The Implementation Problems of Immelts Strategy - Case Study Example

General Electric What were the principal strategic and organisational initiatives introduced by Welch at GE and inherited by Immelt? To what extent did these initiatives amount to a new system of managing the large firm? ‘General Electric’ better known in the global parlance as ‘GE’, is a global leader which has its business portfolios in finance infrastructure and media. The company is known for its innovative strategies and has its core competence in areas ranging from production of common light bulbs to advanced fuel cell based technology. It has its footprints spread across the globe and is known for its innovations spanning a period of about one thirty years. The recent success of the company could be well attributed to the former CEO of the company named Mr. Jack Welch. The company grew from an annual turnaround of $ 26.8 billion in 1981 to $ 130 billion by the end of 2001 when Mr. Welch was at the helm of the affairs at the organisation (General Electric Company-a, 2010). On assuming his responsibilities at the organisation, Mr. Welch initiated a series of strategic reforms which were aimed at restructuring the entire organisation. The three most commendable reforms initiated by him were Introduction of learning culture in the organisation; Promoting a boundary less organisation; and Introduction of six sigma techniques in production. These strategies were aimed at making GE the most competitive and a high value organisation in the global business arena. As a first step towards promoting structural changes, Welch removed the existing system of multiple layers of management. The operation ‘Neutron Jack’ started by Welch resulted in the laying off about 100000 employees. These were done mainly at the top management level. His main aim behind such steps was to create a flat organisation structure devoid of organisational barriers which he believed was a hindrance towards the creation of sustainable competitive advantage. Welch also changed the functioning of the corporate headquarter from being a centre of exercising authority and a checker to a centre that motivates and acts as a facilitator for employees. The entire concept of introducing a flat based organisational structure was to make the organisation more adaptable to the changes in the corporate world. Welch also reduced the number of strategic business units by integrating some of the units. These steps were aimed at making GE transform itself from a bureaucratic organisation to an organisation devoid of boundaries. GE under the leadership of Jack Welch saw the introduction of a reinforcement based theoretical framework approach. Under this approach, a reward system was started for its employees to motivate them to perform at their level best. The rewards included sponsored training opportunities, awards and stock options apart from the regular cash based incentives. These were meant to enhance the level of employee participation in the decision making affairs of the organisation and to make a correct blend of recognition and reward. The appraisal system also underwent a drastic modification with the performance appraisal system being now based on employee differentiation and managerial feedback. A forced ranking system of appraisal was introduced with a feeling to encourage healthy competition among its workforce (Vollmer, 2005). Welch also initiated various reforms in the area of production. Welch implemented the Six Sigma Technique, which was aimed at reducing the number of defects in production. Welch believed that the implementation of quality control measures like the Six Sigma would lead to the creation of sustainable competitive advantage for the firm. The implementation of Six Sigma was possibly the largest of such implementation in quality control measures by any American corporate firm during that period. These strategies gave a new direction of managing large firms which have multiple business units. These strategies are aimed at creating organisational excellence where traditional monitoring roles of the top management are being replaced by motivational roles. These strategies empower the employees to enhance their participation in organisational decision making process. Operational efficiency techniques like Six Sigma would not only improve efficiency but would also lead to the creation of sustainable competitive advantage for a firm in the global arena. 2. Why was the management system created by Welch so successful? Can you detect a theory of management or set of general principles that link together Welch’s various initiatives? Jack Welch initiated a number of organisational and operational changes as he assumed his office as the CEO of GE. The nature of success of his policies could be gauged from the fact that GE grew from a 26.8 billion dollar organisation to a 130 billion dollar organisation during the tenure of Welch. The main reasons for the success of Welch’s policies could be attributed to the following factors. Firstly, Welch’s policies were aimed at creating a knowledge driven organisation where every policy of the company is meant to create a value addition to the employee. Welch’s policies led to the creation of a flat organisation structure where corporate bureaucracy is reduced. His policies led to the creation of a boundary less organisation where decision making power is vested at the middle management level. This led to a greater adaptability where organisations could respond to the changes in the business environment with grater pace and accuracy. Welch’s policies were aimed at empowering every employee in the decision making. Welch’s policies created a learning environment in the organisation. Policies were so deigned as to make employees learn from their peers as well as their competitors. Welch termed the learning environment at GE as the main backbone for its success in the corporate arena. Appraisal and reward programs were designed in a manner so as to promote a feeling of healthy competition among the employees. Secondly, the policies initiated by Welch led to the creation of a flat organisational structure where decision making was quick since the power was decentralised. This led to quick decision making and greater responsiveness to the needs and wants of the customers. This also ensured a suitable positioning of the firm in the eyes of its customers which attested the creation of sustainable competitive advantage. Thirdly, operational efficiencies techniques like Six Sigma reduced the number of defects in production. This also led to the creation of barriers for its potential competitors as well as the establishment of favourable positioning of the organisation. The roots of the policies imparted by Welch at GE could be traced down to the learning theory of management. This theory defines learning organisation as those organisations where the employees regularly enhance their ability to generate desired results in which employees are rewarded for producing creativity (Infed, n.d). The analysis of Welch’s policies also provides the same essence as stated by the definition of a learning organisation. Welch’s policies are aimed at making GE a learning organisation where employees are given full freedom to generate new ideas in the learning process which involves learning and applying the best practices adopted from both their peers as well as their competitors. 3. What should Jeff Immelt do to sustain and revive GE’s track record of superior performance? Should GE consider breakup (like so many other diversified companies)? In order to revitalise as well as uphold the impeccable track record of GE in terms of stupendous prosperity, Jeff Immelt – its new CEO – should realise that the legacy of Jack Welch has been entrusted upon him, thereby making a mental note of the fact that a wide range of responsibilities has to be shouldered by him. Having embarked on his mission, Immelt should avoid demergers. Unlike organisations such as Seagram, Phillips, etc. that opted for breaking up their core businesses, the portfolio of GE’s businesses have repeatedly proved their mettle by being increasingly profitable. Furthermore, they have grown over the years thereby making GE an exceptionally strong global player. Although new systems need to be developed as well as employed in order to augment the competence of an organisation against the backdrop of a fast-changing business environment, existing systems that are still effective should not be shelved in recognition of the fact that they enhance the value of the organisation as well as its shareholders. Owing to the scandals in association with Enron/WorldCom, the goodwill of GE has been tainted considerably and as a result its outstanding performance has been put to question. In the light of this situation Immelt should enhance transparency in an attempt to uphold the image of GE in front of its customers as well as shareholders. The company can perhaps generate comprehensive financial reports on a frequent basis and present the same to analysts and shareholders to prove its transparency. GE should strengthen its customer relationship management (CRM), and should further its Ecomagiation™ initiative which is a “commitment to imagine and build innovative solutions to today’s environmental challenges while driving economic growth” (General Electric Company-b, 2010). These will in turn add fillip to the brand appeal of GE. At this juncture, it may be said that Immelt may take a cue from his predecessor Welch and may decide upon a spin off strategy. Certain weak performers among GE’s business portfolio, e.g. NBC Universal, may be sold off. While observing that “NBC Universal is definitely the biggest outlier in GEs portfolio of businesses”, Peter Jacobs (Analyst, Ragen Mackenzie) have added that “people have trouble seeing how it fits into the bigger conglomerate” (Simons, 2008). It may be expected that under the leadership of Immelt GE will reorganise its business portfolio not only by spinning off weaker subsidiaries but also by acquiring potential players or their auxiliary units. Immelt should consolidate the huge conglomerate into a smaller entity in order to facilitate the coordination of its global operations. It goes without saying that the annual sales volume of GE is commendably high during any financial year, and this in turn accentuates the involvement of the top management in ensuring smooth operations. Albeit Immelt has argued that the colossal scale provides GE with an unmatched advantage, Prof. Stewart Thornhill of the University of Western Ontario has contradicted his opinion by saying that past a certain limit scale turns out to be a hindrance, largely due to the fact that it becomes too huge to be managed effectively (McGregor, 2009, p.3). While describing the present position of Immelt, Prof. Noel M. Tichy of the University of Michigan has aptly said that he is in “the fight of his CEO life”; hence, on an a closing note, it may be said that “all he can really do is control risk, cut costs, and limit investments in the businesses hed like to shed, while keeping stronger businesses humming to generate more cash” (McGregor, 2009, p.4). 4. How great are the implementation problems of Immelt’s strategy? To what extent does Immelt need to adopt a new approach to organisational structure and management systems? It may be observed that the strategies of GE are primarily focussed on the tenets of productivity based leadership. A close analysis of Immelt’s association with GE will reveal that he ardently strives to break traditional models of business operations and constantly aims at achieving higher standards of excellence through groundbreaking strategies. Under his leadership, GE has been working towards the achievement of an organic growth as Immelt strongly believes that against the backdrop of modern business environment, organisations should generate growth from within (i.e. by utilising their internal resources) so that they may be prepared to counter the myriad challenges that are posed by environmental uncertainties. Back in 2005, Immelt was worried about the fact that “GE’s famous obsession with bottom-line results – and tendency to get rid of those who dont meet them – will make some execs shy away from taking risks that could revolutionize the company” (Bloomberg Businessweek, 2005). Although Immelt largely adheres to the ways that were shown by Welch, it is a noteworthy fact that in order to make GE stand tall among its competitors, he should institutionalise three crucial elements viz. “risk-taking, sophisticated marketing, and above all, innovation” (Bloomberg Businessweek, 2005). Immelt has opined that “the pre-crisis business rules are gone forever”, and he has further asserted that “in their place are different challenges like resourcing for growth in emerging markets, working with global governments and adapting to economic volatility” (General Electric Company-c, 2010). The growth strategy formulated by Immelt has influenced GE’s management system as well as its managers. In order to ensure the successful implementation of these strategies, the managers at GE are necessitated to align their though process with that of their CEO and thus become leaders facilitating overall growth of the organisation. Speaking generally, Immelt’s strategies do not run the risk of running into implementation related problems. However, he should allow room for adjustments so that the strategies may be fine tuned with various situational requirements. Bibliography 1. Bloomberg Businessweek. March 28, 2005. The Immelt Revolution. [Online]. Available at: http://www.businessweek.com/magazine/content/05_13/b3926088_mz056.htm [Accessed on August 31, 2010]. 2. General Electric Company-a. 2010. Past Leaders. [Online]. Available at: http://www.ge.com/company/history/bios/john_welch.html [Accessed on August 31, 2010]. 3. General Electric Company-b. 2010. Ecomagiation™. [Online]. Available at: http://www.ecomagination.com/ [Accessed on August 31, 2010]. 4. General Electric Company-c. 2010. Letter to Shareowners. 2009 Annual Report. [Online]. Available at: http://www.ge.com/ar2009/letter_4.html [Accessed on August 31, 2010]. 5. Infed. No Date. The Learning Organisation. [Online]. Available at: http://www.infed.org/biblio/learning-organisation.htm#_The_learning_organisation [Accessed on August 31, 2010]. 6. McGregor, J. April 2, 2009. GEs Jeffrey Immelt: All Boxed In. BusinessWeek. [Pdf]. Available at: http://www.cristassociates.com/press/BusinessWeek_040209.pdf [Accessed on August 31, 2010]. 7. Simons, J. April 11, 2008. For GE And NBC, Breaking Up Is Hard To Do. CNN Money. [Online]. Available at: http://money.cnn.com/2008/04/10/news/companies/simons_nbcu.fortune/index.htm [Accessed on August 31, 2010]. 8. Vollmer, L. April 2005. Create Candor in the Workplace, Says Jack Welch. [Online]. Available at: http://www.gsb.stanford.edu/news/headlines/vftt_welch.shtml [Accessed on August 31, 2010]. Read More