ge history of org structure

Strategic Management JournalStrat. Mgmt. J., 33: 633660 (2012)

Published online EarlyView in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.1971Received 15 January 2010; Final revision received 21 October 2011

ARCHITECTURE, ATTENTION, AND ADAPTATIONIN THE MULTIBUSINESS FIRM: GENERAL ELECTRICFROM 1951 TO 2001JOHN JOSEPH1* and WILLIAM OCASIO21 Duke University, Durham, North Carolina, U.S.A.2 Northwestern University, Evanston, Illinois, U.S.A.

In this study, we analyze how the organizational architecture of a multibusiness firm affects theadaptation of its constituent business units. Using an inductive analysis of GEs governancesystem from 1951 to 2001, we examine how the integration of corporate and business unitattention occurs within and across the firms governance channels. Our theory identifies anunexplored aspect of the M-forms architecture: collective vertical interactions between thecorporate office and business units through cross-level channels. Overall, we articulate threetypes of channel integrationcross-level, cross-functional, and channel couplingand examinetheir effects on responsiveness to threats and opportunities. We find that despite an elaborateorganizational architecture, there were periods when GEs governance system did not allow forcoordination of corporate and business unit agendas. Our theory proposes that the temporalcoupling of specialized, cross-level channels creates an organizational architecture that is bothdifferentiated and integrated. This architecture integrates levels and issues simultaneously,yet focuses attention sequentially, providing more effective conditions for joint attention andcoordination between the corporation office and the business unit and adaptive change at thebusiness unit level. Copyright 2012 John Wiley & Sons, Ltd.

INTRODUCTION

This article examines a critical issue in strategicmanagement: how the organizational architectureof a diversified multibusiness firm facilitates thestrategic adaptation of its business units (Rumelt,Schendel, and Teece, 1994). In particular, ouranalysis focuses on the adaptive implications ofcorporate-business unit interactions. Beginningwith Chandler (1962), the literature on diversi-fied firms focused on the superior information-processing and decision-making capacity of themultidivisional structure, with corporate office

Keywords: attention; strategic adaptation; governancechannels; cross-level; interactions Correspondence to: John Joseph, Duke University 100 FuquaDr., Durham, NC 27708, U.S.A.E-mail: [email protected]

control of strategy formulation and business unitfocus on implementation and operations (Chandler,1962; Stinchcombe, 1990). Williamson (1975,1983) expanded upon Chandler to develop the M-form hypotheses, where the corporate-level focuson strategy is accompanied by a financial con-trol system. The Chandler-Williamson perspectiveassumed a clear differentiation between businessunit operations and corporate strategy, with lim-ited attention to integration beyond authority rela-tionships (cf. Lawrence and Lorsch, 1967; Gulati,Lawrence, and Puranam, 2005) and financial con-trol (Williamson, 1975).

A large body of research has recognized thatbusiness unit adaptation is not merely a functionof corporate fiat, but the consequence of a moreelaborate relationship between corporate headquar-ters and business units (Gupta, 1987; Ghoshal

Copyright 2012 John Wiley & Sons, Ltd.

634 J. Joseph and W. Ocasio

and Nohria, 1989; Bartlett and Ghoshal, 1993;Volberda, Baden-Fuller, and van den Bosch, 2001).For example, horizontal linkages, such as cross-functional or cross-business unit teams (Galbraith,1974; Martin and Eisenhardt, 2010; Martin, 2011),provide business unit managers with opportuni-ties for adaptation through collaboration, as wellas economies of scope through greater knowledgeexchange and resource sharing. The corporate roleis one of providing the underlying support, such astotal quality management or new product develop-ment processes, for horizontal exchanges to takeplace and interdependencies to add value (Prahaladand Doz, 1987; Bartlett and Ghoshal, 1993).

Another stream of research has examined therole of corporate executives in shaping the prod-uct markets in which business units compete. Inparticular, the literature on patching and recom-bination (Galunic and Eisenhardt, 1996, 2001;Rindova and Kotha, 2001; Birkinshaw and Ling-blad, 2005) finds distinct advantages of modularcorporate forms, with their capacity to add, divestand recombine businesses through charter changesin the firms business units. One particular insightof these studies is that while the corporate officemay influence charter decisions, much of the activ-ity concerning charter assignments reflects decen-tralized behavior. This challenges the idea thatstrategic adaptation is the province of the CEOand the corporate office. It is also consistent withFreeland (1996) who finds, in a direct examina-tion of Chandler and Williamson, that contrary tothe M-form hypotheses, business unit participa-tion in strategic formulation was not only prevalentat General Motors, but also yielded better perfor-mance than when it was solely under the purviewof the corporate office.

A third stream of research emphasizes the cor-porate offices provision of decision premises formanagers at lower levels of the firm. These stud-ies focus on the cognitive control of the organi-zation through corporate goals, plans, frames, orrules that guide exploratory behavior (Burgelman,1983, Gilbert, 2006) and business unit initiatives,which often depart from the mainstream business(Birkinshaw, 1997; Birkinshaw, Hood, and John-son, 1998). Research in this category often focuseson the performance implications of top manage-ment attention. The idea of this research is that inorder for firms to commit to new activities, suffi-cient top management attention must be directedto them to gain the necessary political support,

visibility, and resources to survive. For example,research has shown that the attention focus of topmanagement can increase firm receptivity to newtechnologies (Kaplan, 2008), shape the timing ofmarket entry (Burgelman, 1991), and amplify firmcapabilities (Eggers and Kaplan, 2009).

In all, these studies have made great strides inupdating the Chandler-Williamson view of corpo-rate control over strategic adaptation. In the pro-cess, however, the literature has moved away fromthe foundational focus concerning the structuralrelationship between the corporate office and thebusiness units. Studies that have explicitly dealtwith the role of the corporate office (e.g., Goold,Alexander, and Campbell, 1994; Freeland, 1996)do not focus on issues of structure or considerthe role of organizational architecture. Similarly,research that highlights cognitive drivers of adap-tive behavior typically does so at the expense ofstructural mechanisms. For example, the idea thatattention mediates the relationship between topmanagement mental models and strategic actionhas been well established (Barr, Stimpert, andHuff, 1992; Cho and Hambrick, 2006), but its rolein the relationship between organizational architec-ture and adaptation remains an open question.

With renewed interest in corporate-level effectson performance (Bowman and Helfat, 2001; Adnerand Helfat, 2003; Martin and Eisenhardt, 2010)and greater focus on organizational architecture(Gulati, Puranam, and Tushman, 2012, this issue)and corporate attention (Cho and Hambrick, 2006;Ambos and Birkinshaw, 2010), a closer reexami-nation of the corporate-business unit relationshipin diversified firms is needed. The current articlereturns to the structural foundations established inthe early literature and explores, with an attentionallens, how structural relations between corporateoffices and business units shape strategic businessunit adaptation. We complement prior focus onvertical authority relationships (Galbraith, 1973)and horizontal linkages (Gupta and Govindara-jan, 1991; Martin and Eisenhardt, 2010) and focuson exploring the effects of alternative cross-levelstructures, the attentional focus created, and theirrole in adaptation. Specifically, our study seeks toanswer two questions. First, given the importanceof both the corporate office and business units forstrategic adaptation, how does the organizationalarchitecture, defined as the structure of commu-nications, interactions, and authority relationshipsacross the organizational structure (c.f., Simon,

Copyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)DOI: 10.1002/smj

Architecture, Attention and Adaptation 635

1962), achieve successful alignment of the corpo-rate office and business unit for identifying com-petitive opportunities and threats? Second, howdoes the differentiation and integration of corpo-rate and business units through the organizationalarchitecture affect the coordination of responses tothreats and opportunities?

Theoretically, we adopt an attentional perspec-tive on organizational architecture (March andSimon, 1958; March and Olsen, 1976; Ocasio andJoseph, 2005; Bouquet and Birkinshaw, 2008).This perspective suggests that the organizationalarchitecture structurally distributes managerialattention throughout the firm, with managers withinvarious subunits and organizational levels focusingattention on different aspects of the firms agenda.This distribution occurs because managerial atten-tion is situated within the firms governance chan-nels. We define governance channels as formalcollective interactions set up by the firm to con-trol, allocate and monitor organizational attentionand resources. The fact that attention is situated ingovernance channels implies that managers atten-tion is conditioned on the interactions betweenthem, both within channels and across the systemof channels. Since the interactions will vary fromchannel to channel, depending on factors such aswho is in attendance, their timing, frequency, andthe agenda, so too will the way in which attentionis engaged and whether or not joint attention isestablished.

Because of the emphasis on situated attention,our approach to corporate-business unit interac-tions differs from information processing per-spectives (Galbraith, 1974; Tushman and Nadler,1978). From an attention-based view, the focusis not on information processing capacity, butwhether and how available information is attendedto in a particular time and place. Correspondingly,we do not presume the presence of ubiquitousdecision rules, goals, or culture (c.f. Burgelman,1991; Bourgeois and Brodwin, 1984), but that theparameters for directing attention and decisions arenot widely shared and are contingent on particularconfigurations of channels. Also, while much ofthe foundational work implicitly equates the merepresence of communication channels with integra-tion, we do not assume that channels necessarilyintegrate attention. Channels may also differentiateor focus attention.

Our research approach is based on analyticalinduction (Hicks, 1994). We begin with a general

theoretical frameworkthat organizational archi-tecture shapes adaptation through its effects onattentionand seek to develop specific theorybased on this general framework. Our longitudinalanalysis allows us to examine how organizationalarchitecture, which is relatively static, affects anumber of specific instances of business unit adap-tation (or lack thereof). For our inductive method,we selected a historical case analysis of GeneralElectrics (GEs) changing organizational archi-tecture from 1951 to 2001 and its impact on thestrategic adaptation of two business units: Comput-ers and Medical Systems. GE is an extreme caseof a highly diversified corporation with significantvariation in both organizational architecture andsuccessful business unit adaptation: the Computersunit was considered a failure and was ultimatelydivested; Medical Systems emerged from a smallpart of GEs portfolio to become a major sourceof revenue and profitability. In the 1951 to 2001period, GE experienced four significant shifts inits organizational architecture and multiple eventsthat reflect successful and unsuccessful attempts atstrategic adaptation in the two businesses studied.By utilizing an embedded design of key events,within a single, critical firm, we seek to rely onwithin-case analysis of GE and between-case anal-ysis of events (Eisenhardt, 1989; Yin, 2009) to helpdevelop new theory on the architecture, attention,and adaptation of diversified corporations.

Our focus on corporate-business unit interac-tions parallels, yet is distinct from, state-of-the-artwork on collaboration and coordination in multi-business firms (e.g., Smith and Tushman, 2005;Martin and Eisnhardt, 2010; Martin, 2011). Mostprior studies have examined firms with a domi-nant business or related diversifiers (c.f. Burgel-man, 1983). However, we focus our analysis ona highly diversified conglomerate where the focusof attention is highly distributed and coordinationacross functions, levels and units may be especiallychallenging. And whereas these papers have pri-marily elaborated on the nature of horizontal inter-actions within the executive office and betweenbusiness units, we seek to highlight the relativelyless understood effects of collective vertical inter-actions across corporate headquarters and businessunits on attention within particular governancechannels. We consider not only the attention inte-gration and differentiation that results from interac-tions within specific governance channels, but alsothe linkages across governance channels and the



transmission of issues and initiatives from one toanother. Specifically, we identify and analyze threetypes of channel integration: cross-level (withinchannel integration of corporate and business unitagendas), cross-functional (within channel integra-tion of various functional areas), and channel cou-pling (integration across the system of channels).

Our study complements research on headquar-ters role in the reconfiguration of resources byhighlighting the structural direction of manage-rial attention. While recent research has examineddifferentiation and integration in vertical supplier-buyer relationships (Gulati et al., 2005), theunderlying architectural (i.e., structural) integra-tion between the corporate office and its divisionsin multibusiness firms remain relatively unexam-ined. Miller (1986) is a partial exception, notingthe importance of formal committees via plans andbudgets as an integrating mechanism. The struc-ture and content of the integrating committees andtheir relationship to organizational adaptation isnot, however, examined.

Accordingly, we also contribute to the liter-ature on organizational attention. Recent empiricalwork has shown the importance of top man-agement attention on strategic adaptation (Choand Hambrick, 2006; Kaplan, 2008; Nadkarni andBarr, 2008; Eggers and Kaplan, 2009; Ambos andBirkinshaw, 2010). This literature has not consid-ered, however, whether and how top managementattention is integrated with business unit attentionor how organizational architecture facilitates busi-ness unit adaptation. Through our study at GE,we demonstrate that the integration of managerialattention affects the firms ability to respond tothreats and opportunities and that lack of integra-tion within and across channels may have negativeconsequences for strategic adaptation.

DIFFERENTIATION ANDINTEGRATION IN THEMULTIBUSINESS FIRM

The organizational architecture is a critical deter-minant of managerial information processingcapacity and strategic adaptation (Lawrence andLorsch, 1967; Tushman and Nadler, 1978; Miller,1986; Siggelkow and Levinthal, 2003). FollowingChakravarthy (1982), we define strategic adapta-tion as the coordinated responses to competitivethreats as well as the proactive pursuit of new

opportunities. Strategic adaptation may be con-strained by a number of factors such as the rigidityassociated with established routines and patterns ofresource allocation (Leonard-Barton, 1992; Nelsonand Winter, 1982; Gilbert, 2005) or the cognitiveimpediments that arise from divergent perceptionsof external shocks (Meyer, 1982), technologicalchange (Tripsas and Gavetti, 2000), or competitiveactivity (Reger and Palmer, 1996). Our focus is athird category, the information processing limits ofdecision makers as shaped by the organizationalarchitecture (March and Simon, 1958; Galbraith,1974; Nadler and Tushman, 1997).

The original literature on M-form firms high-lighted how the segmentation of decisionresponsibility between strategy and implemen-tation deepens the information processing anddecision-making capacity of corporate executives(Chandler, 1962) and focuses line managers atten-tion on unique markets and facilitates the develop-ment of products that are tailored to meet marketneeds. However, given the limits of structural dif-ferentiation between strategy and operations forstrategic adaptation, multibusiness firms requirespecialized structures for integration across lev-els and functions. Lawrence and Lorsch (1967)established both differentiation and integration offirms information processing capacity as criti-cal determinants of performance. Differentiationwas defined as the state of segmentation of theorganizational system into subsystems, each ofwhich tends to develop particular attributes inrelation to the requirements posed by its rele-vant external environment (Lawrence and Lorsch,1967: 4). Integration was the quality of the stateof collaboration that exists among departmentsthat are required to achieve unity of effort bythe demands of the environment (Lawrence andLorsch, 1967: 11). Departmental (and divisional)specialization was identified as a key to differ-entiation. Integration may be achieved throughvarious mechanisms, such as dedicated roles,organizational goals, and interactions within cross-functional or cross-business unit teams. Cross-business unit teams, for example, may integratemultiple perspectives by fostering trust, improvinginformation sharing, and providing members withopportunities to navigate their differences (Martin,2011). Interactions within top management helpresolve conflicting agendas (Cho and Hambrick,2006) and balance exploration and exploitation(Smith and Tushman, 2005).



Governance channels, collective verticalinteractions, and situated attention

Our conception of integration in this article issimilar to, but distinct from, previous definitionsin several respects. In this study, integration refersto the alignment of managerial attention to com-mon issues, initiatives, and decisions (i.e.,agendas). The attention-based view of the firm(Ocasio, 1997; Ocasio and Joseph, 2005; Barnett,2008; Bouquet and Birkinshaw, 2008) provides thetheoretical framework for our approach and theunderlying mechanism of how organizationalarchitecture shapes the differentiation and integra-tion of managerial attention required for strate-gic adaptation. Attention is defined as the notic-ing, encoding, interpreting, and focusing of timeand effort by organizational decision makers onboth (1) issues: the available repertoire of cat-egories for making sense of the environment;and (2) answers: the available repertoire of actionalternatives (Ocasio, 1997: 189). The issues andanswers together constitute the corporationsagenda and are central to adaptation and change(Dutton, 1997).

Within the context of distributed attention thatis characteristic of the multibusiness firm, organi-zational architecture becomes a particularly impor-tant mechanism to integrate the focus ofattention on the corporations strategic agenda.Integration, in this context, reflects the collectivevertical interactions between corporate and busi-ness unit managers that occur within governancechannels and the issues and initiatives that areaccordingly attended to as managers communicateand make discrete decisions that involve organi-zational resources (Dutton and Ashford, 1993).The concept of channels played an important rolein early administrative theory (March and Simon,1958; Simon, 1957; Thompson, 1967; Allison,1969) and is considered a key mechanism forprocessing information (Galbraith, 1973; Marchand Simon, 1958; Henderson and Clark, 1990;Gulati et al., 2005) and transferring and integratingknowledge (Miller, 1986; Henderson and Clark,1990; Puranam and Srikanth, 2007). They are alsocentral in focusing the attention of organizationaldecision makers (Ocasio, 1997). Governance chan-nels include strategic reviews, audits, personnelreviews, ad hoc committee meetings, and budgetforecasts as well as the Chief Executive Office.Governance channels reflect collective vertical

interactions beyond vertical reporting relation-ships highlighted in transaction cost theory(Williamson, 1975) or dyadic exchange commonto social network perspectives (Hansen andHaas, 2001).

An interaction lens recognizes that the atten-tion focus of decision makers is situated(Ocasio, 1997) and occurs at the level of the chan-nel, guided by the particular procedural, temporal,and spatial characteristics of the channel (Stinch-combe, 1968). Accordingly, the interactions thatoccur through attention-directing channels reflecta host of contextual factors such as the issueson the agenda (Dutton, 1997), standard operat-ing procedures and routines (Nelson and Win-ter, 1982), group norms, and the participation ofkey organizational actors (e.g., CEOs and CFOs),as well as their frequency (annually, monthly),sequence (early or late in the year), and location(at headquarters, in the field). In the multibusi-ness firm, interactions within governance channelsallows corporate managers to prioritize strategicissues and initiatives for the explicit purpose ofallocating resources and governing the corporation(Ocasio and Joseph, 2005), but also accommo-dates emergent issues and initiatives within thebusiness unit. It is the situated joint attention cre-ated within governance channels that generatesthe decision-making patterns necessary to identifyopportunities and respond to competitive threatsin a coordinated mannerand, therefore, servesas the basis for adaptive moves of the M-formfirm. Our research explores how the structure ofgovernance channels, a key characteristic of orga-nizational architecture, shapes the adaptation ofbusiness units, with particular focus on how chan-nels integrate and focus business unit and corporateagendas.

METHODS AND DATA

To examine the effects of the corporate architec-ture on attention and adaptation, we conducted anin-depth case study of GEs governance systemfrom 1951 to 2001. Case studies allow researchersto get close to the theoretical constructs and causalforces of interest (Siggelkow, 2007) and are effec-tive when the focus of the study is to understandor answer how questions (Eisenhardt and Graeb-ner, 2007), which are the focus of the presentstudy. As a setting for our research, GE offered



several advantages. First, GE is an important yetanomalous case for strategic management research.As a highly diversified conglomerate with highlevels of sustained profitability, it defies conven-tional wisdom on the limits of unrelated diversifi-cation (Rumelt, 1982). Second, GE is an extremecase, where the theoretical mechanisms that arethe focus of this investigation are especially trans-parent and well documented (Eisenhardt, 1989). Inaddition, GE offers significant longitudinal varia-tion in the organizational architecture and channelstructureincluding what GE has referred to atvarious times as its strategic planning system orits operating system (Ocasio and Joseph, 2008).Third, public information on the firm is avail-able over a long period to allow the study of keychannels in detail without having to assume theircontext or characteristics.

To reconstruct GEs system of governance chan-nels and their effects on the firms adaptive behav-ior, we utilized a longitudinal embedded casedesign that allows for multiple levels of analy-sis (Eisenhardt, 1989; Yin, 2009). In our study,we identified four distinct organizational architec-tures at GE195163, 196371, 197186, and19862001allowing for longitudinal variationin our analysis. We selected two business unitsthat could be examined across periods, and weanalyzed attention focus at the channel level, ourprimary level of analysis. This allowed us to utilizea replication logic, whereby each subunit was usedto test emergent theoretical insights (Yin, 2009).Our basic unit of analysis is event based, consis-tent with other empirical studies of attention (e.g.,Hoffman and Ocasio, 2001). Events are embeddedin business units, which are themselves embeddedin one of four corporate architectures, all part ofa single firm. In our embedded design, the single-firm setting allowed for variation of the conditionsof interest, while controlling for firm factors suchas history, incentives, and top management. Weexamine, for each key event, the central channelfor strategy formulation as well as changes to thechannel configurations, and we observe variationsin attention and adaptation.

Data for the study is drawn from several sources:public documents, including annual reports, proxystatements, and speeches; historical documentsfrom the GE corporate archives in Schenectady,New York, including board of directors minutes,executive correspondence, corporate newsletters,and organizational charts and directories; historical

documents from archives on GEs computer busi-ness at the University of Minnesota; newspapers,magazines, and books published from 1951 to2001 that concern GE or one of its CEOs, sub-sidiaries, or operational units; and 16 interviewswith past and present GE employees.

Data analysis

First, we reviewed each period in detail andhighlighted key channels, the corporate agendasattended to within each channel, and primary link-ages to other channels. Utilizing Chandler (1977,1991) as a guide, we initially categorized the chan-nels as headquarters, line, or staff channels basedon the executives who participated in the chan-nel and the types of decisions made within thechannel. Headquarters channels are interactionswithin the top management team, for formulat-ing strategy, allocating resources, and governingthe corporation. Line channels are vertical interac-tions between managers with a formal authority orreporting relationship (c.f. Williamson, 1975). Staffchannels are those where corporate staff interactto address the functional aspects of the business.In addition, our analysis identified a fourth cat-egory: cross-level channels. Cross-level channelsinvolved interactions among corporate executive,business unit managers, and corporate staff. Bothline channels and cross-level channels are verticalgovernance channels. Cross-level channels differfrom line channels or vertical reporting relation-ships in that the latter involves dyadic interactionsbetween managers and subordinates where atten-tion is directed from the top down. Moreover,interactions within cross-level channels are col-lective, not dyadic, and involve both bottom-upand top-down influence on attention and decisions.Table 1 lists the channel types for each period.

We also categorized the corporate agendas at-tended to within channels into the following fourfunctions: planning, finance, operations, andhuman resources. Channels that are specializedhave a focused agenda. Within these channels,managers attend primarily to the set of issuesof a particular function. Integrated channels havebroader agendas covering multiple functions, withmore than one foci of attention. Figures 14 con-tain the organizational architecture for each of theperiods. The transmission of issues and initiativesbetween channels determines whether the channels



Table 1. Channel types

Decentralization(195163)

Corporate planning(196371)

Strategic planning(197185)

Operating system(19862001)

HQ Office of the President Chief Exec. Office Chief Exec. Office Chief Exec. OfficeAdvisory Council Corp. Policy Board Corp. Policy Board

Sector PlanningStaff Auditing Auditing Auditing Auditing

Service Departments Corporate Exec. Staff Corporate Exec. StaffCorporate Adm. Staff Corporate Adm. StaffManpower ReviewGrowth Council SBU Planning

Crotonville Crotonville Crotonville CrotonvilleShangri-La

Corp. Operations. BoardCorp. Exec. Comm. Corp. Exec. Comm.

Cross-level Financial reporting Financial reporting Financial reporting Financial reportingBellair BocaSession I Session I

Annual Bus. Review Session II Session IISession C Session C

PresidentGroup CEOGroup CEOSector CEOBusiness UnitLine GroupDivision GroupDivision SectorGroup

DivisionDept DivisionDept GroupDivisionDivisionDept

indicates cross-functional channels; indicates specialized channels.

President

Advisory Council*PLAN

CRO

SS-L

EVEL

HQ

Department*PLAN, FIN, HR, OPS

CROSS -LEVEL LINE STAFF

Auditing*FIN

Division*PLAN, FIN, HR, OPS

Office of President*PLAN, FIN

Annual Bus. Review*PLAN, FIN, HR, OPS

Services*PLAN

Crotonville*HR

Group*PLAN, FIN

Financial reporting*FIN

Figure 1. Organizational architecture (19511952)Decentralization



President

CRO

SS-L

EVEL

HQ



Crotonville*HR

Auditing*FIN


Chief Exec. Office*PLAN, FIN

Manpower Review*HR

Growth Council*PLANGroup

*PLAN, FIN, HR, OPS

Corp. Exec. Staff *PLAN

Corp. Adm. Staff*OPS


Annual Bus. Review*PLAN, FIN, HR, OPS

Corp. Policy Board *PLAN

Shangri-La*PLAN

Figure 2. Organizational architecture (19671968)Corporate planning

CEO

CRO

SS-L

EVEL

HQ



Crotonville*HR


Auditing*FIN



Session II*PLAN, FIN, OPS

Group*PLAN, FIN, HR, OPS

Corp. Exec. Staff*PLAN

Corp. Adm. Staff*OPS

Belleaire*PLAN SBU Planning

*PLAN

Sector*PLAN, FIN, HR, OPS

Session I*PLAN, FIN

Session C*HR

Corp. Policy Board*PLAN

Figure 3. Organizational architecture (19771978)Strategic planningCopyright 2012 John Wiley & Sons, Ltd. Strat. Mgmt. J., 33: 633660 (2012)

DOI: 10.1002/smj


CEO

CRO

SS-L

EVEL

HQ

Department*OPS


Crotonville*HR


Auditing*FIN

Division*OPS

Session II*PLAN, FIN, OPS

Business Unit*PLAN, FIN, HR, OPS

Session I*PLAN, FIN, OPS

Session C*PLAN, FIN, OPS, HR

Boca*PLAN


Corp. Exec. Council*PLAN

Figure 4. Organizational architecture (19951996)Operating system

are linked in the corporate architecture. For exam-ple, in the first period, the Services channel wasfocused on planning, and the issues attended toin that channel served as an input to the AdvisoryCouncil and the Annual Business Review, creatinga link between Services and the Advisory Council,and Services and the Annual Business Review.

In the next stage of research, we returned tothe data and identified two business units thatcould provide deeper insights into the integra-tion of channels. The businessesComputers andMedical Systemswere selected based on the fol-lowing criteria: (1) the business was widely rec-ognized through secondary sources as a majorone during GEs history; (2) the business spannedat least two distinct channel configurations; and(3) sufficient data on the business was availablefor analysis. The business units were within indus-tries at different stages of their life cycles, withan established incumbent in computers (IBM), butrelatively little competition in medical imaging(where GE was the dominant player in the U.S.).For each of the business units, we identified keyevents, our unit of analysis. Key events generatedopportunities or threats to the business unit and

received significant attention by decision makers.We used a theoretical sampling approach (Eisen-hardt, 1989), which requires selecting events thatare theoretically useful and reflect relevant cate-gories. In this case, the categories were strategicopportunities and threats and the type of chan-nels involved in decision making (allowing forvariation across events in the success of strategicadaptation). A total of 10 events were identified:five for the Computer business and five for Med-ical Systems. In the third stage of our research,we conducted interviews with 16 current and for-mer GE employees. Twelve of the interviews wereconducted with different members of the GE Com-puter Department Alumni Association, and threeof the interviews were conducted with current andformer senior Medical Systems managers (nowGE Healthcare), including Walter Robb, the for-mer chief who oversaw the entry into CT scan-ners and MRI. We also conducted interviews withthe GE archivist in Schenectady, New York. Thesemistructured interviews lasted 60 to 120 min-utes and followed an interview guide directing thesubject to focus on the facts of each event. Thepurpose of these interviews was to review and



deepen our data analysis concerning the events andthe channels in which they were made, the contentof the interactions more generally, and the flow ofissues across channels.

In what follows, we analyze the governancechannels prevalent during each of the key peri-ods and their impact on business unit adaptivemoves. We track key changes to the organiza-tional architecture and the channels, paying closeattention to the type of channels used for strat-egy formulation. We highlight the key events foreach period to illustrate how (and whether) thechannels integrated corporate and business unitattention focus. Finally, we examine how adaptivemoves were affected. Identification of successfulstrategic adaptation frequently depends on the timeframe considered (for example, the Computer ven-ture was initially successful, but unsuccessful inthe long term). Therefore, we focus our analysis onwhether adaptive moves were taken or not takenin response to attention patterns, rather than theiroverall impact on financial performance, thoughwe address the performance issue in the discussionsection. We use the historical analysis to gener-ate theoretical propositions on how organizationalarchitecture shapes business unit adaptation.

ORGANIZATIONAL ARCHITECTURESAT GENERAL ELECTRIC

The General Electric Company, incorporated in1892, was from its early days a diversified firmwith lines of business in lighting, power trans-formers, and a wide variety of electrical compo-nents for industrial, commercial, and residentialuse. From the period studied, GEs governancesystem was characterized by four distinct organi-zational architectures, each with its own structureof channels. We characterize the four architecturesas: (1) decentralization (195163), (2) corporateplanning (196371), (3) strategic planning (197186), and (4) operating system (19862001).

DecentralizationIn 1951, Ralph J. Cordiner, president of GE, im-plemented a radical decentralization of thecorporation. Motivated by the need for greatercontrol of the sprawling organization, departmentsbecame the basic operating unit of the organiza-tionwith a full staff, a clear charter of business

(and profit) responsibility, and limited horizontalcoordination. Departments reported to divisions,divisions reported to groups, and groups reportedto Cordiner.

To govern the decentralized organizationalarchitecture, Cordiner established a series of gov-ernance channels to link operating units decisionsdirectly with headquarters. To introduce GEsmiddle manager ranks to GEs management phi-losophy and techniques, Cordiner created the GEManagement Development Institute, a staff chan-nel in Crotonville, New York. To closely monitoroperating performance, Cordiner utilized monthlyfinancial reports, prepared by department financemanagers, reviewed and approved by the depart-mental GM, and distributed to the division GM,group executive, comptroller, and president, mak-ing it a cross-level channel. Planning was carriedout, in part, by the Office of the President, aheadquarters channel that included Cordiner, groupVPs, and service (i.e., corporate staff) VPs. Sofar, the decentralized organizational architecturecorresponds to differentiation of strategy and oper-ations in the M-form, as originally described byChandler (1962, 1991) and Williamson (1971).But another critical channel, which facilitated inte-gration across corporate and business levelstheAnnual Business Reviewdiverged from thismodel. This cross-level channel brought the depart-ment staff, president, group executives, and serviceVPs together for one- or two-day meetingseitherat corporate headquarters at 570 Lexington Avenuein New Yorkor at the department headquarters,to review all functions of the business unit.

Corporate planning

Fred Borch, who succeeded Cordiner in 1963, car-ried out a major reorganization that more thandoubled the number of groups, divisions, anddepartments. He also altered the system of gov-ernance channels to accommodate a greater focuson corporate planning, with a greater separationof strategy at the corporate level from operationsat the business unit level. When Borch took overas CEO, GEs sales and profits had been rel-atively stagnant for five years. Senior manage-ment believed that future growth would requirespecialized and sustained corporate-level atten-tion to planning and diversifying new ventures.Correspondingly, there was a belief that venture



planning should be separate from the regular oper-ations of the business.

To separate planning from day-to-day opera-tions, Borch established numerous headquarterschannels, each designed to deal with specificstrategic issuesnone of which included opera-tional responsibility. He created the Chief Exec-utive Office (CXO), which focused attention onthe development and implementation of corporatepolicies. Cordiners Advisory Council evolved intothe Corporate Policy Board (CPB), which includedthe CXO and corporate staff VPs, but not thegroup VPs. The CPB was a headquarters chan-nel for reviewing and communicating staff mattersof broad corporate interest. Borch established twoadditional staff channels: the Corporate Adminis-trative Staff, charged with handling the day-to-daycorporate staff work (such as accounting), and theCorporate Executive Staff (CES) to focus on thelong-run strategic direction and new ventures ofthe company. The CES most notably included thehead of planning and R&D, but, like other head-quarters channels, had no direct participation fromgroup or division managers. His most significantaddition to the staff channels was the GrowthCouncil, chartered with directing the Companysgrowth and led by a newly created Manager ofCorporate Planning. Borchs channel structure dur-ing this period most clearly followed Williamsons(1975) model of vertical separation of strategyfrom operations.

Strategic planningIn the late-1960s, to establish a more strategicfocus for planning, Borch engaged both the BostonConsulting Group and McKinsey in developingnew organizational architecture for what becameknown as a strategic planning system, includingthe strategic business units (SBUs). The SBU wasa parallel organizational structure superimposed onthe existing group-division-department organiza-tional reporting structure that focused attention onstrategic planning. SBUs were designations by theCXO regarding whether the specific department,division, or group was the correct business unitlevel at which competition took place. Diversifica-tion options were evaluated in terms of relationshipto the SBU core business and attractiveness of theindustry, rather than through problem solving atthe department level or separate growth planningat the corporate level.

Reginald H. Jones, who followed Borch as CEOin 1971, refined the SBU planning organizationalarchitecture. To gain better control over the actionsof the divisions and business units, Jones moretightly coupled strategic planning to budgetingand operations. He made his three vice chairmenresponsible for the plans and financial results ofall units reporting to them (Vaghefi and Huellman-tel, 1998). Later, he would use the sector levelto fulfill the same function. A key developmenthere was the emphasis on the portfolio planningmodel, which included pruning as well as growingbusiness unit components. Sector and group headswere ultimately responsible for both plans and per-formance and exerted more weight in divisionaldecisions.

Jones increased both staff and cross-level chan-nels in the organizational architecture. At head-quarters, decision making was coordinated throughthe CES, the Sector line of management, andthe CPB, a critical linkage between staff andline (as between sector heads themselves). Facedwith the segmentation of strategic planning, finan-cial reviews, and operational decision making,Jones created a new set of corporate-business unitcross-level channels, augmenting SBU planning.The Annual Business Review was reconstitutedas Executive Briefing Session I and II, yet stillserved as key cross-level channels. Session I inte-grated planning and budgeting, while Session IIwas primarily focused on financial objectives forthe upcoming year. Manpower reviews were con-stituted as Session C, a cross-level channel forplanning and evaluating managerial leaders. Thenew strategic reviews were distributed through-out the year and served to temporally link strate-gic planning with operational and human resourceplanning.

Operating system

In 1981, John F. Welch, Jr., became CEO andChairman of GE. In 1985, Welch centralizedthe corporate reporting structure, eliminating thesectors, groups, and SBUs, and he established15 businesses as the basic operating units reportingdirectly to him. Complex planning documents wereno longer required. Rather than bottom-up strategicplanning through the SBUs, planning was guidedby a corporate agenda comprised of key initiatives.Welch built on the prior system of cross-levelchannels to create what GE called its Operating



System (General Electric Annual Report, 1999)or social architecture (Welch, 2001). The Operat-ing System began with an annual retreat at BocaRaton, Florida, and was followed by a year-roundsystem of reviews. Welch noted that we poundedall our initiatives in January at Boca, at every quar-terly CEC meeting, at the human resources reviewin April (Session C), the planning sessions in July(Session I), the officers meeting in October, and theoperating plan meeting in November (Session II)(Welch, 2001: 299). Training to support initiativeswas done at Crotonville.

ORGANIZATIONAL ARCHITECTUREAND STRATEGIC ADAPTATION

We present our comparative analysis of 10 keyevents in Tables 25. Each of the tables reflectsdistinct features of the organizational architectureand their relationship to the process of strategicadaptation. The five events in the Computer busi-ness studied are: (C1) the financial and technicalsuccess of the Bank of America (BoA) computersystem and demands from banks and other poten-tial customers for similar products (1959); (C2)significant financial losses and delays in prod-uct development (1962); (C3) stagnant corporategrowth and profitability, which received renewedattention as Borch took over as CEO in 1963;(C4) strong growth and, for the first time, posi-tive net income in the business unit (1969); and(C5) the submission of the Advanced ProductLine (APL) to corporate headquarters and theU.S. governments restriction of GEs purchase ofanother computer manufacturer due to anti-trustconcerns (1969). In the Medical Systems business,the events studied are: (MS1) stagnant corporategrowth and profitability mentioned earlier (1963);(MS2) development of computerized tomography(CT) technology and entry of new competitors(1974); (MS3) increasing foreign competitiveness(197374); (MS4) development of magnetic res-onance imaging (MRI) technology (1980); and(MS5) quality problems and peer firm adoption ofSix Sigma (1995). Note that these events includeboth opportunities and threats to the Computerand Medical System businesses, but were oftenperceived somewhat differently by corporate head-quarters, as will be discussed.

Cross-level channels

Table 2 compares the primary channel throughwhich strategy formulation occurred and withinwhich perspectives on potential threats and oppor-tunities were debated. The Table includes the typeof channel, the attention to threats and opportu-nities within the channel, and how the interac-tions within the channel affected the alignment ofcorporate and business unit perspectives on mar-ket and technological opportunities. As Table 2indicates, strategy formulation was carried out incross-level channels in six of the 10 events stud-ied. In three events, staff channels were used, andone utilized a headquarters channel. Our induc-tive analysis found that within these cross-levelchannels, corporate and business unit managers,through open and frank dialogue, would establisha common focus of attention on particular threatsand opportunities and appropriate courses of actionto deal with them. The conversations at the AnnualBusiness Reviews were highly interactive in atalk out loud manner (Greenwood, 1982). Like-wise, Welch (2001: 193) described Session C asfun brawls: aggressive, gossipy, brutally honestmeetings that brought the CXO together with thebusiness unit heads. These meeting were effectivein aligning perspectives because the interactionsencouraged debate, negotiation (Martin, 2011) andefforts to create a collective perspective (Kaplan,2008) in order to come to a decision on next steps.The performance benefits of constant group com-munication are well documented (e.g., Brown andEisenhardt, 1997; Martin and Eisenhardt, 2010),and the interactions between decision makers hasbeen shown to shape cognition (Gilbert, 2006). Inour analysis, we find that senior managementsperspectives did not always dominate, leaving agreat deal of discretion to business units in shapingthe collective perspective and mobilizing action infavor of their desired outcome.

At the 1960 Annual Business Review, for exam-ple, conflicting perspectives on the next stepsfor the Computer business came together (C1)headquarters strategy to stay away from compet-ing with IBM in the mainstream computer busi-ness, and due to the financial and technical suc-cess of the BoA computer system, the ComputerDepartments plan to enter the broader businesscomputing market. Interactions during the AnnualBusiness Review, a cross-level channel, helpedalign these divergent perspectives on the market



Tabl

e2.

Cros

s-le

velc

hann

els

and

alig

nmen

tofc

orp

orat

e-bu

sines

su

nit

pers

pect

ives

oft

hrea

tsan

do

ppor

tuni

ties

Even

tN

o.Ev

ents

Key

chan

nel

Chan

nel

type

Atte

ntio

nto

thre

ats/o

ppor

tuni

ties

with

inch

anne

lR

esul

ting

alig

nmen

tacr

oss

level

sA

lignm

ent

achi

eved

C1Fi

nanc

iala

nd

tech

nica

lsucc

ess

of

BoA

syste

man

dde

man

dfo

rsim

ilarp

rodu

cts

(1959

)

Ann

ualB

usin

ess

Rev

iew

Cros

s-le

vel

Corp

orat

eH

Qfo

cus

on

thre

atofI

BM

asa

com

petit

or,l

oss

ofI

BM

ascu

stom

eran

dvie

wth

atG

Eoffe

red

no

tech

nica

lcontr

ibut

ion;

busin

ess

unit

focu

son

RCA

asco

mpe

titor

,abi

lity

ofG

Eto

finan

ceven

ture

and

opp

ortu

nity

todi

rect

lyen

ter

busin

ess

mac

hine

s.

Corp

orat

eH

Qsh

fits

focu

sfro

mIB

Mto

RCA

as

prim

ary

com

petit

oran

dfro

mte

chni

cal

contr

ibut

ion

tofin

anci

ngas

key

adva

ntag

e.Co

rpor

ate

HQ

and

BU

focu

sal

igne

don

busin

ess

mac

hine

sopp

ortu

nity

.

Yes

C2Si

gnifi

cant

finan

cial

loss

esan

dde

lays

inpr

oduc

tdev

elop

men

t(19

62)

Ann

ualB

usin

ess

Rev

iew

Cros

s-le

vel

Corp

orat

eH

Qfo

cus

on

failu

reofb

usin

ess

unit

tom

eet

finan

cial

goal

s;bu

sines

sunit

focu

son

IBM

thre

atan

dte

chno

logy

prob

lem

s(pe

riphe

ralsa

nd

softw

are).

Corp

orat

eH

Qan

dB

Ufo

cus

alig

ned

on

impr

ovin

gfin

anci

alpe

rform

ance

.Ye

s

C3St

agna

ntco

rpor

ate

grow

than

dpr

ofita

bilit

y(19

63

1964

)G

row

thCo

unci

lSt

aff

Corp

orat

eH

Qfo

cus

on

grow

thth

roug

hnew

ven

ture

s.Co

rpor

ate

HQ

focu

ses

on

com

pute

rsas

one

key

grow

thar

eaan

din

tern

atio

nala

cqui

stion

asm

eans

toin

crea

sepr

esen

ce;p

ays

little

atte

ntio

nto

grow

ing

tech

nica

l(pe

riphe

ral,s

oftw

are)

or

finan

cial

(leasi

ng)i

ssue

sin

BU

.

No

C4R

enew

alofv

olu

me

ship

men

tsof

600

serie

san

dpo

sitiv

enet

inco

me

(1969

)

Shan

gri-L

aSt

aff

Corp

orat

ean

dB

Upl

anni

ngst

afff

ocus

on

tech

nolo

gica

lopp

ortu

nity

with

new

prod

ucts

tole

apfro

ngIB

Ms

pric

e-pe

rform

ance

adva

ntag

e.

Plan

ners

atco

rpor

ate

and

BU

level

sfo

cus

on

plan

forA

dvan

ced

Prod

uctL

ine

(APL

)at

aco

stof

$500

mill

ion.

Yes

C5A

PLpl

ansu

bmitt

ed;g

ovt

anit-

trust

const

rain

ts(19

69)

Ventu

res

Task

Forc

eH

QCo

rpor

ate

HQ

focu

son

thre

atto

shor

t-ter

mea

rnin

gsan

dopp

ortu

nity

tore

duce

pres

sure

on

cash

flow

and

opp

ortu

nity

sell

the

busin

ess.

Corp

orat

eH

Qvie

ws

step

snec

essa

ryto

atta

inN

o.2

posit

ion

too

cost

lyan

din

ves

tigat

essa

le;p

ays

little

atte

ntio

nto

BU

plan

toen

hanc

e60

0se

ries.

No

MS1

Stag

nant

corp

orat

egr

owth

and

profi

tabi

lity

(1963

19

64)

Gro

wth

Coun

cil

Staf

fCo

rpor

ate

HQ

focu

son

grow

thth

roug

hnew

ven

ture

s.Co

rpor

ate

staf

ffoc

uses

on

opp

ortu

nitie

sw

ithin

med

ical

serv

ices

;pay

slit

tleat

tent

ion

toB

Ude

velo

pmen

tofa

rtifi

cial

org

ans,

nucl

ear

med

icin

e,or

prol

ifera

tion

ofX

-ra

yeq

uipm

ent.

No

MS2

Tech

nolo

gica

ldisc

ontin

uity

from

CT(19

74)

Sess

ions

I&

IICr

oss-

leve

lCo

rpor

ate

HQ

focu

son

opp

ortu

nity

togr

owth

roug

hCT

tech

nolo

gy;B

Ufo

cus

on

thre

atfro

mnew

entr

ants

.

Corp

orat

eH

Qan

dB

Ufo

cus

alig

ned

on

cras

hde

velo

pmen

tpro

gram

ofC

Tte

chno

logy

inCR

D.

Yes

MS3

Incr

easin

gag

gres

siven

ess

and

succ

ess

off

orei

gnco

mpe

titor

s(19

74

1975

)

Sess

ion

ICr

oss-

leve

lCo

rpor

ate

HQ

focu

son

thre

atofi

nter

natio

nal

com

petit

ion;

BU

focu

son

dom

estic

mar

ket.

Corp

orat

eH

Qfo

cuse

sB

Uon

iden

fiyin

gpa

rtne

rin

Japa

n.Co

rpor

ate

HQ

and

BU

focu

sal

igne

don

glob

alpe

rform

ance

and

stra

tegy

tode

alw

ithfo

reig

nco

mpe

titor

s.

Yes

MS4

Tech

nolo

gica

ldisc

ontin

uity

from

MR

I(19

80)

Sess

ions

I&

IICr

oss-

leve

lCo

rpor

ate

HQ

focu

son

opp

ortu

nity

togr

owth

roug

hM

RI

tech

nolo

gy;B

Ufo

cus

on

thre

atfro

mm

ulti

ple

com

petit

ors

incl

udin

gPi

cker

,Sie

men

s,J&

J,an

dPh

ilips

.

Corp

orat

eH

Qan

dB

Ufo

cus

alig

ned

on

cras

hde

velo

pmen

tpro

gram

ofM

RI

tech

nolo

gyin

CRD

.

Yes

MS5

Gro

win

giss

ues

ofq

ualit

yan

dad

optio

nofS

ixSi

gma

bype

er

firm

s(19

95)

Boc

a,Se

ssio

nsI,

IIan

dC

Cros

s-le

vel

Corp

orat

eH

Qfo

cus

on

opp

ortu

nity

toin

crea

sequ

ality

thro

ugh

Six

Sigm

a;B

Ufo

cus

on

thre

atfro

mEl

scin

tin

CTs

and

prob

lem

sw

ithX

-ray

tube

man

ufa

ctur

ing.

Corp

orat

eH

Qan

dB

Ufo

cus

alig

ned

on

Six

Sigm

ain

itiat

ive

and

sele

ctio

noft

rialp

rojec

tsin

Med

ical

Syste

ms

on

whi

chto

roll

out.

Yes



Tabl

e3.

Spec

ializ

edch

anne

lsan

dad

aptiv

em

ov

es

Even

tN

o.K

eych

anne

l/typ

eSp

ecia

lizat

ion

Chan

nela

gend

aCo

rpor

ate

and

BU

stra

tegi

cfo

cus

Res

ultin

gad

aptiv

em

ov

es

C1A

nnua

lBusin

ess

Rev

iew

(cros

s-lev

el)N

oFi

nanc

ialp

erfo

rman

ce,k

eypr

obl

ems,

mar

kets,

prod

uctl

ines

,app

licat

ions

,new

prod

ucts,

long

-rang

efin

anci

alfo

reca

st

No

Ada

ptat

ion

thro

ugh

entr

yin

toco

mm

erci

alan

dbu

sines

sm

achi

nes

mar

ket(

1960

)

C2A

nnua

lBusin

ess

Rev

iew

(cros

s-lev

el)N

oFi

nanc

ialp

erfo

rman

ce,k

eypr

obl

ems,

mar

kets,

prod

uctl

ines

,app

licat

ions

,new

prod

ucts,

long

-rang

efin

anci

alfo

reca

st

No

No

adap

tatio

n;no

chan

gein

finan

cial

repo

rting

toal

low

for

IBM

leas

ing

mode

l;de

partm

entG

Mre

plac

edan

dgi

ven

man

date

totu

rnar

ound

perfo

rman

ce;i

ncre

men

talp

rodu

ctch

ange

(1963

)C3

Gro

wth

Coun

cil(

staff)

Yes

(plan

ning)

Gro

wth

opp

ortu

nitie

sfo

rG

Eth

atar

egr

ow

ing

faste

rth

anG

NP

and

inw

hich

GE

has

unqu

eca

pabi

litie

san

dm

aybe

able

toga

inco

mpe

titiv

ead

vant

age

No

Ada

ptat

ion

thro

ugh

acqu

isitio

no

fOliv

etti

(Italy

)an

dB

ull

Mac

hine

s(F

rance

)(19

64)

C4Sh

angr

i-La

(staff

)Ye

s(pl

annin

g)Sp

ecifi

catio

nsfo

ran

eww

orld

wid

epr

oduc

tlin

eto

mak

eG

Ea

clea

rNo.

2be

hind

IBM

No

No

adap

tatio

n;A

PLpl

anre

jected

(1969

)

C5Ve

ntu

res

Task

Forc

e(H

Q)Ye

s(pl

anni

ng)

Stra

tegi

can

dfin

anci

alev

alua

tion

ofn

ucl

eare

ner

gy,

com

mer

cial

jeten

gine

s,an

dco

mpu

ters

Yes

Ada

ptat

ion

thro

ugh

dive

stitu

reo

fco

mpu

teru

nit

(1970

)M

S1G

row

thCo

unci

l(sta

ff)Ye

s(pl

annin

g)G

row

thopp

ortu

nitie

sfo

rG

Eth

atar

egr

ow

ing

faste

rth

anG

NP

and

inw

hich

GE

has

unqu

eca

pabi

litie

san

dm

aybe

able

toga

inco

mpe

titiv

ead

vant

age

No

No

adap

tatio

n;pl

anfo

rmed

ical

info

rmat

ion

syste

ms

and

serv

ices

no

tad

opte

d(19

67)

MS2

Sess

ion

I(cr

oss

-leve

l)Ye

s(pl

anni

ng)

Com

petit

ors,

mar

keto

ppor

tuni

ties,

new

pro

duct

deve

lopm

ent,

acqu

isitio

nta

rget

s,fin

anci

alpe

rform

ance

and

projec

tions,

alte

rnat

ive

stra

tegi

es

Yes

Ada

ptat

ion

thro

ugh

com

mer

cial

izat

ion

ofC

Tsc

ann

er(19

76)

Sess

ion

II(cr

oss-l

evel)

Yes

(budg

etin

g)O

pera

ting

plan

san

dbu

dget

sN

oM

S3Se

ssio

nI

(cro

ss-le

vel)

Yes

(plan

ning

)Co

mpe

titor

s,m

arke

topp

ortu

nitie

s,n

ewpr

odu

ctde

velo

pmen

t,ac

quisi

tion

targ

ets,

finan

cial

perfo

rman

cean

dpr

ojec

tions

Yes

Ada

ptat

ion

thro

ugh

esta

blish

men

tofi

nte

rnat

iona

ldi

strib

utio

npa

rtne

rshi

p(19

77)

MS4

Sess

ion

I(cr

oss

-leve

l)Ye

s(pl

anni

ng)

Com

petit

ors,

mar

keto

ppor

tuni

ties,

new

pro

duct

deve

lopm

ent,

acqu

isitio

nta

rget

s,fin

anci

alpe

rform

ance

and

projec

tions

Yes

Ada

ptat

ion

thro

ugh

com

mer

cial

izat

ion

ofM

RI

(1984

)

Sess

ion

II(cr

oss-l

evel)

Yes

(budg

etin

g)O

pera

ting

plan

san

dbu

dget

sN

oM

S5B

oca

(cross

-leve

l)Ye

s(pl

anni

ng)

Intro

duct

ion

ofn

ewin

itiat

ives

;rev

iew

ofp

revio

usin

itiat

ives

succ

esse

sYe

sA

dapt

atio

nth

roug

hin

corp

orat

ion

ofS

ixSi

gma

into

X-r

aytu

bem

anu

fact

urin

gan

dCT

prod

uct

line

(1996

)Se

ssio

nC

(cross

-leve

l)Ye

s(H

R)

Eval

uatio

no

fman

ager

sin

supp

orto

finiti

ativ

es;

gene

rale

val

uatio

no

fman

ager

sN

o

Sess

ion

I(cr

oss

-leve

l)Ye

s(pl

anni

ng)

Prog

ress

on

initi

ativ

es,c

om

petit

ors,

mar

ket

opp

ortu

nitie

s,n

ewpr

odu

ctde

vel

opm

ent,

acqu

isitio

nta

rget

s,fin

anci

alpe

rform

ance

and

proje

ction

s

Yes

Sess

ion

II(cr

oss-l

evel)

Yes

(budg

etin

g)O

pera

ting

plan

san

dbu

dget

s,pl

ans

fors

peci

ficin

itiat

ives

No



Tabl

e4.

Spec

ializ

edch

anne

ls,cr

oss

-func

tiona

lpar

ticip

atio

n,an

dfu

nctio

nalc

oo

rdin

atio

n

Even

tN

o.K

eych

anne

l/typ

eSp

ecia

lizat

ion

Cros

s-fu

nctio

nal

parti

cipa

tion

Atte

ntio

nall

inka

ges

ofi

ssu

esan

din

itiat

ives

with

inch

anne

lR

esul

ting

func

tiona

lco

ord

inat

ion

with

inch

anne

l

C1A

nnua

lBus

ines

sR

evie

w(cr

oss-l

evel)

No

Yes

Link

sfin

anci

alre

sou

rces

fors

upp

ortin

gin

itiat

ive;

limite

dfo

cus

on

oth

erfu

nctio

nsCo

ordi

natio

npr

imar

ilyin

supp

orto

fsh

ort-t

erm

finan

cial

perfo

rman

ceC2

Ann

ualB

usin

ess

Rev

iew

(cros

s-lev

el)N

oYe

sLi

nks

plan

ning

with

BU

ope

ratio

nalc

hang

esnee

ded

(i.e.,

new

line

man

agem

ent)

Coor

dina

tion

prim

arily

insu

ppor

tof

shor

t-ter

mfin

anci

alpe

rform

ance

C3G

row

thCo

unci

l(sta

ff)Ye

s(pl

annin

g)N

oA

cqui

sitio

nta

rget

sse

lect

edby

HQ

with

no

invo

lvem

ento

fBU

ope

ratio

nsan

dfin

ance

pers

onne

l

Lim

ited

cro

ss-fu

nctio

nalc

oo

rdin

atio

n

C4Sh

angr

i-La

(staf

f)Ye

s(pl

annin

g)N

oPr

imar

ilyco

mpr

ised

ofp

lann

ing

staf

f,w

ithlit

tlein

volv

emen

tofB

Uo

pera

tions

Lim

ited

cro

ss-fu

nctio

nalc

oo

rdin

atio

n

C5Ve

ntu

res

Task

Forc

e(H

Q)Ye

s(pl

annin

g)Ye

sLi

nks

betw

een

plan

ning

,fina

nce,

and

lega

lat

HQ

leve

lwith

no

invo

lvem

entf

rom

BU

ope

ratio

nsLi

mite

dcr

oss

-func

tiona

lco

ord

inat

ion

MS1

Gro

wth

Coun

cil(

staff)

Yes

(plan

ning)

Yes

Prim

arily

com

prise

dofp

lann

ing

staf

f,w

ithn

olin

kto

BU

ope

ratio

nsLi

mite

dcr

oss

-func

tiona

lco

ord

inat

ion

MS2

Sess

ion

I(cr

oss

-leve

l)Ye

s(pl

annin

g)Ye

sLi

nks

plan

ning

tode

velo

pmen

teffo

rtsin

CRD

and

BU

Stro

ngcr

oss

-func

tiona

lco

ord

inat

ion

Sess

ion

II(cr

oss-l

evel)

Yes

(budg

eting

)Ye

sLi

nks

plan

ning

tofin

anci

alre

sou

rces

tofu

ndCT

deve

lopm

ent

MS3

Sess

ion

I(cr

oss

-leve

l)Ye

s(pl

annin

g)Ye

sLi

nks

plan

ning

toin

tern

atio

nalb

usin

ess

dev

elop

men

tan

do

pera

tions

Stro

ngcr

oss

-func

tiona

lco

ord

inat

ion

MS4

Sess

ion

I(cr

oss

-leve

l)Ye

s(pl

annin

g)Ye

sLi

nks

tode

velo

pmen

teffo

rtsin

CRD

and

BU

Stro

ngcr

oss

-func

tiona

lco

ord

inat

ion

Sess

ion

II(cr

oss-l

evel)

Yes

(budg

eting

)Ye

sPr

ov

ision

ofn

eces

sary

finan

cial

flexi

bilit

yto

fund

MR

Ide

vel

opm

ent

MS5

Boc

a(cr

oss

-leve

l)Ye

s(pl

annin

g)Ye

sLi

nks

stra

tegi

cin

itiat

ives

with

allf

unct

ions

;ou

tline

sro

lefo

reac

hfu

nctio

nan

ddi

visio

nVe

ryst

rong

cro

ss-fu

nctio

nal

coo

rdin

atio

nSe

ssio

nC

(cro

ss-le

vel)

Yes

(HR

)Ye

sLi

nks

Six

Sigm

ato

lead

ersh

ipde

velo

pmen

t,tr

aini

ngo

fSix

Sigm

aB

lack

Bel

ts,an

dco

mpe

nsat

ion

for

top

perfo

rmer

sSe

ssio

nI

(cro

ss-le

vel)

Yes

(plan

ning)

Yes

Link

sSi

xSi

gma

tom

arke

topp

ortu

nitie

s,n

ewpr

oduc

tdev

elop

men

t,an

dfin

anci

alpe

rform

ance

and

proje

ction

sSe

ssio

nII

(cros

s-lev

el)Ye

s(bu

dgeti

ng)

Yes

Link

sSi

xSi

gma

too

pera

tiona

lpla

nsan

dbu

dget

s



Tabl

e5.

Chan

nelc

ou

plin

gan

dv

ertic

alan

dho

rizon

talc

oo

rdin

atio

nac

ross

chan

nels

Even

tN

o.O

rgan

izat

iona

lar

chite

ctur

eCo

uplin

go

fgo

vern

ance

syste

mFo

cus

ofo

rgan

izat

iona

lar

chite

ctur

eR

esul

ting

horiz

onta

land/

orver

tical

coord

inat

ion

acro

ssch

anne

ls

C1D

ecen

traliz

atio

nLo

ose

coupl

ing

Ove

rall

arch

itect

ure

loos

ely

coupl

edth

roug

hfin

anci

aliss

ues.

Bot

tom

-up

plan

ning

,em

phas

ison

finan

cial

perfo

rman

cew

ithin

ABR

and

perio

dic

finan

cial

repo

rtsga

veth

eover

alls

yste

ma

finan

cial

focu

s.

Vert

ical

coord

inat

ion

with

Trea

sure

rs

offi

ceto

ensu

refu

ndin

gfo

rini

tiativ

e,an

dH

Rto

deve

lop

trai

ning

prog

ram

fors

ales

.

C2O

vera

llar

chite

ctur

ede

coup

led.

Top

dow

nco

rpor

ate

plan

ning

(e.g.,

Gro

wth

Coun

cil)

deco

uple

dfro

mbo

ttom

up

busin

ess

unit

plan

ning

and

finan

cial

issue

s.CX

Ode

coup

led

from

Gro

wth

Coun

cila

nd

busin

ess

unit

plan

ning

and

ope

ratio

ns.

Lim

ited

ver

tical

coord

inat

ion

oth

erth

anto

rein

forc

efin

anci

alta

rget

s.H

oriz

onta

lcoord

inat

ion

toad

opt

Hea

vyM

ilita

rys

M23

60co

mpu

terr

athe

rtha

nde

velo

pin

tegr

ated

prod

uctl

ine.

C3La

ckofv

ertic

alco

ord

inat

ion

with

busin

ess

unit

prod

uctd

evel

opm

enta

ctiv

ities

.Lac

kofh

oriz

onta

lin

tegr

atio

nbe

twee

nG

row

thCo

unci

lpla

nnin

gan

dB

Upr

oduc

tdev

elop

men

t.La

ckofh

oriz

onta

lco

ord

inat

ion

and

invo

lvem

ento

fany

oth

erdi

visio

nsin

Oliv

etti

or

Bul

lacq

uisit

ions

.C4

Corp

orat

epl

anni

ngD

ecou

plin

g

Lack

ofv

ertic

alco

ord

inat

ion

with

busin

ess

unit

prod

uctd

evel

opm

enta

ctiv

ities

.Lac

kofh

oriz

onta

lco

ord

inat

ion

with

oth

erke

ybu

sines

sunits

:In

dustr

ialG

roup

or

Aer

ospa

ceG

roup

.C5

Lack

ofv

ertic

alco

ord

inat

ion

with

busin

ess

unit

prod

uctd

evel

opm

enta

ctiv

ities

.Hor

izon

tal

coord

inat

ion

betw

een

plan

ning

,fin

ance

and

lega

lin

test

ofp

ortfo

liom

anag

emen

tpro

cess

.M

S1La

ckofv

ertic

alco

ord

inat

ion

betw

een

HQ

eval

uatio

noft

rans

actio

nan

dB

Uin

vestm

ents

inar

tici

alhe

arts.

Lack

ofv

ertic

alco

ord

inat

ion

betw

een

Gro

wth

Coun

cilp

lann

ing

and

busin

ess

unit

prod

uctp

lann

ing.

Lack

ofh

oriz

onta

lcoord

inat

ion

betw

een

plan

ning

and

ope

ratio

ns.

MS2

Ove

rall

arch

itect

ure

tight

lyco

upl

edth

roug

hbo

ttom

up

SBU

plan

ning

syste

m;c

hann

els

shar

ediss

ues

yeth

adsp

ecia

lized

focu

sofa

ttent

ion:

Sess

ion

C(H

R),S

-I(pl

annin

g),S-

II(op

eratio

ns).

Vert

ical

coord

inat

ion

betw

een

HQ

and

BU

prod

uct

deve

lopm

enta

ctiv

ities

.Hor

izon

talc

oord

inat

ion

betw

een

tech

nolo

gyde

velo

pmen

tand

com

mer

cial

izat

ion.

MS3

Stra

tegi

cpl

anni

ngVe

rtic

alco

ord

inat

ion

betw

een

HQ

and

BU

inte

rnat

iona

lbus

ines

sde

velo

pmen

tact

iviti

es.

MS4

Tigh

tcoupl

ing

Vert

ical

coord

inat

ion

betw

een

HQ

and

BU

prod

uct

deve

lopm

enta

ctiv

ities

.Hor

izon

talc

oord

inat

ion

betw

een

tech

nolo

gyde

velo

pmen

tand

com

mer

cial

izat

ion.

MS5

Ope

ratin

gsy

stem

Ove

rall

arch

itect

ure

tight

lyco

upl

edth

roug

hto

pdo

wn

stra

tegi

cin

itiat

ives

and

perio

dic

revie

ws

for

botto

mup

issue

s.Ch

anne

lssh

ared

issue

sye

thad

spec

ializ

edfo

cus

ofa

ttent

ion:

Boc

a(pl

annin

g),Se

ssio

nC

(HR

),S-

I(pla

nning

),S-

II (op

eratio

ns).

Vert

ical

coord

inat

ion

betw

een

HQ

and

BU

prod

uct

deve

lopm

enta

ctiv

ities

,and

horiz

onta

lco

ord

inat

ion

acro

ssal

lBU

san

dH

R(al

lin

supp

ort

ofi

nitia

tive).



and technological opportunities in a number ofways. First, it linked the Computer initiative tothe issue of cash flow, rather than to GEs abil-ity to provide a technical contribution or capitalizeon its engineering skills. GE was the only com-pany other than IBM with the cash flow necessaryto compete in the leasing business. Second, forCordiner, the interaction framed RCA (the No.2 player)not IBMas the primary competitor,but also aligned with Cordiners interest in beingan industry leader. The returns from the initial BoAcontract were substantial and the promise of a lineof compatible computers seemed like a way toachieve leadership in niche markets (such as pro-cess control) and launch into the general purposecomputer market. Finally, projected payback andprofitability for the new product family was highlyfavorable. Despite Cordiners earlier reservations,he approved the plan and budget with favorablesupport from GEs chairman and treasurer, whowere both present (Oldfield, 1996).

A similar alignment of perspectives was madepossible though Sessions I and II, both cross-levelchannels. For example, Medical Systems decidednot to pursue the emerging CT imaging technol-ogy in 1971 because they viewed it as a nicheproduct for a small market. However, the corpo-rate planning staff (CES) was well aware of thetechnology and viewed it as a technological rev-olution (Session I, 1974). At 1973s Session II,corporate managers expressed concern over thebusiness units failure to move on CT technologyand drew attention to the need for more CorporateResearch and Development (CRD) research in thisarea. As the head of corporate planning recalls, wewere fiddling while Rome burned (Marone, 1993:30); he pushed the group executive (Jack Welch)and CRD to allocate resources for CT research.In early 1974, orders for new X-ray equipmentbegan to fall as hospitals diverted funds to buy thenew technology. At 1974s Session I, the negativeimpact of CT scanners on X-ray market share wasbrought to the attention of corporate headquarters,which imparted a sense of urgency at the corporatelevel and, at the same time, led Medical Systemsto conclude we have got to get into this busi-ness (Marone, 1993: 30). Consequently, duringthe Session II budgeting and operational reviewof the same year, CT technology was identified asa priority. Accordingly, funds were officially allo-cated to a crash development program starting inJanuary, 1995 (MS2).

HQ and staff channelsIn contrast, interactions within headquarters orstaff channels failed to fully align corporate andbusiness unit perspectives on threats and opportu-nities. For example, in response to stagnant growthand profitability (C3 and MS1), the Growth Coun-cil was developed and charged with identifyinghigh-growth markets that GE had the capabil-ity to develop and support (Rothschild, 2007).The Growth Council targeted nine growth areasincluding Computers and Medical Services. Yetthe Growth Council was limited by the fact thatit was a staff channel. With little operational inputand no participation from senior management, itsplan failed to account for IBMs entrenchment ininformation systems departments (including thoseat GE), the high switching costs of computers,and corporate managements diminishing tolerancefor financing the venture (C5). A similar problemarose with the Growth Councils planning effortfor the Medical Systems business. Although bothcorporate and business unit executives shared acommon belief that growth would be achieved inthe X-ray department through investment in newventures, each focused on different opportunities.The Growth Council focused on medical infor-mation services, which were more profitable, lesscyclical, and less vulnerable to foreign competition(Rothschild, 2007). Medical Systems conducted itsown planning effort focused on opportunities suchas product line extensions and new technology inartificial organs and nuclear medicine (Janssen andMedford, 2009). The CXO had a different view ofthe business entirely and was considering divestingthe unit altogether because of GEs product safetyliability as a result of deaths from the use of GEpacemakers.

Thus, the Growth Council, a staff channel,stands in contrast to the Annual Business Review(under Cordiner) and Sessions I and II, whichare cross-level channels. Annual Business Reviewsprovided a mechanism for business unit man-agers to directly influence attention at corporateheadquarters and a channel for implementing thecorporate agenda at the level of operating units.Session I reflected a similar pattern. Accordingly,in the cross-level channels, corporate and busi-ness unit managers could collectively reach somelevel of alignment on the opportunities to pur-sue. The staff and headquarters channels, absentcorporate and business unit interactions, allowed



divergent perceptions and plans to persist. Underthese conditions, business unit managers remainedin their own worlds and conceived of opportu-nities more in line with existing product markets.Consequently, we suggest:

Proposition 1: By creating interactions betweencorporate and business unit managers, cross-level channels align corporate and divisionalattention to threats and opportunities.

SPECIALIZATION, INTEGRATION,AND CHANNEL COUPLING

As Tables 3, 4, and 5 indicate, certain structuralcontingencies of cross-level channels shape issueidentification and responsiveness. Corporate andbusiness unit decision-maker interactions are notsufficient condition for channels to ensure greaterattention to strategy formulation and coordinatedresponses to opportunities and threats. Our analy-sis showed that adaptation requires channels thatare: (1) specialized to allow for focused attentionto strategic (competitive and long term) rather thanjust financial or operational issues and initiatives(Table 3); (2) cross-functional to ensure linkagesbetween planning and other functional activitiesin response to opportunities and threats (Table 4);and (3) tightly coupled in a coherent organizationalarchitecture to ensure vertical and horizontal coor-dination of initiatives (Table 5).

Specialized channels and adaptive movesTable 3 provides a comparison of channel types,the degree to which they were specialized (i.e., hada focused agenda), and the effects on the types ofadaptive moves made. Of the 10 events studied,two resulted in no corporate-driven change (C4and MS1), one resulted in management changeswithout significant strategic adaptation (C2), andseven resulted in strategic adaptation (C1, C3, C5,MS2, MS3, MS4, and MS5). Five of the adap-tive moves involved cross-level and specializedchannels. For two of the seven adaptive moves,staff (C3) or headquarters (C5) channelsratherthan cross-level channelswere involved. Thesetwo involved major acquisitions or business unitdivestitures, respectively, suggesting that busi-ness unit adaptation through mergers, acquisi-tions, and divestitures may occur independently of

cross-level channels. The acquisition of the Euro-pean Computer businesses (C3) was not success-ful, nor, in the long term, was the expansion ofthe Computer business (C1). The divestiture ofthe Computer business (C5) was a financial suc-cess, but corporate-business unit coordination wasnot consequential for the sale of the Computerbusiness.

Our analysis suggests that while cross-levelchannels are critical to successfully aligning some-times divergent corporate and business unit percep-tions of the environment, they are not sufficient toensure that attention to long-range issues will notgive way to more immediate concerns. In com-plex organizations, routinized attention to internalfinancial and operational issues often drives outlong-term strategic planning (March and Simon,1958). The broader the agenda in the channel, thesmaller the likelihood that any single issue willreceive sustained attention (often, there is simplynot enough time to cover everything). This maybe particularly true if the strategic issues are notconsidered central to the agenda or share attentionequally with other issues. However, we find thatcross-level channels that primarily focus attentionon planning more readily foster adaptive activi-ties that reflect strategic issues. Focused cross-levelchannels ensure the engagement of decision mak-ers attention (Ocasio, 2011) and the intentionaland sustained allocation of cognitive resources, inthe case of GE, on early identification of newtechnologies and changes in the competitive envi-ronment (e.g., MS2-MS5). Such attentional engage-ment focuses time, energy, and effort on a selectedset of environmental stimuli (e.g., competitiveactivity), corresponding response initiatives, andthe relationships between them (Ocasio, 1997).

For example, in 1962, the broad Annual Busi-ness Review agenda included financial perfor-mance, problem areas, key markets

ge history of org structure

Documents

business unit agendas

business unitfocus

business unitattention

crosslevel channels

corporate strategy

business units rumelt

thebusiness unit level

constituent business