1. How difficult a challenge did Welch face in 1981?
How effectively did he take charge?
In 1981, Welch confronted the onerous task of filling the shoes of GE’s
previous CEO, “management legend” Reg Jones. Jones had also come across problems
when he inherited GE in 1973 because it had just completed a reorganization of
the entire company. However, he overcame the difficulties and set high
standards, reasonably leading him to be voted CEO of the decade and CEO of the
year three times (Barlett & Wozney, 2002). Welch became CEO during a
recessionary period of the US economy. With high-interest
rates, a stable dollar, and the highest
unemployment rates for some time, Welch had to tactically manage GE to avoid it
from becoming another bankrupt company during a recession.
Welch’s had a clear 10-year goal of
making GE “the most profitable, highly diversified company on earth…” (Barlett
& Wozney, 2002) This would be
accomplished by only having managers and executives who added value to the
company; a “varsity team” (Barlett & Wozney, 2002). These individuals were dedicated
to Welch’s apparition as well as embraced and effectively lead the changes that
were to come. Any others who opposed or did not fit the new culture were let go. Also,
Welch tested the theory that a manager should have no more than 6 or 7 direct
reports. He brought that number closer to 10 or 15 with his new restructuring.
Aside from substantial downsizing, destaffing, and delayering, Welch sold over
200 businesses and invested $21 billion in purchases of over 370 businesses
(Barlett & Wozney, 2002).
Welch was very vigorous at taking charge of GE after Jones. GE
was doing well during the time of the transition, but Welch knew that noteworthy change was needed to maintain their
standing in the business world and safeguard profitability. His strategic ideas
and strategic planning lead to his efficacious transition as CEO.
2. What was Welch’s
objective in the series of initiative he launched in the late 1980’s and early
1990’s? What is he trying to achieve in the round of changes he put in motion
in that period? Is there a logic or rationale supporting the change process? ?
With all the changes made during
Welch’s initial transition to the CEO role in the early 1980’s, he believed
there remained many changes to company culture to
distinguish continued high productivity amongst employees. In the late 1980’s,
with the help of the Director of Management Development, James Baughman, Welch employed
the “Work-Out” process, reproducing an open forum session that he saw operative at one of his teaching visits to the
Management Development Institute. This meeting
allowed GE managers to willingly express their challenges during the changes
that were taking place. However, Welch and Baughman saw this open forum as a
wonderful way to engage and give employees a voice to express their opinions
and concerns regarding upcoming organizational changes.
The new “Work-Out” process provided collaboration between employees and their
managers to find the most effective ways to work together as a team. Employees
would form groups within their units and evaluate the challenges presently
facing their unit. They would work together to determine possible resolutions to ultimately be proposed to their unit boss.
The bosses would then make a concluding decision in front of everyone on which
proposals would be executed in their
unit. Over two-thirds of the organization participated in the sessions, showing
an overall doubled increase in productivity to 4% in the late 1980’s and early
1990’s (Barlett & Wozney, 2002).
During the same time that Work-Out
was being implemented, Welch rolled out
the “Best Practices” movement, headed by Business Development department leader
Michael Frazier. Their goal was to learn what best practices and practical processes other successful companies
were using. After studying nine firms
with higher production growth than GE, Welch introduced the Best Practices
program in conjunction with the Work-Out teams (Barlett & Wozney, 2002).
With his strong focus on building
the GE business in the United States, globalization was the next venture for
him to focus on. Pablo Fresco, previously
president of GE Europe, was hired by Welch to be head of International
Operations, followed by joining his corporate executive office as vice-chairman
a few years later. With his track record of being a great negotiator, GE
engaged in numerous acquisition opportunities that often arose with a collapsing economy, such as the collapse of
the Mexican peso. Within five years, GE had doubled international revenues, and
global revenues were growing at a rate of three times of domestic sales.
Welch’s next focus was to grow and
develop leaders in all areas of GE. “Session C” was the evaluation process used
for excellent leadership to determine
areas of improvement as well as compensation. Using this same method, Welch implemented it among all
professional-level employees in the company, allowing them to identify skills that needed development and
succession planning. In addition to the evaluation process, Welch improved GE’s
compensation packages to provide even more incentive for employees to be their
The management development facility
in Crotonville was revamped to provide a place where leaders could work on
developing necessary skills to effectively lead and contribute to GE’s culture
following Welch’s vision. For those unable to adapt and embrace these changes were let go. The “360° review” was a feedback
process where an employees team, including leaders and peers, would rate their
performance in various areas such as teambuilding and vision. The initiatives
launched by Welch were implemented
because of their success in other organizations outside of GE. Welch’s approach
was a more team-oriented one, involving
all levels of the team to participate and
work on growing GE as a whole (Barlett & Wozney, 2002). His strategic
decisions and changes made within the organization
had lasting effects on their success.
3. How does such a large, complex
diversified conglomerate defy the critics and continue to grow so profitably?
Have Welch’s various initiatives added value? If so, how?
When Welch stepped in as CEO, there
were still many changes needed to secure
their standing in the market. With the challenges of the recession, high-interest rates, and a strong dollar, Welch saw that GE needed to be re-evaluated from a strategic point of view to face their growing competition strong. Welch
firmly believed in the value of human
resources and their impact on the success of the organization. This was proven
with the increases in revenue GE experienced after their employee and
leadership development strategies. He also looked at unstable international
economies as opportunities to acquire businesses that could be developed and later provide profits for GE.
Critics were skeptical that GE was
making the right decisions in their global acquisitions. However, Welch’s
strategies included improving the production processes and developing employees
to adopt a culture of engagement and desire for overall accomplishment. The Six
Sigma Quality Initiative was the program used to accomplish these goals
(Barlett & Wozney, 2002). The “Fix, Sell, or Close” initiative was another
strategy aimed at improving existing
businesses or eliminating them; if the business
did not contribute to GE’s success and add value, it was not needed. With the remaining companies
at the end of the initiative, Welch would place full efforts on making them the
best in their market. Remaining businesses
were then subject to the lay-offs of thousands of workers, creating a more lean
and profitable business with top contributing employees. These employees were
further developed with Work-Out sessions and the Best Practice movement to
empower employees at all levels to have a voice and work towards a more
productive work environment. Critics were uncertain of how these methods would
work since it was not typical for employees to be so involved in business
processes. On the contrary, Welch proved that these unconventional methods would benefit GE, with a more positive company culture, expanding
business ventures, and an increase in the company’s value.
4. What is your
evaluation of Welch’s approach to leading change? How important was he to GE’s
success? What are the implications for his replacement?
When Welch took over GE as CEO, he
had a goal to lead the industry by making strategic changes in production and
human capital. His team consisted of employees, managers, and executives who
were on board with major transformations
in the way GE conducted business. The programs and sessions he launched all
contributed to positive results such as increases in revenues and profits
(Barlett & Wozney, 2002). His approach to leading was to be directly
involved in all areas of business, guaranteeing that his vision was being consistantly followed through. The person that will replace Welch, as
CEO, will have big shoes to fill. They will need
to provide the culture of open communication and the growth and development of
human resources. As Welch has done in the past, it would be recommended
to use proven methods and programs that will continue to engage employees and
add value to the work they do every day.
C. A., & Wozney, M. (2002, January 4). GE’s Two
Decade Transformation: Jack Welch’s Leadership. Harvard Business School .