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International Business – GE Case Analysis
As CEO of General Electric Co. The king of them all was Jack Welch. GE had long taken management innovation seriously – from the company’s famous blue book days in the 1950s to the development of its Crotonville training center into a management academy the equal of any on Earth. International Business – GE Case Analysis Page 2 .Executive Summary: In the 1990s. results-driven corporate culture was heralded throughout the business world. he took the helm of a fine-tuned productivity machine. CEOs were envied and admired for their leadership capabilities. for 20 years. Over a series of high-profile initiatives. his ability to drive up shareholder wealth through a restless. GE’s managers applied their imaginations relentlessly to the task of making work more efficient. When Jeff Immelt became chairman and CEO of General Electric. In our report we examined the transformation at GE under the leadership of Jack Welch. Welch created a formidable tool kit and mind-set to maintain bottom-line discipline. while he fueled top-line growth largely through geographical expansion and acquisitions. Under Jack Welch.
it was usual for business managers to request daily reports that contained so much detail that the reports often produced a 12-foot International Business – GE Case Analysis Page 3 . Specifically. but instead to liberate them. Jack Welch’s approach included three main areas: 1. 2. Different aspects of Jack Welch’s management tactics. he set out to reenergize one of America’s largest companies. 3. When Welch became the CEO of GE he found that the company was still organized the way it had been when GE was founded near the turn of the century. In the past. Through a revision of GE’s mission and values Jack Welch grew GE from a $24+ billion company to into a $74+ billion company.Introduction: When Jack Welch became CEO of GE in 1981. in terms of motivating employees to bring about change. Communicating his new goals and visions through the entire organization. and in the end make decisions for the betterment of their job. using such tools as extensive training programs. Welch characterized this as creating a boundaryless organization in which empowered employees were self directed and motivated to effectively reach their goals. and forcing employees at every level to take more responsibility for their own work. he had a vision of creating an organization where people at all levels could be held responsible for their own work. consolidating overlapping jobs and business units. Welch addressed this issue by eliminating whole layers of management. ready to face competitors and future challenges. Goal setting and preparing the company on a corporate level for its competitive challenges. newly formed teams and 3600 review processes. The goal was not to control workers. If something was not absolutely necessary they eliminated it. Welch realigned goals and motivation. forcing managers to stretch to previously unknown limits. Empowering employees at all levels of the organization. it was represented by an overwhelming nine layers of management between the shop floor and the CEO. He restructured GE into one of the world’s most staid corporations. Boundaryless and Delayered Organization: When Welch took over GE. inward focused company whose employees found great difficulty in communicating with each other. This bureaucracy lead to an unresponsive.
when Jack Welch was elected to the position of CEO for GE. at the age of thirty-three. compounded revenues in 1991 reached $4. With Welch at the helm. His goal was to convince the market that both Lexan and Noryl could be used as replacements for more traditional materials such as steel or glass. Welch set companywide goals. To achieve GE’s leadership position and to drive constant growth. Welch preached a philosophy he called “planful opportunism. GE Plastics earnings grew at 34% annually. Goals & Competition: An underlying theme for Jack Welch’s tenure as CEO of GE was his use of goal setting to motivate higher levels of achievement throughout the company. Similarly in 1980. as well as specific performance objectives for individual companies and divisions. Bucking the old protocol. The strategy worked well for all parties.” whereby GE employees were given an over-reaching stretch-goal and permitted to do whatever it took to reach the target. International Business – GE Case Analysis Page 4 . Welch addressed this issue by stopping to gather unnecessary financial data and eliminated unnecessary reports. but which would further grow their lead. he exercised the use of goals and competition to drive above average performance. Welch told each group of sales people to attack the entire market and compete head-to head in the market. Typical GE protocol would have been to separate the two lines and to position each for different markets so that no sales-territory-overlaps occurred. Constantly striving to stay ahead of his competitors stokes Welch’s competitive fires. as well as against all competitors. Welch required goals and stretch-goals to be set throughout the organization. He often supplemented his goal setting by creating a sense of competition within the organization. Welch was promoted to the position of General Manager of GE’s LEXAN and NORYL plastics lines.high stack of paper. competitive team. Many of GE’s businesses were already number one or number two in their market areas and yet Welch and his management team continued to set goals. In 1968. Early on in Jack Welch’s career with GE.7 billion and employees felt they were part of a winning. he continued his competitive strategy to motivate performance in business units by requiring them achieve either number one or number two statuses in terms of market share in their respective fields. His stretch-goal philosophy made GE a dynamic organization not limited by strike guidelines. which would not only keep them in those positions.
He realized that employees come to GE with many different experiences and backgrounds. it will not recognize the rising temperate. giving employees the ability to air their concerns and International Business – GE Case Analysis Page 5 . it would boil to death as does the frog. remain complacent and eventually boil to death. Analogously. One of his objectives was to motivate people to think outside the box and challenge the status quo. If GE leads the market however. it would jump right back out. By providing each team member with the opportunity to contribute his ideas to the decision making process.Another way of looking at Jack Welch’s attitude towards management and motivation in terms of goal setting may be compared to what is often referred to as “the boiling frog syndrome”. GE began to realize that human beings are not machines and that each person has the potential to enhance productivity. while building and fostering a more creative and team oriented atmosphere. Employees received the satisfaction of being able to air their concerns. while the company benefited from insights shared in the Work-Out. Open communication channels between Welch and his employees have been an important tool in this regard. When a frog is placed in a pot of water in which the heat is slowly turned up. if thrown directly into a pot of boiling water. These channels worked in both directions. thoughts and know-how. Empowerment was a two-way street. He wanted free thinkers. throws itself right into the pot of boiling water. The Work-Out encourages communication and accountability with the ultimate goal being to drive above average team performance. The water temperature around GE was slowing rising and GE was getting hotter. Knowing how to use this resource not only gave the company a competitive edge. Welch needed to establish clear lines of communication in the organization. To facilitate goal setting and empowerment within GE. It stimulated individuals to constructively challenge their bosses and promote a more motivated workplace. just like a frog would do. Under Jack Welch. Empowerment Concept: The Work-Out was an empowerment concept greatly favored by Welch. Jack Welch’s hoped to encourage out of the box thinking. Welch saw GE as being the frog placed in the world pot of water. it also made each employee feel more important in the production process and thus more motivated. All Work Outs included follow-up meetings where previous commitments were discussed and accountability was enforced. Thousands of GE employees got an opportunity to get together and share their ideas. If GE did not react to the temperature increases related to competition.
Welch had gone further still. This council has no formal authority. International Business – GE Case Analysis Page 6 . Once again communication lines are opened as a two-way street. Internal communication was further facilitated and encouraged through an additional level of personal responsibility to one another. but also went outside its normal scope to further improve itself. As such. though.. while outsiders are motivated to work more closely with GE for their own future benefit. Employees were also allowed to evaluate their bosses. GE not only looked for diverse ideas internally. because once again employees feel that they are directly contributing to the success of the company. One of the CEC’s functions was to serve as the main nerve center. ensuring that “best practices” are communicated throughout the company. Welch instituted a 30-odd member Corporate Executive Council (CEC). by establishing an additional global best practices program. including being told if supervisors think they would be better off elsewhere. but has come to function effectively as GE’s political center. which has opened the communication channel for GE with outside companies. Employees were motivated by the belief that they are an active part in making GE number one. A better understanding of job responsibilities and performance combined with the ability to be a participant in the evaluation process was instrumental in motivating employees and gain their support during periods of massive restructuring and ever farther stretching goals. Establishing a CEC: As another cog on the communication wheel. 360 Degree Feedback: Another valuable and motivating communication channel that Welch opened up was the 360 degree review between a boss and his subordinates. Employees spent time directly with their bosses and were given very clear information about successes or failures in their work.work towards a consensus for action. They also help motivate employees. They were Welch’s team of managers who meet regularly to discuss debate and argue about the future of individual business units.
His strategy International Business – GE Case Analysis Page 7 . Welch also predicted that in 2001. Welch’s first key growth initiative.E-initiative: As part of GE’s e-Initiative. Welch recommended that every process be digitized. In 2000. Much of what he did in the 1980s. Today globalization is an indelible part of the GE fabric. Welch urged employees to “blow up” bureaucracy and knock down every boundary. Welch’s initiatives were designed to erase the barriers that proliferated in large organizations: horizontal barriers. as the market for huge-ticket items like jet engines was limited. Welch made product services a top priority. Welch calculates that GE’s digitization of its processes saved the company in excess of $1. digitization helped the company sell more than $8 billion of products and services via the Internet.” Globalization: Welch understood that unless the company moved onto the world stage. was explicitly designed to remove debilitating barriers. Barriers during the changes: Anything that hampered performance or open communication was to be torn down. Starting in the mid. globalization played an important role in helping GE grow at double digit rates throughout his tenure. In 1995. Welch was fiercely committed to removing any speed bump that slowed the company down. Today six sigma is a vital component of all processes at GE. and external barriers. The Product Services initiative: Welch knew that GE’s manufacturing business would take the company only so far.to late 1980s. vertical barriers.000 Six Sigma projects. GE Six Sigma Quality Coach: This important tool introduced by Welch helped GE achieve Six Sigma quality. GE launched a three phase revolution that ensured the company’s place in world markets. it would not become a global competitor. It was developed after GE performed over 55. He called the Internet “the thing of the future” and saw it as a productivity tool to “make the old young and the slow fast. helping to double GE’s product service business to $17 billion by 2000.5 billion in operating margin in 2001. from delayering to Work-Out.
The following criteria will contribute to the Board’s final decision: The solution must deliver products & services that consistently meet customers' expectations and achieve customer loyalty. Decision Criteria for deciding successor: The Board of Directors at GE must make several important considerations when choosing a course of action to address Jack Welch’s retirement in 2000. Vertical barriers are those layers that added bureaucracy and put more distance between executives and employees.of boundarylessness was specifically designed to remove the boundaries that separated GE workers from new ideas. The solution must not sacrifice the ability to continuously change. GE has a big challenge to overcome. chopping the wedding cake hierarchy down to only four or five layers. There are two types of barriers: Horizontal barriers: These barriers isolate separate groups within the company. In fact. Vertical barriers: Barriers had no place in Welch’s boundaryless organization. “change is opportunity” as he would say. but also how much change will occur under the new CEO’s reign. the successor CEO needs to see change as opportunity for further improvement. The company is able to build a strategy around a clear value proposition for the customer. He delayered. Welch tore down these unnecessary barriers. When Welch became CEO. GE is at a crossroads. there were nearly a dozen layers between CEO and the factory floor. and each other. such as between Seoul and Sidney. as they must decide not only on a successor. International Business – GE Case Analysis Page 8 . such as sales and manufacturing. Horizontal barriers also refers to geographic walls that exist. customers. With programs like Work-Out and Globalization. Future Strategies and Recommendations: Currently. With Welch retiring.
Potential candidates will only have reached senior levels of management by furthering the agenda laid out by Welch during his tenure. The solution must minimize the turnover of A-Players. Effectively make the successor more aggressively initiate growth and change. The solution must convey security and strength to the shareholders. Most importantly. After the new leader has had a chance to study the organization. New ideas and perspectives injected by an outside International Business – GE Case Analysis Page 9 . and such success has in turn helped them to “buy-in” to his way of doing business. Selecting a new leader from outside will likely have a major effect on the organization’s culture and people immediately upon inception. as these people are the driving force behind the company's success. allowing Welch to hand pick a worthy leader form the top 500 executives will have minimal impact on the established culture at GE. Use this new leader to maintain current momentum of change and growth during Welch’s era. Recommendations: The first solution does meet the prescribed criteria. thus ensuring their confidence and support. The second solution has the potential to cause significant upheaval during the transition period. widespread changes may occur in the organization’s processes and organizational structure. In addition. Hire a new leader either from within or outside of GE. The solution must have minimal disruption on GE in terms of its people (employee satisfaction and customer turnover) and a corporate culture which strives for excellence. Alternatives available: With the above criteria in mind and the assumption that hiring a new leader is the basis for any solution. with a mandate to begin a tear down and rebuild of the organization once again. the familiarity of the incoming CEO with existing processes and organizational structure helps mitigate the learning curve. handpicked by Jack. the Board of Directors has two potential courses of action to choose between: Hire a new leader from within the organization.
So based on this our recommendation is to maintain the current momentum of change and growth of Welch’s era. In some ways. Contingency Plan: In the event a suitable CEO candidate cannot be located and/or fully trained by the handover deadline. Jack Welch himself is famous for maintaining that whatever changes he made during his tenure. in addition to generating buy-in at both senior levels and the grassroots. It may prove. Instilling the notion that massive change was a necessary as it was unavoidable helped to reduce employee resistance to the plan. In today’s GE. Jack Welch demonstrated a great skill in balancing the needs of stability and evolution against one another. GE requires a leader who can readily institute changes within the organization to make it more competitive. but this does not imply that such a changes need to occur at a scope that is potentially foolhardy. however. but there is also the risk that rapidly accelerating the rate of change will create problems where none previously existed. that an even more rapid rate of change becomes too much for both consumers and employees to accept. While staff can certainly motivated to get behind a new initiative every few years such as Boundary less and Six Sigma. however. he could have always done things faster.leader not indoctrinated in the “Jack Welch GE” can introduce different team dynamics and new ways of doing business. the success brought by the Welch years means no such sense of impending crisis exists. The primary justification from a leadership standpoint is based on recognition of the excellent work that Jack Welch has done over the past twenty years. Welch was able to implement his sweeping agenda of change in GE because he created a sense of crisis within the organization. there is little recognition within the organization of the need for massive restructuring along the lines of that which occurred twenty years prior. The greatest challenge with this approach is that such a major reworking of GE business practices poses a significant risk factor. Not only is it difficult to motivate people to fix what isn’t broken. and GE would be well served to have a CEO which can provide his kind of leadership for years to come. a contingency plan can be established whereby Jack Welch can extend his tenure at International Business – GE Case Analysis Page 10 .
such as the “Work-Out”. This would help to give the company adequate breathing room to successfully complete the transition from old to new CEO without creating a dangerous power vacuum during the interim. At the same time. teamwork. Given that he will have reached the government mandated retirement age by 2001. Foremost he underlined his words with accompanying actions and an exemplary attitude. listen and be open to new ideas. Welch succeeded in transforming a complacent behemoth into an energized company ready to face world competition.GE. and encouraging people to talk. When he first became a GE vice president at the age of 36.degree review processes. as well as the company as a whole. International Business – GE Case Analysis Page 11 . By flattening the organization and by removing unnecessary layers of bureaucracy. This motivation in turn has lead to a decade of outstanding performance by Jack Welch and General Electric Corporation. he liberated employees and empowered them to make decisions and affect their jobs. An additional sense of empowerment was relayed through various communication. he “stalked out on the plant floor. All of these factors combined to form a motivating force for the employees of GE. he relied on stretch goals and the slope of satisfaction to further push the company to new levels of achievement. avoiding the well known saying that words by themselves are empty. training and motivation mediums. appropriate bonus schemes and structural organizational changes. Welch created and opened communication channels at GE. ensuring free information flows throughout the organization. or picked up the telephone to deal directly with anyone at any level when a problem came up”18 and that is the organization Jack Welch has attempted to build in terms of communication. allowing for unprecedented networking. and openness to take place at GE. Conclusion: Jack Welch’s attitude towards management boils down to a few very simple ideas: breaking down hierarchies. GE truly underwent a huge transformation under Welch’s leadership. “the Corporate Executive Council” and other special project teams. a legal loophole could be exploited though employing his services as an unofficial consultant. Through the use of 360.
ge.. R. Martin.References: Bartlett. The Secrets to Successful Strategy Execution. The work of leadership. in HBR 10 Must Reads on Strategy www. Heifetz. December)..com/in www. Meg (2000). & Powers. D. Harvard Business Review.A.Interview with Jack Welch International Business – GE Case Analysis Page 12 . Harvard Business School Press. Neilson. Gary L. Karla L. (2001. UCLA YouTube . Christopher & Wozne. GE's Two Decade Transformation: Jack Welch's Leadership. & Laurie. Elizabeth.wikipedia.L.com YouTube .Jack Welch on Leadership and the State of Corporate America.
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