CPP:
Implementation of best solution
Thoroughly: -Identifies the best solution for the core problem. Provides supporting rationale. -Clearly identifies the best solution for the secondary problem. Provides supporting rationale.
9-399-150
REV: MAY 3, 2005
________________________________________________________________________________________________________________
Research Associate Meg Wozny prepared this case under the supervision of Professor Christopher A. Bartlett. HBS cases are developed solely as
the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective
management.
Copyright © 1999 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be
reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording, or otherwise—without the permission of Harvard Business School.
CHRISTOPHER A. BARTL ETT
MEG WOZNY
GE’s Two-Decade Transformation: Jack Welch’s
Leadership
On September 7, 2001, Jack Welch stepped down as CEO of General Electric. The sense of pride he
felt about the company’s performance during the previous two decades seemed justified judging by
the many accolades GE was receiving. For the third consecutive year, it had not only been named
Fortune’s “Most Admired Company in the United States,” but also Financial Times’ “Most Admired
Company in the World.” And, on the eve of his retirement, Fortune had named Welch “Manager of
the Century” in recognition of his personal contribution to GE’s outstanding 20 year record.
Yet while the mood at GE’s 2001 annual meeting had clearly been upbeat, some shareholders
wondered whether anyone could sustain the blistering pace of change and growth characteristic of
the Welch era. And specifically, many worried if any successor could generate the 23% per annum
total shareholder return Welch had delivered in his two decades leading GE. It would be a tough act
to follow. (See Exhibit 1 for financial summary of Welch’s era at GE.)
The GE Heritage
Founded in 1878 by Thomas Edison, General Electric grew from its early focus on the generation,
distribution, and use of electric power to become, a hundred years later, one of the world’s leading
diversified industrial companies. A century later, in addition to its core businesses in power
generation, household appliances, and lighting, the company was also engaged in businesses as
diverse as aircraft engines, medical systems, and diesel locomotives.
Long regarded as a bellwether of American management practices, GE was constantly undergoing
change. In the 1930s, it was a model of the era’s highly centralized, tightly controlled corporate form.
By the 1950s, GE had delegated responsibility to hundreds of department managers, leading a trend
towards greater decentralization. But a subsequent period of “profitless growth” in the 1960s caused
the company to strengthen its corporate staffs and develop sophisticated strategic planning systems.
Again, GE found itself at the leading edge of management practice.
When Reg Jones, Welch’s predecessor, became CEO in 1973, he inherited the company that had
just completed a major reorganization. Overlaying its 10 groups, 46 divisions, and 190 departments
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399-150 GE’s Two-Decade Transformation: Jack Welch’s Leadership
2
were 43 strategic business units designed to support the strategic planning that was so central to GE’s
management process. Jones raised strategic planning to an art form, and GE again became the
benchmark for hundreds of companies that imitated its SBU-based structure and its sophisticated
planning processes. Soon, however, Jones was unable to keep up with reviewing and approving the
massive volumes of information generated by 43 strategic plans. Explaining that “the review burden
had to be carried on more shoulders,” in 1977 he capped GE’s departments, divisions, groups, and
SBUs with a new organizational layer of “sectors,” representing macrobusiness agglomerations such
as consumer products, power systems, or technical products.
In addition to his focus on strategic planning, Jones spent a great deal of time on government
relations, becoming the country’s leading business statesman. During the 1970s, he was voted CEO of
the Year three times by his peers, with one leading business journal dubbing him CEO of the Decade
in 1979. When he retired in 1981, The Wall Street Journal proclaimed Jones a “management legend,”
adding that by handing the reins to Welch, GE had “replaced a legend with a live wire.”
Welch’s Early Priorities: GE’s Restructuring
When the 45-year-old Welch became CEO in April 1981, the U.S. economy was in a recession.
High interest rates and a strong dollar exacerbated the problem, resulting in the country’s highest
unemployment rates since the Depression. To leverage performance in GE’s diverse portfolio of
businesses, the new CEO challenged each to be “better than the best” and set in motion a series of
changes that were to radically restructure the company over the next five years.
#1 or #2: Fix, Sell, or Close
Soon after taking charge, Welch set the standard for each business to become the #1 or #2
competitor in its industry—or to disengage. Asked whether this simple notion represented GE’s
strategy, Welch responded, “You can’t set an overall theme or a single strategy for a corporation as
broad as GE.” By 1983, however, Welch had elaborated this general “#1 or #2” objective into a “three
circle concept” of his vision for GE. (See Exhibit 2.) Businesses were categorized as core (with the
priority of “reinvesting in productivity and quality”), high-technology (challenged to “stay on the
leading edge” by investing in R&D), and services (required to “add outstanding people and make
contiguous acquisitions”). To a question about what he hoped to build at GE, Welch replied:
A decade from now, I would like General Electric to be perceived as a unique, highspirited,
entrepreneurial enterprise . . . the most profitable, highly diversified company on
earth, with world quality leadership in every one of its product lines.1
But as GE managers struggled to build #1 or #2 positions in a recessionary environment and
under attack from global—often Japanese—competitors, Welch’s admonition to “fix, sell, or close”
uncompetitive businesses frequently led to the latter options. Scores of businesses were sold,
including central air-conditioning, housewares, coal mining, and, eventually, even GE’s well-known
consumer electronics business. Between 1981 and 1990, GE freed up over $11 billion of capital by
selling off more than 200 businesses, which had accounted for 25% of 1980 sales. In that same time
frame, the company made over 370 acquisitions, investing more than $21 billion in such major
purchases as Westinghouse’s lighting business, Employers Reinsurance, RCA, Kidder Peabody, and
Thomson/CGR, the French medical imaging company. (See Exhibit 3.)
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GE’s Two-Decade Transformation: Jack Welch’s Leadership 399-150
3
Internally, Welch’s insistence that GE become more “lean and agile” resulted in a highly
disciplined destaffing process aimed at all large headquarters groups, including a highly symbolic
50% reduction in the 200-person strategic planning staff. Welch described his motivation:
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?”2
As he continued to chip away at bureaucracy, Welch next scrapped GE’s laborious strategic
planning system—and with it, the remaining corporate planning staff. He replaced it with “real time
planning” built around a five-page strategy playbook, which Welch and his 14 key business heads
discussed in shirtsleeves sessions “unencumbered by staff.” Each business’s playbook provided
simple one-page answers to five questions concerning current market dynamics, the competitors’ key
recent activities, the GE business response, the greatest competitive threat over the next three years,
and the GE business’s planned response.
The budgeting process was equally radically redefined. Rather than documenting internally
focused comparisons with past performance, results were now evaluated against external
competitively based criteria: Do sales show increases in market share, for example? Do margins
indicate a cost advantage compared with competition?
In 1985, Welch eliminated the sector level, previously the powerful center of strategic control. (See
Exhibits 4a and 4b.) By reducing the number of hierarchical levels from nine to as few as four, Welch
ensured that all businesses reported directly to him. He said:
We used to have department managers, sector managers, subsector managers, unit
managers, 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.3
Through downsizing, destaffing, and delayering, GE eliminated 59,290 salaried and 64,160 hourly
positions between 1981 and 1988; divestiture eliminated an additional 122,700. Even when offset by
the acquisitions, the number of employees at GE declined from 404,000 in 1980 to 330,000 by 1984 and
292,000 by 1989. Between 1981 and 1985, revenues increased modestly from $27.2 billion to $29.2
billion, but operating profits rose dramatically from $1.6 billion to $2.4 billion. This set the base for
strong increases in both sales and earnings in the second half of the decade (see Exhibit 5).
This drastic restructuring in the early- and mid-1980s earned Welch the nickname “Neutron Jack,”
a term that gained currency even among GE managers when the CEO replaced 12 of his 14 business
heads in August 1986. Welch’s new “varsity team” consisted of managers with a strong commitment
to the new management values, a willingness to break with the old GE culture, and most of all, an
ability to take charge and bring about change. Despite his great dislike for a nickname he felt he did
not deserve, Welch kept pushing the organization for more change. The further into the restructuring
he got, the more convinced he became of the need for bold action:
For me, the idea is to shun the incremental and go for the leap… How does an institution
know when the pace is about right? I hope you won’t think I’m being melodramatic if I say
that the institution ought to stretch itself, ought to reach, to the point where it almost comes
unglued… Remember the theory that a manager should have no more than 6 or 7 direct
reports? I say the right number is closer to 10 or 15.4
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399-150 GE’s Two-Decade Transformation: Jack Welch’s Leadership
4
The Late 1980s: Second Stage of the Rocket
By the late 1980s, most of GE’s business restructuring was complete, but the organization was still
reeling from culture shock and management exhaustion. Welch was as eager as anyone in GE to
move past the “Neutron-Jack” stage and begin rebuilding the company on its more solid foundations.
The “Software” Initiatives: Work-Out and Best Practices
Years after launching GE’s massive restructuring effort, Welch concluded, “By mid-1988 the
hardware was basically in place. We liked our businesses. Now it was time to focus on the
organization’s software.” He also acknowledged that his priorities were shifting: “A company can
boost productivity by restructuring, removing bureaucracy and downsizing, but it cannot sustain
high productivity without cultural change.”
In 1989, Welch articulated the management style he hoped to make GE’s norm—an approach
based on openness, candor, and facing reality. Simultaneously, he refined the core elements of the
organizational culture he wanted to create—one characterized by speed, simplicity, and selfconfidence.a
Over the next few years, he launched two closely linked initiatives—dubbed Work-Out
and Best Practices—aimed at creating the desired culture and management approach.
In late 1988, during one of Welch’s regular visits to teach in the company’s Management
Development Institute, he engaged a group of GE managers in a particularly outspoken session about
the difficulty they were having implementing change back at their operations. In a subsequent
discussion with James Baughman, GE’s director of management development, Welch wondered how
to replicate this type of honest, energetic interaction throughout the company. His objective was to
create the culture of a small company—a place where all felt engaged and everyone had voice.
Together, they developed the idea of a forum where employees could not only speak their minds
about how their business might be run more effectively, but also get immediate responses to their
ideas and proposals. By the time their helicopter touched down at GE’s headquarters, Welch and
Baughman had sketched out a major change initiative they called “Work-Out”—a process designed
to get 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.
At Welch’s request, Baughman formed a small implementation team and, with the help of two
dozen outside consultants, led the company-wide program rollout. Assigned to one of GE’s
businesses, each consultant facilitated a series of off-site meetings patterned after the open-forum
style of New England town meetings. Groups of 40 to 100 employees were invited to share views
about their business and how it might be improved. The three-day sessions usually began with a talk
by the unit boss, who presented a challenge and a broad agenda. Then, the boss was asked to leave,
allowing employees aided by facilitators to list their problems, debate solutions, and prepare
presentations. On the final day, the bosses returned and were asked to listen to their employees’
analyses and recommendations. The rules of the process required managers to make instant, on-the-
a Interestingly, Welch’s first attempts at articulating and communicating GE’s new cultural values were awkward. For
example, in 1986 he defined 10 desirable cultural “attitudes and policies” which few in GE could remember, let alone practice.
Furthermore, he communicated his new organizational model as the GE Business Engine, a concept that many found
depersonalizing since it seemed to depict people as inputs into a financial machine. Gradually, Welch became more
comfortable articulating cultural values which he continued to refine into what he termed “GE’s social architecture.”
Eventually his concept of The Business Engine evolved to become The Human Engine.
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GE’s Two-Decade Transformation: Jack Welch’s Leadership 399-150
5
spot decisions about each proposal, in front of everyone to 80% of proposals. If the manager needed
more information, he or she had to charter a team to get it by an agreed-upon decision date.
Armand Lauzon, a manager at a GE Aircraft Engine factory, described to Fortune how he felt as
his employees presented him with their suggestions in a room where they had carefully arranged the
seating so his boss was behind him. “I was wringing wet within half an hour,” he said. “They had 108
proposals; I had about a minute to say yes or no to each one. And I couldn’t make eye contact with
my boss without turning around, which would show everyone in the room I was chickenshit.” In
total, Lauzon supported all but eight of the 108 proposals.
By mid-1992, over 200,000 GE employees—over two-thirds of the workforce—had participated in
Work-Out, although the exact number was hard to determine, since Welch insisted that none of the
meetings be documented. “You’re just going to end up with more bureaucracy,” he said. What was
clear, however, was that productivity increases, which had been growing at an average annual rate of
2% between 1981 and 1987, doubled to a 4% annual rate between 1988 and 1992.b
As Work-Out was getting started, Welch’s relentless pursuit of ideas to increase productivity
resulted in the birth of a related movement called Best Practices. In the summer of 1988, Welch gave
Michael Frazier of GE’s Business Development department a simple challenge: How can we learn
from other companies that are achieving higher productivity growth than GE? Frazier selected nine
companies, including Ford, Hewlett Packard, Xerox, and Toshiba, with different best practices to
study. In addition to specific tools and practices, Frazier’s team also identified several characteristics
common to the successful companies: they focused more on developing effective processes than
controlling individual activities; customer satisfaction was their main gauge of performance; they
treated their suppliers as partners; and they emphasized the need for a constant stream of highquality
new products designed for efficient manufacturing.
On reviewing Frazier’s report, Welch became an instant convert and committed to a major new
training program to introduce Best Practices thinking throughout the organization, integrating it into
the ongoing agenda of Work-Out teams. As a result of the Best Practices program, many GE
managers began to realize they were managing and measuring the wrong things. (Said one, “We
should have focused more on how things get done than on just what got done.”) Subsequently, several
units began radically revising their whole work approach. For example, the head of the corporate
audit staff explained: “When I started 10 years ago, the first thing I did was count the $5,000 in the
petty cash box. Today, we look at the $5 million in inventory on the floor, searching for process
improvements that will bring it down.”
Going Global
During the early- and mid-1980s, internationalization had remained a back-burner issue at GE,
but strong advocates of globalization such as Paolo Fresco, the Italian-born president of GE Europe,
understood why Welch had to concentrate his early efforts on the rationalization of the U.S.
operations. “It’s very difficult to jump into the world arena if you don’t have a solid base at home,”
said Fresco, “but once the solid base was created, we really took the jump.”
The first rumblings of the emerging globalization priority came in Welch’s challenges to his
Corporate Executive Council meetings during 1986. Reflecting his own early experience in GE
b In GE, productivity was defined by the following calculation: Productivity = Real Revenue (net of price increases)/Real Costs
(net of inflationary increases).
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399-150 GE’s Two-Decade Transformation: Jack Welch’s Leadership
6
Plastics, he did not try to impose a corporate globalization strategy, preferring to let each business
take responsibility for implementing a plan appropriate to its particular needs:
When I was 29 years old I bought land in Holland and built the plants there. That was “my
land” for “my business.” I was never interested in the global GE, just the global Plastics
business. The idea of a company being global is nonsense. Businesses are global, not
companies.5
This did not mean, however, that Welch was uninvolved in his business managers’ globalization
plans. In 1987, he focused their attention by raising the bar on GE’s well-known performance
standard: from now on, “#1 or #2” was to be evaluated on world market position. As if to underline
his seriousness, a few months later he announced a major deal with Thomson S.A., in which GE
agreed to exchange its struggling consumer electronics business for the large French electronics
company’s medical imaging business, a business in which GE had a leading global position.
To provide continuing momentum to the internationalization effort, in 1989 Welch appointed
Paolo Fresco as head of International Operations and in 1992 made him a vice-chairman and member
of his four-man corporate executive office. Fresco, a key negotiator on the Thomson swap, continued
to broker numerous international deals: a joint venture with German-based Robert Bosch, a
partnership with Toshiba, and the acquisition of Sovac, the French consumer credit company. As
Eastern Europe opened, he initiated a major thrust into the former Communist bloc, spearheaded by
the purchase of a majority share in the Hungarian lighting company, Tungsram. Fresco became the
locator and champion of new opportunities. “I fill vacuums,” he said. “All these assignments are
temporary—once they are complete, I get out of the way.”
Like subsequent strategic initiatives, globalization was not a one-time effort, but an ongoing
theme that Welch doggedly pursued over the years. Taking advantage of Europe’s economic
downturn, GE invested $17.5 billion in the region between 1989 and 1995, half on new plants and
facilities and half to finance 50 or so acquisitions. Then, in 1995, after the Mexican peso collapsed, the
company again saw the economic uncertainty as a great buying opportunity. Within six months GE
had acquired 16 companies, positioning it to participate in the country’s surprisingly rapid recovery.
And as Asia slipped into crisis in 1997-1998, Welch urged his managers to view it as a buying
opportunity rather than a problem. In Japan alone the company spent $15 billion on acquisitions in
six months.
By 1998, international revenues were $42.8 billion, almost double the level just five years earlier.
The company expected to do almost half its business outside the United States by 2000, compared
with only 20% in 1985, the year before the first international push. More important, global revenues
were growing at almost three times the rate of domestic sales. (See Exhibit 6).
Developing Leaders
While the global thrust and the new cultural initiatives were being implemented, Welch was also
focusing on the huge task of realigning the skill sets—and, more important, the mindsets—of the
company’s 290,000 employees with GE’s new strategic and organizational imperatives. Amidst the
grumbling of those who felt overworked in the new demanding environment and the residual
distrust left over from the layoffs of the 1980s, he recognized his challenge was nothing short of
redefining the implicit contract that GE had with its employees:
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GE’s Two-Decade Transformation: Jack Welch’s Leadership 399-150
7
Like many other large companies in the U.S., Europe and Japan, GE has had an implicit
psychological contract based on perceived lifetime employment. This produced a paternal,
feudal, fuzzy kind of loyalty. That kind of loyalty tends to focus people inward. But in today’s
environment, people’s emotional energy must be focused outward on a competitive world…
The new psychological contract, if there is such a thing, is that jobs at GE are the best in the
world for people willing to compete. We have the best training and development resources
and an environment committed to providing opportunities for personal and professional
growth.6
Like all GE managers, Welch grew up in an organization deeply committed to developing its
people. He wanted to harness that tradition and use it to translate his broad cultural changes down to
the individual level. This would mean adapting GE’s well-established human resource systems to his
goals. For example, for as long as he could remember, the company’s top executives had committed
substantial amounts of time to the rigorous management appraisal, development, and succession
planning reviews known as Session C. He began using this process to help achieve his objectives,
predictably adding his own intense personal style to its implementation.
Starting in April and lasting through May each year, Welch and three of his senior executives
visited each of his businesses to review the progress of the company’s top 3,000 executives. Welch
kept particularly close tabs on the upper 500, all of whom had been appointed with his personal
approval. In these multi-day meetings, Welch wanted to be exposed to high-potential managers
presenting results on major projects. In an exhaustive 10- to 12-hour review in each business, Welch
asked the top executive to identify the future leaders, outline planned training and development
plans, and detail succession plans for all key jobs. The exercise reflected his strong belief that good
people were GE’s key assets and had to be managed as a company resource. “I own the people,” he
told his business heads. “You just rent them.”
As these reviews rolled out through GE, all professional-level employees expected honest
feedback about where they were professionally, reasonable expectations about future positions they
could hold, and the specific skills required to get there. Managers at every level used these
discussions as the basis for coaching and developing their staff. (As a role model, Welch estimated he
spent at least 70% of his time on people issues, most of that teaching and developing others.)
A strong believer in incentives, Welch also radically overhauled GE’s compensation package.
From a system driven by narrow-range increases in base salary supplemented by bonuses based on
one’s business performance, he implemented a model in which stock options became the primary
component of management compensation. He expanded the number of options recipients from 300 to
30,000 and began making much more aggressive bonus awards and options allocations strongly tied
to the individual’s performance on the current program priority (globalization, for example, or best
practices initiatives).
Through all of these human resource tools and processes, Welch’s major effort was increasingly
focused on creating an environment in which people could be their best. Entering the 1990s, he
described his objective for GE in these terms:
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.
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399-150 GE’s Two-Decade Transformation: Jack Welch’s Leadership
8
A key institution that Welch harnessed to bring about this cultural change was GE’s Crotonville
management development facility. Welch wanted to convert Crotonville from its management
training focus and its role as a reward or a consolation prize for those who missed out on a
promotion to a powerful engine of change in his transformation effort. In the mid-1980s, when he
was cutting costs almost everywhere else, he spent $45 million on new buildings and improvements
at Crotonville. He also hired some experienced academics—Jim Baughman from Harvard and Noel
Tichy from Michigan—to revolutionize Crotonville’s activities.
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. Increasingly, it
evolved from a training center to a place where teams of managers worked together on real priority
issues and decided on results-oriented action. And this led to the gradual replacement of outside
faculty by GE insiders acting as discussion leaders. Leading the change was Welch, who twice a
month traveled to Crotonville to teach and interact with GE employees. (“Haven’t missed a session
yet,” he boasted in the late 1990s.) (See Exhibit 7.) It was during one of these sessions that the idea for
Work-Out emerged, and it was at Crotonville that many of the Best Practices sessions were held.
Despite all the individual development and the corporate initiatives, not all managers were able to
achieve Welch’s ideal leadership profile. (See Exhibit 8.) Of greatest concern to the CEO were those
who seemed unwilling or unable to embrace the open, participative values he was espousing. In
1991, he addressed the problem and the seriousness of its consequences:
In our view, leaders, whether on the shop floor or at the top of our businesses, can be
characterized in at least four ways. The first is one who 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 as pleasant a call, but equally easy. The third is one who misses
commitments but shares the values. He or she usually get 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 the short term. 7
To reinforce his intention to identify and weed out Type 4 managers, Welch began rating GE toplevel
managers not only on their performance against quantifiable targets but also on the extent to
which they “lived” GE values. Subsequently, many of GE’s 500 officers started using a similar twodimensional
grid to evaluate and coach their own direct reports. And when coaching failed, Welch
was prepared to take action on the type 4s. “People are removed for having the wrong values,” he
insisted. “We don’t even talk about the numbers.”
To back up this commitment to the new leadership criteria, a few years later GE introduced a 360°
feedback process. Every employee was graded by his or her manager, peers and all subordinates on a
1 to 5 scale in areas such as teambuilding, quality focus, and vision. Welch described it as a powerful
tool for detecting and changing those who “smile up and kick down.” Tied into the evaluation
process and linked to the Session C human resource planning exercise, the 360° feedback became the
means for identifying training needs, coaching opportunities, and, eventually, career planning—
whether that be up, sideways, or out.
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GE’s Two-Decade Transformation: Jack Welch’s Leadership 399-150
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Into the 1990s: The Third Wave
Entering the 1990s, Welch felt that GE’s new foundation had been laid. Despite the slowdown in
the industrial sector in the first few years of the new decade, he was committed to the task of
rebuilding the company at an even more urgent pace. The new initiatives rolled on.
Boundaryless Behavior
Moving beyond the earlier initiatives aimed at strengthening GE’s individual businesses, Welch
began to focus on creating what he called “integrated diversity.” He articulated his vision for GE in
the 1990s as a “boundaryless” company, one characterized by an “open, anti-parochial environment,
friendly toward the seeking and sharing of new ideas, regardless of their origins”—in many ways an
institutionalization of the openness “Work-Out” had initiated and “best practices” transfers had
reinforced. Describing his barrier-free vision for GE, Welch wrote:
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.8
One of Welch’s most repeated stories of how best practices could be leveraged by boundaryless
behavior described how managers from Canadian GE identified a small New Zealand appliance
maker, Fisher & Paykel, producing a broad range of products very efficiently in its small, low-volume
plant. When the Canadians used the flexible job-shop techniques to increase productivity in their
high-volume factory, the U.S. appliance business became interested. More than 200 managers and
employees from the Louisville plant went to Montreal to study the accomplishments, and soon a
Quick Response program had cut the U.S. production cycle in half and reduced inventory costs by
20%. Not surprisingly, GE’s Appliance Park in Louisville became a “must see” destination for many
other businesses, and within a year, the program had been adapted for businesses as diverse as
locomotives and jet engines.
The CEO gave the abstract concept of boundarylessness teeth not only by repeating such success
stories but also by emphasizing that there was no place at GE for the adherents of the old culture:
“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,” he said. He also changed
the criteria for bonuses and options awards to reward idea-seeking and sharing, not just idea
creation. Five years later, Welch had a list of boundarylessness success stories:
We quickly began to learn from each other: productivity solutions from Lighting; “quick
response” asset management from Appliances; transaction effectiveness from GE Capital; costreduction
techniques from Aircraft Engines; and global account management from Plastics.9
One of the most impressive examples of the way ideas and expertise spread throughout GE was
the company’s “integration model.” Developed on the lessons drawn from literally hundreds of postacquisition
reviews, the model guided the actions of managers in any part of the company
responsible for integrating a newly acquired operation: from taking control of the accounts to
realigning the organization, and from identifying and removing “blockers” to implementing GE tools
and programs. By the late 1990s, GE’s integration programs were completed in about 100 days.
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399-150 GE’s Two-Decade Transformation: Jack Welch’s Leadership
10
Stretch: Achieving the Impossible
To reinforce his rising managerial expectations, in the early 1990s Welch made a new assault on
GE’s cultural norms. He introduced the notion of “stretch” to set performance targets and described
it as “using dreams to set business targets, with no real idea of how to get there.”10 His objective was
to change the way targets were set and performance was measured by creating an atmosphere that
asked of everyone, “How good can you be?”
Stretch targets did not replace traditional forecasting and objective-setting processes. Managers
still had to hit basic targets—adjusted to recognize the world as it turned out to be, not some rigid
plan negotiated a year earlier. But during the budget cycle they were also required to set higher,
“stretch” goals for their businesses. While managers were not held accountable for these goals, those
who achieved them were rewarded with substantial bonuses or stock options. Said Welch: “Rigorous
budgeting alone is nonsense. I think in terms of . . . what is the best you can do. You soon begin to see
what comes out of a trusting, open environment.”
Within a year of introducing the concept of stretch, Welch was reporting progress:
We used to timidly nudge the peanut along, setting goals of moving from, say, 4.73 in
inventory turns to 4.91, or from 8.53% operating margin to 8.92%; and then indulge in timeconsuming
high-level, bureaucratic negotiations to move the number a few hundredths one
way or the other. . . We don’t do that anymore. In a boundaryless organization with a bias for
speed, decimal points are a bore. They inspire or challenge no one, capture no imaginations.
We’re aiming at 10 inventory turns, at 15% operating margins.11
By the mid-1990s, stretch goals were an established part of GE’s culture. A senior executive
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.” But the introduction of stretch targets did not come without
implementation difficulties. According to Steve Kerr, the head of Crotonville, “You absolutely have
to honor the don’t-punish-failure concept; stretch targets become a disaster without that.” Unless
properly managed, he explained, stretch could easily degenerate into a justification for forcing people
to work 60-hour weeks to achieve impossible goals. “It’s not the number per se, especially because it’s
a made-up number. It’s the process you’re trying to stimulate. You’re trying to get people to think of
fundamentally better ways of performing their work.”12
In early 1996, Welch acknowledged that GE did not meet two of its four-year corporate stretch
targets: to increase operating margins from their 1991 level of 10% to 15% by 1995, and inventory
turns from 5 to 10 times. However, after decades of single-digit operating margins and inventory
turns of 4 or 5, GE did achieve an operating margin of 14.4% and inventory turns of almost 7 in 1995.
“In stretching for these ‘impossible’ targets,” said Welch, “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.”13
Service Businesses
In 1994, Welch launched a new strategic initiative designed to reinforce one of his earliest goals: to
reduce GE’s dependence on its traditional industrial products. In the early 1980s, he had initiated the
initial tilt towards service businesses through the acquisition of financial service companies such as
Employers Reinsurance and Kidder, Peabody. “Nearly 60% of GE’s profits now comes from
services,” said Welch in 1995. “Up from 16.4% in 1980. I wish it were 80%.”14
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GE’s Two-Decade Transformation: Jack Welch’s Leadership 399-150
11
To fulfill that wish, Welch began moving to the next stage—a push for product services. During
his annual strategic reviews with senior managers, Welch began to challenge his managers “to
participate in more of the food chain.” While customers would always need high-quality hardware,
Welch argued that GE’s future challenge would be to offset slowing growth for its products by
supplementing them with added-value services. Describing it as one of “the biggest growth
opportunities in [GE’s] history,” he named a cadre of rising executives to focus on the issue. At the
same time, he asked Vice Chairman Paolo Fresco to set up a Services Council through which top
managers could exchange ideas.
Soon, all GE’s businesses were exploring new service-based growth opportunities. The medical
business, for example, developed a concept called “In Site.” This involved placing diagnostic sensors
and communications capability into their installed base of CT scanners, MRI equipment, and other
GE medical devices. The system linked the equipment directly to GE’s on-line service center,
continuously diagnosing its operating condition in real time. Soon, GE was offering its remote
diagnostics and other services to all medical equipment—including non-GE products.
Like other internal “best practice” service examples, the “In Site” story was shared in the Services
Council, and soon online diagnostic technology was being transferred to other GE businesses. In
Aircraft Engines, critical operating parameters of GE jet engines were monitored by GE Service
experts while the engines were in flight, providing the company with a major value-added benefit for
its customers. The same-real time diagnostic concepts were also applied in GE’s power systems
business, and other businesses had plans to develop remote diagnostic capability as well.
According to Welch, the opportunity for growth in product services was unlimited. With an
advantage unique in the world—an installed base of some 9,000 GE commercial jet engines, 10,000
turbines, 13,000 locomotives, and 84,000 major pieces of medical diagnostic imaging equipment—he
felt GE had an incredibly strong platform on which to build. Commented Lewis Edelheit, GE’s senior
VP for Corporate Research and Development:
A few years ago, businesses were seen as a pyramid, with the base as the product and the
other elements—services, manufacturing processes and information—resting on that base. We
are now looking at turning the pyramid upside down. The product will become just one piece
of the picture—the tip of that inverted pyramid. The biggest growth opportunities may come
from providing services to the customer: providing the customer with ways to become more
productive—and with information so valuable the customer will pay for it.15
By 1996, GE had built an $8 billion equipment services business, which was growing much faster
than the underlying product businesses. Equally important, in Welch’s view, it was changing internal
mindsets from selling products to “helping our customers to win.” GE’s product services were to be
aimed at making customers’ existing assets—power plants, locomotives, airplanes, factories, hospital
equipment and the like—more productive. Yet while GE was helping its customers reduce their
capital outlays, its managers were also shifting demand from low-margin products to their newer
high-profit services with margins almost twice the company average.
This initiative led to a new round of acquisitions. In 1997 alone, GE made 20 service-related
acquisitions and joint ventures, including a $1.5 billion acquisition of a jet engine service business and
the $600 million purchase of a global power generation equipment service company. GE’s radical
business shift over two decades led Welch to claim, “We have changed the very nature of what we do
for a living. Today, services account for two-thirds of our revenues.” (See Exhibit 9.)
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399-150 GE’s Two-Decade Transformation: Jack Welch’s Leadership
12
Closing Out the Decade: Raising the Bar
As he entered the last half of the decade, Welch was aware that he would reach GE’s mandatory
retirement age in 2001. Yet his commitment to keep building GE was undiminished, despite critics
who continued to question if the company could keep adding value to such a highly diversified
business portfolio. In the 1995 Annual Report, he tackled the issue head on:
The hottest trend in business is the rush toward breaking up multi-business companies. The
obvious question to GE, the world’s largest multi-business company, was, “When are you
going to do it?” The short answer is that we’re not. . . . We are a company intent on getting
bigger, not smaller. Our only answer to the trendy question “What do you intend to spin off?”
is “Cash—and lots of it.”
Despite hospitalization for triple bypass surgery in 1995, he showed no signs of slowing down.
Indeed, many felt he gained new energy in his post-operative state as the pressure for performance
and new initiatives continued.
Six Sigma Quality Initiative
When a 1995 company survey showed that GE employees were dissatisfied with the quality of its
products and processes, Welch met with Lawrence Bossidy, an old friend who had left GE in 1991 to
become CEO of AlliedSignal Inc. Welch learned how the Six Sigma quality program Bossidy had
borrowed from Motorola Inc. had helped AlliedSignal dramatically improve quality, lower costs, and
increase productivity. Immediately, he invited Bossidy to GE’s next Corporate Executive Council
meeting. His presentation of the AlliedSignal program won universal rave reviews.
After the meeting, Welch asked Gary Reiner, vice president for Business Development, to lead a
quality initiative for GE. Reiner undertook a detailed study of the impact of quality programs at
companies like Motorola and AlliedSignal. His analysis concluded that GE was operating at error
rates ten thousand times the Six Sigma quality level of 3.4 defects per million operations.
Furthermore, he estimated that the gap was costing the company between $8 billion and $12 billion a
year in inefficiencies and lost productivity. On the basis of Reiner’s findings, at GE’s 1996 annual
gathering of its 500 top managers in Boca Raton, Welch announced a goal of reaching Six Sigma
quality levels company-wide by the year 2000, describing the program as “the biggest opportunity
for growth, increased profitability, and individual employee satisfaction in the history of our
company.”
Like all initiatives announced in Boca (services, globalization, etc.), Six Sigma quality was more
than a slogan: it was a well-developed program, with a detailed plan for its implementation.
Furthermore, it would be monitored throughout the year in a carefully linked series of management
meetings that Welch started to refer to as GE’s “operating system”—the series of planning, resource
allocation, review, and communication meetings that were at the heart of its management process.
The Boca initiative announcement was followed up by a first progress report at the two-day March
CEC meeting; then in the April Session C reviews, Welch would check how key human resources had
been deployed against the target; the July strategic review sessions would review the impact of the
initiative on each business’s three-year outlook; October’s Officers Meeting tracked progress and
showcased best practice; and the November operating plan reviews would fold the impact into the
following year’s forecasts. (See Exhibit 10.) Said Welch, “We are relentless.”
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GE’s Two-Decade Transformation: Jack Welch’s Leadership 399-150
13
Six Sigma participation was not optional, and Welch tied 40% of bonus to an individual’s Six
Sigma objectives. To provide managers the skills, Reiner designed a massive training of thousands of
managers to create a cadre of “Green Belts,” “Black Belts,” and “Master Black Belts” in Six Sigma
quality. “Green Belt” training took about four weeks, followed by implementation of a five-month
project aimed at improving quality. Black Belts required six weeks of instruction in statistics, data
analysis, and other Six Sigma tools which prepared the candidate to undertake three major quality
projects that resulted in measurable performance increases. Master Black Belts—full-time Six Sigma
instructors—mentored the Black Belt candidates through the two-year process.
At the January 1998 Boca Raton meeting, speakers from across the company and around the world
presented Six Sigma best practice and achievements. Managers from Medical Systems described how
Six Sigma designs produced a tenfold increase in the life of CT scanner x-ray tubes; the railcar leasing
business described a 62% reduction in turnaround time at its repair shops, making it two to three
times faster than its nearest rival; and a team from the plastics business described how the Six Sigma
process added 300 million pounds of new capacity, equivalent to a “free plant.” In all, 30,000 Six
Sigma projects had been initiated in the prior year.
At the April 1999 Annual Meeting, Welch announced that in the first two years of Six Sigma, GE
had invested $500 million to train the entire professional workforce of 85,000. In addition, 5,000
managers had been appointed to work on the program full-time as Black Belts and Master Black
Belts, leading Welch to claim “they have begun to change the DNA of GE to one whose central strand
is quality.” Returns of $750 million over the investment exceeded expectations, and the company was
forecasting additional returns of $1.5 billion in 1999 (Exhibit 11). Clearly delighted by the program,
Welch stated, “In nearly four decades with GE, I have never seen a company initiative move so
willingly and so rapidly in pursuit of a big idea.”
“A Players” with “Four E’s”
The closer he got to his planned retirement date, the more Welch seemed to focus on the quality of
the organization he would leave to his successor. While he felt he had assembled a first-class team of
leaders at the top of the company, he wanted to continue upgrading quality deep in the organization.
This implied not only raising the bar on new hires but also weeding out those who did not meet GE’s
high standards. Modifying his earlier language of four management types, he began describing GE as
a company that wanted only “A Players”—individuals with vision, leadership, energy, and courage.
He described what he was trying to achieve:
The GE leader sees this company for what it truly is: the largest petri dish of business
innovation in the world. We have roughly 350 business segments. We see them as 350
laboratories whose ideas are there to be shared, learned, and spread as fast as we can. The
leader sees that sharing and spreading near the top of his or her responsibilities.
“A Players” were characterized by what Welch described as the 4E’s—energy (“excited by ideas
and attracted to turbulence because of the opportunity it brings”), ability to energize others
(“infecting everyone with their enthusiasm for an idea and having everyone dreaming the same big
dreams”), edge (“the ability to make tough calls”) and execution (“the consistent ability to turn vision
into results”).
To meet the company’s need for exceptional leadership talent, Welch insisted that GE move to
phase three of its globalization initiative. Beyond focusing on global markets and global sources—the
earlier two phases of globalization—he urged his managers to expand their efforts in “globalizing the
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399-150 GE’s Two-Decade Transformation: Jack Welch’s Leadership
14
intellect of the company.” At the same time, he urged his top management group to take strong
action to upgrade the quality of their existing employees:
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 on out early. It’s a contribution.16
To help clarify those decisions, the company implemented a performance appraisal system that
required every manager to rank each of his or her employees into one of five categories based on his
or her long-term performance—the “top” 10% as 1s, the “strong” 15% as 2s, the “highly valued” 50%
as 3s, the “borderline” 15% as 4s, and the “least effective” 10% as 5s.c Every group, even a 10-person
team, had to be ranked on this so-called “vitality curve.” All 1s and most 2s received stock options
but anyone rated a 5 had to go. Welch elaborated on the need to weed out poor performers: “With the
5s it’s clear as a bell. I think they know it, and you know it. It’s better for everyone. They go on to a
new place, a new life, a new start.” At the other end of the scale, Welch expected managers to take
action on their top performers to develop them: “You send your top 10 on and see how many of them
get into the top 10 of the whole business.”
Welch knew that the nurturing and continuously upgrading the quality of management was one
of the main keys to GE’s success. He felt that the talent he amassed over 18 years—especially at the
senior management levels—was of a significantly higher quality than in past years. “I’ve got all A
players in the Corporate Council. It wasn’t like that before. I’m really pleased about that,” he said.
Toward Retirement: One More Initiative
Just when the organization felt Welch had put his final stamp on GE, at the 1999 Operating
Managers’ Meeting in Boca, the 64-year-old CEO introduced his fourth strategic initiative—ebusiness.d
Describing the impact of the Internet as “the biggest change I have ever seen,” he launched
a program he described as “destroyyourbusiness.com.” Within two months each unit had a full-time
dyb.com team focused on the challenge of redefining its business model before someone else did.
“Change means opportunity,” he told them. “And this is our greatest opportunity yet.”
Yet Welch also knew that GE was late to the Internet party. As he acknowledged in his address to
shareholders three months after the Boca meeting, “Big companies like us were frightened by the
unfamiliarity of the technology. We thought this was mysterious, Nobel Prize stuff, the province of
the wild-eyed and purple haired.” But the more he explored the Internet and talked to people about
it, the more Welch came to believe that, through processes like Six Sigma, GE had done the really
hard work of building the assets needed to support e-business—like strong brands, top ranked
product reliability, great fulfillment capability, and excellent service quality. “It’s much harder for a
c Eventually, the five categories were reduced to three—the top 20%, the high-performance 70%, and the bottom 10%. The
practice of counseling out the bottom 10% continued under the philosophy of “improve or move.”
d The three earlier ones were globalization, services, and Six Sigma. For more detail on the implementation of GE’s strategic
initiatives across its business see “GE’s Digital Revolution: Redefining the E in GE” (9-302-001).
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GE’s Two-Decade Transformation: Jack Welch’s Leadership 399-150
15
dot com startup to challenge us when they don’t have the fundamentals down,” he said. “They’re
popcorn stands without a real business or operating capabilities.”
As the organization cranked up to push the new initiative through the monthly schedule of
reviews that GE operating system required, Welch was impressed by early results from the dyb.com
teams. “Digitizing the company and developing e-business models is easier—not harder—than we
ever imagined,” he said. But others were more sanguine. Said David Mark, a partner at McKinsey
and Co., “It’s going to take a decade for this to play out. I don’t think it’s a simple transition.” If Mark
was correct, building GE’s e-business would be a long-term challenge for Welch’s successor.
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399-150 -16-
Exhibit 1 Selected Financial Data: General Electric and Consolidated Affiliates ($ millions)
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1986 1981
Revenues $129,853 $111,630 $100,469 $90,840 $79,179 $70,028 $60,109 $55,701 $53,051 $51,283 $49,696 $36,725 $27,240
Earnings from continuing operations 12,735 10,717 9,296 8,203 7,280 6,573 5,915 4,184 4,137 3,943 3,920 3,689 NA
Loss from discontinued operations — — – – – – -1,189 993 588 492 383 NA NA
Net earnings 12,735 10,717 9,296 8,203 7,280 6,573 4,726 4,315 4,725 2,636 4,303 2,492 1,652
Dividends declared 5,647 4,786 4,081 3,535 3,138 2,838 2,546 2,229 1,985 1,808 1,696 1,081 715
Earned on average share owners’ equity 27.5% 26.8% 25.7% 25.0% 24.0% 23.5% 18.1% 17.5% 20.9% 12.2% 20.2% 17.3% 19.1%
Per share
Net earnings 3.87 3.27 2.84 2.50 2.20 1.95 1.38 3.03 2.75 2.55 2.42 2.73 NA
Net earnings—diluted 3.81 3.21 2.80 2.46 2.16 1.93 1.37 2.52 2.75 1.51 2.42 NA NA
Dividends declared 1.71 1.47 1.25 1.08 0.95 0.845 0.745 1.31 1.16 1.04 0.96 1.18 NA
Stock price range (1) 41.7-60 32-53.2 23.9-34.4 16.3-25.1 11.7-17.5 8.4-11.1 7.6-9.1 6.8-8.9 6.1-7.3 4.5-6.5 4.2-6.2 2.8-3.7 1.1-1.5
Total assets of continuing operations 437,006 405,200 335,935 304,012 272,402 228,035 185,871 251,506 192,876 166,508 152,000 84,818 20,942
Long-term borrowings 82,132 71,427 59,663 46,603 49,245 51,027 36,979 28,194 25,298 22,602 20,886 100,001 1,059
Shares outstanding—average (in thousands) 3,299,037 3,277,826 3,268,998 3,274,692 3,307,394 3,367,624 3,417,476 1,707,979 1,714,396 1,737,863 1,775,104 912,594 227,528
Employees at year end
United States 168,000 167,000 163,000 165,000 155,000 150,000 156,000 157,000 168,000 173,000 183,000 302,000 NA
Other countries 145,000 143,000 130,000 111,000 84,000 72,000 60,000 59,000 58,000 62,000 62,000 71,000 NA
Discontinued operations (primarily U.S.) — — – – – – 5,000 6,000 42,000 49,000 53,000 NA NA
Total employees 313,000 310,000 293,000 276,000 239,000 222,000 221,000 222,000 268,000 284,000 298,000 373,000 404,000
Source: Datastream and Capital IQ.
(1) Price unadjusted for four 2-for-1 stock splits during the period.
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GE’s Two-Decade Transformation: Jack Welch’s Leadership 399-150
17
Exhibit 2 The Three-Circle Vision’ for GE, 1982
SERVICES
GECC Information
Construction
& Engineering
Nuclear Services
TECHNOLOGY
Industrial Electronics
Medical Systems
Materials
Aerospace
Aircraft Engines
CORE
Lighting
Major Appliance
Motor
Transportation
Turbine
Construction
Equipment
SUPPORT
Ladd Petroleum
Semiconductor
GE Trading Co.
Utah Mining
VENTURES
Calma
OUTSIDE
Housewares
Central Air-Conditioning
TV&Audio
Cable
Mobile
Power Delivery
Radio Stations
Exhibit 3 Changes in the GE Business Portfolio
MAJOR ACQUISITIONS
($21Billion Total)
x Calma (CAD/CAM equipment)
x Intersil (semiconductors)
x Employers Reinsurance Corp.
x Decimus (computer leasing)
x RCA (NBC Television, aerospace, electronics)
x Kidder, Peabody (investment banking)
x Polaris (aircraft leasing)
x Genstar (container leasing)
x Thomson/CGR (medical equipment)
x Gelco (portable building leasing)
x Borg-Warner Chemicals (plastics)
x Montgomery Ward Credit (credit cards)
x Roper (appliances)
x Penske Leasing (truck leasing)
x Financial Guaranty Insurance Co.
x Thungsram (light bulbs)
x Burton Group Financial Services
x Travelers Mortgage (mortgage services)
x Thorn Lighting (light bulbs)
x Financial News Network (cable network)
x Chase Manhattan Leasing
x Itel Containers (container leasing)
x Harrods/House of Fraser Credit Cards
MAJOR DIVESTITURES
($11 Billion Total)
x Central Air Conditioning
x Pathfinder Mines
x Broadcasting Properties (non-RCA TV &
radio stations)
x Utah International (mining)
x Housewares (small appliances)
x Family Financial Services
x RCA Records
x Nacolah Life Insurance (RCA’s)
x Coronet Carpets (RCA’s)
x Consumer Electronics (TV sets)
x Carboloy (industrial cutting tools)
x NBC Radio Networks
x Roper Outdoor Lawn Equipment
x GE Solid State (semiconductors)
x Calma (CAD/CAM equipment)
x RCA Globcomm international telex)
x Ladd Petroleum (oil exploration & refining)
x RCA Columbia Home Video
x Auto Auctions (auctions of used cars)
Source: The Business Engine.
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399-150 -18-
CORPORATE EXECUTIVE OFFICE
John F. Welch, Jr.
Chairman
Edward E. Hood, Jr. John F. Burlingame
Vice Chairman of the Board, Executive Officer Vice Chairman of the Board, Executive Officer
Corporate Finance
Staff
Brian H. Rowe
Senior Vice President
Finance
Office of General
Counsel & Secretary
Walter A. Schlotterbeck
Senior Vice President
General Counsel & Secretary
Corporate Technology
Staff
Arthur M. Bueche
Senior Vice President
Corporate Production
& Operating Services
Leonard C. Maier, Jr.
Senior Vice President
Corporate Relations
Staff
Frank P. Doyle
Senior Vice President
Corporate Productivity
& Quality Staff
Walter A. Schlotterbeck
Senior Vice President
General Counsel & Secretary
Corporate Planning
& Development Staff
Daniel J. Fox
Senior Vice President
Executive Manpower
Staff
Thedore P. LeVino
Senior Vice President
Consumer Products
Sector
Paul W. Van Orden
Executive Vice President
& Sector Executive
Services &
Materials Sector
Lawrence A. Bossoy
Executive Vice President
and Sector Executive
Technical System
Sector
James A. Baker
Executive Vice President
& Sector Executive
Aircraft Engine
Business Group
Brian H. Rowe
Senior Vice President—
& Group Executive
Industrial Products
Sector
Louis V. Tomasetti
Executive Vice President
& Sector Executive
International
Sector
Robert R. Fredrick
Executive Vice President
& Sector Executive
Power Systems
Sector
Herman R. Hill
Executive Vice President
& Sector Executive
• Utah International Inc.
Alexander M. Wilson
Chairman of the Board
& Chief Executive Officer
Lighting Business Group Engineering Materials Group Aerospace
Business Group
International Trading
Operations
Tribune Construction
and Engineering Ladd Petroleum Corp.
Major Appliance
Business Group
Plastics Business
Operations
Industrial Electronics
Business Group
General Electric Espanola,
S.A. Latin American Nuclear Energy
Air Conditioning
Business Division
Battery Business
Department
Medical Systems
Business Operations
General Electric do
Brasil, S.A. Large Transformer
Housewares and Audio
Business Division
Electromaterials Business
Department
Advanced
Microelectronics Operations
Canadian General Electric
Company Limited
Television
Business Division
Information Services
Business Division
Mobile Communications
Business Development
General Electric General Electric
Credit Corporation
Broadcasting
Company, Inc.
General Electric
Cablevision Corporation
Corporate
Staff
Sectors
Businesses
Exhibit 4a GE Organization in 1981
CORPORATE EXECUTIVE OFFICE
John F. Welch,Jr.
Chairman
Edward E. Hood, Jr. Frank P. Doyle John F. Burlingame
Vice Chairman Executive Vice Chairman Vice Chairman
Legal Staff
Benjamin W. Herman, Jr.
Senior Vice President
General Counsel & Secretary
Business Development
Gary M. Remer
Vice President
Finance
Dennis D. Dammerman
Senior Vice President
Research & Development
Walter L. Ross
Senior Vice President
External & Industrial
Relations
Frank P. Doyle
Executive Vice President
GE International
Paolo Fresco
Vice Chairman
Human
Resources
Jack O. Peiffer
Senior Vice President
Corporate &
Information Technology
Edward J. Skiko
Vice President
Corporate
Staff
Exhibit 4b GE Organization in 1992
Sector Layers Taken Out
GE Aircraft
Engines
Brian H. Rowe
President & CEO
GE Appliances
J. Richard Stomesiper
President & CEO
GE Financial Services
Gary C. Wendt
Chairman, President
& CEO
GE Aerospace
Eugene F. Murphy
President & CEO
GE Plastics
Gary L. Rogers
President & CEO
GE Transportation System
Robert L. Mardelli
President & CEO
GE Industrial &
Power System
David C. Genever-Walting
President & CEO
NBC
Robert C. Wright
President & CEO
GE Lighting
John D. Opie
President & CEO
GE Motors
James W. Rogers
President & CEO
GE Medical Systems
John M. Trane
President & CEO
GE Electrical Distribution
and Control
W. James C. McNerney, Jr.
President & CEO
GE Information Services
Helemen S. Runtagh
President
Businesses
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399
-150
-19
–
Exhibit 5 General Electric
’s Performance in Three Eras
(millions of dollars)
Borch Jones Welch
1961 1970 1971 1980 198
1 1990 2000
Sales 4,666.6 8,726.7 9,557.0 24,950.0 27,240.0 52,619.0 129,853.0
Operating profit 431.8 548.9 737.0 2,243.0 2,447.0 6,616.0
Net earnings 238.4 328.5 510.0 1,514.0 1,652.0 4,303.0 12,735.0
ROS 5.1% 3.8% 5.3% 6.1% 6.1% 8.2% 9.8%
ROE 14.8% 12.6% 17.2% 19.5% 18.1% 19.8%
Stock market
capitalization 6,283.7 7,026.7 10,870.5 12,173.4 13,073.4 50,344.9
S&P 500 Stock Price
Index–Composite 65.7 83.0 97.9 119.4 126.4 330.2
Employees 279,547 396,583 402,000 366,000 404,000 298,000
U.S GNP ($ billion) 523.0 982.0 1,063.0 2,626.0 2,708.0 5,524.5
313,000
Source: GE Annual Reports, Survey of Current Business, Datastream.
19,630.0
28.7%
1,365.3
9,276.4
389,442.9
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399-150 GE’s Two-Decade Transformation: Jack Welch’s Leadership
20
Exhibit 6 Growth through Globalization
$0
$21
$42
$63
$84
$105
1987 1991 1995 1996 1997 1998
Global 15% Average Annual Growth Rate
Domestic 6% Average Annual Growth Rate
Increase in Sales Over
Previous Year ($ millions)
Source: GE Annual Report, 1998.
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GE’s Two-Decade Transformation: Jack Welch’s Leadership 399-150
21
Exhibit 7 Welch at GE’s Crotonville Center
A typical note Welch sent to 30 participants to prepare for his session of GE’s Executive
Development Course (EDC):
Dear EDC Participants,
I’m looking forward to an exciting time with you tomorrow. I’ve included here a few thoughts for
you to think about prior to our session:
As a group—
Situation: Tomorrow you are appointed CEO of GE.
x What would you do in first 30 days?
x Do you have a current “vision” of what to do?
x How would you go about developing one?
x Present your best shot at a vision.
x How would you go about “selling” the vision?
x What foundations would you build on?
x What current practices would you jettison?
Individually—
1. Please be prepared to describe a leadership dilemma that you have faced in the
past 12 months, i.e., plant closing, work transfer, HR, buy or sell a business, etc.
2. Think about what you would recommend to accelerate the Quality drive across
the company.
3. I’ll be talking about “A, B & C” players. What are your thoughts on just what
makes up such a player?
4. I’ll also be talking about energy/energizing/edge as key characteristics of
today’s leaders. Do you agree? Would you broaden this? How?
I’m looking forward to a fun time, and I know I’ll leave a lot smarter than when I arrived.
—Jack
Source: The Leadership Engine.
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399-150 GE’s Two-Decade Transformation: Jack Welch’s Leadership
22
Exhibit 8 GE Leadership Capabilities
x Create a clear, simple, reality-based,
customer-focused vision and are able to
communicate it straightforwardly to all
constituencies.
x Understand accountability and
commitment and are decisive . . . set and
meet aggressive targets . . . always with
unyielding integrity.
x Have the self-confidence to empower
others and behave in a boundaryless
fashion… believe in and are committed to
Work-Out as a means of empowerment . . .
be open to ideas from anywhere.
x Have a passion for excellence . . . hate
bureaucracy and all the nonsense that
comes with it.
x Have, or have the capacity to develop
global brains and global sensitivity and are
comfortable building diverse global teams.
x Stimulate and relish change . . . are not
frightened or paralyzed by it. See change
as opportunity, not just a threat.
x Have enormous energy and the ability to
energize and invigorate others.
Understand speed as a competitive
advantage and see the total organizational
benefits that can be derived from a focus
on speed.
Source: 1992 Annual Report.
Exhibit 9 Growth in GE’s Service Businesses
GE Product vs. Services Revenues; 1980-2000
1980
85
45
55
1990
45 55
1995
33
67
1998
85
15
2000
(forecast)
25
75
Products
Services
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399-150 -23-
Exhibit 10 The GE Management System
Session C
Org./Staffing/
Succession
Session 1
Strategy
SII/CII
Operating
Plan
Core Business Processes
Leadership Meetings
Operating
Managers
Mtg. (Boca)
Corporate
Officers
Mtg. (COM) Corporate
Executive
Council
(CEC)
CEC CEC CEC
Management System Drives Resource Allocation (People and $) and Accelerates Consistent Best Practice Implementation
April April June June August August October October December December February February
March March May May July July September September November November January January
Session D
Compliance
(Quarterly)
CEO
Survey
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399-150 GE’s Two-Decade Transformation: Jack Welch’s Leadership
24
Exhibit 11 Costs and Benefits of GE’s Six Sigma Program
Six Sigma Results: 1996-1999
$0
$500
$1,000
$1,500
$2,000
$2,500
1999
Estimate
1996 1997 1998
($ millions)
Source: GE Annual Report, 1998.
Benefit Cost
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GE’s Two-Decade Transformation: Jack Welch’s Leadership 399-150
25
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Filipczak, Bob, “CEOs Who Train,” Training, June, 1996.
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Hodgetts, Richard M., “A Conversation with Steve Kerr, GE’s Chief Learning Officer,” Organizational Dynamics,
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Kandebo, Stanley, “Engine Services Critical to GE Strategy,” Aviation Week, February 23, 1998.
Koenig, Peter, “If Europe’s Dead, Why is GE Investing Billions There?” Fortune, September 9, 1996.
Lorenz, Christopher, “The Alliance-Maker,” Financial Times, April 14, 1989.
Norman, James R., “A Very Nimble Elephant,” Forbes, October 10, 1994.
Rifkin, Glenn, “GE: Brining Good Leaders to Life,” Forbes, April 8, 1996.
Tichy, M. Noel and Eli Cohen, The Leadership Engine: How Winning Companies Build Leaders at Every Level
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Endnotes
1 “General Electric: 1984” (HBS Case No. 385-315), by Professor Francis J. Aguilar and Richard G. Hamermesh
and RA Caroline Brainard. © 1985 by the President and Fellows of Harvard College.
2 Noel Tichy and Ram Charan, “Speed, Simplicity, Self-Confidence: An Interview with Jack Welch,” Harvard
Business Review, September-October 1989.
3 Anon, “GE Chief Hopes to Shape Agile Giant,” Los Angeles Times, June 1, 1988.
4 Tichy and Charan, op. cit., p. 112.
5 Robert Slater, Jack Welch and the GE Way: Management Insights and Leadership Secrets of the Legendary CEO
(McGraw-Hill), 1998, p. 195.
6 Tichy and Charan, op. cit., p. 120.
7 GE Annual Report, 1991.
8 GE Annual Report, 1989.
9 GE Annual Report, 1995.
10 GE Annual Report, 1993.
11 GE Annual Report, 1993.
12 “Stretch Goals: The Dark Side of Asking for Miracles,” interview excerpts with Steve Kerr, GE’s Vice President
of Leadership Development. Fortune, November 13, 1995.
13 GE Annual Report, 1995.
14 Tim Smart, “Jack Welch’s Encore,” Fortune, October 28, 1996.
15 Lewis Edelheit, “GE’s R&D Strategy: Be Vital,” Research Technology Management, March-April, 1998.
16 Slater, op. cit., p. 39.
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