Why the CEO of GE Appliances is welcoming the public into the company's R&D lab

“We’re very, very careful on what we do and how we do it,” says Nolan. “And I’d say that, I think, is going to be important for all companies going forward. How do you make sure that the data you’re getting is secure and it’s trusted by your consumers? We spend a lot of time on that.”

The episode is also a goodbye to one of the hosts. After four-and-a-half years with Leadership Next, Alan Murray is stepping away from the microphone.

Listen to the episode or read the transcript below.

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Transcript

Alan Murray: Leadership Next is powered by the folks at Deloitte who, like me, are exploring the changing rules of business leadership and how CEOs are navigating this change.

Welcome to Leadership Next, a podcast about the changing rules of business leadership. I’m Alan Murray.

Michal Lev-Ram: And I’m Michal Lev-Ram. Today’s guest was Kevin Nolan. And this is your last guest on the show, Alan.

Murray: Yeah, and you might say, well, geez, GE Appliances, is that the very last show I want to do? But I actually love this company. I mean, yes, I use their refrigerator and their washing machine, but you know, it’s part of a Chinese, probably the most interesting and innovative company in China, a company called Haier, which not only innovates in appliances, but it innovates in management. It has a very interesting approach to the way it manages people, tries to decentralize, encourage entrepreneurship, encourage individual initiative. And we talked about that a lot on this show.

Lev-Ram: Yeah, and I think, like you said, the brand and what you associate with it might be surprising to some people as your last Leadership Next episode. But I actually think the conversation really encapsulated so much of what you talk about so often, Alan, and that’s in addition to innovation, everything you just mentioned and leadership, of course, and how leadership allows for innovation, we talked about China. It’s a Chinese-owned company. We talked about the changing roles of leadership and sort of what’s different today, the political atmosphere and how that has impacted Kevin. And, of course, we talked about gen AI. So you kind of you got all the ingredients in this one last episode.

Murray: The other thing I liked about this conversation is that Kevin Nolan is at heart an engineer. He called himself a maker, and his current side hustle is he makes clocks. He showed us a picture of a grandfather clock he was constructing.

Lev-Ram: Yeah, it was pretty awesome. He actually said that he tinkers pretty much every day, which is amazing. So, Alan, I hope you have plenty of time for tinkering with whatever you want to tinker with in your little little bit of time off that you’re going to take before you plunge into your next thing. And it has been just such a pleasure and an honor doing this podcast with you.

Murray: Well it’s been so much fun doing it with you and I’m sure there are more great things to come. So, let’s hear from Kevin Nolan and after that, you can put me in the freezer.

[Interview begins.]

Kevin Nolan, welcome to Leadership Next.

Kevin Nolan: It’s great to be here. Thank you, Alan.

Murray: Thanks for doing it. You’re the CEO of GE Appliances and we all know GE Appliances, most of us have them in our homes. But I’m not sure everyone knows that GE Appliances was bought by Haier eight years, was it eight years ago?

Nolan: Yeah, just about eight years ago.

Murray: And Haier is, to my mind, one of the most fascinating companies in the world, has this philosophy that everybody who works there should be an entrepreneur. So explain to us how when you’re making refrigerators and washing machines, everyone can be an entrepreneur.

Nolan: Yeah. So it is interesting. I mean, and it is so much different than what I grew up with, right, being a long-time employee previously with GE. But it is really a philosophy they have about how are you going to get close to the customer. And every employee needs to see what our value is and how it contributes to true customer value that comes across. So if you look at, you know, the most important people are the people actually making the goods…

Murray: Right.

Nolan: …you know, they’re making those products. So we look on them, you know, how can we be more innovative? How can we be more creative on how we assemble, how we produce? But then all the way back up into the management roles of, you know, people shouldn’t be focused on management, they should be focused on the work and the customer.

Murray: But how does that manifest itself? I mean, if you’re putting together a washing machine, it’s my washing machine, I’m not sure I want you to be too innovative.

Nolan: Yeah.

Murray: And so what you’re talking about mass manufacturing. How are people allowed to innovate? Give us a couple of examples.

Nolan: Well, I’d say if you look at on the factory floor, it’s innovation through can we build better workspace, better ergonomics? So allowing the assembly workers to have a real voice because they know what’s best, they know the best way for them to get the job done that they need to do. So you’ll see a lot of, it’s a lot of lean techniques, Kaizen, etc. So, on the factory floor, you’ll see it pretty much done through lean methodology, which most people in manufacturing will be used to, but we really try to take that a step further and then get that back upstream of true innovation, innovative products that we know our customers, they might want. So how do we really understand the customer needs and bring them the products that they’re really looking for?

Murray: Hmm.

Lev-Ram: I read that you have a thing about the word boss that, I mean you are the boss, but that you don’t really think that way or use that language. Can you explain that and how it fits into what you’re talking about? Because I would assume that while you have to constantly push for innovation, some level of hierarchy is actually really needed in a company that ultimately manufacturers appliances.

Nolan: You know, I don’t know if I am the boss, that’s a topic for another day. But what we try to do is when I became CEO, a key person on the team is Rick Hasselbeck, who is our head commercial officer. And Rick came up with the whole idea. He said, ‘Hey, we’re not the bosses around here. The customer is the boss.’ So we did a big campaign of really, who are we working for? You’re not working for me. You’re not working for Rick. You’re not working for the other people on the leadership team. We’re working for our customers, our consumers. So really getting that through people’s head of, because I think too much in companies, they’re always looking up and they’re not looking at where value is creative, what do we really exist here for? So we’ve done a lot of, what approval do I have to be involved in and what decisions can we make and really making it so I don’t have to be involved in all these decisions because by the time it gets to me, there’s a long delay of what really needs to be done to address the market and to address what we need to do out there with our consumers.

Murray: And how do you get all your people out to understand what the consumer wants and needs? Do they do consumer visits? What are your techniques?

Nolan: Well, one is we’ve tried to break the company down. That’s part of what it is into what we call micro-enterprises. So the smaller things are, typically, the more nimble they’ll be and the more say people have on the different directions. So step one, I think, is, is how do you make your company more nimble so it doesn’t have big bureaucratic functions. You need certain things. We call them platforms where you want efficiency. So we’ve looked at are there certain things that we do that the customers, they just want us to do them efficiently? Take, for example, our distribution, getting products into our warehouses, getting them into the homes. We don’t want that done by every individual micro-enterprise. We want efficiency and we want to streamline. So they’re going to look very traditional, right, of what we do. But these micro-enterprises, for them, they’re very much involved with the market, involved with the consumers. And we really embrace what we call co-creation. So the way we really want to innovate and we’re doing more and more, is how do we co-create with our consumers, our customers to really understand what are they looking for and have them part of the innovation process. Because if it’s too much traditional market research, traditional companies working in R&D off in the corner, is it really what customers need or they want?

Murray: So you’ve got one of these co-creation spaces up in Connecticut, not far from me, a micro factory. What does that look like? How do you co-create a refrigerator or an oven?

Nolan: Yeah, so this really started out in Louisville, where on University of Louisville’s campus we came up with what we call first build, and it was an idea of can we redefine corporate R&D? Can we change the way that we think about doing our innovation process? And we really flipped it on its head. It’s typically a secret place where there’s badges, the hardest thing for someone to get into is the R&D facility of a corporation. So we opened the doors. We said, we’re going to do it, we’re going to do it with the public. Because time and time again I found through our R&D process, because I used to run engineering for years, we work on this, you bring it to consumers, they didn’t care. And you know, how often do things go through your innovation funnels and are they really successful? So we did a lot of research, a lot of looking  at startups, quite frankly, of what do they do different. And we found that, you know, right away they’re getting customer feedback, very agile when you think about it. So we do that day in and day out of anything we’re working on, people that came into Louisville, they could see it. And we open, it’s a maker space, we open to the public so people are always doing all kinds of fun stuff, interesting things, so, opposite of any corporate environment, totally free flowing, we let people come in and use the equipment, the machines, and we’ve had great success. I mean, the things that we’ve come out of there, the hit rate there is just…

Murray: Can you give us a couple of examples of…

Lev-Ram: Yeah, I think there’s one that I read about that was a smart indoor smoker…

Nolan: Yes.

Lev-Ram: …which is, I think a product every one of us can relate to aspirationally, at least.

Murray: Send one to Michal tomorrow.

[Laughter.]

Nolan: Yeah, so that’s probably the latest. I would say the first big hit we had was our Opal nugget ice maker. And that was, it didn’t come out of market research. What it came out of was, we noticed there was a couple of our sales team that loved nugget ice. I didn’t know what it was about. We didn’t know what it was about. But they would get up every day and go to this restaurant to buy ice to go through the day. So we started looking into it. We found out there was this big, passionate community around chewable ice. So we came out, we crowdfunded that and we used crowdfunding, really not to raise funds, but to see, do people want it? So we use that as a validation method, so much more powerful than typical research because you can ask anybody anything, but until they have to pay for it, you don’t really know. Is it, you know, are they telling you the truth? And that thing just took off. I mean, it’s been incredible what you’ve seen it’s done. The latest one is just what, Michal, what you talk to is this indoor smoker. And it was another one where we had a bunch of people that were just, love smoking food. So we found a passionate community. Then, by knowing that community, you start understanding is there any way they want to be served differently? And those insights start coming there. Oh, well, there was trouble in the wintertime and others. So the question, well, what if we could do it indoors? Well, you can’t. Say, well, maybe we can. And that’s what started that whole project. So people have been involved. They’ve seen we’ve been working on that from day one. And so far, it’s doing very, very well.

Lev-Ram: I’m curious, I’m all for, you know, setting my indoor smoker at 2 a.m. from bed, you know, using my phone, right, and so many of these amazing features that appliances have now. But there is a little bit of pushback on them getting too smart and the costs associated with maintenance, with fixing, with all sorts of repairs and just a lot of features, right. Maybe too many in some cases. So how do you guys, do you spend time thinking about it? And how do you kind of draw that balance between being innovative, you know, pushing the envelope and also not making them too smart, I guess?

Nolan: Yeah. So the smart, I think, one is the cost of being smart has come down radically. I mean, you know, the cost of putting smart typically enables you to communicate with that appliance. So the cost of that is really come down. I’d say the key is what do you do with it? You know when you talked about reliability and service, the real reason we got into having these things communicate, because we’ve been doing this for a long time now, was just for that, for service. So that when something is wrong, we can tell. And because these things are more complicated now, there’s many more features, and just having the average repairman roll out and be able to fix this day one, it’s much like cars. I mean, you need to understand. And every time you bring a car in, they plug it in and they’re going to see with diagnostics what’s really going on. We have that same technology in basically all of our appliances. So it’s really there to help serve the consumer if there’s ever an issue. But on top of it, it allows consumers the features they want when they want it and how they want it. So you’re going to see a future of appliances that come out they’re going to be as basic as you want, or you can have all kinds of advanced features if you want to have them. And it’s going to be much more up to the consumer than having one size fits all.

Lev-Ram: So we can all have conversations in different languages with our washing machines if we want to, but we don’t have to.

Nolan: If you want to, and I guarantee there’ll still be a button on there where you can get this thing…

Murray: Just wash the thing.

Nolan: …to start and stop.

Murray: But Michal raised the point of, you know, we now have these powerful generative AI models that will allow you to talk to your washing machine or talk to your refrigerator. Have you figured out yet whether there are valuable uses of that technology in your appliances?

Nolan: Yeah. So we’re all over gen AI. I’d say we’re looking throughout the company for every role I see it transforming. So we’re really trying to democratize that tool so that people we can see, you know, what are the best use? But it’s in the hands of our consumers already. Our SmartHQ app, which is the app that you can use with the appliances, anyone can download it. But one thing we worked with Google, we came out, it’s called Flavorly, and it can give you whatever ingredients you have and it’s fun to fool around with if you haven’t. Just give it a list of ingredients, tell it what style of food, it can even make cocktails that you want and it will come up with a recipe.

Murray: Oh, that’s cool. Here’s what I’ve got. It’s here’s what I’ve got right? Or what can I make?

Nolan: And we’re trying to get after food waste.

Murray: Yeah.

Nolan: But it turns out being a lot of fun. I’d say it’s a powerful use of AI, but a different one than we would have thought.

Murray: And I mean, you’ve made a nod to this earlier. You know, Michal and I will go to the Consumer Electronics Show every year, and you see these appliances that do amazing things. And you sometimes wonder, the technologists who develop them, I’m sure, are very proud of their developments. But does anybody really want that? Like, I never really, the idea of being able to see inside my refrigerator never really appealed to me. You know, did that catch on or did it not catch on? I’m sure you must have a lot of cool things that are possible that people don’t really want.

Nolan: Yeah, that’s, we try to focus hard on that. And as a technologist, as an engineer, you’ve got to make sure, are you doing what you think is cool or what a customer really is interested in? That’s what we like about first build, about co-creation, because it keeps you from making some of those dumb mistakes. And we always say is this true value innovation or innovation. And you’re seeing it a lot. You’re seeing a wave of AI. Everything’s AI today. Well, how are we going to use that AI to make our experiences better, our lives simpler? And we try to focus in on that.

[Music starts.]

Murray: I’m here with Jason Girzadas, the CEO of Deloitte US, and the sponsor of this podcast. Thanks for sponsoring it. Thanks for joining me, Jason.

Jason Girzadas: Thank you, Alan. It’s a pleasure to be here.

Murray: Addressing health equity is not just the right or moral thing to do. It’s become a business imperative. In fact, in the United States, health inequities cost $320 billion annually. Every organization has a role to play in making health more equitable. And as business leaders, we need to make sure we communicate how health equity drives business value. So what role should business play in addressing health equity?

Girzadas: I think you’re right to point out the moral and the business imperative around health equity. We actually believe that the health equity cost to society could rise by up to a trillion dollars by 2040. So this is an economic issue for all businesses. The role of business is to recognize that health equity impacts the workforces of every single business, and it’s needing to be on the CEO agenda and board agendas for all organizations. In our country your zip code can determine your health status, and that’s problematic if you think about the drain on worker productivity, the cost to businesses in terms of the health and well-being of their workforces. Making this a priority from the standpoint of looking at what actions you can take through your organization around health and benefits, as well as how it pertains specifically to the products and services and also the types of partners that organizations team with to address health equity issues broadly. There are resources to look at, the Deloitte Health Equity Institute, which has pro bono data and analytical tools to leverage that are accessible to all organizations to start on this journey of making health equity not just a societal concern, but actually a business priority.

Murray: Thank you for that, Jason. A pleasure to be with you.

Girzadas: Thank you.

[Music ends.]

Lev-Ram: Can you talk a little bit about your own personal career trajectory? You know, you mentioned you used to run engineering. You’re an engineer and a maker originally. And talk a little bit about your own path and how that’s informed where you sit today.

Nolan: Well, I like to think I’m still an engineer because if I’m not good at this day job, I want something to fall back on. So I still want to say I’m an engineer. But I just, I’ve loved, creating things, innovating things has really been my driver. I started at a place in Connecticut with GE that we made our circuit breakers, kind of one of the foundations of the company. So working through them in different roles, but always staying within engineering and getting on to different ways of impacting product, bringing different products out. So that’s my passion. And I think still and as a CEO, I try not to get too far away. I think we always got to remember what are we really good at? What are we not good at?

Murray: We’ve seen a spectacularly bad example of that recently with what’s going on at Boeing, where the company got too far away from the manufacturing plant. I’ve got to say, I do have GE appliances in my kitchen. I’ve got some other appliances in my kitchen that aren’t nearly as reliable, well made. I mean, you seem to maintain a reputation for doing this right.

Nolan: Well, that’s good to hear. First of all, we thank you for that. But, you know, it’s important to me. I mean, we use these products. I go home, I use them, we test them. And, you know, I think on having the background I have, it’s great because I know how these work and I know what we’re doing.

Murray: But so tell me, I think Haier is a fascinating company and a very unique company. I got to interview [CEO] Zhang Ruimin at our event in Gwangju in 2017. It was one of the most interesting interviews I’ve ever done because he has such a very particular view of how a company, a unique view of how a company should be run. But these are difficult times in terms of U.S.-China business relations, a lot of increasing protectionism, tit-for-tat stuff going on, local governments that don’t like the idea of Chinese investment. How is all of that affecting you and your big facility in Louisville?

Nolan: Yeah, I’d say one thing that with Haier is they are very unique and I think the chairman was very visionary. And when he thought about globalization, he did it much different than I’ve ever seen other companies, and it was much different than my experience working with GE. Is he really looks at you’ve got to serve the markets. And if you think what we started to talk about, it’s very market consumer focused. So he looks at us as we’re responsible for the markets we’re in and same Europe and others, so I like to say we’re more American now than we ever were before. I mean, if you look at what we’ve done, we felt to serve this market well, we need to manufacture in the U.S. We need more manufacturing in the U.S. We need more distribution, more warehousing to better serve. It really gives you in the market the decision making. Now you take the responsibility, but you take the decision making. What is best for us to do? And what’s the best way to serve our customers? So you look at the technology we developed, SmartHQ, it’s all developed by us in the U.S. and I’d say we have a supportive parent. But the main support is trusting us to serve our market the way it wants to be served.

Murray: And no one’s attacking you saying, Oh, these refrigerators are sending data back to Beijing that there’s somehow….

Lev-Ram: About what Alan’s keeping in his refrigerator.

[Laughter.]

Nolan: I mean, the thing is, as an engineer, we are very, very strict. And I would say, we have all kinds of third-party tests, people coming in. Just, the software is written in the U.S. We’re very, very careful on what we do and how we do it. And I’d say that that, I think, is going to be important for all companies going forward of how do you make sure that the data you’re getting is secure and it’s trusted by your consumers? We spend a lot of time on that.

Lev-Ram: Well, and especially as gen AI becomes, you know, more and more a part of these appliances. And again, we’re actually talking to them and they’re listening. I would imagine that becomes more important. I was wondering, when it comes to manufacturing in the U.S., we’re hearing about on the semiconductor side, some of the challenges, despite all of the incentives to build out new fabs, some of the challenges of actually staffing them. Are you finding that that’s an issue? Obviously, very different manufacturing process for you guys. But when it comes to just staffing and manufacturing talent, are there issues there or do you have enough resources?

Nolan: You know, I’d say there’s different issues, but I think everyone that’s in manufacturing is feeling some of the same. During the pandemic, it was almost impossible to get workers. I mean, I was out working on the assembly line. We had us all out there, all hands on deck. If you can come in to work, get out there and build product because our consumers need them. That’s kind of going away. And I’m glad it’s gone away because I didn’t like going out on the factory floor every morning. But we we’ve got the work, but there is a big competition because you’re seeing more and more manufacturing come into the states and certain regions it’s lumpy where it’s going too. So the regions that are attracting a lot of it are starting to have labor. One of the first things you want to look at, if I’m going to put a manufacturing site in, is there a labor pool available that we can take part?

Murray: Is that forcing you to get more involved in education, training, sort of creating areas, ecosystems, working with colleges to create the talent you need?

Nolan: I’d say we’ve always been there. I think now others are realizing you’ve got to do it. And if you look at what we do of us getting involved in the elementary schools, middle schools, we put in all kinds of things around Louisville. You can see we’re part of the curriculum and we’re part of the college curriculum. But manufacturers got to get more involved. If you look at a lot of these apprentice programs that were around went away in the seventies. So if you look at the skill set, you need robotics engineers. We need advanced manufacturing, people who can put equipment install…that’s where I’d say the biggest shortage in this country is—the skill set to put in this high-tech stuff that you need in a modern factory. And we’ve all got to do our part to get these young kids excited. They’re great jobs. These aren’t going away. You know they’re jobs, quite frankly, you won’t have to worry about gen AI taking away. But we’ve got to get more interest and people got to know that these jobs are real. They’re coming to America in a big way.

Lev-Ram: Did you sleep on the factory floor, too, like Elon Musk?

Nolan: No, I’m not…

Lev-Ram: You didn’t get there.

Nolan: I don’t know. I’d like to see if he really slept. It sounds like a good, a good story, but…

Lev-Ram: He had a cot. Apparently so.

Nolan: Developing programs I slept at work a few times, but I wouldn’t say it was a practice.

Murray: So this podcast started four and a half years ago. This is my last, by the way. This is my, Michal is going to keep going. There’ll be many more to come, but this is my last.

Nolan: It’s an honor to be here.

Murray: Well, it’s an honor to have you for my last. It started in early 2020 and it was really an effort to kind of focus on this rising discussion and focus on stakeholder capitalism, on businesses that wanted to make a profit for sure, but also wanted to make sure they did business in a way that maximized the benefits for the community, for the workers, for the customers, for the environment. How do you think about that at Haier?

Nolan: You know, I’d say it’s very important to us. It’s been in our DNA and it goes back pre-Haier. If you look at what we were about, you look at the products we make, they use electricity, they also use gas. And we have to look at the responsibility we have because if you look at the impact, we have a lot, the social impact of our factories, how they run, but the real energy usage and the thing that we can have huge impact is the stuff that’s going out in everybody’s homes. So, we’ve time and time again made sure what are the chemicals we’re using? You know, you look at greenhouse gases. We were one of the first to make sure that we were foaming refrigerators with the most friendly environmental thing you could do. We brought that into the States. The same with the refrigerant that goes into those products, very environmentally friendly. And then it gets into energy use. You see, one of the products we just came out with is a combo. It wash and dries at the same time, but in one unit. And consumers are loving it. It’s really resonating. But that’s not the reason we originally did it, because the electric use on it is amazing. I mean, it dries your clothes just like that dryer you have in your home right now that has a big plug that plugs into 220 amp outlet. Well, this plugs in just like charging your cell phone, in that stand, the same outlet you’re going to charge your phone, you can now draw your clothes. Huge impact from environment. Same thing water heating. Bring in hybrid water heating to heat pump technology. So I think it’s just been part of our DNA and we’re on a big charter right now for zero energy homes. How can we enable consumers to have these zero energy homes at an affordable price? So we’ve got a bunch of partners we’re working with. Technology we’re working because we feel we play a big part in that and we can really help consumers achieve those things.

Lev-Ram: One more question for you, Kevin, and it’s a light one. This is not a hard-hitting question. We heard you’re a clockmaker in your spare time. But first of all, what kind of spare time do you have? And second, is that something that you like to tinker with because it is so mechanical? I mean, as you’re moving more and more into these smart devices, what is clock making mean to you?

Nolan: Yeah, so it is my spare time because there’s no way I can make money at it I’ve realized.

[Laughter.]

But you know, I enjoy it. I’ve always enjoyed engineering and it’s really my passion. So I do, I do it almost every night. You’ll find me in the garage out there machining.

Murray: But it’s very old tech. That’s like…

Nolan: It’s old and new. The tech is old, what I’m doing. But the tech I’m using, you know, because, well, we’ll use CAD programs, CAM programs, CNC. So some of the real traditional clock makers get annoyed when they see, you know, it’s CNC being able to make some of the parts they used to have to make and file by hand. But I also use it to keep me current actually on technology because it is an extremely challenging thing to make. And it’s a good judge because if you don’t make it right, it doesn’t keep time. So it’s not like someone tells you it looks nice or not. You can tell it’s either good or it’s not.

Murray: We’ve asked a lot of people over the last four and a half years what they do to wind down. But you’re the first that does it making clocks.

Lev-Ram: By the way, my parents have an old grandfather clock that has said that the time is 6:15 for like the last four years, I think, because it’s so hard to find somebody that’s actually. So next time you’re in the Bay Area, please swing by.

Murray: I got a guy. I got a guy, Michal.

Nolan: Could be phase two of my career.

Murray:  It’s a good thing to do. Well, thanks so much for taking the time to be with us. Fascinating company. And stay close. Stay close to the factory. It’s really interesting to hear about what you’re doing.

Nolan: I appreciate the time. Thank you.

Murray: Leadership Next is edited by Nicole Vergalla.

Lev-Ram: Our executive producer is Chris Joslin.

Murray: Our theme is by Jason Snell.

Lev-Ram: Leadership Next is a production of Fortune Media.

Murray: Leadership Next episodes are produced by Fortune’s editorial team. The views and opinions expressed by podcast speakers and guests are solely their own and do not reflect the opinions of Deloitte or its personnel. Nor does Deloitte advocate or endorse any individuals or entities featured on the episodes.