GE’s Two-Decade Transformation: Jack Welch’s Leadership Essay
GE’s Two-Decade Transformation: Jack Welch’s Leadership
Jack Welch received his Master of Science and Ph.D. degree from the University of Illinois in 1960. After completing his years of education, Welch was hired by General Electric Corporation (GE) as a chemical engineer for the Plastics department. Promotions followed rapidly and at the age of 45, in April 1981, he became CEO of GE, one of the world’s leading diversified industrial companies. Even though, the U.S. economy was in a recession during that time and unemployment rates were very high, Welch found the way to challenge everyone around him and to made changes that helped him create one of the ”Most Admired Companies in the United States” 1.How would you describe Jack Welch’s leadership style? Was his effect on organizational culture positive or negative? Defend your argument.
When Jack Welch became CEO of GE, he made a decision to radically restructure the company, realign goals and motivations, and push managers and employees to “stretch” to new previously unknown limits. He set high standards for each of the business units to become number 1 or 2 in the industry, and if the results weren’t satisfying, he disengaged from that sector or sold it completely. Between 1981 and 1990, GE sold more than 200 businesses that freed up over $11 billion of capacity. Jack believed in complete dedication and always putting 110% into everything he was doing. His management style and motivation included three main areas: empowering/motivation, goal setting and clear communication. Welch was very motivated and full of internal driving passion that made him work for reasons that went beyond money or status.
He was always “thirsty” for better results and continuously raised performance bar for GE. He was a strong believer in incentives and rewards, in addition he also implemented a model where stock options became the primary component of management compensation. Employees who were scored highly on their performance reviews received large bonuses, what further motivated them to even higher performance. Welch continuously worked on creating environment in which people could do their best. He believed that good people were GE’s highest asset and created main foundation for company’s success. In order to improve communication and organizational culture, Welch reduced the hierarchical levels from nine to four and made sure that all business units would report directly to him. Welch focused on creating the boundaryless company, with a friendly, open and anti-parochial environment.
It was important to him to create atmosphere where employees could freely share new ideas and find best solutions to any obstacles that company had to deal with. He was completely aware that employees at GE come from different backgrounds and with different experience, therefore his goal was to take away from the benefits of this diversity and aimed to reshape them and guide them toward the right direction with the use of GE philosophies. He promoted people who were thinking outside the box and were able to challenge the status quo. Through these channels of open communication Welch was able to motivate his employees, as they felt direct connection with the company. Welch spent most of his time on training and developing talent within top managers of GE. Around 70% of his time was dedicated to people issues, various problems and developing others.
He used Crotonville training center as a place for communication throughout the GE organization. It was a place where managers learned and experienced many of the GE problems, as well as ways to better cope with various business difficulties and challenges. Through the implementation of the 360° reviews he was able to openly communicate with his employees and let everyone know exactly where they stand in the organization. It was a major motivational force that contributed to increased performance and employee’s dedication. Jack Welch wanted to create a work environment where people at all levels would be held accountable for their own work and asked people to use their dreams while setting business targets. His goal was to make everyone “stretch” and constantly work on becoming a better performer.
In order to reward those employees who were able to reach their dream goals, he compensated them with stock options and substantial bonuses. Welch was fully aware of psychological contract that exists between employees and organizations. Throughout his career as a CEO, he knew that GE offers the best jobs for people who are willing to compete and perform at their highest standards. The company offered opportunities for personal and professional growth and simultaneously rewarded top performing individuals. By flattening the organizational hierarchy, removing the bureaucracy, setting clear goals and open communication Welch succeeded in transforming GE and creating healthy organizational culture. His motivational strategy and clear understanding of psychological contract helped him create best managers and company that became a global leader.
2.From a motivational perspective, was Welch an effective or ineffective leader? How so? Explain and support your argument. Jack Welch is a truly legendary leader who has made General Electric into one of the world’s most successful companies and as Fortune described him “Manager of the Century”. Throughout his career at GE, Welch has continuously concentrated on motivating his employees and “stretching” their abilities. He believed that leaders should articulate a vision and then energize others to execute it. As we all know, socially skilled people are also expert persuaders who find the right way to motivate others. Their passion for work seems “contagious” and has a positive impact on other employees. Welch was striving to attract only the best talent and people who would bring the most value to the organization.
He succeeded in getting huge numbers of very capable people all pulling them in the same very profitable direction. He knew that good people will steer the company toward success and therefore he was a strong believer in incentives. He made sure that psychological contract between employees and organization was being constantly negotiated and that great performance needed to be rewarded. He expended the number of options recipients from 300 to 30,000 and made sure to distribute generous bonuses to individuals who demonstrated outstanding performance. Another characteristic that helped boost motivation and performance within employees was “integrated diversity”, this open and friendly environment helped inspire a much broader thinking, new ideas were being generated and it also improved collaboration between departments.
Welch encouraged his teams by always looking at change as a never-ending opportunity. He constantly urged his people to reinvigorate their business model before someone else did. This strategy helped him gain new market share and strengthen GE’s leadership position. It further invigorated creative thinking and made the company more competitive. His next objective was to create the culture where everyone felt engaged and important. By eliminating one of the sector levels he was able to gain more direct contact with managers reporting to him. We must remember that motivation starts with employee engagement, and engagement begins with effective communication skills. Welch dedicating most of his time to communicating with his staff, developing special management training programs that would help managers reach their goals and educate them to become great leaders.
As he knew that General Electric was an A-plus company, he only wanted to attract A players. To find the right equilibrium he knew that it was necessary to take good care of his best personnel. He did it through promoting them, offering great salaries and stock options and investing in their further development. According to one of the articles written by Victor H. Vroom “Work and motivation”, the concept of Force concentrates on efforts an individual will take when pursuing a particular course of action. Vroom also argued that a person’s behavior is the result of a field of forces, each of which has direction and magnitude. Highest level of force will be reached by actions with high level of both valence and expectation. According to Vroom’s equation of force (Force=Valence x Expectancy), valence and expectation cannot be zero, as it will result in no force to adopt given course of action, since anything multiplied by zero is zero.
When choosing alternatives, people tend to select ones that correspond to the strongest positive force or least negative force. As we can observe in the leadership style of Mr. Welch, he was fully aware of this relationship and knew it was necessary to take good care of his top management. Welch didn’t concentrate on micro management, by giving his employees clear visions and setting new goals he was able to make his workers determine the necessary level of support required to achieve those goals. He constantly set high expectations and asked for more, this triggered creative thinking, increased performance and set new standards for the followers. He didn’t waste time on trying to train and develop Cs to Bs. Through the use of performance appraisal system and “vitality curve” the company was able to eliminate poor performers and only keep the best talent. Welch was able to inspire his staff and his employees were certainly glad he was captaining their side. Whether they liked him or not, they respected him, followed his leadership style and admired him.