GE-Two - Decade Transformation, Welchs Challenge in 1981 - Case Study Example

?  GE-Two -Decade Transformation GE-Two -Decade Transformation General Electric Company (GE) is global conglomerate incorporated in the US. The company’s main operation segments are technology infrastructure, energy, capital, consumer and industrial products, and finance. GE has over the last years received numerous accolades from firms such as Fortune, which have proved the advantageous position held by GE in the market globally. For instance, Fortune named GE the most admired company worldwide. In 2011, Fortune ranked General Electric the sixth most successful company in the US. However, the company has in the past encountered severe challenges before attaining its current global position. In the late 20th century, the company encountered challenges which threatened its operations and stability. This paper will examine GE, discussing strategies employed by the company’s management in the wake of severe challenges. Welch’s Challenge in 1981 In the year 1981, when Welch took over management of GE from Jones, the company experienced numerous of hardships that threatened its existence. In 1981, the US economy suffered serious recession, which meant that banks lent money at unbelievably high interest rates. The high interest rates were especially disadvantageous to companies such as GE that required borrowed capital to sustain its business. In addition, the US dollar was quite strong at the time making GE’s international business operations quite unprofitable and unmanageable. The tough economic times experienced in the US also meant that GE had to lay off some of its employees and reduce hourly positions (O’Boyle, 1999). This put Welch and the company in a tough position, having to balance the company’s operations among the few remaining employees. Moreover, GE faced serious competition, particularly from Japanese companies. Global competitors had significant competitive advantages over GE as their nations of domicile were free of economic crisis like the US. However, despite the immense challenges, Welch was able to take charge of the company rather effectively through the adoption of numerous strategies. Welch first adopted the number one or two, fix, sell or close strategy that required all GE’s business units to be leaders in their respective industries or face closure. This strategy was effective in eliminating unproductive units of GE and strengthening the remaining units, which became leaders in their industries. The closure and sale of unproductive units provided necessary capital for productive units to strengthen their operations. Welch’s strategy was effectual as it freed capital for strategic investments, which enhanced the company’s bottom line performance (Slater, 1998). Welch’s Objectives and Initiatives When Welch became the CEO of GE in 1981, he established the new company objectives to leverage GE’s performance within the company’s diverse business portfolio. In order to do this, Welch required all company employees to become “better than the best” in their positions and responsibilities (O’Boyle, 1999). In order to ensure the company achieved Welch’s objectives, the CEO initiated a series of strategies between the late 1980s and early 1990s. These initiatives centered on the spectrum of achieving organizational change through restructuring its staffing, layering and size. Through the adoption of the initiatives and strategic change, GE was able to achieve substantial competitive advantage within its markets. Welch’s initiatives were able to revitalize the company’s operations, bolster its image, and achieve massive profit margins. Welch streamlined the company’s staffing, especially in the company’s planning unit to ensure GE was lean and agile. The logic behind Welch’s de-staffing initiative centered on the notion that company or unit productivity does not rely on the number of staff in the unit, but rather the value each staff adds to the unit or company. Welch sought to instill the culture of strength in value addition rather than strength in sheer numbers, in a business unit. Bureaucracy in a large organization such as GE only serves to increase the decision-making process rather than instantaneous planning and initiation. In addition, Welch was appreciative of the disadvantage of sector level management or departmental management, so he reduced the company’s hierarchical stages to four from nine. While hierarchical management is essential for ensuring effective employee supervision, having many hierarchical levels within a company is detrimental as it leads to overstaffing and delays in decision making as all department heads must be consulted. Therefore, through de-layering, downsizing, and de-staffing, Welch’s initiatives paid off as the company become appropriately sized, layered, and staffed. Defying Critics Because of GE’s large, complex, and diversified layout, critics expected that GE would not attain growth and profitability. However, through the adoption of Welch’s initiatives, GE defied such critics by becoming one of the largest companies, not only in the US, but globally, as well. GE accomplished this outstanding feat through the application of six change initiatives namely: development of service business, Six Sigma quality, stretch objectives, redefining leadership, software initiatives, and globalization (O’Boyle, 1999). After completing business restructuring, Welch initiated sweeping changes that rebuilt GE and helped the company recover from management exhaustion and culture shock. Welch changed GE’s management style by adopting an approach centered on facing reality, openness, and candor towards employees. This involves allowing employees and business managers to provide alternatives to ensure the business runs effectively. GE established work-out sessions where employees and managers exchanged ideas. GE also rolled out its businesses to other nations globally. The strategy was to ensure that GE remained number one or two globally. Like all other initiatives, the company’s globalization plans took place in a strategic and timely manner. Welch’s focus on leadership centered on the appreciation of effectual and motivational leadership whose focus was business and employee growth. These leaders and employees sought to achieve superior results through setting performance targets. The large organization was able to grow because of this culture, which allowed personnel to maximize their potential (Slater, 1998). Diversification into the service industry proved quite profitable to GE as the company expanded its portfolio to include financial services and reinsurance. Finally, the large conglomerate was able to attain optimal growth and profitability by employing the Six Sigma strategy that provided for greater customer and employee satisfaction, lower costs, as well as increased productivity. Generally, Welch’s initiatives added immense value to the company as the company was able to increase its productivity through employee motivation and satisfaction, increase profitability by entering new markets globally, and strengthen its portfolio through the establishment of business services. Such customer and employee satisfaction, as well as portfolio diversification, ensured that GE attained high profitability. Evaluations of Welch’s Approach Welch’s approach to leading change has been quite effectual as he successfully inculcated a culture of progressive change in the organization (Slater, 1998). Welch’s approach to involve the personnel by engaging in work-out sessions allowed employees to have a sense of ownership towards the change, making such change easy to implement. In addition, Welch’s adoption of fewer hierarchical levels in the company’s management provided an opportunity for employees to self-govern themselves and maintain motivation by removing the element of continued supervision. In essence, Welch has been quite instrumental in GE’s overall success as he effectively changed the company’s structure to encompass innovative approaches relevant to the current era. Welch’s approaches and initiatives are responsible for GE’s current superiority in its industry, as well as the company’s profitability and growth, which still prevail today. While Welch’s input in GE is indispensable, Welch’s replacement in GE does not necessarily spell doom for the company because Welch’s approaches are now deeply entrenched in the company’s culture. This means that as long as the new management continues using Welch’s approaches and continually improves the approaches to suit the era, GE will continue enjoying high customer and employee satisfaction, which translates to high productivity and ultimately immense profits. References O’Boyle, T. F. (1999). At any cost: Jack Welch, General Electric, and the pursuit of profit. New York: Vintage Publishing. Slater, R. (1998). Jack Welch & the G.E. way: Management insights and leadership secrets of the legendary CEO. New York: McGraw-Hill Publishers. Read More