General Electric's strategic position and transformation under Jack Welch, 1981-2001

GE & Strategy

"Indeed, diversification and decentralization had been the major strategic thrusts of GEs two prior CEOs…" (Walker, General Electric Strategic Position-1981, 1993). Under decentralization, GE's departments were building blocks with their own product market, market strategies, finance, engineering, manufacturing, and employee relation functions. With expansion came problems of permissiveness and lack of proportion. Employees lacked experience. GE had profitless growth, massive investments with long payback periods, poor planning, and poor understanding of the businesses.

In the 1970s, GE was restructured with corporate staff in two parts to implement a hierarchical structure. There was shift in the business mix. But, this structure created major communication problems. GE moved into the sector structure. This developed the problems of discontinuities of strategic plans and unnecessary costs from duplication and uncoordinated actions. GE was moving in all directions with no focus to where it was going.

In 1981, when Jack Welch became CEO, he started making changes in strategy by challenging divisions to higher levels of standards (Bartlett, 2005). He implemented a three circle concept of core, services, and technology. The priorities for the core businesses became reinvesting in productivity and quality. Services had the responsibility to add outstanding people and make contiguous acquisitions. Technology businesses had the focus of staying on the leading edge by investing in research and development.

Welch's vision for GE was to become the company perceived as unique, high spirited, and entrepreneurial with being the most profitable, highly diversified, and with high quality leadership within a decade. He did a de-staffing process to eliminate bureaucracy and eliminate the sector structure, reducing the number of hierarchical levels from nine to four. Managers were required to have a strong commitment to new values, a willingness to change corporate culture, and ability to take charge and bring about change. He sold underperforming businesses and invested in more productive ones. Competition between GE businesses was eliminated and divisions were required to work together to share and learn from each other to create a family atmosphere throughout the organization. Performance goals were set to unachievable standards with no repercussions for not achieving them to create higher standards and drive higher vision throughout the organization.

Welch introduced corporate mandates (Walker). Bureaucratic behavior was reduced. Markets were defined globally. Managers were developed as leaders. Sharing was promoted across business units. Goals were set aggressively. Service businesses were built. Six Sigma quality programs were implemented. Identified and removed underperforming managers. Force of all business units to implement e-commerce strategies.