Jack Welch: Profile in Business Leadership

Jack Welch: Profile In Business Leadership

Background

General Electric is an icon of American business, created in 1892 as a successor to Edison Electric Light Company, founded by Thomas Edison in 1878. The company has been prominent from the beginning, producing a stream of breakthrough inventions and products, and has the distinction of being the only company on the Dow Jones Industrial Index that was listed on the original index.1 Over the years, G.E. grew and prospered, gaining fame and fortune by inventing and manufacturing a seemingly endless list of products, including the electric light (1879), the electric meter (1882), the electric motor (1887), the steam turbine (1901), the X-ray machine (1913), the diesel-electric locomotive (1924) and the refrigerator (1925).2 Along with the growth came the challenge of managing what became an extremely diverse conglomeration of product lines, from electrical generators and transformers, to wire and cable, lighting, appliances, aircraft engines, plastics, nuclear power and computers. Experimenting with various organizational structures and modes of corporate management, successive C.E.O.s attempted to gain control over the sprawling corporation at different times through centralization and decentralization, divisionalization and strategic business units, eventually finding each, in turn, unsatisfactory.3 Given G.E.‟s prominence, these experiments were watched closely and imitated widely by other companies.

As the corporation matured, its performance settled into a steady, but unspectacular, profitability. Like many large corporations of the era, G.E.‟s profits consistently grew at about the same rate as the Gross National Product.4 Slow and cumbersome, highly bureaucratic and hierarchical, General Electric was not unusual among American corporations, especially during the three decades following World War II. In fact, G.E. was highly admired for its business structure, and it set the pace for strategic planning as a primary corporate activity.

 This case study was prepared by John McKissick, Management Development Programs and Services, Penn State University, as a basis for class discussion rather than to illustrate either effective or ineffective management. Revised September, 2004. 1 General Electric Overview, www.ge.com, August, 1999. 2 Thomas F. O‟Boyle, At Any Cost: Jack Welch, General Electric and the Pursuit of Profit, (New York: Alfred A. Knopf, 1998), p. 25. 3 “Jack Welch: General Electric‟s Revolutionary” (Harvard Business School Case No. 9-394-065) by Professor Joseph L. Bower and Research Associate Jay Dial, 1994, President and Fellows of Harvard College. ______© Penn State Management Development Programs and Services

Fr om 1972 until late 1980, G.E. was headed by Reg Jones, an “accomplished bureaucrat and skilled practitioner of scientific management,”5 who had struggled to bring the 10 groups, 46 divisions and 190 departments, 43 strategic business units in all, that comprised G.E. in 1972 into some kind of coherent order. Jones found that this structure produced more plans than the corporate executive office could assimilate, and introduced a six-sector organization in which each sector encompassed a macrobusiness or industry. Fortune magazine called Jones a “Management Legend” for his efforts.6 On paper, G.E. was a healthy corporation as Jones prepared to pass responsibility to a new C.E.O. G.E. was one of the most admired companies in the U.S., enjoyed a triple-A debt rating, had $2.2 billion in cash and securities, and had never had an unprofitable year in its history. Jones, however, was not satisfied that the corporation was ready to face the challenges that were ahead. In 1980, he commented,

“U.S. business finds itself challenged by aggressive overseas competitors. National productivity has been declining and, in industry after industry, product leadership is moving to other nations. Companies that refuse to renew themselves, that fail to cast off the old and embrace new technologies, could well find themselves in serious decline in the 1980s. We are determined that this shall not happen to General Electric.”7

While Jones focused on the need to seize new technologies, G.E. had other problems, as well. Along with the apparent success came the burden of bureaucracy and the disproportionate investment of managers‟ time in internal corporate issues. By 1980, there were nine layers of hierarchy and 28 employee classification levels. Inevitably, managers spent their energy satisfying internally-generated demands. As one manager colorfully put it, the company operated “with its face to the CEO and its ass to the customer.”8 It is to Jones‟ credit that he wanted a changemaker to succeed him.

4 Noel M. Tichy and Stratford Sherman, Control Your Destiny or Someone Else Will, (New York: HarperBusiness, 1994), p. 16. 5 O‟Boyle, op. cit., p. 46. 6 Bower and Dial, op. cit., p. 2. 7 O‟Boyle, op. cit., pp. 49-50. 8 Tichy and Sherman, op. cit., p. 7. ______© Penn State Management Development Programs and Services

Jack Welch Enters the Scene

Jack Welch was born in 1935, the only child of working-class parents. Welch freely acknowledges the strong formative influence of his upbringing, and especially the role played by his mother, who encouraged him to do his best, and face facts unflinchingly.9 Welch graduated from the University of Massachusetts in 1957 with a degree in chemical engineering; he went on to receive his Ph.D. in chemical engineering from the University of Illinois in 1960. He joined the fledgling plastics division of G.E. in 1960 and was quickly introduced to the bureaucratic ways of the corporation. Plastics was both a corporate backwater and an entrepreneurial opportunity. While Welch chafed under the lockstep treatment of employees (particularly in compensation) and planned to leave in 1961, he found both a sympathetic mentor and a chance to grow a business that fell outside the essential interest of headquarters. This fit Welch‟s competitive temperament well, and he was able to experience the excitement of developing and marketing new products in a relatively open, informal environment staffed by unconventional (by G.E. standards) people. Enthusiastically promoting the use of products where no market existed before, such as the auto industry, Welch had come into his own, and advanced, at the age of 32, to general manager.10 An interesting appraisal of Welch comes from a report written by a Human Resources manager in 1971, when Welch was under consideration for promotion to Vice President of the chemical and metallurgical division. According to this assessment, the promotion

“carries with it more than the usual degree of risk. Despite his many strengths, [Welch] has a number of significant limitations. On the plus side, he has a driving motivation to grow a business, natural entrepreneurial instincts, creativeness and aggressiveness, is a natural leader and organizer, and has a high degree of technical competence. On the other hand, he is somewhat arrogant, reacts (or overreacts) emotionally - particularly to criticism – gets too personally involved in the details of his business, tends to over rely on his quick mind and intuition rather than on the solid homework and staff assistance in getting into and out of complex situations, and has some of an „anti-establishment‟ attitude toward [the corporation‟s] activities outside his own sphere.”11

During the following years, Welch helped to build the division into a $400 million business, and was moved on to Fairfield, corporate headquarters, in 1977, as head of Consumer Products and Services.12

9 Ibid., pp. 56-57, and Bower and Dial, op. cit., p. 3. 10 Tichy and Sherman, pp. 59-63. 11 Michael Maccoby, The Productive Narcissist: The Promise and Peril of Visionary Leadership, (New York: Broadway Books, 2003), p. 147. 12 Bower and Dial, op. cit., p. 4. ______© Penn State Management Development Programs and Services

Life at headquarters was dramatically different from the open, entrepreneurial atmosphere at Plastics, and Welch found that it would take new tactics to get things done. Colleagues recall that Welch became extremely adept at managing the intricacies of bureaucracy to gain his own ends. According to Don Kane, of the Executive Management Staff, “He was the worst offender. He knew the game we were playing in Fairfield, and no one played the game better than Jack Welch.”13 Welch specialized in making slick presentations with charts, graphs and tastefully bound reports, since this paved the way for acceptance of his requests which, in turn, led to strong performance results. Welch was clearly different from most G.E. executives who had become used to using the G.N.P. as their standard for performance. Welch‟s experience with Plastics had formed his thinking about how business should run. As he tells it:

“I came from businesses with great strength. Everybody should work in a fast-growing business like Plastics or Financial Services, because if they did, their standards would be higher. If a guy‟s spent all his life in a business that‟s growing 3% a year, and he gets to 3.5%, he thinks he‟s got a hell of a business. A lot of managers don‟t know what a good business looks like.”14

In 1979, Welch‟s efforts were rewarded with promotion to Vice Chairman. As such, he was one of three recognized contenders to succeed Reg Jones when he retired at the end of 1980. Among the three, Welch was considered the outsider, the other two having spent their careers in more traditional G.E. operations. In addition, Welch was much younger and had a reputation for shaking things up. Nonetheless, the board of directors unanimously elected him C.E.O. in December, 1980.

Welch as C.E.O.: The Revolution Begins

As Welch was taking up his new responsibilities, one of his first issues was the highly complex and time-consuming strategic planning process, for which G.E. was renowned. It seems that his thinking was affected by a commentary on the concept of “total war” as set forth by a pair of 19th-century Prussian military thinkers, von Clausewitz and von Moltke, in which it was proposed that strategy should not be a detailed action plan but “the evolution of a central idea through continually changing circumstances” since humans are unable to foresee all possibilities. Therefore, strategy should not be reduced to a formula. “Detailed planning necessarily failed.”15 One result was the decimation of the central corporate strategic planning staff from over two hundred to a dozen. Welch wanted to change strategic planning from an elaborate corporate ritual to a simplified, streamlined review of key issues for each business. His intent was to get “general

13 Tichy and Sherman, op. cit., p. 65. 14 Ibid., p. 64. 15 O‟Boyle, op. cit., p. 67. ______© Penn State Management Development Programs and Services

4 managers talking to general managers about strategy, rather than planners talking to planners.”16 This meant that businesses had to have a strategy review only as often as conditions warranted. If the environment was stable, the same strategy could remain in place for years; if it was dynamic, however, the strategy would have to be revised accordingly. This new approach to strategy was evident in a speech that Welch delivered to Wall Street security analysts in December, 1981:

“If I could, this would be the appropriate moment for me to withdraw from my pocket a sealed envelope containing the grand strategy for the General Electric Company over the next decade. But I can‟t, and I am not going to attempt, for the sake of intellectual neatness, to tie a bow around the many diverse initiatives of General Electric. It just doesn‟t make sense for neatness‟ sake to shoehorn these plans into an all-inclusive central strategy…What will enhance the many decentralized plans and initiatives of this company isn‟t a central strategy, but a central idea – a simple core concept that will guide General Electric in the eighties and govern our diverse plans and strategies. [Becoming Number One or Number Two in every market served is our objective.] Where we are not Number One or Number Two, we have got to ask ourselves that very tough Peter Drucker question: „If you weren‟t already in the business, would you enter it today?‟ And if the answer is no, face that difficult question: „What are you going to do about it?‟ The managements and companies in the eighties that don‟t do this, that hang on to losers for whatever reason – tradition, sentiment, their own management weakness – won‟t be around in 1990.”17

For many within G.E., this focus on being Number One or Number Two was unnecessary since many lines of business could be profitable without being in a leading position in their markets. Yet Welch was convinced that the economic climate of the 1980s would be so harsh that only the strongest would survive: “In 1981, when we first defined our business strategy, the real focus was Japan. The entire organization had to understand that GE was in a tougher, more competitive world, with Japan as the cutting edge of the new competition.”18 In order to face this challenge, Welch wanted to force G.E. managers to move beyond business as usual and realistically evaluate their situations to assess what it would take to lead their markets. Welch told them, “If the economics, the environment, or our abilities determine that we can‟t get there, we must take the same spirited action to disengage ourselves from that which we can‟t make better than the best.”19 This came to be known as “fix, sell or close,” the options open to those who failed to make the grade. As Welch remarked,

16 Bower and Dial, op. cit., p. 5. 17 O‟Boyle, op. cit., pp. 68-69. 18 Noel Tichy and Ram Charan, “Speed, Simplicity, Self-Confidence: An Interview with Jack Welch,” Harvard Business Review, September-October, 1989, p. 114. 19 Bower and Dial, op. cit., pp. 4-5. ______© Penn State Management Development Programs and Services

“To the hundreds of businesses and product lines that made up the company we applied a single criterion: can they be number 1 or number 2 at whatever they do in the world marketplace? Of the 348 businesses or product lines that could not, we closed some and divested others. Their sale brought in almost $10 billion. We invested $18 billion in the ones that remained and further strengthened them with $17 billion worth of acquisitions.”20

At the same time, Welch tried to give form to the overall corporate strategy by describing three groups of businesses within G.E. that seemed to have the most potential for the future. This three circle concept placed fifteen businesses within three groupings, or circles, which constituted the vital interests of the company. In 1980, they had produced 90% of the earnings. They were as follows:

Core: Lighting, construction equipment, appliances, motor, transportation, and turbines. Technology: Aerospace, aircraft engines, industrial electronics, plastics and engineered materials, and medical systems. Services: Construction and engineering, financial services, information services, and nuclear services.21

For each of the three “circles” a different strategy for market dominance applied. For core businesses, the focus was reinvestment in quality and productivity. Technology businesses were to stay on the cutting edge through R & D and acquisitions. Service businesses should grow by “adding outstanding people who create new ventures and by making contiguous acquisitions.”22 According to Welch, besides giving greater coherence to the corporation,

“I wanted to drive us into technologies and services, away from mundane manufacturing, if you will. So I developed a circle on services, technology, and manufacturing. And then I said – which was very controversial at the time – that we had to either fix, sell or close…I find the three circles…to be an easy way to explain our complex company, both internally and externally. They‟re helpful in developing appropriate resource allocations, and they certainly help maintain a long-term focus. The 15 businesses represent the 15 best chances for GE to have true world-leading businesses in 1990.”23

20 Janet Lowe, Jack Welch Speaks, (New York: John Wiley & Sons, 1998), p. 110. 21 Tichy and Sherman, op. cit., p. 107. 22 Bower and Dial, op. cit., p. 5. 23 Lowe, op. cit., pp. 113-115. ______© Penn State Management Development Programs and Services

As Welch put on the pressure for performance, managers sought ways to improve their businesses, frequently resorting to layoffs to reduce costs. At the same time, Welch was following through on his threat to fix, sell or close. Divestitures, closings and layoffs reduced the workforce from 402,000 in 1980 to 330,000 in 1984.24 It was during this time that he acquired the nickname “Neutron Jack,” since, like the neutron bomb, he left buildings standing but wiped out the people. Welch deeply resented the nickname, and felt that he was being unfairly portrayed. For him, these changes were required for G.E. to compete effectively in a difficult marketplace.

In 1989, Welch explained what he was trying to do:

“So being number one or number two globally is more important than ever. But scale alone is not enough. You have to combine financial strength, market position, and technology leadership with an organizational focus on speed, agility, and simplicity. The world moves so much faster today… First, we took out management layers. Layers hide weaknesses. Layers mask mediocrity. I firmly believe that an overburdened, overstretched executive is the best executive because he or she doesn‟t have the time to meddle, to deal in trivia, to bother people. Remember the theory that a manager should have no more than 6 or 7 direct reports? I say the right number is closer to 10 or 15. This way you have no choice but to let people flex their muscles, let them grow and mature. With 10 or 15 direct reports, a leader can focus only on the big important issues, not on minutiae. We also reduced the corporate staff…In the past, many staff functions were driven by control rather than adding value. Staffs with that focus have to be eliminated. They sap emotional energy in the organization. As for middle managers, they can be the stronghold of the organization. But their jobs have to be redefined. They have to see their roles as a combination of teacher, cheerleader, and liberator, not controller.”25

Welch clearly intended that the structural changes in the organization would force managers to simplify their practices in order to meet performance expectations. It is as though he wanted to make bureaucracy not just a burden, but also an unaffordable luxury. This would inevitably make G.E. faster and more responsive, key competitiveness factors. In order to win over doubters, Welch argued that the complexity of bureaucracy was unnecessary:

“People always overestimate how complex business is. This isn‟t rocket science; we‟ve chosen one of the world‟s more simple professions. Most

24 Bower and Dial, op. cit., p. 5. 25 Tichy and Charan, op. cit., pp. 114-115. ______© Penn State Management Development Programs and Services

global businesses have three or four critical competitors, and you know who they are. And there aren‟t that many things you can do with a business. It‟s not as if you‟re choosing among 2,000 options.”26

Welch had no interest in the sheer volume of data that can be produced in business. He preferred to look for the small number of significant indicators:

“Too often we measure everything and understand nothing. The three most important things you need to measure in a business are customer satisfaction, employee satisfaction, and cash flow. If you‟re growing customer satisfaction, your global market share is sure to grow, too. Employee satisfaction feeds you productivity, quality, pride, and creativity. And cash flow is the pulse – the key vital sign of a company.”27

A necessary corollary to the emphasis on speed and simplicity was the need for open communications and sharing of information, especially best practices. One of the primary ways in which corporate headquarters adds value to G.E. is by acting as a clearinghouse for best practices that have been developed in various business units.28

Welch realized that his message was a hard sell to the many employees of G.E. who were still in denial that change was needed. He reiterated his reasoning repeatedly, in all of the media available to him, from internal memoranda, to videotapes, speeches, and interviews. Here is one such quote:

“We had constructed over the years a management apparatus that was right for its times, the toast of the business schools. Divisions, strategic business units, groups, sectors, all were designed to make meticulous, calculated decisions and move them smoothly forward and upward. This system produced highly polished work. It was right for the „70s…a growing handicap in the early „80s…and would have been a ticket to the boneyard in the „90s. So we got rid of it…along with a lot of reports, meetings, and the endless paper that flowed like lava from the upper levels of the company.”29

Welch heaped scorn on the customary, ritualistic way of doing business that consumed valuable time and energy on internally-focused activities. He referred to this as “selling hats to each other…They come in with big thick books, make presentations to each other;

26 Ibid., p. 115 27 Lowe, op. cit., p. 79. 28 “An Interview with Jack Welch,” Harvard Business School videotape, 1994. 29 Lowe, op. cit., pp. 95-96. ______© Penn State Management Development Programs and Services

8 no customers know you‟re making it, the market doesn‟t know you‟ve tied yourself up in a room preparing charts for weeks; so I constantly say, „don‟t sell hats to each other,‟ go out and do business.”30

While Welch was making structural change in G.E., he was also reshaping the corporation by actively acquiring new businesses and divesting old ones. During the 1980s, G.E. would acquire some 370 businesses, investing over $17 billion, while divesting more than 200 businesses, receiving over $9 billion. The businesses sold in this period had made up 25% of G.E.‟s sales in 1980. Notable acquisitions during the period included Employers Reinsurance (1984), RCA and Kidder Peabody (1986), Thomson- CGR (1987), and Tungsram (1989). Noteworthy divestitures included Utah International (1983), Consumer Electronics (1987), G.E. Solid State Semiconductors (1988) and Ladd Petroleum (1990).31

By 1984, Welch was starting to articulate the next step in his revolution, changing the software of the organization. “A company can boost productivity by restructuring, removing bureaucracy and downsizing, but it cannot sustain high productivity without cultural change.”32 First, however, he had a major piece of restructuring to carry out on the sector organization. As constituted, at the bottom of G.E. were departments which produced and marketed specific products. The departments were gathered into divisions, which, in turn, were placed in groups, and the groups in sectors, which reported directly to Welch. In addition, departments were also gathered into forty three strategic business units for planning purposes. Welch considered this wasteful:

“The people running the sectors had no power. Their role was transmitting information, so they acted as filters. They were in-betweeners, with no way of actually knowing anything firsthand. They would waste three days getting ready to come to talk to us. Then we would talk to them for one day. And none of us would know any facts! We would ask a question and we wouldn‟t get the answer. When I‟d ask a question, they had to go check with somebody who knew – someone who was running a business. People think of delayering as a cost reduction, but it‟s really a way of enhancing management. We did a study that showed we saved $40 million by removing the sectors, but that‟s just a fraction of the real value. That doesn‟t account for the improved quality of our leadership, or how fast we can get to market now. Delayering speeds communications. It returns control and accountability to the businesses, which is where it belongs.We got two other great benefits from the sector delayering. First, by taking out the biggest layer of top management, we set a role model for the whole company about becoming lean and agile. Second, we identified the business leaders who didn‟t

30 Ibid., p.80 31 Bower and Dial, op. cit. p. 22. 32 Ibid., p. 5. ______© Penn State Management Development Programs and Services

share the values we were talking about – candor, facing reality, lean-and-agile. We exposed the passive resisters, the ones who were right for another time but didn‟t have the energy to energize others for the global challenges ahead.”33

This change did, in fact, expose more managers to Welch and his confrontational style. For many, accustomed to the more sedate style that had prevailed in G.E. before Welch, this was more exposure than they wanted. Welch‟s approach was characterized as a shouting match that required managers to “argue strenuously with [Welch] even if they agree.” One manager complained, “You can‟t even say hello to Jack without it being confrontational. If you don‟t want to step up to Jack toe-to-toe, belly-to-belly, and argue your point, he doesn‟t have any use for you.”34 Welch described his style as follows:

“I was blunt and candid and, some thought, rude. My language could be coarse and impolitic. I didn‟t like sitting and listening to canned presentations or reading reports…And I never hid my thoughts or feelings. During a business discussion, I could get so emotionally involved that I‟d stammer out what others might consider outrageous things, [such as] „My six-year-old kid could do better than that!‟”35

As it happened, Welch was reshaping the values of management for the further changes that were to come.

Culture Wars

“In the first half of the 1980s, we restructured this company and changed its physical makeup. That was the easy part. In the last several years, our challenge has been to change ourselves, an infinitely more difficult task that frankly, not all of us in leadership positions are capable of.”36

One of the areas of change for senior management was the insistence on simplicity in analyzing their business situations. Instead of massive productions with thick briefing notebooks, executives were to report on their situations with one-page answers to five questions:

1. What are your market dynamics globally today, and where are they going over the next several years?

33 Tichy and Sherman, op. cit., pp. 179-180. 34 Ibid., p. 186. 35 Maccoby, p. 150. 36 Lowe, op. cit., p. 126. ______© Penn State Management Development Programs and Services

2. What actions have your competitors taken in the last three years to upset those global dynamics? 3. What have you done in the last three years to affect those dynamics? 4. What are the most dangerous things your competitor could do in the next three years to upset those dynamics? 5. What are the most effective things you could do to bring your desired impact on those dynamics?37

This simplification of the process greatly streamlined the collection of information and highlighted areas of concern, but it also increased visibility and accountability.

Welch also started to make use of compensation as a leverage point for change. Recalling his own experience with incremental pay increases, he ordered that bonuses be directly linked to performance, to the extent that a bonus could account for a large percentage of salary. By the same token, increases could be withheld altogether. Stock options were also offered to more employees. When Welch became C.E.O., 200 senior executives were eligible for stock options; by 1999, that had increased to 30,000 eligible employees.38

In 1985, an attempt was made to list the dominant values that would guide G.E. This was an important step because it essentially gave organizational members notice of the values and behaviors that would find favor in the future. They were:

1. Only satisfied customers can provide job security.

2. Change is continual, thus nothing is sacred. Change is accepted as the rule rather than the exception.

3. Leaders share knowledge rather than withholding it as an element of power. Everyone benefits when they know what the leader knows – nothing is “secret.”

4. Paradox is a way of life. You must function collectively as one company and individually as many businesses at the same time. For us, leadership means leading while being led, producing more output with less input.

5. We encourage the sharing of these values because we believe they are both fair and effective, but we realize they are not for everyone…Individuals whose values

37 Bower and Dial, op. cit., p. 9. 38 “Web Exclusive: Jack Welch & Herbert Kelleher – Create Great Companies and Keep Them That Way,” Fortune.com, Vol. 139, No. 1, Jan. 11, 1999. ______© Penn State Management Development Programs and Services

do not coincide with these expressed preferences will more likely flourish better outside the General Electric Company.39

These values would find their way into all aspects of organizational life and set the stage for the next major initiative, Work Out. Consistent with Welch‟s desire for G.E. to deal directly with reality, Work Out was developed as a forum in which employees from all ranks would gather in groups of 40 to 100 in an informal “town meeting” to discuss problems and/or opportunities and then form action plans. As Welch put it,

“At these Work Out sessions, all the things that people used to mutter about around the water cooler on the weekends were finally brought up openly, and in many cases, resolved on the spot. These meetings are predicated on a belief that the people closest to the work know it best and are best qualified to make it better.”40

Work Out sessions have five steps: 1. Link weak performance to unproductive practices; 2. Engage coworkers in a Work Out process; 3. Review inefficient procedures and practices; 4. Functional groups reach consensus on suggested changes; 5. Present recommendations to boss and get the boss to either agree, reject or assign responsibility for further study.41

These sessions produced a great deal of tension, especially for the managers who were on the hot seat to give timely responses.42 The idea that hourly workers could come up with ideas and then expect their managers to be accountable for taking action represented a fundamental change in the way that G.E. managers were used to behaving. Welch realized that this was not going to be a comfortable change:

“Now, the business leaders aren‟t particularly thrilled that we‟re so passionate about Work Out. In 1989, the CEO is going to every business in this company to sit in on a Work-Out session. That‟s a little puzzling to them. „I own the business, what are you doing here?‟ they say. Well, I‟m not there to tell them how to price products, what type of equipment they need, whom to hire; I have no comments on that. But Work-Out is the next generation of what we‟re trying to do. We had to put in a process to focus on and change how work gets done in this company. We have to apply the same relentless passion to Work-Out that we did in selling

39 Tichy and Sherman, op. cit., pp. 172-173. 40 Lowe. op. cit., p. 131. 41 Ibid., p. 132. 42 Bower and Dial, op. cit., pp. 11-12. ______© Penn State Management Development Programs and Services

the vision of number one and number two globally. That‟s why we‟re pushing it so hard, getting so involved…Ultimately, we‟re talking about redefining the relationship between boss and subordinate.”43

The early sessions of Work Out typically featured a great deal of complaining about working conditions and problem-solving dealt with “low-hanging fruit,” which could be dealt with relatively easily. The real purpose was to build trust by workers that management could and would take action to improve things, and by management that workers could and would act responsibly. With the passage of time, these sessions became more and more self-directed, tackling increasingly complex problems.44

While Work Out was being planned in 1988, Welch directed the business development staff at headquarters to embark upon systematic process benchmarking for productivity improvement. Best Practices, as it became known, did extensive benchmarking studies of other companies to try to discover the secrets of their productivity success. At the same time, internal benchmarking uncovered process exemplars within G.E. Once identified, Best Practices information is then shared with process stakeholders throughout the corporation. One of the side effects has been to undercut the cultural norm of “Not Invented Here” that produced tunnel vision among managers.45

While both Work Out and Best Practices were considered successful innovations with quantifiable benefits,46 there was still resistance within the ranks of middle management, in particular. The culture change would require years of effort until it could be considered complete. As Welch admitted, “We‟re trying to make a massive cultural break. This is at least a five-year process, probably closer to ten.”47

A third initiative in this general area of culture change was “boundarylessness,” introduced in 1991. The concept is described as the effort to break down and eliminate barriers that come between people and their ability to do their jobs. Such barriers can be the boundaries that exist and impede the flow of information both within the corporation and between G.E. and external stakeholders. On the subject, Welch noted,

“Our dream for the 1990s is a boundaryless company, a company where we knock down the walls that separate us from each other on the inside and from our key constituencies on the outside. The boundaryless company we envision will remove the barriers among engineering, manufacturing, marketing, sales, and customer service; it will recognize no distinction between domestic and foreign operations – we‟ll be as comfortable doing business in Budapest and

43 Tichy and Charan, pp. 117-118. 44 Videotape, op. cit. 45 Tichy and Sherman, op. cit., pp. 248-251. 46 Bower and Dial, op. cit., pp. 13-15. 47 Tichy and Charan, op. cit., p. 120. ______© Penn State Management Development Programs and Services

Seoul as we are in Louisville and Schenectady. A boundaryless organization will ignore or erase group labels such as „management,‟ „salaried,‟ or „hourly,‟ which get in the way of people working together.

A boundaryless company will level its external walls as well, reaching out to key suppliers to make them part of a single process in which they and we join hands and intellects in a common purpose – satisfying customers.”48

This emphasis on boundarylessness, which would be reiterated along with the other cultural themes at every available opportunity in Welch‟s organizational communications, was linked with “integrated diversity,” or the attempt to transfer best practices systematically across the entire company. In annual reports and speeches, Welch would repeatedly refer to examples of information sharing involving different G.E. units and the benefits that flowed from this exchange.49

In setting performance objectives, Welch has tried to get the company out of the conventional horse-trading mode where superiors and subordinates try to maximize their own positions while yielding as little as possible.50 “Stretch” objectives are intended to encourage employees to see how far they can go in achievement, rather than settling for meeting specific goals:

“A stretch atmosphere replaces a grim, heads-down determination to be as good as you have to be, and asks, instead, how good can you be? Stretch, in its simplest form, says, „Nothing is impossible,‟ and the setting of stretch targets inspires people and captures their imaginations. Target setting at GE begins when business leaders at the beginning of the year set their stretch goals for things like income, cash flow and market share – given the contemporary circumstances of competition, the economy and all other external variables. Because this management team has been together for a long time, trust has grown, and trust is an indispensable ingredient that allows a business to set big stretch targets. GE business leaders do not walk around all year regretting the albatross of an impossible number they hung around their own necks. At the end of the year, the business is measured, not on whether it hit the stretch target, but on how well it did against the prior year, given the circumstances. Performance is measured against the world as it turned out to be; how well a business anticipated change and dealt with it, rather than against some „plan‟ or internal number negotiated a year earlier. Stretch does not mean „commit- ments are out.‟ Stretch can only occur in an environment where everyone is totally committed to a rigid set of core values – integrity, trust, quality, boundaryless behavior – and to outperforming every one of our global competitors in every market environment. Stretch does mean we are not fixated on a meaning-

48 Lowe, op. cit., pp. 147-148. 49 Bower and Dial, op. cit., p. 15. 50 Videotape, op. cit. ______© Penn State Management Development Programs and Services

less, internally derived, annual budget number that does nothing but make bureaucrats comfortable.”51

Whether all of these culture initiatives were directly accountable for G.E.‟s overall performance can be debated, since other variables, including the economy, mergers, acquisitions, divestitures, and other environmental factors also had an impact. The financial results for the corporation have been highly positive, (See Exhibit 5.) and, judged by external standards, as Welch himself loves to do, the comparisons are very positive. G.E. has consistently outperformed even the strong growth of the stock market throughout Welch‟s tenure by a wide margin. Share price increase has been nearly double the Dow Jones Industrial Average and 76% higher than the S&P 500 index.52

Dealing with Adversity No organization is trouble-free, and G.E. is no exception. Not all acquisitions and product innovations have been successful. Notably, the “Factory of the Future” initiative and precision ceramics both turned out to be expensive failures. Similarly, the attempt at a product breakthrough with rotary compressors for refrigerators cost G.E. both money and reputation. In all of these cases, the investment was premised upon huge potential markets. In the first two, the market failed to materialize. In the last, G.E. failed to mass produce a reliable product, and had to resort to external sourcing. Even those critical of Welch acknowledge that, having realized that things were not panning out, he acted quickly to cut losses and move on.53 With reference to the failed attempt at factory automation, Welch said,

“We picked the right market, but we couldn‟t have executed [the strategy] much worse. I endorsed everything [the team] did wrong. Somehow or other, they got ahead of themselves in their execution.”54

Kidder Peabody deserves separate consideration as a failed venture. G.E. purchased the investment bank for $600 million in 1986 to complement its other financial services. There was trouble almost from the start. Kidder‟s merger chief, Martin Siegel, pleaded guilty to insider trading shortly after the purchase, resulting in fines of $25 million. But worse was yet to come in the Joe Jett scandal.55 Through an exceedingly complicated computerized trading scheme, Jett, a Kidder bond trader, was able to produce $350 million in phantom profits. His performance was initially lionized, but the bubble burst shortly thereafter. Whether the whole affair was outright fraud or an anomaly of the

51 “To Our Share Owners,” GE Annual Report 1994, p. 4. 52 Lowe, op. cit., p. 51. 53 O‟Boyle, op. cit., pp. 123-127. 54 Lowe, op. cit., p. 171. 55 For a fuller account of this episode, see O‟Boyle, op. cit., pp. 332-356. ______© Penn State Management Development Programs and Services

15 system, the upshot of it was that G.E. finally disposed of Kidder in 1994 and took a $1.2 billion loss. Welch accepts that this was his most memorable failure, but tried to find the lesson in the midst of the mess:

“The combination of the two circumstances – a downturn in earning and an employee‟s wrongdoing – made it clear to us that it was time to get out…None of this is to say it couldn‟t have been done better, but the bottom line is that the type of business Kidder had become – a cyclical trading business – was simply not the place for GE to be.”56

In an interview, Welch added, “I learned, once again, that if you don‟t understand the alignment of values and reward, you cannot run a multi-business institution like ours…[Kidder] didn‟t fit with any ways we know how to manage. We were totally ill- equipped to deal with it, and it made us madder than hell every time we faced it. So the whole thing was a bad fit and I did it.”57

Such misadventures did not put Welch off, however:

“We‟ve made zillions of mistakes, missteps. We made about every mistake there is to be made, I think. See, the luxury of being a big company is that you can go to bat often. There‟s no sense being big if you don‟t go to bat all the time; then you might as well be small. If you‟re small, you‟re faster. So you‟ve got to use your size to keep taking swings. If you bat 75 percent, that‟s a home run. But if you sit there and act like [you‟re afraid], then the little companies do everything on you. They kill you. The idea of size is only a strength if you use it. If you go to bat more often, take more swings. I believe that firmly.”58

G.E. has also had its share of lawsuits during Welch‟s tenure, some involving government contracts. Some would interpret the alleged wrongdoing as the result of Welch‟s relentless drive for high performance,59 but this conclusion may be too sweeping. Many other corporations have also been engaged in lawsuits during the same period, so this level of activity is hardly unusual. It is noteworthy that such suits elicit a vigorous and competitive response from Welch, who seeks to defend the company‟s interests to the full, but, at the same time, G.E. has also settled out of court on a fairly regular basis.

56 Annual Report 1994, op. cit., p. 5. 57 Web Exclusive, op. cit. 58 Lowe, op. cit., p. 175-175. 59 O‟Boyle, op. cit., the entire book. ______© Penn State Management Development Programs and Services

Coping with Success As G.E. gained momentum, the company achieved many marks of distinction and attracted the attention of the business press. More and more, Welch himself was subjected to scrutiny to discover the secrets of his leadership success. As Industry Week noted, Welch personal stock had risen to the point that “the most acclaimed SOB of the last decade (1980s) is the most acclaimed CEO of this one.”60 According to Siemens C.E.O. Heinrich von Pierer, “Jack Welch is our benchmark.”61 Still, Welch was not willing for G.E. to rest on its laurels: “Managing success is a tough job. There‟s a very fine line between self-confidence and arrogance. Success often breeds both, along with a reluctance to change.”62 In 1996, when he was being acclaimed for leading G.E. to the number one position in market capitalization in the world, Welch responded,

“Our output per worker is growing, American business across the board is doing a good job…Don‟t make too much of the moment is all I am saying… We‟ve just got to be faster. We come to work every day on the razor‟s edge of a competitive battle.”63

The next major initiative, Six Sigma, had already been launched in 1995. This is a methodology for defining, measuring, analyzing, improving, and controlling processes so that variation within the process is limited to 3.4 parts per million. Three sigma, a fairly common process control measurement, results in 2.7 parts per thousand. While this may not seem a significant difference, it has the potential of being worth $10-15 billion/year for a company the size of G.E.64 Welch had initially been skeptical about Six Sigma, but was persuaded by Larry Bossidy, his former lieutenant, who had successfully introduced the program after becoming C.E.O. at Allied Signal. Welch also took into account the experience of Motorola, a pioneer in striving for such high levels of quality, and became convinced the Six Sigma was a key to G.E.‟s continuing competitiveness into the next century:

“We want to change the competitive landscape by being not just better than our competitors, but by taking quality to a whole new level. We want to make our quality so special, so valuable to our customers, so important to their success, that our products become their only real value choice.”65

60 Lowe, op. cit., p. xi. 61 “The Globetrotters Take Over,” Business Week, July 8, 1996, p. 48. 62 Lowe, op. cit., p. 144. 63 “The Globetrotters Take Over,” op. cit., p. 48. 64 “Firms Aim for Six Sigma Efficiency,” USA Today, July 21, 1998. 65 Lowe, op. cit., 162. ______© Penn State Management Development Programs and Services

Characteristically, Welch threw himself into selling a new approach to the company, promoting the virtues of Six Sigma and challenging managers to become involved in classes and improvement projects. “It has been remarked that we are just a bit „unbalanced‟ on the subject of [Six Sigma]. That‟s a fair comment. We are.”66 By early 1997, it was apparent that the level of involvement was far below what Welch wanted, with training classes under-subscribed and results lagging. Out of some 240,000 employees, 30,000 had received training in 1996, and 100,000 in 1997. In a speech at the G.E. Annual Meeting, in April, 1997, Welch declared,

“By January 1998 there will be no one on any slate for any management job in GE, no matter how junior, without some green belt training – entailing Six Sigma methodology and involvement with a successfully completed quality project. By December of 1998 there will be no one in any management job at GE who lacks the same qualification.”67

Welch also let it be known that 40% of every manager‟s bonus was going to be tied to quality results.68 Needless to say, attendance at training classes skyrocketed as managers endeavored to become qualified at the various “belts.” The results of the Six Sigma projects have proven quite positive over the years. From the first full year, 1996, in which costs associated with training exceeded benefits by some $50 million, succeeding years have shown dramatic benefits to the bottom line: $550 million in 1997, $775 million in 1998, and $1.6 billion (estimated) in 1999.69

Welch characterized his approach to bringing about change, using the Six Sigma example:

“I‟ll throw Six Sigma out and say, „Here‟s my vision.‟ I‟ll exaggerate the case to create a sense of urgency, and I‟ll insist that only the best people be assigned to work on it. I‟ll make these pronouncements about every initiative over and over again. A relentless drumbeat.”

Through the years, Welch has continued to insist on the growth of services and globalization as keys to the future. In 1980, services accounted for 16.4% of G.E.‟s profits. By 1996, that figure was about 60%,70 and the company was aiming for 70% in 1999.71 This growth in services has resulted from a re-casting of G.E.‟s business so that the product is just one component.

66 Ibid., p. 162. 67 “A Learning Company and Its Quest for Six Sigma,” John F. Welch, speech to the Annual Meeting, April 23, 1997. 68 Lowe, op. cit., p. 162. 69 “To Our Share Owners, Employees and Customers,” General Electric Annual Report, 1998, p. 3. 70 “Jack Welch‟s Encore,” Business Week, October 28, 1996, p. 157. 71 “Three Roads to Growth,” John F. Welch, speech to the Annual Meeting, April 22, 1998, p. 3. ______© Penn State Management Development Programs and Services

“With this initiative…we are broadening our definition of services – from the traditional activities of parts replacement, overhauling and reconditioning high- value machines like jet engines, turbines, medical equipment and locomotives, to a larger and bolder vision. We have the engineering, the R&D, the product knowledge, the resources and the management commitment to make the series of hundred-million-dollar investments that will allow us to truly change the performance of our installed base, and by doing so upgrade the competitiveness and profitability of our customers…The ability to go beyond „servicing‟ to, in essence, „reengineering the installed base‟ will dramatically improve our customers‟ competitive positions.”72

Globalization has been an objective for many years, but only about 15-20% of revenues came from outside the U.S through the 1980s. During the 1990s, international revenues have accelerated, approaching 45% in 1998 and are expected to reach 50% by 2000.73 While the annual growth rate for domestic revenues was 6%, the growth rate for global revenues was 15%.74 Welch has long held the position that operating in a global market and enjoying broad diversification in business segments gives G.E. the strength to ride out temporary setbacks in particular industries or geographical areas.75

Along with Six Sigma, services and globalization, G.E. 1999 declared its interest in pursing opportunities in e-Business. According to the G.E. webpage,

“e-Business represents a revolution that may be the greatest opportunity for growth that our Company has ever seen…Our pursuit of e-business will rapidly change our dealings with our vendors, partners, and most of all our customers. We believe that with this transformation comes equally incredible opportunity; e-business is made for a Company like GE that loves the phenomenon of change and moves quickly to take competitive advantage.76

With customary vigor, Welch proceeded to extol the virtues of e-business and to challenge his business leaders to find new ways to incorporate it into their business formulae. At the annual meeting in April, 2000, Welch proclaimed that “Today, with the digiitization of every process, every operation, every customer touch of every GE business around the globe, we are in the process of taking this Company to levels of speed, agility and performance we could only dream of just a few years ago. There is no

72 Annual Report, 1998, op. cit., p. 3. 73 “Three Roads,” op. cit., p. 3. 74 Annual Report, 1998, op. cit., p. 2. 75 Videotape, op. cit. 76 GE Overview, op. cit., p. 2. ______© Penn State Management Development Programs and Services

19 time for lengthy evaluations of Internet opportunities. We have to pounce – every day.”77 On the organizational culture front, Welch saw e-business as “the final nail in the coffin for bureaucracy at GE. The utter transparency it brings about is a perfect fit for our boundaryless culture and means everyone in the organization has total access to everything worth knowing.”78

The fact is that e-business at GE is still, at this point (2003)79, a work in progress, as it is in most companies. Even though e-business was given credit for increasing sales and margins,80 the company did not give details. It is, however, considered to be a technology with great potential for productivity improvements. In early 2001, it was estimated that GE would be able to use the web to simplify administrative processes and eliminate some 11,000 jobs, saving $1.6 billion.81 A year later, it was reported in the annual report that incremental savings had amounted to $1.9 billion.82

Just when it appeared that Welch had launched his last major initiative and would settle down to succession and transition, and, perhaps, give the company a chance to maintain the current momentum, Welch had once final surprise for everyone: The purchase of Honeywell for $45 billion. Honeywell and GE have many complementary businesses, including aircraft engines, plastics, chemicals and power generation systems. Honeywell was also being pursued by United Technologies at the time, a combination that could have offered GE more competition.83 One condition of the deal was that Welch would continue as CEO until the end of 2001. While most observers gave positive reviews, citing the advantages of combining various lines of business, there was also hand- wringing over the challenges of integrating Honeywell into the GE business culture. This was also accompanied by speculation that there could be as many as 75,000 job cuts.84

For a while, it appeared that the merger would pass without difficulty. It was approved on anti-trust issues by the U.S. Department of Justice, which caused just about everyone to assume that the deal was done. Overlooked in this scenario, however, was the need for approval from the European Union‟s Commission for Competition. They claimed shared jurisdiction in this matter due to G.E.‟s revenues in Europe ($25 billion) and number of European employees (85,000). After months of discussions, G.E. was unable to accept the conditions set forth by the Commissioner, and the deal fell through. This was the first

77 Speech to the Annual Meeting, Richmond, Va., April 26, 2000. 78 GE Annual Report, 1999, Feb. 11, 2000. 79 “G.E. Is Selling Off Most of E-Commerce Business,” New York Times, June 25, 2002: G.E. announced that it would sell off most of its interest in Global eXchange Services, which operates a computer network, and would concentrate on selling services that were adjunct to G.E. products. 80 CNNfn, July 13, 2000. 81 “Jack the Job-Killer Strikes Again,”, Business Week, Feb. 12, 2001, p. 12. 82 G.E. Annual Report 2001. 83 www.nytimes.com/2000/10/23/business. 84 “Jack‟s Risky Last Act,” Business Week, November 6, 2000, pp. 41-45, and “Jack the Job-Killer Strikes Again,”, Business Week, February 12, 2001. ______© Penn State Management Development Programs and Services

20 time that the E.U. had ever taken action to prevent such a merger between U.S.-based companies.85 In retrospect, it seems that the speed with which the merger was conceived contributed to the ultimate outcome, but it is also clear that G.E. never seriously considered the possibility that the E.U. could, or would, take such action.

With the collapse of the deal, Welch announced his retirement would take effect in September, 2001.

Succession and Organizational DNA As Welch prepared to retire in 2001, speculation swirled around the issue of succession and what impact a new C.E.O. will have on the changes that Welch has sponsored. Given the length of his tenure and the effort he invested in the selection of his managers, Welch developed a sizable cadre of senior executives who could conceivably replace him. His final choice, Jeffrey Immelt, aged 44, was previously the president of GE Medical Systems, but he had also spent two extended tours of duty at GE Plastics. As expected, the other two leading candidates, James McNerney and Robert Nardelli, quickly took jobs as CEOs, at 3M and Home Depot, respectively.86 (Both have been successful in their post-G.E. careers.) With the integration of Honeywell occupying a major part of Welch‟s attention until his retirement, Immelt was given an opportunity to make a more gradual transition to the top job in G.E.

In the succession process, Welch gave high priority to G.E.‟s Management Development Institute and actively participated in programs for high-potential managers, using the forum as both a sounding board for his ideas and as a bully pulpit to shape future management.87 As Welch claims, “We spend all our time on people. The day we screw up the people thing, this company is over.”88 Welch has gone out of his way to emphasize what kind of leadership he thinks is necessary:

“The reality is, we simply cannot afford to field anything but teams of „A‟ players. What is an „A‟? At the leadership level, an „A‟ is a man or woman with a vision and the ability to articulate that vision to the team, so vividly and powerfully that it also becomes their vision. An „A‟ leader has enormous personal energy and, beyond that, the ability to energize others and draw out their best, usually on a global basis. An „A‟ leader has „edge‟ as well: the

85 “How Jack Fell Down,” Time, July 16, 2001. 86 “Changing of the Guard,” Fortune, January 8,2001, pp. 85-99. 87 “How Jack Welch Runs GE,” Business Week, June 8, 1998. 88 “Who Will Run GE?” Fortune, January 11, 1999, p. 27. ______© Penn State Management Development Programs and Services

instinct and the courage to make the tough calls – decisively, but with fairness and absolute integrity. As we go forward, there will be nothing but „A‟s‟ in every leadership position in this Company.”89

How likely is it that the new leadership will continue in these themes? Welch has initiated changes that could long outlast his tenure, and it is clear that he has intended to change the basic character of the company. By taking such a strong role in developing and selecting key executives, his influence could continue indefinitely.

“These new leaders are changing the very DNA of GE culture. Work-Out, in the „80s, opened our culture up to ideas from everyone, everywhere, killed NIH (Not Invented Here) thinking, decimated the bureaucracy, and made boundaryless behavior a reflexive and natural part of our culture, thereby creating the learning culture that led to Six Sigma. Now, Six Sigma, in turn, is embedding quality thinking – process thinking – across every level and in every operation in our Company around the globe.”90

Still, Welch accepts that his successor will make changes. However, “that‟s what the process is all about – bringing in fresh ideas – but it‟s not any implication of what the predecessor did, at least in my case. My predecessor did a terrific job…The day I go home, I‟ll disappear from the place and the person who comes in will do it their way.”91

Epilogue Welch did, in fact, retire in September, 2001. After that, the business press attempted numerous reappraisals of his leadership of G.E. The economic recession in the U.S., the terrorist attacks on September 11, 2001, the military action in Afghanistan and Iraq, the uncertain effect of the economic policies of the Bush administration, the return of federal deficits, and the scandals involving accounting practices at Enron, Arthur Anderson, Adelphia, World Com and Tyco combined to raise questions about all businesses, and, especially, Welch‟s actual performance as C.E.O. Although nothing improper was ever shown, there was abundant skepticism that any company could have been so successful for so long without manipulation of reported financial results. This caused a crisis in confidence that drove down G.E. stock value about 50% in the six months following Welch‟s retirement.92 The interesting point in all of this is that G.E. continued to hit its financial projections. The new reality is that conditions have radically changed and that

89 General Electric Annual Report, 1997, p. 5. 90 General Electric Annual Report, 1998, p. 5. 91 Lowe, op. cit., p. 202. 92 “The Education of Jeff Immelt,” Business Week, April 29, 2002 ______© Penn State Management Development Programs and Services

22 all corporations are under increased, and skeptical, scrutiny. The long-term results are yet to be seen, but G.E., with its strong history and culture, is likely to continue its success, even in these altered conditions. The 2001 Annual Report, for example, presented far more definitive financial information than before to reassure stockholders of its transparency and accuracy. This is just the sort of adjustment that Jack Welch would have made to deal with a new reality.

Exhibit 1

General Electric Timeline: The Welch Years93

1981 John F. Welch becomes C.E.O. of General Electric. Number 1 or Number 2 strategy; Fix, sell or close. 1982 Restructuring begins. Three circle concept of business groups. 1983 G.E. sold Housewares Division to Black & Decker. 1984 Fortune magazine calls Welch the “Toughest Boss in America.” G.E. sold Utah International and acquired Employers Reinsurance. 1985 Elimination of sector organization. 1986 Purchase of RCA and Kidder Peabody. 1987 Swap of GE/RCA Consumer Electronics to Thomson for CGR. 1988 Launch of Work Out. 1989 NBC launches CNBC. 1990 Purchase of Tungsram from the Hungarian government. Best Practices initiated. 1991 G.E. surpasses I.B.M. as the most valued American corporation. 1992 Aerospace merger with Martin Marietta announced. 1993 Trading scandal at Kidder Peabody. 1994 Kidder Peabody sold to Paine Webber. 1995 Six Sigma begins. G.E. reaches $100 billion in market value. 1996 Market value reaches $150 billion; most profitable U.S. company 1997 G.E. becomes the first company in the world valued at $200 billion; sales are $90.8 billion, with net earnings of $8.2 billion.

1998 Market value hits $300 billion with sales of $100.5 billion and earnings of $9.3 billion. 1999 Market value reaches $400 billion with sales of $111.6 billion and earnings of $10.7 billion. 2000 Market value hits $500 billion with sales of $129.9 billion and earnings of $12.7 billion. G.E. negotiates purchase of Honeywell for $45 billion. Jeffrey Immelt, aged 45, named to succeed Welch. 2001 European Union Commission for Competition rejects G.E.-Honeywell merger. Jack Welch retires.

Exhibit 2

General Electric Business Portfolio (1999)94

Aircraft Engines: The world‟s largest producer of jet engines for military and commercial aviation.

Appliances: One of the world‟s largest producers of major appliances sold under the Monogram, Profile, GE, RCA, Hotpoint, and private brand labels.

Capital Services95: Diversified financial services (equipment management, consumer services, mid-market financing, specialized financing and specialty insurance) with global operations.

Industrial Systems: Leading supplier of products used to distribute, protect, operate and control electrical power and equipment, as well as services for commercial and industrial applications.

Lighting: Leading supplier of lighting products for global consumer, commercial and industrial markets.

Medical Systems: World leader in medical diagnostic imaging technology, services and health care productivity.

94 GE Overview, op. cit. 95 “G.E. Is Breaking Its Largest Unit Into Four Parts,” New York Times, July 27, 2002: G.E. announced that, effective August 1, 2002, it would divide Capital Services into four parts: Commercial Finance, Insurance, Consumer Finance and Equipment Management. G.E. Capital had provided $55B of the total 2001 revenue of $124.5B, and $5.6B of the $19.7B in pretax profits. This move was in response to investor need to analyze the component businesses better. It was also hoped that it would enable better management of the units. G.E. Capital had a 9.6% pretax margin compared with 22% for the industrial businesses. ______© Penn State Management Development Programs and Services

NBC: Global media company that owns and operates NBC Television, with interests in many other cable and internet activities.

Plastics: World leader in high performance engineered plastics used in the computer, electronics, automotive, building and construction industries.

Power Systems: World leader in the design, manufacture and service of gas, steam and hydroelectric turbines and generators.

Transportation Systems: Leading manufacturer of diesel locomotives for passenger and freight trains, and diesel engines for marine and stationary markets. Also provides advanced railway signaling and control systems.

Exhibit 3

General Electric Values (1999)96

G.E. Leaders, Always with Unyielding Integrity:  Have a passion for excellence and hate bureaucracy  Are open to ideas from anywhere and committed to Work-Out  Live quality and drive cost and speed for competitive advantage  Have the self-confidence to involve everyone and behave in a boundaryless fashion  Create a clear, simple, reality-based vision and communicate it to all constituencies  Have enormous energy and the ability to energize others  Stretch, set aggressive goals and reward progress, yet understand accountability and commitment  See change as opportunity, not threat  Have global brains and build diverse and global teams

Exhibit 4 G.E. Values (2002)97

 Respecting Always the Three Traditions of GE…Unyielding Integrity, Commitment to Performance and Thirst for Change:  Passion for Our Customers Measuring our success by that of our customers…always driven by Six Sigma quality and a spirit of innovation  Meritocracy Creating opportunities for the best people from around the world to grow and live their dreams  Growth Driven, Globally Oriented Growing our people, markets and businesses around the world  Every Person, Every Idea Counts Respecting the individual and valuing the contributions of each employee  Playing Offense Using the advantages of size to take risks and try new things…never allowing size to be a disadvantage  Embracing Speed and Excellence Using the benefits of a digital age to accelerate our success and build a faster and smarter GE  Living the Hallmarks of GE Leadership Passion for learning and sharing ideas Committed to delivering results in every environment Ability to energize and inspire diverse global teams Connected to workplace, customers and communities…in touch with the world

Exhibit 5

Market Value Billions of Dollars

600

500

400

300

200

100

0 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01

Net Income Billions of Dollars

0 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01

Revenues Billions of Dollars

150 100 50 0 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01

Discussion Questions

1. What was the condition of G.E. when Jack Welch became C.E.O. in 1981? Why did he think that change was necessary?

2. What changes did he make to the hardware and software of the organization? What were the risks and benefits of making these changes?

3. When does this “revolution” finally reach its objectives? What indicates that an organization has reached its capacity for change?

4. What are the key factors in successful change management?

5. What lessons do you draw from Jack Welch about change management?