How difficult a challenge did Welch face in 1981? How effectively did he take charge?
According to “GE’s Two Decades Transformation: Jack Welch’s Leadership” journal, Jack Welch became the CEO of the General Electronics company in 1981. During this era, the company had undergone a complete reorganization (Cleavenger & Munyon, 2013). It had 190 departments, ten groups, 46 divisions, and 43 strategic business units that had been designed to support strategic planning, which was very central to the General Electronic management process.
Just like any other new manager, the previous CEO spent a lot of his time studying and analyzing the problems the GE Company was facing. After that, he developed an art form of strategic planning to aid in the reconstruction of the company. The company gained fame and benchmarked a lot of companies that imitated its sophisticated planning processes and SBU- based structures both within the nation and across the world. When Jack Welch took over, he faced persistent challenges in reviewing the massive volume of data generated by the 43 planned strategies. Moreover, the economy in the United States was in a recession. The increasing interest rate exacerbated the problem, resulting in an increasing rate of employment across the USA economic grounds.
As a newly selected CEO, Welch set the organizational standards for each business. The standard set enabled all the GE to become the 1st or 2nd competitor in the industry. In 1983, he elaborated on the 1st and 2nd objective into “a three-cycle concept” as his vision for GE. He categorized business as core (to reinvest in quality and productivity), service, and high technology. He aimed to place GE at a unique, most profitable, and highly diversified industry across the globe.
As he advanced at bureaucracy, he scrapped the laborious strategic planning and remained with the corporate, diplomatic staff. He implemented a real-time planning system and built a five-page playbook that each offered a simple answer to 5 questions regarding the current market dynamics, the recent activities of the competitors, the response of the company’s business, the planned response, and the most significant competitive threat for the next five years. Equally, the budget of the company was redefined (Welch, 2014). Instead of documenting focused international comparisons with the past performance, he invested in the analysis of the result against the external competitive based criteria.
In 1985, Welch eliminated the previously cornerstone of strategic control by decreasing the hierarchical levels from 9 to as less as 4. As a result, all the business carried out within and outside the industry was directly reported to him. The downsizing, delayering, and de-staffing eliminated approximately 64,160 hourly portions and 59,290 salaries between 1981 and 1985. The number of GE employees gradually declined from 40,400 in 1980 to as less as 292, 000 by 1989 (Cleavenger & Munyon, 2013). The revenue modestly increased from $27.2 billion in 1981 to $29.2 billion in 1985. However, the operational profit rose from $1.6 billion to 2.4 billion, a situation that led to a substantial increase in both earnings and sales in 5 years that followed.
What is Welch’s objective in the series of initiatives he launched in the late 1980s and early 1990s? What is 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?
Most of the GE reconstruction had been done by the late 1980s; however, the company was still reeling from management exhaustion and culture shock. Welch was not yet contented with his work since his focus was on rebuilding the company to attain a more solid foundation. Eight years after initiating GE’s massive reformation efforts, all the hardware had been put in place, and emphasis was now put on the software strategies.
In 1989, Welch refined the primary cultural elements of the organization to a more manageable and approachable culture (Welch, 2014). During one of his visits to the organizational management development institute, he engaged a group of managers in a discussion on the challenges they were facing on change implementation back in their operational areas. In a subsequent discussion with the director of management development, James Baughman, he realized a need to create an environment that allowed both horizontal and transverse communication between the leaders and employees.
The idea was to create a place for forums across the company that allowed both the employees and their bosses to discuss work matters. As a result, Baughman created a small implementation team and led the organization-wide range program rollout. Each consultant carried out a series of offset meetings organized after the New England open forum. A cluster of 40 to 1000 employees was invited to air their views on the business matter and how it could be improved.
The three-day session started with a talk from the unit boss, who presented a challenge and a broad agenda. The boss was then asked to leave to allow the employees and their facilitators to list their grievances, discuss solutions, and prepare presentations. On the final day, the bosses returned with feedback on the employees’ analysis and recommendations. As the forum ideas went on, the company started realizing an increasing amount of profit progressively.
In 1988, with the help of GE’s business development department, Welch studied the different practices implemented in various companies such as Ford, Hewlett Packard, Toshiba, and Xerox. Among the practices, he learned that successful companies advocated much time in developing effective processes rather than manual labor control; suppliers were treated as partners, a strong emphasis was directed towards quality production, and customer satisfaction was the gauging factor of their performance.
In response to this act, Welch introduced a new training program to effect the best thinking practice in the entire organization, integrating it into the previously implemented workout team (Ionescu, 2014). As a result, many managers within the company realized that they were chasing after the wrong activities (Welch, 2014). This situation led to the subsequent formation of units radically revising the whole work approaches.
A lot of renovation and reconstruction of the organizational hardware, software, and culture had been implemented by the early 1990s, and the company had gained a massive market within the United States of America. However, it had not yet expanded its routes to the entire world. According to Welch, it was very difficult to expand the organization internationally before gaining a solid base at home.
However, activities took a dramatic turn when he appointed Paolo Fresco as head of international operation in the year 1989 and made him the vice-chairman and a member of his foreman executive officers in 1992. Just like other strategic initiatives, globalization was not an easily achievable objective, but ongoing music that Welch had to pursue over the years. The European economic downturn paved the way for the GE Company to invest $17.5 billion in the region between 1989 and 1995. Moreover, the company utilized the greatest buying opportunity when the Mexican peso collapsed. Within six months, GE had acquired more than 15 companies. The international revenue had doubled up to $42.8 billion.
While the new culture and global trust were being implemented, Welch was also focusing on changing the mindset of leaders towards achieving the goals and the objectives of the company. He encouraged employees to adapt to the well-established organizational system. Moreover, together with his senior executives, Welch visited each of his businesses from April to May each year to review the progress of the top 3000 executives in the company (Ionescu, 2014).
He also organized for future leaders training on aspects such as development and succession plans for the primary activities of the company. Additionally, he introduced motivational acts such as increasing the salaries of the employees and rewarding them with bonuses according to their performances. Besides, he introduced a model that advocated for the stock option as the primary management compensation element. In regards to the above-mentioned information, although some stakeholders were resistant, Welch initiatives brought about change in the 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?
According to “GE’s Two Decades transformation”, before Welch took over the company as the CEO, the company faced a lot of challenges such as a large number of employees who used to perform dismally and a high number of hierarchies that deterred access of significant information from the ground level to the top managers. The company also had a lot of strategic plans that were tiresome for the top manager to review all the business information over a short time.
More so, the organization had no effective culture to effect the changes that were made. In the 1970s, the company also faced significant market fluctuation as well as the harsh condition posed by the United States’ economic upsurge. Furthermore, the company had no competent leaders to follow up with the situation at the ground level. Nonetheless, the communication system was not effective enough to alert the top-level officials and allow the employees to air out their views on how they thought about the benefits of the new ideas to the organization. Lastly, the company used the old version of market studies. For instance, it used various strategies and data that were used by the previous company to study the ongoing market.
On his appointment, Welch ensured efficient communication between the leaders and employees by creating forum-based units where the top officials presided over and allowed the workers to air out their views and discuss the best solutions to the progress of the company and present them. Secondly, he addressed the issue of economic upsurge by reducing the number of employees in the company and the high number of hierarchical levels from 9 to as low as four. His main objective was to ensure that all the information got to his desk.
What is your evaluation of Welch’s approach to leading change? How important is he to GE’s success? What are the implications for his replacement?
According to my evaluation, Welch had the best approaches to ensuring quality in the GE Company. For instance, his appointment as the CEO has a great impact on the transformation of its culture, economic status, work output, leadership skills, and quality production. Also, his inventions led to the global expansion and recognition of the company. As a result, it gained fame, market, and realized greater profits for two decades before his retirement.
References
Cleavenger, D. J., & Munyon, T. P. (2013). It’s how you frame it: Transformational leadership and the meaning of work. Business Horizons, 56(3), 351-360.
Ionescu, V. C. (2014). Leadership, culture and organizational change. Manager, 1(20), 65.
Welch, J. (2014). Jack: what I’ve learned leading a great company and great people. London, England: Hachette.