Case: GEs two decade transformation: Jack

Welchs leadership
1. How difficult a challenge did Welch face in 1981? How effectively did
he take charge?
Ans 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 and 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. During this transition, the business world
was highly competitive, with the economy, environment, and
political climate in constant flux. If not handled properly, the
transition could be detrimental to the company. Welch was
up for the challenge and knew that a successful transition
would mean and developing a team that would make GE
even more prosperous earning stakeholder trust. This
required assessing the current environment to accurately
determine a way to improve it. Welch convinced his team to
buy into his new vision of where the company should go and
challenged employees to be better than the best. In order
to accomplish this enormous task, Welch placed executives
and management in key places to could assist his efforts to
redirect overall company culture. 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 organizational levels 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 time of his appointment, the
United States economy was in a recession. To combat this
situation, Jack Welch had to develop a plan of action aimed

at keeping the company thriving in the business world. In

order to accomplish this, GE sold many of their businesses,
which represented 25% of their sales. Fortunately, Jones had
left the company in a good place during the transition,
allowing Welch to come in with his new and innovative ideas
to take the company even further in the business world.
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?
Ans Jack Welch repaired the structure of GE with his initial
changes, but now had to manage the 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 twofold.The Best Practices program was assigned to the
Business 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 larger-scaleopportunities 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 degree review
. Everyone was evaluated by theirpeers and subordinates in
addition to their leadership.
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 successful 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 well did Welchs leadership style fit the context?
Ans
3. How does such a large, complex, diversified conglomerate continue to
grow so profitably? Have Welchs various initiatives added value? If
so, how?
Ans 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 businesses under 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). Selling 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 Welchs 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 WorkOut 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 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 domestic markets, created a service industry and an Ebusiness; 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 two-third 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 new
capacity.
5. What is your evaluation of Welchs approach to leading change? How
important is he to GEs success? What are the implications for his

replacement? What kind of leader is required by the organization to continue

its growth path?
Ans
Jack Welchs mission was to restructure the 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 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. In order to show his commitment
he 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. 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..
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.