Welch’s objective in the series of initiatives he launched was to transform the

organization and increase GE’s competitive advantage through “strategic innovation” (Grant,

2010, pg. 213) which include new approaches to doing business and organizational changes.

Welch’s strategy was a cross between the environmental school and learning school (Mintzberg,

1998) approach. Welch was focused on the threats and rivalries (Porter, 2010). He scrapped the

“laborious strategic planning” (Bartlett & Wozne, 2000, pg. 3) approach in favor of a 5 page

strategy playbook looking at current market dynamics, competitor’s recent activities, GE’s

response, greatest competitive threat over the next three years and GE’s response.

Welch began with focusing on a strategy of cost leadership in reducing overhead,

marginal business, scaling for efficiencies and comparing financial performance against external

competition (Grant, 2010, pg. 223) with his “#1 or #2: Fix, Sell, or Close” approach (Bartlett &

Wozne, 2000, pg. 2). GE had a very diverse portfolio that made it difficult to have one overall

strategy so Welch organized the company into three areas: Core, which was targeted to focus on

“reinvesting in productivity and R&D”; High technology with investing in R&E; and services.

Within these business areas, the managers were challenged with being in positions of #1 or #2

compared with the rest of the industry or they would be sold or closed. With this move, GE was

able to free up capital for the initiatives that would focus on becoming “lean and agile”, improve

productivity and leading the industry with new technology.

With the decline in GE’s growth, the economic environment and the pace of change in

the industry, Welch needed an approach that would quickly drive organizational change and

provide them with a competitive advantage. He needed to transform the organization and look at

a differentiation strategy (Porter, 2010). Welch utilized a logical approach that is reflected by
Kotter’s 8 steps for successfully implementing change to the GE organization (Mindtools, 2011)

beginning with “creating a sense of urgency around the need for change through a culture of

open communications and utilizing “work-outs”, benchmarking and best practices (Bartlett &

Wozne, 2000, pg. 4). The regular visits to the company’s Management Development Institute and the

work-outs provided forums to have honest discussions, to explore new opportunities and get people

thinking about ways to improve the organization. Welch form the “coalition” (Kotter, 2011) needed to

dramatically change the organization by personally participating in the work outs; having his leadership

team sponsor and approve work out ideas; focusing on leadership development through training and

recognition.

Welch created “created and communicated a vision for change” as well as recognizing wins or

targets (Kotter, 2011) through many initiatives such as town halls and offsite meetings and the

performance review process that related directly to the employees’ sharing the values of GE. The

employee that did not demonstrate the GE values was removed from the organization. Welch also

restructured the compensation plan that was tied to individual performance in relationship to achieving

the organizational goals such as globalization, implementing best practices and meeting commitments

(financial or other) (Bartlett & Wozne, 2000, pg. 8). Included with the new vision, compensation and

rapid growth approach, Welch introduced “stretch goals” (Bartlett & Wozne, 2000, pg. 9). This

incentivized the organization to find ways to improve the way they were doing business such as

improving the supply chain or finding new opportunities to utilize GE’s core capabilities which became

one of Welch’s strategic initiatives, product services.

To keep up with the urgent pace, Welch continued to build on the cultural and organizational

changes through additional initiatives. From the work outs, GE introduced “best practices and

benchmarking”. Benchmarking and best practices can improve an organizational performance and
increase their competitive advantage by leveraging new knowledge, processes and core competencies

(Pemberton. 2001). A direct result of the best practices, management determined they were “managing

and measuring” the wrong things. Tied to the best practices, GE implemented the “integration model”

(Bartlett & Wozne, 2000, pg. 9) which provided the capability for GE to quickly integrate a

newly acquired operation resulting in rapid growth opportunities.

“A company can boost productivity by restructuring, removing bureaucracy and downsizing, but

it cannot sustain high productivity without cultural change” (Bartlett & Wozne, 2000, p.

4). Hence, his goals were to make GE’s management style one of “openness, candor and facing

reality,” while making the focus of the organizational culture one of “speed, simplicity and self-

confidence” (Bartlett & Wozne, 2000, p. 4). The objective of initiatives was to charge leadership

with the task of “Fix, sell, or close” down any business effort that did not conform to core

business, technology advances, or serve to position GE in the top two positions in the individual

industries the product represented (Bartlett & Wonzy, 2000).

Welch inherited a large 404,000 bureaucratic organization. In order to transform it into a

lean, efficient, profitable organization (Bartlett & Wonzy, 2000), he needed to remove barriers to

performance (Kotter, 2011). Welch downsized, de-staffed and de-layered to an organization of

330,000. Welch used a logical change process to reduce waste, lower costs, build in

organization efficiencies and build on GE’s core competencies. By implementing these

strategies he was able to differentiate GE from their competitors and outperform the competition.

References

Bartlett, C. & Wozne, M. (2000). GE’s two decade transformation: Jack Welch’s leadership.
Harvard Business School Press, HBS 9-399-150.
Grant, R.M. (2010). Contemporary strategy analysis. (7th ed.). Malden, MA: Blackwell.
Retrieved from http://tychousa11.umuc.edu/AMBA670/1102/9246/class.nsf/Menu?
OpenFrameSet&Login.

Mindtools, 2011. Kotter's 8-Step Change Model Implementing change powerfully and successfully.
Retrieved from: http://www.mindtools.com/pages/article/newPPM_82.htm

Pemberton, Stonehouse, Yarrow (2001). Benchmarking and the role of organizational learning
in developing competitive advantage. Knowledge and Process Management, April/June 2001
(vol.8,2, pg.123-135).

QuickMBA. (2010). Porter’s generic strategies. QuickMBA: Strategic Management.

http://www.quickmba.com/strategy/generic.shtml .