Basic Information of GE’s Two Decade Transformation: Jack Welch’s Leadership
Author: Christopher A. BartlettPublisher: HBR
Case Number: 399150-PDF-ENG
Publication Date: Apr 28, 1999
Course Category: Management
Case Summary of GE’s Two Decade Transformation: Jack Welch’s Leadership
OverallKey for management, recognize environmental change and transform company
8 Transformational Steps: Establishing a sense of urgency
Forming a powerful guiding coalition
Creating a vision
Communicating the vision
Empowering others to act on vision
Planning for and creating short-term wins
Consolidating improvements and producing still more change
Institutionalizing new approaches
(series of phases, often require significant time, can’t skip steps, each step must be successful)
Jack Welch CEO in 1981: Early 80’s radical restructuring
Late 80’s changed culture, values and managerial mind set
1990s managed norms (boundaryless behavior, stretch goals, 6 Sigma)
Questions
How difficult a challenge did Welch face in 1981?
How effectively did he take charge?
What is Welch’s objective in series of initiatives he launched in late 80s and early 90s?
What is he trying to achieve in the round of changes he put in motion in that period?
Is there a logic or rationale supporting the changes?
How does such a large complex diversified conglomerate defy the critics and continue to grow so profitably?
Have Welch’s various initiatives added value? If so, how?
What is your evaluation of Welch’s approach to leading change?
How important is he to GE’s success?
What are the implications for his replacement?
Case
- 1999 revenues $100B+, margins high, earnings per share high… “Most Respected Company in the World”
- Shareholders were worried with Welch upcoming retirement… could the company sustain the pace of change and growth characteristics of the Welch era
GE Heritage
- Stated in 1878 w/ focus on generation, distribution and use of electric power.
- Additionally it expanded into power generation, household appliances, and lighting
- 1978 engaged in diverse aircraft engines, medical systems, and diesel locomotives
- Leading edge of management practice
Jones (Welch predecessor) CEO in 1973, good at strategic planning, company leaders SBU-based structure and sophisticated planning process, he was dubbed CEO or the decade
Welch Early Priorities: GE’s Restructuring
1981 Economy in recession, high unemployment, high interest rates… company needed restructuring
1 or 2: Fix, Sell or Close
Welch each business needed to be 1 or 2 competitor in industry… had to be broad strategy because it was a broad corporation.
3 Circle Vision:
Services (acquisitions, note 370 exhibit 3),
Technology (leading edge),
Core (re-invest in productivity)
Support, Outside, Ventures (exhibit 2)
Internally wanted company “lean and agile,” chip away bureaucracy example laborious strategic planning system or budgeting process (targeted towards competitors), reducing hierarchical levels from 9 to 4 ensured all business reported directly to him
Downsizing, de-staffing, de-layering 123,000 staff cut, operating profits rose dramatically, and set base for strong increase in sales and earnings for second half of decade (exhibit 5)
Replace 12 of 14 business heads, called “Varsity Team,” all strong commitment to new management values, and willingness to break old culture, and ability to take charge and bring change… Bold Action
Late 80’s: Second Stage of Rocket
- Restructuring complete, but still culture shock and management exhaustion… needed more solid foundations
- “Software” Initiatives: Work-out and best practices: software changes = cultural changed (too sustain high productivity)
- Norm to be an approach based on openness, candor and facing reality
- Core elements to be speed, simplicity, and self confidence
- 2 initiatives, Work-out and Best Practices
Workout
- Create a culture of small company
- Forum where employees could not only speak their mind, but get immediate response
- Designed a process ride of unnecessary bureaucratic work out of system
- 24 outside consultants, company-wide program
- Style New England town meetings, three days, bosses out of room, but then return here employees and make instant responses
- Productivity increased
Best Practices
- Goal to still increase productivity, studied other firms
- Focused on developing effective processes than controlling individual activities, customer satisfaction was their main gauge of performance, they treated their suppliers as partners, and they emphasized the need for constant stream of high quality products designed for efficient manufacturing
- Changed mangers managing and measuring
Going Global
- During early-mid 1980s, was on back burner
- Not want to impose corporate globalization on corporation, but allow each business to decide
- But now looked at ranking 1# or 2# on global level
- Ongoing effort
- During Mexico downturn, w/in 6 months GE bought 16 companies, positioned for country’s rapid recovery… same strategy for Asia
- 1998 international revenues were $42.5B (doubled in 5 yrs)
Developing Leaders
- Huge task of realigning skill set and mind set of 290,000 employees
- Many felt overworked and residual distrust left from layoffs
- Psychological contract based on perceived lifetime employment, produced a paternal, feudal, fuzzy kind of loyalty
- Wanted to change focus outwardly to competition…wanted staff willing to compete and in exchange get professional opportunities… made a commitment to developing people
- Adapting human resources systems to fit his goals, example reviews known as Session C
- Paid close tabs on upper 500 executives, they were responsible for presenting results in exhaustive 12 hour reviews
- Expected honest feedback, used basic for coaching and developing their staff
- Overhauled GEs compensation package, stock options became primary component of management compensation and expand stock option from 300 to 30,000 people (more aggressive bonus awards)
- Create environment in which people could be their best
- Priority to develop a generation of leaders aligned with GE’s new vision and cultural norms, training center
- Discussion leaders, Welch meet with employees twice a month (exhibit 7)
- Not all managers were able to achieve Welch’s ideal leadership profile (exhibit 8)
- Top level managers were rated on performance against targets plus how the “lived” GE values
- Introduced 360 feedback process
Into the 1990’s: The Third Wave
Foundation had been laid, now task rebuilding company at an even more urgent pace
Boundaryless Behavior
- Initiatives aimed at strengthening GE individual business, create “integrated diversity”
- Open, anti-parochial environment… sharing ideas… remove the barriers among engineering, manufacturing, marketing, sales etc
- Be as comfortable doing business in Budapest as Louisville, and erase group labels as “salaried”
- Wanted to quickly learn from each other, “integration model,” develop a model guided the actions of managers, realigning the organization and remove blockers
Stretch: Achieving the Impossible
- Reinforce his rising managerial expectations, new assault on GE cultural norms
- “Stretch” to set performance targets and described it as “using dreams to set b. targets, with no idea how to get there”
- Targets not replace traditional forecasting, managers still had to hit these basic targets, Stretch goals were set higher but not held accountable… wanted to keep a positive attitude
- Mid-1990s stretch goals were established part of culture
- Increased operating margins from 91’ to 95’ 10% to 15%
Service Business
- 1994 launched a new strategic initiative designed to reinforce one of his earliest goals, reduce GE dependence on traditional industrial products
- 1980s initiated an initial tilt towards service business, acquisition of financial service companies
- Now push for product services… needed to supplement slow growth products with added-value services, example medical business “In Site” for CT scanners and MRI equipment
- Believed they had a strong platform to build off of (ex 9000 commercial jet engines, 10,000 turbines)
- “turning the pyramid upside down”
- 1997 GE made 20 service-related acquisitions and joint ventures (exhibit 9)
Closing Out the Decade: Welch’s Final Chapter
Closing in on mandatory retirement, wanted to keep adding value… said he was not willing to split up company
6 Sigma
- 1995 company survey showed employees were dissatisfied with quality of its products and processes
- Learned from Motorola Six Sigma quality program which improve quality, lower costs, and increase productivity
- GE operating at error of rates 10,000 times the 6 Sigma level (cost $8-12 M)
- Well developed program with detailed implementation, linked series of management meetings “operating system” series of planning, resource allocation, review and communication
- 40% of bonus were tide, returns to company $750 M (exhibit 11)… rapid
“A Players” with “Four E’s”
- Continued to focus on quality of team, wanted to continue to upgrade quality depth
- “A Players” vision, leadership, energy, courage
- 4 E’s energy, able to energize, edge, execution
- Appraisal system every manger ranked employees 5 categories, only top ones received stock
- Believed continuously upgrading was key to success
Toward Retirement: One More Initiative
- 4th strategic initiative- e business, “biggest change I have ever seen”
- Knew they were late, but felt well positioned with strong brands, top ranked product reliability, great fulfillment capability, and excellent service quality… thought dot com would have a hard time challenging them
- Debate on how quickly and effectively GE could pull it off
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