GE
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Jack Welch led a massive restructuring and transformation of GE during his tenure from 1981 to 2001. He sold off underperforming businesses, cut costs aggressively through layoffs and restructuring, and instilled a culture of results and continuous improvement. Welch focused GE on becoming #1 or #2 in global markets, developing a strategy of pursuing the best practices of top competitors. He emphasized developing world-class talent through his "four E's" philosophy. Welch's relentless focus on performance and efficiency drove tremendous growth and profitability for GE, though some critiques argue it may have come at the cost of other priorities like customer service and quality. Overall, Welch played a transformative and hugely important role in GE's
GE
- 1. AcademicYear:PGP2012-2014 Project on: - INTEGRATED LEADERSHIP PERSPECTIVE General Electric Company (GE) Faculty: -Ms. SAPNA POPLI and Mr. SHARAD GUPTA BY: - Apurva Singh PG20121122
- 2. Introduction The General Electric Company (GE) is widely regarded as one of the world‘s most Successful corporations of the 20thcentury. Founded by Thomas Edison in 1878, grown to be a leading diversified multinational conglomerate in 1973 • Headquartered in Fairfield, Connecticut, United States • Operating in Five Segments – 1. Energy 2. Technology Infrastructure 3. Capital finance 4. Consumer 5. Industrial Brief introduction to Jack Welch • 1930‘s – Highly centralized • 1950‘s – leading towards decentralization • 10 Groups • 46 Divisions • 190 Departments • 43 Strategic Business Units • 1973 – Reg Jone became CEO – Welch‘s predecessor • Raised strategic planning to an art form • Voted CEO of the year thrice and Journal dubbed him CEO of the decade in 1979 1981-85 GE’S RESTRUCTUR ING LATE 1980s: ROCKET’S 2ND STAGE 1991-95: Third Wave CLOSING THE DECADE: Raising the bar
- 3. Q1. How does a large, complex diversified conglomerate defy the critics and continue to grow so profitability? How have Jack Welch’s various initiatives added values? Ans.GE as a conglomerate defying critics:• Understanding the strength areas and weaknesses • Cutting down the vestigial organs of the excessively grown company that destroy the value, time and resources of the company • Making it lean and thin – a fit organization is hearty can perform better than obese one • Opening communication • Focus – investment – facilitation • Intervening Adding value to GE – Welch’s way Structure • Lean Culture • Evolving • Open People • A-players • 4Es Strategy • #1 or #2 going global • Best practices Structure • Selling off of 200 underperforming businesses including consumer electronic • Freed $11 Billion from such sell outs eliminating 12270 staff • Further 370 acquisitions with an investment of $21 Billion • Made GE lean and agile cutting 50% of strategic planning staff (200)
- 4. • Downsizing, de-staffing and de-layering of 59290 salaried and 6410 hourly positions • Even after acquisitions, the staff fell from 404,000 to 33,000 Revenues went from $ 27.2 billion to $ 29.2 billion between 1981 to 1985 Culture and people: Moving to the ‗SOFTWARE‘ • Focused on Work Culture i.e. ‗Software‘ of GE in the later part of 1980s • Brought forth idea of open forum known as WORK OUT PROCESS • Focus on HOW DO I ADD VALUE and how I make people in line MORE EFFECTIVE? 1. Offsite meeting of 40-100 people 2. Instant on the spot decision (at least 80%) So by 1992, GE‘s 2/3rd of staff i.e. 200,000 had been in the process and the company could feel significant cut in BUREAUCRACY, Lead to the formation of a players, 4Es and Strategy Book. Strategy: chipping out the bureaucracy – making big conglomerate work • Scrapped laborious strategic planning system • Replaced with ‗real time planning 5 page strategy book‘ that answered: 1. Current Market Dynamics 2. Competitor‘s recent and major activity 3. GE‘s business response 4. Greatest competitive threat for next three years 5. GE‘s planned response This cleared the employees in vision and brought top management and employees in the same page. Strategy: Best Practices – learning, improvising and implementing Best and well adopted methods of companies faring well in the market with better productivity than GE and integrating in the system, like: • Customer Satisfaction • Treating suppliers as partners
- 5. This lead to many employees realizing and correcting their mistakes as they were focusing in WHAT rather than HOW. Q2. What is your evaluation of Welch’s approach to leading change? How important has he been to GE’s success? Ans. Evaluating Welch’s approach to leading change:Cotter's 8 steps of transforming organization 1. Establish a Sense of Urgency – Be #1 or #2 or get closed 2. Form a Powerful Guiding Coalition – A players and 4 Es 3. Create a Vision – Be better than the BEST 4. Communicate the Vision – Strategy Book 5. Empower Others to Act on the Vision – 4 Es, Work Out session 6. Plan and create short-term wins – Work out session 7. Consolidate Improvements and Produce Still More Change – Best Practices 8. Institutionalize New Approaches Learner – Best Practices How important has he been to GE’s success:• From near around $42 million, sales rose to approximately $105 millions • ROE grew by around 9 to 28.7% • Net earnings went to $12,735 million dollars from $1,652 • Operating profit was up to $19,630 million dollars • Sales soared from $52619 million dollars to $129,853 million dollars Q3. How difficult a challenge did welch face in 1981? How effectively did he take change? Ans. Challenges faced by Welch • The ongoing recession resulting in the country‘s highest unemployment rate and GE had 404,000employees • Company was too much diversified into:
- 6. 1. Power Generation 2. Household appliances 3. Lighting 5. Aircraft Engines 6. Medical system 7. Diesel Locomotives • Was already a big name and Welch‘s predecessor had set high bars for him with Japanese giving tough global competition
- 7. Welch’s effective steps for the change 1. GE’s restructuring – 3 Circle Concept 0.
- 8. 2. Rocket’s Second Stage
- 9. 3. The Third Wave Boundary-less Behavior Stretch: Achieving the Impossible Service businesses 4. Closing out the decade • Six Sigma Quality Initiative 3.4 defects per million operations Tied 40% bonus to Individual‘s Six Sigma objectives • ―A‖ players with ―Four Es‖ 4E‘s – Energy, Ability to Energize others, Edge and Execution Individuals with vision, leadership, energy, and courage
- 10. Critical Analysis of GE’s Strategy under CEO Jack Welch (1981–2001) Corporate level strategy is about creating value by coordinating resources across Business units and finding new ways to develop and capitalize on the organizations Capabilities over a long-term horizon. Welch demonstrated his ability to articulate and Transmit his values and vision with remarkable fervour and clarity throughout the Organization. However, despite its success, this resource-based view was perhaps too Inward looking, the reward system too focused on short term individual performance with Not much attention given to creating value for customers. Welch focused on developing GE‘s cost advantage. As a result, GE may have missed valuable opportunities to Develop new markets or expand its market share through product differentiation during Those early years of Welch‘s leadership as managers and employees focused on internal Efficiency and year-to-year performance. Welch‘s obsession with performance and speed translated to impressive financial Results, with net earnings increasing seven-fold over the twenty years while the number Of employees remained more or less constant. This implies Enormous increases in efficiency and staff performance. However, greater speed and Simplicity may have come at the cost of making compromises in other areas, such as customer service, quality and safety. It would appear that the company-wide deployment OfSix Sigma was a successful attempt to address the quality and process issues that May have resulted from Welch‘s unrelenting push for speed and short-term results. Core competencies provide access to new markets, add value to the company‘s Products and are difficult to duplicate by competitors WelchClearlyrecognized that GE‘s best asset was its human capital. An important strategicStep of empowering line management and employees was the delegation of strategicPlanning and administrative functions to business units. However, the continuousPressure to perform may have created new problems for the organisation. As notedabove, some employees may have been forced to cut corners and take risks perhaps‗Contributing to some of GE‘s defence contracting scandals or the Kidder, Peabody &Co. bond-trading scheme of the early 1990s that generated bogus profits‘ (Byrne 1998). Further, GE employees were incentivised to compete with their colleagues under the Threat of slipping to the bottom 10 per cent and the prospect of losing their job. This Competitive work environment may have prevented, rather than facilitated, internal Learning and sharing of knowledge capital which Welch was so eager to promote. Corporate strategy can assist in the development of a firm‘s competitive advantages. Some of GE‘s initiatives went a long way to developing GE‘s competitive advantage and Mitigating some of the more negative consequences of Welch‘s ‗carrot-and-stick‘ Management style. For example, the Digitisation initiative led to the widespread Discovery of new opportunities not only in the improvement of internal knowledge Management but also in customer service. Further, in combination with the breaking Down of GE‘s hierarchy, the Boundary lessOrganizationinitiative facilitated the flow of Information and assisted learning across the organisation by providing a safe forum for The open expression of opinion. This would have helped staff overcome their competitive Motives and assisted knowledge transfer. The blurring of boundaries had another important strategic purpose, namely, the Unlocking of synergies from GE‘s diversified portfolio of businesses. At a time when the Conglomerate model was hugely unpopular in the investment community, Welch retained
- 11. GE‘s diversification strategy and clearly demonstrated its benefits, achieving substantial Economies of scope by sharing knowledge, resources and capabilities common to Different businesses. Prahalad and Hamel in 1990 argue that a corporation should be Structured according to its core competencies rather than a portfolio of business units. Welch‘s Boundary lessOrganizationwas a bridge between GE‘s business units that Helped the organization to capture some of the benefits of its diverse knowledge base. One of the most significant changes to GE‘s portfolio structure was the emergence of GE Capital as one of the world‘s most horizontally integrated diversified financial Services companies. Unlike its other businesses, GE Capital occupied virtually all Segments of the financial services market—from consumer finance through specialty Insurance to equipment management. By 2001, GE capitalcontributed nearly a half of GE‘s total revenues and was able to leverage off its industrial. Businesses to operate on a narrow capital base while retaining in triple-A rating .This goes to demonstrate the success of GE in unlocking synergies From a diverse business portfolio beyond that which could be achieved by a typical Diversified conglomerate. The Globalisation initiative allowed the organisation to exploit global economies of scaleand helped GE capitalize on learning opportunities across geographical locations. To theExtent that knowledge from one GE business or location could be readily applied to another there was always a potential for synergy gains from the organization‘s globalDiversification. With the deployment of Six Sigma Welch clearly demonstrated his awareness of the Importance of creating value for customers and its strategic role for GE. He was quoted As saying, ‗We want to make our quality so special, so valuable to our customers, so Important to their success, that our products become their only real value choice‘. This reflects Welch‘s desire to lock in GE‘s customers into perpetualDependence, making it more difficult for them to switch. Arguably, Welch‘s continuousPush for adaptation, speed and excellence—strengths which are the hardest for theCompetition to imitate—became GE‘s most valuable core competencies on which theCompany was able to build and sustain its competitive advantage.
- 13. Thank you