Radical Changes in GE Operations


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Paper written for college course regarding one of the few companies in the last 30 years that have made such radical changes to their infrastructure and Operations as General Electric.

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Radical Changes in GE Operations

  1. 1. RUNNING HEAD: GENERAL ELECTRIC 1 General Electric: Thirty Years of Changing Brian K. Rakowski Wilmington University
  2. 2. RUNNING HEAD: GENERAL ELECTRIC 2 ABSTRACT The purpose of this paper is to try to explain the cultural and managerial changes that have occurred within General Electric in the past thirty years. This time span covers both Jack Welch’s era as well as the job that Jeff Immelt has currently been performing. The paper will explain the revolutionary amount of money that GE has spent on Six Sigma as well as their well respected evaluation methods for employees. In the end of the paper, it is hoped that the reader understands the dramatic changes which changed GE from an average company into a business juggernaut that spans across the world and whose products can be found in almost every household.
  3. 3. RUNNING HEAD: GENERAL ELECTRIC 3 Few if any companies in business over the past thirty years have had a moreradical change in their overall culture than General Electric. The largest contributor to their change would be Jack Welch, who has been the CEO since 1981 and has instilled an attitude of rising above the competition and surrounding himself with people who are willing to adapt rather than fold under pressure. This paper will cover Jack Welch’s contributions as well as Jeff Immelt, Jack Welch’s replacement in 2001 and also try to explain the attitude and culture that both of these men have brought to the company, which is currently sixth on the fortune 500 for companies based in the United States. At the time that Jack Welch took over, General Electric has over 300,000 employees. Within his first year, Mr. Welch reduced the workforce down to 100, 000. Although to this day, Mr. Welch acknowledges the need for the reduction, the way in which it was handled remains one of Mr. Welch’s biggest regrets. The layoffs occurred over a series of four different sessions (Jack Welch reinvents General Electric—again). After several years of contemplating his decision, Mr. Welch feels that it would have been more efficient to simply have all the layoffs happen at once. The problem with waiting was that everyone knew the layoffs were coming, thus causing unnecessary anxiety, which spread across the company. All of the employees were offered a competitive severance package, but, the sheer mass of the layoffs earned Mr. Welch the nickname Neutron Jack(The house that Jack built).
  4. 4. RUNNING HEAD: GENERAL ELECTRIC 4 These layoffs were necessary because the company had several businesses that were consistently losing revenue. Mr. Welch’s mindset was and is that if you are going to become involved in a business sector, it is necessary to be either number one or number two in that industry. In his mindset, being number two in a sector wasn’t a long term goal, which required a short term plan to become number one (Jack Welch reinvents General Electric— again). This attitude wasn't only specific to the business world, but to employees as well. Employee evaluations became a significant factor in employees’ growth with the bottom ten percent of employees rated being released. Employee bonuses were closely tied into these evaluations. Mr. Welch felt this was a significant challenge; to properly reward employees just as he was rewarded when he was coming up the GE hierarchy, he almost quit based on a poor bonus in his opinion. This process created an atmosphere that encouraged all employees to perform their duties to the best of their abilities rather than becoming complacent with the same repetitive bonus every year. A large reason for General Electric’s success is its advanced ranking system of their employees. This entire concept was greatly influenced by a forty year GE employee, Bill Conaty, who was the Human Resources Chief at the time of his retirement. This man had the tremendous challenge of changing Jack Welch’s mind about the significance of Human Resources. Before Mr. Conaty was able to influence him, Mr. Welch was quoted several times as saying Human Resources stood for the"Health and Happiness Crowd". After the challenging task of changing Jack Welch’s mind, Mr. Conaty was able to maintain a 95-97 percent retention rate of their top 600 senior officers annually. This is a direct reflection of
  5. 5. RUNNING HEAD: GENERAL ELECTRIC 5 executives earning their bonus and pay scale based on performance rather than which University they attended. Very few employees enter into GE as a high level executive, but rather, are forced to demonstrate their values to the company.(Marquez, J.) Bill Conaty also was given the strenuous task of finding Jack Welch’s replacement. As GE is such a large profitable company, this process quickly turned into a media frenzy. Many top executives left the company at this time as the chance for advancement in the company was narrowing with a younger CEO taking over. After several elimination processes to narrow the field, eventually Conaty narrowed his list down to three candidates. Once the list was down to three, each applicant knew that they would either receive the CEO position or be asked to leave the company. This idea was Mr. Welch’s since when he became CEO, those individuals whom he had beat out held him in resentment. The three candidates were Jeff Immelt, who eventually won the position, James McNerney, who immediately became CEO of 3M and eventually became CEO of Boeing, and Robert Nardelli, who ended up at Home Depot for a little while until he was asked to step down.(Mornell, Dr. Pierre) General Electric’s take on colleges under Jack Welch was to search for recruits who have been able to excel at smaller schools. The theory is that it is better to have an excellent student who outshines his classmates, rather than have a student from a well renowned school whose grades are in the middle of the pack. Mr. Welch himself went to a small college after being accepted by MIT. At this smaller school, he was able to receive a more personal relationship with their students.
  6. 6. RUNNING HEAD: GENERAL ELECTRIC 6 Jack Welch was significantly known for his dedication to the Six Sigma program. Originally, Mr. Welch failed to see the advantages of a company-wide quality program. It took a significant amount of discussion from the CEO of Motorola demonstrating the benefits his company had demonstrated. In typical Jack Welch fashion, once he decided to commit to Six Sigma, the company spent millions of dollars to establish the concept throughout the entire company. Although Six Sigma was a radical change, General Electric did an extremely good job of training their supervisors and explaining the benefits the new policy could produce. Those that failed to buy into the Six Sigma concept, were either coached extensively or let go. Mr. Welch disliked the word manager, preferring instead for his supervisors to be known as leaders. He felt that his supervisors shouldn't need to use the power of their position, but explain to their subordinates what needed to be done and why. General Electric has been consistently known for not only being a revenue creating company with quality products, but also producing strong leaders who are coveted by many other companies. This is because the culture of GE was and is significantly reinforced through their training facility called Cromwell. Cromwell is a large estate which had historically been utilized by the senior managers as a vacation resort. When Jack Welch became CEO of GE, he changed Cromwell into a training center two weeks a year where not only senior managers but also middle managers from different divisions would receive the chance to discuss issues as well as to receive a better understanding of the company's goals and directions(Mornell, Dr. Pierre). It became a common occurrence for employees on the floor to notice senior level managers, including Jack Welch himself, observing and learning the different processes of the unit. This type of mentoring established a strong link between
  7. 7. RUNNING HEAD: GENERAL ELECTRIC 7 managers and employees. Mr. Welch has always preached about diversification and gender awareness, although his track record never reflected this. He was often criticized that although GE employed many employees from other countries, very few were in positions of senior level managers. Jeff Immelt, on the other hand has acquired a reputation for promoting the diversity role much better than Mr. Welch. Under Mr. Immelt, employees from outside the United States now represent three times the amount that was present when Mr. Welch retired. While Mr. Immelt has grown shareholder profits over his reign as CEO, many investors have been spoiled by the double digit gains that occurred when Jack Welch was in charge. The reason for the decrease in profits can be tied to simple economics which explain that the larger the company the less growth it will undergo. When Mr. Welch took over as CEO, there was a lot of room for improvements. After years of Mr. Welch executing methods to improve the company, Mr. Immelt did not have the same advantage to pad his resume. Many of the shareholders of GE have previously expressed an interest in GE breaking down into smaller companies which would then be able to demonstrate a much larger rise in growth (Kranhold, K.). Mr. Immelt has challenged this idea by consistently producing results that exceed market expectations. In his opinion, breaking GE into separate companies would diminish the assets that the diversity within the company brings to managerial decisions when pursuing new companies. Under both Mr. Welch and Mr. Immelt, GE has been able to create an atmosphere of taking reasonable risks which have continuously provided profits. Hundreds of companies have passed under the GE umbrella in the last thirty years that these two men have controlled the company.
  8. 8. RUNNING HEAD: GENERAL ELECTRIC 8 Working for GE demands a strong work ethic as well as the flexibility to adapt quickly. While the demands of the duties and positions at GE are challenging, the pay programs represent a solid balance. Those looking for a rewarding challenge usually find c, j a nice fit at the company. Those who can prove themselves through results tend to have long careers at GE. While this was not always the case, thanks to the efforts of Jack Welch, as well as the ability of Jeff Immelt to create his own identity but remain loyal to GE’s strengths, the company has ensured it’s future for years to come(Kranhold, K.). They continue to remain within the top ten of companies on the U. S. Forbes top 100 list as well as maintain a reputation for quality which continues to allow their bargaining with the U.S. Government when creating contracts. It truly is hard to believe the transformation this company has undergone thanks to decisions that their leaders have made to ask questions when they do not know the answer. That valuable trait has allowed GE to work with other companies on improvements as well as understand new trends on employee satisfaction as well as process efficiency.
  9. 9. RUNNING HEAD: GENERAL ELECTRIC 9 REFERENCES Jack Welch reinvents General Electric—again. (1991). Economist, 318(7700), pg. 59-62. Kranhold, K. (September 2006) THE IMMELT ERA, FIVE YEARS OLD, TRANSFORMS GE, Wall Street Journal. New York, N.Y.: September 11, 2006. Pg. B. 1. Marquez, J. (2007) GE’S PEOPLE POWER. (Cover story). Workforce Management, 86,(13),1-30 Mornell, Dr. Pierre (July 2000) Nothing Endures But Change, Academic Search Premiere. 01628968, Jul2000, Vol. 22, Issue 10 The house that Jack built. (1999). Economist, 352(8137), pg. 23-26.