Organizational Behavior-II

Group assignment

Organizational & Human Resources

Management Policy Changes at General
Electric Company

Group 9
Narendra Reddy Yaddula

Nitesh Kumar

Raja Vijay S

Rohan Mishra

Sachin Rane

Soumen Sarkar

Srikanth Kakumani

TABLE OF CONTENTS

Table of Contents....................................................................................................................1

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Introduction to General Electric...............................................................................................2

Correlating GE’s growth to Greiner’s model of organisational growth:....................................3

Phase I (Growth through creativity): .......................................................................................3

a) Crisis of leadership: .........................................................................................................4

Phase II (Growth through direction):........................................................................................4

SBU structure and planning:.............................................................................................4

b) Crisis of autonomy: ........................................................................................................4

Phase III (Growth through Delegation):...................................................................................4

c) Crisis of control: .............................................................................................................5

Phase IV (Growth through Co-ordination):...............................................................................5

Jack Welch’s reign:............................................................................................................5

Implementing Lean and agile:...........................................................................................5

d) Crisis of red tape:.............................................................................................................6

Phase V (Growth through collaboration):.................................................................................6

“Work Out”:......................................................................................................................6

GE under Jeffrey Immelt:.........................................................................................................6

INTRODUCTION TO GENERAL ELECTRIC

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 The year was 1876 in which Thomas Alva Edison opened a laboratory in Menlo Park, New Jersey, where
he could explore the possibilities of the dynamo and other electrical devices that he had seen in the Exposition. Out
of that laboratory was to come, perhaps the greatest invention of the age - a successful incandescent electric lamp.

By 1890, Edison established the Edison General Electric Company by bringing his various businesses
together. How the company was going to mark its name in the technological space was indicated by the listing of
GE along with 11 other companies at the newly formed Dow Jones Industrial Average in 1896. GE is the only
company that still exists. During that period, a competitor emerged. The Thomson-Houston Company became a
dominant electrical innovation company through a series of mergers led by Charles A. Coffin, a former shoe
manufacturer from Lynn, Massachusetts. As both businesses expanded, it had become increasingly difficult for
either company to produce complete electrical installations relying solely on their own patents and technologies. In
1892, the two companies combined. They called the new organization the General Electric Company.

CORRELATING GE’S GROWTH TO GREINER’S MODEL OF ORGANISATIONAL

GROWTH:

PHASE I (GROWTH THROUGH CREATIVITY):

With a startup capital of $300,000, the company’s prime mode of operations were developing innovative
products including X-ray tube, FM mode of transmission for radios and the sealed beam car headlight. The company
also extended its interests into a wide range of product areas, from national broadcasting to domestic electric
appliances. During the Second World War, the revenues multiplied fourfold.

This phase continued till the end of Cordinor’s era. Between 1950 and 1963, Ralph Cordiner had responded
to the opportunities of post-war growth to diversify GE into a range of new markets and new technologies. GE
needed to decentralize decision making process, introduce long term planning, and recruit managers who act more
like “owner entrepreneurs” (risk taking) rather than plain administrators.

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 Cordinor introduced two main changes to create a spirit of enterprise at GE. He divided the company into
smaller departments which made it easier to supervise and run each department. These departments each with its
product market scope were to be the building blocks of a new decentralized General Electric. Cordiner also fostered
a remarkable atmosphere of “can-do” throughout the company to help expand the company’s operations even
further. Product managers of each department were challenged to scale near impossible growth (3 or 4 times of
current turnover). However this atmosphere didn’t come without disadvantages. The “can-do” atmosphere allowed
managers to express excessive confidence about future and allowed contracts to become lax. This meant that many
investment decisions were based on weak analysis and showed very little prioritization. For example huge
investments were made simultaneously in computers, nuclear power and aerospace – such huge commitments in
three strategy areas was going to hurt the company later.

A) CRISIS OF LEADERSHIP:

The company was too internalized in its focus and lacked a leader to take GE into its next period of growth. Not
much emphasis had been given until now to the needs for creating efficient work processes.

PHASE II (GROWTH THROUGH DIRECTION):

SBU STRUCTURE AND PLANNING:

When Fed Borch took over charge in 1963, he became increasingly unable to sustain GE’s return on asset
and profitability, despite the revenue growth being 91% during the same period. One of the major problems was the
sheer and diversity size of the company, which made it almost impossible to integrate operational and strategic
planning. In 1969 McKinsey was appointed to study the problems and suggest solutions to the problems. McKinsey
identified the fragmented departments created by Cordinor as one of the biggest problems (and three other
problems), and suggested to abandon the existing organization structure and instead create 33-40 individual
businesses known as Strategic Business Units (SBUs). Finally GE adopted a compromised structure with 43 SBUs
superimposing the existing line structures.

SBUs were created at different levels. Four were created at group, 21 at divisional level, and 18 at
departmental level. All designated SBUs would report to the CEO directly for any planning related activities, but
continued to report to their line managers for their operational issues. Hence any decision making with regards to
strategy for the SBU as a whole was highly centralized.

B) CRISIS OF AUTONOMY:

In spite of all these changes GE did not escape all of its problems. Borsch, advised on GE’s investment decisions by
McKinsey, underwent a series of diversification of business portfolio to help the company to achieve its growth
targets. In 1972, Borsch stepped down to be succeeded by Reginald Jones, his right hand man. Jones was the person
who was to supervise and lead the integration of unit level strategy planning with the SBUs. During his tenure, GE
exited 70 product areas including vacuum cleaners, fans etc. This lead to a large scale cost cutting in an effort to
increase the efficiency of the company’s operations.

PHASE III (GROWTH THROUGH DELEGATION):

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 By the mid 1970s it became clear that GE organizational structure still lacked the mechanisms for
integrating the diverse operational activities with its rigid SBU structure. For example when GE tried to expand into
Europe through M&As, battles of power broke among the vice presidents, for promising candidates. Jones labeled
this as rudderless bureaucratic bungling and demanded that it not to happen ever again. Under his reign, 6 sectors
were created into which all activities of GE could be categorized. Each sector headed by a vice president, would
develop sector plans that would integrate SBU plans within its domain. The underlying idea was that this would
enable Jones to concentrate on strategy planning for just 6 sectors rather than 40 SBUs.

C) CRISIS OF CONTROL:

There was no evidence to suggest any crisis of such sorts.

PHASE IV (GROWTH THROUGH CO-ORDINATION):

As the end of 1970s approached, it became clearer that GE needed to make prudent investments in
upcoming strategic growth areas and reduce spending on redundant and stagnant sectors. The senior vice presidents
of the afro mentioned sectors were tasked with reassessing their strategic plans in a worldwide context. Six major
areas were identified as holding key strategic importance if GE were to move into the next phase of growth. These
areas included sectors like Energy, Transportation & Propulsion Materials and Sources, which cut across the newly
created sector lines. This raised organizational dilemmas and highlighted the fact that GE would have to find yet
better ways to co-ordinate its many activities and make itself ready for the challenges posed by Mergers and
Acquisitions that were to become important steps in helping its achieve sustenance of turnovers and margins.

Jones retired from GE on April 1st, 1981, leaving handpicked Jack Welch at the helm of the company.
Reginald Jones had been voted three times by his peers as CEO of the Year. During his ten year reign the earnings
of the company had tripled although the share price performance remained mediocre.

JACK WELCH’S REIGN:

Jack Welch was known for his no holds barred and almost dictator like approach towards implementing
key organizational and strategy changes. One of his earliest moves was to pursue only those businesses which could
be either number one or two in the global markets. To implement this strategy he was determined to create an
organization that combined the speed and agility of a smaller company with the financial prowess of a larger
company. As a result of this plan, the number of SBUs was sharply cut down to just 14 from the earlier number of
43.

IMPLEMENTING LEAN AND AGILE:

To create an agile company Welch introduced a major program of restructuring and downsizing. He
reduced the number of layers between factory floor and the executives from nine to just four, removing sector and
group levels entirely. The 14 SBUs were to either directly report to him or to one of his two vice chairmen. Planning
staff members were reduced from 400 to 200. As a result of implementing policies of downsizing and
diversification, the company headcount was quickly reduced from 411,000 to 276,000 earning Jack the nickname
neutron Jack.

As per Jack a single percentage point increase in productivity increased the pre tax income by
$300. Hence he pursued a number of steps to improve the overall productivity level of the organization. Welch also
believed that under the banner of “Speed, simplicity and confidence” employees would be released from a mere box
on the organization chart. This would help them to derive their sense of status from achievement on the job, rather
than position in the organization and hence would improve their confidence and productivity.

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D) CRISIS OF RED TAPE:

Although GE has not yet faced a crisis related to bureaucracy, the immense diversification among sectors,
and M&As have bound to have created formal rules within the organization to bring a certain level of “needed
control”.

PHASE V (GROWTH THROUGH COLLABORATION):

In order to avoid getting into the trap of unnecessary bureaucracy, Welch initiated some novel practices.
One of them was “Work out” which emphasized collaboration between the boss and the sub-ordinate. “Work Out”
was aimed at exposing the leaders to the vibrations of their business –opinions, feelings, emotions, resentments, not
abstract theories of organization and management.

“WORK OUT”:

The idea for GE’s “Work-Out” process began with the no-holds-barred discussion sessions that Welch held
with different groups of managers at GE’s Management Development Institute at Crotonville, New York. Impressed
with the energy and impetus for change that these sessions generated, Welch initiated a company-wide process
called “Work-Out.”

The idea was to create a forum where employees could speak their minds about the management of their
business without the fear of retribution by their superiors. Typically, the sessions assembled a cross-section of 50 to
100 of the business’s employees for meetings that ran for two or three days. In an environment that Welch likened to
an old New England town meeting, the group would be asked to openly and honestly review the management
process and practices in their part of the operation. Initially they focused on unproductive or bureaucratic behaviors
which had limited their personal effectiveness. At the end of each Work-Out, the group’s manager returned to hear
the findings and recommendations, and could either accept or reject them on the spot, or appoint a team to report
back with more data by a given date.

GE UNDER JEFFREY IMMELT:

The present CEO, Jeffrey Immelt believes that a large part of GE’s organic growth is due to come from
overseas operations, particularly from China, India and Europe. He however believes that to better exploit these
opportunities GE’s upper management would need to become more international and more diverse. As the world
prepares to come out of the worst recession, a dynamic and an agile company with adaptive abilities will be the best
prepared to achieve consistent growth. Immelt understands the importance of increasing customer focus through
better relationship building with customers. The current organization structure of the company is shown below.

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