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Globalization Case Analysis: GE's Two Decade Transformation (Jack Welch) 3 GE’s Two Decade Transformation Introduction Surviving in today’s

challenging business environment necessitates innovative thinking in terms of crafting strategies to enable the establishment and sustainment of a competitive advantage. Through an established strategy, structured options and decision making processes, organizational leaders will be able to facilitate organizational development and growth. Overcoming the odds and competitive pressures sometimes requires defying critics and popularviews to develop initiatives that not only streamline the organization, but create profitablebusiness operations and human resources to add value to the organization.The analysis that follows identifies and defines the challenges which Welch of GEencountered during his tenure, and outlines his approach to strategic corporate leadership and taking charge. The report is followed by a breakdown of Welch’s objectives in regards to innovation and his strategy on creating value. The authors will also provide an evaluation of Welch’s approach to leading change with emphasis on the overall impact that Welch had on GE’s success. Finally, this paper will take a look at the implications of Welch’s replacement. How difficult a challenge did Welch face in 1981? How effectively did he take charge? Welch faced a very difficult challenge taking over the position as CEO of GE. His predecessor, Reg Jones, set the bar extremely high at the company leaving a legacy for Welch to compete with as the new CEO . Jones had been considered a “management legend” a nd had been voted CEO of the year three times for his brilliant accomplishments with GE. Jones was also labeled CEO of the Decade two years before he retired. Needless to say, Welch had some bigshoes to fill once named as CEO. During this transition, the business world was highly

the transition could be detrimental to the company. Fortunately. Anything and anyone that didn’t bring value to GE was eliminated. Jones had left the company in a “good place” durin 5 GE’s Two Decade Transformation the transition. Welch placedexecutives and management in key places to could assist his efforts to redirect overall companyculture. Thisrequired assessing the current environment to accurately determine a way to improve it. Welchsimultaneously and strategically invested in other businesses.How effectively did he take charge? Welch was extremely effective in taking over the GEreins. increasing their revenue andoperating profits. the United States economy was ina recession. allowing Welch to come in with his new and innovative ideas to take the companyeven further in the business world. From the moment he took over the business. In order to a ccomplish this enormous task. At the t ime of his appointment. The business world was evolving and competitors attemptednonstop to stay ahead of GE . with the economy. enabling the company to operate as a “lean and agile” business. However. Hierarchical organizationallevel s were dramatically reduced. and political climate in constant flux. If nothandled properly.4 GE’s Two Decade Transformation competitive. environment. which represented 25% of their sales. during that time. Managers that did not fit into or who failed to embrace his strategy were let go. To combat this situation.there was still the need for change. Welchconvinced his team to buy into his new vision of where the company should go and challengedemployees to be “better than the best”. In order to accomplish this. Welch went full force into implementing a “real time planning” strategy. GE sold manyof their businesses.Welch was up for the challenge and knew that a successful transition would meandeveloping a team that would make GE even more prosperous earning stakeholder trust. Jack Welch had to develop a plan of action aimed atkeeping the company thriving in the business world. Although his predecessor was quite successful during his reign and the business thrived. What was Welch’s objective in the series of initiative he launched in the late 1980’s andearly 1990’s? .

and consistent innovation of . Welch had always been a teacheroften leading sessions at the Management Development Institute. Forexample. 3). honestly and openly. but now had to managethe human resources aspect to “rebuild the company on a more solid foundation (Bartlett & Wonzy. and were subsequently worn-out due to upheaval within the company’s core. Michael Frazier and his team studied ninecompanies who had higher productivity rates than GE.As a result of these standardized processes. Facilitators wereempowered to walk these groups through a process wherein problems were laid out. When the bosses returned.4)” were the characteristics he expected to dominate the culture. they were required to listento the proposals and make a decision in front of the group to at least 80% of the total proposals.2005. and … reality (Bartlett & Wonzy. The end result was a toolkit of keytechniques and identification of core characteristics that made these companies successful.This process was dubbed the “ Work-Out ”. giving every employee theopportunity to become part of the discussions. With the help of James Baughman. Ashead of the Business Development department. and final presentations produced for presentation to unit bosses.” Additionally. simplicity and self -confid ence (Bartlett & Wonzy. p. candor. 2005. customer satisfaction as their Key Performance Indicator (KPI). “speed. p.” GE’s employees had been sufficiently shaken by the preliminary changesmade. Director of ManagementDevelopment. 2005.well-developed supplier relationships. allowing them to vent concerns about change implementation andresulting complications.Jack Welch repaired the structure of GE with his initial changes. discussed.potential solutions identified. Welch hopedto create an environment which optimized “openness. p. productivity increased two-fold The “ Best Practices ” program was assigned to the B usiness Development department. Welch decided to institutionalize these open forums. Employees gathered in groups to respond to their unit bosses’ challenge s and agendas in general.4). process efficiency. These sessions affordedmanagers with an open-forum.

GE employees were being developed. Welch hired Paolo Fresco. Once Welch’s commitment to developing internalleadership was fully in play. and broaden their vision of what success actually looked like. everyone in the GEprofessional corps could expect detailed feedback on their performance. he made it clear that everyone would need to commit to GE’s .Welch was so committed to this concept that he taught and talked with managers at Crotonvilletwo times per month. Now. the management development facility. doubling revenue from international operations withinthe first five years. GE took advantage of global economic downturns in countries like Mexicoand Japan to increase their acquisitions. Welch wanted employees to feelvalued for their contributions. evaluated and compensated based on a demanding evaluation process called “ Session C ”.Welch dug even deeper into the fabric of GE with an initiative focused on locating anddeveloping leadership at all levels of the company. leadership development through activementor ship and teachable moments.high quality products andmanufacturing efficiencies with little to none unused capacities were all discovered as “ingredients to success” . He practiced what he preached. To provehis steadfastness.knowledge about what future positions they might hold within the company. GE revamped its compensation package by offering more stock optionstied directly to individual performance for program initiatives.He looked for opportunities within each business unit to not only increase success levels withinUnited States markets. Teams of managersfocused on real-time issues fa cing GE’s business to produce action plans for achieving results. and with successful completion of their training and development plan. To incentivizestronger work ethics. to head the InternationalOperations position. Managers were further trained to look at largerscaleopportunities for improvement.Welch continued to subtly injecting his ideas about globalizing business units within GE. a proven negotiator.Crotonville was re-designed and outfitted with new buildings for example. Welch had employed this process with his top team members and was now drilling down to otherbusiness layers in search of the next wave of GE leadership. and highly-compensated for their efforts. A new training program emerged which helped managers see the errorof existing measurement practices.Welch used Crotonville. as his incubator. a clear plan for developing their skills. but to benchmark GE against competitors on the world stage.

an economy of highunemployment. To further demonstrate his seriousness about having thoughtful leaders.” Is there a logic or rationale supporting the change process? When analyzing Welch’s rationale for the changes made. These uncertainties andclimate of continuous change and increased competitions led Welch to the realization thatovercoming the . how? Although GE had gone through a major reorganization that contributed to its successes. Realizing that bureaucratic models of organizational structure were prone to promoting sluggishness. p.S Dollar. and eventually career planning-whether that be up. or out (Bartlett & Wonzy. it is important to identify the benefits of incorporating Porter’s five forces model to analyze competition within an industry. sideways. Thecomplex diversified conglomerate consisting of overlaying groups of 46 divisions and 190departments all supporting 43 business units were faced with a recession. butfailed to inspire and motivate their employees. he implemented the “ 360 o review ” . complex diversified conglomerate defy the critics and continue togrow so profitably? Have Welch's various initiatives added value? If so. This process “… [identified] training needs. and an overvalued U.the changing business climate when Welch took over as CEO required more to be done. high interest rates. Although unpopular at the time.values. Welch based his proposed and implemented changes on proven tactics used by other successfu companies to achieve his strategic organizational goals. 8). Welch opted to depart from thismodel and implement a more flat organizational structure to assist in meeting his defined objectives. How does such a large. 2005. coaching opportunities. Everyone was evaluated by theirpeers and subordinates in addition to their leadership. He knew that some managers made the cut based on numbers. or risk being let go. Welch’s decisions and actions have through time become renowned as revolutionary exposing sheer genius in executing changes within anorganization.

magnitude of challenges would require unconventional leadership and boldstrategies. but Welch ’s goal of making GE lean and agile resulted in de-staffing and reduction of bureaucracy. This strategy is an indication that Welch did not adapt cost cutting strategies like many of the companies during that time but his goal was as he said: “I would like GeneralElectric to be perceived as unique. the company was able to analyze the 43 business esunder its umbrella and only those businesses that were number one and two in their industrieswere maintained. p. By doing so. The underlining principle in the transformation is that in order to operatean effective and efficient world class . Businessesthat were maintained became the center of strategic focus in terms of developing those unitsthrough additional investment and developing efficiency and effectiveness procedures andoperations. Sellin g and closing of some businesses was about doing away with thosebusinesses that were under performing. the normal course of action for many businesses is to engage in costcutting strategies. thecompany became more efficient and a value building culture permeated the GE workforce.eliminating layers of hierarchical that were bottlenecks to growth and operational. 2009. 16). p.…with world quality leadership in every one of its productsline” (Bartlett. 9). To successfully achieve such objectives required the reconfiguration of organization’s resources and competences (Grant. Sell or Close”. Through this strategy. personal andproduction efficiency. strategy was not just about building a positionof sustained competitive advantage but rather formation and implementation of a strategycentered on the development of timely responses and flexibility to create successive temporaryadvantages (Grant. 16). In times of uncertainties and recession. 2011. 2005).GE defied critics and the prevailing convention of multi business break up by adaptingvarious strategies which included but was not limited to restructuring through what Welch called “Fix. He understood that in turbulent times.Evidence of this is shown when considering the fact that that Welch divided the remainingbusinesses into three categories known at The Three-Circle Vision (See Exhibit 2). but studies demonstrate that such strategies are not always sufficient Investment in the right places during hard economic times enables a company to perform betterduring and after a recession (Anonymous. Thebusinesses were not the only component of the company to go through restructuring. p. 2011. and did not add value to the company. Those that were not maintained were either sold or closed down.

and did away with ineffective ones. but it is about doing thingsdifferently through effective decision making and knowing where to compete and how tocompete. and the desire for change. created a service industry and an E-business. whichcontributed to twothirds of the company’s revenues (See Exhibit 9). GE had to invest in the right businesses and develop staffs that are the best at what they do. and sustain number one or two positions in anindustry. Through the stretch target initiatives. 18) regardless of how radical and risky it mayseem to critics. Critics saw the company’s strategy of developing leadership and employee capabilities enhancement as being risky especially in times of uncertainties. operations. human resources and employee morale. However. and most importantly surviving the . p. as emphasized by Porter (Gant.Welch understood that strategy is not about doing things better. With Welch’s leadership GE ventured into new sectors. They also viewed the removalof boundaries through what was known as Work-Out best practice and the creation of theboundary less as being radical and risky. initiatives and ideas contributed to the value of GE. Another important value added to the company was the service business. Open forums were created to find avenues of improvement at all levels of the firm’s business.8billion. 2011. Leaders were challenged to find ways to maketheir people more effective and competitive. thus increasing it revenue andincreasing its value by 60%. The company became lean and agile. through the determination of Welch and histeam. These and other initiatives are examples of how Welch endeavors. all employees were asked to prove howgood they can be by setting and reaching higher goals that were once deemed to be impossible toachieve. the risk paid off contributing to the value of the company. GE had acquired firms that enabled it to expand globally and developed globaloperations that resulted in the company almost doubling its international revenue to $42. with increased efficiency and organizational culturetransformation. Individual employees were empowered to lead in their own capacity by finding ways tocontribute to the value system of the developed a massive global market that out performed its 11 GE’s Two Decade Transformation domestic markets.

Welch extended his Fix.5 billion in 1999. In return Welchcompensated those employees with generous bonuses and incentives. and challenged his team be “better than the best” (HBS. sell or close fromthe national level to the international level. In addition. Welch fostered open communication and created a culture characterized by “speed. Welch introduction of business service contributed to twothird of the company’s value. expected his team to do the same. his team of managers shared the same commitment tomanagement values. tothink outside of the box. He also saw the challenges in other countries andeconomic difficulties as opportunities for new investments and expansions. and self confidence. In addition to this the program also contributed 300 million pounds of newcapacity. simplicity. Furthermore team members had to have the willingness to take charge. He employed different management reporting structures at different points of the transformation. as a result he spearheaded ade-staffing process which resulted in a vertical reporting structure with major department heads 12 GE’s Two Decade Transformation reporting directly to him. commitment and service to the goal of the organization. He embraced change. Values added include but not limited to the reduction of bureaucracy which resultedto more expedient processes. knowledge sharing and demandingof excellence. to push the envelope and most of all to be team players.2). For example. return of $750million over the investment exceeding expectations along with a forecast of additional returns of $1. Last but no t the least. What is your evaluation of Welch's approach to leading change? How important was he toGE's success? What are the implications for his replacement? Jack Welch’s mission was to restructure t he company in order to become the number oneor number 2 competitor in the industry.recession and creating a largecomplex diversified conglomerate that continues to defy the critics and grow in performance andprofitability. hisintroduction of the Six Sigma quality initiatives led to 62% in turnaround time. Values added alsoincluded the transforming of GE culture to a more learning. p. and effective operation.” . he felt asthough there were too many layers at all large headquarters groups.

As a result the “best practices” program was created in an effort to learn from other companies and to identify the reason for their success. Ultimately Welch’s strategy was to look atthe external factors that affected GE’s success. while implementing a bottom to top approach. p.Welch never rested on his last success. He challenged his managers toidentify future leaders.10). p. to test boundaries. His philosophy was not a“ do as I say not as I do ” mentality. He created the “Stretch” program in an effort to push people to be the best they can be. he continued to innovate and to look for ways togrow the business both i nternally and externally.4). you just rent them. Welch’s unwavering involvement in every facet of the business was essential to all of these incentives. Welch’s replacement will need to establish him/herself and make a name for . To thatend he was relentless in ensuring that his team was set up for success. 13 GE’s Two Decade Transformation Ultimately he realized that the success of GE relied on the strength of his team. He understood that GE’s assets were in fact their people and in turn had to be managed as a company resource. In order to show his commitment h e launched the “Work Out” program which created a forum where employees and managers could work out new ways of interacting witheach other.(HBR.”(HBS. p. For example as “Work Out” began he began tothink of additional ways to increase productivity. He adapted ahuman resource department that would be in line with his goals.” (HBS. and directives. Everything Welch did reflected his belief in his people and as he once stated.7).Welch believed in developing leaders and provided the tools for them to do so. “I own the people. and to g et “people to think of fundamentally better ways of performing their work. In addition he never rested on his last success. and then developed a training program and a developmental plan for all key jobs.

Without a doubt. productivity and ultimately profitability realized as direct results of Jack Welch’s actions while operating in the office of GE CEO are key indicators of the lasting impact that his legacy leavesfor future officers tapped to fill the position. He/she will need to continue to foster open communication inan effort to continue to foster teamwork. . Programs and processes established under hiswatch leave an impressive standard for successors . Jack Welch’s leadership has left a lasting impact on GE and the business world. This person will need to clearly communicate their vision and how they will goabout accomplishing those goals. and constructivecriticism unilaterally throughout the company. and by understanding theimportance of looking at the external factors that affect the overall business Conclusion As stated throughout this analysis. Innovation will be crucial if the company is to thrive under the new leadership. Welch’s replacement will need to make a name for himself by creating new programs that continue to foster employee/employer relations. communication. Although some of his chosen methodologies were deemed by critics as “radical” and “risky”.themselves. The agility. responsiveness.These efforts were achieved through several unprecedented means and reorganization of theexisting organizational structure to facilitate discussion. Jack Welch stepped out into uncharted territory withlofty aspirations of making dramatic change within the GE organization for positive growth. the results of Welch’s actions speak for themselves as a testament to his strategic leadership at the GE helm.