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List of Topics and Sub-Modules for Week 3

Week 3 Creating Value through Business Level Strategy and Leading Change

Week 3 Readings, Multimedia and Assignments

Reading

o Bartlett, Christopher & Wozne, Meg (2000). GE's Two Decade Transformation: Jack Welch's Leadership. Harvard Business School Press. HBS 9-399-150 (For information on purchasing this case study please see announcement and links in your News section of the classroom)

o Collins, James, C. and Porras, Jerry I (1996).  Building Your Company’s Vision.  (HBSP)

o Neilson, Gary L., Martin, Karla L. and Powers, Elizabeth (2008).  The Secrets to Successful Strategy Execution.  (HBSP)

Multimedia

o YouTube - Choosing Your Strategic Objectives o YouTube - What is Good Corporate Strategy?  

MBA Reference Guides

o SWOT Analysis o Competitive Advantage o PEST Analysis

Assignments:

Individual Case Study Paper (10%): 

GE’s Two Decade Transformation:  Jack Welch’s Leadership.

Analyze the case study based on the questions given below. As in earlier weeks, this case study assignment is also tightly integrated with the readings for this and previous weeks. You will need to acquire a good understanding of key ideas from the readings before starting to analyze the case study.

Case Analysis Questions

1. How difficult a challenge did Welch face in 1981? How effectively did he take charge?

2.  What was Welch’s objective in the series of initiative he launched in the late 1980’s and early 1990’s? 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?

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?

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?

Place your Individual Case Analysis Paper in your Assignment Folder.  This assignment must be submitted to TurnItIn and the results submitted along with your paper.

Discussion Assignments:  For all Discussion assignments you must post a response covering all questions listed below.  Initial posting should be made by Day 4 of the week.  A minimum of 2 quality interactions with your classmates is required. Use and refer to the assigned readings and multimedia to support your views.  Your discussion participation will be graded using the Discussion Rubric which you can review under Course Content.  Discussions assignments will be graded as follows:  Week 1 - 10%, Week 3 & 4 – 10%, Week 8 & 10 – 10%.

 Executive Summary

Team Globalization has conducted an in depth analysis on General Electric's (GE) two

decade transformation achieved by the company’s former Chief Executive Officer (CEO) Jack

Welch. This report consists of a reflective examination performed by the team, incorporating

perspective gained through professional experience and key concepts gleaned from selected

course reading selections. As CEO of GE, Jack Welch's management skills became legendary,

with little tolerance for bureaucracy and archaic business processes. Acquiring new businesses

and ensuring that each business unit under the GE umbrella was one of the best in its field was a

primary concern for Mr. Welch. Under his guidance, the company expanded dramatically from

1981 to 2001 (GE, 2012). The culture of innovation and learning, which included incorporation

of measures related to new product development, technological leadership, and rates of

improvement, aided Welch and the company in defying the critics as the company continued to

profit.

Introduction

Surviving in today’s challenging business environment necessitates innovative thinking

in terms of crafting strategies to enable the establishment and sustainment of a competitive

advantage. Through an established strategy, structured options and decision making processes,

organizational leaders will be able to facilitate organizational development and growth.

Overcoming the odds and competitive pressures sometimes requires defying critics and popular

views to develop initiatives that not only streamline the organization, but create profitable

business operations and human resources to add value to the organization. The analysis that

follows identifies and defines the challenges which Welch of GE encountered during his tenure,

and outlines his approach to strategic corporate leadership and taking charge. The report is

followed by a breakdown of Welch’s objectives in regards to innovation and his strategy on

creating value. The authors will also provide an evaluation of Welch’s approach to leading

change with emphasis on the overall impact that Welch had on GE’s success. Finally, this paper

will take a look at the implications of Welch’s replacement.

How difficult a challenge did Welch face in 1981? How effectively did he take charge?

Welch faced a very difficult challenge taking over the position as CEO of GE. His predecessor,

Reg Jones, set the bar extremely high at the company leaving a legacy for Welch to compete

with as the new CEO. Jones had been considered a “management legend” and had been voted

CEO of the year three times for his brilliant accomplishments with GE. Jones was also labeled

CEO of the Decade two years before he retired. Needless to say, Welch had some big shoes to

fill once named as CEO. During this transition, the business world was highly competitive, with

the economy, environment, and political climate in constant flux. If not handled properly, the

transition could be detrimental to the company. Welch was up for the challenge and knew that a

successful transition would mean developing a team that would make GE even more prosperous

earning stakeholder trust. This required assessing the current environment to accurately

determine a way to improve it. Welch convinced his team to buy into his new vision of where the

company should go and challenged employees to be “better than the best”. In order to

accomplish this enormous task, Welch placed executives and management in key places to could

assist his efforts to redirect overall company culture. Managers that did not fit into or who failed

to embrace his strategy were let go. Anything and anyone that didn’t bring value to GE was

eliminated. Hierarchical organizational levels were dramatically reduced, enabling the company

to operate as a “lean and agile” business. From the moment he took over the business, Welch

went full force into implementing a “real time planning” strategy. At the time of his

appointment, the United States economy was in a recession. To combat this situation, Jack

Welch had to develop a plan of action aimed at keeping the company thriving in the business

world. In order to accomplish this, GE sold many of their businesses, which represented 25% of

their sales. However, during that time, Welch simultaneously and strategically invested in other

businesses, increasing their revenue and operating profits. How effectively did he take charge?

Welch was extremely effective in taking over the GE reins. Although his predecessor was quite

successful during his reign and the business thrived, there was still the need for change. The

business world was evolving and competitors attempted nonstop to stay ahead of GE.

Fortunately, Jones had left the company in a “good place” during the transition, allowing Welch

to come in with his new and innovative ideas to take the company even further in the business

world. What was Welch’s objective in the series of initiative he launched in the late 1980’s and early 1990’s?

Jack Welch repaired the structure of GE with his initial changes, but now had to manage the

human resources aspect to “rebuild the company on a more solid foundation (Bartlett & Wonzy,

2005, p. 3).” GE’s employees had been sufficiently shaken by the preliminary changes made, and

were subsequently worn-out due to upheaval within the company’s core. Welch hoped to create

an environment which optimized “openness, candor, and … reality (Bartlett & Wonzy, 2005,

p.4).” Additionally, “speed, simplicity and self -confidence (Bartlett & Wonzy, 2005, p.4)” were

the characteristics he expected to dominate the culture. Welch had always been a teacher often

leading sessions at the Management Development Institute. These sessions afforded managers

with an open-forum, allowing them to vent concerns about change implementation and resulting

complications. With the help of James Baughman, Director of Management Development,

Welch decided to institutionalize these open forums, giving every employee the opportunity to

become part of the discussions, honestly and openly. Employees gathered in groups to respond to

their unit bosses’ challenges and agendas in general. Facilitators were empowered to walk these

groups through a process wherein problems were laid out, discussed, potential solutions

identified, and final presentations produced for presentation to unit bosses. This process was

dubbed the “Work-Out”. When the bosses returned, they were required to listen to the proposals

and make a decision in front of the group to at least 80% of the total proposals. As a result of

these standardized processes, productivity increased two-fold. The “Best Practices” program

was assigned to the Business Development department. As head of the Business Development

department, Michael Frazier and his team studied nine companies who had higher productivity

rates than GE. The end result was a tool kit of key techniques and identification of core

characteristics that made these companies successful. For example, process efficiency, customer

satisfaction as their Key Performance Indicator (KPI), well-developed supplier relationships, and

consistent innovation of high quality products and manufacturing efficiencies with little to none

unused capacities were all discovered as “ingredients to success”. A new training program

emerged which helped managers see the error of existing measurement practices. Managers were

further trained to look at larger-scale opportunities for improvement, and broaden their vision of

what success actually looked like. Welch continued to subtly injecting his ideas about

globalizing business units within GE. He looked for opportunities within each business unit to

not only increase success levels within United States markets, but to benchmark GE against

competitors on the world stage. To prove his steadfastness, Welch hired Paolo Fresco, a proven

negotiator, to head the International Operations position. GE took advantage of global economic

downturns in countries like Mexico and Japan to increase their acquisitions, doubling revenue

from international operations within the first five years. Welch dug even deeper into the fabric

of GE with an initiative focused on locating and developing leadership at all levels of the

company. GE employees were being developed, evaluated and compensated based on a

demanding evaluation process called “Session C”. Welch had employed this process with his top

team members and was now drilling down to other business layers in search of the next wave of

GE leadership. Now, everyone in the GE professional corps could expect detailed feedback on

their performance, a clear plan for developing their skills, and with successful completion of

their training and development plan, knowledge about what future positions they might hold

within the company. To incentivize stronger work ethics, GE revamped its compensation

package by offering more stock options tied directly to individual performance for program

initiatives. Welch wanted employees to feel valued for their contributions, and highly-

compensated for their efforts. Welch used Crotonville, the management development facility, as

his incubator. Crotonville was re-designed and outfitted with new buildings for example. Teams

of managers focused on real-time issues facing GE’s business to produce action plans

for achieving results. Welch was so committed to this concept that he taught and talked with

managers at Crotonville two times per month. He practiced what he preached, leadership

development through active mentorship and teachable moments. Once Welch’s commitment to

developing internal leadership was fully in play, he made it clear that everyone would need to

commit to GE’s values, or risk being let go. He knew that some managers made the cut based on

numbers, but failed to inspire and motivate their employees. To further demonstrate his

seriousness about having thoughtful leaders, he implemented the “360 review”. Everyone was

evaluated by their peers and subordinates in addition to their leadership. This process “…

[identified] training needs, coaching opportunities, and eventually career planning-whether that

be up, sideways, or out (Bartlett & Wonzy, 2005, p. 8).”

 

Is there a logic or rationale supporting the change process?

When analyzing Welch’s rationale for the changes made, it is important to identify the

benefits of incorporating Porter’s five forces model to analyze competition within an industry.

Welch based his proposed and implemented changes on proven tactics used by other successful

companies to achieve his strategic organizational goals. Realizing that bureaucratic models

of organizational structure were prone to promoting sluggishness, Welch opted to depart from

this model and implement a more flat organizational structure to assist in meeting his defined

objectives. Although unpopular at the time, Welch’s decisions and actions have through time

become renowned as revolutionary exposing sheer genius in executing changes within an

organization.

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?

Although GE had gone through a major reorganization that contributed to its successes, the

changing business climate when Welch took over as CEO required more to be done. The

complex diversified conglomerate consisting of overlaying groups of 46 divisions and 190

departments all supporting 43 business units were faced with a recession, an economy of high

unemployment, high interest rates, and an overvalued U.S Dollar. These uncertainties and

climate of continuous change and increased competitions led Welch to the realization that

overcoming the magnitude of challenges would require unconventional leadership and bold

strategies. He understood that in turbulent times, strategy was not just about building a position

of sustained competitive advantage but rather formation and implementation of a strategy

centered on the development of timely responses and flexibility to create successive temporary

advantages (Grant, 2011, p. 16). To successfully achieve such objectives required the

reconfiguration of organization’s resources and competences (Grant, 2011, p. 16). In times

of uncertainties and recession, the normal course of action for many businesses is to engage in

cost cutting strategies, but studies demonstrate that such strategies are not always sufficient.

Investment in the right places during hard economic times enables a company to perform better

during and after a recession (Anonymous, 2009, p. 9).GE defied critics and the prevailing

convention of multi business break up by adapting various strategies which included but was not

limited to restructuring through what Welch called “Fix, Sell or Close”. Through this strategy,

the company was able to analyze the 43 businesses under its umbrella and only those businesses

that were number one and two in their industries were maintained. Those that were not

maintained were either sold or closed down. Businesses that were maintained became the center

of strategic focus in terms of developing those units through additional investment and

developing efficiency and effectiveness procedures and operations. This strategy is an indication

that Welch did not adapt cost cutting strategies like many of the companies during that time but

his goal was as he said: “I would like General Electric to be perceived as unique,…with world

quality leadership in every one of its products line” (Bartlett, 2005). Selling and closing of some

businesses was about doing away with those businesses that were under performing, and did not

add value to the company. By doing so, the company became more efficient and a value building

culture permeated the GE workforce. Evidence of this is shown when considering the fact that

that Welch divided the remaining businesses into three categories known at The Three-Circle

Vision (See Exhibit 2). The businesses were not the only component of the company to go

through restructuring, but Welch’s goal of making GE lean and agile resulted in de-staffing and

reduction of bureaucracy, eliminating layers of hierarchical that were bottlenecks to growth and

operational, personal and production efficiency. The underlining principle in the transformation

is that in order to operate an effective and efficient world class business, and sustain number one

or two positions in an industry, GE had to invest in the right businesses and develop staffs that

are the best at what they do. Individual employees were empowered to lead in their own capacity

by finding ways to contribute to the value system of the company. Leaders were challenged to

find ways to make their people more effective and competitive. Open forums were created to

find avenues of improvement at all levels of the firm’s business, operations, human resources

and employee morale. Critics saw the company’s strategy of developing leadership and

employee capabilities enhancement as being risky especially in times of uncertainties. They also

viewed the removal of boundaries through what was known as Work-Out best practice and the

creation of the boundary less as being radical and risky. However, through the determination of

Welch and his team, and the desire for change; the risk paid off contributing to the value of the

company. Welch understood that strategy is not about doing things better, but it is about doing

things differently through effective decision making and knowing where to compete and how to

compete; as emphasized by Porter (Gant, 2011, p. 18) regardless of how radical and risky it may

seem to critics. GE had acquired firms that enabled it to expand globally and developed global

operations that resulted in the company almost doubling its international revenue to $42.8billion.

The company became lean and agile, with increased efficiency and organizational culture

transformation. Through the stretch target initiatives, all employees were asked to prove how

good they can be by setting and reaching higher goals that were once deemed to be impossible to

achieve. Another important value added to the company was the service business, which

contributed to two-thirds of the company’s revenues

(See Exhibit 9). These and other initiatives are examples of how Welch endeavors, initiatives and

ideas contributed to the value of GE. With Welch’s leadership GE ventured into new sectors, and

did away with ineffective ones, developed a massive global market that outperformed its

domestic markets, created a service industry and an E-business; thus increasing it revenue and

increasing its value by 60%, and most importantly surviving the recession and creating a large

complex diversified conglomerate that continues to defy the critics and grow in performance and

profitability. Values added include but not limited to the reduction of bureaucracy which

resulted to more expedient processes, and effective operation. Welch extended his Fix, sell or

close from the national level to the international level. He also saw the challenges in other

countries and economic difficulties as opportunities for new investments and expansions. Values

added also included the transforming of GE culture to a more learning, knowledge sharing and

demanding of excellence, commitment and service to the goal of the organization. Welch

introduction of business service contributed to two-third of the company’s value. Last but not the

least, his introduction of the Six Sigma quality initiatives led to 62% in turnaround time, return

of $750million over the investment exceeding expectations along with a forecast of additional

returns of $1.5 billion in 1999. In addition to this the program also contributed 300 million

pounds of new capacity.

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?

Jack Welch’s mission was to restructure the company in order to become the number one or

number 2 competitor in the industry. He embraced change, expected his team to do the same, and

challenged his team be “better than the best” (HBS, p.2). He employed different management

reporting structures at different points of the transformation. For example, he felt as though there

were too many layers at all large headquarters groups, as a result he spearheaded a de-staffing

process which resulted in a vertical reporting structure with major department heads reporting

directly to him. In addition, his team of managers shared the same commitment to management

values. Furthermore team members had to have the willingness to take charge, to think outside of

the box, to push the envelope and most of all to be team players. In return Welch compensated

those employees with generous bonuses and incentives. Welch fostered open communication and

created a culture characterized by “speed, simplicity, and self-confidence.” (HBR, p.4). In order

to show his commitment he launched the “Work Out” program which created a forum where

employees and managers could work out new ways of interacting with each other. Welch never

rested on his last success; he continued to innovate and to look for ways to grow the business

both internally and externally. For example as “Work Out” began he began to think of additional

ways to increase productivity. As a result the “best practices” program was created in an effort to

learn from other companies and to identify the reason for their success. Welch believed in

developing leaders and provided the tools for them to do so. He adapted a human resource

department that would be in line with his goals. He challenged his managers to identify future

leaders, and then developed a training program and a developmental plan for all key jobs. He

understood that GE’s assets were in fact their people and in turn had to be managed as a

company resource. Welch’s unwavering involvement in every facet of the business was essential

to all of these incentives, and directives. His philosophy was not a “do as I say not as I do”

mentality. In addition he never rested on his last success. He created the “Stretch” program in an

effort to push people to be the best they can be, to test boundaries, and to get “people to think of

fundamentally better ways of performing their work.”(HBS, p.10). Ultimately Welch’s strategy

was to look at the external factors that affected GE’s success, while implementing a bottom to

top approach. Ultimately he realized that the success of GE relied on the strength of his team. To

that end he was relentless in ensuring that his team was set up for success. Everything Welch did

reflected his belief in his people and as he once stated. “I own the people, you just rent them.”

(HBS, p.7). Welch’s replacement will need to establish him/herself and make a name

for themselves. This person will need to clearly communicate their vision and how they will go

about accomplishing those goals. He/she will need to continue to foster open communication in

an effort to continue to foster teamwork. Innovation will be crucial if the company is to thrive

under the new leadership. Welch’s replacement will need to make a name for himself by creating

new programs that continue to foster employee/employer relations, and by understanding the

importance of looking at the external factors that affect the overall business

Conclusion

As stated throughout this analysis, Jack Welch stepped out into uncharted territory with

lofty aspirations of making dramatic change within the GE organization for positive growth.

These efforts were achieved through several unprecedented means and reorganization of the

existing organizational structure to facilitate discussion, communication, and constructive

criticism unilaterally throughout the company. Although some of his chosen methodologies were

deemed by critics as “radical” and “risky”, the results of Welch’s actions speak for themselves as

a testament to his strategic leadership at the GE helm. The agility, responsiveness, productivity

and ultimately profitability realized as direct results of Jack Welch’s actions while operating in

the office of GE CEO are key indicators of the lasting impact that his legacy leaves for future

officers tapped to fill the position. Programs and processes established under his watch leave an

impressive standard for successors. Without a doubt, Jack Welch’s leadership has left a lasting

impact on GE and the business world.

   References

Anonymous. (2009, p. 9). Beware: Cost cutting can be deadly. Principal's Report, 9 (6), 8-9Bartlett, C.A., & Wozny, M. (May 3, 2005).

GE's two-decade transformation: Jack Welch's Leadership. Harvard Business School. GE, 2012. Past Leaders. Retrieved fromhttp://www.ge.com/company/history/bios/john_welch.html

Grant, R.M. (2010). Contemporary strategy analysis (7th Ed.). Malden, MA: Blackwell.