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General Electric – Two-Decades of Transformation.

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Presentation on theme: "General Electric – Two-Decades of Transformation."— Presentation transcript:

1 General Electric – Two-Decades of Transformation

2  Founded in 1878 by Thomas Edison  Its core business was electricity generation and distribution  It constantly underwent change  1950s- Decentralization  It encountered profitless growth in 1960’s  Reg Jones,( Welch’s predecessor) started the transformation process by rationalizing Groups, Divisions and SBUs  Centralized and sophisticated planning process  Reg Jones spent a great deal of time on government relations.  Reg Jones was regarded as management legend ( WSJ).

3  Jack Welch became CEO in April 1981 at the age of 45 when US was undergoing recession.  He brought the culture of ‘ better than the best’  He had a vision and he would let it be known to everyone.  He set the standard of being No.1 or No.2 in the industry or it would disengage.  He insisted on being lean and agile through de-staffing process and hence he was known as ‘Neutron Jack’.  He brought in the concept of ‘How do I add value’ and curtailed bureaucracy in the system by removing various layers.  His five page strategy playbook comprised of following :- 1) Current market dynamics 2) Competitors key activity (recent) 3) GE’s Business response 4) The greatest competitive threat over next 3 years 5) GE Business’s planned response.  He stressed on growth by leap rather than being incremental and hence wanted the organisation to stretch itself.


5 The Late 1980s: Second Stage of the Rocket Management style based on openness, candor and facing reality Where all felt engaged and everyone had voice Off-site meetings where groups of employees were invited to share their views about their business and how it might be improved Managers had to make instant decisions on 80% of the proposals. Process designed to get unnecessary bureaucratic work out of system Work-out Organizational Culture characterized by Speed, Simplicity and Self- confidence Studied the different tools and practices followed by other successful companies Also identified characteristics common to successful companies : Focus on developing effective processes, Customer Satisfaction as measure of performance, Treating suppliers as partners and constant innovation. Training program to introduce Best Practices Thinking throughout the Organization Focus on effective processes than on individual activities Best Practices

6 Businesses are Global, not Companies  No Corporate Globalization Strategy: Each Business responsible for implementing a plan appropriate for its particular needs.  From 1987, GE’s performance standard “#1 or #2” evaluated on world market position  Paulo Fresco, a strong advocate of Globalization, became member of Welch’s four-man corporate executive office. He became the locator and champion of new opportunities.  Invested $17.5b in Europe during the economic downturn. Similarly, acquired 16 companies in Mexico during the Asian crisis and spent $16b on acquisitions in Japan.

7  Welch recognized that his challenge was nothing short of redefining the implicit contract that GE had with it’s employees  New Psychological Contract – Jobs at GE are the best in the world for people willing to compete.  Session C – Comprised of rigorous management appraisal, development and succession planning reviews.  Overhauling of the Compensation Package – stock options became a primary component of management compensation with allocations strongly tied to the individual’s performance on the current program.  Crotonville management development facility – became the main institution that Welch harnessed to bring about the cultural change at GE.  360 degree feedback – became the means for identifying training needs, coaching opportunities and career planning. DEVELOPING LEADERS

8 Delivers on Commitments and shares company’s values Does not deliver on Commitments and does not share company’s values Does not deliver on Commitments but shares company’s values Delivers on Commitments but does not shares company’s values Top managers at GE were rated not only on their performance against quantifiable targets but also on the extent to which they lived GE values Not a pleasant call, but equally easy to deal with The autocrats, the big shots, the tyrants – they are the ones to be removed. Usually gets a second chance His or her future is an easy call – onwards and upwards.

9  Welch articulated his vision for GE in the 1990s as a boundary less company characterized by an open environment, friendly towards the seeking and sharing of new ideas, regardless of their origin.  It will remove the barriers between engineering, manufacturing, sales, and services and will recognize no distinctions between domestic and foreign operations.  Changed the criteria for bonuses and options awards to reward idea seeking and sharing not just idea creation. Boundary less behavior

10 I M Possible  ‘Stretch’ to set targets.  Doable is not enough.  operating margins – 8.5% to 15%  inventory turns – 4.73 to 10  Reward success but don’t punish failure.  Process is of prime importance.  Results –  14.4% operating margin.  inventory turn of 7.

11  % of revenue from service business  %, 2000 forecasted- 75%  Supplementing slow product growth with added value services  “In Site” tech for medical business, online diagnostic technology for other businesses  Service council to exchange ideas  Service related acquisitions  Inverting the pyramid- focus on service, product just a part

12  Six Sigma Quality initiative:-  Cost of lost production and inefficiency:- $8- $12 billion p.a.  Defect times more than 3.4 per million  Six sigma participation not optional  40% bonus tied  Massive training- green, black and master black belts  Reduced turn around time, efficiency improved, profits increased $ millions

13  Energy- excited by ideas  Energy- ability to energize others  Edge- ability to make tough calls  Execution- consistent ability to turn vision into results  High emphasis on promotion of A players- stock options etc.  Performance appraisal – 5 categories- 1s to 5s  1s and 2s got the stock options and 5s had to go  E-business

14 Jack Welch’s Leadership (achievements)  23% per annum shareholder return (Ex-1)  Employee productivity increased by 500% ( Exhibit-1)  GE became the most diversified company from electricity generating and distributing company  Fortune’s most admired company in US  GE was transformed from a product company to service company( Ex- 9)  ROE- 14.8% to 28.7%  ROS- 5.1% to 9.8%

15  Transformation though started from the top management but unless it percolates down to the individual employee of the company it is not successful…………..

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