these products. The question is, to what extent can GEMS, or its competitors for that matter, effectively grow its business using that model? Or will such systems and services be limited to being an adjunct to the core business of selling imaging equipment?

GEMS' strategy has a strong supporter in Jack Welch, who has long advocated the utilization of information technology as the driving force for GE's businesses. In fact, Welch has said that the company's biggest single mistake was exiting the computer business in 1985, when GE decided it couldn't be in three major areas simultaneously. GE would presumably have then followed the pattern of IBM Corp., moving from hardware and technology provider into services and technical support.

Throughout the company, GE is also characterized by big initiatives and the rapid transformation of its businesses, often via large acquisitions. Until three years ago, GEMS was principally a radiology equipment company. In 1997, it began to broaden into information technologies, blazing the acquisition trail with the purchase of Lockheed Martin Medical Imaging Systems. In 1998, it purchased Elbit Medical Imaging Ltd. 's radiology and cardiology imaging business, Diasonics Vingmed Ultrasound Ltd., for $230 million [See Deal]. Then came its biggest move to date—into patient monitoring, with the acquisition later that year of Marquette Medical Systems Inc. for $808 million, which also added cardiology diagnostics and imaging products to the GEMS portfolio [See Deal]. And in 1999 it paid $458 million for OEC Medical Systems Inc., a real-time fluoroscopy company that extended GEMS' reach in both the radiology and cardiac cath lab markets [See Deal]. To plug gaps in its device product portfolios, GEMS has also made numerous smaller acquisitions and established alliances (see Exhibit 1).

Now, GEMS is unifying these device/modality businesses under the umbrella of clinical information systems. In August 2000, it formed GEMS-Information Technologies (GEMS-IT), which comprises internally developed GE technologies and several strategic acquisitions, including Lockheed Martin, Marquette, Mecon Inc., a data mining company, Applicare Medical Imaging, a German radiology software developer, Innomed, and Prucka Engineering, a maker of hemodynamics and electrophysiology diagnostic systems. GEMS-IT itself is divided into three groups: radiology/PACS (picture archive and communications systems), clinical and cardiology systems (devices overlaid with integrated information systems), and healthcare solutions (data mining, benchmarking services, and consulting). Each segment operates globally, with its own focused engineering, marketing, and R&D teams. Other functions, however, represent all four segments, including separate distribution teams for the US, Asia, and Europe, and a single CIO and an engineering team leader for its businesses.

As GEMS responds to growth pressures by moving farther into the realm of information technology through GEMS-IT, the question becomes whether the company can differentiate itself without diluting its core effort in device sales. It has already expanded its radiology base into cardiology. As it moves into other departments and up the hospital hierarchy to the offices of the CIO and CEO, will it lose touch with what got it there?

The GE Way

"When Jeff Immelt [CEO of GEMS] came to GE Medical, it turned the corner," says Douglas Orr, president of J&M Group, a strategic consulting firm focused in radiology and cardiology. "He changed the culture away from being just a radiology equipment company."

It's typical of GE's organizational practices to shuffle rising managerial stars in and out of diverse businesses. Immelt, one of a handful of insiders rumored to be under consideration as Jack Welch's successor, came to Medical Systems from the GE plastics business. Similarly, Greg Lucier, now CEO of the GEMS-IT division, arrived at Medical Systems in 1998 with no prior experience in medical products, having been president and general manager of the GE Transportation Systems' GE-Harris Railway Electronics division for three years. "GE looks for managerial skill first and industry knowledge second," Lucier says. He explains his move to GEMS very simply: "Jack Welch told me to move, and so I did."

Also typical of GE is setting exceedingly high goals for business growth—"stretch goals," in the terminology of Six Sigma. Only recently did GEMS begin considering a growth strategy for information technologies; it had largely been refined by Greg Lucier during his brief tenure as GEMS' VP, global services. "In August 1999, we began to ask how to grow the information services capability within GE Medical Systems," Lucier says. "At the time, it was a new thrust for the company," on top of its core businesses revolving around diagnostic modalities and patient monitoring. A $1 billion business today, Lucier is targeting 20% growth year over year for GEMS-IT. And he believes he can achieve that goal despite the current challenges of the imaging and monitoring business.

"It's been a challenging year for that business," Lucier offers, "but not nearly so much [for GE] as for Agilent and others." While sales of GEMS-IT's patient monitoring products will at best rise only minimally for 2000, Lucier says GEMS has picked up several percentage points of market share. At the same time, he notes, some of GEMS-IT's current businesses are growing at over 50%, including the integrated radiology/PACS business, which now grosses over $350 million, and healthcare solutions, which is also growing at 50% and has reached $50 million in sales.

Because spending on diagnostic modalities and patient monitoring systems represents possibly the number one capital expense for a hospital, GEMS can leverage this core business into a second strategic area—services. "We're partners with our providers," Lucier says, delivering maintenance and productivity consulting "while creating an on-site presence to derive overall efficiency in delivering health care." Finally, GEMS has layered on top of the modalities a $500 million information systems business—radiology information systems (RIS), PACS, and, ultimately, development of an electronic patient medical record (EMR).

Lucier thinks that information services—cardiology, RIS/PACS, and EMR—gives GE a new opportunity for driving the medical systems business. The Internet, in particular, is affecting the "engine room" of GEMS, he says. "It's transforming our business internally. It's also enabling us to link more closely with our customers worldwide."

That argument makes sense to Doug Orr. "Ten percent of a radiology department's budget goes to capital equipment and depreciation," he points out. "The other 90 percent is for operating expenses—the radiologist, technician, and consumables." Assuming total spending is increasing only marginally, an equipment supplier only accessing a tenth of radiology spending can't grow its business.

"Providing productivity improvements and servicing is the way to grow," Orr says. He also points out that to grow or leverage a maintenance service business, a company needs a national resource base of local technicians. "That opportunity is not available to small firms lacking a huge installed base," he notes. "And only major players can do multi-vendor service." Again, it's a game for the big guys to play.

The national service center concept was pioneeered in the early 1990's by GE, Siemens, and Philips, who now hope to expand the concept through the use of the Internet, a decade later. "They discovered that 25-50 percent of requests could be handled by phone without dispatching a service technician," Orr explains. "A field engineer managing four MRI installations could now manage eight." Now it's the Internet that is enabling productivity gains.

Internet Equals Efficiency

Without question, GE sees the medical business as a game of scale. "The bigger you get," Lucier says, "the faster you can grow," by being able to make a significant investment in R&D. In that respect, Lucier likens GEMS' business model to that of a pharmaceutical company. But whereas a pharma company's investment in R&D is driven by the need to hedge development risk, device companies need to invest to leverage their installed base with new product opportunities and ways to reach—and serve—their customers. Especially in the cost-constrained hospital environment, whether that strategy is sufficient to fuel growth is problematic.

In the next couple of years, GEMS expects to spend about $1 billion on R&D—"all while still performing like a GE company." That means maximizing efficiency within the four walls of GE. Indeed, GE is relentless about becoming more efficient year by year. In 1990, Jack Welch said that Six Sigma methodologies could be applied to "squeeze an endless amount of juice from the lemon," to make the enterprise more profitable. But with the emergence of the Internet, he's now upgraded that thinking. Lucier notes that, in May, Welch told Wall Street analysts that "There's a whole new lemon! Grapefruit! Watermelon! The Internet is the ultimate productivity tool."

In keeping with GE's "big initiative" mentality, Lucier wants GEMS to take that savings coming through Internet transformation and drive it right back into R&D to become a billion-dollar investor in R&D in medical equipment and technology. He characterizes the strategy as being "almost like a peace dividend."

Lucier calls the Internet "the ideal tool for an established company like GE." It can drive efficiency in terms of margins and profitability, especially in the context of Six Sigma, which is predicated on measuring, every which way from Sunday, a company's processes and its changes to those processes. As described by Mikel Harry, PhD, the founder and CEO of the Six Sigma Academy: We don't know what we don't know. We can't do what we don't know. We won't know until we measure. We don't measure what we don't value. And we don't value what we don't measure.

"You have to measure what you're doing on the Internet if you want to profoundly change your business," Greg Lucier says. For example, every Monday morning, GEMS executives sit down with Jeff Immelt to analyze what's been done in the past week to bring GEMS to the Internet. "It's grunt work, totally non-sexy, but it delivers results in bringing transactions onto the Internet, transforming processes within GEMS onto the Internet, and totally driving the transformation of our enterprise. That's what it means to be an Internet company, we think, over the next couple of years."

Having come to GEMS from another business, Lucier quickly realized how inefficient business transactions were in the health care field. Take the purchase of a CT machine, which entails a lot of research and review and, because it's a highly configurable item, a lot of work and dialog back and forth to bring that equipment into a hospital. "We think the Internet will provide a much more efficient way to bring about a health care transaction," Lucier says. It simplifies sales processes—order to fulfillment, service delivery, decision support, and upgrades. It also simplifies workflow and lowers costs for customers: for the hospital, by better managing the supply chain, improving departmental productivity, and as an education tool; for the physician, by enhancing equipment function, allowing remote viewing and networking the clinician community.

GEMS' goal over the next few years is to do about $5 billion of transactions on the Internet—virtually all of its diagnostic imaging transactions worldwide, with very little salesperson touch. "It will be a more direct connection between the information that's needed and the health care provider," Lucier says. To accomplish this will require extensive mutual education between GEMS and its customers so that the latter are more comfortable going onto the Internet to access the information and execute transactions.

It also means offering customers applications training over the Web. Operating medical devices is complicated: not only are the devices themselves complex, but they often are linked to other machines, which may handle data in different formats. GEMS spends about $100 million today on applications training—how to use the equipment it sells, developing new ways to use it, and maintaining it.

GEMS has approximately 100,000 pieces of equipment installed and running on any given day. To stay in touch with that equipment, it has also developed iLinq, a remote diagnostics tool to monitor up-time. iLinqalso keeps customers in touch with a GEMS service engineer via the Web, interacts with customers who may have questions about applications, and offers software upgrades that can be downloaded, tried, and purchased. By the end of the year, GEMS expects to deploy 1,000 iLinq portals.

Meeting the $5 billion sales goal also means revamping internal systems. "We're pretty clumsy in terms of call centers, how we respond to questions today," Lucier says. We have to totally ‘Roto-Rooter' our process to make the transactions seamless, efficient, and flawless." Six Sigma has helped streamline the fulfillment process, taking 20 call centers—3,000 people in the US alone, according to Lucier—down to 2 call centers and 1,000 people, to provide a more flawless execution play. GEMS is also investing several hundred million dollars to speed up and monitor its network connections to provide faster access for its customers in the next couple of years.

The Web also plays a significant role in managing installations, linking customers to documentation on project plan and scope, implementation requirements, issues list, and network schematics, including how the installed system ties in to the rest of the hospital's systems. And as systems have become more complex, GEMS has expanded its installation business.

"The systems interrelate more," explains GEMS-IT project manager Larry Mueller. "IS departments want control of all the servers, so they are in IS, but the clinical areas still have workstations, so we need to work with both of those areas. Then we have to tie in patient monitoring, sending EKGs from a bedside monitor over to the cardiology station. And when you throw in cath labs and radiology departments, all of a sudden you have ten people in five departments to deal with instead of two people in one department." Historically a separate service, Mueller says GEMS-IT is now looking to include installation as part of the sales price of a system.

According to Mueller, installations currently range from $100,000 to $12 million, averaging $300,000-400,000 for a cardiology system and $2.5 million to $3.5 million for a patient monitoring system. GEMS-IT expects to handle 80 installations in 2000 totaling $30 million in sales, as compared to 52 systems for $18 million in 1999. "We're still a relatively young group—only formally about three years old," Mueller says. "We'd done it in the past, but not in a coordinated way. Service would install a system, but wouldn't get into training. Then sales and account reps would pick it up, and try to schedule training, installations, service calls, etc." Now, GEMS-IT has 18 managers covering three modalities within its cardiology and clinical systems groups. (Separately, the company has also offered installation services for PACS systems since GEMS' 1997 acquisition of Lockheed Martin.)

The Radiology/Cardiology Interface

GEMS is also using the Web to provide customers with analyses of physician prescribing patterns, costs associated with DRGs and specific therapies, and other deep clinical data. Lucier notes that the Internet is "the right venue for packaging the massive knowledge databases we have, as well as information from other providers," either through the main GE website or the hospital's own network.

An obvious area where clinical diagnostic information and communication needs converge is in cardiology monitoring. And the introduction of cardiovascular systems has been a cornerstone of GEMS' expansion beyond radiology equipment.

"The thought process was to bring together not only diagnostic imaging, but also physiological monitoring—the waveform side of the business—because cardiologists need a holistic view of the patient to make the right diagnostic determination," explains Adam Miller, VP and global general manager, cardiology systems, for GEMS-IT. "No other player was really able to combine imaging and physiological capability."

Buying Marquette was the building block for GEMS' expansion into cardiology. "It was a changing move for the industry," suggests Miller, who at that time was involved in strategic acquisitions for parent GE and was on the team behind the deals for Marquette and, later, Innomed and Prucka Engineering. "Although we didn't have a specific plan in mind, we were already thinking about how to leverage the information technology and device pieces of the business, how to bring together cardiovascular information systems, the networking capabilities of the clinical systems business, and integrated imaging solutions [PACS]."

Foremost for GEMS was the question of whether to bring the technology together or to maintain focus on the customer and the department—cardiology, radiology, etc. "We try to get the best of both," Miller says, "while maintaining a true focus on the customer." Miller's business is totally cardiovascular oriented: "The P&L is aligned that way," he says, "but at the same time, [we're] driving technology sharing" by leveraging technology from PACS and cardiology information systems into the radiology systems business, the clinical systems business, and the healthcare solutions business. But GEMS has to be careful: one of its cardiology partners has said that the sales force too often focused on their bread-and-butter—radiology products—at the expense of the cardiology line. To address this, in September, GEMS-IT created a dedicated cardiology sales and marketing organization.

The growth of the cardiology core business typifies GEMS' business strategy. Marquette was already a leader in front-end technology for the acquisition of data from the patient; it has subsequently supplemented those capabilities—EKG, stress monitoring, Holter monitors, and event recorders—with acquisitions such as Prucka, which brought in hemodynamic monitoring and electrophysiology products. "Around that," Miller explains, "we wrapped a departmental information solution"—its MUSEdiagnostic cardiology system at the heart station, as well as EKG, Holter, stress, and other waveform management systems, and the introduction of process change capabilities within the department. At the organization level, GEMS, through GE Global Healthcare Solutions, a joint venture between GEMS and GE Capital Corp., can also offer financing solutions to help customers more effectively manage assets at the departmental level. "We do this in multiple areas," Miller says—in the cath lab, at the heart station, and in the ultrasound stress lab—and, using the Internet wrap them all together to offer the connectivity needed for productivity. For that purpose, GEMS is developing Catalyst MUSE, which will be capable of pulling up an echo image, a cath image, or the waveform, simultaneously, and access all those data on one screen and be able to transmit them via the Web.

"We focus on common platforms that have scaleable solutions, with a heavy emphasis on the Web," Miller says. "Scaleability protects customer investment and also allows more productivity with staff because the user interfaces are very similar and easy to cross-train." For the provider, that means it can have a "swing lab"; for example, switching from cath to electrophysiology at a given time, depending on the need. And with nurses' and technicians' time at a premium, such a set-up makes overtime cross-training more cost effective. <<t1 In terms of market expansion, GEMS' CV business is developing the Japanese market via GE Marquette Medical Systems Japan, a joint venture with NEC Medical Systems. Marquette never had a direct presence, there, notes Miller. "By being able to sell direct, we've grown the business four to ten times in the last 18 months, depending on the base used." GEMS traditionally has not played at the mid- to lower-end price points, Miller points out. But it recently launched a sub-$1,000 event recorder and will continue to expand into new price points and feature sets, both through acquisition and organic growth. Although Miller declines to provide details, he notes that the company is looking at defibrillators and also cardiac rehabilitation, areas in which GEMS currently does not participate.

Tapping the lower end of existing markets is also part of the radiology division's growth strategy. For example, over the past few years, GEMS has been a player in the large-end, enterprise-based PACS business. Its 1999 acquisition of Applicare rounded out its portfolio, notes Pat Herguth of GEMS radiology systems, and allowed it to now participate in the lower end of the market, which is more component driven—stand-alone archives, teleradiology systems, and image distribution systems.

GEMS also started an ASP business in January 2000 to capture customers at the lower end of the PACS business who have yet to make the infrastructure investment needed for a dedicated system. It signed up its first commercial site in June and is beginning mass marketing this month. According to Milton Silva-Craig, general manager of ASP services and e-commerce, GEMS-IT has since added six more ASP customers, including an ECG management site and a cardiovascular site.

"The radiology market may still be concerned with eliminating film," Pat Herguth says, but it is also focused on how to better serve the customer base, including physician and patient—how to get reports out faster, how to read more exams in the same amount of time, and how to get images and information to the referring physician. "It's a shift to a productivity-based environment," he suggests.

Capturing productivity gains means moving from components to systems: up the chain from the department to the larger hospital system. PACS, for example, is not a departmental solution, Herguth points out. "It's integrated with RIS and lab systems, and eventually with an EMR."

Within the US, at least, the emphasis on integrated systems is changing sales strategies. Specific equipment buying decisions in hospitals today are made mostly by committees, each representing the relevant department, the administration, and the CIO's office. "It's critical to sell both at the clinical and the administrative level, as well as the ‘strategic' level—the CIO and CEO," says Adam Miller. "We sell both from the patient, outward, or inward from system to individual pieces of equipment."

But to understand spending priorities, Doug Orr says look to the CIO. "The CIO is in the hot seat. He's doling out dollars, but also must deliver a lot." The amounts are becoming staggering: one hospital, Orr recounts, recently spent $5 million just on software licenses from Microsoft. "The biggest increases in capital spending within hospitals are in their information systems departments," he notes. "Each department has IT needs, they all have plans, and they need dollars to implement them. And the CIO needs to orchestrate those disparate needs." Therefore, he says, if you know what a hospital's IT strategy is, you can glean its entire capital spending strategy. "Purchases must fit with a hospital's long-term, top-down strategy, but on the other hand, the systems themselves are only good for 3-5 years."

While GE is a player in the hospital IT environment, Orr also notes that any system must pass a "sniff test" by the department. And GE's reach is still somewhat limited. "You get leverage through mass," he says. "A company must cover respiratory, surgery, all the departments. GE, for example, lacks access to hospital anesthesiology." Shared Medical Systems (a unit of Siemens), McKesson HBOC Inc. , and even IBM Corp., have had the longest runs in the hospital IT departments, Orr says.

The Big Will Get Bigger Still

"The easiest way to nurture a business with an appetite for growth is through acquisition, suggests Doug Orr. "Organic growth is too difficult." For $7 billion GEMS, that also entails buying large or fast-growing businesses. "You can't buy a bunch of $50-200 million companies and expect to tack on $1.4 billion in sales." Therefore, to grow 20% per year, "GE must step it up." Orr says that large medical device companies focused on cardiology and hospital supply firms may be on GE Medical Systems' shopping list, including cardiovascular device makers Medtronic Inc. , Guidant Corp. , and Boston Scientific Corp. , equipment and consumables suppliers Tyco International Ltd. and Becton Dickinson & Co. , and even non-pharmaceutical parts of diversified health care companies such as the stent business of Cordis Corp. , a division of Johnson & Johnson . With GE as a parent, "no company is too big for GEMS," he suggests.

And GE isn't alone in its vision. Siemens, which earlier in the year was rumored to be exiting the medical devices market, is considered as good as anyone at interfacing and developing an open architecture for its systems. It has now signaled its intention to stay in the field and is adopting GE's strategy of buying big. In May, it spent $2.1 billion for Shared Medical Systems, extending its device play to include clinical information systems. And in September it acquired Acuson Inc. [See Deal], the last independent ultrasound player, for $700 million, mirroring GEMS' 1998 VingMed purchase and the $800 million acquisition of ATL Ultrasound Inc. by Philips Medical Systems the same year [See Deal].

"Like GE, Siemens decided it can make money in this business," observes Doug Orr. Whereas GE has a strong presence in the US and is focusing its expansion plans on Japan and Europe, the reverse is true for Siemens, which is heavily non-US based. "GE Medical Systems may be global," Orr says, "but it's not Number One outside the US. Siemens never matched GE in the US," he adds, and is "usually one to two years behind GE in executing a strategic plan." But Orr isn't criticizing Siemens when he says that. "The rest of the world is still product oriented and less service oriented," he says, which results in a different emphasis. Thus, where GE may expand its organization first, as with the formation of GEMS-IT, then fill in product gaps, Siemens is more likely to lag, then expand through large acquisition, as with Shared Medical Systems.

GEMS, Siemens, Philips, Marconi Medical Systems Inc. , and Toshiba Corp. —the Big Five in diagnostic imaging—may all vie for the leadership role in clinical information systems. But as one industry insider and Marquette veteran cautions, "the industry has been seduced into thinking that data integration is a panacea. The cost of deployment, however, is enormous and payback is slow."

Six Sigma Sense

From top to bottom, management at the GE Medical Systems division of General Electric Co. talks in Six Sigma-speak, which is not surprising since buying into the philosophy is essential for advancement within the organization.

Six Sigma is a statistics-driven problem-solving methodology that, when deployed across an organization, rapidly becomes a philosophy influencing the way a company works. In a diverse corporation like GE, it also provides a common language and standard of measurement across businesses.

Every problem statement starts with an articulation of who the customer is, whether a product is important to the customer, and how important that product is to the customer. "You try to bring data into the problem solving process, rather than intuition or a gut feeling," explains Mike Becker, general manager, quality and Six Sigma for GEMS-IT. "Six Sigma takes out strong opinion and uses data to drive decisions."

There are two elements to process engineering using Six Sigma: applying tools to measure a process and implement change, and analyzing systems and technology to make processes essentially error-proof. "Reducing variability is the essence of Six Sigma," Becker suggests. "We look at reasons for variability and eliminate them." Each Six Sigma analysis comprises two metrics: determining the defect level of the process being studied, and finding the cost of that defect to determine the financial impact. Thus, in manufacturing, to reduce manufacturing time and eliminate defects, the cycle time for each step will be characterized and analyzed, and priorities established through the identification of critical-to-quality factors, or CTQs, for the customer. For an existing product, CTQs may include whether a product is easy to use, whether it's easy to learn how to use it correctly, whether it is reliable, what its expected operating life should be, etc. For a new product, CTQs may be its connectivity, upgradeability, or serviceability.

From a strategic perspective, GEMS uses Six Sigma to design and deliver products that "touch customers in a high-quality way," Becker explains. "Designing to meet customer needs gives us a competitive advantage and helps grow the top line. It also allows us to run internal processes more efficiently, taking some costs out of our operation."

Within GEMS, the original approach to using Six Sigma was as a fix to existing problems. "As with most initiatives across GE," Becker notes, "first came a corporate articulation of the goal. Then different businesses buy into it, some more than others." GE's high-technology businesses organized around Six Sigma quickly, led by Medical Systems. "It was a groundswell," Becker says, starting in 1995 with a handful of "black belts"—company executives schooled in Six Sigma methodology. They met with Six Sigma creator Mikel Harry, who in turn met with GEMS management and gave them a high-level overview of what Six Sigma was about. "They jumped on it," Becker recalls. Later, with the success of the LightSpeedCT Scanner, Medical Systems became a showcase for Six Sigma within GE. GEMS also led the "design for Six Sigma" (DFSS) approach, resulting in the first DFSS product within GE—the Senographe 2000 full field digital mammography system. The Senographe 2000 Six Sigma project team articulated 370 CTQs; it implemented changes resulting in 40% better contrast detection, 60% faster exam time, and 30-50% less X-ray dose.

"The success of Six Sigma within GE really got health care providers to come to us," adds Michael Teasdale, national director, strategic alliances, for the healthcare solutions unit of GEMS-IT, a $50 million business that offers data mining, benchmarking, and consulting services. "Part of Six Sigma is putting dollar tags on things customers hadn't measured, yet," he explains. "You ‘build' the cost of the defect." For example, at one customer, "something was off 100% of the time" in its MR orders. The coding would be wrong, the handwriting was illegible—something.

"We set out to find the average time it took to correct the error—calling the physician, reordering the test, etc., and came up with a cost associated with the defect," Teasdale says. "No one within the hospital had any idea of the time people were taking to correct errors in MR ordering. But by quantifying it, we showed that reducing those errors could save the time of an FTE." The problem turned out to be a lack of training on MR procedures and coding. Developing a user-friendly catalog for entry-level personnel to code out different MR procedures reduced the error rate from 99.5% of orders to less than 3% in about a month, according to Teasdale.

In turn, that experience started a year-and-a-half partnership with the customer, CHC, a three-site hospital system in western Kentucky. Teasdale's group trained hospital staff, from the CEO on down, in Six Sigma. During training, the hospital picked out pilot areas for productivity improvement, including radiology. It looked at the CTQs for that system—costs and level of service, which included waiting time for an appointment, how long it took to get a scan, and report turnaround time. Using Six Sigma, CHC reduced costs per radiology procedure 17%, from $59 to $49, increased throughput 25% with 24 fewer people in the department, and accumulated savings of $1.6 million over two years in a department with an annual budget of $4.6 million. "We worked through the pilot areas, then other departments became excited about it, which led to waves of training, then training of their own master black belts," Teasdale says. "CHC became autonomous in Six Sigma," enabling it to also decrease billing costs $320,000 and reduce accounts receivable days to 53.

"We shifted CHC from a ‘command and control' mentality—where each department would ask what's best for it—to one that focused on the patient going through the system," he explains. "Healthcare solutions exists because of the variation in health care today," Teasdale adds. "There's a lack of organizational accountability," he suggests, because "management cultures often lack data to rely on in their decision making." Thus he advocates applying Six Sigma to organizational issues. For some departments, such as radiology, the issue may be throughput; elsewhere, it may be materials management—price, stocking protocols.

"If we're not in the business of helping our customers increase their productivity, we're not going to optimize the whole GEMS business equation, whether that's through technology, process improvements, or training," Teasdale asserts. "If our customers aren't healthy, delivering high quality to customers, efficiently, at some level of profit, we're not going to survive in this environment. In one sense, it's selfish." At the same time, he acknowledges that hospital management often greets management consultants with skepticism. Headcount reductions in the early '90s led to expanded use of consultants by hospitals, "but the customers didn't see sustainable results," he says. He sees a difference with GEMS-IT, however, because it's solely health-care focused.

GEMS-IT CEO Greg Lucier echoes that thought. He says hospitals are disillusioned with current IT providers in part because they don't understand clinical workflow—an area where GEMS has an advantage. "Current hospital IT providers all started as hospital administration systems providers," Lucier suggests. "Now, they're trying to get deeper into the workflow. GEMS is the opposite; we work upwards through the organization, not downwards."

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