CASE STUDY ON GENERAL ELECTRIC

Submitted by:
Anant Kumar Chauhan (12) Anjana Pradeep (14) Ankush Redhu (16) Arijit Ghosh (21) Arjun Rattan (22)

International Business GE Case Analysis

Page 1

Executive Summary:
In the 1990s, CEOs were envied and admired for their leadership capabilities. The king of them all was Jack Welch. As CEO of General Electric Co. for 20 years, his ability to drive up shareholder wealth through a restless, results-driven corporate culture was heralded throughout the business world. When Jeff Immelt became chairman and CEO of General Electric; he took the helm of a fine-tuned productivity machine. GE had long taken management innovation seriously from the companys 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. Under Jack Welch, GEs managers applied their imaginations relentlessly to the task of making work more efficient. Over a series of high-profile initiatives, 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. In our report we examined the transformation at GE under the leadership of Jack Welch.

International Business GE Case Analysis

Page 2

Introduction:
When Jack Welch became CEO of GE in 1981, he set out to reenergize one of Americas largest companies. Through a revision of GEs mission and values Jack Welch grew GE from a $24+ billion company to into a $74+ billion company, ready to face competitors and future challenges. Welch realigned goals and motivation, forcing managers to stretch to previously unknown limits. He restructured GE into one of the worlds most staid corporations. Jack Welchs approach included three main areas: 1. Goal setting and preparing the company on a corporate level for its competitive challenges. 2. Empowering employees at all levels of the organization. 3. Communicating his new goals and visions through the entire organization, using such tools as extensive training programs, newly formed teams and 3600 review processes. Different aspects of Jack Welchs management tactics, in terms of motivating employees to bring about change.

Boundaryless and Delayered Organization: When Welch took over GE, he had a vision of creating an organization where people at all levels could be held responsible for their own work, and in the end make decisions for the betterment of their job. The goal was not to control workers, but instead to liberate them. Welch characterized this as creating a boundaryless organization in which empowered employees were self directed and motivated to effectively reach their goals. 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. Specifically, it was represented by an overwhelming nine layers of management between the shop floor and the CEO. This bureaucracy lead to an unresponsive, inward focused company whose employees found great difficulty in communicating with each other. Welch addressed this issue by eliminating whole layers of management, consolidating overlapping jobs and business units, and forcing employees at every level to take more responsibility for their own work. If something was not absolutely necessary they eliminated it. In the past, 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

high stack of paper. Welch addressed this issue by stopping to gather unnecessary financial data and eliminated unnecessary reports.

Goals & Competition: An underlying theme for Jack Welchs tenure as CEO of GE was his use of goal setting to motivate higher levels of achievement throughout the company. Welch set companywide goals, as well as specific performance objectives for individual companies and divisions. He often supplemented his goal setting by creating a sense of competition within the organization, as well as against all competitors. Early on in Jack Welchs career with GE, he exercised the use of goals and competition to drive above average performance. In 1968, at the age of thirty-three, Welch was promoted to the position of General Manager of GEs LEXAN and NORYL plastics lines. 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. 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. Bucking the old protocol, Welch told each group of sales people to attack the entire market and compete head-to head in the market. The strategy worked well for all parties. With Welch at the helm, GE Plastics earnings grew at 34% annually, compounded revenues in 1991 reached $4.7 billion and employees felt they were part of a winning, competitive team. Similarly in 1980, when Jack Welch was elected to the position of CEO for GE, 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. Many of GEs businesses were already number one or number two in their market areas and yet Welch and his management team continued to set goals, which would not only keep them in those positions, but which would further grow their lead. Constantly striving to stay ahead of his competitors stokes Welchs competitive fires. To achieve GEs leadership position and to drive constant growth, Welch required goals and stretch-goals to be set throughout the organization. His stretch-goal philosophy made GE a dynamic organization not limited by strike guidelines. Welch preached a philosophy he called planful opportunism, 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

Another way of looking at Jack Welchs attitude towards management and motivation in terms of goal setting may be compared to what is often referred to as the boiling frog syndrome. When a frog is placed in a pot of water in which the heat is slowly turned up, it will not recognize the rising temperate, remain complacent and eventually boil to death. Analogously, Welch saw GE as being the frog placed in the world pot of water. The water temperature around GE was slowing rising and GE was getting hotter. If GE did not react to the temperature increases related to competition, it would boil to death as does the frog. If GE leads the market however, throws itself right into the pot of boiling water, it would jump right back out, just like a frog would do, if thrown directly into a pot of boiling water.

Empowerment Concept: The Work-Out was an empowerment concept greatly favored by Welch. Thousands of GE employees got an opportunity to get together and share their ideas, thoughts and know-how, while building and fostering a more creative and team oriented atmosphere. The Work-Out encourages communication and accountability with the ultimate goal being to drive above average team performance. By providing each team member with the opportunity to contribute his ideas to the decision making process, Jack Welchs hoped to encourage out of the box thinking. It stimulated individuals to constructively challenge their bosses and promote a more motivated workplace. All Work Outs included follow-up meetings where previous commitments were discussed and accountability was enforced. Empowerment was a two-way street. Employees received the satisfaction of being able to air their concerns, while the company benefited from insights shared in the Work-Out. Under Jack Welch, GE began to realize that human beings are not machines and that each person has the potential to enhance productivity. Knowing how to use this resource not only gave the company a competitive edge, it also made each employee feel more important in the production process and thus more motivated. To facilitate goal setting and empowerment within GE, Welch needed to establish clear lines of communication in the organization. He realized that employees come to GE with many different experiences and backgrounds. He wanted free thinkers. One of his objectives was to motivate people to think outside the box and challenge the status quo. Open communication channels between Welch and his employees have been an important tool in this regard. These channels worked in both directions, giving employees the ability to air their concerns and
International Business GE Case Analysis Page 5

work towards a consensus for action. They also help motivate employees, because once again employees feel that they are directly contributing to the success of the company.

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, including being told if supervisors think they would be better off elsewhere. Employees were also allowed to evaluate their bosses. 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, Welch instituted a 30-odd member Corporate Executive Council (CEC). This council has no formal authority, but has come to function effectively as GEs political center. They were Welchs team of managers who meet regularly to discuss debate and argue about the future of individual business units. One of the CECs functions was to serve as the main nerve center, ensuring that best practices are communicated throughout the company. Welch had gone further still, though, by

establishing an additional global best practices program, which has opened the communication channel for GE with outside companies.. As such, GE not only looked for diverse ideas internally, but also went outside its normal scope to further improve itself. Once again communication lines are opened as a two-way street. Employees were motivated by the belief that they are an active part in making GE number one, while outsiders are motivated to work more closely with GE for their own future benefit. Internal communication was further facilitated and encouraged through an additional level of personal responsibility to one another.

International Business GE Case Analysis

Page 6

E-initiative: As part of GEs e-Initiative, Welch recommended that every process be digitized. In 2000, digitization helped the company sell more than $8 billion of products and services via the Internet. Welch calculates that GEs digitization of its processes saved the company in excess of $1.5 billion in operating margin in 2001. Welch also predicted that in 2001. 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.

Globalization: Welch understood that unless the company moved onto the world stage, it would not become a global competitor. Starting in the mid- to late 1980s, GE launched a three phase revolution that ensured the companys place in world markets. Welchs first key growth initiative, globalization played an important role in helping GE grow at double digit rates throughout his tenure. Today globalization is an indelible part of the GE fabric.

GE Six Sigma Quality Coach: This important tool introduced by Welch helped GE achieve Six Sigma quality. It was developed after GE performed over 55,000 Six Sigma projects. Today six sigma is a vital component of all processes at GE.

The Product Services initiative: Welch knew that GEs manufacturing business would take the company only so far, as the market for huge-ticket items like jet engines was limited. In 1995, Welch made product services a top priority, helping to double GEs product service business to $17 billion by 2000.

Barriers during the changes: Anything that hampered performance or open communication was to be torn down. Welchs initiatives were designed to erase the barriers that proliferated in large organizations: horizontal barriers, vertical barriers, and external barriers. Welch urged employees to blow up bureaucracy and knock down every boundary. Much of what he did in the 1980s, from delayering to Work-Out, was explicitly designed to remove debilitating barriers. Welch was fiercely committed to removing any speed bump that slowed the company down. His strategy

International Business GE Case Analysis

Page 7

of boundarylessness was specifically designed to remove the boundaries that separated GE workers from new ideas, customers, and each other. There are two types of barriers:

Horizontal barriers: These barriers isolate separate groups within the company, such as sales and

manufacturing. Horizontal barriers also refers to geographic walls that exist, such as between Seoul and Sidney. With programs like Work-Out and Globalization, Welch tore down these unnecessary barriers.

Vertical barriers: Barriers had no place in Welchs boundaryless organization. Vertical barriers are

those layers that added bureaucracy and put more distance between executives and employees. When Welch became CEO, there were nearly a dozen layers between CEO and the factory floor. He delayered, chopping the wedding cake hierarchy down to only four or five layers.

Future Strategies and Recommendations:

Currently, GE is at a crossroads. With Welch retiring, change is opportunity as he would say. GE has a big challenge to overcome, as they must decide not only on a successor, but also how much change will occur under the new CEOs reign.

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 Welchs retirement in 2000. The following criteria will contribute to the Boards final decision:

The solution must deliver products & services that consistently meet customers' expectations and achieve customer loyalty. The company is able to build a strategy around a clear value proposition for the customer.

The solution must not sacrifice the ability to continuously change. In fact, the successor CEO needs to see change as opportunity for further improvement.

International Business GE Case Analysis

Page 8

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.

The solution must minimize the turnover of A-Players, as these people are the driving force behind the company's success. The solution must convey security and strength to the shareholders, thus ensuring their confidence and support.

Alternatives available: With the above criteria in mind and the assumption that hiring a new leader is the basis for any solution, the Board of Directors has two potential courses of action to choose between:

Hire a new leader from within the organization, handpicked by Jack. Use this new leader to maintain current momentum of change and growth during Welchs era. Hire a new leader either from within or outside of GE, with a mandate to begin a tear down and rebuild of the organization once again. Effectively make the successor more aggressively initiate growth and change.

Recommendations: The first solution does meet the prescribed criteria. Most importantly, allowing Welch to hand pick a worthy leader form the top 500 executives will have minimal impact on the established culture at GE. Potential candidates will only have reached senior levels of management by furthering the agenda laid out by Welch during his tenure, and such success has in turn helped them to buy-in to his way of doing business. In addition, the familiarity of the incoming CEO with existing processes and organizational structure helps mitigate the learning curve.

The second solution has the potential to cause significant upheaval during the transition period. Selecting a new leader from outside will likely have a major effect on the organizations culture and people immediately upon inception. After the new leader has had a chance to study the organization, widespread changes may occur in the organizations processes and organizational structure. New ideas and perspectives injected by an outside

International Business GE Case Analysis

Page 9

leader not indoctrinated in the Jack Welch GE can introduce different team dynamics and new ways of doing business.

The greatest challenge with this approach is that such a major reworking of GE business practices poses a significant risk factor. Jack Welch himself is famous for maintaining that whatever changes he made during his tenure, he could have always done things faster. It may prove, however, that an even more rapid rate of change becomes too much for both consumers and employees to accept.

So based on this our recommendation is to maintain the current momentum of change and growth of Welchs era. 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. In some ways, Welch was able to implement his sweeping agenda of change in GE because he created a sense of crisis within the organization. Instilling the notion that massive change was a necessary as it was unavoidable helped to reduce employee resistance to the plan, in addition to generating buy-in at both senior levels and the grassroots.

In todays GE, however, the success brought by the Welch years means no such sense of impending crisis exists. While staff can certainly motivated to get behind a new initiative every few years such as Boundary less and Six Sigma, there is little recognition within the organization of the need for massive restructuring along the lines of that which occurred twenty years prior. Not only is it difficult to motivate people to fix what isnt broken, but there is also the risk that rapidly accelerating the rate of change will create problems where none previously existed.

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. Jack Welch demonstrated a great skill in balancing the needs of stability and evolution against one another, and GE would be well served to have a CEO which can provide his kind of leadership for years to come.

Contingency Plan: In the event a suitable CEO candidate cannot be located and/or fully trained by the handover deadline, a contingency plan can be established whereby Jack Welch can extend his tenure at
International Business GE Case Analysis Page 10

GE. Given that he will have reached the government mandated retirement age by 2001, a legal loophole could be exploited though employing his services as an unofficial consultant. 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.

Conclusion:
Jack Welchs attitude towards management boils down to a few very simple ideas: breaking down hierarchies, ensuring free information flows throughout the organization, and encouraging people to talk, listen and be open to new ideas. When he first became a GE vice president at the age of 36, he stalked out on the plant floor, or picked up the telephone to deal directly with anyone at any level when a problem came up18 and that is the organization Jack Welch has attempted to build in terms of communication. Welch succeeded in transforming a complacent behemoth into an energized company ready to face world competition. By flattening the organization and by removing unnecessary layers of bureaucracy, he liberated employees and empowered them to make decisions and affect their jobs, as well as the company as a whole. At the same time, he relied on stretch goals and the slope of satisfaction to further push the company to new levels of achievement. An additional sense of empowerment was relayed through various communication, training and motivation mediums, such as the Work-Out, the Corporate Executive Council and other special project teams. Foremost he underlined his words with accompanying actions and an exemplary attitude, avoiding the well known saying that words by themselves are empty. Through the use of 360- degree review processes, appropriate bonus schemes and structural organizational changes, Welch created and opened communication channels at GE, allowing for unprecedented networking, teamwork, and openness to take place at GE. All of these factors combined to form a motivating force for the employees of GE. This motivation in turn has lead to a decade of outstanding performance by Jack Welch and General Electric Corporation. GE truly underwent a huge transformation under Welchs leadership.

International Business GE Case Analysis

Page 11

References:

Bartlett, Christopher & Wozne, Meg (2000). GE's Two Decade Transformation: Jack Welch's Leadership. Harvard Business School Press.

Heifetz, R.A., & Laurie, D.L. (2001, December). The work of leadership. Harvard Business Review.

Neilson, Gary L., Martin, Karla L. & Powers, Elizabeth. The Secrets to Successful Strategy Execution, in HBR 10 Must Reads on Strategy

www.ge.com/in www.wikipedia.com
YouTube - Jack Welch on Leadership and the State of Corporate America, UCLA YouTube - Interview with Jack Welch

International Business GE Case Analysis

Page 12