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Corporate Strategy Analysis: General Electric Co. (1981–present)

Stanislav Bucifal Australian National University July 2009

Corporate Strategy Analysis: General Electric Co. (1981–present)

Stanislav Bucifal

Introduction
The General Electric Company (GE) is widely regarded as one of the world’s most successful corporations of the 20th century. This paper aims to critically analyse the corporate strategy of GE during the period from 1981 to present under the leadership of two very different but equally influential CEOs—Jack Welch and Jeff Immelt. The essay is organised in four sections. The first section describes GE’s corporate strategy from 1981 to 2001 with Jack Welch as CEO, followed immediately by a critical analysis of Welch’s strategic approach in the second section. The third section then describes GE’s corporate strategy from 2001 to present with Jeff Immelt as CEO, followed again by a critical analysis of Immelt’s strategic approach in section four.

1. The Jack Welch period (1981–2001)
When Jack Welch took up his post as GE’s CEO in 1981 he embarked on a radical transformation of GE’s strategy, ushering in a new era of performance management and internal efficiency. Welch’s profit guidance aimed for earnings growth of 1.5 times to double of the GDP growth rate and his management philosophy found its articulation in GE’s slogan—Speed, Simplicity, Self-Confidence (GE 1995). These values would reflect not only in the organisation’s systems and processes but also in GE’s products and services through their simple and highly functional designs. Welch’s corporate strategy was all about performance and efficiency. Throughout his 20 years as CEO, he relentlessly drove his subordinates to the limits of their abilities, encouraging employees at all levels to embrace ambitious targets and continuously improve their performance. Welch was renowned for his use of constructive conflict as a means of eliciting commitments from line managers and making difficult decisions. As part of his efforts, Welch led a sustained attack on bureaucratic processes and in its place he sought to instil a culture of openness, confidence, leadership and creative thinking at every level of the organisation. Through his organisational restructure Welch ruthlessly eliminated several layers of management and shed a large number of jobs, which earned him the nickname ‘Neutron Jack’ referring to the deadly neutron bomb which kills people but leaves buildings standing (Economist.com 2009). The biggest staff cuts were made in administrative functions and business decision making was delegated to line operation managers. Welch implemented a major restructure of the GE business portfolio, focusing on a limited number of sectors with promising performance and growth potential, whilst retaining a fairly diversified portfolio of businesses. This was achieved through the sale of GE’s less profitable businesses and retention or acquisition of businesses identified as number one or number two in their industry (Grant 2008, p.304). The strategy led to several huge divestments and the shifting of emphasis towards GE’s technology-based businesses and service businesses (Bock 2001). A series of acquisitions that followed led to the phenomenal growth of GE Capital, which became one of the world’s leading diversified financial services companies (Grant 2008, p.304). Figure 1 shows GE’s organisational structure and business portfolio in 2001.

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Corporate Strategy Analysis: General Electric Co. (1981–present)

Stanislav Bucifal

Figure 1: GE’s organisational structure and business portfolio in 2001

Source: Adapted from Grant (2008)

The annual budget was a central component of GE’s existing strategic planning system. Welch moved strategic planning and other administrative functions into the business units (Bock 2001). The budget locked line managers into explicit performance and cost targets, regardless of changes in market conditions...
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