Ge’s Two–Decade Transformation: Jack Welch’s Leadership Case

Executive Summary The purpose of this report is to provide an analysis of GE’s revitalization efforts during the tenure of their infamous CEO Jack Welch. This detailed examination of the impact of Mr. Welch’s leadership style and the changes he implemented will be supported by our strategic recommendations aligned with our course lectures. The learning objective is to understand the evaluation of Welch’s strategy and how it impacted the company. There is no question that Welch had a positive and important effect on GE’s long-term success.

It is, however, important to note that this did not come without controversies. Though Welch did make appropriate changes which allowed for GE’s success, the question remains; how does GE ensure that the post-welch era will continue to flourish without his guidance? GE is a successful firm because they have the right resources aligned with the right attributes and characteristics. Welch strengthened their valuable resources which improved effectiveness and efficiency. This helped address opportunity and minimized threat.

By understanding Welch’s strategic management style and applying modern day strategic analysis, we will conclude that GE will require someone who values the changes that Welch created for the company to succeed him. Jack Welch established himself as a very “hands on” GE CEO who was very engaged in many of the company’s operations. During Welch’s tenure, GE enjoyed such recognition as “Most Admired Company in the World” by the Financial Times. Jack Welch was due to retire in 2001 leaving his company in great form; however, the company now must address several key issues.

The most immediate of the concerns which must be addressed is to find Mr. Welch’s successor. Once that successor is selected, how does GE transition the culture, expertise and respect towards the new person? The solution would be to develop a strategy which must be properly executed to ensure that the firm operates as if Mr. Welch were still in power. However, any recommendation can only be done after understanding and analyzing the changes, structure and culture that Welch developed and harbored throughout the 1980’s and 1990’s.

GE, at the time of Welch’s acquisition, diversified itself so much that it was difficult for one to determine their core product. GE, for many years, was the light bulb company, however, by 1980, Welch inherited a company that diversified itself so much that it is difficult to determine what their mission or vision was. Also, at the start of his CEO career, Welch demanded a lot from his executive and sales reps while the US economy was in recession and under “a global attack from – often Japanese- competitors”.

Between the years 1981 and 1990 Jack Welch freed up approximately $11 billion in capital by selling over 200 of its own businesses to create a specific focus, thus , a corporate strategy. At the same time, Welch completed approximately 370 acquisitions which allowed the company further focus their efforts. By downsizing the amount of corporate layers and selling many of their traditional businesses, Welch created a “lean and agile” company. Welch, during his first years, started to prepare the company corporate level for the future competitive challenges.

To achieve this, he continued to eliminate bureaucracy by reducing the numbers of hierarchical levels from nine to four. His intention was to ensure that many areas of the company’s operations reported directly to him. To do this, he would have to downsize the company significantly, in the process, eliminating almost 123,000 positions. As a result, profit rose dramatically, and set a strong base for a sales and earning increase for the second half of the decade. Welch understood that strategy was the basis for which GE would succeed and in the late 80’s and after the restructure was complete.

Welch realized that a cultural changed was needed; he wanted employees to take pride in the company’s profit, be more effective and competitive. To achieve this, he launched two initiatives that changed the core values of the company and employees values. The first initiative was to create “Work-out”, a forum where employees speak their mind and as a result get immediate response. The goal was to create an ongoing drive for better productivity and efficiency. He empowered employees at all levels of the organization. This promoted communication and accountability.

Employees started to realize that they were not just a number but an actual voice with the potential to enhance productivity. This initiative can be associated to the concept of Adhocracie on the flexible and spontaneous collaboration to solver problems and improve activities. The second initiative called “Best Practices”. The intention was to increase productivity by developing a process following several common characteristics of successful companies. This changed the way many employees managed and measured the business.

Welch’s goal of creating an industry attractive company (corporate strategy) and a competitive advantage (business strategy) the next initiative was to expand GE horizons by going global. But to do that Welch uses a different strategy. Instead of forcing a corporate strategy, he demanded that each business take responsibilities for implementing the best plan for their needs. This initiative follows the concept of Multidivisional structure and advantages of decentralizing decision making. The globalization process took years and GE heavily invested in EU, Mexico Asia economics downturns.

As a result the international revenues doubled in 5 years. With so many changes and the company growing so fast, Welch also focused on developing its employees. He wanted to realign the skills sets and mindset of the almost 290,000 employees. He wanted to create an environment in which people could be the best. He changed the way the employees were reviewed and focused on incentives. He paid attention to the upper 500 executives and prioritize the development of leaders aligned with the new vision of GE. He created four categories for his leaders and the main goal was them share the values of the company.

Welch effectively took charge by putting people first. Though he created much controversy for himself when he laid-off his employees when he sold the GE businesses, he also provided those same employees with help in finding new jobs. Welch also invested a lot into the training of his existing employees which earned him the love and respect of many of the GE staff. His vision of building a profitable and stable organization began with his employees. Once the cultural transformation was on solid footing, Welch really began to set his focus on growing the company.

Beginning in the 90s he developed a strategy that focus on an integrated approach for the company. He wanted the company to become a “boundaryless” institution that allowed all of its different businesses and department to operate without barriers between them. This expanded on his Work-Out and Best Practice campaigns to a global arena which resulted in many of the internal business learning from each other and making the company better as a whole. Another strategic decision Welch made early in the 90s was to implement ‘stretch” goals for managerial positions.

He wanted to push everyone to achieve great things for the company and for personal growth. These “stretches” were often unrealistic and the managers were not evaluated based on them but they were given substantial compensation via bonus and stock options if they were to reach these goals. There were concerns that implementing the goals may actually create an environment where employees felt like they had to work long hours to meet these goals so it was imperative that they did not punish people for not meeting them.

This was important because the whole purpose of this program went back to Welch’s view that processes need to be improved for maximum productivity and they did want to that to overshadowed by fear of not meeting them. As time progressed, this turned out be a positive program for the company as well. While the goals were not met on several occasions, the extra effort put in by the workforce generated a 5% percent increase in margins from the 1991 to 1995 and also doubled the amount of inventory turns during the same time period. Welch initiatives didn’t stop there, in 1995 after survey that indicate quality issues.

He decided to implement Six Sigma. A program borrowed from Motorola. His main goal was to improve quality, lower cost and increase productivity. This program generated one more sustainable competitive advantage and sustainable differentiation factor for GE. Due that, the reduction of errors generated lower cost and increased in quality perceived by customers. Six sigma initiatives were a great tool that propelled GE to the top of its industry. GE has always been an acquirer in nature. Mr. Welch oversaw many purchases of other companies which caused a lot of change to occur.

Instituting stretch goals to employees was a great strategy that led to much success for GE. Looking back at all of the changes and programs that Welch implemented in the 80s and 90s it is clear that his main focus was making a GE a company of excellence. He wanted his employees to achieve high levels of self confidence and continue to generate high levels of productivity. He knew if they could achieve this they would have a considerable competitive advantage because they would build strong brand that would be recognized and admired around the world.

By doing so, they would have not been as susceptible to the forces of competitions such as threat of new entrants, bargaining power of buyers and rivalry among existing firms. There are numerous ways by which we can measure Welch’s significance to the success of GE’s CEO’s performance. To key measurements are Return on Sales margin and Return on Equity. Domestic sales grew at a steady rate, and international sales at more than doubled. The ROS had averaged 5% to 6% prior to his arrival while it grew to 9. 8 5 while he was in office. Similarly, the Return on Equity went from about 19% to 9%.

[1] The reach of his success was immense. Welch had the courage and dynamism to get rid of companies that were not profitable and invest in those that were. Welch wanted to get rid of the bureaucracy and thought there were too many layers of management, so a downsizing effort went into effect. Although he was criticized for streamlining an operation that was most efficient with fewer yet valuable employees, in the end he was given praise because he delivered strong performance and his credibility was bolstered by GE’s stock performance.

Welch had a great vision for creating change within the company. His system of “employee vitality” is a prime example of how large change played a part at GE. Welch was firm when he had to be but his employees loved him. Our evaluation of Mr. Welch is favorable for leading change. His innovative ideas brought out the best in his employees, the weak links were terminated. Although sometimes his attitude was forceful at times, Welch’s main goals were hiring talented leaders in order who help grow the GE brand.

All of Welch’s initiatives for change were well planned and coordinated. How do you follow a legend? It is always challenging to follow up a success story, but Jeffrey Immelt took a different approach than his predecessors by leaving behind Welch’s leadership approach. Typically CEOs are replaced because the board feels that the CEO has been in office too long and perhaps their leadership strength has suffered, but this was not the case before Immelt, whose first day on the job was just four days prior to the terrorist

attacks on September 11th. Replacing a CEO can be very political and it is important to make sure the corporate culture is not lost in transition. “In contrast with Welch’s need to control and cajole his management, Immelt was less a commander than a commanding presence. ” [2] Immelt however did continue the globalization strategy that Welch had invested so much in, and was focused on growing revenues in emerging markets throughout the world.

Similar to Welch, “Immelt believed that the international arena was where GE’s future growth would come, and in 2007, Immelt said for the first time in the history, GE will have more revenue outside the United States that we’ll have inside the United States. ” [3] In summary Jack Welch attributed towards managements can be summarized in some simple ideas: eliminate vertical barriers like hierarchies, eliminate horizontal barriers by promoting programs like Work Out, globalization, encouraging people to talk, listen and be open to new ideas.

Welch succeeded his GE transformation by creating and opening communication channels, empowering employees at all levels of the organization and allowing a new kind of teamwork that was unknown until them. All this factors combined motivated all employees to generate two decades of outstanding performance leaded by a great leader like Jack Welch. ———————– [1] Christopher A. Bartlett and Meg Wozny. “GE’s Two-Decade Transformation: Jack Welch’s Leadership” [2] “General Electric: From Jack Welch to Jeffrey Immelt. “April 18, 2008. [3] “General Electric: From Jack Welch to Jeffrey Immelt. ” April 18, 2008.