The Evolution of a Firm - Essay Example

The Evolution of a Firm With the use of a case study, analyse the evolution of a firm through time. Explain how the evolution of the firm reflects the business environment at any given moment in time. The evolution of a firm appears to have many connections to the process of evolution that takes place in biological species since they too respond to the changes in the environment and climatically generated changes as well as opportunities created by other flora and fauna around them. One such company which has evolved with time to become one of the most admired and most respected companies in the business wolrd is GE. The company began as a result of an invention and today it stands as one of the gialnts of the business world as it is spread across the globe and is in several different industries ranging from finance to aircraft engines (Welch, 2005). The evolution of GE starts with the greatest inventor every produced by America, i.e., Thomas Edison who is widely known for having created the light bulb that can be credited for America becoming a country which operates round the clock. In 1876, Edison started work in his lab in New Jersey and after his patents and inventions had given him enough capital, he was able to start a company called the Edison General Electric Company. While Edison had some competition from rival firms, a merger which was arbitrated by none other than J.P. Morgan led to the creation of the General Electric Company which was then headquartered in Schenectady in New York (Welch, 2005). This phase in the evolution of a firm can be understood as a phase of growth since the time of family owned companies was on its way out due to the tremendous need for capital to obtain the real economies of scale required for big business (Griffiths & Wall, 2004). By 1986, GE became one of the 12 companies that were used by the DJIA (Dow Jones Industrial Average) to measure the stock index and after more than 112 years, it is the only company which remains on that index while all others have been replaced, acquired by other companies or simply been driven out of business. The historic value of the company can also be marked from the fact that its original headquarters has been noted as a historic place by the American government. GE did not stop at making light bulbs and continued to diversity its business interests through investments in Radio and modern electronics which were considered upcoming technologies at the time. After the world wars, GE found that it was heavily invested in defence since it had been used to help in producing aircraft and other equipment required by America (Welch, 2005). However, this also placed the company amongst the leaders of American business as well as American technology and GE’s roots of selling light bulbs and electric equipment were dwarfed by their interests in materials, chemicals and computers. At the same time, the 60s and 70s were also the time when GE started facing problems in various sectors as it was becoming increasingly difficult to keep the company lean while it was spread across the world and had to deal with different cultures, national environments as well as a tremendous internal bureaucracy (Welch, 2005). To get back on its feet, GE changed itself and changed its structure as well as its outlook. While many in the company were unwilling to change, GE’s CEO Jack Welch had to take the company kicking and screaming into the 90s so that it could return to profitability. The structure of the company as well as the changes which came to GE under the two and a half decades that Welch led the company appear to be follow the Functionalist Paradigm. The functionalist paradigm suggests that human beings as well as firms can be expected to act with rationality therefore organizational behaviour and the evolution of a firm can be understood through observations and hypothesis evaluation (Burrell, 1979). Under the guidance of Jack Welch, GE created new methods for controlling and governing its employees, changed the structure of the company and took itself out of the various businesses which were nothing more than loss making enterprises and a drain on resources (Welch, 2005). Mckenna (2000) as well as Besanko et. al. (2003) emphasise that there are the significant links between an organization’s age, size, strategy, technology, environment and culture and its structure. This becomes evident when we realise that GE changed itself and evolved its behaviour to be more like a small agile company rather than a giant which could not compete with smaller firms. Historically, the basic structure of many large companies in the 20th century is found to be based on governmental structures which are by their nature conducive to the creation of bureaucracies and inefficiencies. GE itself had done so and it was clear that the shape and evolution of the firm had brought it to a point where it was creating an expensive structure merely to continue business. Additionally, as noted by Ashkenas et. al. (1995), such structures hindered the flow of vital information and cuased delays in decision making. The evolution of GE started with downsizing when Welch decided to take the company out of any business where it was not number one or number two. To make the company smaller and leaner the company also changed its structure by becoming more informal, more communicative and in effect behaving like a small company rather than a giant organisation. Of course, many long standing employees of the company could not come to an agreement with the changes that were being brought and that meant that room for new employees had to be made in the company (Welch, 2005). When older employees could not handle the changes coming due to the rapid evolution of the company, particularly when the changes were the result of the mission and vision of one man, they had to be let go. Welch (2005, Pg. 16) says that “Every decision or initiative was linked to the mission. We publicly rewarded people who drove the mission and let go of people who couldn’t deal with it for whatever reason”. As discussed by Thomas and Coe (1991) downsizing can have its benefits if it is properly implemented and it became clear that GE had used proper implementation for its downsizing plans since the company evolved to be an informal organisation rather than a systematic bureaucracy. This type of informality in terms of business and human resource policies does not mean that a company like GE simply ignores the problems that it can face with regard to employee discipline or outright insubordination. In fact, the idea of informality in a given organisation is only useful if the employees have bought into it and the line managers as well as the general atmosphere of the company push the idea of creating a company where all senior employees from board members to midlevel managers are mentors, coaches and guides for those who work at lower levels of the hierarchy (Scherer and Ross, 1990). This evolution of GE as a firm moving towards becoming a small company was discussed by Byrne (1998) who writes that: “Making the company ''informal'' means violating the chain of command, communicating across layers, paying people as if they worked not for a big company but for a demanding entrepreneur where nearly everyone knows the boss (Byrne, Pg. 1, 1998)”. Today, GE has evolved into one of the most respected and admired companies in America (Colvin, 2006). In fact even in international terms, GE remains one of the most respected companies in the world (Demos, 2006). This admiration is not only for the way in GE has conducted itself, but also for the way in which it has changed to become relavent for our day and time while it was founded more than a hundred years ago. The history of GE and the changes that have come to GE only reflect how a company must and should change in order to stay inline with the demands of time. The primary effect of this evolution of GE is that it has become one of the few companies in the world today that can be considered truly international in the sense that it has operations as well as employees coming from around the world to work for the company. The diversity of the company is not only based on the numbers and variety of people that work for GE but also with regard to the various businesses and new markets that GE opens every year. In terms of major investments, GE is now engaged in eleven different technology, finance and service related businesses each of which could be an international company on their own. In terms of employee strength, GE employs more than 300,000 individuals across 150 countries (GE, 2008). In conclusion, with the success that GE has by going through a process of evolution, it becomes clear that those companies who do not change or can not manage to bring change to themselves for any reason, will surely perish. Often, the change can be pushed upon a company as it was in the case of GE where Welch forced the company to change or it can be made a requirement for the company due to shifting technologies. Whatever the case may be, the evolution of a firm is a truth which can not be denied and those who can anticipate and participate in the evolutionary process will be more successful than those who do not do so. Word Count: 1,728 Works Cited Ashkenas, R. et. al. 1995, The Boundary less Organization, Jossey -Bass. Besanko, D. et. al. 2003, Economics of Strategy, Wiley. Burrell, G. 1979, Sociological Paradigms and Organisational Analysis, Heinemann Educational Books. Colvin, G. 2006, ‘What Makes GE Great?’, Fortune, vol. 153, no. 4, pp. 90-96. Demos, T. 2006, ‘The World’s Most Admired Companies’, Fortune, vol. 153, no. 4, pp. 72-73. GE, 2008. ‘General Electric’. ge.com, [Online] Available at: http://www.ge.com/en/ge/morefaqs.htm Griffiths, A. and Wall, S. 2004, Applied Economics, Prentice Hall. McKenna, E. 2000, Business Psychology and Organizational Behaviour, Bookcraft Ltd. Scherer, F and Ross, D. 1990, Industrial Market Structure and Economic Performance, Houghton Mifflin. Thomas, C. and Coe. C. 1991, The flat organization: Philosophy and Practice, British Institute of management. Welch, J. 2005, Winning, HarperCollins. Read More