General Electric’s two decade transformation
Founded in 1878, GE has grown into one of the world’s leading diversified industrial companies. Initially,it focused on the generation, distribution, and use of electric power. More than a century into business, the company is now engaged in diverse businesses as aircraft engines, medical systems, and diesel-based locomotives.
This paper will discuss why GE and other companies in this case study are profitable or not.
The company is the bellwether of management practices. The company has been given accolades as being an icon of the centralization era in the 1930s. Similarly, it led to trend setting of decentralization in 1950s by delegating responsibilities to hundreds of department heads. Subsequent periods of growth time immemorial clearly illustrtate GE belongs to this league. In addition to its iconic managerial practices – strategic planning – earlier company leaders like Jones, spent a great deal of time on government relations. Soon after taking charge in 1981, Welch had a great vision for the company. In response to a question about what he hoped to build at GE, he replied, “… I would like GE 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.” Having exhibited exemplary performance as CEO at GE, Welch was named “Manager of the Century” on the eve of his retirement in 2001.
General Electric going global. The globalization of GE’s operations was a top priority its leaders. Welch understood why the company needed to set a solid base back at home. Once the solid base was created, the company was ready to engage. It became an ongoing theme that Welch pursued over the years. Through its leadership, Europe’s economic downturn provided a good chance for the company to invest in the region at low cost and further finance ambitious acquisitions. Similarly, as the Mexican peso collapsed, the company saw in it a great buying opportunity. Within months, the company had strategically positioned itself to participate in the country’s rapid recovery. The company’s international revenues doubled the level five years earlier, and they were growing at almost three times those of domestic sales.
The company’s leadership and human capital development. While the company ventured into new markets, essential cultural initiatives were in the works. Welch focused in realigning employee skill sets, and, more importantly their mindsets. With the new organizational and strategic imperatives, the company’s 290,000 workforce was feeling overworked. Most of them felt that the new environment was demanding, and they had a distrust left over from earlier layoffs. He thrust himself into a solution by just redefining the implicit contract that GE had with its employees. To attain the desired culture, substantial amounts of time were committed to rigorous management appraisal, development, and succession planning reviews. A strong believer of incentives as he was, Welch radically overhauled GE’s compensation package. He implemented a compensation package model in which stock options were the primary component of management compensation. He expanded the number of options recipients and made the option allocation strongly tied to an individual’s performance.
General Electric and the boundary-less behavior. Strengthening of GE’s individual businesses meant that Welch would go out of his way to create and focus what he called integrated diversity. He envisioned GE as a boundary-less company characterized by friendliness towards the seeking and sharing of new ideas. Regardless of their origin, the vision entailed an institution of openness. The boundary-less company would remove barriers to engineering, manufacturing, marketing, sales, and customer service. It could eliminate differentiation between domestic and foreign operations. It could remove all hurdles that get in the way of people being able to work together.
That General Electric is a profitable company is not for debate. In this case, strategic planning and management have been in play resulting in two decades of success and profitability. Despite this, the road has not been smooth to Welch and the rest of GE’s leadership. Notably,stiff competition from Japanese competitors, and the 1981 recession in the US economy meant a significant hurdle that the company had to undergo to sustain operations under high-interest rates and a strong dollar.