Executive Summary
Jack Welch is one of the formidable American chief executives of all times. Staying at the helm of General Electric for more than twenty years, he managed to increase total value of the company on 4,000%, eradicate corporate bureaucracy and create a completely new business philosophy of the corporation.
This research analyzes the core elements of his leadership style. In particular, it speaks about the methods, which Jack Welch used for transforming the company and the challenges, which he faced in this endeavor. The case study specifically focuses on analyzing re-structuring of the top-management of GE, his approach to recruitment, marketing and technological revolution. This work also stresses the methods used by him for handling internal and external criticism, and motivating employees of GE.
Generally, this research concludes that Jack Welch’s tenure as a Chief Executive and Chairman of GE was highly positive for the company. Specifically, this work argues that his initiatives helped the firm to enter into ‘transition’ period between the industrial and digital revolutions smoothly.
REVISION REMARK
other: in question 2 . What was Welch’s objective in the series of initiative he launched in the late 1980’s and early 1990’s? (but i don't see the answer of What was he trying to achieve in the round of changes he put in motion in that period? Is there a logic or rationale supporting the change process?) I don't see that answer also in question 3 . How does such a large, complex diversified conglomerate defy the critics and continue to grow so profitably? ( Have Welch's various initiatives added value? If so, how?) I don't not see this answer. in question 4 What is your evaluation of Welch's approach to leading change? (How important was he to GE's success? What are the implications for his replacement?)I don't see the answer please answer those question and highlight in different color please.
Please, go through the text and find colored parts, which correspond to the colors above. I hope that this will show that the file contains all necessary information.
CONTENTS
I. Introduction 4
II. The Challenges, Encountered by Jack Welch and his responses 5
a. Launching a “three circle concept” 5
b. Removing Unnecessary Businesses 7
c. Eradicating Corporate Bureaucracy 7
d. Top Management Overhaul 8
III. The Objectives of Jack Welch in 1980-1990 Organizational Overhaul 9
IV. Defying the Critics 10
V. Evaluation of Welch’s Approach to Leadership and Its Importance for General Electric 11
VI. Conclusions 12
Introduction
Jack Welch is one of the most outstanding American business executives. Acting as a chairman and Chief Executive Officers of the General Electric, he managed to increase total value of the company on 4,000% (Barlett & Wozny, 2005). Due to his especially successful performance at his posts, he received the largest severance payment in history (Lane, 2008). Among the core strategic frameworks, introduced by him in General Electric was establishment of informal working culture, eradication of all forms of organizational bureaucracy. He also ventured to launch a series of measures, which were traditionally opposed in the American business culture – he ruthlessly phased out unprofitable factories, reduced excessive compensation packages of the senior managers and provided various financial and non-financial incentives to increase productivity of the middle-line managers and blue-collar staff.
Having joined senior positions of General Electrics in 1981, Jack Welch encountered a number of formidable difficulties. Not only the economy was in the worst recession after the Great Depression, but also the company had obsolete, industrial-era approaches to management and corporate governance (Bartlett & Wozny, 2005). Yet, by using his personal expertise and coordinating the efforts of his team, he managed to make this company the unequivocal leader of the American market.
This paper pursues several objectives. Firstly, this paper speaks about challenges, which Jack Welch faced in 1981, when he took command over the company, and discusses the measures chosen by Welch to tackle these challenges. Secondly, this paper investigates a series of practical steps, used by Jack Welch, attempts to understand whether these actions were justified to support the change processes. Thirdly, this research analyzes how large and complex business conglomerates defy multiple comments of the critics and continue to grow in a profitable manner. Finally, this research speaks about Welch’s approach to organizational leadership and implications of his replacement.
The Objectives of Jack Welch
Launching a “three circle concept”
In particular, a new underpinning of the company of the company philosophy was adopted. Thus, he decided that it justified being either the first or the second on the market. Otherwise, the production is not justified, and the company should leave the market. In addition, the new CEO developed the principles of the “three circle concept” of the future General Electric strategy. The entire business was categorized into the three separate groups:
The first group is the so-called ‘core businesses’. The purpose of such departments was made to generate income for reinvesting into improvement of productivity and increase in quality standards.
The second group deals with incorporation of the most advanced high technology. Thus, the purpose of this category of businesses was to ‘stay on the leading technological edge’, i.e. to outperform the competitors by integrating recent technological advancements. The company exercised this via two primary channels:
Firstly, the company heavily invested in creation its own research and development department. The department was responsible for discovering the technologies for the existing and new products of the company to ensure that they are better than those offered by the competitors.
Secondly, the company cooperated with the technology companies. Jack Welch established a separate budget for buying the most promising patents and technologies, which can make its products superior on the market.
The third group of divisions established by Jack Welch dealt with the services provided by the company, such as sales and post-sales support, consulting and others (Barltett & Wozny, 2005). The key idea behind the development of this department was to hire the most talented professionals and skilled professionals to add to the ranks of the company workforce. In addition, it was Jack Welch, who realized the importance of hiring culturally diverse teams. The company started to headhunt bilingual professionals inside the country and overseas. Because the firm started international experts, as well as because the American community evolved into a highly heterogeneous society, the importance of having different ethnical backgrounds onboard became a necessity. In addition, the company also started to look for good engineers outside the country. Many graduates of the Western and Eastern educational institutions joined the company (Slater & Welch, 1993).
In general, the launch of “three circle concept” was especially effective for shaping a holistic corporate vision, which became shared by all members of the large company. Coupled with removal of the complicated bureaucratic structures, this model created a comfortable working environment, where every employee perceived goals of the company, as well as everyone fully comprehended corporate philosophy and the methods of accomplishing those goals (Porter, 2011). Those, who could not get adapted to such working practices, were dismissed. In contrast, the employees, who understood this shift towards ‘segmentation’ into small divisions with zero tolerance to bureaucracy, admitted that General Electric was the best employer (Boyle, 1999).
Removing Unnecessary Businesses
Together with fundamental overhaul of the company core philosophy and approach to global excellence, Welch also understood the importance of getting rid of useless business divisions of the firm. The company sold a number of struggling divisions, including production of air-conditioners, its extensive coal mining and even one of its core business units – consumer electronics development. In total, the firm sold more than 200 business units. These sales helped the company to free over $11 billion. At the same time, the company acquired more than 370 promising companies, including Kidder Peaboy, Weinghouse Company, which specialized in the development of lighting, and Thompson/CGR, a French firm, which was developing medical imaging equipment (Bartlett & Wozny, 2005).
Eradicating Corporate Bureaucracy
In addition to overhauling marketing approaches of General Electric, Jack Welch completely eradicated old-fashioned business bureaucracy (Lane, 2008). One of the first step he took involved the reduction of the highly inflated 200-persons department of strategic planning. Instead of making unnecessary checks and researchers, each member of the newly created strategic think tank should start asking himself what value does he or she brings to the company. Welch removed number of unproductive positions, such as department, sector and subsector managers. As a result of these measures, more than 59 000 salaried and 64 000 hourly positions during the period between 1981 and 1988. In general, between 1981 and 1989 the staff of General Electric was downsized from 404 000 in 1981 to 292, 000 in 1989. Although these measures did not significantly increase revenues of the company, the operating margins fundamentally rose from US 1.6 billion to US$ 2.4 billion (Bartlett & Wozny, 2005).
In addition, Welch modified the process of strategic planning. Instead of planning everything in beforehand, the company switched to real-time planning. The executives were requested to conduct a continual analysis of the competitors’ activities and market dynamics, before any decision is made.
Top Management Overhaul
Making corporate structure ‘lean and agile’ was not sufficient to reach operational and strategic excellence, until the highest echelons of the company are prepared to embrace these changes. The legacy left to Welch by its predecessors was the team of highly professional and experienced executives. However, although these people rendered great services to the company in the past, their expertise was no longer adapted to the current business realities. Therefore, Jack Welch decided to replace 12 of the 14 C-ranked executives of the firm. The new managers of the firm shared the new vision, and, most importantly, they had ability and desire to push new changes (Bartlett & Wozny, 2005).
Overall, it can be concluded that when Jack Welch assumed command over General Electric he faced serious challenges in marketing and organizational behavior. Not only he managed to re-shuffle the product portfolio, but also he made the management approaches of General Electric consistent with contemporary realities of market.
The Objectives of Jack Welch in 1980-1990 Organizational Overhaul
Jack Welch tenure at the helm of General Electric appeared to be highly controversial for the American business scholars, who criticized him for radicalism and violation of the conventional strategic management practices. Yet, he pursued the objective of making General Electric a leading global company. In order to accomplish this goal, several intertwined objectives were established:
Creation of the new management culture. In particular, Welch decided to instill the culture of autonomous, creative management. Division leadership became a central element of his revolutionary. By means of constantly emphasizing the new values and systems of operations, Jack Welch nurtured the new generation of skilled and devoted managers. Individual leadership skills of the divisional managers became essential for a successful career in the company, because the new philosophy purported that the company values and objectives should be supported bottom-up. Welch always highlighted that it is creative, talented and self-organizing people, not its products, which make a company successful (Boyle, 1999).
Adapting the Japanese model of corporate loyalty. Another priority of Mr. Welch as a Chief Executive of the company was to ensure that the best talents are not only hired, but also retained by the firm. Thus, the Welch focused on creating ‘lifetime’ contracts between the most productive employees not only by legal means, but also by changing the method of compensating them. Thus, Jack Welch was one of the first American executives, who started to pay bonuses to the senior executives by stock options of the company, making them personally interested in successfulness of the firm (Slater & Welch, 1993).
Another important objective of the transformation period of General Electric was acquisition Kidder and Peabody, and subsequent launch of the company service divisions. Because it was predicable that the sales of hardware would somedays slow down, Welch should have invented something to keep the profits and, it was decided to “supplement the products” with the different added-value services. As a result, by 1996 the service segment of General Electric businesses was one of the most dynamically developing (Bartlett & Wozny, 2005).
Despite the fact that these actions of Jack Welch subjected him to acrimonious criticism from the American business scholars, yet, the practice demonstrated that he was on the right track is changing cultural framework of the company, as well as re-calibrating its business focus (Lane, 2008). Not only the company remained in the frontline of American technological revolution, but also it preserved is positions as one of the most profitable, creative and successful entities on the American business horizon.
Defying the Critics
The measures initiated by Jack Welch were ruthlessly slated by many critics, who thought that the collapse of General Electric was imminent. In addition, they argued that though such measures might have been effective for small and medium-sized institutions, they could not boost productivity of the large corporations. Many employees of the company happened to be somewhat vulnerable to that kind of business propaganda, and started to express their misgivings regarding the course of company strategic development. Yet, Welch instilled a very strong philosophy to the company that opinions have no weight. It is only the results and the amount of annual compensation that matter in evaluation of the company profitability (Lane, 2008). Because the company continued to grow, no people were laid off and salaries and bonuses increased progressively, the employees became ultimately persuaded that the voices of critics were quite loud, but groundless. The company continued to grow because Jack Welch was continuously adapting it to the evolving realities of the market, while the critics could not simply understand the necessity of many structural changes, which he was making. Thus, Jack Welch was one of the first American executives to have introduced ‘lean and agile’ style of management. Severely criticized in the late 1980, it became globally praised in the early 2000. Therefore, the company was profitable mainly because it predicted what would be effective on the market in the near future.
However controversial they might seem to be at those times, the initiatives of Welch brought value to the company. As discussing before, during his tenure as CEO of the firm, the company total value increased on 4,000%. Furthermore, in 1981 the company declared US$27, 240 billion in revenues. In 2000, that figure was US$ 129, 853, showing a tenfold increase. However, the more important issue in this context is that Jack Welch managed to make General Electric a really global company with more than 50% of the revenues generated overseas (Bartlett & Wozny, 2005).
Overall, Jack Welch demonstrated that the best way to defy criticism is to beat it with results. Because his controversial leadership made the company successful, it is inferable that the criticism was not justified.
Evaluation of Welch’s Approach to Leadership and Its Importance for General Electric
The methods introduced by Jack Welch were a salvation for General Electric, which was one of the largest corporate behemoths when he assumed command. Not only he contrived to adapt the company to the existing financial and market realities of those times, but also he instilled a specific philosophy to the company. Now, the employees view each change not a threat, but as an opportunity, which can be used to improve market standing of the firm. These changes were highly important for preserving leadership positions of the company during the doc com bubble and the following web revolution.
A year before his retirement, Welch launched the new program of expanding the company presence into web-area. Having outlined the blueprint of this strategy, Welch left this mission to his successor, a former GE medical boss Jeffrey R. Immelt. For Welch successors, the situation was far better, than when Welch assumed command over the company – the market was rather stable, the sales were steady, and, most importantly, Jack Welch developed the most optimal model of the company. Thus, the task of Welch successor was ensure that the model of Welch correspond to the market realities, and, to adapt accordingly.
Conclusions
References
Bartlett, C.A. & Wozny, M. (2005). GE’s Two Decade Transformation: Jack Welch’s Leadership. Harvard Business School.
Porter, M. (2011). What is strategy? In HBR’S 10 Must Reads on Strategy. (2011). Harvard University Press
Boyle, T. (1999). At any cost: Jack Welch, General Electric, and the pursuit of profit. New York: Vintage Books.
Slater, R. & Welch, J. (1993). The new GE: how Jack Welch revived an American institution. Homewood, Ill: Business One Irwin.
Lane, B. (2008). Jacked up: the inside story of how Jack Welch talked GE into becoming the world's greatest company. New York: McGraw-Hill.
