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INTRODUCTORY CASE
GE’S TALENT MACHINE

SUMMARY
GE This case continues the story of GE’s management development process covered in
the GE’s Two Decade Transformation case. It expands on the history of management
development at GE, the impact of Jack Welch in developing top leaders and how the GE
process led to the appointment of Jeff Immelt as Welch’s successor in 2001. The case
ends with Immelt just finishing his first year as CEO and describes the challenges he is
facing as he goes forward. The curious trainee will look at what has happened at GE
since 2003, under Immelt’s leadership, and how he has addressed the company’s
challenges.

Be sure to look at the exhibits in this case; they are arguably even more important to help
you understand this case than the written text itself.

GE had always promoted its top leaders from within the company. The company’s
commitment was to create a ―meritocracy‖ where people were promoted based on
measured performance. Jeff Immelt was named CEO in 2001, at the age of 44. Immelt
was a product of the GE ―talent machine‖ and as he took over his new responsibilities
he wondered if he could keep GE developing executives who could continue driving the
company’s superior performance.
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Building the Talent Machine: History of GE’s HR Practices

Strengthening the Foundations: Cordiner’s Contributions

Ralph Cordiner was president of GE from 1950-1958 and CEO from 1958-1963. Under
his leadership, GE:
1. Decentralized its management structure, transferring authority down to nearly
100 department-level businesses.
2. Spent $40 million annually on management education, almost 10% of its
earnings.
3. Initiated a new management evaluation process, known as ―Session C‖ which
resulted in career development plans and rating subordinates on a six-point scale
from ―high potential‖ to ―unsatisfactory.‖
4. Introduced a system of objective performance evaluation tied to 28 position
levels (PLs), showing entry, median and maximum level salaries for each level.

Systematizing HR Processes: Borsch and Jones

Fred Borsch was CEO from 1963-1972. Borsch:


1. Implemented a new round of corporate diversification.
2. Overcame department managers’ tendency to keep talented managers to
themselves by having the top 2% of GE’s employees (PLs 13-27) report directly
to him.
3. Had GE business leaders identify potential managerial talent and track all ―high
potentials‖ to make sure they were exposed to a wide range of GE businesses.

Reg Jones was CEO from 1972-1981. He introduced a more formal and structured
approach to strategic planning, creating 43 strategic business units and adding another
organizational layer—the sector—to put groups together based upon common
characteristics.

Supercharging the System: Welch’s Initiatives

Jack Welch became CEO in 1981. Highlights:


1. Concentrated on improving performance. GE to become #1 or #2 in businesses
they were in.
2. Fix, sell or close businesses that were not #1 or #2.
3. Eliminated over 100,000 jobs.
4. Collapsed the 29 positions levels (PLs) into seven broad bands.
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5. Stock options granted for performance.


6. Invested heavily in management development.
7. Reconsidered competing for management recruits from the pool of most hunted
college and business school graduates. Went after disciplined, self-motivated
candidates from Midwestern engineering programs, night schools and former
military officers.
8. Insisted managers be evaluated on how they lived up to GE’s values, as well as
objective performance measures.
9. Added a disciplined performance analysis to Session C by asking managers to
rank subordinates on a ―vitality curve‖: the top 20%, highly valued 70% and least
effective 10%.
10. HR systems were tightly integrated with other business elements to constantly
look for ―high potentials‖.

The Making of a CEO: The Rise and Rise of Jeff Immelt

Jeff Immelt joined GE in 1982. He was a 25-year old Harvard MBA who impressed the
GE Harvard MBA recruiting executive so much that Immelt didn’t even need to go
through the normal process of going through the corporate referral center. The
recruiting executive recommended Immelt to senior management and suggested that Jack
Welch get involved to make sure Immelt didn’t take a job somewhere else. Within 30
days of his hiring, Immelt was part of a team presenting to Welch.

The Plastics Experience: Building Skills

Immelt started out as a regional sales manager for GE Plastics with 15 people reporting
directly to him. Over the next seven years, Immelt held positions as product manager,
sales manager and global marketing manager. He was one of 150 other young ―high
potentials‖ being tracked for positions at the highest levels of the company.

In 1987, Immelt was selected to attend the Executive Development Course at


Crotonville. This course was important for Immelt’s possible selection as a company
officer and provided him excellent networking opportunities with other high potential
managers.
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The Appliances Challenge: The Turnaround Test

In 1989, Immelt was moved to the Appliances service business. By this time, he was a
company officer and vice president and was placed in the Appliances business to figure
out what to do about over one million defective refrigerators that had been sold by GE.
Immelt knew this was an excellent opportunity and that he would either ―sink or swim‖.
Over one million refrigerator compressors were replaced with new units that came from
competitors. The recall operation went well and Immelt was asked to run the entire
marketing and product marketing operations, reporting directly to the CEO of
Appliances.

Immelt got frank feedback during his Session C evaluations and was counseled that he
needed to listen better, to empower his subordinates more and to channel his energy into
bringing his people along with him when he wanted action. In 1992, Jack Welch moved
Immelt back to Plastics.

Plastics Redux: Trial by Fire

After a year back at Plastics, Immelt was named head of Plastics Americas, reporting
directly to the CEO of Plastics. Immelt faced challenges when his operation missed its
numbers by $30 million, due to cost overruns, and had tried to renegotiate prices with its
big customer, General Motors. GM was ready to stop doing business with GE when
Welch and GM’s CEO worked together to solve the problem. Welch checked with
Immelt regularly to see how Immelt was handling the situation.

Welch was not happy with Immelt but he knew that the decisions made regarding the
relationship with GM would be Immelt’s and that he would not be punished for making
a mistake. He knew however, that ―you can fail‖ but ―we don’t allow you to make the
same mistake twice.‖

Medical Systems: Putting It All Together

In 1997, Immelt was appointed to run GE Medical Systems. Prior to Immelt’s arrival,
GE Medical had been focusing on cost-cutting. Instead, Immelt emphasized growth and
started to expand into other businesses and make GE Medical a more global company.
He started acquiring companies, investing in new technologies and restructuring global
operations. Immelt’s style was to engage and energize those around him.
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Immelt began to mentor and coach other high potential managers and as a result of his
leadership and the success of his team, in four years, GE Medical’s sales doubled and its
profit more than doubled. Because of his excellent work leading GE Medical, by 2001,
Jeff Immelt had become one of the front-runners to succeed Jack Welch as CEO of GE.

The Succession Process

Welch’s list of CEO succession candidates included then-current business heads, some
senior corporate officers and about a dozen young ―hot shots‖, like Immelt. Over a
period of years, members of GE’s board would visit various GE businesses to get a
direct impression of potential CEO candidates. By 2000, it was widely speculated that
the three top contenders were Jeff Immelt, Jim McNerney and Bob Nardelli. In October
2000, the board discussed the three finalists and in November, Immelt was unanimously
voted CEO designate.

New Hands on the Controls: Jeff Immelt, CEO

Jeff Immelt’s first day as CEO was September 10, 2001. He called that the ―one good
day‖ of his first year on the job. The next day was 9/11 and from then on, GE’s
businesses, like those of other companies, faced hard times and a drop in its stock price.

Immelt’s Priority: Leveraging Human Capital for Growth

Immelt was committed to GE’s continued growth and he spent an estimated 40% of his
time on human resource issues. He said, ―Every initiative I’m thinking about gets
translated immediately into recruiting, Crotonville and Session C.‖

Immelt’s five key human resource initiatives were:


1. Target technology skills during Session C reviews. Review the business’s
engineering pipeline, the organization of its engineering function and evaluate the
potential of its engineering talent. Immelt was concerned that technology-
oriented managers were under-represented in GE’s executive ranks.
2. Open new channels of communication between businesses and geographical
areas. Share ideas.
3. Emphasize customer relationships and marketing.
4. Develop GE’s globalization strategy. Appointed Ferdinando Beccalli as the
company’s first CEO of GE Europe. Named a new president and CEO of
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China and began offering courses at Crotonville to Chinese management and


Chinese customers.
5. Invest in businesses heavier in human capital than in physical capital. Identified
six growth platforms—healthcare information technology, water technology and
services, oil and gas technology, security and sensors, Hispanic broadcasting and
consumer finance.

The Talent Machine in 2003: Service, Tune Up, or Overhaul?

In 2003, Immelt was reflecting on his first year as CEO. Times had not been good, GE’s
stock was down and employees were uneasy about the economic downturn.
Management and employee turnover was low but Immelt wanted to make sure that when
the economy picked up, employees would be motivated and engaged. He wondered if it
was time to adjust or overhaul GE’s talent machine.

The Vitality Curve

While the rankings-based vitality curve had been controversial to many outsiders, long-
term GE employees viewed it as part of the company’s meritocracy-based culture.
Immelt felt that other companies had experienced difficulty with the process because it
requires feedback, coaching, training and clear performance goals. All the elements of
the evaluation system must work together.

However, in early 2003, Immelt noticed that BankAmerica had successfully recruited
over 90 GE employees. These employees had been targeted, not from the top 20%, but
from the highly valued 70%. Immelt felt this group was the backbone of GE and were
not to be considered just average. Should the system be modified to differentiate within
this group? Should recognition and rewards be less sharply focused on the top 20%?
Or, should the entire concept of performance ranking at GE be questioned?

Recruitment

GE was driving toward more service-intense global businesses. Immelt wondered about
the talent pool he would need to run these businesses. One proposal was to target
MBAs with marketing management career interests. Immelt also wondered if GE was
not over-reliant on its US-based recruitment programs. Since 40% of GE’s revenues
were generated offshore, should there be more non-Americans in executive positions?
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Executive Bands

One problem with the collapse of the 29 PLs into seven broad executive bands was that some employees,
especially in international locations, felt that their promotion opportunities were limited and the frequency
of clearly defined job promotions decreased. In more hierarchical business cultures, such as India,
perceived status and level were highly valued. While it might not make much real difference between a
PL15 and PL16, for many it represented an important psychological reward.
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KEY POINTS OF THIS CASE

To prepare for any group discussion of this case, trainees should ask themselves some of these questions:
1. How does GE identify and develop its future leaders? How did this system work in Jeff Immelt’s
case?
2. The GE system is widely regarded as based upon meritocracy; that is, promotion and leadership
development based upon objective evaluations of merit and performance. How does this compare
or contrast with Samsung’s system of promoting leaders?
3. Should Samsung companies expand their recruitment of global talent? How?
4. How do Samsung executive levels compare or contrast with GE’s executive bands? Should
Samsung modify its managerial levels to suit employees’ cultural differences, such as in India? Does
Samsung do this already?

RAISING BACKGROUND KNOWLEDGE

Discuss the following questions with your colleagues.


1. How does Samsung educate and train its future leaders?
2. What is the selection process for high potential employees? What are the criteria involved in the
selection process?
3. How are Samsung employees selected for MBA programs? How are Samsung employees selected
for Regional Specialist postings? How do these kinds of assignments affect a Samsung employee’s
profile?

CONTENT ANALYSIS

Discuss the following questions in small groups.


1. While most companies have difficulty producing sufficient quality candidates for top management
succession, how has GE been able to create a surplus? What philosophy, policies, and practices
have made it a ―CEO factory‖ as Fortune called it, and ―easily the world’s best machine for churning
out corporate talent‖ as The Economist described it?
2. How generalizable are GE’s management development policies and practices? How transferable
across cultures? Across industries? Across companies?
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3. As Jeff Immelt, is it time to tune up or even overhaul GE’s management development policies and
practices? Specifically, how would you deal with proposals to change the vitality curve, MBA and
international recruitment, and the executive bands?
4. What lessons do you take from this case? Reflecting on your analysis – positive or negative – of
GE’s development of its management pipeline, what do you see as the key success factors in making
talent management what Immelt claims is an important source of competitive advantage for the
company?
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GLOSSARY

Abandoned (verb): to leave or to stop

Aggregate (verb): to combine into a single group

Appetite (noun): strong desire for something

Attrition (noun): a gradual, natural reduction in membership or personnel, as through retirement,


resignation, or death

Axes (noun): plural form of axis

Bail out (verb): to relieve or assist in an emergency situation, especially a financial crisis

Bands (noun): a group of people who share the same interests or beliefs, or who have joined together for a
special purpose

Bankruptcies (noun): a situation in which a business or a person becomes bankrupt

Blunt (adj): saying what you think without trying to be polite or considering other people's feelings

Bracing (adj): harsh or critical

Compile (verb): to collect and put together many pieces of information

Consolation prize (noun): something that is arranged for or is given to a person to make them feel happier
when they have failed to achieve something better.

Crusty (adj): grumpy and not easy to approach or talk to

Daunting (adj): making you feel slightly frightened or worried about your ability to achieve something

Delegation (noun): the act of giving a particular job, duty, right, etc. to someone else

Disillusionment (noun): a freeing or a being freed from illusion or conviction; disenchantment


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Elite (adj): people or organizations are considered to be the best of their kind.

Entailed (verb): to involve something or to cause something

Exemplar (noun): a typical or good example of something

Frank (adj): open and honest

Fraud (noun): the crime of getting money by deceiving people

Give-and-take (noun): compromise or co-operate for it to be successful.

Go-go (adj): period of time is a time when people make a lot of money and businesses are growing

Grab (verb): to take the opportunity to get, use or enjoy something quickly

Harnessed (verb): to control something, usually in order to use its power

Headhunted (verb): to persuade someone to leave their job by offering them another job with more pay
and a higher position

Hoard (verb): to collect large amounts of something and keep it because you don’t want others to have it

Hot shots (noun): a person of impressive skill and daring, especially one who is highly successful and self-
assured

Humming (adj): very busy; briskly active

Impending (adj): describes an event that is going to happen soon

In my face (idiom): criticizing someone

Indictments (noun): formal legal statement of accusing someone

Keep tabs on (verb): keep a record on or watch attentively

Kept an eye on (idiom): to watch someone or something; to monitor someone or something closely.
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Knack (noun): a particularly clever or skilful way of doing something successfully, especially something
which most people find difficult.

Lauded (verb): praised and admired

Leaked (verb): to allow secret information to become generally known

Let the sun shine in (idiom): to make a change for the better, an improvement

Looming (verb): happening soon and causing worry

Magnet (noun): a thing or person that attracts

Marshal (verb): gather something together and arrange it for a particular purpose

Matrix (noun): an arrangement of information in rows and columns which is used in evaluating information

Meritocracy (noun): a social system or society in which people have power because of their abilities, not
because of their money or social position

Middle of the road (adj): average, not to one extreme or the other

NASDAQ (noun): National Association of Securities Dealers Automated Quotations- one of the American
stock exchanges

Nickname (noun): an informal name for someone or something, usually based on your proper name or
your character

On his feet (idiom): independently

Out of the blue (idiom): something that happens unexpectedly

Overhaul (verb): to investigate or examine thoroughly for repair or revision

Peppered [with questions] (verb): has a lot of something in it

Pipeline (noun): a channel of information


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Plot (verb): to make marks to show the position, movement or development of something, usually in the
form of lines or curves between a series of points on a map or piece of paper

Poachable (adj): to steal or take someone away

Political climate (noun): the prevailing attitudes of a group, period, or place

Polled (verb): to ask people for their opinion as part of a general study of what people think about a subject

Portfolio (noun): a specialized collection

Prodding (verb): to stimulate into action

Pummeled (verb): to defeat easily or to hit someone or something repeatedly; used figuratively here to
indicate that these GE businesses ―took a beating‖- they were damaged

Redux (adj): brought back (*this particular adj is placed after the word it modifies)

Reliant (adj): having or showing dependence

Remedying (verb): to do something to correct or improve something that is wrong

Replicating (verb): to make or do something again in exactly the same way

Revitalized (verb): to give new life, energy, activity or success to something

Rising star (noun): someone who is starting to do very well and who people think will soon be very
successful

Rite of passage (noun): an event in a person's life indicative of a change in position or social status

Sidestepped (verb): to go around or evade

Sink-or-swim (idiom): succeed (swim) or fail (sink) completely by your own efforts

Sluggish (adj): moving or operating more slowly than usual and with less energy or power
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Sought-after (adj): wanted by many people and usually of high quality or rare

Sound (adj): able to be trusted

Spike (noun): a sudden increase

Stiff (adj): strong

Stretch [goal] (noun): something that seems unattainable

Talent pool (noun): a group of people within a team that can be employed to perform similar tasks.

Tapped (verb): to get or make use of, selected

Tarnished (verb): to diminish or destroy the purity of; stain; sully

Tenure (noun): the period of time during which someone holds an important job.

Titan (noun): a person or group who is very important, powerful, strong, big, clever, etc.

To be left to his own devices (idiom): to allow to someone to do as they please

Traits (noun): a particular characteristic that can produce a particular type of behavior

Transparency (noun): the characteristic of being candid, honest, open

Traumatized (adj): to shock and upset severely and for a long time

Trial by fire (idiom): a test of one's abilities, especially the ability to perform well under pressure

Under water (idiom): the market value of the stock is less than the discounted price offered to employees
through stock options

Unilaterally (adj): involving only one group or country

Unprecedented (adj): very great in amount, quality or scale


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Up-and-coming (adj): people are likely to be successful in the future

Visibility (noun): the degree to which something is seen by the public

Vitality curve (noun): energy and strength

Volatile (adj): changeable; mercurial; flighty