Introduction GE was founded in 1878. It has grown multi folds since the time of inception. It has been named as “Most Admired Company in Us” and “Most Admired Company in the World”. It has companies in the field of electricity production, electric appliance, lighting, aircraft engines, medical system, and diesel locomotives. GE has 43 independent SBU (Strategic Business Unit). Despite all these variations available there was steadfast growth in the company.
The management practices in GE were considered as bellwether of American management practices. This was due to the procedures adopted by Jack Welsh. Q1: How difficult a challenge did Welch face in 1981? How effectively did he take charge? Challenges faced by the Welch when he took over the position of CEO: •SBU-based structure of the organization under the leadership of Reg jones •Multilayer structure of the organization with departments, divisions, groups and SBUs topped with organizational layer of sectors •U.
S Economy in recession- High Interest Rates, highest unemployment rate since the depression •Global competition faced by the company- more often in the form of Japanese. GE at present was unable to face it to their full potential •Bureaucracy structure of the organization leading to inefficiency and often delay, costing the company its edge The Changes made under Welch’s leadership: •CEO challenged each to be “better than the best”
•Two tier approach of fixing- the hardware “company’s processes and structure” and the software ”management style, culture and structure” •Risk taking behaviour expected out of business heads and let go of the old GE culture Hardware Approach- Overall restructuring, downsizing, de-staffing and delayering oGoal to be #1 or #2 competitor in the respective industry or to disengage translating to – “fix, sell or close” strategy oTransition to three circle concept- core, high-technology and services- defining the industries they are pertaining oHighly disciplined de-staffing process, with a whole unit scrapped -highly symbolic 200 person strategic planning staff oReplaced it with real time planning built around a five-page strategy playbook.
Each business’s playbook provided single one-page answers to five questions concerning current market dynamics oDrastic changes in budgeting process and key assessment criterias oElimination of sector levels from 9 down to 4 Software Approach- oWork-out is an exercise wherein all felt engaged and everyone had voice.
Employees can provide key inputs on how to effectively run processes to their supervisors and get immediate response to their ideas and proposals oBest Practices is the practice wherein the best solutions employed elsewhere are incorporated in the organization to better the manage the organization oDe-staffing at higher management level(12 out of 14 business heads given the pink slip) Effect in term of numbers: •? Pertaining to the “Fix, sell or close” strategy, most of the business closed •? Resulting in over $11 billion of capital freed, selling off more than 200 businesses •?
The 200 businesses accounted for only 25% of the 1980 sales •? The freed capital was used for 370 acquisitions, total investment of $21 billion Q2: What is Welch’s objective in the series of initiatives he launched in the late 1980s and early 1990s? What is he trying to achieve? Is there logic or rationale supporting the change process? If so, what is it? The restructuring plan of GE in the early 1980s which included the “Fix, Sell or close” strategy, the elimination of bureaucracy and lay-offs ushered in a new era of rapid change in the structure of the company.
This resulted in increase in efficiency of the overall functioning of the organization. However, these rapid restructuring leaps of GE apparently left the employees in a cultural shock and the management in a state of exhaustion. Moreover, all that was done since the early 1980s would not be effective unless cultural change followed the earlier restructuring. “Speed, simplicity and self-confidence” is what Welch wanted to see the organizational culture as. Freedom to innovate and creating a sense of accomplishment in potentially good employees were some of the aspects which he wanted to bring about.
A company where all the employees felt engaged in decision making process and everyone has a voice would be very much cohesive according to Welch. He also felt that if the employees get immediate response for their concerns and queries, it would be much better. Hence, he introduced Work-outs in which a forum is provided in which managers and their subordinates could frame ways to deal with each other. This is seemingly common in present day corporate work culture but it was a breakthrough in the late 1980s. In addition to this, GE implemented best practices from all the successful industries all over the world.
Nine companies were selected and their processes studied. This was the most logical thing to do because GE now was really in a position to bring internal changes to make its processes efficient and GE now had enough resources to do it. This resulted in gauging of the internal workings, processes and activities with respect to the best in the world. This resulting in radical new paradigm of work approaches. Welch then looked at globalization. He reasoned that once a strong “home” base is established, it was now the time for a look at internationalization since the new GE mantra was an aim to be at the top few of the world.
GE now looked at acquisitions on a global scale (this would set the stage and tempo for a slew of acquisitions in Asia during the Asian crisis of 1997-98). Q3: How does such a large, complex, diversified conglomerate continue to grow so profitably? Have Welch’s various initiatives added value? If so, how? GE has companies in the field of electricity production, electric appliance, lighting, aircraft engines, medical system, and diesel locomotives. GE has 43 independent SBU(Strategic Business Unit). Despite all these variations available there was steadfast growth in the company.
The management practices in GE were considered as bellwether of American management practices. This was due to the following procedures adopted by Jack Welsh. The SBU were done away with since it was difficult to track performance of 43 different SBU’s, instead Welsh suggested idea of sectors. Several SBU will be included under one sector. A lot of concentration was given for building relationship with government. The three circle concept was introduced. All businesses were categorized into high-technology, core & services. Welsh advocated “fix, sell or close” for underperforming businesses.
In most cases the poor performers were closed. The company underwent a de-staffing process. The bureaucracy in the system was removed. This was implemented by real time planning method. This reduced the time involved in decision making process thus contributing to the good response time in the company. Welsh used best practices which were tried and tested in other companies. He believed that there must be change in the culture in GE for the organizational reforms to have full effect. “Work out” was the name of the process through which employee engagement was brought about.
This was done to increase employee engagement and to remove bureaucracy. There was no documentation for these sessions. It had a positive effect on the growth rate. The performance of each sector was measured in terms of employee satisfaction. The company was ready to go global. It let each business take care of its own plan and needs in implementation. Welsh believed that GE was too diverse to have a set of common goals. The biggest asset of the company was its human resource. GE has had an implicit psychological contract based on perceived lifetime employment, this lead people to focus inwards.
The company spent a lot of money in training its employees. Welsh was a strong believer in incentives and thus offered good compensation packages. There existed a non-bureaucratic & anti-parochial environment in GE. This encouraged growth and laid stress on quality. Employees were motivated to accomplish the more ambitious tasks by asking them to stretch beyond the realms of what is considered as possible. Quality in their products was assured by implementation of the six sigma program. Thus the initiatives taken by Welsh contributed to the growth and profitability of the company.