GE and their Problems in Eastern Europe - Case Study Example

GE and their Problems in Eastern Europe Introduction In the age of globalisation, a Company can havea head office in London while the production work is carried out in a factory near Beijing and the research and development of the product itself is conducted in Oslo. Companies have moved out of the nationalist image which was the mainstay of their identity of the past. Of course, it is still possible to say that BMW is a German company and Toyota is a Japanese company or GE is an American firm, but the nature of the multinational enterprise means that companies may be based in one country while the problems and issues they face could be of a global nature. As companies expand into greener pastures around the world depending on the specialisation, expertise or even business opportunities available to them, local cultures, local politics and the economies of host countries can become problems which have to be dealt with. This means that there are new issues which must be addressed by managers who can now be called on to create company wide policies as well as region based policies which affect the people working in London as much as they affect employees working in other parts of the globe. This problem is actually at the heart of the globalisation of business and the solution demands the creation new world order for business where we move towards a combination of cultures that represent us as humans. A company wide policy manual can be used as a document which sets up the culture of the company even as an isolated bubble in a place where the outside culture is totally different. However, this must be done carefully because this could also be dangerous as going with policies which are against local cultures can create bitterness and even a loss of the company’s human capital. GE was one such company which experienced these issues when they setup their operations across Eastern Europe and tried to revamp their business in Ukraine, Hungary and Albania. As reported by Welch (2005) GE faced several difficulties in political, cultural and economic terms which made it difficult to export their American brand of competitiveness to Eastern Europe (Welch, 2005). GE’s Problems GE is the parent company of eleven technology, services and finance businesses with more than 300,000 employees spread across 160 countries. Even though the company is large, their values and actions, recruitment process and even the methods of rewarding employees remain more or less the same across the board. GE deals with computers, jet engines, power plants, capital services, plastics, illumination equipment, and medical tools. Regardless of the business, GE is dedicated to turn imaginative ideas into profitable products and services for the benefit of all stakeholders (GE, 2006). GE’s culture is based on individuals and intrinsic motivation which helps its employees seek benefits for the company while they seek benefits for themselves. As outlined by Jack Welch in his management related book Winning (2005), GE rewards those employees who are instrumental in helping GE grow and achieve the corporate vision and punishes those who are not performing to the highest level. In fact, layoffs and quarterly removal of lowest performing employees is an essential part of the management style employed at GE. The observations with regard to GE show that the Functionalist Paradigm of management is quite applicable the company. The paradigm suggests in brief that human beings can largely be expected to act in ways which are rational. The supporters of this paradigm also say that organizational behaviour can be understood through experimental observation and hypothesis evaluations (Burrell, 1979). This paradigm is certainly useful because GE acts in a manner which is very rational for the most part and the methods used for controlling employees, establishing power and keeping GE running as well as profitable are founded in rational thought. The policies and methods used by GE were established by their long standing CEO, Jack Welch. These policies have remained popular with the company and little has changed despite his exit (Colvin, 2006). In fact, the systems created by Welch were so good that they are continued in place with minor modifications made only when necessary. It is clearly no wonder than he has been hailed as America’s Best Manager since his management methods and those in turn of GE were completely American (Byrne, 1998). Cultural Issues However, when the methods were applied to East European business to control the culture of GE operations the initial response was not very promising. Success was thought to be dependent upon the acceptance of their 95 page manual on corporate culture titled Integrity: The Sprit and Letter of Our Commitment. The initial results were disastrous since bad press, negative sentiments and resentment amongst the employees was created once GE’s creed was being established in the company (Welch, 2005). The problem came from the clash of local culture and corporate culture as discussed by Laurent (1986) since the local culture remained dominant over the corporate culture which GE was trying to create. While it is possible to say that the culture of the organisation will be more important within the walls and managers at GE certainly thought so, the reality was quite the opposite. The change in culture was nothing more than an illusion and was eventually detrimental to the enforcement of company policies (Welch, 2005). The problem in implementation was tracked to local managers who were taking a confrontational position and could be seen using the new company policies as a means towards improving and solidifying their personal positions within the company (Welch, 2005). As reported by Edwards & Kuruvilla (2005), in such a toxic environment, the policies which are supposed to align cultures for a common purpose become weapons which are used as and when needed. Politics and Employee Rewards The East European operations valued seniority and time spent with the company more than the innovation and performance given by an individual to the company. This meant that the financial rewards given to employees were more dependent on their seniority and their relationships with superiors than the performance they were giving (Welch, 2005). This cultural difference between the East European approach and the GE creed meant that organisational politics became a part of the game being played with the company which was leading to inefficiencies and mismanagement (Welch, 2005). Local managers were not following the orders from the executives in America which meant that the culture of the company was broken into two different sets. This was certainly an unexpected move from local managers given their place in the overall hierarchy of an international multicultural company such as GE, but their strength came from their belief that executive managers in the home office are dependant on managers in branch offices. This idea is supported by Edwards & Kuruvilla (2005) who further report that the capacity of local managers to confront orders from the home office will be better where corporate level managers have major communication hurdles between them and the local managers. For all practical purposes, seems that local managers can and might defy those policies which are not devised with their culture in mind. GE did not recognise that local policies would be useless without support from local managers. Local managers are supposed to serve as the international manager’s best friend by being crucial mediators between the firm and the local employees since they have a high level of familiarity about the local systems in ways an outsider can never have (Edwards & Kuruvilla, 2005). However, if they choose to resist the HR policies, they can create a lot of problems even in economic terms with questions about working hours and differences in pay scales. These and other problems were also present in the case of Japanese automobile companies working in the UK where British managers showed extreme resistance to the company’s global policies (Broad, 1994). The Solution The problem was solved by GE using two significant means. First and most important of all, GE started removing those individuals from service which were thought to be a cultural mismatch for the company. At the same time, the company began giving out rewards, bonuses and stock options to those who were thought to be good cultural matches for the business. Welch (2005) reports that, “We publicly rewarded people who drove the mission and let go of people who couldn’t deal with it for whatever reason (Welch, 2005, Pg. 16)”. The idea of publicly rewarding top performers rationally ensures that those who see it happen know why those individuals are being rewarded. Additionally, the individuals who were rewarded would have a harder time in leaving the company and their relationship with the management would only be strengthened. In terms of removing individuals who could not perform up to the mark expected of them, Jack Welch himself reports that he has often been criticized for taking a stand which seems to be cruel, inefficient, mean, impractical, political, unfair and Darwinian (Welch, 2005). He insists however, that this is a critical part of the overall improvement process for any company and even in his final letter to the company’s stock holders (before his retirement) he wrote that, "A company that bets its future on its people must remove that lower 10 percent, and keep removing it every year--always raising the bar of performance and increasing the quality of its leadership. (Grote, 2002, Pg. 41)”. Secondly, GE worked with those individuals who could come to terms with their cultural requirements and set up expanding the operations to a more regional level to put it alongside the global competition. The most important advantage of changing GE’s European operations from the domestic to regional and global levels was the change in culture which came about when the employees realized they were competing in such markets (Welch, 2005). The location and availability of labour can also be expected to have played a role here since the Hungarian labour market is closer to the western countries it is supposed to cater for rather than the Russian bloc or the Asian markets where GE’s products might be seen as too expensive. An expanded market would also have allowed GE to give promotions for those individuals who had proven to be excellent cultural matches for the company. Conclusion There are several issues which a company can face when it chooses to set up new operations or expand existing ones anywhere in the world. Cultural issues can come up when the business culture of one country is exported to another. Political issues can come up with union laws or trade regulations and even for internal organisational politics while economic issues can be faced in terms of differences in standards of living or wages across the world. However, despite the presence of these issues it can not be denied that many multinational enterprises have been very successful in expanding their businesses around the world. It seems that as the expansion of business in needed companies and researchers around the world can present creative solutions which are needed by the business world. As the world develops, it would be interesting to see what issues will be faced by future managers and what steps they can take to resolve them. Works Cited Broad, G. 1994. ‘The Managerial Limits to Japanization: A Manufacturing Case Study’, Human Resource Management Journal, vol. 4, no. 3, pp 52–69. Burrell, G. 1979, Sociological Paradigms and Organisational Analysis, Heinemann Educational Books. Byrne, J. 1998, ‘How Jack Welch Runs GE: A Close-up Look at How Americas #1 Manager Runs GE’, BusinessWeek.com, [Online] Available at: http://www.businessweek.com/1998/23/b3581001.htm Colvin, G. 2006, ‘What Makes GE Great?’, Fortune, vol. 153, no. 4, pp. 90-96. Edwards, T. and Kuruvilla, S. 2005. ‘International HRM: national business systems, organizational politics and the international division of labour in MNCs’, International Journal of Human Resource Management, vol. 16, no. 1, pp1-21. GE, 2006. ‘General Electric’. ge.com [Online] Available at: http://www.ge.com/en/ge/morefaqs.htm Grote, D. 2002, ‘Forced Ranking: Behind the Scenes’, Across the Board, vol. 39, no. 6, pp, 40-46. Laurent, A. 1986, The Cross-Cultural Puzzle of International Human Resource Management, Human Resource Management, vol. 25, no. 1, pp 91-102. Welch, J. 2005, Winning, Harper. Word Count: 2,043 Read More