GE’s Two Decade Transformation
- Pages: 35
- Word count: 8750
- Category: Leadership
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1. From what we have learned from the various leadership models and frameworks: a. How would you describe Jack Welch’s leadership style?
Jack Welch became CEO of General Electric in April 1981. At 45 years old, he inherited a company that was severely decentralized and was organized with layers and layers of upper management. Immediately, he changed the old management style in order to correspond to the new changing environment and social needs. Furthermore, he created an environment that could work together and communicate effectively to grow and become a world class company. As soon as Welch took his new position, the new CEO portrayed signs of a transformational leader. A transformational leaders inspire positive changes in those who follow. They empower followers to do what is best for the organization. They are strong role models with high values. This type of leader listens to all viewpoints to develop a spirit of cooperation. They create a vision, using people in the organization. Transformational leaders are generally energetic, enthusiastic, and passionate.
This type of leader is concerned with being a part of the process and is also interested in helping every member of the group succeed (Cherry, 2013). Jack Welch is a great example of a transformational leader because he created a change driven environment. He expected the best from each one of his employees. This is clearly evident because of the changes he made once he became CEO. In 1981, the economy was in the middle of a recession. Jack Welch realized the importance of improving productivity and challenged the organization to be “better than the best” by setting in motion a series of changes that would take place over the next several years. Welch used his transformational leadership skills and started to transform GE by creating competitive strategies that would help rebuild GE’s competitive power. “Welch set the standard for each business to become the #1 or #2 competitor in the industry – or to disengage.” (Bartlett, 2005). Welch continued to restructure the business. “By 1983, Welch had elaborated this general “#1 or #2” objective into a “three circle concept” for his vision of GE” (Bartlett, 2005). It portrays Welch’s vision as divided into three sections.
These sections included services, technology, and core. Welch describes, “A decade from now, I would like General Electric to be perceived as a unique, high spirited, entrepreneurial enterprise… the most profitable, highly, diversified company on earth, with world quality leadership in every one of its product lines” (Bartlett, 2005). Welch’s restructuring efforts were born from his vision to create a more “lean and agile” business model. Welch describes, “We don’t need the questioners and checkers, the nitpickers who bog down the process… Today, each staff person has to ask, “How do I add value? How do I make people on the line more effective and competitive?” (Bartlett, 2005). GE eliminated 59,290 salaried and 64,160 hourly workers as a result of downsizing, and delayering the organization. Divestitures eliminated an additional 122,700 employees. By 1989, GE employed 292,000 people. This figure was down from 404,000 people only nine years ago. Welch’s restructuring efforts were great examples of a transformational leader. He did not want to be disconnected from the business and act as an autocratic leader.
He wanted to be involved in the creation of ideas and decision making processes from his employees. He reduced the number of hierarchical levels from nine to four. He wanted to ensure the businesses reported directly to him. He describes, “We used to have department managers, sector managers, subsector managers, unit managers, and supervisors. We’re driving those titles out…. We used to go from the CEO to sectors to groups to businesses. Now we go from the CEO to businesses. There is nothing else. Zero.” (Bartlett, 2005). Even after the drastic restructuring efforts, Welch continued to push change in the organization. He was a true transformational leader because even as he drastically changed the business, he motivated employees to see the future of possibilities. During one of Welch’s regular in-person visits to teach in the company’s Management Development Institute, he engaged in an outspoken discussion with various GE managers. They discussed the difficulties they faced when implementing change throughout their organizations.
Welch discussed with James Baughman, GE’s director of management development, ideas of how he could create an environment for all employees, not just managers, to have this type of honesty, trust, and energetic interaction throughout the various levels of the organization. Welch created “Work Out”. Work out was “a process designed to eliminate unnecessary bureaucratic work out of the system while providing a forum in which employees and their bosses could work out new ways of dealing with each other” (Bartlett, 2005). The idea was created so employees could speak their minds about how their businesses could run more efficiently and effectively. In addition, Work Out sessions would give employees immediate feedback to their proposed ideas. Welch’s transformational leadership style created Work Out sessions which ultimately lead to higher productivity and a more engaged workforce.
One additional transformational leadership skill that Jack Welch possessed was the ability to educate new leaders to provide them with valuable skills. Transformational leaders change and transform individuals (Hall, 2013). Welch focused on developing leaders throughout the organization at GE. He wanted to realign the mindset of GE’s talented manager’s and employee’s. Welch used GE’s Crotonville management development facility to harness this cultural change. “Under Welch’s direct control and with his personal involvement, Crotonville’s priority became to develop a generation of leaders aligned to GE’s new vision and cultural norms” (Bartlett, 2005). Welch portrayed another example of a transformation leader by traveling to Crotonville twice a month to teach and interact with the GE employees. b. Was his effect on organizational culture positive or negative?
Jack Welch’s effect on the organizational culture at General Electric was certainly positive as he changed the structure of the company and perception of GE from an internal and external perspective. He did this by creating an organizational environment that portrayed clan and adaptability cultures. A “clan” culture has a primary focus on the involvement and participation of the organization’s members and on rapidly changing expectations from the external environment. Important values include taking care of employees and making sure they are satisfied and productive (Daft, 2001). The adaptability culture is characterized by strategic focus on the external environment through flexibility and change to meet customer needs. The company actively creates change. Innovation and risk-taking are rewarded. Overall, Welch created a positive effect on the clan and adaptability culture at GE by changing the old vision, structure, and environment of the company.
When he became CEO, he changed the vision of the company and fostered an environment where employees could be their best. He describes, “Ten years from now, we want magazines to write about GE as a place where people have the freedom to be creative, a place that brings out the best in everybody. An open, fair place where people have a sense that what they do matters, and where that sense of accomplishment is rewarded in the pocketbook and the soul. That will be our report card” (Bartlett, 2005). Based on this statement, it is clear he created a positive effect on the clan culture at GE. He wanted involvement and participation from all employees because he believed this fostered new ideas and increased productivity. Another example that was described in the case where Welch promoted a positive organizational culture was when he revamped the employee compensation system. Welch was a strong believer in employee incentives. “He implemented a model in which stock options became the primary component of management compensation” (Bartlett, 2005). In addition, he began to create much more aggressive bonus rewards which were based on employee performance.
He wanted to reward hard working, innovative, and collaborative employees. A third example that supports Welch’s effect on creating a positive organizational culture was his vision to create a “boundaryless” company. He wanted GE to be a company that was characterized by “an open, anti-parochial environment, friendly toward the seeking and sharing of new ideas, regardless of their origins” (Bartlett, 2005). Welch’s involvement here shows how he positively created characteristics of adaptability culture. He wanted the employees across various sections of the business to have the same strategic focus on the external environment and the flexibility to meet customer’s needs. He continued to describe the culture of the employees who he wanted to work at GE. “We take people who aren’t boundaryless out of jobs…. If you’re turf-oriented, self-centered, don’t share with people and aren’t searching for ideas, you don’t belong here” (Bartlett, 2005). Welch changed the employee rewards program to reward employees who were idea-seeking and sharing, not just idea creators.
The positive effects from Welch’s changes to the GE organization were very apparent with his new idea of “boundaryless barriers”. He wanted to create “integrated diversity” by creating an environment that supported characteristics such as “open, antiparochial, and friendly” towards the sharing of new ideas (Bartlett, 2005). Welch described his boundaryless vision as, “The boundaryless company we envision will remove the barriers among engineering, manufacturing, marketing, sales and customer service; it will recognize no distinctions between domestic and foreign operations – we’ll be as comfortable doing business in Budapest and 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” (Bartlett, 2005). Five years after he implemented the new employee rewards program and his “boundaryless” vision, a list of success stories soon developed.
He describes, “We quickly began to learn from each other: productivity solutions from Lighting; quick response asset management from Appliances; transaction effectiveness from GE Capital; cost-reduction techniques from Aircraft Engines; and global account management from Plastics” (Bartlett, 2005). This positive collaboration across functional areas of the business was exactly what Welch had envisioned. Welch’s idea of “stretch” thinking is yet another example thats supports the argument of how he created positive effects on the organizational culture at GE. He guided managers and employees to set performance targets that seemed impossible, or in other words, seemed like a stretch to meet. Welch’s objective was to change the way targets were determined by creating an atmosphere that asked, “How good can you be?” (Bartlett, 2005). It is important to point out these “stretch” goals did not replace traditional forecasts and objectives.
Manager’s were still expected to meet the regular performance targets, but this notion of “stretch” thinking provided manager’s with the motivation and support to go the extra mile. It is clear that this idea of “stretch” thinking was a huge success because “by the mid 1990’s, stretch goals were an established part of GE’s culture” (Bartlett, 2005). One of the senior executives at GE explained, “People like problem solving. They want to go to that next level. That’s becoming a bigger driver for the company than Work-Out” (Bartlett, 2005). Additional supporting evidence for how “stretch” thinking promoted a positive culture at GE was in the case where Welch describes, “we learned to do things faster than we would have going after ‘doable’ goals, and we have enough confidence now to set new stretch targets of at least 16% operating margin and more than 10 turns by 1998” (Bartlett, 2005). 3. What influence did Welch’s leadership have on:
a. organizational strategy at GE?
Welch had a huge impact on the organizational strategy at GE through his various initiatives at making GE an international and highly diversified company in all of its product lines. These initiatives changed over time as the company evolved, and with these changes came modifications to the overall organizational strategy of GE. Welch was given control of GE during a recession and a period of high interest rates and a strong US dollar. He quickly gave the companies in his group the strategic intent of being the “#1 or #2 competitor” in their respective industries, or cease operation (Bartlett, 2005). This moved the performance metric to an external analysis, and while Welch specifically said this was not the strategy of GE as a whole, this intent directly precipitated the sales of many GE businesses in Welch’s quest to give GE a competitive advantage (Daft, 2001). The restructuring also gave Welch a chance to create a simplified “strategy playbook” for his managers in place of the outdated and bureaucratic “strategic planning system” (Bartlett, 2005).
This directly reflected his strategic goal that GE become a more agile company. The initial consolidation served to bolster the businesses within GE that had high competencies in their industries, and from this point Welch changed his strategic focus from building competency domestically to acquiring foreign companies which complemented GE’s domestic businesses. The basis of this strategy was to purchase companies regionally during the economic downturns in Europe and Asia between 1990 and 1998. This created GE’s base for attacking foreign markets and was an effective method at tailoring his strategy to exploit the core competencies of GE as a whole (Daft, 2001). Another way Welch’s transformed GE’s strategy to focus on the external environment was his key operative goal of developing key personal (Daft, 2001). He aggressively removed people who did not live the GE values, and further created a ranking system so that he could identify, promote, and reward top performers.
In addition, he heavily invested on employee growth programs such as Work Out and the Crotonville management development facility, and fostered a knowledge sharing attitude through his “boundary less” organization initiative (Bartlett, 2005). During the latter part of Welch’s tenure, GE saw increased competition for its physical products from Japanese manufacturers, which triggered Welch to modify his strategy to place a greater reliance on service based products as profit centers. To realize this strategy, GE acquired 20 service based companies that would directly complement their customer’s existing equipment. Further, GE changed its corporate sales strategy to “helping the customers win” (Bartlett, 2005). This was wildly successful, and customers found the service so valuable that many companies turned to GE for service on equipment purchased from other manufacturers.
This included jet engines, medical equipment and other highly technical equipment. Further, the company’s general competitiveness was increased because GE had a unique product package such that it could offer both the physical product and an accompanying service contract, which was extremely valuable to GE’s customers. 3b. What effect did Jack Welch’s leadership style have on organizational structure? According to organizational guru Richard Daft (2001), the starting point for organizational design is strategy. He said, “Organizational form and design are the ultimate expression of strategy implementation” (Daft, 2001). He also stated that the first task of organizational design is to develop the governing ideas of purpose, mission and core values by which employees will be guided. Jack Welch modeled this point at the beginning of his design process.
How did Welch, who sat atop a business empire with $304 Billion in assets, $129 billion in sales and 313,000 employees scattered in more than 100 countries around the globe wield so much influence and power? (Bartlett, 2005) He did it because he encouraged near brutal candor in the meetings he held to guide the company through each work year and because he was a fierce believer in the power of his people. He also used the integrating principle referred to as creative tension. “Creative tension comes from seeing clearly where we want to be, our “vision” and telling the truth about where we are, our “current reality.” (Senge, 1990) Welch made it a practice to know the company and those who worked for it like no other. In addition, Welch spent more than half his time devoted to “people” issues. Most important, however, Welch nurtured the practice of informality. He often referred to GE as the “Grocery Store”, saying it should be managed like a small organization. Welch believed one shouldn’t get hung up on formalities.
He was quoted as saying “the story about GE that hasn’t been told is the value of an informal place. I don’t think people have ever figured out that being informal is a big deal.” (Byrne, 1998) Making the company informal meant violating the chain of command, communicating across layers, paying people as if they worked not for a big company, but for a demanding entrepreneur where nearly everyone knows the boss. When Jack Welch took over as CEO of GE, he faced the task of reorganizing GE by developing a better understanding of the relationship between leadership, work and organization. In 1985, Welch eliminated the sector level, previously the powerful center of strategic control. By reducing the number of hierarchal levels from nine to as few as four, Welch ensured that all businesses reported directly to him. (Bartlett, 2005). He used his unique personality, leadership strategy and breakthrough changes in organizational habits to transform GE into one of the most multifaceted organizations in the world.
The firm’s market value increased by more than $400 million dollars under his leadership (Welch, 2005). Having achieved impressive financial results, Welch was concerned that GE’s organization would not be able to maintain its growth rate. He undertook a major reorganization that would ensure the capability to grow successfully. He flattened the corporate pyramid from 9 to 4 levels. He reduced staff and changed its role from controlling and revising to coaching and assisting. He instituted a new reward system based more on performance bonuses rather than salaries. He ended employment security. Welch skillfully used rewards to drive behavior. He demanded that the rewards a leader disperses to people be highly differentiated, especially because GE was in so many different businesses. “We live in differentiation. You can’t run these many businesses as if they are one institution.” (Welch, 2005) The first wave had created a smoothly functioning company that generated plenty of cash.
The second wave created a more efficient, streamlined organization that reduced bureaucracy and motivated employees, through tangible incentives, to achieve improved financial results. Welch wanted the organization to be able to implement new ideas faster and be much more responsive to the market. In the old GE ideas had to be approved by many layers of management and had to be entombed in facts and research if they had any chance of being implemented. In Welch’s GE the person who came up with the idea had much more power and latitude to implement the idea without having to battle the bureaucracy. “Boundary-less Behavior” and the elimination of communication filters are key phrases to describe Jack Welch’s attitude towards communication. He underscored the point that traditional organizational structure, by its very nature, imposes layers and walls between people. Everything from the flow of information and communication in decision making to the design of office space contributes to the feelings of disconnection that often plagues organizations.
His goal was to minimize the sense of disconnect by creating a “boundary-less” work environment. For Jack Welch, promoting and developing cross-functional teams to solve problems and come up with new ideas was imperative. For GE, boundary-less behavior described “an obsession with finding a better way, or idea” (Welch, 2005). Welch felt that among the toughest boundaries to eliminate were the ones individual managers erected around the boarders of their turf. Many of the bureaucratic boundaries erected by corporate functionaries are there because individuals feel insecure. Welch sought to remove these boundaries through a program called “Work-out”, where employees from all levels are free to speak on any topic without fear of retribution. Welch encouraged input from every employee. One of his objectives was to motivate people to think outside of the box and challenge the status quo.
By using vertical linkages and open communication channels between himself and his employees Welch gave employees the ability to air their concerns and work toward a consensus for action while at the same time leveraging the many backgrounds and experiences of those employees. Integrated Diversity was another of Welch’s principles. Under this concept GE remained a diverse company consisting of many different businesses. But the people from these businesses looked for ways of sharing their knowledge and technology. For example, if one division develops a piece of technology, the company would look for multiple applications for that same technology. Moving personnel across divisional lines provides fresh perspectives, not to mention hybrid vigor.
At one point GE transferred leadership in 4 of its 13 major businesses, with new leaders coming from other GE businesses. These internal transfers gave executives throughout the company broad based experience. Welch was convinced that a company without boundaries was the company of the future. If you remove barriers between your company and its stakeholders, you create a community of mutual interests in which everyone works toward the good of all. In terms of structure, GE was focused on having close relationships with all members of its staff, with small company type thinking where everybody was on a first name calling basis. He continually attempted to keep the vertical hierarchy as flat as possible and encouraged horizontal linkages and structure. 4. Discuss how Jack Welch’s leadership affected organizational change and innovation at GE.
Soon after taking over as CEO, Welch decided that he would take the company in his own direction. He would not stand for mediocrity. Not from his products, business, or people. Welch took a “no holds barred” approach to running GE. He would continue that method throughout his tenure as CEO. First, Jack Welch was very forward-thinking. He always had a plan; for now, three years from now, and ten years from now. When he first started, he was quoted as saying “A decade from now, I would like [GE] to be perceived as a unique, highly spirited, entrepreneurial enterprise…” With that said, he set about to change the way the products they produced were perceived in the market place. One of his first initiatives as CEO was requiring each of his business units to be #1 or #2 competitor in their respective industries. If they could not, they would be sold or shuttered. These bold actions lead to many of their units being sold off or traded for another entity. He did so to get GE to be a leaner and more agile company to better take on the competition.
He focused on their strengths, and got rid of their weaknesses which would distract them from their ultimate goals. Realizing that he could not sustain world-class company status without changing the culture, he set out to make a few key changes to create a more open, transparent environment to motivate employees and show that their opinions mattered. With the Work-Out program, employees were given a chance to air out their ideas and views regarding current challenges within their business. This process was aided by facilitators, without their bosses in the room. This practice helped with getting truthful answers out of the participants. Managers were then called back, and were presented with various proposals from their employees regarding the issues at hand. The manager was mandated to make an on-the-spot decision on said proposals in front of everyone. This “firing squad” approach put managers in the hot seat, because it forced them to listen to the needs and concerns of their employees and make decisions on how to rectify them.
This also gave employees the chance to air their concerns without fear of retaliation. It made for a much freer atmosphere, where employees at all levels were given a say on how the business was run. Welch’s Work-Out program caused a monumental shift from a bureaucratic culture to an adaptability culture, where creativity and innovation are paramount (Daft, 2010). This honest conversation among the participants in Work-Out led to the doubling of the production rate from 1987 to 1992. To quote Welch from a Forbes article in 2012, “Great cultures deliver great numbers.” (Denning, 2012) Welch saw the need to start from within to improve the numbers. Welch’s Work-Out program led to another movement called Best Practices. Best Practices set out to learn the best ways to improve productivity by looking at and modeling process from other companies.
In one instance, managers from Canadian GE recognized an opportunity to improve upon their processes after seeing the flexible job techniques of a small appliance manufacturer in New Zealand. Because of the open culture Welch promoted, the Canadians went on to add this flexibility to their techniques, which proved successful. The horizontal linkages that was in place made it possible for this idea to be shared with other businesses within GE. Managers from the Louisville plant were able to adapt this new idea into their production practices, which lead to a decrease in inventory costs of 20% and saved time. This all would not have been possible without Welch’s idea of building culture around openness, innovation, and transparency. Welch was a fan of putting people into identifiable groups when it came to performance measurement. While many companies relied strictly on production numbers, he chose to incorporate their willingness to believe in corporate culture as a way to test not only their drive, but their long-term contributions and effects on the company.
In true Welch fashion, he started from the top. Starting from management would help solidify all the work he had done to improve individual development and corporate initiatives. He characterized managers into four quadrants; 1. One who delivers on his/her commitments and shares the values of the company- he/she is a keeper. 2. One who does not deliver on his/her commitments and does not share company values- they’re out. 3. One who does not deliver on commitments but does share in company values- they can be worked on 4. One who delivers on commitments, but does not share the values of the company- the most difficult
In Welch’s eyes, this was the worst type of manager. They were usually all about the numbers, and did not care how they came. He or she is a tyrant, only concerned about pushing performance no matter how negatively it affects employees. Many times, companies look past this because the manager is performing well. However, Welch did not. He wanted everyone to share in the values that were established for a reason. He was committed to weeding out those who were “4s”, as he put it. If coaching them to accept and see the benefits of these values did not work, then they were removed. Again, in his eyes, a company cannot succeed over the long term with employees that do not believe in the mission. Employees will not believe in the mission and understand the cultural values if they do not have managers who do the same. He made a similar move when it came to lower level employees. In a move to help advance the level of staff employed at GE, he urged managers to take a hard look at those under them and rank their long term performance according to a five category scale.
These moves created accountability, which lead to success of those who were willing to put in the work. Now that he had the right people in place with the right kind of thinking, he could move forward on the products and services they offered. Six Sigma was implemented into their business practices after a survey of GE employees found they were dissatisfied with the quality of work that was being produced. Following the Best Practices program, Welch found the idea of Six Sigma after having a meeting with a friend and former colleague, Lawrence Bossidy. Bossidy introduced Welch to Six Sigma, as it worked wonders at his company. After further research, Welch decided to make a full go with the program, creating a well-developed training program for all. It was a mandatory program which tied compensation to successful completion of Six Sigma objectives. But this paid off, production processes increased at many of GE’s subsidiaries, which in turned improved both quality and profit substantially from the time it was introduced to 2000. Welch’s use of Six Sigma put the technique on the map. He singled handedly made this little known technique famous for process improvement around the globe.
2a. From a motivational and empowerment perspective, was Welch an effective leader? How so? From a motivational and empowerment perspective, Welch was definitely an effective leader. He was able to change the mindset of thousands of employees that worked at General Electric. He made them feel empowered to do their best. Most importantly, he made them feel valued as an employee of the company. Welch became acting CEO at a pivotal time in the company’s history. When Welch became CEO in 1981, the country’s economy was in a recession. Unemployment hadn’t been as low as it was since the Great Depression. He immediately disregarded these challenges. He pushed through hard times and the extremely low moral level of the employees. He challenged each and every one of them to be “better than the best” (Bartlett, 2005). One of Welch’s first steps as CEO was to change society’s perception as to how he wanted General Electric to be viewed. By doing so, this increased the level of pride the employee’s felt as being a part of this organization.
Welch explained on page two, “A decade from now, I would like General Electric to be perceived as a unique, high spirited, entrepreneurial enterprise… the most profitable, highly diversified company on earth, with world quality leadership in every one of its product lines” (Bartlett, 2005). Not only did this statement create a clear vision for GE’s internal and external environments, but it sent an underlying message to the employees. This underlying message was, “If people see and understand what General Electric is about, just as CEO Welch described, I would be proud to work at a company like this”. A second example that shows how Welch motivated the employee’s at General Electric was he made it clear that in order to stay an employee of GE, you had to try hard to earn your position. The culture at GE was changing and he was straightforward about getting rid of the dead weight. “We don’t need the questioners and checkers, the nitpickers who bog down the process… Today, each staff person has to ask, “How do I add value?
How do I make people on the line more effective and competitive?” (Bartlett, 2005). This forced people to make a stand in what work they did and to find the value they added to the organization. He continues to describe the seriousness of finding value in all employees later on in the case. He describes four types of leaders that he wants to make up the GE organization. “In our view, leaders, whether on the shop floor or at the top of our business, can be characterized in at least four ways. The first one delivers on commitments – financial or otherwise – and shares the values of our company. His or her future is an easy call. Onward and upward. The second type of leader is one who does not meet commitments and does not share our values. Not a pleasant call, but equally easy. The third is one who misses commitments but shares the values. He or she usually gets a second chance, preferably in a different environment. Then there’s the fourth type – the most difficult for many of us to deal with. That leader delivers on commitments, makes all the numbers, but doesn’t share the values we must have.
This is the individual who typically forces performance out of people, rather than inspires it: the autocrat, the big shot, the tyrant. Too often all of us have looked the other way and tolerated these “Type 4” managers because “they always deliver” – at least in short term” (Bartlett, 2005). He wanted employees to know that you not only needed to have value in the work you deliver, but you need to agree with and share the cultural values of the corporation. Welch was a great leader because he focused much of his efforts in developing his people. He motivated his employees because simply, he paid attention to them. He invested in their professional career. He believed the employees of GE were the company’s best asset. Welch created a process that was called the 360 degree feedback. The idea for this new process was that every employee would be able to receive feedback, positive and constructive, on the work they provided and how they were viewed as a teammate by co-workers and their manager.
As written in the case, “The 360 degree feedback tool became the means for identifying training needs, coaching opportunities, and, eventually, career planning” (Bartlett, 2005). Employees were able to use this feedback to understand their current position and future direction as an employee of the company. This provided employees with a clear vision of where they were headed and in most cases, instilled a sense of motivation as to how they were going to meet their goals. Lastly, Welch was effective at motivating and empowering his people because he recognized the value they brought to the organization. When he first became CEO, he challenged their ideas and perception of how the organization was structured and operated. Under his new leadership, the company evolved into an organization that promoted “speed, simplicity, and self-confidence” (Bartlett, 2005). The understanding, vision, and direction of the employees evolved as well, and as it did, Welch made it known that he was aware of the types of people who he had working at GE. Welch describes, “I’ve got all A players in the Corporate Council. It wasn’t like that before.
I’m really pleased about that,” and also went on to saying “We’re an A-plus company. We want only A players. We can get anyone we want. Shame on any of you who aren’t facing into your less-than-the-best. Take care of your best. Reward them. Promote them. Pay them well. Give them a lot of [stock] options and don’t spend all that time trying to work plans to get Cs to be Bs. Move them out early. It’s a contribution” (Bartlett, 2005). Clearly, this was the best kind of compliment he could give to his employees. He empowered them with a sense of worth. This type of honesty and positive feedback, especially from the CEO, promoted an increase in cultural strength. Based on these examples, it is quite clear that Welch was a great motivator and truly empowered his workforce. He was able to change the mindset of the GE employees. What was once a company that faced economic hardship and had no direct indication of a successful future. Now, GE employees are leaders and empowered individuals. The employees of GE are clearly valued across the organization. Welch was a powerful leader who truly challenged the GE organization to change. The change he brought to GE helped to build and ensure a very strong future for the company.
2b. From a motivational and empowerment perspective, was Welch an effective leader? How so? When considering everything that Welch accomplished as CEO at GE, I believe that he was the text book definition of an effective leader. He came into the job looking to push his company out of the recession stronger that it had ever been, having a world-class set of employees at the helm with him. When he set a goal for each of GE’s business to be “better than the best,” he wanted all aspects to be that way, including his employees. With that said, he set about making major changes in the organizational culture to bring out the best in every last employee. In the text, Empowerment is defined as “power sharing, the delegation of power or authority to subordinates in an organization.” (Daft, 503) When Welch delayered much of the management structure in 1985, he inherently passed additional power onto those that remained or were brought in to the new simpler pecking order.
A greater share of authority was passed onto those who ran the businesses under him. In doing so, he also encouraged accountability. In his actions, he made it very clear what paths an individual can take within (or without) the company. Some may find this a demotivating factor, but in actuality, he is motivating you to think about your abilities. If you do not have the will or passion to perform at your best, then it is in everyone’s best interest that you separate and move on. According to Daft, empowering employees entails giving them information, knowledge, and power. These three elements will ensure an increase in productivity by lower level employees because they realize that they are valued pieces of the corporate puzzle, and every action they make has an effect on the organization. They will feel more comfortable sharing ideas, and using their creativity to perform better and more efficiently. That is exactly why Welch created a number of different initiatives around removing the bureaucracy left from the previous regime, and adding in ways for employees to use their skills to contribute to the organization’s goals. This really inspired change in those who were willing to accept it.
For example, the Work-Out program inspired many to speak up and voice concerns about issues that they had with their business units and bosses. Once this process was done a few times and employees saw that their voices were actually being heard and acted upon, more got involved. Productivity doubled in the years that followed. This soon lead to the implantation of the Six Sigma program, following complaints from employees who felt quality was suffering. This gave employees more information, since they were able to be a part of the solution. Part employee empowerment is giving them additional information on how the company is running. They no longer feel left in the dark. The open culture he created inspired trust, which carried through to solve other issues that was affecting company efficiency. Part of his effectiveness as an inspirational leader came from his relentless pursuit to push the most out of his employees. In planning for the future of GE, he realized that he could harness the potential of his top performers, laying out clear plans for their subsequent moves within the company. He created development plans, as he was deeply committed to the development of the individual.
In doing so, he created an expectation of honesty going both ways. Those who he and his executive team felt were future leaders were given clear feedback about how they were doing, reasonable expectations about their future, and specific skill sets they needed to work on to get there. This is the second element of empowering employees: helping them acquire the skills they need to contribute to the organization. In doing so, he not only inspired goal setting, but motivation to get to the next level. This in turn improved overall productivity in the firm. Lastly, Welch’s process of management also innately gave employees the power to make substantive decisions. While employees did not have free reign over everyday activities or even procedures per se, they did control their own destiny.
This, in a way, gave them power. They had power over themselves. This extended past goal setting for the future. Welch wanted employees to feel as they added value in their everyday jobs. He expanded the way they got paid, changing many more to equity compensation. This means that they had more skin in the game, as their own net worth was influenced by organizational performance. All-in-all, I believe wholeheartedly that Jack Welch was an effective leader at motivating and empowering his employees. His actions encompassed all three elements of empowerment, and inspired thousands of people within and even outside his organization to do better and be better. 2c. From a motivational and empowerment perspective, was Welch an effective leader? How so?
Jack Welch was a transformational leader. Transformational leaders are those who can elicit extraordinary performance from ordinary people. Jack Welch was like a catalyst in a chemical process that causes the other ingredients to work together in a superior fashion.
As CEO Jack Welch realigned goals and motivation, forcing managers to stretch to previously unknown limits. His management and motivation approach included three main areas: goal setting and preparing the company on a corporate level for its competitive challenges, empowering employees at all levels of the organization; and communicating his new goals and visions through the entire organization, using such tools as extensive training programs, newly formed teams and 360 degree review processes.
“If empowerment is the key to treating people right and motivating them to treat your customers right, having a strategy to shift emphasis from leader as boss and evaluator to leader as partner and cheerleader is imperative.” (Blanchard, n.d.) When Welch took over GE, he had a vision of creating an organization where people at all levels could be held responsible for their own work, and in the end make decisions for the betterment of their job. The goal was not to control workers, but instead to liberate them. Welch characterized this as creating a boundary-less organization in which empowered employees were self directed and motivated to effectively reach their goals. Welch eliminated whole layers of management, consolidating overlapping jobs and business units, and forcing employees at every level to take more responsibility for their own work. If something was not absolutely necessary it was eliminated.
The Work-Out concept encouraged communication and accountability with the ultimate goal being to drive above average team performance. By providing each team member with the opportunity to contribute his ideas to the decision making process, Jack Welch hoped to stimulate individuals to constructively challenge their bosses and promote a more motivated workplace.
Under Jack Welch, GE began to realize that human beings are not machines and that each person has the potential to enhance productivity. Knowing how to use this resource not only gave the company a competitive edge, it made each employee feel more important in the production process and thus more motivated. As stated earlier, open communication channels between Welch and his employees was an important tool in this regard. These channels work in both directions, giving employees the ability to air their concerns and work towards a consensus for action. They also help motivate employees, because, once again, employees feel that they are directly contributing to the success of the company. Welch realized that empowerment drives favorable performance results for the employees and the company.
Welch’s initiatives were designed to erase the barriers that proliferate in large organizations. His strategy of boundarylessness was specifically designed to remove the boundaries that separated GE workers from new ideas, customers, and each other. (Welch, 2005)
Horizontal communication is the flow of messages across functional areas at a given level of an organization. The use of horizontal communication in the workplace can enhance morale and offer a means for resolving conflicts. Problems with horizontal communication occur because of territoriality, rivalry, specialization and simple lack of motivation. (“Horizontal Communication”) With programs like Work-Out and Globalization, Welch tore down unnecessary barriers to communication.
Welch realized that everyone needs different motivators, but his underlying concept of motivation was empowerment. In addition to empowerment Welch seems to have used the path-goal theory of motivation. The path-gaol theory states that a leader’s behavior is contingent to the satisfaction, motivation and performance of her or his subordinates. (Wikipedia.org) In this instance Welch displays characteristics of transactional leadership. Vera and Crossan feel that “At certain times organizational leraning processes thrive under transactional leaadership, and at other times they benefit more from transformational leadership. (2004)
Welch’s overall theory of motivation can be described by managing less instead of more or empowerment. Essentially, he instilled confidence by treating employees with respect, he got out of the way and allowed employees to do their jobs, and he ensured that employees were aware of the organization’s vision and allowed them the freedom to use their own acquired skills to reach the organization’s goals. Jack Welch truly believed that making the accomplishment of the organizational vision the personal responsibility each employee motivated those employees to work harder.
According to Ralph Flamini “Situational leadership is critical. Every person you lead is different. They may be at different skill levels, motivational levels, etc.. Spending the time to understand each person, their skills, their motivation, etc is critical to how you then work with that person to get the most out of them. Jack Welch was a master at situational leadership. His attitude towards management boiled down to a few very simple ideas; breaking down hierarchies, ensuring free information flows throughout the organization and encouraging people to talk, listen and be open to new ideas. By flattening the organization and by removing unnecessary layers of bureaucracy, he liberated employees and empowered them to make decisions and affect their jobs, as well as, the company as a whole.
Foremost he underlined his words with accompanying actions and an exemplary attitude. Through the use of 360 degree review processes, appropriate business schemes and structural organizational changes, Welch created and opened communication channels at GE. All of these factors combined to form a motivating force for the employees of GE. This motivation, in turn, lead to history of outstanding performance by GE under Welch. 2d. From a motivational and empowerment perspective, was Welch an effective leader? How so?
Welch was an effective leader in terms of empowering and motivating his employees, however his motivational tactics had a narrow scope, and some of his empowering tactics had negative effects on certain groups. Further, Welch’s first strategic moves as CEO served to disempower employees and build lasting mistrust in his organization. The effects of this, however, were largely counteracted during his corporate culture building phase after the physical restructuring had been accomplished. Motivationally, Welch was a strong believer in compensating high performance and goal setting as a means to increase output. Empowerment
Welch was an effective leader in the sense that he followed his strategic plans very closely. This also meant he followed them with cold disregard to those who were negatively affected by the strategic decisions. In the massive restructuring effort that marked the beginning of Welch’s tenure at GE, he gave all his companies an ultimatum to be the top two in their field or be sold. While this gave ultimate power to the GE companies, it also created an extremely high pressure environment, in which self-determination was limited due to the strict nature of the ultimatum and the short time frame to act (Spreitzer). The layoffs were extremely painful to many GE employees, and the reduced workforce felt overworked and stressed out. Welch became known within the organization as “Neutron Jack” because of his propensity to cut companies and jobs so callously (Bartlett, 2005). While this course of action was a good business decision for GE as a whole, the execution resulted in stripping empowerment from employees, and motivating them by necessity.
While the restructuring was painful and stressed employees, it also eliminated several layers a hierarchy, and gave business heads direct access to Welch. This sharing of power to his subordinates was empowering, and allowed a more linear flow of information up and down the GE management system (Daft, 2001). Further, reducing the distance between Welch and the business heads allowed them to be more involved with the strategic direction of the company and allowed Welch to have a better sense of the pulse of employee attitudes and improvement ideas (Spreitzer). This opened the door for the extremely successful Work Out program, which was Welch’s greatest success in delivering empowerment to the professional-level employees at GE. Work Out was Welch’s best success at empowering GE employees because it created an open forum where professional-level employees could interact democratically and bring up ideas to management in a town hall style arena (Spreitzer).
This socio-structural empowerment had almost 66% company-wide participation and gave professional-level employees a distinct feeling of power to influence management decisions by putting managers on the spot to decide proposals put forth during the meetings (Spreitzer). This was extremely powerful for the participants, however quite stressful for the managers. While Work Out was tailored to professional-level employees, Welch also created an interactive forum for his TMT and management-level employees. He felt very strongly that people were the most valuable asset of GE, and therefore he invested heavily in the Crotonville management development facility and consultants to develop content for GE’s Executive Development Course. Further, Welch directly invited dialog regarding strategic development plans and future vision for GE during these meetings. This encouraging of managers ideas combined with training and development of managerial talent was hugely effective method of empowering this group of employees (Daft, 2001). Motivation
Welch was effective at creating motivation in his organization through compensation and goal setting tactics. From the beginning of his tenure, Welch made it clear that performance was going to be rewarded handsomely through compensation and stock options. He completely altered the stock option award criteria twice while CEO to reflect the performance metrics he expected from his businesses. For example, during Welch’s push to create a “boundary less” organization, he based bonuses on employee idea seeking and interdepartmental sharing. Additionally, Welch tied a 40% bonus to the accomplishment of Six Sigma quality objectives during the execution of that program. His clarity in the performance criteria and the transparent communication of such created a motivating environment in which employees were able to identify the activities that would yield the compensation rewards (Kerr, 1995).
In the latter half of his tenure, Welch started a reach-goal setting initiative which was part of a larger cultural transformation effort. The reach goals were very high compared to the status quo, but were well managed, and gave GE businesses exciting challenges and new a meaning. Further, these goals were well managed because they were attainable, the environment was safe, risk taking was encouraged, and employees trusted no negative repercussions of not meeting the reach goals (Latham, 2004). Of course, meeting the reach goals was rewarded with generous bonuses and stock options so employees were quite motivated to perform.
Welch was a successful and effective leader in building motivation and empowerment in his work force. His compensation reward system and his goal setting tactics were clear, and motivated GE employees to perform. The restricting early in Welch’s tenure was painful to many employees, but the Work Out and Executive Development Course gave employees a voice and let them feel empowered in deciding the direction of the company. These tactics yielded Welch a very strong base of employees which played a huge role in the success of the company while he was CEO.
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GE’s Two Decade Transformation: Jack Welch’s Leadership