Control Mechanisms at General Electric
In an effort to achieve organizational goals, a large part of General Electric’s overall strategy involves rigorous management oversight and dedication to controllership. Controls are processes that “direct the achievement of individuals toward the achievement of organizational goals” (Bateman & Snell, 2007). Four control mechanisms used by GE are Six Sigma, performance measurement, internal and external audits and financial controls and the following will discuss their effectiveness, positive and negative reactions to use of these controls and how the controls impact the four functions of management. Six Sigma Control
The Six Sigma methodology of quality control was developed at Motorola in the 1980’s. GE has become one of the most successful companies at installing the Six Sigma ethos into the company’s psyche. All GE employees are trained in the philosophy and language of Six Sigma (GE, 2007). According to the GE’s website “Six Sigma is a highly disciplined process that helps us focus on developing and delivering near-perfect products and services” (GE, 2007). By using the Six Sigma approach, GE can accurately measure what the company’s processes can deliver. Knowing the limits of a process is important to understanding how the process can be improved. Many methods of control can be used to find process limitations. Six Sigma programs are different in that they accurately measure a process and measure improvements. This is the key reason for the success of the program. In striving for the ideal of Six Sigma control of a process, the result is the reduction in variability of the output of the process. The only way to reduce output variability of a process is to increase control over it. The next step after achieving control of a process is to increase the capabilities of the process. The same methodologies are applied to identify limitations of a process and find ways of eliminating them. GE has saved billions of dollars by using Six Sigma controls. Within five years of implementing the program, GE had annual productivity gains of 266% and improved operating margins from14.4% to 18.4% (Lucier & Seshadri, 2001). Performance Measurement
Performance measurement simply put is any way for management to gauge the productivity of a business. Some examples of the activities gauged would be pounds produced, removal efficiency, profit, and cycle times. The list of these gauges is endless and depends upon the type of business being managed and the type of data a manager is looking for.
GE has taken a revolutionary step in gauging performance by using a very basic gauge based on customer satisfaction. According to Richard Wargo, vice president of marketing and strategic initiatives for a unit of GE Capital Solutions, “A key challenge for management is to monitor customer relationships as rigorously as profits are scrutinized. Those relationships build the future” (Teresko, 2006). Within this and other business units GE emphasizes one question, “Would you recommend us to a friend?” According to Wargo, “The process gives us a market-focused view of our performance relative to the competitive alternatives the customer could choose. Customer-identified problems become easy targets for corrective action. The results are greater potential for growth and future success” (Teresko, 2006).
Based on customer feedback, GE ranks the responses from zero to 10, with 10 being the best. Once this data is collected management can then learn the reasons for high scores and how to retain these people as customers, and the reasons for the low scores and what action(s) need to be taken to make these people happy. Since utilizing this approach in the first quarter of 2006, GE revenue was up 10% from the previous year.
As can be seen from the increased profitability the positives of this gauge are obvious. However, there are a couple of potential...
References: Bateman, T. S., & Snell, S. A. (2007). Management: The New Competitive Landscape (7th ed.). New York, NY: McGraw-Hill/Irwin.
GE (2007), GE imagination at work website, http://www.ge.com/en/company/companyinfo/quality/qualityforcustomer.htm
KPMG LLP. (2007, February). “Report of Independent Registered Public Accounting Firm. To Shareowners and Board of Directors of General Electric Company. P1. Retrieved March 7, 2007, from http://www.ge.com/en/citizenship/govcomp/board/index.htm.
Lucier, G.T. & Seshadri, S. (2001, May). GE takes six sigma beyond the bottom line. Strategic Finance, 82(11), 40, 7pgs. http://proquest.umi.com/pqdweb?did=71775356&sid=1&Fmt=3&clientId=2606&RQT=309&VName=PQD retrieved from ProQuest database, March 6, 2007.
McGregor, Jena (2006). Business Week: Would You Recommend Us?
Teresko, John (2006). Industry Week: Performance Measurement: GE Asks The Ultimate Question
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