GE’S TWO DECADE TRANSFORMATION: JACK WELCH’S LEADERSHIP
How difficult a challenge did Welch face in 1981? How effectively did he take charge?
When Reg Jones retired and Jack Welch became GE’s CEO in 1981, the country was facing a major recession, with high inflation and unemployment rates, reminiscent of those 50 years earlier during the Great Depression. Thousands of businesses were failing, not only affected by the national economic conditions but also due to increased competition from other countries such as Japan. At the time, GE was highly structured, with numerous management layers and several macro businesses. The company followed very orthodox practices, with 43 different strategic plans across numerous sectors. That all changed under Welch’s leadership, who implemented a major overhaul and created a unified strategy and vision for the entire organization.
Welch’s revitalization initiatives encompassed significant strategic, structural and human resource management transformations that translated into sustainable growth and established the company as one of the most valuable companies globally. His strategy proved to be extremely effective, with GE’s market capitalization increasing from 12 billion in 1981 to approximately 200 billion in 2001 when he ended his 20-year tenure. Revenues went from 27 billion in 1981 to 130 billion. 2.
What is Welch’s objective in the series of initiatives 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? After taking over in 1980, Welch decided to launch a “revolution” (his actual words) and dedicated the first years to reinvent the company. During the first part of the decade, he sold more than 200 of GE’s businesses and acquired 70 new ones, transforming the company from an aging industrial manufacturer to a diverse global powerful institution. His objective was to increase the level of GE’s competitiveness, making sure that those business areas that intended to compete in global markets had to be or become number-one or number-two in their corresponding market places. Welch’s rationale was to focus on leveraging, growing and investing on those businesses who were competitive and profitable, releasing the rest. Some claim that Welch had no mercy in this initial portfolio management” stage, closing down businesses that were unprofitable and had little potential of turnaround. However, he believed that this emphasis on effectively managing the company’s portfolio would make better use of the company’s capital for appropriate investments. During the mid-1980s, GE went global by making significant pushes into Europe and Japan. In the late 1980s, he turned hierarchy upside down, pioneering a program known as Work Out where employees would tell their bosses their suggestions to make the company better. This challenged employees and management to discover creative ways to streamline the organization, simplifying work and removing unnecessary processes. Ultimately, in 1995, Welch initiated GE’s Six Sigma initiative to eliminate the common cause variation found in business and work processes. Still a part of GE’s strategy 20 years later, Six Sigma is a “highly disciplined process that helps focus on developing and delivering near-perfect products and services”. In other words, the idea behind it is to measure how many "defects" there are in a process in order to figure out how to eliminate them. Welch believed that growth should be measured in terms of bottom-line performance and value generated for shareholders. His rationale behind these strategies was to deliver both short-term profits and long-term organizational strength. Under his holistic leadership, he built a well-oil machine to deliver sustained competitive performance. 3.
How does such a large, complex...
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