1

Harvard Business Review’s “GE’s Two-Decade Transformation: Jack Welch’s Leadership

Case Study

Danayra Nicole Medina Alfaro

Human Resources Management

Bellevue University

MSHR610-609F

Organizational Behavior

(2237-DD)

Prof. Angela Longe

June 11, 2023

 2

Introduction

Below is a case study of GE's two-decade Transformation: Jack Welch's leadership from

an HR-focused perspective.

Did Jack Welch respond in a productive way to the fundamental bases of Human

Resources? Did his leadership style differ from previous CEOs of the company?

Some of these questions will be answered implicitly within four main questions that

allow for a more complex analysis of Welch's actions and the effect on the General Electric

company.
 3

How difficult a challenge did Welch face in 1981? How effectively did he take charge?

Jack Welch took over as CEO of the General Electric Company (GE) during "tough

times." In 1981 (the year Welch took office) the US economy was going through a period of

recession, where the GE company could have been "threatened" by global competitors, high

interest rates, among other economic declines (Christopher A. Bartlett, Meg Wozny, 2004, p 2).

To "combat" the effects of the economic situation at GE, Welch maintained a leadership

stance of not just "taking the hit" until he was able to calm the situation, but of successfully

riding out "the storm." His goal was simple, to bring the GE company to its full glory no matter

what the cost.

To do this, Welch began directly by making cultural changes in the way of maintaining

relationships with his business. "Fix, Close or Sell" was the new technique that was applied to

businesses that did not prove to be "at the level" of the company by staying in the top positions

of competition in the same sector (Christopher A. Bartlett, Meg Wozny, 2004).

Within nearly ten years under Welch's leadership, the company was able to reduce its

diversity by closing or selling uncompetitive businesses, which in turn were "replaced" by

investment in more "valuable" businesses (Christopher A. Bartlett, Meg Wozny, 2004).

 4

In addition, Welch "replaced" UNE's strategic planning process, which was a highly

valued resource during the leadership days of his predecessor, Reg Jones; by a system of

"planning in real time" that proved to be more flexible and better adapted to the current era.

There was also a change in the way of defining the company's budgets. Now the profits or the

budget were "compared" in a more "competitive" way and directly with the results of other

external businesses (Christopher A. Bartlett, Meg Wozny, 2004).

On the other hand, "higher level" positions in the company were eliminated. The

"hierarchical" levels were reduced and now all jobs would have some direct relationship with the

CEO (Christopher A. Bartlett, Meg Wozny, 2004, p.3).

These cultural changes, which have mostly been "downsizing," have involved layoffs of

employees in masse under Welch's leadership. These personnel cuts brought with them a "minor"

increase (of 2,000 million) in the first years. Compared to the new sales gains and operating

profits that were successful and led to increased revenue for the company (Christopher A.

Bartlett, Meg Wozny, 2004).

Welch's leadership methodology has shown excellent effectiveness in terms of increasing

GE's capital. However, within a perspective viewed more towards setting staff relationships in

fostering and valuing intergroup or interpersonal relationships, Welch's actions have not proven

to be as effective. This could prove to be a deficiency in Welch's leadership methodology since

his vision, mission, goal and objectives are centered on a single concept which is "reaching the

top" of what Welch understood to lead a company to prosperity. and to success.

 5

What is Welch’s objective in the series of initiatives he launched in the late 1980’s and early

1990’s? What is he trying to achieve in the round of changes put in motion in that period? Is

there a logic or rationale supporting the change process?

Welch's goal began to take a different turn in the late 80s and early 90s. Welch understood

that he had to "destroy" some of the foundations of the company and change "the terrain" to

build new successes. Welch felt that he had already "laid everything ready" in the changes made

in the early years of his leadership at GE to make way for implementing his new vision. Now

Welch would aim to work with the "inside" of the company. So he started making direct changes

to the company culture to increase productivity.

"Work-out" and "best practices" were the two initiatives that would support the cultural

and managerial vision desired by Welch. Both initiatives arose from the new management of the

Crotonville management development center, which was an institution of the GE company that

oversaw training and developing new managers (Christopher A. Bartlett, Meg Wozny, 2004).

Welch gradually "demolished" the principles of the academy and restored them through a new

mission in which he allowed different leaders to discuss GE issues in real-time.

 6

This new vision for Welch to focus on cultural changes supports his intention to foster

leadership skills in his employees. Welch understood the importance of having employees with a

more committed mindset or thoughts on the growth of the company to stimulate increased

productivity.

Finding employees with this kind of motivation could prove to be a real challenge for

Welch after implementing "bumpy" changes early on and bringing with it perhaps the most

layoffs in GE history. So, Welch begins to implement initiatives that allow all employees (at any

level) to have a "voice" in real situations in the company. This is how "Workout" practices were

created, where employees met (on many occasions at the Crotonville institution) to develop

solutions together and express opinions on improving the efficiency of their businesses

(Christopher A. Bartlett, Meg Wozny, 2004).

For their part, for the "best practices" initiative, Welch and his team compared the GE

company with some of the most productive companies of the moment and came to the

conclusion that the importance does not lie so much in "What things have made?" but in "How

are things being done?" (Christopher A. Bartlett, Meg Wozny, 2004, p.6).

These two big initiatives show that Welch understands that if he wants to raise GE's

productivity, he needs his employees to be committed to the company's goals; And if they want

to have employees committed to this level, they also need to be committed to increasing the

development and potential of their employees. Each phase of this process is closely linked.

Welch wanted to maximize the potential of his employees and understood that for this he needed

to give them the space to develop and see themselves as an active entity in the company. Not as

employees who "just take orders" from their superiors.

 7

From a perspective like Welch's, cultural changes of this nature (in which labor is tried to

"involve" and "value" more as the reason for business productivity) would have a positive

impact, so I don't hesitate to "put and remove" traditions in the GE culture.

What are the HR implications of Welsh’s actions?

Welch has been involved in Human Resources from the beginning of his leadership. Both

in cultural changes in the way of maintaining a business (fix, sell or close); As in the elimination

of "bureaucracy," you can see how these first "editions" in the GE company involve natural

principles of Human Resources. Some effects of these changes, such as mass layoffs or the

interpretation of some employees towards the concept of "crossing the limits" could turn out to

be questionable as to be associated with good leadership management. However, other initiatives

such as "conduct without borders" or the development of leaders could be good examples of

initiatives favorable to Human Resources.

Below is a table of contents listing by function the HR implications of Welch's actions:

New initiative from GE HR implications

The electronic business "e-business" Some Human Resources principle that could

Implementing technological advances was be reflected within this technological

one of Welch's last resolutions at GE before initiative is how Welch and his team show

his mandatory retirement in 2001. Welch interest in providing a support platform for
 8

admits that entering a technological world has their businesses. Changes can be difficult to

proven to be one of the greatest challenges he deal with, and the dyb.com program was

has experienced throughout his career as a GE accessible to all GE units in less than two

CEO, so Welch published a new months of implementation. Everyone had the

entrepreneurial program that he called program as a support resource from the

"destroyyourbusiness.com" (Christopher A. company. Once again, the company

Bartlett, Meg Wozny, 2004, p. 17). The understands the importance of "reaching out"

purpose of this new initiative is to help other for business.

leaders restructure their businesses with new On the other hand, the new use of technology

ideas and motivate them not to fear the ushers in a new era of opportunity and cyber

changes. expansion for GE. This could bring changes

in the culture, such as recruitment through

cybernetics, and electronic training, among

many other changes that would involve a

relationship with Human Resources.

Class A people This initiative allows us to observe how

The company had high expectations for all its "belonging to class A" can be used as one of

employees. Welch aspired for all GE the motivation strategies to maximize the

employees and leaders to be Class A, but he development of employees. However, it can

understood that there could always be also be seen how the options for "class C or

"variances" in the productivity and leadership D" employees are almost nil. Welch sees it as

of his employees. However, Welch would not a "waste of time" to try to make "what doesn't

allow individuals who proved to be the lowest work, work." That is, if an employee's vision,
 9

performers to stay with the company leadership, energy, and courage (Christopher

(Christopher A. Bartlett, Meg Wozny, 2004). A. Bartlett, Meg Wozny, 2004, p.15) did not

"match" Welch's expectations, he had to "go."

Human Resources could be involved in a

slightly more "confusing" way under an

initiative like this since, on the one hand,

promoting motivation is essential to increase

the production of a company, but on the other

hand, suddenly "discarding" an employee for

their performance without offering additional

training, professional support, etc. beforehand

could result, even in a problem.

Seis Sigma Giving quality as a means to facilitate

Six Sigma is a program that Welch chose to efficient productivity. Responding to

adopt after recognizing the effective results of resolutions that guarantee production quality;

another well-known company (Christopher A. additional repair costs could be reduced. Plus,

Bartlett, Meg Wozny, 2004). it allows "dissatisfied" employees to feel

"heard."

This program focused on restoring the quality

of the company's products which turned out to On the other hand, the Six Sigma program

be one of the "requests" of GE employees emphasizing GE's quality could enter a new

around the year 1995. Thus, the development era that would allow the company to be

of this new program proved to be a great step shown as a company that "watches" over its
 10

for once again taking productivity to another products and guarantees quality. This could

level, as well as cost reduction (Christopher draw the attention of new leaders wanting to

A. Bartlett, Meg Wozny, 2004). partner with the company.

Service Business The company understands that providing

This innovative initiative was based on a cast "advice" and "support" to its businesses,

of executives offering brainstorming services (especially from a more open and progressive

that would help clients maximize their perspective, as Welch's nature showed) could

business by applying the service advice "push" business production.

offered by the company (Christopher A.

Bartlett, Meg Wozny, 2004). Once again, the GE company understands that

it must seek the stability of "its own" to

guarantee business growth. The service

business initiative was another way to invest

for profit.

Cross Limits This new business notion could be proving to

Pushing boundaries was a notion Welch have two different kinds of effects on HR.

introduced as one of the "principles" for 1. Stimulate motivation so employees want to

success within GE. Welch encouraged "maximize their abilities." A factor or strategy

employees to set "goals" that go "beyond" to achieve some motivation is that Welch

"possibility" standards and do whatever is offers bonuses or purchase options to only

culturally and ethically possible to achieve the those who set ambitious goals and manage to

goal without neglecting the interplay of real achieve them (Christopher A. Bartlett, Meg

short-term objectives (Christopher A. Bartlett, Wozny, 2004). In this way, GE has

 11

Meg Wozny, 2004). implemented a system of "rewards" that

serves as an engine to expand productivity.

2. On the other hand, it could be the case

where people are "going the extra mile" to

achieve their own goals. Even so, there is a

possibility that they cannot achieve it. For

this, the manager of Crotonville, Steve Kerr

criticizes the new notion that is considered a

bit "extreme" and suggests new "more

efficient" techniques to work with employees.

These suggestions can be summed up as

"work smart, not hard" (Christopher A.

Bartlett, Meg Wozny, 2004).

Behavior Without Borders Hierarchical pyramids might have proven to

The Behavior without borders initiative be of great displeasure to Welch. In GE all

responds to the complete elimination of the were one, so teamwork would always be one

business hierarchy when offering or seeking of the keys to maximizing the production of

ideas for growth. For Welch, all jobs were the company. Maintaining healthy group and

equally important. Differences in jobs did not intergroup relationships proved to be a virtue

make a difference in levels of thinking or for Welch.

problem-solving. Anyone can contribute a

good idea to "the cause." Fostering good teamwork and making all

employees feel equally valued were part of

 12

GE's cultural principles. Also, these principles

Egocentrism and arrogance were not part of can be considered part of relevance for the

the cultural and ethical principles of the new Human Resources of the company.

GE. Therefore, the "behavior without

borders" initiative encouraged reciprocal

learning in which ideas were continually

shared in different units or businesses

(Christopher A. Bartlett, Meg Wozny, 2004).

Leadership Development The autocratic style seen as "a bully" by

Create a reason that links the mindset of Welch turns out to be involving HR since this

employees with commitment at work. Welch style responds to different forms of behavior

wanted to be able to maximize the talent through leadership.

return of his employees. For this reason, he

introduced new changes in training styles,

aimed at responding to the high expectations

of business production in harmony with the

specific values of the company (Christopher

A. Bartlett, Meg Wozny, 2004).

Welch's ambition to continue breaking the

company's production records was

unstoppable, until they faced cases of lack of

values where leaders demonstrated a level of

arrogance and arrogance towards their

 13

employees. Welch preferred to opt for

motivation over opposition.

Globalization Maintaining global relationships will always

The company began to spread around the be one of the implicit situations for HR. The

world and faces different historical challenges company must learn how to respond to the

in different countries (Christopher A. Bartlett, cultural diversity of other countries while

Meg Wozny, 2004). watching over the values or principles of the

company itself. Trying to maintain harmony

within inclusiveness continues to prove

challenging even today.

Better Practices Another cultural "shock" that proved to be

Emphasis is placed on prioritizing the process successful in the production of the company.

before the product. Welch understood that he Now the company responded to a greater

could improve the way they were operating if level of understanding of the protocol that

they focused more on the "how" before the would be carried out for successful

"what" (Christopher A. Bartlett, Meg Wozny, production and, above all, they would pay

2004, p.6). more attention to the details "of the way"

before only focusing on "getting to the

Paying more attention to the process could destination."

open doors to reduce investment in

production and increase the pace of work. Many employees and leaders were surely

"forced" to redefine their operating

methodology since the new initiative brought

 14

with it a change in the focus of production.

Work-out Possibly the initiative with the greatest impact

They facilitated meetings in which GM on Human Resources. It is about being able to

employees (from any sector) could participate share thoughts and opinions to find solutions

in the construction of ideas to solve real together. This initiative was one of the

problems of the company's moment pioneers in visualizing Welch as a "fanatic" of

(Christopher A. Bartlett, Meg Wozny, 2004). group work and a skeptic of hierarchy as a

business operation.

Planning in real time The United States was going through an

Welch decided to "replace" strategic planning economic crisis that was clearly affecting the

by incorporating a planning system that company. At this very moment, Welch enters

would allow responding to current problems as CEO of GE, implementing new rules,

(Christopher A. Bartlett, Meg Wozny, 2004). "pulling" and "putting" new instructions. This

had a mostly negative impact at first due to

the unemployment that these changes brought

about. However, planning in real time would

be an initiative that would later form part of

the cultural bases of the new GE.

Reduction of hierarchical levels A CEO who wants to be "in control" and

The onion layers are reduced by a single seed. aware of what is happening in his company.

Welch eliminated the "ladder" of bosses that Welch's way of interacting with company

comprised the "great leaders" section. Now events could catch anyone's eye. To some he

there were fewer bosses, and everyone had to may be too controlling and to others too
 15

report more directly to the CEO of GE active in his goals.

(Christopher A. Bartlett, Meg Wozny, 2004).

Human Resources must respond to Welch's

direct requests and try to "manage" to balance

meeting Welch's goals with employee

complaints, requests, or concerns.

 16

What is your evaluation of Welch’s approach to leading change? How important was he to

GE’s success?

During his career as CEO of the General Electric Company, Welch proved to be a person who

was firm in his goals. He always focused on the measures that he must take to bring the company

levels as productive as possible.

In the most "humanitarian" part of him, Welch recognizes the importance of the encouragement

or motivation of the staff as a great component to achieving his objectives in the company. Welch

is very clear about what he needs and what he doesn't need in the qualities of his employees. He

prioritized the quality of employees over the quantity, which is why he did not "hesitate" in

removing employees from their jobs.

His values focused on being "humble" and productive, not "comforting" which he recognized as

non-productive. He is not morally distressed that he fired so many people during his leadership at

GE as he felt that he was also giving the other person a chance to "start over" (Christopher A.

Bartlett, Meg Wozny, 2004, p.16).

 17

Although some of his methods or initiatives had some "not so positive" effects (morally

speaking), Welch undoubtedly set new expectations and managed to break records in the GE

company. Had it not been for his "radical" cultural changes, the company would not have taken

the course it took during his leadership. All the statistical figures show that during Welch's

tenure, the GE company rose and achieved economic maximization to levels never seen before.

Predicting if someone else would have done better, or if "drastic" measures were not necessary,

among other possible aspects will remain unknown. Think of a "what if...?" today and to

conclude that his methods were "misdirected" would be a bit "unfair."

He can now count on technological advances, knowledge, and laws that were not necessarily

present at his time. Welch did not prove to be a great expert in the Human Resources function;

even so, he demonstrated that opening opportunities to all employees equally does make a

difference in the operation of productivity.

Reference:

Christopher A. Bartlett, Meg Wozny, Feb. 25, 2004. La transformacion de General Electric en

dos decadas: El liderazgo de Jack Welch. Harvard Business School. *303S12-PDF-SPA (1).PDF