“An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage”- Jack Welch. This quote by former General Electric Company CEO Jack Welch exemplifies the management strategy GE took during his twenty years of leadership. GE did not take the reactor approach when it came to the changing business world but instead the prospector. This is only one of the many reasons Jack Welch turned GE into the largest and most valuable company in the world by the time he retired in 2001. Before Jack Welch took over as CEO GE was the tenth largest company by market cap (GE). However, GE was invested in multiple areas of business in which it was not doing well and was headed for decline. There were three different phases of business improvement during Welch’s tenure of CEO that changed GE for the better, and it all began in the year 1981.
In 1981, Jack Welch was promoted to be the 8th CEO of the General Electric Company and also the youngest at the age of 46. At the time of his promotion GE recorded roughly 28 billion dollars in revenue and earnings of 1.65 billion dollars (Wharton). Jack Welch had a philosophy for all of the different businesses of General Electric which made these seemingly high numbers not meet his standards. Welch believed that if a GE business was not number one or two in its industry then no more resources should be allocated to its existence. In his first years at GE, Welch cut over 100,000 jobs and trimmed the fat of his organization (Six Sigma). Welch also started firing the bottom 10% of employees and rewarding the top 20%. This was a brilliant strategic move and showed a lot of the directive and conceptual leadership style in Welch. He made difficult decisions on the facts that certain business were not performing where they should be with long term prospects of the company in mind. Welch knew that as a large company to be successful GE had to eliminate non-performing branches of the organization. The second phase of business improvement implemented by Jack Welch changed how the business world saw management forever.
In the late 1980’s Welch began the process of eliminating non-value added activities in the workplace. He did this through participative management which has never been seen in the workplace before. By implementing the program “Work-Out” Welch involved the company in a relentless search to improve the way GE did things. This helped involve all employees in what happened at GE which fostered a sense of community and created a better organizational culture at GE. The idea behind this was boundary less learning or the removal of all organizational structure that might impede the flow of ideas. Not only did employees have more of a sense of ownership at GE, but this removal of boundaries helped to foster creativity at every level of the organization (Six Sigma). Welch also changed GE from a tall organizational structure with twenty-nine different levels to a flat organizational structure with six different levels of management (Investing Value). After Welch had streamlined his business and improved the efficiency, creativity, and organizational culture he had to come up with a way to keep GE changing and improving upon itself.
In 1995, GE began the implementation of the process of Six Sigma. Ideally, Six Sigma is used to remove common cause variation from the production process. Six Sigma focuses the management team on this goal and it helps to move an organization to the next level of efficiency. “The GE Six Sigma initiative is the management approach to satisfy this improvement objective. It prepares the business to be a reliable organization that produces the right product through value-added processes that consistently perform as designed to deliver the value that has been demanded by customers and markets (Six Sigma).” Over the five years that Six Sigma was implemented in Welch’s tenure earnings per share doubled and operating margins improved by five percent. Six Sigma was essential to putting GE on another level after eliminating non-profitable businesses and removing non-value added activities.
“My main job was developing talent. I was a gardener providing water and other nourishment to our top 750 people. Of course, I had to pull out some weeds, too.”-Jack Welch. This quote refers to maybe the most important thing Jack Welch did as CEO of GE. Improving GE as a company was important, but Welch knew he would not be around forever and saw the importance of developing managerial talent. This is a great example of strategic planning by Welch. He knew that the company’s survival after he left would depend on the future leaders of the company. Every April Welch would clear his schedule and would visit all of his business to meet the top executives and foster their talent. With the help of Michigan professor Noel Tichy, Welch revitalized GE’s training center and it had more than 8,000 GE employees come for leadership seminars each year. Welch’s emphasis on fostering talent has given GE what many consider to be the deepest executive branch in American companies (Brady). Not only was Welch a genius in forming a short term strategy, but his long term strategy focus on leadership helped propel GE to the top.
In conclusion, Jack Welch was one of the most influential leaders and managers of all time. Fortune Magazine named him the greatest manager of the 20th century in 1999 for this reason. During his reign as CEO revenue increased from 28 billion dollars to over 130 billion dollars (GE). The market value of GE also increased from 13 billion to nearly 500 billion dollars (Wharton). An increase like that is incredible and can be directly attributed to Welch’s incredible leadership skills. Whether eliminating business that could not create a profit or creating one of the deepest executive teams in the country Welch had a great strategic plan when he took over the General Electric Company. Jack Welch is proof that great leadership can make all of the difference when it comes to the success of a company.
No comments:
Post a Comment