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Introduction
The General Electric Company (GE) is widely regarded as one of the worlds most successful
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corporations of the 20 century. This paper aims to critically analyse the corporate strategy of GE during the period from 1981 to present under the leadership of two very different but equally influential CEOsJack Welch and Jeff Immelt. The essay is organised in four sections. The first section describes GEs corporate strategy from 1981 to 2001 with Jack Welch as CEO, followed immediately by a critical analysis of Welchs strategic approach in the second section. The third section then describes GEs corporate strategy from 2001 to present with Jeff Immelt as CEO, followed again by a critical analysis of Immelts strategic approach in section four.
Operating margins improving from 13.6% to 18.9%. Inventory turns moving from 5.8 to 8.5. Asset efficiency (ratio of plant and equipment expenditures to depreciation) moving down toward 1.0 (with future movement projected to 0.8which indicates finding free production capacity concealed among current corporate assets by removing the hidden factories caused by waste and rework). Earnings per share doubling over the five years of implementing Six Sigma.
Welch has grown GE over this time through a combined approach that uses this capital effectively for acquisition, supported by both Six Sigma cost reduction and natural business growth through market and product innovation that fuels the ability for further reinvestment. Why did Welch become convinced that Six Sigma was the final stage in the sequence of improvement initiatives that he championed as CEO? What value did he perceive from the integration of Six Sigma with his ideas of portfolio management, the boundaryless organization and institutional learning? We have been working on moving the mean. The problem is the mean never happens. The customer only feels the variance that we have not yet removed. Variation is evil in any customer-touching process. Improvement to our internal processes is of no interest to the customer. Welchs previous initiatives had focused GE on the businesses that should deliver the future strength of the company (portfolio management) and had challenged his people to apply their creative abilities to simplify and streamline their work by eliminating bureaucracy and nonvalue-added activities. He saw clearly that the remaining frontier for business improvement was to take these lean processes and wring out the variation that caused the performance to fluctuate over time. The effort Welch orchestrated by implementing Six Sigma focused his management team on eliminating the common cause variation found in business and work processes. For many
years, GE had worked to control special cause variation (changes in work process performance due to specifically attributable causes), but when the call came to implement Six Sigma, Welch was moving them to the next level of business improvementwhat W. Edwards Deming long ago recognized as the job of management: removal of common cause variation, the variation inherent in design and implementation of business processes. Welch had discovered the next level of business efficiency: Workers cannot eliminate the common cause variation found in a business system by focusing on the daily activities of work process management. It must be the work of the management team to eliminate common cause variation. The GE Six Sigma initiative is the management approach to satisfy this improvement objective. It prepares the business to be a reliable organization that produces the right product through value-added processes that consistently perform as designed to deliver the value that has been demanded by customers and markets. How enduring will this emphasis on Six Sigma be? According to Welch, Six Sigma is quickly becoming part of the genetic code of our future leadership. Six Sigma training is now an ironclad prerequisite for promotion to any professional or managerial position in the companyand a requirement for award of stock options. By embedding Six Sigma into the performance evaluation process and linking Six Sigma to the reward system of GE, Welch ensured that he would gain and hold the attention of his entire management team. Welch has built a business system one step at a time and integrated the pieces with his holistic leadership style to deliver sustained competitive performance.
Corporate initiatives
In addition to continuously stretching performance targets through strategic planning, financial control, and human resource management, Welch introduced periodic corporate initiatives which became known as GEs Operating System. Roughly every two years Welch would implement a new initiative focused on improving a particular aspect of company-wide performance. The major initiatives include: Work-Out, Boundaryless Organisation, Globalisation, and Six Sigma. Work-Out was a forum where a cross section of employees from each business was asked to talk openly about the management practices in their part of the business without fear of retribution. At the end of each session the groups manager returned to hear the results and recommendations and make a decision as to what further action may be needed. Boundaryless Organisation. Welch believed that the key to translating diversity into a competitive advantage was the frictionless transfer of best practices and learning within the organisation, and the close partnership relations with its suppliers (Grant 2008, p.310). The Boundaryless Organisation initiative aimed to blur GEs internal and external boundaries through information sharing, cross-business learning and the integration of key suppliers into GEs end-to-end processes. Globalisation was aimed at exploiting international economies of scale across GEs business portfolio and taking advantage of global opportunities as they arise. During the 1997 Asian financial crisis GE invested acquired distressed assets in the region in order to leverage off an eventual upturn. This approach had paid off for GE in the past during the US and European recessions in the 1980s and the Mexican crisis in the mid 1990s, allowing the company to accumulate quality assets at discount prices. Six Sigma. The methodology, developed by Motorola, was implemented by GE on an unprecedented scale throughout the whole organisation. It is a comprehensive quantitative system for defining, measuring, analysing, improving and controlling every aspect of corporate processes. Among the claimed benefits of the system is its focus on achieving measurable financial results from any project to which it is applied. GEs target was reducing defects to 3.4 per million (Bock 2001) Digitization. This initiative was introduced in 1999 with the launch of Welchs destroy-yourbusiness.com program where line managers were encouraged to visualise how their business might be crushed by the dotcom juggernaut (Grant 2008, p.310). Digitization allowed further improvements in internal process and the discovery of profitable new market opportunities. During GEs twenty years with Welch at the helm, GE shareholders consistently benefited from the legendary leadership of one of 20 centurys most successful CEOs. Figure 2 shows that in the last three years alone of his appointment as CEO, at the height of Welchs success, GE share price more than doubled despite the dotcom crash of 2000.
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There is now. Its Six Sigma quality, along with a culture of learning, sharing and unending excitement. Work-Out in the 1980s defined how we behave. Today, Six Sigma is defining how we work. Learning quickly and rapidly translating learning into action is the ultimate competitive advantage. What is the real lesson for CEOs as architects of change? First, eliminate the nonperforming businesses. Next, focus on eliminating nonvalue-added activities by simplifying the business and unlocking the creativity of your people. Lastly, eliminate variation in business and work processes using Six Sigma quality methods. Then, and only then, has a business earned the right to automate its operations. Over his tenure as CEO, Jack Welch created this formula for sustainable success. Perhaps this is why so many CEOs are paying attention to his comments and observations regarding Six Sigma.