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GEs Two Decade Transformation Jack Welchs Leadership Case Solution

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729 3386 Words (14 Pages) Christopher A. Bartlett Harvard Business School : 399150
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General Electric has seen two CEOs which have turned around its operations. The company had had Jack Welch as the CEO. Serving for two decades, Welch overcame challenges such as the great recession and the internationalization wave. These challenges and the way in which Welch faced them strategically shaped the company’s profitability for the future. The challenges faced by the company had down trodden many companies, but General Electric sustained such challenges. This case study describes the four stages through which the company progressed. Each of these stages consist of a major challenge.

This report will consist of an assessment of the company. It will assess the strategic challenges faced by the company. The challenges will be examined and the recommendations will then follow. Although Jack Welch succeeded as a CEO and moved the company to new heights, there were a few strategic challenges which could not be resolved. This resulted in the sale of many businesses operated by GE. The recommendations will be based on these mistakes for the future of General Electric. The main focus of the recommendations will be diversification strategies for the company. The reason is that Welch established a company. Further growth depends on the diversification of the business.

Following questions are answered in this case study solution

  1. Introduction  

  2. Company Assessment 

  3. Strategic Challenges 

  4. Strategic Recommendations 

  5. Conclusion  

Case Analysis for GEs Two Decade Transformation Jack Welchs Leadership

Company Assessment

The company was founded in 1878 by Thomas Edison. This is the main reason for the company’s strong backing in the world of electrical generation. It is said that the company’s early focus was on power generation and distribution. This business was therefore GE’s core around which all other business were created and operated. However, a century of business had inculcated many other businesses into the GE portfolio. Manufacturing of aircraft engines, locomotives, and medical machinery was included as a part of the business. However, GE adapted to the change in management styles. The management style which was centralized and highly dictated was replaced by decentralized management. It is assessed however, that the new style of management was not understood by most managers and the era of 1960 saw profitless growth of the firm. However, the CEO before Welch, Reg Jones, might have realized this situation. He included planned processes to facilitate the decentralized system in the company making GE the top of the management practice.

The company has by far succeeded by adopting the latest management practices and facilitating successful change management throughout the firm. The case states that the company had succeeded because of its planned processes which is also a factor of its success apart from the timely adoption and implementation of the plans. 1981 had marked the era of Welch. He started off by restructuring the company. Also, Welch’s focus had been to be number one or number two of the category, no lesser. However, this focus led GE to lose many of its business which were profitable. These businesses had accounted for about 25% of the profits of the company. However, on the other side, Welch was investing in other businesses, acquiring and developing some areas which GE had already operated in as well as others in which GE was new. One other focus of the restructuring was lean systems and the six sigma quality process. Welch had included a de-staffing process which decentralized the system. The vertical hierarchy was shortened and the communication flowed freely from top to bottom. This had greatly benefited the company since many problems were communicated as soon as they occurred. Managers were required to take recommendations from the lower-level employees and the best recommendations were implemented, thus, empowering the lower-level worker. The focus of the lean system was to gain a cost advantage on the competitors. The additional costs had been cut because of the de-staffing procedures. Furthermore, the expansion included value-addition and vertical integration of most products. The hardware was complemented by the development of a software division.

The entire case highlights the timely responses of GE’s managers and CEOs. These timely responses had been the reason GE had benefited from many situations. The company had faced many losses including loosing businesses and employee dissatisfaction, but strategic and timely planning had taken care of it. Welch had added value to the company by implementing strategies such as training and developmental programs for employees, and globalization processes in response to the analysis of the external environment and the requirements it had in order to compete.

Therefore, the assessment is that the company had benefited not from its planned processes only, but the timeliness of these processes. The recommendations for the company will keep this factor, which has been the reason for GE’s success, as a basis for further recommendations.

Strategic Challenges

During the two decades that Jack Welch served at GE, it faced several strategic challenges. The challenges arose from the external environment as well as the internal company. These challenges were faced by strategic planning which is stated to be the success factor for GE all these years. However, the CEO was also faced by the challenge to implement these plans. As discussed above, the company facilitated the change processes with other systems to ensure that the company progressed as planned. This section will describe the strategic challenges faced by General Electric during the time cut described in the case. This discussion is not a summary of the case, but an analysis of the challenges and their implementation processes.

1. Corporate Strategy

Initially, the first step of the Welch program consisted of a restructuring plan for the company. The company looked for ways in which the costs could be reduced. The reason for this was the economic recession faced by the company. Even though de-staffing procedures were seen as a cost cutting strategy, it did not affect the company negatively. The de-staffing was coupled with the decentralization in the company. The hierarchical structure of the company was reduced vertically. Although, for the economy, it meant more unemployed people, and less purchasing power, GE was based on its core business of power generation which set it in a monopolistic position. The company, even then, did not want its other business to close down or generate less profits. The de-staffing and other lean systems meant that the company could reduce its costs and offer a price much lesser that what the competitors were offering.

The second step to change and growth was the inclusion of the software business into the hardware business. This vertical integration of the processes was difficult due to the reason that it required a cultural change in the company. According to Welch, the company could not progress unless the culture was changed to eliminate the bureaucratic framework and allow the benefits of the decentralization to impact the company’s performance and growth. Welch’s managers were included in the second stage. They were given targets to achieve the end result of customer satisfaction. They gathered the best practices of the best firms and found the common practices between them. These practices were then included in GE’s operations, making it an integration of all that had been gathered from the other company’s success. The second stage also included the drive for globalization. However, this globalization plan was incorporated with Welch’s decentralization approach. Welch gave autonomy to GE’s businesses to expand globally according to their needs and requirements. Even if the autonomy was given, Welch was as involved in the globalization of GE’s businesses as it were his own decision. The analysis is that Welch, although wanted to follow all that was derived out of successful businesses, he did leave autonomy to the employees which reinforced the elimination of the bureaucratic system which he was focused on. This shows that Welch’s plans were integrated into one other. Plans coming in later than others also incorporated the previous plans which did the best part in removing the confusion from the employees. The employees knew that of a set of values and processes was implemented, it would be implemented throughout.

The third wave again reinforced the concept of autonomy which was inculcated in the company. Welch further expanded his idea of autonomy to include ideas from all parts of the business. The inclusion of the employees from all parts of the business to give recommendations to any part they thought lacking gave a sense of ownership to the employees. If the ideas were implemented, the employee would feel empowered, not only in his own department, but the entire company. Welch also included a rewards strategy and rather than pushing sales by setting high targets, incentives were given to achieve outstanding sales figures. Therefore, the culture which was targeted to be changed, was finally turning around and the employees had increased trust in the company and a sense of ownership associated with the company.

The final stage set by welch was operations management concepts such as six sigma and performance appraisal systems. These systems made the company strive to more betterment and increase the transparency in the organization. The main focus was improvement in the product as well as the management of the company. The final initiative was a doc com business launch. It was the beginning of the dot com boom and where companies were resisting implementing such technological changes, like always, Welch was not. It is assessed that his belief was constant development and the improvement for the best. Even if this development resulted in loss, Welch remained persistent in his style which led GE to exceed expectations of many investors.

2. Strategy Implementation

The strategy implementation in GE has been very strategic in nature. Not just the formation of the strategies, but also, their implementation was strategic. In the progression from the first step of change to the second step, the case states that the management was exhausted. The number one or number two strategy had set huge targets for the managers. Many failed which resulted in selling off of those businesses. This progression to the second stage required that the next step be implemented strategically. The second stage was changing the culture of the organization. This was not an easy task. However, Welch conducted personal sessions and meetings with managers to listen to their problems which was all part of the cultural change. Welch wanted open communication within the company and the second stage ended with the autonomy given to managers on the decision to globalize or not. Therefore, the employees were not bombarded with the implementation process. The second step was a natural flow to the rigid process and targets of the first step. It took the opinions of all employees and took their suggestions under consideration.

The implementation process also included a team responsible for implementing the open flow of communication. Furthermore, the employees perceived that the company had had trust in their recommendations. This resulted in an increase in the loyalty of the employees, therefore improving productivity and the quality of the recommendations given to the managers. This trust was further strengthened by awarding life time employments to the people based on their perceived loyalty to the company. The thirst step further built upon this culture to include further empowerment to the employee. This empowerment was not restricted to the employees’ respective departments, but to the entire firm.

Also, the employee loyalty was tested through a performance appraisal process. This process had built on the previous stages. Therefore, the implementation strategy consisted of a consistent flow in the implementation. The cultural change was brought about in the company by this gradual, and consistent change in the implementation process.

Strategic Recommendations

The strategic recommendations would be given keeping in view the discussion and analysis of GE’s strategies. It is assessed that GE succeeded because of its timeliness to strategic implementations. However, such recommendations would mean more risk for the company and the threat that GE lose out on its most profitable or highly profitable businesses. It is recommended that the changes be made by assessing the feasibility and profitability of the strategy. The case shows that Welch expanded in all those businesses and implemented all those strategies which were appropriate according to the period then. However, the appropriateness of the strategy was assessed. During the third stage, Welch decided to assess the most successful companies and determine the common factor between these companies. This assessment was a slightly risk-averse strategy. Welch could have assessed the success factors individually and implemented as a strategy, however, the decision was different. Therefore, the recommendation is to assess all growth opportunities and then make the final decision.

1. Diversification

Related diversification

GE has already diversified into related areas as a part of its vertical integration. However, the company might have more functions which are related, but not a part of the GE business. As a growth strategy, the company must have diversifications in related fields. This would strengthen the business portfolio and expand the market for GE further. The related fields can use the GE name and customers would opt for the product, because of the trust in the GE brand. Related diversification would be the growth strategy with the least risk of failure. As stated above, Welch sis not put GE into uncertain situations, without assessing its profitability and the risk attached to it. Related diversification can include acquisition plans which were implemented at one point. This acquisition had been into related products and thus had succeeded.

Unrelated diversification

Unrelated diversification would dilute the brand essence. Even though it would increase profitability for the company if the product succeeds, but it will make the customers confused about the brand and its offerings. There is no example in this case about a growth strategy implemented by Welch which included diversification into unrelated fields. The assessment of the most successful companies had included the management styles. The companies belonged to different industries. In order to minimize the risk of adopting strategies of other companies, Welch chose to find common factorials. This shows that Welch had sensed risk of diversifying or adopting strategies from unrelated companies and industries.

Broader diversification

The broader diversification would mean that the company diversify in all possible directions in order to minimize the overall risk of the portfolio of products. However, as it has been discussed, that unrelated diversifications would serve as a decline to the brand name, diversification without assessing its impact on other components of the business would not be a very clever strategy to implement. Broader diversification would decrease the impact of the core business which has been established from 1878. The disruption of the foundations would mean decline of the company. While implementing the number one and number two strategy, Welch sold businesses apart from its core business of electricity generation.

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