General Electric’s two decade transformation
General electric has came a long way to become the most progressive and diversified businesses in the world. The success of the company is however attributed to the transformational leadership of Welch who steered the company four two decades starting from 1981.Welch took over the management of the company from Jones who had managed the business from 1970s to 1980.The sharp movement of the company from a struggling domestic company to a highly diversified global and innovative firm came during the era of Welch. The significant achievement made by Welch did not however come very simple, as he had to totally transform and reorganize the company given that he took over when the US economy was struggling with numerous challenges.
Welch therefore had the following difficulties during his early stages of leadership at the company. The economy was suffering from a major recession and as usual productivity and consumption was very low in the country. The recession also led to an increase in interest rates and a strong dollar, which led to high levels of unemployment. The company had however managed to develop a highly diversified portfolio, which Welch inherited from Jones, and hence it was a challenge to keep up with a large organization with a large portfolio and hence high costs of operations. When Welch took over, the organization was operating with the model that was brought about by the 1973 reorganization, which saw the company operate with 10 groups, 46 divisions, 190 departments and 43 strategic divisions. The organization structure was quite complex and hence decision-making could not be an easy task.
Under prevailing conditions, it was very difficult to achieve company objectives and hence there was need for extra effort on the part of all members of the organization. Welch who had to use his transformational leadership skills to change the entire organization and make it ready for the difficult economic conditions led this process (Lang, 2011).
2. How effectively did Welch take charge?
From the above discussion, it’s quite clear that Welch had a very big task in his hands and the success of the company hanged on the kind of decisions that he made. Based on the economic conditions businesses had to operate with high levels of efficiency to cope with the impending recession.
After careful analysis of the company structure and its operations Welch identified the numerous departments, product portfolios are the first line of action, and hence he embarked on a major transformation initiative that could see the company achieve lean and efficient operations within its departments and product portfolio. The CEO therefore instructed all the departments to initiate the fix, sell or close strategy to eliminate all the product lines that did not create value for the company. In this regard, there was massive investment in technology through research and development, high quality productivity and concentration on services that add value. This initiative led to the elimination of 200 businesses and savings of more than $ 11 billion of capital, which was initially spent, on these business units. During the same period, the firm acquired 37 new businesses with expenditure of $21 billion. With this, the firm was able to achieve lean operations in its product lines (Burke & Cooper, 2000).
As mentioned earlier the organization structure was quite complex and hence decision-making became very difficult. At the same time, the staff members were not fully accountable to the organization as many roles and duties overllaped.Welch therefore embarked on a new strategy to operate with a simple structure where all the members of the organization could fully take charge of their duties and responsibilities. This initiative was also aimed at making the CEO fully appreciate real experience on the ground and make appropriate decisions to correct any challenge. This strategy saw a reduction of strategy staff by 50%, which were replaced with real time planning systems. There was an overall reduction in staff from 404000 in 1981 to 292000 by 1989.Other initiatives by the CEO included massive global operations to protect the value of the firm from local economic conditions, development of leaders within the business units and to properly plan for succession as the CEO was due to retire in 2001.
The CEO also managed to make high stretch goals after the company especially after the restructuring process and some of the key initiatives included the adoption of high level of technology and use of internet in business operations (Lang, 2011).
There is no doubt that Welch transformational leadership approach was the main driver of the company from a low profit firm in 1980s to a stable and global firm with high level of diversification and hence a clear testimony of how transformational leadership can take a company from one level to another.
Burke,J.R.& Cooper,L.G.(2000).The organization in crisis : downsizing, restructuring,
and privatization. Oxford ; Malden (Mass.) : Blackwell Business.
Lang,M.(2011). Transformational Leadership: Fundamentals – Models – Differences –
Impact on Employees.Grin Verlag.