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CLHR/035

IBS Center for Management Research

Jack Welch and Jeffrey Immelt: Continuity and Change in


Strategy, Style and Culture at GE (Abridged)
This caselet was written by Shirisha Regani, under the direction of S S George, IBS Hyderabad (The
Abridged Version was prepared by Indu Perepu). It was compiled from published sources, and is
intended to be used as a basis for class discussion rather than to illustrate either effective or
ineffective handling of a management situation.

2014, IBS Center for Management Research. All rights reserved.


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License to use for IBS Campuses only. Sem I, Class of 2014-16

CLHR/035

Jack Welch and Jeffrey Immelt: Continuity and Change


in Strategy, Style and Culture at GE (Abridged)
In September 2001, Jeffrey Immelt (Immelt) became the Chief Executive Officer (CEO)
of the General Electric Company (GE). He succeeded Jack Welch (Welch), who was
acknowledged as one of the most successful CEOs in business history for his management
of GE in the twenty years he headed the company (1981 to 2001).
JACK WELCH
Welch studied chemical engineering at the University of Massachusetts, from where he
graduated in 1957. He then moved to the University of Illinois, where he received his
Masters and PhD in chemical engineering. Welch joined GE in 1960 as a junior engineer.
After a year, Welch wanted to leave the company, unhappy with the bureaucratic culture
of the company, but was convinced by his superior to stay back.
Welch stayed with GE and rapidly rose through the companys ranks, becoming the
general manager of GEs new plastics factory. A little later, he was made the head of GEs
entire plastics division. In 1972, Welch became vice president, was made senior vice
president in 1977 and two years later, vice-chairman. In 1981 he became the youngest
CEO in GEs history.
One of the first things Welch did as CEO of GE was to take steps to radically transform
the companys bureaucratic culture. He created a flatter structure by trimming the
companys nine management levels to six. He insisted that GE should be one of the top
two players in every segment in which it operated. If any business failed to meet this
criterion, he closed it down or sold it. During his tenure, GE divested several businesses
like air-conditioning and housewares, and thousands of employees lost their jobs. On the
other hand, Welch acquired several other businesses which he thought would add value to
GEs portfolio. Some significant acquisitions were Employers Reinsurance and Radio
Corporation of America (RCA) including National Broadcasting Corporation (NBC). By
the time Welch retired in 2001, he had supervised GEs acquisition of more than 600
companies.
Till the 1980s, strategic planning was primarily a corporate function at the company.
However, Welch made it a line function and vested the responsibility for strategic
planning with individual business units. He felt that the business units understood their
own markets and were better off doing their own planning.
Welch also cut the companys spending on Research & Development (R&D) as he felt
that innovation and problem solving had to be incorporated into everyday work. To
promote innovation, he launched a program called Work Out which encouraged
employees at all levels of the organization to get involved with innovation and problem
solving at the company.

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Jack Welch and Jeffrey Immelt: Continuity and Change in Strategy,

Welch also believed that involving all employees in the quality processes of the company
had great potential benefits. Welchs commitment to quality led to the adoption of Six
Sigma at GE in the mid 1990s. The program was launched at the company in 1995 and
was applied to 200 projects in its first year. Employees at GE were trained in Six Sigma at
three levels green belts, black belts and master black belts, in increasing order of
proficiency. GE made it compulsory for employees to have at least green belt training and
involvement in one quality control project to be eligible for promotion to management
levels. Black belts and master black belts were usually at higher levels of management,
and the company ensured that the best people were trained as black belts and master black
belts. To stress the importance of the Six Sigma initiative, GE linked it with
compensation. Typically, 40 percent of the annual bonus of GEs top 7000 employees was
directly related to involvement in Six Sigma.
Welch stressed the importance of communication at GE. He encouraged communication at
all levels and in all directions (top-down, bottom-up and lateral) within the company.
Effective communication was promoted by GEs informal culture. All the company's
employees were encouraged to express their opinions candidly to their superiors or to
Welch directly. Welch used GEs various meetings and review sessions to great
advantage in enhancing communications at the company. Instead of making these events
just formal company gatherings, Welch transformed them into levers of leadership. The
meetings gave him a chance to interact with different people in the company, listen to their
opinions and gauge their leadership potential.
Welch believed in staying visible within GE. He regularly visited different GE
departments and factories where he made it a point to interact with employees. Surprise
visits were also a part of his style of functioning.
Welch was also familiar with each of GEs businesses, no matter what its size, and took a
keen interest in operations. It was said that when a unit was not operating up to the mark,
Welch became more involved with it and asked managers to send him regular reports
updating him on the situation. Other the other hand, when a business was functioning well,
the head of the business was given a great deal of autonomy.
Analysts said that Welch was a master of the art of motivating people and stirring them to
action. One way he made his presence felt at the company was by writing notes to
employees. Welch frequently wrote notes to all levels of employees, to appreciate their
contribution to the company, or to guide, inspire or stir them to action. These notes were
faxed directly to the employees the moment they were written, and the originals were sent
later by mail. Employees said that it made them feel more motivated that the CEO knew
about them and bothered to get in touch personally.
However, Welch also had another side to him that was quite the opposite of the benevolent
leader. According to GE insiders, he had a tendency to jump to conclusions about people,
and formed opinions too rapidly. In addition to this, he was an extremely demanding boss
and several employees, especially those at the lowest levels, complained about the
pressure that was placed on them to perform. Besides, rewards and promotions at GE were
based strictly on performance and Welch routinely fired non-performers. Welch believed
that retaining non performers was detrimental to the companys health and that they would
probably be better off in another company where the work was more suited to their
potential and inclinations. Several employees felt that this put too much pressure on them.
They complained that they were never sure how much was enough.
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Jack Welch and Jeffrey Immelt: Continuity and Change in Strategy,

However, good performers were rewarded well. Analysts said that under Welch GE
functioned as a true meritocracy. Promotions at the company were mainly from within and
very few outsiders were ever brought in. High performers could expect quick promotions
in addition to generous bonuses, pay raises and stock options.
Welchs theory of leadership later came to be known as the 4E theory. The four Es stood
for Energy, Energizing, Edge, and Execute. According to Welch, successful leaders had
tremendous positive energy, and the edge, or the courage, to take bold decisions. They
also had the ability to energize other people, and the ability to execute, or deliver results.
He connected these four Es with a P that stood for Passion.
Between 1981 and 2001, GEs revenues increased from around 27 billion to 129.8 billion.
By the time Welch retired from the company, GE was not only the biggest corporation in
the world, but also one of the most profitable.
JEFFREY IMMELT
Immelt was born in 1956 in Cincinnati, Ohio. His father was an employee of GEs Aircraft
Engines division. He majored in mathematics from Dartmouth College in the late 1970s,
after which he joined Proctor & Gamble Co. (P&G) as a member of its brand management
team.
After about a year with P&G, Immelt enrolled for an MBA from Harvard. On finishing his
course, he joined GE as a marketing executive in 1982 at the companys headquarters in
Fairfield, Connecticut. After six months, he was transferred to GE Plastics, where he
continued till the late 1990s, in various marketing positions.
In the late 1990s, Immelt, along with James McNerney (McNerney) and Robert Nardelli
(Nardelli), was short listed as a possible successor to Welch as GEs CEO. In November
2000, the board of GE chose Immelt as the successor to Welch.
Immelt became the head of GE at one of the most difficult times in American economic
history. At the start of his tenure, GE lost two employees to the September 11 attacks and
the companys insurance business took a $600 million hit. In addition to this, Aircraft
Engines, one of GEs major businesses, experienced an immediate slowdown. GE Capital
Aviation Services, a unit which leased aircraft to airlines was also affected. This had an
adverse impact on price of GE stock.
GE also faced problems due to corporate scandals involving Enron Corporation and Tyco
International Corporation, which cast a shroud of doubt on all large conglomerates. GE,
being one of the largest corporations in the world, bore the brunt of the distrust as
investors started panicking and offloading their shares in the company. Investors were
especially skeptical about GEs record of profitability and wanted to know how the
company managed to stay profitable and fuel growth even during economic lows.
Investors also expressed concerns about how the company would fuel growth, with several
of its units like Aircraft Engines, Aviation Services, Plastics and Industrial Systems
affected by the downturn in the economy. Even GE Power Systems, one of the big drivers
of growth at GE, was facing large write-offs due to cancelled orders. There were also
concerns about the debt levels of GE Capital, the companys very successful financial arm.
In an attempt to win investors over, GE redesigned its CEO compensation package in mid
2003. Under the new plan, Immelt was eligible to receive stock (performance share units)
worth $7.5 million over a period of five years. Half of the performance share units would
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Jack Welch and Jeffrey Immelt: Continuity and Change in Strategy,

vest if GEs cash flow from operations rose at least 10 percent annually over the next five
years. The other half would accrue to him if GEs stock met or exceeded the average
performance of the Standard & Poors 500-stock index over the same period. Immelt also
modified the equity packages of other GE executives to link their stock options to the
companys performance.
Immelt also tried to improve investor confidence by reshuffling GEs portfolio. By 2002,
Immelt had started trying to beef up GEs portfolio by spinning off less lucrative
businesses and acquiring other strategically significant ones. These included the French
media giant Vivendi Universals American assets, Instrumentarium, a Finnish medicalequipment maker, and Amersham, a British life-sciences and medical-diagnostics
company. By 2005, Immelt had sold less profitable GE businesses like insurance and had
spent more than $60 billion to acquire businesses in new and fast growing industries like
renewable energy, cable and film entertainment, bioscience, and security. Slow growth
low margin businesses like lighting were also reduced to 10 percent of GEs portfolio
from 33 percent in 2000.
Immelt also tried to increase GEs global orientation in the early 2000s. He invested
hugely in setting up new research centers in China, India, and Germany in 2004, and
increased the companys R&D budget from $286 million in 2000, to $359 million in 2004.
By 2003-2004, Immelt had begun to put his stamp on GEs culture. GE had always had a
culture of promoting communications within the company. But under Immelt, the
company had increased its external communications. Communicating with investors and
third parties had become very important in the early 2000s, due to uncertain external
conditions. Immelt reportedly spent more than 70 percent of his time away from his office
at GEs headquarters. He was either in the field meeting employees or he was meeting
with investors.
Analysts said that GEs culture had softened under Immelt. The focus had shifted from
performance and strictly quantifiable results, to more abstract things like customer
satisfaction and value. Immelt also tied executive compensation to factors like ability to
boost sales, come up with innovative ideas and generate customer satisfaction, rather that
just the ability to meet performance targets. GE however continued with the practice of
firing the least effective 10 percent of its workforce every year.
Another significant change within GE was the increased number of outsiders brought into
the company at senior positions. Immelt believed that bringing in people from outside
brought in new ideas, creative energy and a new perspective on the companys policies.
Managers within GE were also encouraged to develop a passion for and become experts
in industries of their interest by spending a longer time at one job, rather than moving
frequently between jobs. This was also different from the Welch era where managers were
transferred between industries every few years.
Within GE, Immelt was thought to be more people-oriented than Welch. While Welch
was an intimidating boss, Immelt used a friendly, regular-guy approach in dealing with
employees. He was also not as demanding as Welch, and reportedly, employees found him
more approachable than his predecessor.
Immelt set up a high profile group known as the Commercial Council in 2002. It consisted
of a handful of the top sales and marketing executives from GEs different units as well as
some unit heads from some of the critical businesses like Consumer Finance. The
Commercial Council met every quarter to discuss growth strategies and ways to reach
customers innovatively, as well as evaluate new ideas from the senior staff.
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Jack Welch and Jeffrey Immelt: Continuity and Change in Strategy,

Immelt launched a program called Innovation Breakthrough in 2003. Employees were


expected to come up with ideas to improve GEs existing products or for the development
of new products through the program. All business leaders were expected to submit at
least three innovative project ideas per year that would then be reviewed and discussed by
the Commercial Council within GE. For a project to qualify under the Innovation
Breakthrough program, it had to take GE into a new line of business, a new geographic
area, or a new customer base. GE also wanted to develop ways to spark idea generation.
Executives were encouraged to hold idea jams, where employees from different
departments came together to brainstorm.
In early 2005, Immelt reorganized GEs businesses to make them more customer focused.
Towards the end of Welchs tenure, GE was organized around 11 businesses based on
product lines. These were pared down to six in 2005 and the grouping was done based on
the customers served. The reorganization was done to lower costs and eliminate
redundancies, as well as to implement new systems of customer management.
Immelt also initiated the process of making governance changes at GE. GE had always
had a reputation for good governance, and Immelt tried to enhance it by bringing more
outside directors to the board. The company had also adopted some accounting changes in
an attempt to make its financials more transparent from 2002.
Making changes at GE was not easy for Immelt and there were several reasons for this.
The most important was that he was a follow-up act to Welch. Besides, every step he took
was being analyzed in the media in terms of what Welch would have done in the same
situation. In addition to this, Immelt had to fight an uphill battle at GE to introduce
concepts like creativity, customer satisfaction and value to employees who were steeped in
the Six Sigma culture and for years had only understood quantifiable bottom-line results.
QUESTIONS FOR THE DISCUSSIONS
1. What impact did the change in leadership at GE had on the culture of the company?
How would the planning and control systems change given difference in leadership
styles of Welch and Immelt?
2. Do you agree that there is interrelationship between leadership style, organizational
culture and corporate strategy?
3. Evaluate Immelts priorities as the CEO of GE.

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Jack Welch and Jeffrey Immelt: Continuity and Change in Strategy,

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GE Begins Reorganizing Around the Customer, http://customer.corante.com, June 23, 2005.
Shuffling the Portfolio, BusinessWeek, March 28, 2005.
The Immelt Revolution, BusinessWeek, March 28, 2005.
Jeff Immelt on Taking "Swings", BusinessWeek, March 28, 2005.
The Best & Worst Managers of 2004 -- The Best Managers: Jeffrey Immelt, BusinessWeek,
January 10, 2005.
On the record: Jeffrey Immelt, The San Francisco Chronicle, June 6, 2004.
The Hard Way, The Economist, October 16, 2003.
Monica Roman, Jeffrey Immelt: Show Them the Money, BusinessWeek, September 29, 2003
Jeff Immelt: We Know This World, BusinessWeek, Online Extra, September 15, 2003.
Solving GE's big problem, The Economist, October 24, 2002.
A Helluva Problem, The Economist, September 19, 2002.
The Jack and Jeff show loses its luster, The Economist, May 2, 2002.
The Days of Welch and Roses, BusinessWeek, Online Extra, April 29, 2002.
Q&A with GE's Jeff Immelt, BusinessWeek, April 29, 2002.
What GE Watchers Want to Know, BusinessWeek, April 29, 2002.
Commentary: Was Jack Welch's Run All It Was Cracked Up to Be? BusinessWeek, April 29,
2002.
Where's the Heat on Neutron Jack?, BusinessWeek, March 28, 2002.
Q&A with GE's Jeffrey Immelt BusinessWeek, October 8, 2001.
The GE Jock, The Economist, October 4, 2001.
Diane Brady, Taking Jeffrey Immelt at His Word, BusinessWeek, September 26, 2001
Jack Welch: A CEO who cant be cloned, Business Week, September 17, 2001.
Jack Welch: The Lion Roars, Business Week, September 14, 2001.
Jack Welch: A Role Model for Todays CEO?, Business Week, September 10, 2001.
Assessing Jack Welch, September 10, 2001 beginnersinvest.about.com
Daniel Eisenberg, Jack Who? Time, September 2, 2001.
Overvalued: Why Jack Welch Isn't God, The New Republic, June 11, 2001.
The Man who would be Welch, BusinessWeek, December 11, 2000.
Jack: The Welch Era at General Electric, BusinessWeek, December 2000.
The CEO Trap, BusinessWeek, December 11, 2000.
The Man who Would be Jack, The Economist, November 30, 2000.
Jacks Gamble, The Economist, October 26, 2000.
The Revolutionary Spirit, The Economist, September 16, 1999.
The House that Jack Built, The Economist, September 16, 1999.
Jack Welch Corporate Villain, BusinessWeek, November 23, 1998.
Robert Slater, How Jack Welch Brought GE to Life, BusinessWeek, October 26, 1992.
www.hoovers.com
finance.yahoo.com
www.bigcharts.com
www.freeinfosociety.com
www.ge.com
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