Before Jack Welch became the CEO of General Electric (GE), the business was carefully managed by highly complex with bureaucratic structure under the leading of prior CEO, Reg Jones. There were massive network of 46 divisions, 190 departments, 10 groups, 43 SBUs and each one developed a strategic plan to be reviewed by CEO. However, Reg Jones was unable to keep up with the reviewing and approving these massive volumes of the 43 strategic plans. After Jones retired, Jack Welch became CEO in 1981. How difficult a challenge did Welch face in 1981? How effectively did he take charge?
In 1981, Welch became CEO of GE; he was facing with the economic crisis. The U. S. economy was in recession, there were high interest rates, strong dollar, and highest unemployment rates since the great depression. Welch wanted each business in the company to be “better than the best” in the industry and to pull the performance in GE’s various portfolio of businesses, the company needed to restructure. Welch’s objectives in the initiatives launched in 1981-1984 First of all, Welch set the standard of each business to be number 1 or 2 competitor in the industry.
There needed to be fix, sell or close for the uncompetitive businesses and represented broad strategy as it was a broad corporation. He reorganized businesses into “Three Circle Concept”, which categorized as Core (re-invest in productivity), High-technology (leading edge), and Services (acquisitions). Welch internally wanted company to become “lean and agile”, focused on eliminating bureaucrats and got rid of 200 person strategic planning staff. Moreover, to chip away bureaucracy, he introduced a laborious strategic planning system or budgeting process that targeted to evaluate towards its competitors.
Welch’s objectives in the initiatives launched in 1985-1988 Welch reduced hierarchical levels from 9 to 4 ensured all business reported directly to him by eliminated the sector level. There was a reduction in workforce about 122,700 workers through downsizing, de-staffing, and delayering. Furthermore, he replaced 12 of 14 business heads with his own handpicked, “Varsity Team”. The team consisted of managers which had strong commitment to new management values, and willingness to break old culture, and ability to take charge and bring change.
As a result, the operating profits rose dramatically, and set base for strong increase in sales and earnings for second half of decade. After the restructuring was completed, there was still a culture shock and management exhaustion, which the company needed more solid foundations. Welch stated that GE’s norm would be an approach based on openness, candor and facing reality, while core elements to be speed, simplicity, and self-confidence. For example, business report of 10-15 reports from managers directly to CEO.
The culture of a small company was Welch’s objective where everyone engaged and can speak their minds, focus on innovation, and saw that methods were more important than results. At that time, Welch was focusing on the “Software” Initiatives or cultural change. With the initiative of Work-out to create a culture of small company by providing the open forum for employee discussions across ranks where employees could not only speak their mind, but also get immediate response.
At the same time, Best practices were also introduced to increase productivity by study the successful aspects of other firms. For the next stage of GE, Welch sold its consumer electronics business in exchange for Thompson S. A. ’s (French) medical imaging business in order to be evaluated on world market position and to be ranked as number 1 or 2 on global level. Welch’s objectives in the initiatives launched in 1989-1994 During the internationalization period, Welch appointed Paolo Fresco as head of International Operations.
Fresco had brokers numerous international dealt in Germany, Japan, France, and Eastern Europe. After the collapsed of Mexican Peso, Welch saw economic downturns as buying opportunities and result as the global revenues were growing three times the domestic sales. While the new cultural initiative and the global pushed were implementing, Welch was considering to realign the skill sets and mindsets of the employees. He started by create environment in which people could be their best, changing a compensation structure, rewarded best employees with company stock and options.
Besides, he invested heavily in improving Crotonville management development facility in order to developed generation of leaders aligned with GE’s new vision and cultural norms. Moreover, the 360° feedback process was introduced. It was a powerful tool for detecting and changing as every employee gave feedback on their direct reports as well as their boss. Entering the 1990s, Welch began to focus on integrating diversity by encouraged each employee to become boundaryless. It removed the barriers among engineering, manufacturing, marketing, sales etc.
and quickly learns from each other. The “integration model,” developed a model guided the actions of managers, realigning the organization and remove blockers. After the boundaryless behavior has been spread throughout GE, Welch then introduced “stretch”. This strategy let employees set their goals beyond the minimum and force each aspect of the company to dream big. Targets were not replaced traditional forecasting, managers still had to hit basic targets, and they wanted to keep a positive attitude.
Though most of the company’s stretch goals were not met, the mindset they fostered led to unprecedented growth and stretch goals were established part of culture. During 1994, Welch launched a new strategic initiative designed to reinforce one of his earliest goals, reduce GE dependence on traditional industrial products by pushed for product services. The company needed to supplement slow growth products with added-value services, for example, medical business “In Site” for CT scanners and MRI equipment. However, service businesses accounted two-thirds or 75% of revenues for GE at that time.
Welch’s objectives in the initiatives launched in 1995-2000 When the company survey showed employees were dissatisfied with quality of its products and processes, Welch had learned from Motorola and applied “Six Sigma quality program”, which improve quality, lower costs, and increase productivity. It was a well-developed program with detailed implementation, linked series of management meetings operating system series of planning, resource allocation, review and communication. This program made GE eliminate inefficiencies throughout the company through sharing information.
Welch was focusing more on the quality of the organization and continued to focus on quality of team, wanted to continue to upgrade quality depth by introduced “A Players” with “Four E’s”, which characterized as edge, energy, execution, ability to energize. Every manager ranked employees at all levels into groups 1-5 based on talent and potential, only top ones received stock of the company. This strategy was actively identified future leaders as Welch believed that continuously upgrading was a key to success. Toward his retirement, Welch introduced one last initiative for GE, “e-business”.
He knew they were late but felt well positioned with strong brands, top ranked product reliability, great fulfillment capability, and excellent service quality. At last, Welch left business with the focus on online presence. Evaluation of Welch’s approach to leading change At first step when Welch became CEO, he changed the company too fast and caused the cultural shock and management exhaustion. However, he developed an appropriate prioritize changes step by step for General Electric by implemented and introduced each strategy to overcome those problems of culture change.
Most of the initiative strategies that Welch introduced and applied in the organization, such as Stretch, 360 Degree, Type 4 people, Work out & Best practice, and Boundaryless behavior. They were effectively used by the ability and effort of Welch. When the organization faced with problems, he would find the solutions to overcome those barriers. Also, he was always seeking for the new opportunities to grow for future business. The changed that Welch made in the organization, people and quality, made GE gain more profit and benefit than before.