General Electric - Jack Welch and Jeffrey Immelt - (CEO Succession) | Organizational Behavior

It’s not just a Case

It’s not just a Presentation

It’s A StoryIt’s his Story

It’s HISTORY

“I’m a different generation from Jack… I have a different view of the world.”

“The thing that makes me most proud of Jeff is his visibility in tough time.”

AGENDA

1. GE Introduction and Timeline.2. Introduction of Jack Welch.3. Introduction of Jeffrey Immelt.4. GE under Welch (Actions, Events, and Leadership).5. GE under Immelt (Actions, Events, and Leadership).6. OB Analysis.

1890Thomas Alva Edison• He started

Edison General Electric Company (EGEC).

1894Charles Coffin1922Gerard Swope• He established

an Unemployment Pension Plan.

1940Charles Wilson1958Ralph Cordiner• He set up GE’s

1st management training centre.

1964Fred Borch• Aggressive

Leader and he added 3 new capital lines – computers, nuclear power and aircraft engines.

1972Reginald Jones• He

accelerated GE’s shift from electromechanical to electronic technology.

Jack WelchCEO, GE; 1981-2001

He is a son of a railway conductor and was born on 19th November, 1935 at Salem, Massachusetts.

He studied Chemical Engineering at University of Massachusetts, from where he graduated in 1957.He further did his Masters and Ph. D in Chemical Engineering from University of Illinois.

He joined GE in 1960 as a Junior Engineer at a salary of $10,500 per annum.

Disappointed with a raise of $1000 he was about to resign when his Reuben Gutoff, his immediate senior, took him out for dinner and spent four hours trying to convince him to stay at GE and he apparently stayed.

He was General Manager of GE’s new plastics factory when he developed a new type of plastic called Noryl. A little later he was made the head of GE’s entire plastics division.

In 1972, he became Vice-President. In 1977, he was made senior Vice-President and two years later, Vice-Chairman. In 1981, he became the youngest CEO in GE’s history.

Jeffrey ImmeltCEO, GE; 2001-Present

He was born in 1956 in Cincinnati, Ohio. His father was an employee of GE’s Aircraft Engines Division.

He majored in mathematics from Dartmouth College in the late 1970s, after which he joined Procter & Gamble Co. as a member of its brand management team.

He enrolled for an MBA from Harvard. After finishing the course, he joined GE as a marketing executive in 1982 at the company’s headquarters in Fairfield, Connecticut.

After 6 months, he was transferred to GE Plastics, where he continued till the late 1990s, in various marketing positions.

In November 2000, the board of GE chose Immelt as the CEO of the company.

UnderJack

Welch

Transform Bureaucratic

CultureWelch created a flatter structure by trimming company’s 9 management levels to 6.

The objective was to make GE more nimble and improve communication.

Replaced the matrix based Corporate Planning System with “Number One, Number Two” strategy.If any business failed to meet this criterion he closed it down or sold it, which resulted in thousands of employees losing their jobs.

“Neutron Jack”

Corporate Planning System

“Fix it, Sell it or Close it.”

Master of Large Business Deals

Welch acquired Radio Corporation of America(RCA) for $6.28 billion in December 1985. It was the biggest merger ever in the non-oil sector.

He also acquired National Broadcasting Corporation(NBC).

By the time Welch retired in 2001, GE acquired more than 600 companies.

Strategic Planning

Welch made strategic planning a line function and vested responsibility to individual business units.

He also cut down company’s spending on Research and Development.

Welch launched the “Work Out” program.

Involvement of employees at all organizational levels for innovation and problem solving through:

- Suggestions for improvement.- Reviewing company policies.- Criticize the superiors.

Promote Innovation

“ We want to make our quality so special, so valuable to our customers, so important to their success, that our products become their only real value choice.”

“ The idea flow from the human spirit is absolutely unlimited. All you have to do is tap into the well. I don’t like to use the word efficiency. It’s creativity. It’s a belief that every person counts.”

Six Sigma Program

It is a quality initiative developed by Motorola Inc. in 1986, which aims to reduce production defects to less than 3.4 per million through continuous improvements.

Welch borrowed the idea from his friend Lawrence Bossidy who was the CEO of Allied Signal Inc. It was adopted by GE in 1995 and was applied to 200 projects in its first year.

Employees at GE were trained in Six Sigma at three levels:• Green Belt - They implemented this strategy along with their regular work.• Black Belt - Guided the Green Belts in the implementation of the strategy. They were

completely devoted to Six Sigma.• Master Black Belt - Supervised the Black Belts and were responsible for identifying

the projects in which this strategy could be implemented.

The Six Sigma Strategy was directly linked to compensation• Typically, 40% of the annual bonus of GE’s top 7000 employees was

directly related to involvement in Six Sigma.• As a result, by 1996, Six Sigma strategy was applied to 3000 projects and

this number rose to 7000 by 1997.

There were concerns within GE that stress placed on Six Sigma was leading to an increase in bureaucracy as employees were rigidly following established processes and were not willing to try new things. But Welch said that he was ready to put up with a little bureaucracy if it brought improved production and greater efficiency in the company.

Informal Culture

Encouraged communication at all levels:- Top Down- Bottom Up- Lateral

• The employees addressed Welch as “ Jack” and were encouraged to express their opinions candidly to their superiors or to him directly.

• Welch tried to create “small-company environment, with big-company resources”.

Visibility

“It was remarkable how, at a company of GE’s size, employees at even the lowest levels in the company hierarchy seemed to know Welch and his opinions”

Welch used GE’s various meetings and review sessions to make sure that all GE employees knew his opinions and ideas.

The meetings, gave people a chance to state their opinions and Welch to gauge leadership potential in them.

Welch’s speeches were regularly video taped, translated into local languages and sent to various GE setups across the world.

Appreciation

“We’re pebbles in a ocean, but he knows about us. He’s able to get people to give more of themselves because of who he is,”- Brian Nailor, Marketing Manager

Welch frequently used to send personal notes to employees of all levels..

He appreciated their contribution, and guided, inspired them to action.

“Bill we like you for a lot of reasons, one of them is that you are a very special person. You proved it again this morning, good for you and your lucky family.”

The Other Side of Welch

“GE functioned as a true meritocracy under Welch.” – Analysts

“There are carrots and sticks here, and he is extraordinarily good at applying both” – Gary M. Reiner, Senior VP

He used to ask people, “What have you done for me lately?”

He had a tendency to jump into conclusions about people.

He pressurized employees and demanded strict performance.

He was a hard task-master who created fear in his subordinates.

“It’s a part of living with Jack. If you’re doing well, you probably have more freedom than more CEOs of publicly traded companies. But the leash gets pulled very tightly when an unit is

underperforming .”- GE Executive

Welch was involved too deep in the business.

He demanded regular reports from the managers when an operation was not up to the mark. And when the business was functioning well, the head of the business was given a great deal of autonomy.

The Other Side of Welch

Performance

Good performers were always rewarded well By Welch.

He classified employees under three categories – Top 20%, Middle 70% and bottom 10%.

Welch also believed that retaining non performers was detrimental to the company’s health and that they would be better off in another company where the work was more suited to their potential and inclinations.

Meetings

Annual C Session meeting in April-May• Meeting between three senior executives with top managers each of GE’s

twelve businesses.• Done to review performance over the previous year.• Objective was to identify and promote leadership talent• Crotonville meetings.

4E Theory

Energy – A great leader has a big motor and is always on the go, displaying limitless energy. If life had a speed limit, this leader would constantly get ticketsfor hyper-charged “drive”. Even at warp speed, this leader embraces change.Energizes – A great leader not only has energy, he or she can transmit energy to others. These leaders “spark others” to action, inspire people to respond to their “vision” and share the credit if that’s what it takes to get going.Edge – As a “strong competitor,” the leader tests the margins, makes “difficult decisions” and doesn’t hesitate to hire or fire.Executes – A leader “delivers results” and is a “consistent performer.” Activity and productivity are not synonymous – that’s one of the toughest lessons for leaders to learn. Great leaders turn energy into production.

Adoption of Ideas

• Six Sigma from Motorola Inc.• Demand Flow Technology from

American Standard.• Bullet Train thinking from Yokogawa.• Quick Market Intelligence from Wal-

Mart.

Failures

1983 - GE factory automation ran into serious losses due to faulty demand projections.1984 - Welch was criticized for sale of GE’s appliance business to Black & Decker.1987 - Acquisition of Thomson SA, a French medical diagnostics firm.1994 - Kidder, Peabody & Co. scam.2000 - Attempted merger with Honeywell Inc. an aerospace and industrial-equipment group.

Impact

Between 1981 and 2001, GE’s 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 one.

UnderJeffrey Immelt

Redesigning

Immelt was eligible to receive stock worth $7.5 million over a period of 5 years.

Half of stocks would vest if GE’s cash flow from operations rose at least 10 percent annually over next 5 years.

The other half would accrue if GE’s stock met or exceeded the average performance of the Standard & Poor’s 500-stock index.

Modification of Equity Packages

He linked stocks of GE executives to the company’s performance.

He focused on both retention and performance.

“We believe that our pay should be completely transparent, that shareholders should know how we’re paid. We have a philosophy on

compensation that’s based on performance.”

Strategic Improvement• Improve investor confidence by reshuffling GE’s portfolio.

• Spinned-off less lucrative business and acquired other strategically significant ones.

“ I don’t want us to be a company that does deals because we can. I want us to do the deals we need to do to improve strategically. If I didn’t think this improved our business strategically for the long-term good of our shareholders, I wouldn’t

do it. We’re not in the business of flipping assets. That’s not our game.”

Acquisitions &Focus on R & D

• Immelt sold less profitable GE businesses like Insurance and spent more than $60 billion to acquire businesses in new and fast growing industries.

• He invested to set up new research centers in China, India and Germany.

• He increased company’s R & D budget from $286 million(2000) to $359 million(2004).

• He wanted to create ‘Global Brain Trust’ to spur innovation and globalize research.

External Communications

• Under Immelt, GE increased its external communication.

• Communicating with investors and third parties became very important.

• Immelt spent more than 70% of his time away from his office at GE’s headquarters meeting with investors or employees.

Focus on Customer Satisfaction & Intangible Factors

• Focus shifted from performance and strictly quantifiable results to customer satisfaction and value.

• Tied executive compensations to factors like ability to boost sales and generate customer satisfaction.

• Removing emphasis from the bottom-line results for basing compensation.

• Encourage employees to take risks and come up with innovative ideas.

• Stretch GE’s Six Sigma quality initiative into customers’ processes to create more value for them.

Outsider Involvement & Diversity

• There were more outsiders at senior positions.• Managers were encouraged to ‘develop a passion’ for job. They spend

longer time at one job and become experts which was different from Welch era where managers were transferred within industries every few years.

• Focus on enhancing general management skills rather than industry expertise.

• Under Immelt, there was greater amount of diversity in GE’s workforce.• In early 2000s, 50 percent of all senior executive hires and 54 percent of

new corporate officers were women, minorities or foreign employees.• Created separate diversity forum and encouraged mentoring programs for

women, minorities and foreigners.

Commercial Council - Shift from Production to Marketing

He set up Commercial Council, a high profile group.

Consisted of top sales and marketing executives as well as some unit heads who met every quarter to discuss growth strategies and ways to reach customers innovatively, as well as evaluate new ideas from the senior staff.

Under Immelt, GE’s focus shifted from production to marketing.

GE designed new marketing courses to train the company’s marketing executives.

“The best managers are great marketers and not just great operators.”

Innovation and Creativity

• He launched ‘Innovation Breakthrough’ to promote Innovation & Creativity in the company.

• Employees were expected to come up with ideas to improve GE’s existing products or for the development of new products.

• He aimed to prove that GE could grow internally and organically and not just through acquisitions.

• He generated ways to spark idea generation.• Executives were encouraged to hold ‘Idea Jams’.• GE Energy also set up a ‘Virtual Idea Box’ where employees could post ideas on the

web.• ‘Excelerator Awards’ for the development of ideas.

Customer Focused Business

• He reorganized GE’s business to make them more customer focused.• Reorganization was done to lower costs and eliminate redundancies,

as well as to implement new systems of customer management.• As opposed to product based grouping, customer based grouping

made it easier for GE to mine and manage customer information.

“ This change allows us to leverage our exceptionally deep leadership team to accelerate growth and improve productivity.”

Clean and Green GE

• Under Immelt GE was becoming ’cleaner and greener’. More investment was done in ‘Eco-imagination’ project.

• ‘Eco-imagination’ projects are related to the development and use of technologies that lead to cleaner and environmentally responsible products and processes at the company.

• It also has reduced carbon di-oxide emission.• He started evaluating managers on their involvement in environmental

responsibility.• GE’s new environmental mantra was ’green is green’(invoking the green color of

American currency).

Governance Changes

GE had a reputation of good governance. Immelt tried to enhance it by bringing more outside directors to the board.Also adopted some accounting changes to make its financials more transparent.

OBAnalysis

Theories of Learning

Jeffrey Immelt

Social Learning:People can learn through observation and direct experience.

Jack Welch

Operant Conditioning:A type of conditioning in which desired voluntary behavior leads to a reward or prevents a punishment.

Job AttitudesUnder Jeffrey Immelt

Psychological Empowerment:Belief in the degree of influence over the job, competence, job meaningfulness, and autonomyImmelt made his employees on intangible aspects like customer satisfaction, innovative ideas, etc. which would increase job meaningfulness. He also gave more autonomy to his employees.(Ref: Case Page 14)

Under Jack Welch

Job Involvement:Degree of psychological identification with the job where perceived performance is important to self-worth.Welch made his employees focus on job-performance based rewards so much that they would identify self-worth with perceived performance. (Ref: Case Page 8)

MBTI - ENTJJack Welch

(Extroverted, Intuitive, Thinking, Judging)(Sociable & Assertive, Unconscious Process, Uses Reason & Logic, Wants Order & Structure)

• Welch: "I am brutally honest and outspoken. I am impatient and, to many, abrasive."• Welch: "The world isn't that complex!"• Welch: "Can you say yes or no? Or are you one of those people that always

wants a little more data? A 'maybe' person. ... I hate those people!"• Welch: "Self-confident people aren't afraid to have their views challenged.

They relish the intellectual combat."

MBTI - ENFPJeffrey Immelt

(Extroverted, Intuitive, Feeling, Perceiving)(Sociable & Assertive, Unconscious Process, Uses Values & Emotions, Flexible & Spontaneous)

• Immelt: "I have always believed the future is going to be better than the past… and I believe I have a role in that."• Immelt: “Number one value is Integrity."• Immelt: “Every leader needs to clearly explain top three things the

organization is working on. If you can’t you are not leading well.”• Immelt: “Surviving a failure allows you more self confidence. Failing is a

great learning tool, but it must be kept to an absolute minimum."

The Big Five – Jack Welch1. Extroversion: This trait expresses one’s comfort level with relationships.

Jack Welch scores high in this dimension as we have explained he was extrovert, gregarious, assertive, and sociable.

2. Agreeableness: This dimension refers to individual’s propensity to defer to others.Jack was an assertive person; he scores average in this dimension because until and unless someone gave him a strong reason he would not believe them.

3. Conscientiousness: This is measure of reliability.Jack Welch was conscientious and highly organized, he score high in this dimension. He had high standards and always strived to achieve his goals.

4. Emotional Stability: This dimension stands a person’s ability to withstand stress.Jack Welch was generally calm. He was able to deal with stress but sometimes experienced feelings of guilt, anger and sadness and scores average in this dimension.

5. Openness to Experience: This address one’s range of interests and fascination with novelty.Jack Welch was open to new experience with broad interests and is very imaginative and scores high in this dimension.

The Big Five – Jeffrey Immelt1. Extroversion: This trait expresses one’s comfort level with relationships.

Immelt focused on internal as well as external communication. More People-Oriented than Jack Welch. Friendly and more approachable. Jeff scores very high in this dimension.

2. Agreeableness: This dimension refers to individual’s propensity to defer to others.Immelt was not as assertive as Welch and was more agreeable than Welch hence he scores higher than Welch in this dimension.

3. Conscientiousness: This is measure of reliability.Jeff was organized, disciplined and conscientious. He focused on strategic improvements and paid heed to concerns of Investors and Consumers. He scores high in this dimension.

4. Emotional Stability: This dimension stands a person’s ability to withstand stress.Jeff managed company in very tumultuous times which shows good self-confidence. Handled setbacks properly & enjoyed successes equally. He scores very high in this dimension.

5. Openness to Experience: This address one’s range of interests and fascination with novelty.Jeff made many acquisitions, involved outsiders, promoted diversity. He was more open to new experiences compared to Welch. Jeff scores very high in this dimension.

“It is apparent from the case that Welch was very much Task-Oriented and whereas Immelt is more People-Oriented.”

Fiedler’s Model

Jack VS Jeffrey• Stressed on intangible things like

customer satisfaction and values• Is people-oriented• Promoted outsiders and diversity• Less demanding and little bit easy

going• Teases• Employees found him

approachable• Took on when GE and Business

environment was in great tumult

• Stressed on tangible things like performance & quantifiable results• Was task-oriented• Workforce Diversity was at lowest

levels• Very demanding boss and a hard

task-master• Taunts• Employees were apprehensive of

him• Took on when GE was in good

shape

References

• Case Study - Jack Welch and Jeffrey Immelt: Continuity and Change in Strategy, Style and Culture at GE (OB Course-Pack)

• http://www.nytimes.com/2015/04/14/business/jeffrey-immelt-with-new-challenges-refashions-jack-welchs-ge.html

• http://www.celebritytypes.com/entj.php• http://

mhanewsnow.typepad.com/thebigpicture/2005/07/winning_by_jack.html

Prepared By: Group 5 • Arjun Parekh• Debolina Choudhury• Naren Shetty• Nidhi Kompal• Nikhil Kalra• Rishabh Gupta