Globalization Case Analysis: GE's Two Decade Transformation (Jack Welch) 3 GEs Two Decade Transformation Introduction Surviving

in todays challenging business environment necessitates innovative thinking in terms of crafting strategies to enable the establishment and sustainment of a competitive advantage. Through an established strategy, structured options and decision making processes, organizational leaders will be able to facilitate organizational development and growth. Overcoming the odds and competitive pressures sometimes requires defying critics and popularviews to develop initiatives that not only streamline the organization, but create profitablebusiness operations and human resources to add value to the organization.The analysis that follows identifies and defines the challenges which Welch of GEencountered during his tenure, and outlines his approach to strategic corporate leadership and taking charge. The report is followed by a breakdown of Welchs objectives in regards to innovation and his strategy on creating value. The authors will also provide an evaluation of Welchs approach to leading change with emphasis on the overall impact that Welch had on GEs success. Finally, this paper will take a look at the implications of Welchs replacement. How difficult a challenge did Welch face in 1981? How effectively did he take charge? Welch faced a very difficult challenge taking over the position as CEO of GE. His predecessor, Reg Jones, set the bar extremely high at the company leaving a legacy for Welch to compete with as the new CEO . Jones had been considered a management legend a nd had been voted CEO of the year three times for his brilliant accomplishments with GE. Jones was also labeled CEO of the Decade two years before he retired. Needless to say, Welch had some bigshoes to fill once named as CEO. During this transition, the business world was highly

4 GEs Two Decade Transformation competitive, with the economy, environment, and political climate in constant flux. If nothandled properly, the transition could be detrimental to the company.Welch was up for the challenge and knew that a successful transition would meandeveloping a team that would make GE even more prosperous earning stakeholder trust. Thisrequired assessing the current environment to accurately determine a way to improve it. Welchconvinced his team to buy into his new vision of where the company should go and challengedemployees to be better than the best. In order to a ccomplish this enormous task, Welch placedexecutives and management in key places to could assist his efforts to redirect overall companyculture. Managers that did not fit into or who failed to embrace his strategy were let go. Anything and anyone that didnt bring value to GE was eliminated. Hierarchical organizationallevel s were dramatically reduced, enabling the company to operate as a lean and agile business. From the moment he took over the business, Welch went full force into implementing a real time planning strategy. At the t ime of his appointment, the United States economy was ina recession. To combat this situation, Jack Welch had to develop a plan of action aimed atkeeping the company thriving in the business world. In order to accomplish this, GE sold manyof their businesses, which represented 25% of their sales. However, during that time, Welchsimultaneously and strategically invested in other businesses, increasing their revenue andoperating profits.How effectively did he take charge? Welch was extremely effective in taking over the GEreins. Although his predecessor was quite successful during his reign and the business thrived,there was still the need for change. The business world was evolving and competitors attemptednonstop to stay ahead of GE . Fortunately, Jones had left the company in a good place durin 5 GEs Two Decade Transformation the transition, allowing Welch to come in with his new and innovative ideas to take the companyeven further in the business world. What was Welchs objective in the series of initiative he launched in the late 1980s andearly 1990s?

Jack Welch repaired the structure of GE with his initial changes, but now had to managethe human resources aspect to rebuild the company on a more solid foundation (Bartlett & Wonzy, 2005, p. 3). GEs employees had been sufficiently shaken by the preliminary changesmade, and were subsequently worn-out due to upheaval within the companys core. Welch hopedto create an environment which optimized openness, candor, and reality (Bartlett & Wonzy,2005, p.4). Additionally, speed, simplicity and self -confid ence (Bartlett & Wonzy, 2005, p.4) were the characteristics he expected to dominate the culture. Welch had always been a teacheroften leading sessions at the Management Development Institute. These sessions affordedmanagers with an open-forum, allowing them to vent concerns about change implementation andresulting complications. With the help of James Baughman, Director of ManagementDevelopment, Welch decided to institutionalize these open forums, giving every employee theopportunity to become part of the discussions, honestly and openly. Employees gathered in groups to respond to their unit bosses challenge s and agendas in general. Facilitators wereempowered to walk these groups through a process wherein problems were laid out, discussed,potential solutions identified, and final presentations produced for presentation to unit bosses.This process was dubbed the Work-Out . When the bosses returned, they were required to listento the proposals and make a decision in front of the group to at least 80% of the total proposals.As a result of these standardized processes, productivity increased two-fold The Best Practices program was assigned to the B usiness Development department. Ashead of the Business Development department, Michael Frazier and his team studied ninecompanies who had higher productivity rates than GE. The end result was a toolkit of keytechniques and identification of core characteristics that made these companies successful. Forexample, process efficiency, customer satisfaction as their Key Performance Indicator (KPI),well-developed supplier relationships, and consistent innovation of

high quality products andmanufacturing efficiencies with little to none unused capacities were all discovered as ingredients to success . A new training program emerged which helped managers see the errorof existing measurement practices. Managers were further trained to look at largerscaleopportunities for improvement, and broaden their vision of what success actually looked like.Welch continued to subtly injecting his ideas about globalizing business units within GE.He looked for opportunities within each business unit to not only increase success levels withinUnited States markets, but to benchmark GE against competitors on the world stage. To provehis steadfastness, Welch hired Paolo Fresco, a proven negotiator, to head the InternationalOperations position. GE took advantage of global economic downturns in countries like Mexicoand Japan to increase their acquisitions, doubling revenue from international operations withinthe first five years.Welch dug even deeper into the fabric of GE with an initiative focused on locating anddeveloping leadership at all levels of the company. GE employees were being developed, evaluated and compensated based on a demanding evaluation process called Session C . Welch had employed this process with his top team members and was now drilling down to otherbusiness layers in search of the next wave of GE leadership. Now, everyone in the GEprofessional corps could expect detailed feedback on their performance, a clear plan for developing their skills, and with successful completion of their training and development plan,knowledge about what future positions they might hold within the company. To incentivizestronger work ethics, GE revamped its compensation package by offering more stock optionstied directly to individual performance for program initiatives. Welch wanted employees to feelvalued for their contributions, and highly-compensated for their efforts.Welch used Crotonville, the management development facility, as his incubator.Crotonville was re-designed and outfitted with new buildings for example. Teams of managersfocused on real-time issues fa cing GEs business to produce action plans for achieving results.Welch was so committed to this concept that he taught and talked with managers at Crotonvilletwo times per month. He practiced what he preached, leadership development through activementor ship and teachable moments. Once Welchs commitment to developing internalleadership was fully in play, he made it clear that everyone would need to commit to GEs

values, or risk being let go. He knew that some managers made the cut based on numbers, butfailed to inspire and motivate their employees. To further demonstrate his seriousness about having thoughtful leaders, he implemented the 360 o review . Everyone was evaluated by theirpeers and subordinates in addition to their leadership. This process [identified] training needs, coaching opportunities, and eventually career planning-whether that be up, sideways, or out (Bartlett & Wonzy, 2005, p. 8). Is there a logic or rationale supporting the change process? When analyzing Welchs rationale for the changes made, it is important to identify the benefits of incorporating Porters five forces model to analyze competition within an industry. Welch based his proposed and implemented changes on proven tactics used by other successfu companies to achieve his strategic organizational goals. Realizing that bureaucratic models of organizational structure were prone to promoting sluggishness, Welch opted to depart from thismodel and implement a more flat organizational structure to assist in meeting his defined objectives. Although unpopular at the time, Welchs decisions and actions have through time become renowned as revolutionary exposing sheer genius in executing changes within anorganization. How does such a large, complex diversified conglomerate defy the critics and continue togrow so profitably? Have Welch's various initiatives added value? If so, how? Although GE had gone through a major reorganization that contributed to its successes,the changing business climate when Welch took over as CEO required more to be done. Thecomplex diversified conglomerate consisting of overlaying groups of 46 divisions and 190departments all supporting 43 business units were faced with a recession, an economy of highunemployment, high interest rates, and an overvalued U.S Dollar. These uncertainties andclimate of continuous change and increased competitions led Welch to the realization thatovercoming the

magnitude of challenges would require unconventional leadership and boldstrategies. He understood that in turbulent times, strategy was not just about building a positionof sustained competitive advantage but rather formation and implementation of a strategycentered on the development of timely responses and flexibility to create successive temporaryadvantages (Grant, 2011, p. 16). To successfully achieve such objectives required the reconfiguration of organizations resources and competences (Grant, 2011, p. 16). In times of uncertainties and recession, the normal course of action for many businesses is to engage in costcutting strategies, but studies demonstrate that such strategies are not always sufficient Investment in the right places during hard economic times enables a company to perform betterduring and after a recession (Anonymous, 2009, p. 9).GE defied critics and the prevailing convention of multi business break up by adaptingvarious strategies which included but was not limited to restructuring through what Welch called Fix, Sell or Close. Through this strategy, the company was able to analyze the 43 business esunder its umbrella and only those businesses that were number one and two in their industrieswere maintained. Those that were not maintained were either sold or closed down. Businessesthat were maintained became the center of strategic focus in terms of developing those unitsthrough additional investment and developing efficiency and effectiveness procedures andoperations. This strategy is an indication that Welch did not adapt cost cutting strategies like many of the companies during that time but his goal was as he said: I would like GeneralElectric to be perceived as unique,with world quality leadership in every one of its productsline (Bartlett, 2005). Sellin g and closing of some businesses was about doing away with thosebusinesses that were under performing, and did not add value to the company. By doing so, thecompany became more efficient and a value building culture permeated the GE workforce.Evidence of this is shown when considering the fact that that Welch divided the remainingbusinesses into three categories known at The Three-Circle Vision (See Exhibit 2). Thebusinesses were not the only component of the company to go through restructuring, but Welch s goal of making GE lean and agile resulted in de-staffing and reduction of bureaucracy,eliminating layers of hierarchical that were bottlenecks to growth and operational, personal andproduction efficiency. The underlining principle in the transformation is that in order to operatean effective and efficient world class

business, and sustain number one or two positions in anindustry, GE had to invest in the right businesses and develop staffs that are the best at what they do. Individual employees were empowered to lead in their own capacity by finding ways tocontribute to the value system of the company. Leaders were challenged to find ways to maketheir people more effective and competitive. Open forums were created to find avenues of improvement at all levels of the firms business, operations, human resources and employee morale. Critics saw the companys strategy of developing leadership and employee capabilities enhancement as being risky especially in times of uncertainties. They also viewed the removalof boundaries through what was known as Work-Out best practice and the creation of theboundary less as being radical and risky. However, through the determination of Welch and histeam, and the desire for change; the risk paid off contributing to the value of the company.Welch understood that strategy is not about doing things better, but it is about doing thingsdifferently through effective decision making and knowing where to compete and how tocompete; as emphasized by Porter (Gant, 2011, p. 18) regardless of how radical and risky it mayseem to critics. GE had acquired firms that enabled it to expand globally and developed globaloperations that resulted in the company almost doubling its international revenue to $42.8billion. The company became lean and agile, with increased efficiency and organizational culturetransformation. Through the stretch target initiatives, all employees were asked to prove howgood they can be by setting and reaching higher goals that were once deemed to be impossible toachieve. Another important value added to the company was the service business, whichcontributed to twothirds of the companys revenues (See Exhibit 9). These and other initiatives are examples of how Welch endeavors, initiatives and ideas contributed to the value of GE. With Welchs leadership GE ventured into new sectors, and did away with ineffective ones, developed a massive global market that out performed its 11 GEs Two Decade Transformation domestic markets, created a service industry and an E-business; thus increasing it revenue andincreasing its value by 60%, and most importantly surviving the

recession and creating a largecomplex diversified conglomerate that continues to defy the critics and grow in performance andprofitability. Values added include but not limited to the reduction of bureaucracy which resultedto more expedient processes, and effective operation. Welch extended his Fix, sell or close fromthe national level to the international level. He also saw the challenges in other countries andeconomic difficulties as opportunities for new investments and expansions. Values added alsoincluded the transforming of GE culture to a more learning, knowledge sharing and demandingof excellence, commitment and service to the goal of the organization. Welch introduction of business service contributed to twothird of the companys value. Last but no t the least, hisintroduction of the Six Sigma quality initiatives led to 62% in turnaround time, return of $750million over the investment exceeding expectations along with a forecast of additional returns of $1.5 billion in 1999. In addition to this the program also contributed 300 million pounds of newcapacity. What is your evaluation of Welch's approach to leading change? How important was he toGE's success? What are the implications for his replacement? Jack Welchs mission was to restructure t he company in order to become the number oneor number 2 competitor in the industry. He embraced change, expected his team to do the same, and challenged his team be better than the best (HBS, p.2). He employed different management reporting structures at different points of the transformation. For example, he felt asthough there were too many layers at all large headquarters groups, as a result he spearheaded ade-staffing process which resulted in a vertical reporting structure with major department heads 12 GEs Two Decade Transformation reporting directly to him. In addition, his team of managers shared the same commitment tomanagement values. Furthermore team members had to have the willingness to take charge, tothink outside of the box, to push the envelope and most of all to be team players. In return Welchcompensated those employees with generous bonuses and incentives. Welch fostered open communication and created a culture characterized by speed, simplicity, and self confidence.

(HBR, p.4). In order to show his commitment h e launched the Work Out program which created a forum where employees and managers could work out new ways of interacting witheach other.Welch never rested on his last success; he continued to innovate and to look for ways togrow the business both i nternally and externally. For example as Work Out began he began tothink of additional ways to increase productivity. As a result the best practices program was created in an effort to learn from other companies and to identify the reason for their success.Welch believed in developing leaders and provided the tools for them to do so. He adapted ahuman resource department that would be in line with his goals. He challenged his managers toidentify future leaders, and then developed a training program and a developmental plan for all key jobs. He understood that GEs assets were in fact their people and in turn had to be managed as a company resource. Welchs unwavering involvement in every facet of the business was essential to all of these incentives, and directives. His philosophy was not a do as I say not as I do mentality. In addition he never rested on his last success. He created the Stretch program in an effort to push people to be the best they can be, to test boundaries, and to g et people to think of fundamentally better ways of performing their work.(HBS, p.10). Ultimately Welchs strategy was to look atthe external factors that affected GEs success, while implementing a bottom to top approach. 13 GEs Two Decade Transformation Ultimately he realized that the success of GE relied on the strength of his team. To thatend he was relentless in ensuring that his team was set up for success. Everything Welch did reflected his belief in his people and as he once stated. I own the people, you just rent them. (HBS, p.7). Welchs replacement will need to establish him/herself and make a name for

themselves. This person will need to clearly communicate their vision and how they will goabout accomplishing those goals. He/she will need to continue to foster open communication inan effort to continue to foster teamwork. Innovation will be crucial if the company is to thrive under the new leadership. Welchs replacement will need to make a name for himself by creating new programs that continue to foster employee/employer relations, and by understanding theimportance of looking at the external factors that affect the overall business Conclusion As stated throughout this analysis, Jack Welch stepped out into uncharted territory withlofty aspirations of making dramatic change within the GE organization for positive growth.These efforts were achieved through several unprecedented means and reorganization of theexisting organizational structure to facilitate discussion, communication, and constructivecriticism unilaterally throughout the company. Although some of his chosen methodologies were deemed by critics as radical and risky, the results of Welchs actions speak for themselves as a testament to his strategic leadership at the GE helm. The agility, responsiveness, productivity and ultimately profitability realized as direct results of Jack Welchs actions while operating in the office of GE CEO are key indicators of the lasting impact that his legacy leavesfor future officers tapped to fill the position. Programs and processes established under hiswatch leave an impressive standard for successors . Without a doubt, Jack Welchs leadership has left a lasting impact on GE and the business world.