When Jack Welch took office in April 1981 as the new CEO of General Electric, he was facing many challenges. First was the expectation and doubt from shareholders. Could Jack create another management legend as Jones did? Where is GE going under Jack’s leadership? The second challenge was GE’s organizationally rigid structure; resistance to change and bureaucratic climate which made it impossible to perceive important environmental changes.
The third challenge was GE’s organizational structure, decision-making process and information management procedures which no longer fit the organization’s needs. The fourth challenge was how to revive the organization from the decline stage to the earlier stage of the organization life cycle.
To respond to the above challenges, Jack started focusing on GE’s key business by collecting GE’s current resources. His main purpose was to reach a standard for each business to become the #1 or #2 competitor in its industry. Before Jack took over GE, it was one of the most diversified companies in the world. GE’s business covered lighting products, home appliances, industrial automation products, motors, electrical distribution and control equipment, locomotives, power generation and delivery products, aircraft jet engines, nuclear reactors and so on.
During the fix, sell and close process, GE sold more than 200 uncompetitive businesses for over $11 billion, and made over 370 acquisitions costing more than $21 billion. As a result, GE became lean and agile, and the business concentrated on three circle concepts, which are core competency, technology and services.
Then Welch restructured the organization by breaking down the bureaucracy. Welch eliminated sector levels and reduced the hierarchical levels from nine to four which speeded up the decision making. In addition, GE eliminated 59,290 salaried positions between 1981 and 1988, which directly lowered operating costs and increased the operating profit. In addition, GE implemented a “Work-out” program which not only further cut unnecessary bureaucratic work out of the system but also provided a new communication channel for employees and their bosses.
What’s more, Welch changed GE’s old culture and created an atmosphere, a culture where concepts like openness, candor, agility, excellence, and facing reality were paramount. Welch’s management emphasized “3Ss”: speed, simplicity, and self-confidence. His quest for simplicity has involved a minimalist approach to formal control systems augmented with periodic corporate initiatives (“growth,” “boundarylessness,” and “Six-Sigma”). Welch is very strict with the value sharing. Managers will be removed if they have different values, even if they deliver on commitments, and make all the numbers.
In general, many of Jack Welch’s initiatives at GE fulfilled a similar role. Instead of offering specific direction to managers how to operate business, Welch only introduced periodically key corporate initiatives, such as “Be #1 or #2 in your industry,” “Six-sigma,” “Destroy your business dot.com.” Focused decentralized initiatives leads employee to the correct direction but give them full rights to how to implement it. As we could see it made GE continuous success.