Strategic Analysis of GE What

Strategic Analysis of GE

What is Welch's objective in the series of initiatives he launched in the late 1980s and early 1990s (Hint: Is there a logic or rationale supporting this change process)?

Jack Welch's objective was to make GE more customer-centric while also removing all barriers that got in the way of being as efficient, profitable and focused on innovation as possible. While making significant shifts in corporate strategy, Jack Welch was also hard at work infusing meaning, enthusiasm, energy and commitment within the culture.

Jack Welch realized that for GE to survive in the turbulent times of the 1980s and 1990s it would need to take a drastically different approach to managing its entire portfolio of divisions and businesses. The corporate strategy at GE had long been known as conservative and conflict-averse, not open to new ideas and worst of all, ignoring customers and their needs.

To change all of these dynamics in the company, Jack Welch created over a dozen initiatives. One of his first and most significant was being #1 or #2 in a given market or industry, or either fixing, selling or closing a business. This had immediate effects on profitability and focus within GE and is credited with setting the foundation for the strong success of his lean manufacturing initiatives and Six Sigma analysis of performance. Another benefit of pursuing the first or second leadership positions in a market is that it forced GE to be more efficient with regard to its own hierarchy and management layers. He trimmed management layers from nine to four and was able to grow operating profits from $1.6B to $2.4B in just four years while reducing headcount and increasing sales. Jack Welch was driven to get GE out of any business that was unprofitable as he realized there was only so much time before the cash drain on the overall corporation would make it financially weaker and less able to complete globally. He also realized that being a multinational corporation there would be major unforeseen risks which could cost the company billions, and holding onto marginal and unprofitable businesses could harm GE over the long-run. Next on Jack Welch's agenda was the Work-Out and Best Practices Programs. These are the core aspects of Mr. Welch's legacy as a world-leading CEO and business leader. Work-out centered on getting the unnecessary bureaucracy out of the way within GE including trimming back alliances, joint ventures and mergers that had not worked out. Jack Welch was also prescient in how he instituted advanced leadership training and transformed Crotonville into a world-class Six Sigma training center. The shift in services revenue, another successful initiative he put into place, can also be attributed to the Six Sigma methodology used for making processes more customer-centric. A final initiative Jack Welch put into place was e-business, which would turn out to be one of the most potent catalyst of growth the company would have for the next decade.

How does such a large, complex diversified conglomerate defy the critics and continue to grow so profitably (Hint: How have Welch's various initiatives added value?)

By first concentrating on measuring the impact of all strategies, initiatives and programs from the customers' perspective, GE's senior management teams and Jack Welch re-engineered the value chain of the company, concentrating on the creation and strengthening of economies of scope within each business unit or division. This represented a significant shift in operating philosophy and a re-aligning suppliers, production, quality management and distribution systems and platforms. The shift towards greater economies of scope also sought to capture the accumulated experience GE had it is core businesses as evidenced by their dominant market shares. Jack Welch believed that by re-aligning value chains to pursue economies of scope within a decentralized organizational structure the individual performance of each business unit would be tracked with greater accuracy and precision as well. Economies of scope would prove to be critical to the overall performance of GE as a conglomerate in later years as electronic business and the Internet would prove to be a disruptive innovation. By concentrating on economies of scope in a decentralized organizational structure however, GE was able to capitalize on the shift to the Internet as a global business and transaction platform.

Decentralizing business units led to greater accuracy and precision of managing each product line, customer base and services revenue stream for the long-term. This shift in organizational structure also required the entire corporation to shift from centralized to decentralized decision making. The approaches GE took to ensure the shift in structure and decision making would work included putting output and behavioral controls into place for each business unit. The output and behavioral controls were specifically designed to ensure each independently operating business unit shared accountability for corporate results yet also had the accountability to define their own unique business plans and strategies. In using output controls and behavioral controls, GE was able to successfully transition to a decentralized organizational structure.

Often when organizations choose to deploy a decentralized structure, there is an uneven, politically unbalanced and highly competitive approach each business unit takes to getting resources. It is assured that there is never a perfect, utilitarian-based approach to the distribution of resources throughout any decentralized organization. Even GE with its excellent management and leadership programs and initiatives, there will be unequal distribution of resources. To overcome these limitations of a decentralized organizational structure, GE relies on coordination synergy through knowledge sharing and extensive cross-functional teams. These approaches provide for the levels of resource sharing and asset use that are found in a centralized provision of resources, yet still retain the advantage of a decentralized organizational structure. GE continues to be successful with this strategy using a coordinated synergy approach to resource balancing across its decentralized organizational structure.

What is your evaluation of Welch's approach to leading change?

Jack Welch brought a transformational style of management to GE, creating a decentralized organizational structure while also re-aligning planning and control systems, human resources processes and programs and also completely redefining the organizational culture as well. He was a disruptive innovator who also had an innate ability to transform organizational structures and the value chains they relied on at the same time. While creating a highly decentralized organizational structure within GE, he was able to attain a high level of synergy and shared mission and values by using a wide spectrum of techniques including lean manufacturing, Six Sigma and intensive use of process improvement to align the company better to customer expectations and needs.

Jack Welch also showed an exceptionally high level of emotional intelligence (EI) as well, in that he orchestrated entire divisions to collaborate and communicate more effectively even in a decentralized organizational structure. His approach to created a coordination synergy or shared purpose also indicates strong transformational leadership and EI-based skills, which are both essential for a leader to excel in such a large, diverse corporation.

Jack Welch also challenged the status quo of the company often, forcing the previous management teams to question their assumptions regarding strategy implementation, organizational structure and how planning and control systems could be used to better manage risk and capitalize on emerging opportunities.