Ge’s Two-Decade Transformation: Jack Welch’s Leadership

Individual Case Analysis

James Zhao

B00623088

Executive Summary

The objective of this case report is to deliver recommendations to solve the leadership challenge that General Electric is now facing by analyzing Jack Welch’s leadership in strategy implementation, organizational change, and its impact on corporate culture.

Introduction

General Electric (GE), the world’s largest multi-business company, was founded in 1878. Jack Welch was appointed CEO in 1981, and implemented a series of strategic changes during his two-decade tenure, making GE one of the world’s leading diversified industrial companies. The main issue that GE currently faces is to find a successor who can sustain the high growth rate Jack Welch achieved and lead the company to seize new opportunities.

Strategic Initiatives Implementation

1. Restructure

At the time Welch took charge of GE, the U.S. economy was suffering an economic depression, including high interest rates and unemployment rates which harmed the profit of the company. Increased globalization and loss of market share to competitors like Japanese decreased profits. Internally, the decentralized corporate structure and bureaucracy decreased the company’s efficiency and effectiveness. For these reasons, Welch began restructuring the company to leverage performance in GE’s diverse portfolio of businesses.

Welch’s strategy was multi-faceted. Externally, he set a goal that each business of GE should be the “#1 or #2” competitor in its industry. More specifically, he categorized GE’s business in three groups, which are Core, High-technology and Services. Any business under these three groups that did not fulfill its group target will be subjected to the “fix, close, or sell” options. As a result, there were more than 200 businesses being sold during the period 1981-1990. In the same time period, GE made over 370 acquisitions. Internally, Welch focused on making the company lean and agile in three ways. This included: 1) replacing the strategic planning system with “real time planning”; 2) redefining the budgeting process by evaluating against external criteria rather than internal performance in the past; and 3) eliminating the sector level. GE significantly decreased bureaucracy through this downsizing, de-staffing and delayering process. This process increased working efficiencies, and boosted productivity.

1. Going Global

While globalization was a back-burner issue for GE, Welch concentrated his early efforts on the company’s U.S. operations by considering organizational readiness. Through implementing strategic restructure, GE had an internally strong base to go global. The successful implementation of the “#1 or #2” standard during the restructuring period gave the company confidence and ability to apply the same standards to global market position. Additionally, Welch took the economic depression in other countries as a growth opportunity for GE. For example, during the time of Europe’s economic downturn, the collapse of the Mexican Peso, and Asia crisis, GE made a series of investments in these respective countries with numerous acquisitions, joint ventures and purchases. These series of investment can be considered as the entry model of GE’s global strategy.  Joint ventures helped GE access partner knowledge and decrease the development cost and risk. Further, acquisitions enabled them to protect their technology, and engage in global strategic coordination (HSJ, 2017). The result of the global strategy was clear. By 1998, global revenue growth rate was three times that of domestic revenue growth rate.

1. Service business

This strategic initiative launched by Welch aimed at pushing the company for services, therefore decreasing the dependence on its traditional industrial products. While end-consumers demanded high quality products, revenue growth in this segment was marginal. To counter this, GE pursued value-added services, increasing growth opportunity and sustainability. The result of this strategy built one of the most significant core competencies of GE. As GE had a strong market share and competitive advantage, including “an installed base of some 9,000 GE commercial jet engines, 10,000 turbines, 13,000 locomotives, and 84,000 major pieces of medical diagnostic imaging equipment” (Christopher, Meg, 2005), the company leveraged these products to include value-added services. Applying VRIO model, these resources enabled GE to implement this service business strategy to improve its efficiency and effectiveness. This means that the resource is valuable. The scale of the resource is rare and hard to imitate by other competitors because GE’s market share resource was the result of accumulation. Additionally, Service Council enabled top managers from different industries to share ideas. This increased the capability for GE to coordinate resources and put them to productive use, making the resources organized. The product service strategy not only accounts for two-thirds of GE’s revenues today, but also shaped the company’s culture by the mindset “helping our customers to win”. (Christopher, Meg, 2005)

1. Six Sigma quality initiative

According to a company-wide survey, GE’s employees were not happy with the quality of company’s products and processes. By analyzing GE’s operation under the Six Sigma quality standard, they found that GE’s error rate was ten thousand times the Six Sigma level. Based on these findings, Welch launched the new strategic initiative of reaching the Six Sigma standard company-wide. Six Sigma quality was not a one-time effort, but an ongoing theme with a detailed plan to implement. The operating system in GE – a linked series management meeting including planning, resource allocation, review, and communication meetings improved the company’s capabilities of monitoring, tracking and appraising the whole implementation process. Six Sigma quality as a process will be discussed later in this report as an organizational design.

1. E-business

E-business was the last strategic initiative introduced by Welch before he retired. Although it was late when Welch acknowledged the importance of the internet compared to competitors, GE had a solid base to support this strategy. The company’s core competencies, including Six Sigma process and high service quality, give GE a high fulfillment capability. However, GE needs to make a detailed plan to implement this strategy. While Welch had already launched a new program “destroyyourbusiness.com”, digitizing GE will not be an easy transition. Taking the approach of other strategies such as services, globalization, it should be an ongoing theme of the company. Whether or not to seize this opportunity is significant for Welch’s successor.