GEs Two-Decade Transformation - Case Study Example

General Electric (Ge) Case Study The GE case study illustrates solid management and quality leadership in organisations. A business is as good as the strategic plans set to steer the firm towards meeting its objectives. On the other hand, setting of plans and the strategies to meet these goals is dependent on the leadership of such a company. GE’s success could be attributed to leadership by a strong, highly qualified and visionary CEO who had an eye for the right investment and could indicate what the future of the business required and hence out solid strategies to ensure growth and market leadership. Welch was the important engine behind GE’s growth and its market unmatched performance. Welch was a visionary leader with an unmatched hunger for success and hence could do anything possible to have GE p[e3rfoem beyond the dreams of many in the market. GE’s journey to success under Welch was characterised strategic planning and making policies, forecasting the future and laying the right strategies, efforts and tools to meet these goals. This dream was made possible by the hiring of highly qualified managers and leaders, setting of sound and strong organisational cultures that encouraged and rewarded performance, auditing and evaluating business processes and managing to eliminate waste and redundancy. In other words, Welch encouraged value addition both in skills input to the production process and to the product itself. For instance, Welch was categorical that he was only interested in A players. In other words, he was after only the staff who added value to the business process and hence encouraged the staff to do their best in determining how far they could stretch their imaginations and efforts for the success of the organisation (Bartlett & Wozny, 2005). GE’s success could also be attributed to its treasured culture of identifying opportunities and exploiting such opportunities way ahead of the rest to ensure market leadership. On the onset of the internet technology and its application in the business world, Welch, the GE CEO was visionary that the new technology could later revolutionise the business environment, and hence he put in place mechanisms to ensure the company implemented and fully embraced the new technologies ahead of other competitors. Moreover, Welch learned the importance of implementing the Six Sigma management approach in GE and did not hesitate to try the strategy of his firm. The newly integrated changes alongside a qualified staff and the hunger for doing better each time were the major factors that could be attributed to GE’s strong market performance since its founding. However, despite the company’s performance, it faced a number of strategic challenges in its performance over the years. This paper looks at some of the strategic challenges that faced the company in its growth to become a leading firm globally in its market segment (Bartlett & Wozny, 2005). The first strategic challenge that GE faced especially in its early years was globalisation. Globalisation is a concept that entails the opening of businesses to anless international boundary less market where firms do not compete at local levels but on a global platform. Since its history, global players in its market segment have threatened the company. For instance, in 1981 when the American economy was in recession, the unemployment rate increased tremendously with a strong dollar that made the situation even worse. As a result, the CEO at then had to initiate a set of changes expected restructure the company in the following five years. Part of this strategy was to fix, sell or close, a strategy that aimed at dropping the non-performing and non-value adding business categories from the company. On the other hand, the company faced stiff competition from the Japanese manufacturers who threatened to take over the company’s market share. As the company initiated a strategy to internationalise its operations, it was evident that the company had a major challenge. Importantly, it was not possible to compete in the world arena before concrete efforts were made to rationalise the base of the company at home. As a result of globalisation and its effect, Welch realised the organisation was not performing as it was required. Hence, there was a need to raise the bar a little higher for GE. To achieve this end, there was a decision to exchange the consumer electronics business, a segment that was struggling in the market under heavy competition for the medical imaging business, a sector that GE commanded with impeccable expertise and which the company had global leadership in delivering. Therefore, increased competition in the global market forced GE to channel its strategy from the supply of consumer electronics to the supply of medical imaging equipment to reduce the impact of competition, especially with Japanese firms. Moreover, to ensure the company retained its market leadership, Welch had to seek more partnerships with high-performing firms that ensured the company a wider market segment and reduced competition in the market. For instance, GE had to form a venture with Toshiba, the German-based Robert Bosch in addition to acquiring Sovac, a French-based company dealing in consumer credit. The aim behind these acquisitions was targeting a wider market, consolidating enough muscle within the company to win over a larger market segment from competitors and diversifying the company’s products in a global market, which could attract more sales and hence more profitability. The effects of the diversifications and acquisitions were evident in that by 1998, the company’s revenues had more than doubled in a five years period. The challenge under this corporate strategy was that GE in its bid to become a global organisation had to restructure to a new entity that could compete on an international platform (Bartlett & Wozny, 2005). Unrelated diversification strategy A major challenge in GE was the company’s unrelated diversification. GE was switching between many unrelated products through a complex process. In most cases, the changes were driven by market demands and the need for the company to concentrate on its niche products, which ensured the company retained its market leadership. For instance, when Welch took the leadership of GE, the company had massively invested in unrelated diversification so much that it was not sustainable to operate all the business segments in which the company had diversified and maintained market competitiveness. Dealing with air conditioning, coal mining, house wares and consumer electronics was an ambitious diversification attempt, which Welch found not sustainable for the company to perform with a good degree of specialisation. To restructure the company following the market dynamics, therefore, the cut, sell or close strategy was necessary. The aim of Welchs cut, sell or close strategy was to ensure that only the sustainable businesses in which the company had enough capacity to perform at highest quality standards were remained operational. Restricting GE to abandon the unrelated diversification strategy offered Welch the right wings to fly to success for a short period after joining the company. However, Welch preferred to undertake broad diversification instead of the unrelated diversification strategy that had hindered the companys success (Bartlett & Wozny, 2005). Broad diversification strategy on closely related businesses was Welch’s first strategy that laid down the ground for success in the company. For instance, after disposing off most of the businesses that were not adding value to the company, Welch in a short period after made about 371 acquisitions and invested heavily in the purchased businesses. The main challenge was to put in place the right diversification for the company, particularly focusing on the available resources and expertise. The purchase of Westinghouse lighting business, employers reinsurance and the French imaging company, Thompsons CGR presented Welch with a huge challenge of harmonising different businesses in varying segments with the mother company under centralised management. It was only after the related and broad diversification policies were in place that Welch began a massive restructuring strategy in the operations of the company to ensure quality management and value addition by each for the employees of the company. All the same, the related diversification program increased the size of the company, which complicated the management of the company further for Welch. The complex management structure and the high volume of decisions to be made at the management level were too much for Welch, a challenge that could have slowed things in one or more of his acquisitions (Bartlett & Wozny, 2005). GE’s corporate strategy was also a major challenge for the company. Corporate strategy, in this case, would define the business and the markets that GE was interested. As discussed, GE’s fortunes under Welch were reinvented because of broad and related diversifications and critical restructuring processes. The company had its specialisation in consumer electronics products for which GE has been known for many years. Switching from its core specialisation to the service industry was perhaps the biggest challenge this was because Welch, though he had a clear sense about the future of the business, investing in a new industry with no prior expertise was a risk-taking initiative. Particularly, implementing the In Site strategic plan was a huge challenge. Welch was mandated to have people used to working in the product industry switch to a new industry where they were not experienced and especially at the management level. For instance, the use of diagnostic sensors and communication capabilities and the linking of these to the company’s online service centre was a benchmark innovation that steered growth and success for the company especially in the service industry, a new industry that the company was launching after its massive investments in the product industry. The major challenge in this concept was coming up with the right staff and the top-notch technology to steer the company through each investment and ensure its success and its utility in the market. For the company to achieve this end, rigorous research and development policies besides to heavy investments in the right staff, and equipment were necessary (Bartlett & Wozny, 2005). However, under Welch’s management and hunger for success in addition to the innovative ideas that shaped the market, the service industry segment with regard to the use of the diagnostic technology was a success. In addition to the use of sensors in the medical equipment and its communication to the company’s online service centre, the technology was pushed further to the aviation industry where GE service experts were mandated to monitor Aircraft engines and the numerous critical operating parameters in these engines. This was a huge milestone for the company. The company had a huge challenge in its acquisition spree where it acquired 20 service-related acquisitions in 1997 alone. Moreover, the change of business that involved the acquisition of a jet engine service centre and purchasing of global power generation equipment were some of the company’s list of acquisitions that capped its change of operations from its earlier product based operations to new service based operations. This was in addition with service industry accounting for more than two-thirds of the companys revenue base. Though this was a major challenge in choosing the right company to acquire and in integrating the new acquisitions to the company, the results were impressive as the company’s growth was on a record a high and marked a new dawn for GE into the future. Through this change of business, the company not only reduced the competition forces in the market, but it was possible to set benchmark operating standards in the market for other competitors to follow, which explains the magnitude of the innovation in transforming the service sector market with regard to medical equipment and in the aviation centre. This was a major challenge that the company through its massive investments in research and development besides the investment in the right staff managed to overcome (Bartlett & Wozny, 2005). Another major corporate strategy that faced GE was in its limited market of operations. GE had much of its operations in its product and service sectors in the American and partially the European market. In a globalised world, companies that do have their presence in most of the markets across the globe do stand a greater chance to ensure market leadership based on their market size and sale volumes. For instance, most Japanese and German-based companies in the medical equipment sector had their presence in the U.S markets and were competing for the market with GE. However, GE concentrated much of their operations in the American, Canadian, and some European countries and ignored the rest. This could imply that the company lost by failing to target lucrative and developing markets such as the Asian, South American and the African market where the company through its massive investments and innovation potential could perform to revolutionise the medical service industry in these markets. As a result, the Japanese and German companies do control these markets with little or no competition from the American based company. In its acquisition spree, the company could have acquired several service-based firms in the developing markets to ensure a global presence and in increasing its market penetration in a global market, in addition to its revenues most of which are from the service- based sector. Considering the integration of the company’s services to its online service centre, it could have been possible to expand to developing markets and keep track of the business activities through the online platform (Bartlett & Wozny, 2005). Moreover, the company had a challenge in embracing the new e-business platform that necessitated all operations of a firm to be performed online. Though Welch was certain that the future of business was e-business due to the value that the new business approach had to businesses, there existed a cloud of uncertainty among some of the top management on the feasibility of this idea. Doubts about the feasibility of the e-business strategy had the potential to affect the attainment of the organisational goals. There was a feeling that the company had grown too huge and converting all its operations to e-business was seen as a monstrous attempt that could have been impossible to achieve. In other words, though Welch was dedicated to having his dream of e-business a reality in GE, some of the staff did not share his vision to lead in the transformation process (Bartlett & Wozny, 2005). Though GE operated at leading edge technologies and with the right staff at the management level, there was a challenge in its workforce in terms of rewards and motivation. The company had put much interest in technology and performance in addition to acquisitions to improve its business standing globally. However, the company lacked quality and benchmark employee motivational and rewarding strategy along the benchmark innovations and investment strategies behind the company’s success. For instance, in 1995, most employees were dissatisfied with the company’s product and processes. However, to improve these, the company undertook massive interests in the Six Sigma management concept that sought to reduce wastages and increase value in the production process. However, the company did not match these with benchmark motivation and remuneration packages for the employees who were the engine of the company’s success story. Though the management was more focused on having only A-players in the company as achieved through skills and experience appraisal of all employees, there lacked a systematic effort to reward this with an equivalent employee remuneration and motivation package with only the top management benefiting from such motivation packages (Bartlett & Wozny, 2005). Recommendations and Conclusion Welch was the engine behind astonishing performance and growth at GE for two decades. He was a visionary leader with an unmatched hunger for success and an eye for opportunities. GE managed to increase its size and revenues several times in the period that Welch was in leadership. Supported by a team of experts and professionals in all the sectors of operations, Welch’s contributions to GE remain steady in the company’s operations today. However, there were some challenges facing the company in its operations some of which ranged from managerial challenges to investment and motivation challenges. It would be recommended that GE invest more on its research and development in that Welch as the main brain behind most investments and innovations drove most of the innovations that affected the company to what it is today. With advanced research and development department, GE would create a pool of people at liberty to assume leadership and steer the company through innovations. Having a rich pool of brains would benefit the company immensely and ensure it operates at cut edge innovations. Moreover, there is a need for GE to refrain from unrelated diversification and embrace related and broad diversification strategies. With regard to investments, GE should expand its operations beyond the American market to developing countries where there is immense and untapped potential for growth. Considering that Japanese and German companies in the same market segment as GE operate in all markets across the globe, GE has an obligation to expand its operations to developed and untapped markets. Welch’s pace of performance is too high such that he is always ahead of other managers in identifying opportunities and in embracing such opportunities for the success of the company. As such, there is a need for GE to enhance skills transfer by embracing a culture where both the management and employees could integrate and share their beliefs for the company. For instance, while Welch believed in the potential of e-business, other managers could not understand the potential that this business platform had to the company. Besides, there is a need to have an elaborate employee motivation and rewarding scheme that rhymes with developments and innovations in the company (Bartlett & Wozny, 2005). Reference Bartlett, A. C. & Wozny, M., 2005. GE’s two-decade transformation: Jack Welch’s leadership. Harvard Business School, 9, 399-150. Read More