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GEs Two Decade Transformation

Team Globalization Case Analysis

GEs Two Decade Transformation: Jack Welchs Leadership

Yasmine Abdo Al-Kouraishi

Muhammad Howard
Steven D. Johns
Kenneth V. Oliver
Kimberly N. Lomax

AMBA 670 Managing Strategy in the Global Workplace

July 25, 2012

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GEs Two Decade Transformation

Executive Summary
Team Globalization has conducted an in depth analysis on General Electric's (GE) two decade
transformation achieved by the companys former Chief Executive Officer (CEO) Jack Welch.
This report consists of a reflective examination performed by the team, incorporating perspective
gained through professional experience and key concepts gleaned from selected course reading
selections.
As CEO of GE, Jack Welch's management skills became legendary, with little tolerance for
bureaucracy and archaic business processes. Acquiring new businesses and ensuring that each
business unit under the GE umbrella was one of the best in its field was a primary concern for
Mr. Welch. Under his guidance, the company expanded dramatically from 1981 to 2001 (GE,
2012). The culture of innovation and learning, which included incorporation of measures related
to new product development, technological leadership, and rates of improvement, aided Welch
and the company in defying the critics as the company continued to profit.

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Introduction
Surviving in todays 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 popular
views to develop initiatives that not only streamline the organization, but create profitable
business operations and human resources to add value to the organization.
The analysis that follows identifies and defines the challenges which Welch of GE
encountered during his tenure, and outlines his approach to strategic corporate leadership and
taking charge. The report is followed by a breakdown of Welchs objectives in regards to
innovation and his strategy on creating value. The authors will also provide an evaluation of
Welchs approach to leading change with emphasis on the overall impact that Welch had on GEs
success. Finally, this paper will take a look at the implications of Welchs 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 and 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 big
shoes to fill once named as CEO. During this transition, the business world was highly

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competitive, with the economy, environment, and political climate in constant flux. If not
handled properly, the transition could be detrimental to the company.
Welch was up for the challenge and knew that a successful transition would mean
developing a team that would make GE even more prosperous earning stakeholder trust. This
required assessing the current environment to accurately determine a way to improve it. Welch
convinced his team to buy into his new vision of where the company should go and challenged
employees to be better than the best. In order to accomplish this enormous task, Welch placed
executives and management in key places to could assist his efforts to redirect overall company
culture. Managers that did not fit into or who failed to embrace his strategy were let go. Anything
and anyone that didnt bring value to GE was eliminated. Hierarchical organizational levels were
dramatically reduced, enabling the company to operate as a lean and agile business. From the
moment he took over the business, Welch went full force into implementing a real time
planning strategy. At the time of his appointment, the United States economy was in a recession.
To combat this situation, Jack Welch had to develop a plan of action aimed at keeping the
company thriving in the business world. In order to accomplish this, GE sold many of their
businesses, which represented 25% of their sales. However, during that time, Welch
simultaneously and strategically invested in other businesses, increasing their revenue and
operating profits.
How effectively did he take charge? Welch was extremely effective in taking over the GE
reins. Although his predecessor was quite successful during his reign and the business thrived,
there was still the need for change. The business world was evolving and competitors attempted
nonstop to stay ahead of GE. Fortunately, Jones had left the company in a good place during

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the transition, allowing Welch to come in with his new and innovative ideas to take the company
even further in the business world.
What was Welchs objective in the series of initiative he launched in the late 1980s and
early 1990s?
Jack Welch repaired the structure of GE with his initial changes, but now had to manage
the human resources aspect to rebuild the company on a more solid foundation (Bartlett &
Wonzy, 2005, p. 3). GEs employees had been sufficiently shaken by the preliminary changes
made, and were subsequently worn-out due to upheaval within the companys core. Welch hoped
to create an environment which optimized openness, candor, and reality (Bartlett & Wonzy,
2005, p.4). Additionally, speed, simplicity and self-confidence (Bartlett & Wonzy, 2005, p.4)
were the characteristics he expected to dominate the culture. Welch had always been a teacher
often leading sessions at the Management Development Institute. These sessions afforded
managers with an open-forum, allowing them to vent concerns about change implementation and
resulting complications. With the help of James Baughman, Director of Management
Development, Welch decided to institutionalize these open forums, giving every employee the
opportunity to become part of the discussions, honestly and openly. Employees gathered in
groups to respond to their unit bosses challenges and agendas in general. Facilitators were
empowered to walk these groups through a process wherein problems were laid out, discussed,
potential solutions identified, and final presentations produced for presentation to unit bosses.
This process was dubbed the Work-Out. When the bosses returned, they were required to listen
to the proposals and make a decision in front of the group to at least 80% of the total proposals.
As a result of these standardized processes, productivity increased two-fold.

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The Best Practices program was assigned to the Business Development department. As
head of the Business Development department, Michael Frazier and his team studied nine
companies who had higher productivity rates than GE. The end result was a toolkit of key
techniques and identification of core characteristics that made these companies successful. For
example, process efficiency, customer satisfaction as their Key Performance Indicator (KPI),
well-developed supplier relationships, and consistent innovation of high quality products and
manufacturing efficiencies with little to none unused capacities were all discovered as
ingredients to success. A new training program emerged which helped managers see the error
of existing measurement practices. Managers were further trained to look at larger-scale
opportunities for improvement, and broaden their vision of what success actually looked like.
Welch continued to subtly injecting his ideas about globalizing business units within GE.
He looked for opportunities within each business unit to not only increase success levels within
United States markets, but to benchmark GE against competitors on the world stage. To prove his
steadfastness, Welch hired Paolo Fresco, a proven negotiator, to head the International
Operations position. GE took advantage of global economic downturns in countries like Mexico
and Japan to increase their acquisitions, doubling revenue from international operations within
the first five years.
Welch dug even deeper into the fabric of GE with an initiative focused on locating and
developing leadership at all levels of the company. GE employees were being developed,
evaluated and compensated based on a demanding evaluation process called Session C. Welch
had employed this process with his top team members and was now drilling down to other
business layers in search of the next wave of GE leadership. Now, everyone in the GE
professional corps could expect detailed feedback on their performance, a clear plan for

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developing their skills, and with successful completion of their training and development plan,
knowledge about what future positions they might hold within the company. To incentivize
stronger work ethics, GE revamped its compensation package by offering more stock options
tied directly to individual performance for program initiatives. Welch wanted employees to feel
valued for their contributions, and highly-compensated for their efforts.
Welch used Crotonville, the management development facility, as his incubator.
Crotonville was re-designed and outfitted with new buildings for example. Teams of managers
focused on real-time issues facing GEs business to produce action plans for achieving results.
Welch was so committed to this concept that he taught and talked with managers at Crotonville
two times per month. He practiced what he preached, leadership development through active
mentorship and teachable moments. Once Welchs commitment to developing internal leadership
was fully in play, he made it clear that everyone would need to commit to GEs values, or risk
being let go. He knew that some managers made the cut based on numbers, but failed to inspire
and motivate their employees. To further demonstrate his seriousness about having thoughtful
leaders, he implemented the 360o review. Everyone was evaluated by their peers and
subordinates in addition to their leadership. This process [identified] training needs,
coaching opportunities, and eventually career planning-whether that be up, sideways, or out
(Bartlett & Wonzy, 2005, p. 8).

Is there a logic or rationale supporting the change process?

When analyzing Welchs rationale for the changes made, it is important to identify the
benefits of incorporating Porters five forces model to analyze competition within an industry.
Welch based his proposed and implemented changes on proven tactics used by other successful

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companies to achieve his strategic organizational goals. Realizing that bureaucratic models of
organizational structure were prone to promoting sluggishness, Welch opted to depart from this
model and implement a more flat organizational structure to assist in meeting his defined
objectives. Although unpopular at the time, Welchs decisions and actions have through time
become renowned as revolutionary exposing sheer genius in executing changes within an
organization.

How does such a large, complex diversified conglomerate defy the critics and continue to
grow so profitably? Have Welch's various initiatives added value? If so, how?
Although GE had gone through a major reorganization that contributed to its successes,
the changing business climate when Welch took over as CEO required more to be done. The
complex diversified conglomerate consisting of overlaying groups of 46 divisions and 190
departments all supporting 43 business units were faced with a recession, an economy of high
unemployment, high interest rates, and an overvalued U.S Dollar. These uncertainties and
climate of continuous change and increased competitions led Welch to the realization that
overcoming the magnitude of challenges would require unconventional leadership and bold
strategies. He understood that in turbulent times, strategy was not just about building a position
of sustained competitive advantage but rather formation and implementation of a strategy
centered on the development of timely responses and flexibility to create successive temporary
advantages (Grant, 2011, p. 16). To successfully achieve such objectives required the
reconfiguration of organizations resources and competences (Grant, 2011, p. 16). In times of
uncertainties and recession, the normal course of action for many businesses is to engage in cost
cutting strategies, but studies demonstrate that such strategies are not always sufficient.

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Investment in the right places during hard economic times enables a company to perform better
during and after a recession (Anonymous, 2009, p. 9).
GE defied critics and the prevailing convention of multi business break up by adapting
various strategies which included but was not limited to restructuring through what Welch called
Fix, Sell or Close. Through this strategy, the company was able to analyze the 43 businesses
under its umbrella and only those businesses that were number one and two in their industries
were maintained. Those that were not maintained were either sold or closed down. Businesses
that were maintained became the center of strategic focus in terms of developing those units
through additional investment and developing efficiency and effectiveness procedures and
operations. 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 General
Electric to be perceived as unique,with world quality leadership in every one of its products
line (Bartlett, 2005). Selling and closing of some businesses was about doing away with those
businesses that were under performing, and did not add value to the company. By doing so, the
company became more efficient and a value building culture permeated the GE workforce.
Evidence of this is shown when considering the fact that that Welch divided the remaining
businesses into three categories known at The Three-Circle Vision (See Exhibit 2). The
businesses were not the only component of the company to go through restructuring, but Welchs
goal of making GE lean and agile resulted in de-staffing and reduction of bureaucracy,
eliminating layers of hierarchical that were bottlenecks to growth and operational, personal and
production efficiency. The underlining principle in the transformation is that in order to operate
an effective and efficient world class business, and sustain number one or two positions in an
industry, GE had to invest in the right businesses and develop staffs that are the best at what they

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do. Individual employees were empowered to lead in their own capacity by finding ways to
contribute to the value system of the company. Leaders were challenged to find ways to make
their people more effective and competitive. Open forums were created to find avenues of
improvement at all levels of the firms business, operations, human resources and employee
morale.
Critics saw the companys strategy of developing leadership and employee capabilities
enhancement as being risky especially in times of uncertainties. They also viewed the removal
of boundaries through what was known as Work-Out best practice and the creation of the
boundary less as being radical and risky. However, through the determination of Welch and his
team, and the desire for change; the risk paid off contributing to the value of the company. Welch
understood that strategy is not about doing things better, but it is about doing things differently
through effective decision making and knowing where to compete and how to compete; as
emphasized by Porter (Gant, 2011, p. 18) regardless of how radical and risky it may seem to
critics. GE had acquired firms that enabled it to expand globally and developed global operations
that resulted in the company almost doubling its international revenue to $42.8 billion. The
company became lean and agile, with increased efficiency and organizational culture
transformation. Through the stretch target initiatives, all employees were asked to prove how
good they can be by setting and reaching higher goals that were once deemed to be impossible to
achieve. Another important value added to the company was the service business, which
contributed to two-thirds of the companys revenues
(See Exhibit 9). These and other initiatives are examples of how Welch endeavors, initiatives and
ideas contributed to the value of GE. With Welchs leadership GE ventured into new sectors, and
did away with ineffective ones, developed a massive global market that out performed its

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domestic markets, created a service industry and an E-business; thus increasing it revenue and
increasing its value by 60%, and most importantly surviving the recession and creating a large
complex diversified conglomerate that continues to defy the critics and grow in performance and
profitability. Values added include but not limited to the reduction of bureaucracy which resulted
to more expedient processes, and effective operation. Welch extended his Fix, sell or close from
the national level to the international level. He also saw the challenges in other countries and
economic difficulties as opportunities for new investments and expansions. Values added also
included the transforming of GE culture to a more learning, knowledge sharing and demanding
of excellence, commitment and service to the goal of the organization. Welch introduction of
business service contributed to two-third of the companys value. Last but not the least, his
introduction of the Six Sigma quality initiatives led to 62% in turnaround time, return of $750
million over the investment exceeding expectations along with a forecast of additional returns of
$1.5 billion in 1999. In addition to this the program also contributed 300 million pounds of new
capacity.

What is your evaluation of Welch's approach to leading change? How important was he to
GE's success? What are the implications for his replacement?
Jack Welchs mission was to restructure the company in order to become the number one
or number 2 competitor in the industry. He embraced change, expected his team to do the same,
and challenged his team be better than the best (HBS, p.2). He employed different
management reporting structures at different points of the transformation. For example, he felt as
though there were too many layers at all large headquarters groups, as a result he spearheaded a
de-staffing process which resulted in a vertical reporting structure with major department heads

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reporting directly to him. In addition, his team of managers shared the same commitment to
management values. Furthermore team members had to have the willingness to take charge, to
think outside of the box, to push the envelope and most of all to be team players. In return Welch
compensated those employees with generous bonuses and incentives. Welch fostered open
communication and created a culture characterized by speed, simplicity, and self-confidence.
(HBR, p.4). In order to show his commitment he launched the Work Out program which
created a forum where employees and managers could work out new ways of interacting with
each other.
Welch never rested on his last success; he continued to innovate and to look for ways to
grow the business both internally and externally. For example as Work Out began he began to
think of additional ways to increase productivity. 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.
Welch believed in developing leaders and provided the tools for them to do so. He adapted a
human resource department that would be in line with his goals. He challenged his managers to
identify future leaders, and then developed a training program and a developmental plan for all
key jobs. He understood that GEs assets were in fact their people and in turn had to be managed
as a company resource.
Welchs unwavering involvement in every facet of the business was essential to all of
these incentives, and directives. His philosophy was not a do as I say not as I do mentality. In
addition he never rested on his last success. He created the Stretch program in an effort to push
people to be the best they can be, to test boundaries, and to get people to think of fundamentally
better ways of performing their work.(HBS, p.10). Ultimately Welchs strategy was to look at
the external factors that affected GEs success, while implementing a bottom to top approach.

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Ultimately he realized that the success of GE relied on the strength of his team. To that
end he was relentless in ensuring that his team was set up for success. Everything Welch did
reflected his belief in his people and as he once stated. I own the people, you just rent them.
(HBS, p.7). Welchs replacement will need to establish him/herself and make a name for
themselves. This person will need to clearly communicate their vision and how they will go
about accomplishing those goals. He/she will need to continue to foster open communication in
an effort to continue to foster teamwork. Innovation will be crucial if the company is to thrive
under the new leadership. Welchs replacement will need to make a name for himself by creating
new programs that continue to foster employee/employer relations, and by understanding the
importance of looking at the external factors that affect the overall business
Conclusion
As stated throughout this analysis, Jack Welch stepped out into uncharted territory with
lofty aspirations of making dramatic change within the GE organization for positive growth.
These efforts were achieved through several unprecedented means and reorganization of the
existing organizational structure to facilitate discussion, communication, and constructive
criticism unilaterally throughout the company. Although some of his chosen methodologies were
deemed by critics as radical and risky, the results of Welchs actions speak for themselves as
a testament to his strategic leadership at the GE helm. The agility, responsiveness, productivity
and ultimately profitability realized as direct results of Jack Welchs actions while operating in
the office of GE CEO are key indicators of the lasting impact that his legacy leaves for future
officers tapped to fill the position. Programs and processes established under his watch leave an
impressive standard for successors. Without a doubt, Jack Welchs leadership has left a lasting
impact on GE and the business world.

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References
Anonymous. (2009, p. 9). Beware: Cost cutting can be deadly. Principal's Report, 9(6), 8-9
Bartlett, C.A., & Wozny, M. (May 3, 2005). GE's two-decade transformation: Jack Welch's
Leadership. Harvard Business School.
GE, 2012. Past Leaders. Retrieved from
http://www.ge.com/company/history/bios/john_welch.html
Grant, R.M. (2010). Contemporary strategy analysis (7th Ed.). Malden, MA: Blackwell.