General Electric’s Two-Decade Transformation: Jack Welch’s Leadership

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Table of Contents

The Present Strategies of General Electric
Mission Statement
Strategies
Internal Environment Analysis
External Environment Analysis
Conclusion and recommendations
References

The Present Strategies of General Electric

Marketing/Sales

General Electric provides a great variety of products and services to its customers. They include home electric appliances, engines for airplanes, medical equipment, software solutions, etc. Apart from that, the company has established several water cleaning facilities throughout the world (General Electric, 2010, unpaged). At the core of marketing strategies, employed by the management of this organization lies the idea of diversity.

This is one of the strengths of this enterprise: decline in demand for a certain type of product will have catastrophic effects on the company.

However, one should bear in mind that this organization has a very high turnover rate among marketing personnel is very high, and this can be viewed as a weakness since continuous rotation of the personnel can eventually decrease the performance of the marketing team. To some extent, the turnover rate is the heritage of Jack Welsh’s reign.

Manufacturing Operations

The manufacturing operations of this enterprise rely on the idea of the so-called “boundaryless company” in which there are no barriers between manufacturing and engineering (Bartlett & Wozny, 2005).

Largely, the concept of boundaryless company exemplifies a matrix organization, in which the employees closely cooperate with one another. Furthermore, this company advocates the importance of the lean production and reduction of labor costs.

Finance/accounting

At the given moment, the net revenue of this organization constitutes the total revenue of this organization $ 157 billion, while the cost of revenue is $ 65,3 billion (General Electric c, 2010, unpaged). It should be noted that in the companies in 2010 the financial performance of this organization has deteriorated especially in comparison with two previous years (General Electric c, 2010, unpaged).

General Electric pursues transparent accounting policies. In particular, it reports include not only the information about revenues and operational costs, but also the data about cost of revenue, inventories, debt, long-term reliabilities, and so forth. This transparency enables an investor to better evaluate the efficiency of this organization.

Human Resources/Personnel

The principles of HR management in General Electric were laid down by Jack Welsh. The company pays close attention to the assessment of employee’s performance. Overall, this company greatly relies on the so-called vitality curve, in which the workers are divided into five ranks or groups in terms of their performance (Bartlett & Wozny, 2005, p 13).

The thing is those employees, who are continuously put in the third category (C) are most likely to be dismissed. This strategy can be viewed as both strength and weakness of the enterprise.

On the one, it allows the management to retain only well-performing employees. However, it also results in the high turn-over rate and tension among employees and poor teamwork. Another important feature, we need to mention is the tendency to downside and delayer the personnel.

Innovation

At this point, R&D (Research and Development) efforts of this organization are aimed at the development of nanotechnologies and more eco-friendly technologies (General Electric, 2010, unpaged). On the whole, such an approach to R&D can be explained by the fact that the management wants to secure a leading position in these two burgeoning industries.

Management

The management of this organization has been significantly influenced the strong personality of Jack Welsh, who has radically transformed the company during eighties and nineties. We can several out several features of the management in the company. One of them is the so-called philosophy of “Stretch” (Bartlett & Wozny, 2005, p 9).

It urges the managers and their employees to continuously improve the financial performance of their departments. Secondly, we need to mention that the management of this enterprise always involves the front-line employees into decision-making. Even though Jack Welsh retired in 2001, its successor Jeffry Immelt do not try to alter his managerial policies and policies.

Other

It is also important to discuss the quality control in General Electric. The company adopts the so-called Six Sigma approach, which relies on interdepartmental cooperation, orientation toward customer needs, the use of numerical and qualitative methods to assess the quality of products and services. (Bartlet & Wozny, 2005, p 11).

New Product/Market Opportunity Alternatives

There are several areas to which the management of this organization should pay more attention to renewable energy industry, for example, they may need to engines that would be able to use biofuels.

One should remember that in the near future, the demand for eco-friendly technologies would only increase both in the United States and in Europe. Another industry, which could be of great interest to General Electric, is nanotechnologies, since it has applications in various spheres such as electronics, healthcare, IT and so forth.

External Threats

The increasing importance of renewable energy. General Electronic actively participates in oil production and transportation while a great number of modern manufactures as well as customers are willing to decrease their consumption of oil-related product as it is both expensive and harmful to the environment (General Electric, 2010, unpaged). The adoption of new technologies can greatly diminish the revenues of this corporation.
Legal restriction imposed on oil extraction. Again, we need to emphasize an idea that the company is very dependent on the demand as well as supply of oil. In the light of the recent Deepwater Horizon oil spill, the extraction of oil will become even more difficult especially in the United States.
The increasing competitiveness in the software market. The company has to compete with such international corporations like IBM, Honeywell International, Microsoft, Apple, etc. IT is one of those industries where the number of market players continuously increases.

Mission Statement

To formulate the mission statement of this company, we can use the words of its former CEO, Jack Welch, who wanted General Electric to become the “the most profitable and highly diversified company on earth” (Bartlet & Wozny, 2005, p 2).

Thus, we may argue that the mission of this enterprise is to retain the status of the world’s leading manufacturer that can respond to the abrupt changes in political, economic , technological and cultural environment. It is also possible to single out several objectives:

To strengthen the firm’s position in such industries as renewable energy and nanotechnology.
To decrease the turnover rate in the organization.
To broaden the range of products and services.

Strategies

The management can adopt different strategies to achieve these objectives:

One of the first tasks is to abolish the use of vitality scales as means of assessing employees performance.
To purchase or merge with those companies which specialize in the production of nanotechnologies and renewable energy systems.
To invest more capital in the research and development.

Internal Environment Analysis

The internal environment for GE can be identified through a strengths and weaknesses analysis – the two internal aspects of SWOT analysis. Such can be identified with various elements such as management, human resource (HR) strategy, and financials of the internal environment.

For GE the first strength include a sound HR strategy that rewards employees based on performance measures that take care of wide array of contribution – e.g. the four E’s (Energy, ability to “energize others”, edge and execution) (Bartlett & Wozny 2005).

Secondly, the entity’s strength lies in a committed leadership with Welch leading from the front, and the support of the management team that he had established. Commitment of leadership team to the values and vision of the organization is identified as a key driver to establishing organizational transformation (Cohen 2004).

Thirdly, the strength of the organization lies with its diversification into service businesses that offer enhanced value to the customer. Such services offer the company the opportunity to increase customer satisfaction, an antecedent to establishing long-lasting customer relationships (Gronroos 2004). Finally, the entity’s strong financial performance is critical for supporting its expansion programs across the globe.

The entity’s weaknesses on the other hand arise from a centralized decision-making process with Welch at the center of each decision. Such a process is disadvantageous in a number of ways. Firstly, it could limit effective transition with prospective successors being used to a culture of a “father-figure.” Secondly, such a strategy is limited with the globalization strategy the entity embarked on.

With its operations extending into global regions, such a strategy limits the speed of implementation at overseas subsidiaries and may face cultural and political barriers where the organization is perceived to benefit “foreign” players more.

Fig 1: GE’s Internal Environment During Welch’s Two-Decades at the Helm

Strengths

Weaknesses

Human resource strategy – sound strategy with well-outlined measures of performance and rewards.
Management – committed to the organization’s values and vision.
Product diversification – Creation of value-adding units e.g. service businesses that could increase customer commitment reading to a long-term relationship.
Financials – strong financial performance (appendix for financial ratios). Improved profitability over the period Welch was in leadership.

Corporate strategy – centralized with CEO being at the center of all decision-making processes, could affect transition, affect global operations e.g. implementation of strategies may take time if controlled from a centralized place, may also face cultural barriers if not specific to a certain region’s environmental and cultural attributes.

External Environment Analysis

External environment analysis can be assessed through the opportunities and threats an entity faces – the two external aspects of SWOT. On the threats end, aspects of a political, economic, social, technological, legal and environmental nature may affect an entity such as GE. Alternatively, external environment may be assessed for competitiveness based on the porter’s five forces (Dagmar Recklies 2001).

These forces are buyers’ bargaining power, suppliers bargaining power, new-entrant’s threats, threat of substitutes and competitive rivalry between existing players (Dagmar Recklies 2001). From the case study, such aspects that are applicable to GE can be identified on a matrix format.

Fig 2:GE’s External Environment

Opportunities

Threats

Expansion to global environments e.g. via acquisitions – enhances economies of scale and reduce susceptibility to country-specific macroeconomic shocks, economic meltdowns that provide the company the opportunity to purchase going concerns with a potential at reduced prices as it has previously done (Bartlett & Wozny 2005).
E-business opportunities – use Internet, social media tools to better customer engagement thus get important feedback to improve its services and product offerings.
- Use virtual technology to support virtual teams that could have cost-cutting effects.

Political – Globalization strategy exposes the entity to different political systems. In countries where there’s political instability, the entity’s business is affected
Economic – though economic downturns provide the entity with buying opportunities, they also present barriers to increased revenues, e.g. in its oil and gas businesses.
Socio-cultural – through its expansion into various continents where cultural orientation differs from its home country, GE’s faces a threat of cultural barriers especially with its centralized management that could lead to preference of local providers to the entity.
Technology – technological differences in areas the entity operates in may limit the standardization of entity’s process. Such could affect the long-term sustainability of boundaryless strategy that Welch initiated.
Environmental – various activities of GE are subject to adherence to set standards for carbon emissions. As environmental policies change (e.g. when emissions trading schemes become altered), the entity could be presented with the pressure of maintaining its business operations within allowable limits.

Fig 3:Competitiveness

Buyer’s power

Buyers’ bargaining power is high in a number of its businesses. Customers of rail services and energy products for instance may be governments, which wield high bargaining power.
Strategy – form relationship with buyers with high bargaining power such as governments.

Supplier’s Power

High supplier power in areas such as labor
Strategy – enter into agreements with worker’s unions.

New Entrants

High in some businesses – e.g. credit services by its finance (consumer and business options) could be taken up by many microfinance institutions coming up in many global locations.

Low in others – e.g. in rail, oil and gas, and aviation that require high capital investment.
Strategy – dependent on the business

Substitutes

High – e.g., locomotive trains are rivaled by automobile industry in many countries. Water treatment systems can be substituted with chemical purification methods.
Strategy – create value-addition services around its products and avoid price wars.

Competitor Rivalry

GE’s competitors are wide ranging. Financial services have competitors better suited to offer services in that area since it is their core business. Electric distribution – individual countries could have state owned companies that are under protection by the governments.
Strategy – invest in competitors, buyout competitors where possible, sell-out to competitors where long-term sustainability is not possible.

Conclusion and recommendations

Transformational leadership is a core characteristic of successful organizations in the increasingly competitive business environment. This paper evaluated GE’s two-decade transformation during the leadership of Welch (1981-2001).

Core strengths of the company noted during the transformation process were a sound human resource strategy, management commitment to values and vision of the entity, creation of value-adding units, and strong financial performance. Its centralized management approach during Welch’s time, was however a weakness that could have negatively affected transition and global expansion.

Opportunities for the business lie in expansion to foreign markets to enhance economies of scale and reduce susceptibility to country-specific macroeconomic shock, e-business opportunities brought about by increasing impact of the Internet in people’s lives, and using such technology to enhance customer engagement that would help it improve its products.

The entity’s threats include political, legal, economic and social aspects brought along by its expansion to global locations. Due to the wide array of businesses that GE is involved in recommendations are wide ranging. In products where the buyer power is high, e.g., where the government is the buyer, GE should create relationship with such buyers by offering incentives that would make it the preferred provider.

Such incentives could include committing to programs that aim to improve the livelihood of people living in such areas. Similarly, where competitor rivalry is high, GE could evaluate purchasing stocks in local companies that are protected by home-country government policies

References

Bartlett, C. A. & Wozny, M. 2005, GE’s two-decade transformation: Jack Welch’s leadership, Case 9-399-150, Harvard Business School.

Cohen, A. R. 2004, ‘Building a company of leaders’, Leader to Leader, pp. 16-20. Web.

Dagmar Recklies 2001, Porters 5 forces, Recklies Management Project GmbH. Web.

Gronroos, C. 2004, ‘The relationship marketing process: Communication, interaction, dialogue, value’, Journal of Business & Industrial Marketing, vol. 19, no. 2, pp. 99-113.

General Electric 2001, G. E. Annual report, 2000. Web.

General Electric. (2010). The Official Website. Web.

General Electric. (2010). General Electric Company (GE) annual SEC income statement filing via Wikinvest. Web.

Pillai, R & Williams, E. A. 2004, Transformational leadership, self-efficacy, group cohesiveness, commitment and performance’, Journal of Organizational Change Management, vol. 17, no. 2, pp. 144-159.

Pretorious, M. 2009, ‘Leadership liabilities of newly appointed managers: arrive prepared’, Strategy & Leadership, vol. 37, no. 4, pp. 37-42.

Rowold, J. & Heinitz, K. 2007, ‘Transformational and charismatic leadership: Assessing the convergent, divergent and criterion validity of the MLQ and the CKS’, The Leadership Quarterly, vol. 18, no. 2, pp. 121-133.

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