Ge’s Two-Decade Transformation: Jack Welch’s Leadership

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Organization design and culture

When GE’s primary business restructuring completed in late 1980s, Welch realized that productivity could be increased by restructuring and delayering. However, growth in a new structure was not without culture change. Barriers acknowledged by the company included culture shock and management exhaustion. Therefore, Welch started shifting his priorities toward building a new culture. Through analyzing the organization design using Star model, GE’s culture change can be identified.

Process and reward

Processes and rewards form the organizational control system that can be used to examine strategic implementation. Initially, Welch introduced two close linked processed call “Work-out” and “Best practice”, aimed at creating the desired culture and management approach. (Christopher, Meg, 2005).

Before “Work-out” launched, managers found that it was difficult to implement changes in their respective operations. Bureaucracy was still a barrier that made communication and operations inefficient between various levels of management. Although GE had reduced bureaucracy through restructuring, it did not change culture. The “Work-out” process provided a new method for employees and their bosses to communicate each other. More than two-thirds of the workforce had participated in this process, and results were tangible. More bureaucracy had been eliminated and productivity increased. More important is that “Work-out” created a culture with openness, simplicity and self-confidence. Employees felt engaged in the company and everyone had voice. Another process implemented was Six Sigma, and participation was not optional. Every individual employee had his or her own Six Sigma objectives. The full process made individual performance more measurable and provided them skills. The previous error rate of operations was one thousand times Six Sigma, which caused inefficiencies and lost productivity. However, in the first two years of Six Sigma process, the returns over the investment was beyond expectations.

In the past, GE’s compensation system was driven by narrow-range increases in base salary supplemented by bonuses based on one’s performance. Welch implemented a need model and stock options became the main component of compensation. He strongly tied these aggressive bonuses and options to the individual’s performance on the current program priority. For example, in “Work-out” process, he changed the criteria for stock options to reward idea-seeking employees and sharing, not just idea creation. This is highly tied to the goal and method of “Work-out” process. In stretch target process, employees who achieve goals will be rewarded with substantial bonuses or options. In Six Sigma, 40% bonus was tied to individual’s Six Sigma objectives, and this resulted in rapid Six Sigma implementation. Aside from monetary reward, Welch also asked the managers to rank employee into five categories. Poor performers who are ranked at the bottom 10% will be fired. The reward system gave the employees’ incentives and motivations to fulfill their targets and the bottom 10% line is like a bell to remind people improve the quality of work.

People

Welch believed that good people were key assets of GE and need to be managed as a company resource. That is why he focused on developing people with deep commitment. The well-developed and powerful Section C human resource systems and 360° feedback process enabled managers at every level to identify the training needs, coach the opportunity, and finally the career planning. The best part of this career planning is that even those employees who were fired due to the failure to achieve the targets or the standards, can still enjoy this benefit, representing that GE’s well treatment toward its people. How Welch developed leadership within the firm is a best example to analyze how GE managed its people, which will be discussed late in strategic leadership.

Structure

Before Welch took charge of GE, the company had an SBU-based structure with 43 business units, and a sector layer representing macrobusiness agglomerations. The structure of the company was highly decentralized. After the restructuring strategy launched by Welch, more than 200 business were sold and the sector level was removed. Additionally, numerous positions were eliminated and thousands of employees lost their jobs. The result of the restructuring made GE lean and agile, more concentrated, but also triggered some problems, including perceived loss of job security, and negative views from external parties.

The concentrated structure may present problems to Welch’s successor. Welch is a very hands-on CEO, and always got involved to the initiatives and process that he implemented. For example, with the Section C initiative, he attended meetings every year between April and May to review the progress of top 3000 executives in the company, and the top 500 managers need to be appointed by him personally. This quality of dedication will be paramount to a new successor. To eliminate bureaucracy, Welch insisted that none of the meetings be documented. This decrease control of monitoring. However, through the method and process of how Welch developed leadership within the company, the company aimed at developing its future leaders with the values and abilities that are fit to the current organizational structure and culture. This strategic leadership will be discussed next.

Strategic leadership

As a leader, Welch played a significant role in all these strategies and processes implementation. To analyzed his approach to lead the changes, we can use two theories based on different initial assumptions. The restructuring strategy was led by Theory E due to the economic environment that time. The economy was suffering to the recession with high interest rate and unemployment rate. To maximized economic value of the company, Welch implemented this restructuring strategy.

When the hardware was almost completed, Welch shifted his priority to organizational culture’s construction led by Theory O, which aimed at developing a corporate culture that people feel engaged and everyone had voice. To do this, Welch focused on realigning the skill sets and mindsets of every individual employee from the bottom up. Welch was an authentic leader with strong persuasion skill when he was leading the changes. Based on his early successful restructuring strategy, he had established an excellent credibility and ability in leadership, which made his persuasion more efficient. For example, in