GE Jack Welch GE Has Been Able

GE Jack Welch GE has been able to pursue unrelated diversification for a few reasons. Most important is that the corporate level contribution has been limited to management practice. GE contributed systems to its subsidiaries, but allowed managers to run their own businesses, and not be tied to trying to work with other subsidiaries. GE contributes best practices that help managers of all businesses to operate more effectively, but corporate head office does not interfere in the management of the business.

Another contributing factor is Welch's "fix, sell or close" strategy. This resulted in many businesses being divested -- too often firms engaged in unrelated diversification persist with bad businesses either because those businesses are related to other subsidiaries (like FedEx with Kinko's) or because management does not understand the unrelated businesses. One of the areas where GE succeeded was in leadership development. Running disparate businesses is never easy, but when corporate head office contributes programs that build better leaders, all of the business units are strengthened.

It may be the case that many other firms attempting unrelated diversification build leadership talent well, but then funnel leaders into the core business. At GE, there was no such concept of core business beyond whatever businesses were the most profitable and had the best potential. Managers could excel in any subsidiary, and this helped GE to maintain a successful diversified portfolio of companies. Another contributor to the company's performance is the internal competition.

While the constituent companies of GE may not have all been in the same business, they all sought to compete with one another for performance and recognition. They became adept at adopting best practices from other GE companies, so even when the firms were in different businesses they were able to learn from each other. The ability of Welch to bring GE systems and GE culture to all of the companies is what allowed each company to flourish.

Too many companies seek unrelated diversification without understanding that their own management systems provide the best approach to making this strategy work; or their own management systems were not that good in the first place. At GE, they not only had good systems but were able to share those systems throughout the different divisions to create a consistent GE way of doing things that drove performance no matter what the particular business was. I feel that GE will be able to persist with this strategy.

This strategy is systemic in nature, and therefore not dependant on Jack Welch. While Welch developed the strategies that allowed GE to thrive, he was not personally involved in the management of these companies. The leadership talent that GE has cultivated is strong enough that it can continue to operate using the unrelated diversification strategy -- not only are there leaders for the different units but the.