generate electric

74

CREATIVITY AND INNOVATION MANAGEMENT

Case Study: Jack Welch’s Creative
Revolutionary Transformation of
General Electric and the Thermidorean
Reaction (1981–2004)
Pier A. Abetti
This case study draws a parallel between the French Revolution and the GE ‘revolution’, according to three waves of transformation. We discuss the ‘hard’ effects on GE employees
(strategy, structure, employment, rewards) and the ‘soft’ effects (culture, work climate, indoctrination). In parallel with the French Revolution, the retirement of CEO Jack Welch was followed by a ‘Thermidorean reaction’ characterized by the relaxation of Welch’s professional and ethical standards, lassitude and indecision in the GE organization, and the fall of GE stock price by 45 percent. Welch’s role as revolutionary leader and driving force is highlighted.

Introduction
GE and Jack Welch’s Legacy

Thermidorean reaction after Welch’s retirement. (The French Thermidorean reaction refers to the period after the Reign of Terror, in 1794, when the tyrant Robespierre was removed from power and an economically and culturally liberal government came to power.) This reaction, in turn, was due to Welch’s less creative, more opportunistic and more intolerant leadership during his last years of tenure and the ensuing lassitude and indecision among employees (Abetti, 2001). The question thus becomes: was the sharp decline of GE’s stock value due to the collapse of the Internet bubble or to the Thermidorean reaction which, in turn, had its root cause in Welch’s last years as CEO?

alued at $380 billion, General Electric
(GE) is the world’s most valuable and admired company. This status is still attributed to the 20-year leadership of CEO Jack
Welch (1981–2000). During that period, GE’s market value increased 3213 percent at a compounded annual growth rate (CAGR) of
20.4 percent, while the Standard and Poor 500
(S&P) Index increased 915 percent (CAGR =
13.1 percent). Two years

References: Abetti, P.A. (2001) General Electric after Jack Welch: Succession and Success? International Aguilar, F.J., Hamermesh, R. and Brainard, C. (1981) General Electric: Strategic Position 1981, Harvard Aguilar, F.J., Hamermesh, R. and Brainard, C. (1985) General Electric 1984, Harvard Business School, Aguilar, F.J., Hamermesh, R. and Brainard, C. (1991) General Electric: Reg Jones and Jack Welch, Harvard Allio, R.J. (2003) The Seven Faces of Leadership, Tatu McGraw Hill, New Delhi. (2004) Transnational Management, 4th ed., Irwin, Boston. Bartlett, C.A. and Glinka, M. (2002) GE’s Digital Revolution: Redefining the E in GE, Harvard Business School, case 9-302-001. Bartlett, C.A. and McLean, A.N. (2004) GE’s Talent Machine: The Making of a CEO, Harvard Business Bartlett, C.A. and Wozny, M. (2000) GE’s Two – Decade Transformation: Jack Welch’s Leadership, Beam, A. (2004) Books About Schnooks, Atlantic Monthly, November, 112–116. Brinton, C. (1957) The Anatomy of Revolution, Vintage Books, New York. Bullock, A. (1952) Hitler – a Study in Tyranny, Odhams, London. Byron, C. (2004) Testosterone, Inc: Tales of CEOs Gone Wild, Wiley, New York. Collingwood, H. and Coutu, D.C. (2002) Jack on Jack, Harvard Business Review, 80, February, 88–94. Collins, T.C. and Porras, J.I. (1997) Built to Last, Harper Business, New York. DeFelice, R. (1981) Mussolini, vols 1–5, Einaudi, Turin Deutscher, I. (1954) Trotsky, vols 1–3, Oxford University Press, New York. Economist (2002) Business: The Jack and Jeff Show Loses its Luster: General Electric 363(8271) May 4, 63–65. Elderkin, K.W. and Bartlett, C.A. (1993) General Electric: Jack Welch’s Second Wave, Harvard Business School, Case 391-248. GE Annual Report (2000) General Electric Company, Fairfield, Connecticut. Gillermaz, J. (1972) Histoire du Parti Communiste Chinois, vols 1–2, Payot, Paris (in French). Guzman, M.L. (1951) La Sombra del Caudillo (The Shadow of the Chief), Compañia General de Ediciones, Mexico, D.F., Mexico (in Spanish). Heller, R. (2001) Jack Welch, Dorling Kindersley, New York. Heskett, J.L. (1999) GE. . . . We Bring Good Things to Life (A and B), Harvard Business School, cases 9899-162 and 9-899-163. Hohenberg, P. (2005) Personal Communications from Paul Hohenberg, former Chair, Department Jack Welch: General Electric’s Revolutionary (1994) Harvard Business School, case 394-065. Johnson, W.W. (1968) Heroic Mexico, Doubleday, Garden City, New York. Jefferson, T. (1853–54) The Writings of Thomas Jefferson, 9 vols, Washington, D.C. Khanna, T. and Weber, J. (2002) General Electric Medical Systems, 2002, Harvard Business School, case 9-702-428. Langer, W.L. (1968) An Encyclopedia of World History, 4th ed Lawler, E.E. III (2002) The Folly of Forced Rankings, Strategy and Business, 28, Third Quarter. Lowe, J.C. (1998) Jack Welch Speaks, Wiley, New York. Lowe, J. (2001) Welch, An American Icon, Wiley, New York. Machiavelli, N. (1515) Il Principe (The Prince), MS, Florence. Malaparte, C. (1931) Technique du Coup d’ Etat (Technique of the Coup d’Etat) Grasset, Paris (in French). Malwight, T.W. and Aguilar, F.J. (1990) GE-Preparing for the 1990s, Harvard Business School, case 9390-091. Markides, C. (1998) Strategic Innovation in Established Companies, Sloan Management Review, Spring, 31–42. Moore, P.L. (2000) The Man Who Would Be Welch, Business Week, December 11, 56–59. (2000) On eve of retirement, Jack Welch decided to stick around GE a bit, Wall Street Journal, 23