Two Decade Transformation Essay
Two Decade Transformation
1. How difficult a challenge did Welch face in 1981? How effectively did he take charge? Jack Welch became the CEO of GE back in April of 1981 when the economy was in a recession. He faced the highest unemployment rate during that time due to the high interest rates during the depression. Several other challenges came along with this position from the increase in competition and also being overshadowed by a longtime predecessor that completely changed the face of the company. Jack also had to immediately face the increase in competition from foreign companies looking to grab hold of the market share in the industry. After taking over, Jack felt that in order for the company to move forward that they need to set themselves apart from the competition and be the best in the business.
He felt that in order for GE to accomplish this task that the company needed to make some adjustments and create its own identity and standards to abide by. With all of the challenges facing the company, his mission was to completely restructure the company within the next 5 years and the standard was to be either #1 or #2 competitor in the industry. He planned to accomplish this task by following the “three circle concept” of improving Service, Technology and the Core. Jack implemented a new strategy of Fix, Sell or Close.
If a business was able to be fixed, then it was capable of being #1 or #2 amongst its competition, and if not then the business was sold or closed. Jack decided to prepare for the competition by parting ways with 12 out of 14 of the hired business heads. He wanted individuals that fit the company’s standards; a strong commitment to management values, a willingness to break away from the old company standards and culture set by his predecessor, and also has the ability to take charge.
Although these changes did not increase revenue between 1981 and 1985, his philosophy and effectiveness was shown by their growth in operating profits. This represented an increase from 1.6 to 2.4 billion dollars between the same years which equaled a 67% growth. His ability to reshape the company and break away from the old culture allowed him to face the new challenges of the industry. 2. What is Welch’s objective in the series of initiative he launched in the late 1980’s and early 1990’s? 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 change process? Jack’s goal was turn GE into the best in the industry. He identified several valuable factors that he considered to be critical to the success of GE. His primary objective was to change the culture of GE to one that consisted of honesty and sincerity and also where diversity was welcomed and respected.
He wanted the type of environment where everyone’s ideas and opinions mattered. Jack had a corporate vision for GE that would set it apart from all of the competition and he wanted to set standards that were not easily substituted. He also knew that he would have to groom leaders that would fit the new culture and dynamics of his vision of a new GE and also create an environment where people could maximize their potential. He realized that people were the most valuable asset to the success of the company, and to implement this transformation his initiative was to get rid of the old means and methods of the company and adapt new ones. He envisioned completely restructuring the company from the ground up. He knew that by creating this “boundaryless” environment, he would be encouraging diversification amongst the company and that people would buy into the new standards set for the company. While Jack’s intentions were not always clear, he had justified reasons to implement new processes into the company. He developed new programs to measure the success of the plans that he had implemented.
He evaluated his leaders on a 360 degree feedback process by their managers, peers, and subordinates to identify those managers that were being successful. Jack did not hesitate to replace anyone that either did not fit the core values of the company no matter how successful they were. As long as you believe in the company’s values, and understood the direction of the company you were given a fair chance. Also, plenty of training was offered to those that needed it. This program eventually changed into what Jack expressed as “A-Players with 4Es”. An “A-Player” was someone that had energy, an edge, and was capable of executing. Jack believed in taking care of his employees. He would urge his staff to reward and give raises to the employees that deserved it. Time was never a waste when it came to developing employees to be better to improve.
3. How does such a large, complex diversified conglomerate defy the critics and continue to grow so profitably? Have Welch’s various initiative added value? If so, how? Jack addressed critics by reiterating the company’s plans and commitment to continue to grow. One of the main factors to GE’s continued success was the investment in grooming and training of their employees, especially in management. He also expanded the globalization strategy to the employees and asked them to “globalize the intellect of the company.” This strategy reinforced his prior initiative of “boundaryless” behavior. GE’s top line growth over Jack’s two decades of leadership was $102.6 billion. He was able to grow the business effectively by increasing operating profits to $171.8 billion. The growth of the company between 1990 and 2000 had increased 3x’s greater than what it was between 1981 and 1990. This is a clear reflection and result of his focus on a people first mentality. There were three other business initiatives that drove significant results for the organization. The first was globalization.
The international business experienced a 15% average annual growth rate between 1987 and 1998. This accounted for $42.8 billion in revenues during 1998, “almost double the level just five years earlier.” The second was the focus on driving the service business. In 1980, services were only 15% of revenues. The forecast for 2000 saw the service business making up 75% of total revenues. This positively affected the company’s profitability, making up almost 60% of profits in 1995. The third was the implementation of six sigma processes. While there was an initial investment of $500 million to train all employees, GE forecasted incremental returns of $1.5 billion in 1999.
4. 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? Jack’s talent was influential and highly motivating toward leading organizational change to his team and to those familiar with this case. He was committed towards making GE the best in the business and his commitment was the center of his drive toward leading positive change. Despite the depression and all the challenges that he faced when he took on the responsibility as CEO in 1981, Jack took charge and molded General Electric into what it is today. He did not allow these challenges to prevent him to pave the way that has led to the success that GE has gained. Jack’s methods ignored fair process and he faced a great deal of resistance. Jack’s committed attitude and unwavering confidence to build a better GE has led him to overcome all barriers and his influence has stretched beyond the huge and much diversified conglomerate.
During the first phase and the first decade of his leadership, Jack focused his energy on breaking the system and streamlining GE. Between 1981 to1988 he eliminated more than 100,000 jobs, challenged the company’s business models and future focuses all while initially failing to involve others, provide explanations, or clarify expectations. This first phase of the change he brought was instrumental to GE’s success and prevented it from wasting valuable resources on employees that were not stars, did not have the desire to compete, or had values differing from that of GE’s. Once Jack felt that he had the right individuals in place, then around 1989 he began reshaping the culture and developing many of the programs that are still being used today. Although Jack always seemed to recognize the value in human capital by retaining good people and by eliminating the deadwood within the company, contradictory to his leadership style exercised in the first phase, he embraced open communication and advanced techniques to achieve commitment by aligning employee goals with company targets through use of a human resource system.
He emphasized the importance of creativity and innovation versus objectives being results driven. This was accomplished by fostering an atmosphere in that failure was not a catastrophic event. Although his focus may have shifted, Jack remained a powerhouse never letting up and never becoming comfortable in all of the great successes he and his team shared. Because he was a steward leader, he continually made efforts to improve and wholeheartedly believed that his work, as well as the evolution of GE was continually changing and could never be entirely fulfilled. Jack has now created a similar challenge from when he first took on the job as CEO in having to either exceed or continue the work of his predecessor with all that he has accomplished. It will not be an easy task for someone else to come in and continue from where he’s left off.
Upon Jack’s retirement, stakeholders naturally shared a deep concern about the financial well-being and long-term security of GE. It is important to point out that Jack’s principles were not successful just by following the models and conducting business as usual, but that he invented his own vision and by doing so he renewed GE to become much better than it was before. Jack challenges every single person at GE to add value each day. Leading a company into ultimate and continuous success using someone else’s model and vision is probably one of the hardest tasks to accomplish and filling in Jack’s shoes will be a very difficult task for anyone to follow.