Jack Welch and Jeffery Immelt: Continuity and Change in

Strategy, Style and Culture at GE

By,

Anam Patel

• GE’s origin can be traced back to the late 1800’s, whenThomas Alva Edison invented the first successful incandescentelectric lamp

• Edison was an entrepreneur as well as an inventor and startedseveral small businesses dealing in power stations, wiringdevices and appliances

• In 1890, he bought all the businesses together and combinedthem under the Edison General Electric Company (EGEC)

• EGEC merged with the Thomas-Houston Electric Company in1892 to form GE

Synopsis

Synopsis

• In 1981, Jack Welch was chosen as Jones’ successor therebybecoming the youngest CEO in GE’s history

• Changes carried out under Welch’s dynamic leadership were:

– Steps taken to transform company’s bureaucratic culture

– By creating a flatter structure by trimming 9 managementlevels to 6

– Movement from using GE matrix for corporate planningprocess to ‘Number One Number Two’ Strategy

– Strategic planning process was a corporate function, hemade it line function and vested the responsibility withindividual business unit

– He cut spending on R&D

Synopsis

– Introduction of ‘Work Out’ program which encouragedemployees at all the levels to get involved with innovationand problem solving at the company

– Adoption of Six Sigma for quality improvement

– Effective communication was promoted by GE’s informalculture

– Rewards and promotion were based strictly onperformance and Welch routinely fired non-performers

– Leadership development

• Between 1981 to 2001, GE’s revenues increased from around27 billion to 129.8 billion

Synopsis

• In the late 1990’s, James McNerney, Robert Nardelli and JefferyImmelt were shortlisted as a possible successor to Welch as GE’sCEO

• In November 2000, the board chose Immelt as the successor toWelch

• Subsequently, McNerney and Nardelli left GE, to become CEO’s of3M and Home Depot respectively

• Immelt became the head of GE at one of the most difficult times inAmerican economic history– GE lost 2 employees in 9/11 attack– Company’s insurance business took $600 million hit– Aircraft Engines business experienced an immediate slowdown– Anthrax scare– Corporate scandals – Enron Corporation & Tyco– Loss of investors confidence in large conglomerates

Synopsis

• Immelt met with investors and assured them that GE willcontinue to post double digit growth

• He issued detailed and lengthy annual report to meetinvestors demand for more information

• In an attempt to win over investors, GE redesigned its CEOcompensation package in mid 2003

• Reshuffling of GE’s portfolio

• Vision to create ‘Global Brain Trust’ therefore increasedinvestment in R&D

• He increased workforce diversity in the company

• Shift in GE’s focus from production to marketing

Problem Identification Stage

• Jeffery Immelt had to step into the shoes of a highlysuccessful predecessor CEO

• Environmental uncertainty:

– Recession and the bursting of dotcom bubble in 2000

– Terrorist attack on September 11, 2001

– Scams

• Investors distrust in large corporations and the way they weremanaged

• GE’s share price had fallen to levels much below its peak inearly 2001

Relating approaches to HR Concepts• Leadership Styles• Jack Welch

– Demanding, aggressive, intimidating boss– Focused on tangible bottom line results– Task master– Emphasis on internal communication with employees

• Jeffery Immelt– Friendly, regular-guy approach, more approachable– Focused on intangible results like customer satisfaction,

innovation– People oriented– Emphasis on external communication with investors and third

party

Relating approaches to HR Concepts• Organization Culture

– Under Welch focus was on performance and strictlyquantifiable results

– Whereas under Immelt it shifted to more abstract thingslike customer satisfaction and value

– Immelt also tied executive compensation to factors likeability to boost sales, come up with innovative ideas,generate customer satisfaction rather than just the abilityto meet performance targets

Relating approaches to HR Concepts• GE Matrix

Invest/Grow

Selective Investment

Harvest/Divest

Relating approaches to HR Concepts• ‘Number One Number Two’ strategy

– Jack Welch insisted that GE should be one of the top twoplayers in every segment in which it operated

– If any business failed to meet this criterion, he closed itdown or sold it

– During his tenure, GE divested several businesses like air-conditioning & house wares

Relating approaches to HR Concepts• Communication:

– Welch encouraged communication at all levels and in alldirections (top-down, bottom up and lateral) within thecompany

– Various company’s meeting gave him a chance to interactwith different people, listen to their opinions and gaugetheir leadership potential

– Welch’s speeches were regularly video taped, translated tolocal language and sent to various GE set ups across theworld

– This enabled him to make his presence felt even toemployees at far flung locations

– Surprise visits were also a part of his style of functioning

Relating approaches to HR Concepts• Motivation

1. Employees participation in management‘Work Out’ program

– A group of employees (usually 50 in number) of varyingranks and responsibilities, got together to review companypolicies, processes and make suggestions for improvement

– Initiative undertaken to encourage innovation andproblem-solving within the company

– Welch believed that there was no limit to human creativityand when its tapped, it could lead to tremendous value.

Relating approaches to HR Concepts• Motivation

1. Employees participation in management‘Innovation Breakthrough’ program

– Employees were expected to come up with ideas to improveGE’s existing products or for development of new products

– All business leaders were expected to submit 3 innovativeproject ideas per year that would be reviewed by theCommercial Council

– Qualifying criteria was that the idea should take GE into a newline of business, a new geographic area, or a new customer baseand potential of generating $100 million revenue

Relating approaches to HR Concepts• Motivation

2. Personal notes written by the CEO

– Welch frequently wrote notes to all levels of employees, toappreciate their contribution to the company, or to guide,inspire or stir them to action

– These notes were faxed directly to employees the momentthey were written and the originals were sent later by mail

– Welch did not know all the employees personally butlearnt about them through their bosses

Relating approaches to HR Concepts• Six Sigma

– It is a quality initiative first developed by Motorola Inc. in1986

– The program aims at reducing production defects to lessthan 3.4 per million through continuous improvement

– Welch’s commitment to quality led to the adoption of SixSigma at GE in 1995

– It helped in cutting cost and increase productivity

Relating approaches to HR Concepts• Six Sigma

– Employees at GE were trained at 3 levels

• Green Belt: Employees who took Six Sigma implementationresponsibility along with their regular work

• Black Belt: They guided green belts in the implementation ofthe Six Sigma program and were completely devoted to itwithout any other job responsibilities

• Master Black Belt: They supervised the black belts and wereresponsible for indentifying the projects in which Six Sigmacould be implemented

• GE made it compulsory for employees to have at least greenbelt training and involvement in 1 quality improvementproject to be eligible for promotion to management level

Relating approaches to HR Concepts• Rewards Management

– Welch devised a system where people were classifiedunder 3 categories

1. Top 20% : They were generously rewarded

2. Middle 70% : They were rewarded and encouraged toemulate the top performers

3. Bottom 10% : They were fired

Welch believed that retaining non-performers wasdetrimental to the company’s health

Relating approaches to HR Concepts

• Leadership Development & Succession Planning

1. C Session Meetings:

– It started in April and lasted through May every year

– Welch along with 3 senior executives traveled across the US tomeet with the top managers of each of GE’s 12 businesses andto review their performance over the previous year

– Purpose of this session was to identify and promote leadershiptalent within GE

– It also served as a way to recognize good performers and assistthem in developing their skills

Relating approaches to HR Concepts• Leadership Development & Succession Planning

2. Executive Development

– Usually employees in management ranks were transferredevery few years between locations

– This was done to enable them to learn about variousbusinesses and obtain an overall understanding of GE’soperations

– Leadership development institute was set up at Crotonville

Relating approaches to HR Concepts• Succession Planning

– Under Immelt’s leadership there was increase in thenumber of outsiders brought into the company at seniorpositions

– Immelt believed that it helped in bringing new energy,ideas, creativity

– This was in contrast to GE philosophy of promoting fromwithin

– Immelt encouraged managers to become industry expertswhereas Welch had focused on enhancing generalmanagement skills

Relating approaches to HR Concepts• Welch’s 4E’s Leadership Theory

– Energy: Enormous amount of positive energy and strongbias for action

– Energizing: High level of people orientation and the abilityto motivate and inspire people to their maximum potential

– Edge: The courage to take bold decisions and conviction tostick with them

– Execute: The ability to give form to vision and deliverresults

– Passion: A heartfelt, deep and authentic excitement aboutlife and work

Relating approaches to HR Concepts• Compensation and benefits

1. Pay for Performance

– In 2003, Immelt was eligible to receive stocks worth $7.5million over a period of 5 years

– Half of the performance share units would be vested ifGE’s cash flow rose at least 10% annually over the nextfive years

– The other half would accrue to him if GE’s stock met orexceeded the avg performance standard of S&P 500-stock index

Relating approaches to HR Concepts• Diversity

– In early 2000’s, 50% of all senior executive hires and 54%of new corporate officers were women, minorities orforeign employees

– Immelt created diversity forums within the company andactively encouraged mentoring programs for women,minorities and foreigners

Extrapolation

• Revenue - $142.46 Billion (2013)

• Consolidated Net Income - $ 15.48 Billion (2013)

• FORTUNE World’s Most Admired Companies: 2014 (rank: 10)

• The Times Top 50 Employers for Women: 2014

• Total Employees Worldwide: 307,000 as of Dec 2013

• Operations - More than 170 countries

• What’s Important to GE in 2014?

– Diversity

– Volunteerism

– GE Foundation - The philanthropic organization of GE

Thank You!