GE’s Two-decade Transformation Jack Welch’s Leadership Managing Konwledge and Learning (#9-399-150) ANALYSIS of GE Advantage, Problems and risks including my suggestion/ * (1) GE *Key factors*: Hardware restructure*: When Reg Jones, Welch’ Predecessor, became CEO in 1973, the company organization was just completed to be centralized, but Jones could not able to keep up with reviewing massive volume of information generated by 43 strategic plans. Finally in 1977, he capped GE’s departments, divisions, groups, and SBUs with a new organizational layer called “sectors”, which represented macrobusiness agglomerations.
Under a economic recession, high interest and highest unemployment, Welch as new CEO targeted “better than the best” and set in motion a series of changes that were to radically restructure the company over the next five years. Following this philosophy, he started the actions under the following strategies below. First strategy: Welch set up simple notion overall GE that businesses were categorized as core, high-technology and services. Then, he accept to let only #1 or #2 business survive and other business be sold or close.
This drastic strategy brought not only improvement of financial statement of the company, but also good tension in the company and was close to the actual environment and east to fit customers demands. In organizational strategy, Welch downsized all larger headquarters groups including the number of strategic planning staffs under the simple strategy, which realized more lean and agile organization. Especially laborious strategic planning system was destaffed and was replaced by Welch and his 14 key business heads as same as budgeting process radically redefined.
In 1985, Welch also eliminated the sector level his predecessor built. Welch completely chipped away at GE bureaucracy and hierarchical levels was reduced from nine to four. Finally he replaced 12 of his 14 business heads in 1986, which consisted of managers with a strong commitment to the new management values, willingness to break with the old GE and an ability to take charge and bring about change. By the late 1980s, most of GE’s business restructuring was complete as hardware. (2) Software restructure (Cultural initiatives):
After completion of the organizational hardware structure, Welch launched the organizational software restructure, namely “Work-Out” and ”Best Practices”. Work-Out is the theory of the practical improvement by not managers, but all staff. That is epoch-making system similar to Kanban system in Toyota in modern. What is worthy of special mention is his unique and smart approach that he requested to form a small implementation team first and, with the help of two dozen outside consultants, lead the company-wide program rollout. Start from the smaller attempt made big challenging.
Another drastic concept “Best Practices” was the outcome of learning for the competitors’ productivity growth, which focused on developing effective processes and emphasizing the need for a constant stream of high-quality new products designed for efficient manufacturing. That valued the process of productivity in GE staff mind. (3) Globalization (from smaller attempts to larger challenge. ): Start from the smaller attempt made big challenge was also practiced in GE’s globalization. First Welch focused on GE’s performance in U. S as limited region. hile he initiated to focus on raising bar of GE standard in global markets after completion of restructure in U. S operation. (4) Knowledge management (skills sets and mindsets): Welch insisted on changing software in the organization. He focused on dispersing GE’s new strategy and organizational imperatives in not only executives and managers, but also all employees. Through the reviews of this knowledge management, he more deeply pursued potential leaders as future assets. He spent at least 70% of his time on direct control for the personnel matters and human resources.
Finally he set up new criteria of the leadership and categorized all possible managers under its criteria. (5) Boundaryless* organization*: Welch also pursued integrated diversity not only in vertical point of views, but also horizontal point of views. Overall organization and beyond sectional positions, employees communicate and support each other. His great jobs was to create such a cooperative atmosphere overall the company. It was not easy to replace the culture in international large company beyond traditional culture, individualism and countries own cultures.
The other points is that horizontal cooperation might be ideal to create business opportunities, but easy to keep in the large company which had hierarchical levels. His smaller attempts were effective. Moreover, his leadership changed overall employees mindsets. *(6) GE’ S*ystem lock-in: Confident quick decision and long-term strategy also shifted profit composition from traditional industries (hard) to services (soft) additional to improvement of the productivity. That mean beyond a manufacturer and a simple sales promoter, the company combined the good and the service to obtain more customers satisfaction as solution provider.
This solution providing was so competitiveness that no body could not catch up GE. This enabled GE to reach the position in the System lock-in of the delta model. (7) QAC (Quality control = the firmer customer’s satisfaction (Strengthen at Customer’ bonding)): Quality control for products and services under six sigma required huge investment ($500 million), but return of $750 million exceeded expectations successfully. Even just before he retired, he focused on the quality of the organization continuously and prevail 4E concept as well as six sigma Quality initiative. (8) Future assignment = e-commerce
During Welch’ period, GE was behind others in the points of internet business. He recognized its importance, but he could not introduce it overall the company. Especially it could be tools for sales promotion, but he could not achieve to utilize it for the organizational transition quickly. Internet should have been utilized not for GE products sales, but organizational structure. It might be effective for quality control in service and productivity which increase customers satisfaction and accumulate the customers information much helped to strengthen the bonding with the customers through further innovative proposal to them.