GE Jack Welch Jack Welch

GE Jack Welch Jack Welch used a number of techniques to overcome the impossible and reshape General Electric's culture. The company had been a management innovator for much of its existence, and Welch was given a mandate in the fact that he was selected over safer candidates for the CEO role. This allowed Welch the opportunity and the time to envision a strategy for GE and take the steps required to implement it. Welch's first step was to set out a vision for GE.

He could see that the management style when he took over was not going to be successful for much longer, and that he needed to change. He was able to identify the key elements of that change process -- the organizational structure and the organizational culture. Welch was a highly visible proponent of the changes that he proposed, and this helped to disseminate his concepts into senior management.

Welch repeated his vision and made changes to the organizational structure that supported his vision, removing layers of bureaucracy and streamlining decision making processes. Welch also created a sense of urgency. Part of his plan was to focus the company on critical strategic initiatives. Michael Porter has argued that strategy is focused on the way a company meets the needs of its customers. Welch subscribed to that idea, and he cut away personnel who had no customer-oriented function.

This created a sense of urgency in the company, that units needed to adapt to Welch's mindset or they risked being cut from the company either by closure or by sale. Selling off units like consumer electronics sent a clear signal to everyone in the organization that without a clear strategy to meet customer needs, no division within GE was safe. Welch also instilled in GE Porter's idea of trade-offs. Prior to Welch, GE was focused on small scale, incremental changes to its businesses.

Welch shifted that focus, arguing that the trade-off to that approach was that the company lacked bold vision. To support this philosophy, Welch made changes to the rewards system within the company, to one that encouraged risk-taking. This trade-off in outlook made a significant difference to the corporate culture, and allowed GE to become an innovative growth company. Essentially, what Welch did was utilize a growth company's reward system in GE, in order to change the mindset of the workers and managers in the company.

Porter also makes the point that the strategy should result in a fit between the different activities in the company. As a giant conglomerate, GE found itself with a number of disparate activities, most of which it pursued simply because they were there. Welch took the idea of the trade-off and realized that energy and good people could be put to better use if the company only engaged in business areas that had long-term promise.

His three circles strategy was the result of this thinking, and it helped to focus GE on only those activities that had the most promise. Consumer electronics, for example, was a business in which GE saw no future, so it was sold. What was left with a GE that had only three core business areas.

Not only were these the areas that Welch felt had the most potential going forward, but by streamlining the number of businesses in which the company operated, he simplified the role of head office significantly as well. This allowed him to implement his streamlined decision-making process at head office as well. One of the ultimate goals of Welch's transformation of GE is rooted in Porter's maxim that "a company can outperform rivals only if it can establish a difference that it can preserve." For Welch, this was the entrepreneurial mindset.

GE in the 1970s was a strong company that derived value from its managerial structure. However, it was clear to Welch that this structure could not deliver long-term competitive advantages -- everything GE did well could be imitated by competitors. Thus, part of Welch's strategy for changing GE was to establish an entrepreneurial mindset. This would be something that many competitors -- especially other large multinationals -- would have difficulty matching.

If GE could foster this type of mindset throughout its organization, it could compete on the innovation capabilities of an upstart with the financial and market clout of a multinational. This would be something that was difficult for most competitors to match, and would therefore provide GE with a source of sustainable competitive advantage. Welch also saw decision-making speed as essential to his change process.

He reduced the amount of paperwork and study relating to decisions to both free up the flow of valuable information and to speed up the decision-making process. Again, this was a means of differentiating the capabilities of GE from those of rivals. GE would gain competitive advantage time and again by responding more quickly to changes in the environment than its competitors.

His five-page environmental outlooks were another example of how GE would always know its market position and the position of its competitors in order to make decisions more quickly. There were a number of impacts of these changes on GE. The sense of urgency was created and the culture changed. The company began to be more open with information, and this empowered more people to make positive contributions. Essentially, GE unlocked the abilities of a lot of people within the organization.

This created a newfound confidence within the organization that began to drive people towards the pursuit of excellence. That Welch demanded excellence also helped to lock in this change at the company. The leaner GE was able to respond more quickly to market opportunities. It was able to reduce its cost structure by not only reducing internal inefficiencies but by allowing employees to make their own contributions to internal improvements, something that was discouraged by the barriers that had been in place.

Welch changed the culture of the company, the structure of the company and ultimately he changed the performance of the company. He was able to unlock the entrepreneurial talent within the organization and encourage greater risk-taking, and this led to greater reward. Many of Welch's initiatives directly impacted the human resources function. Welch saw HR as a means of implementing many of his strategies. He changed the incentive system, for example, to encourage greater risk taking.

In doing this, he created a greater link between performance and pay, which encouraged managers to take risks in order to deliver more to the company. Welch's moves with respect to ending the culture of lifetime employment also directly impacted on strategic human resource management. This culture was fostered by the company, but it did nothing to encourage positive outcomes. With his layoffs and firings, Welch was able to break this culture, and leave the company only with the talent that it felt it.