Motivation and Leadership at GE - Case Study Example

Motivation and Leadership at GE Secion About the Organization While shining examples of companieswhich are able to outperform the competition as well as provide an excellent environment for their workers can be found in small companies, it seems that only larger organizations will have an effect on the generally accepted business practices for things such as motivation and leadership in business. In terms of size, GE is one of the largest companies in the world but not only is it large, it is also respected globally as a beacon for good management practices. In fact, no company in the world across any business in any place is as well esteemed and appreciated as GE (Demos, 2006). Throughout its life, and more so in recent years, analysts from the fields of management, administration, human resources as well as organizational behavior have all given their highest respects to GE (Fisher, 2006). A large part of this comes from the way GE handles its organizational aspects of leadership from the top and motivation for employees of which examples have been given by those who have been a part of GE as well as those who have observed it from afar. Towards, this purpose, this paper aims to analyze both these aspects of GE as described their former CEO, Jack Welch and other sources for GE information. Undoubtedly, GE is a giant company. It has an extensive history which goes back to Thomas Edison and his creation of the light bulb. In present times, GE is the name given to a group of companies that works as eleven different businesses. The company is connected to technology based, services related and finance related businesses and can call on more than 300,000 employees spread in more than 150 countries around the world. All these organizations and individuals work under the umbrella of GE but they all have a unified architecture and system (GE, 2006). It is one of the few large companies where the values and actions, power and control systems, culture and technological adaptation have remained more or less the same across the board regardless of location. In terms of products and survives, GE deals with computer systems, jet engines, energy plants, capital services, plastics, illumination equipment, medical tools and military hardware. Regardless of the business they get into, GE dedicates itself to converting powerful ideas into imaginative products for the benefit of their stakeholders (GE, 2006). This makes GE a perfect company to analyze as an organization and to examine the organizational aspects which make GE tick. From the outset, it can be seen that the observations with regard to GE can be very properly made with the Functionalist Paradigm of management which 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 behavior can be understood through experimental observation and hypothesis evaluations (Burrell, 1979). This paradigm is certainly useful because it can be shown that GE acts in a manner which is very rational for the most part and the methods used for motivating employees, establishing power with leadership and keeping GE running as well as profitable are founded in rational thought. There was certainly was a man at the top who ran GE for many years before stepping down to make way for the new guard, the policies and methods used by Jack Welch have remained popular with the company and little has changed despite his exit (Colvin, 2006). In fact, the systems which were created by Welch are so good that they have continued in place with modifications made only when necessary. It is clearly no wonder than Business Week hailed him as America’s Best Manager long before he wrote his own book on management and his experiences at GE titled Winning (Byrne, 1998). GE’s own mission when Jack Welch was running the company was to be the most competitive company in the world which fits with the two pronged approach of rewarding and doing the utmost to keep and lead the best talent within the company and letting go of those who do not perform to a certain level (Welch, 2005). In terms of ethics the company seeks to establish itself as a socially responsible company. GE makes it very clear that their social responsibility includes three central tenets which are (GE, 2006): 1. Continually improving economic performance and value for stakeholders 2. Condoning ethical actions that go beyond compliance regulations 3. Giving priority to accounting and legal rules The ethics, compliance and governance systems at GE go through external audits which are conducted by various independent contractors. The report created by FT/PricewaterhouseCoopers annual global survey of CEOs puts GE at the number one spot for commitment to governance and ethical conduct (GE, 2006). GE also focuses on human rights, not only for their operations in the western countries but also for countries where labour laws have traditionally been weaker than those followed in Europe or America. For instance, in Mexico, it is a common practice to test female employees for pregnancy and refuse employment based on them being pregnant (GE, 2006). GE stopped this policy at their Mexican operations and made questions regarding pregnancy or employment discrimination based on this situation to be illegal in their operations. Similarly, Chinese laws are silent on age based employment discrimination and GE declared such discrimination to be against their company tenets (GE, 2006). The responsibility and drive for being ethical comes from the very top of the company as the CEO becomes the driving force for ethics in the company (Welch, 2005). Therefore, to understand how GE functions we must take a look at the ideas given by Welch on leadership which are discussed below. Section 2(a): Leadership at GE Leadership is a rather difficult term to define because many different philosophers, thinkers and even business professionals have give different meanings for it. However, the general directions given by analysts like Welch (2005), Byrne (1998) and Gardner (1995) have several common points with the definition given by House (2004) who states that the quality of leadership is, “The ability of an individual to influence, motivate, and enable others to contribute toward the effectiveness and success of the organizations of which they are members (House, 2004, Pg. 15)”. With this definition, the importance of leadership in business can be fully understood if it is applied to the leadership qualities exhibited and promoted by Jack Welch during his tenure at GE. His leadership has been credited as one of the primary reasons which took GE from a company which was in financial trouble and losing investor confidence to the position of the most admired and respected company in the world (Colvin, 2006). Welch (2005) outlined his own theory of leadership which agrees to a large extent with the trait theory and he comes across quite clearly in terms of his leadership ideal when he gives the eight rules of leadership in his book. These rules cover a lot of areas in terms of how leadership should be maintained by an individual but the basic tenants of leadership come with a connection towards doing what is right and having the courage to make changes when a change seems impossible. The eight primary rules as suggested by Welch (2005) are: 1. Leaders should always upgrade their followers by using opportunities to coach, mentor, judge and improve their abilities. 2. Leaders pass on the vision of the company to all employees and show the employees that the leader embodies the vision. 3. Leaders radiate positivism and are always optimistic. 4. Leaders create trust with integrity and remain transparent with the employees. 5. They have the courage to make the employees unhappy with decisions which may be considered unpopular. 6. Leaders search for answers and want action from the employees. 7. They inspire individuals to take risks and set examples for learning from their own mistakes. 8. They celebrate when they win. With these rules in mind, two theories of leadership can be applied to the style used by Welch and these are the trait theories set and the situational theories of leadership. Gardner (1995) presents us with several ideas which leaders can use to change their leadership styles or how they can balance the styles depending on the situation. The idea of leadership traits can come with several stereotypes or ideas that some people are born leaders, but leadership skills can also be taught to people although the right personality always helps (Welch, 2005). For example, when we consider the third rule given by Welch which states that leaders must give out and infect others with positive energy and optimistic views about situations. That is a key pointer towards the fact that Jack Welch considers the majority of leadership skills to come from the trait theory than any other applicable theory. Undoubtedly, optimism is a personality trait and being able to create optimism or any other emphatic feeling in others requires a leader to have charisma (DePree, 1989). Charisma is accepted by DePree (1998) to be a rare quality which is attributed to those leaders who create devoted followers. Devoted followers and employees who become your personal friends as well as have complete faith in your vision are simply essential. These employees can certainly be created with an informal style of management as applied in GE. As explained by Byrne (1998): “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. It has as much to do with Welchs charisma as it has to do with the less visible rhythms of the company--its meetings and review sessions--and how he uses them to great advantage.” (Byrne, Pg. 1, 1998) The creation of trust and making the employees believe in the leadership of the leader is also a trait since it requires the leader to possess the ability to convince them without coercion that his/her viewpoint is the correct one. The idea of being transparent means being honest with the employees about everything; going from their quarterly evaluations to the company’s annual financial reports, the leader has to create trust (Welch, 2005). It also requires the leader to be good with oral and written communications, be diplomatic and tactful as well as present his/her case to a group of peers or close subordinates when they do not agree with the decision or are hesitant at making tough calls (Gardner, 1995). Such abilities go a long way in making sure that the employees remain motivated towards a certain objective which leads to benefits for themselves as well as the company itself. Section 2(b): Motivation at GE With regard to motivation, GE seems to be working with the content theory of motivation using Maslow’s Hierarchy of needs. A theory based on content considers the idea that individuals are motivated by inner desires to fulfill their needs and such fulfillment can come from their work if the work they do is able to combine the rewards for working with their person desires. Clearly while the first, second and third order needs might be fulfilled by having enough money, fourth and fifth order needs might not be obtainable just by getting a salary alone. GE recognizes this need and uses a peer recognition system called QuickThanks! to show appreciation of the work done by one member of the company to another. Kerr (1996) gives an inside view of what happens at GE where this program is used for increasing the level of motivation of employees. Broadly speaking, this system allows employees to nominate other employees (even across departments) with a $25 gift certificate for certain stores and restaurants in appreciation of their work. In 1995, ten thousand such certificates were handed out by GE employees to their peers. Even though it may seem like a huge number, the rewards are only given for exemplary performance and the peers are not free with their recognition. They often have stricter personal criteria for giving these certificates and the receiver often gets the award from the person who nominated them (Kerr, 1996). Clearly, the amount of money associated with the award is nominal at best for a professional working as a midlevel manager in a company or even as office support staff at a company like GE. However, it is the recognition of a job well done by their peers and associates which is helpful in motivating employees towards higher performance levels and towards making improvements in their work for the company. Additionally, GE also combines awards with rewards even when the award for their employee comes from outside the company. Welch (2005) discusses the case where a scientist working for GE won an award for his achievements in science. Mr. Welch asked that the GE board immediately connect the scientist’s achievements with a large cash bonus since even the Nobel peace prize comes with a significant dollar figure attached to it. In this case, recognition by the peers as well as those outside the company was not seen to be enough since recognition alone or cash alone can not be the only answer to the needs of motivating individuals. In terms of rewarding the top employees of his company Welch reports that: “The top 20 percent of employees are showered with bonuses, stock options, praise, love, training, and a variety of rewards to their pocketbooks and souls. There can be no mistaking the stars at a company that differentiates. They are the best and are treated that way (Welch, 2005, Pg. 41)”. The most interesting aspect of GE’s motivation plan is the public nature and disclosure which follows employee evaluations at GE. All divisions at the company are required to list by name, position and compensation the amount of money and bonuses given to the top 20% of the management as well as the bottom 10% (Schmitt, 2001). So if an employee is given some stock in the company as a reward for creating a new product, the information will be disclosed to all member of his/her department to publicly celebrate his/her achievement. It can be seen as a good idea if there is no element of jealousy involved and those who see it happening know that the reward was justified. While this public disclosure may be seen as difficult to swallow, Jack Welch defends this by saying that even though we may seek to protect the reward system from criticism by not letting others know about the bonuses and rewards given to their coworkers, people seem to know this information anyways. By making it public, the information can be used as a motivational factor and it lets all employees see which persons are the stars of their divisions and who are facing the risk of being let go (Welch, 2005). Therefore, as recommended by Boxall and Purcell (2003) GE is using rewards as a tool for strategic management as well as motivation. It is to GE’s credit that their differentiation system for creating motivation and managing the rewards given to employees has been respected, tested and accepted by some of the biggest names in the world. This ranking system for bonuses etc is used by Microsoft, Cisco, HP, Sun, Capital One, PepsiCo and Intel amongst many others. Sun exactly mirrors GE’s system to discriminate employees by saying that 20% are superior, 70% are “Sun Standard” and 10% are underperforming (Grote, 2002). On average a quarter of all the companies in the Fortune 500 list have established this practice as a primary method of motivating employees with money and with other benefits (Grote, 2002). Clearly, money alone is not enough to motivate all individuals since they need satisfaction which comes from other sources. A manager which recognizes the other sources of motivation is likely to be more successful who does not. To balance the rewards side for motivating employees, a threat of termination is also present for employees who can not continue to perform for the company. Fear can be used as a motivating factor so while behaving like a family and a closely knit group; GE functions plainly as a meritocracy in which there is no room for poor performance. Yearly, the bottom 10% of the company is removed from service, which allows fresh blood to take replace outgoing individuals at a rapid pace. At the same time, it keeps all those on their toes who missed the axe or were told to shape up or even seek different departments within the same company or different groups within the same department (Welch, 2005). It must be noted that the final threat involved here is not the threat of termination, but rather replacement on merit. Conclusion Leadership and Motivation are two very important aspects of any organisation especially when it operates on a scale like GE. The company clearly shows how scientific principles of management which group employees according to their abilities and motivational needs are rational and useful. It is to the credit of the company that their employee differentiation and ranking process has been emulated by many other companies across the world and that the company has been named the most admired company in the world. This validation of GE’s system is also a validation of Jack Welch as the person who established these systems which fall in line with good management practices. Word Count: 2,607 Works Cited Boxall P. and Purcell J. 2003, Strategy and Human Resource Management, Palgrave & Macmillan: New York 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. 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