GES TWO DECADE TRANSFORMATION: JACK WELCHS LEADERSHIP A Case Study

Submitted By:Roll No. 41 to 50

Synopsis This case study deals with one of the greatest CEOs of the corporate world. John Francis "Jack" Welch, Jr., an American chemical engineer, was Chairman and CEO of General Electric (GE) between 1981 and 2001. Jack Welch was named Manager of the Century by Fortune magazine in recognition of his personal contribution to GEs outstanding 20 years when he was the CEO. GE too won several accolades under his direction Most Admired Company in the United States (Fortune) & Most Admired Company in the World (Financial Times). The case study is about how Jack Welch revolutionized GE by bringing in unique management and leadership techniques, some of them being the work-out, best practises, investment in R&D etc. It provides an analysis of the leadership challenge that GE was facing when Jack Welch took up the position of CEO in April 1981. This case study discusses the methods Jack Welch adopted to reorganise the company to the make it the success story it is today. The primary reason behind GEs successful transformation was Jack Welchs leadership style. When Welch succeeded Reg Jones, The US economy was in recession. He faced the challenge of Living up to the high expectations of people and shareholders set by Jones. Also GE was a much diversified company and setting an overall theme or a single strategy for it was not feasible. When he took charge in April 1981, he undertook a massive restructuring exercise to make GE more efficient and competitive. As of this, he came up with some innovative and aggressive policies like the Fix,Sell or Close, Work-Out, Best Practises, Globalization, investing in R&D, trainings etc to meet his exotic goals. In the late 1980s, Welch implemented the several cultural changes to sustain the new restructured GE. He replaced 12 out of 14 business heads in 1986 to bring a change in GE culture. Once a solid base at home was set, Welch started concentrating on the globalization priorities. He expanded the fix, sell, or close strategy standards to the global market. GE made numerous acquisitions in Europe, Asia and Latin America. He led a strategic initiative to reduce GEs dependence on traditional industrial products. In the second half of the 90s decade, Welch kept on growing the size of GE without breaking it up. He introduced several measures to keep the momentum going like Introduction of Six Sigma Quality Initiative, New performance appraisal system, He Introduced dyb.com to cash on the internet technology and redefine the business model. In the process he did not only make GE a global leader but also a much desired destination for many aspirants. He has set a benchmark for his successor and other aspiring CEOs have quite a lot to learn and imbibe from him.

1. How difficult a challenge did Welch face in 1981? How effectively did he take charge? When Welch joined GE in 1981, GE had an unwieldy organizational structure with 43 strategic business units and 190 departments. In addition to that, Reg Jones, the previous CEO had already carved a niche for himself. While living up to the huge standards set by Jones was already a huge task, Welch was also expected to raise the performance bar and guide the company in times of economic uncertainty. Apart from this, there were a number of unprofitable businesses which were weighing down on the companys profit margin. Inspite of all these challenges, his calm and stable mindset, his hunger to succeed and most importantly, his ability to avoid group think and traps in decision making helped him in achieving his goals. A significant move adopted by Welch included shutting down non-profitable business units, despite the fact that some of them were core GE businesses. As a result of such key initiatives, the operating profits of GE grew significantly from USD 1.6 billion to USD 2.5 billion. Welch also devised strategies to improve the overall quality of managers and processes by framing the Work-Out and the Best Practices policy. Through these he infused greater organizational commitment into his employees. By implementing Work-Out, he significantly reduced power distance in the company. Welch also diversified the job responsibilities of the employees thus ensuring job enrichment and job enlargement. The employees were also motivated by extrinsic rewards like ESOPs, etc.

2. What is Welchs 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? By early 80s GE was going through a phase of reform and fast paced growth. Jack Welch decided it was time to build the company on its more solid foundation. Welchs objective was to make GE the most profitable and highly diversified with world class leaders. Welch attempted to enable others to act. He did so by implementing the Work Out program where employees were expected to continuously improve the organization. He wanted to make GE a place where all felt engaged and everyone had a voice. The following are the initiatives that Welch had taken during 1980s and early 1990s. y Work Out: The objective of the Work Out initiative was to boost productivity by restructuring, removing bureaucracy and downsizing. It was also aimed at creating a cultural change through an open and energetic interaction throughout the company.
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Best Practices: The objective of introducing this initiative is to increase the productivity by studying the other firms. Also it would bring an overall change in the managers outlook, and the measurement parameters. Through Best Practices GE could focus more on the process than the product. Globalization: Welch estimated that by the year 2000 50% of GEs business would be coming from outside US. Despite a belief that it is the businesses that are global and not

the companies, Welch went on for internationalization of the GE. The objective was that once the base at home was solid, globalization could be considered as an option. Also the increased revenue from international market could be leveraged. This was worked in two ways, acquiring companies and investing into new ventures across the globe. Welch estimated that by the year 2000 50% of GEs business would be coming from outside US
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HR Initiatives: The focus was to create an environment in which people could be their best. The objective was to change the mindset from lifetime employment to providing opportunities for personal and professional growth. This was done through the following tools. Compensation: compensation and employee stock ownership program were introduced to increase the employee motivation through higher employee involvement. Feedback: This initiative focused on improving team building, quality focus and vision. It was meant for identifying coaching needs opportunities and career planning of various employees.

Logic and Rationale behind this change process: Welchs management decisions were motivated by his opinion that leadership of the industry was the only option for the company. Like many other American companies in their industry, GE was not associated with modern management practices and considered conservative. With the entry of stiff competition from Asia, GE was being challenged not only to assert to protect its existing markets and at the same time develop new competitive competencies. Welch believed that GE needed to mitigate these advantages by implementing its own efficiency measures.

3. How does such a large, complex, diversified conglomerate continue to grow so profitably? Have Welchs various initiatives added value? If so, how? The reason behind the continuous growth was the series of initiatives which company took to remain competitive in the market and aligning its policies with globalization. The company mainly concentrated on developing its people and providing better services to its consumers. Various measures were taken like work out and investing in R&D to engage employees at the sometime employees showing deviant workplace behaviour were asked to leave the organisation. While in the downsizing process, GE also invested in his people by revitalizing the Crotonville Management Development Facility to better train future leaders and brings about a change in the attitudes of the employees towards the company.

Welchs various initiatives added value because of the following factors: 1. Goal setting and preparing the company on a corporate level for its competitive challenges at the same time asking its employees to stretch beyond the set goals and achieve more than what is expected from them. 2. Empowering employees at all levels of the organization by the process of work out. 3. Communicating his new goals and visions through the entire organization, using such tools as extensive training programs, newly formed teams and review processes. 4. Providing Esops and various performance bonus to encourage employees to perform better. All these things motivated the employees to perform better, think out of box and align with the companys value system, the effect of which was seen in the tremendous growth and improved margins of the company.

4. What is your evaluation of Welchs approach to leading change? How important is he to GEs success? What are the implications for his replacement? Jack Welchs management approach included three main areas. Firstly, goal setting and preparing the company on a corporate level for its competitive challenges. Secondly, empowering employees at all levels of the organization. Thirdly, communicating his new goals and visions through the entire organization, using such tools as extensive training programs, newly formed teams and 360 review processes. He adapted human resources systems to fit his goals. He paid close tabs on upper 500 executives; they were responsible for presenting results in exhaustive 12 hour reviews. He expected honest feedback, and used basic for coaching and developing their staff. He overhauled GEs compensation package, where stock options became primary component of management compensation and he expanded stock option from 300 to 30,000 people (more aggressive bonus awards). He created an environment in which people could be their best. He had a priority to develop a generation of leaders aligned with GEs new vision and cultural norms, training center. Discussion leaders, Welch met with employees twice a month. But not all managers were able to achieve Welchs ideal leadership profile. Top level managers were rated on performance against targets plus how the lived GE values. The kind of leadership that Welch has provided and the values he has instilled in GE's managementspeed, simplicity, self-confidence, and unboundedare uniquely suited to the preparation of a successor who can take GE in new directions under the umbrella of the same set of values and the behaviours they inspire. Everyone felt that they did not do it enough, but Welch was poor at leading by example while CEO. He was more focused on ensuring the results were met. GE was at a crossroads with Welch retiring, change is opportunity as he would say. GE has a big challenge to overcome, as they must decide not only on a successor, but also how much change will occur under the new CEOs reign. Can GE survive another transformational change that occurred under the Welch regime?

5. Evaluate Immelts performance as his successor Jeffrey R. Immelt was appointed CEO of GE at the age of 44. Before that he had been head of GEs plastics business and medical systems. Immelt acquired a reputation for turning around troubled units, driving customer service, and exploiting new technologies. He demonstrated the ability to motivate others an aptitude that he had revealed as an offensive tackle for Dartmouths football team in the 1970s. Between September 2001 and May 2002, Immelt had devoted himself primarily to shoring up condence among customers and investors and within the company in the aftermath of the various shocks to the US and to business opinion. At the same time he was developing his strategic thinking about the future of GE. Jeff Immelts job is considered to be the toughest in corporate American offices for two reasons. Firstly, GE was one of the largest corporations of the world. It was very hard to move the needle that measured the performance to anything big. For example, increasing the earnings by 10% at GE meant adding $5 billion. Thats a significant growth!! Secondly, he has to live up to the work that Jack Welch used to do. There were people who believed that Jack Welch was the single best CEO ever. Immelts personality and style were different from Welchs. Business Week observed: Where Welch ruled through intimidation and thrived as something of a cult gure, Immelt opts for the friendlier, regular-guy approach. He prefers to tease where Welch would taunt. Immelt likes to cheer people on rather than chew them out. That style has given him a very different aura within GE. He may not be a demigod, but its his man-of-the-people nature that draws praise from the top ranks to the factory oor. Immelt knew that his different style of leadership would have important implications for his role as CEO and the ways in which he would inuence GEs strategy, structure, and systems. Welch promoted internal communication that felicitated inter employee communication while Immelt focused more on external communication making it a point to communicate with investors and third parties. Immelt encouraged creative ideas from employees and emphasized on customer satisfaction rather than performance targets. Under Immelt, GE focused more on marketing rather than production. Immelt made GE more environmental conscious. He invested more money to find out technologies that would lead to cleaner and environmental responsible products for GE. Both the CEOs fired the least effective 10% of the workforce each year. The approach used by both the CEOs has been very different. This proves that there is no single prototype to run a business. A CEO should be dynamic and capable to understand what the market demands are and realize what their strengths and weaknesses are. Both Welch and Immelt were able fulfil their responsibilities using different approaches.