Background:General Electric is the core of a holding company holding exhaustive list of divisions and business units which are designed to support the centralized strategic planning. Jack Welch as a CEO restructured GE and took off to the world’s most successful corporation with high stock prices derived from top caliber operating margins and seemingly unending revenue streams.
Vision and Mission:GE’s core values are based on three traditions: unyielding Integrity, commitment to Performance, and thirst for change.General Electric’s explains its purpose as ‘We bring good things to life’. Their goal is to lead, that is a drive to be the first or second in every arenas that they enter. This stretch goal made all employees push the bar out as far as possible, adding an extra layer of productivity awareness on top of the normal goals that were demanded to be met. The mission of them is that they imagine, solve, build and lead.
Issues / Directions:In that case we have to analyze the corporate parenting strategy of GEs and how it creates corporate synergy. Furthermore, we have to find out the whether the dominant logics under the leadership of Jack Welch are successful or limiting factor for the GE.
Analysis:Dominant Logics of GE:
After taking the control, Jack Welch decided to intervene with the dominant logic that was following by his preceding thinking that these were the limiting factors.
* Decentralized Management:The sector level bureaucratic center of strategic control consisting of a number of hierarchical levels was reduced, de-staffed and decentralized. He shifted his concentration to reinvest in productivity and quality while focusing technology innovation and services.
* Service business:In 1996 they moved towards service business which can be regarded as another dominant logic as their internal mindsets were changing form selling products to “helping our customers to win”.
* Boundless behavior:Jack Welch made waves of changes to the dominant logic the company was following. He restructured GE into world’s most staid corporation by eliminating the hierarchy of management, consolidating overlapping jobs and business units, and empowering employees to take more responsibilities for their own work.
* Extensive acquisition and divestitures:A considerable amount of acquisitions were made and employees that he believed did not add value were let go. The company invested in new plants for their existing businesses in different locations, both local and international.
* Six sigma:In order to ensure high quality in production GE implemented six sigma quality maintaining program. This ensured GE produced the best quality of products and services with highest efficiency.
* E-business:In order for the better opportunities in 1999 he introduced his fourth and the last strategic initiative in his tenure which was e-business. Welch always believed that, ‘Change means opportunity’. He successfully proved that by the proper implementation and use of the e-business.
Corporate parenting:The barrier-free model that Welch had adopted during his era seems to be a very effective one since GE had continuously succeeded in its corporate parenting strategies through this model. It could achieve business unit synergies through compatibility because of similarity in strategy, skills and culture. It had achieved corporate synergies while restructuring the business, facilitating skill and resource linkage across SBUs, providing know-how for acquisitions and expansion, improving product and process technologies.
Moreover synergies were also evident across national boundaries and allowed for exchanges of ideas that helped improve performances. Six-sigma plan was undertaken by all the SBUs. Parenting strategy that GE followed was mainly Development and Linkage. This is because the Welch era constantly went through restructuring and the purchase and sale of new SBUs.
At the same time, the parent company created synergies in the SBU which were operational in nature and had a high degree of corporate intervention. Most of the time it is quite difficult to align new SBUs with the culture of the acquiring company but Welsh was able to do that thus creating synergies.
General Electric CompanyLinkages| Development|Central service| Stand-alone|
HighDegree of corporate intervention
OperatingFinancialNature of corporate intervention
Synergies:i. Business unit synergy:GE handled its SBU’s quite successfully & tried to create business unit synergy by increasing compatibility & complementarities. For example it has increased its compatibility when they tried to learn job shop techniques from Canadian appliances which increased efficiency by applying similar strategy.
However, it also tried to increase its complementarities as GE was not stuck into only on the product, they also focused on the service business later which also increased their revenue, and here synergy arises from the differences. In addition GE’s boundary less behavior also helped them to increase their compatibility as they learnt from other SBU’s like asset management from appliances, transaction effectiveness from GE capital; cost reduction techniques from aircraft engines & global account management from plastics.
ii. Corporate synergy:Byrestructuringthe whole system including management style and culture GEs operating profits rose dramatically from $1.6 billion to $2.4 billion between 1981 and 1985. Productivity also increased through different infiltrate concepts developed by Welch, such as Work Out and Best Practices, Croton Ville’s management development facility. Welch’s objective was to create a culture where all felt engaged and everyone had voice so that GE can eliminate overhead by being ‘lean and agile’.
Skill and resource linkages was done through the execution of Six Sigma, which not only led to better productivity and enhanced quality, but created further cost synergies through error minimization. Exploiting parent relationships:GE stressed its synergy in going global by taking every opportunity possible i.e. by to set up a base and develop it through their expertise.
Contribution of A Players: Welch created the leaders with vision, leadership, energy and courage and with four E’s were energy, enthusiasm, edge, execution and this was actually a process of replacing inefficient managers in different business unit.
As they were successful to develop in enhancing organizational resource capability there is nothing more to recommend. We also found that the changed in dominant logic works well and their corporate parenting style is able to achieve corporate synergy by creating corporate advantages.
However, GE’s diversification must be based to the core competences and to the related industries where GE can utilize its corporate advantages to give value both to their SBUs. So the new CEO should keep the existing management style and business model and it will help making the shareholders feels secure.