Jack Welch and General Electric's Management System

Introduction

Management actions at a company shape its future, determining either failure or success. To maintain an edge in a competitive industry, organizations are well known to alter their management styles to keep up with the times. This paper analyzes the management at General Electric (GE), an American multinational conglomerate headquartered in Boston. GE manufactures several large-scale machines and equipment, including aircraft engines, oil and gas production equipment, medical imaging products, and industrial products. The company also provides services such as power generation and financing. This paper discusses the management styles GE has employed since its inception, the major changes each management style brought about, and the impact those changes had on the company. It further proposes an innovative idea that can bring about positive change and lead to continued success.

Globalization — During the last decade, under the leadership of CEO Jeff Immelt, GE attempted expansion by implementing policies that promote globalization. These policies shifted the company's focus to international enterprise, transcending national borders to operate globally. This shift is well described in a statement Immelt made to the Financial Times (Crooks and Marsh, 2012): "When I became CEO [in 2001] we were 70 percent inside the US industrially. Now we are 60 percent outside the US." The globalization policies brought about the following changes in the company's operations: manufacturing plants were outsourced to developing countries, various divisional head offices were relocated overseas, research and development centers were concentrated abroad, the local workforce was engaged in GE's overseas operations, and there was an increased focus on exports.

The globalization effort was intended to exploit international economies of scale across GE's business portfolio and take advantage of emerging international opportunities (Grant, 2016). One such opportunity arose during the 1997 Asian financial crisis, when GE accumulated quality assets at discount prices by investing in distressed assets in the region to leverage an eventual upturn. This strategy had paid off for GE during the U.S. and European recessions of the 1980s and was also used to yield returns during the mid-1990s Mexican crisis.

Key Changes in GE's Management Style

Digitization — In 1999, Welch launched the program destroy-your-business.com to introduce a new digitization initiative. The program encouraged line managers to visualize how their business model might be "crushed by the dot-com juggernaut" (Grant, 2008). Digitization encouraged internal reflection across all parts of the organization, and this internal review brought about improvements in internal processes and the discovery of profitable new market opportunities.

GE is properly managed. The company has grown into an industrial powerhouse under the management that has administered it over the years, experiencing significant growth in yield, valuation, and industrial capacity. GE has thrived so well under good management that, as one of the 12 original companies on the Dow Jones Industrial Average, it remained the only original company still on the index after 116 years. This level of success could not have been achieved without management capable of adapting to changing technology, diversifying into emerging markets, and remaining sufficiently profitable over time.

During his years as CEO of General Electric, Jack Welch's accomplishments earned him widespread admiration as one of the greatest business leaders of his era. In the 20 years from 1981 to 2001, Welch grew the company from a lightbulb and appliances manufacturer into a multinational organization whose services included financial services, media services, and industrial manufacturing. He was initially criticized for cost-cutting methods and layoffs that earned him the moniker "Neutron Jack." However, after successfully expanding GE's revenues and raising its share prices in the following years, he was widely lauded (Fernández-Aráoz, 2020). Welch de-layered the organization to reduce decision-making time, enabling it to respond more quickly to external changes and performance demands from corporate headquarters. The organization implemented a simplified strategic planning system that increased business-level managers' accountability, reinforcing speed and responsiveness (O'Boyle, 2011).

Under Welch, the primary objective of GE was shareholder value creation. To achieve this, Welch established a performance-driven business culture that strongly oriented individual business units within GE toward maximizing profits and value creation. GE's financial controls encouraged value creation by linking the remuneration of business-level managers to their individual division's performance. The aggressive strategies implemented by Welch, while effective, were at times controversial. Nevertheless, measured by the profits they yielded, the strategies were very successful. Through them, GE expanded into new markets, created new business lines through diversification, and grew in financial value as GE stock prices rose.

One of the changes attributed to GE's globalization efforts is the engagement of local workforces. Local vendors and spokespersons were integrated into the workforce at GE's foreign branches through several policies that encouraged the steady rise of the non-U.S. workforce. Engaging the local workforce within GE's international subsidiaries and internationalizing senior-level management provided several benefits, including gaining knowledge about local marketplace behavior, building positive representation in host countries, and acquiring cultural knowledge that reduces the risk of cross-cultural misunderstandings.

Beyond the obvious advantages — such as cost savings and gaining invaluable knowledge of local market characteristics — there are also disadvantages to this practice. The alienation of the home workforce is one such drawback. In 1989, following the closure of a GE plant in Morristown, Tennessee, the organization CATS (Citizens Against Temporary Services) was established in response. As a community-based organization, CATS performed activities that dealt considerable damage to GE's public image (Lee, 2007, p. 247). The continuous shifting of jobs overseas, which GE has pursued in its effort to become truly global, has caused discontent among the U.S. population and attracted criticism from non-governmental organizations. This problem must be addressed by installing measures that better balance the allocation of jobs between U.S. and non-U.S. populations.

Senior Management's Role in Organizational Change

The suggested innovation is for GE to seek assistance from the United States government. This proactive approach could help GE maintain a highly competitive position in the global market, where sustaining an edge above competitors has become increasingly challenging. According to Lou and Wang (2008), Chinese multinational companies — potential competitors for GE — can receive assistance from the Chinese government for certain business aspects. However, the U.S. government has historically maintained a more distant relationship with global private entities, as any form of direct assistance risks being construed as a violation of the public interest. As a result, the government has generally refrained from negotiating ways to support such global organizations.

Nevertheless, such assistance could be vital for companies like GE in sustaining a competitive edge in the global market (Biggeri & Bortolotti, 2020). GE should request that the U.S. government negotiate better trading terms with key partners such as Canada, Mexico, and China. Receiving this assistance may be feasible if GE builds a constructive relationship with the government by demonstrating its importance to the national economy and earning the trust of key organizational stakeholders.

The most appropriate form of government assistance would be an implicit endorsement in the international market — one that does not create a direct, formal association between the company and the government. This means that beyond attending functions such as product launches or office openings, government officials should not be involved in company operations. A direct association risks creating the kind of negative perception seen in the case of Huawei and the Chinese government.

As advocated by former CEO Jack Welch, GE's continued success will depend heavily on its ability to remain flexible — like a small business — regardless of the large size it has attained. However, the relatively low attention that then-current CEO Jeff Immelt was paying to maintaining the company's flexibility raised concerns about the company's future adaptability and competitive positioning. This concern was compounded by a highly uncertain macroeconomic environment in the U.S. and, more broadly, by the increasing importance of internet-related technology, which demands a great deal of organizational flexibility to keep pace with rapid technological advancements (Caselli, 2012). It is therefore more important than ever for GE to retain flexibility across all levels of management to respond profitably to fluctuations in both local and global environments.