Strategic Quality Management A Report on Leadership Skills of Jack Welch in

GENERAL ELECTRIC

GENERAL ELECTRIC

Formation
By 1890, Thomas Edison had brought together several of his business interests under one corporation to form Edison General Electric. At about the same time, Thomson-Houston Electric Company, under the leadership of Charles Coffin, gained access to a number of key patents through the acquisition of a number of competitors. Subsequently, General Electric was formed by the 1892 merger of Edison General Electric of Schenectady, New York and ThomsonHouston Electric Company of Lynn, Massachusetts and both plants remain in operation under the GE banner to this day. The company was incorporated in New York, with the Schenectady plant as headquarters for many years thereafter. Around the same time, General Electric's Canadian counterpart, Canadian General Electric, was formed.

Public company
In 1896, General Electric was one of the original 12 companies listed on the newly formed Dow Jones Industrial Average and still remains after 115 years, the only one remaining on the Dow (though it has not continuously been in the DOW index). In 1911 the National Electric Lamp Association (NELA) was absorbed into General Electric's existing lighting business. GE then established its lighting division headquarters at Nela Park in East Cleveland, Ohio. Nela Park is still the headquarters for GE's lighting business. In 1935, GE was one of the top 30 companies traded at the London Stock Exchange.

Power generation
GE's long history of working with turbines in the power generation field gave them the engineering know-how to move into the new field of aircraft turbo superchargers. Led by Sanford Moss, GE introduced the first superchargers during World War I, and continued to develop them during the Interwar period. They became indispensable in the years immediately prior to World War II, and GE was the world leader in exhaust-driven supercharging when the war started. This experience, in turn, made GE a natural selection to develop the Whittle W.1 jet engine that was demonstrated in the United States in 1941. Although their early work with Whittle's designs was later handed to Allison Engine Company, GE Aviation emerged as one of the world's largest engine manufacturers, second only to the well-founded, and older, British company; Rolls-Royce plc, which led the way in innovative, reliable and efficient, highperformance, heavy-duty, jet engine design and manufacture. In 2002 GE acquired the wind power assets of Enron during its bankruptcy proceedings. Enron Wind was the only surviving U.S. manufacturer of large wind turbines at the time, and GE increased engineering and supplies for the Wind Division and doubled the annual sales to $1.2 billion in 2003. It acquired ScanWind in 2009. Some consumers boycotted GE light bulbs, refrigerators and other products in the 1980s and 1990s to protest GEs role in nuclear weapons production.

Computing
GE was one of the eight major computer companies through all of the 1960s with IBM, the largest, called "Snow White" followed by the "Seven Dwarfs": Burroughs, NCR, Control Data Corporation, Honeywell, RCA,UNIVAC and GE. GE had an extensive line of general purpose and special purpose computers. Among them were the GE 200, GE 400, and GE 600 series general purpose computers, the GE 4010, GE 4020, and GE 4060 real time process control computers, the Datanet 30 and Datanet 355 message switching computers (Datanet 30 and 355 were also used as front end processors for GE mainframe computers). A Datanet 500 computer was designed, but never sold.

In 1962, GE started developing its GECOS (later renamed GCOS) operating system, originally for batch processing, but later extended to timesharing and transaction processing. Versions of GCOS are still in use today. In 19641969, GE and Bell Laboratories (which soon dropped out) joined with MIT to develop the pioneering and influential Multics operating system on the GE 645mainframe computer. The project took longer than expected and was not a major commercial success, but it demonstrated important concepts such as single level store, dynamic linking, hierarchical file system, and ringoriented security. Active development of Multics continued until 1985. It has been said that GE got into computer manufacturing because in the 1950s they were the largest user of computers outside of the United States federal government. However, in 1970, GE sold its computer division to Honeywell, exiting the computer manufacturing industry, though it retained its timesharing operations for some years afterwards. GE was a major provider of computer timesharing services, through General Electric Information Services (GEIS, now GXS), offering online computing services that included GEnie.

Acquisitions
In 1986 GE reacquired RCA, primarily for the NBC television network (also parent of Telemundo Communications Group). The remainder was sold to various companies, including Bertelsmann (Bertelsmann acquired RCA Records) and Thomson SA which traces its roots to Thomson-Houston, one of the original components of GE. Also in 1986, Kidder, Peabody & Co. a U.S.-based securities firm was sold to GE and following heavy losses was subsequently sold to PaineWebber in 1994. In 2002 Francisco Partners and Norwest Venture Partners acquired a division of GE called GE Information Systems (GEIS). The new company, named GXS, is based in Gaithersburg, Maryland. GXS is a leading provider of B2B e-Commerce solutions. GE maintains a minority ownership position in GXS. Also in 2002, GE bought wind turbine manufacturing assets of Enron Wind after the Enron scandals.

In 2004 GE bought 80% of Universal Pictures from Vivendi. Vivendi bought 20% of NBC forming the company NBCUniversal. GE then owned 80% of NBCUniversal and Vivendi owned 20%. As of January 28, 2011 GE owns 49% and Comcast 51%. In 2004 GE completed the spin-off of most of its mortgage and life insurance assets into an independent company, Genworth Financial, based in Richmond, Virginia. Genpact formerly known as GE Capital International Services (GECIS) was established by GE in late 1997 as its captive India based BPO. GE sold 60% stake in Genpact to General Atlantic and Oak Hill Capital Partners in 2005 and hived off Genpact into an independent business. GE is still a major client to Genpact getting its services in customer service, finance, information technology and analytics. GE Plastics was sold in 2007 to SABIC. In May 2007, GE acquired Smiths Aerospace for $4.8 billion. In May 2008, GE announced it was exploring options for divesting the bulk of its Consumer and Industrial business. General Electric's Schenectady, New York facilities (including GE's original headquarters) are assigned the ZIP code 12345. (All Schenectady ZIP codes begin with 123, but no others begin with 1234.) On December 3, 2009, it was announced that NBCUniversal will become a joint venture between GE and cable television operator Comcast. The cable giant will hold a controlling interest in the company, while GE retains a 49% stake and will buy out shares currently owned by Vivendi. Vivendi will sell its 20% stake in NBCUniversal to GE for US$5.8 billion. Vivendi will sell 7.66% of NBCUniversal to GE for US$2 billion if the GE/Comcast deal is not completed by September 2010 and then sell the remaining 12.34% stake of NBCUniversal to GE for US$3.8 billion when the deal is completed or to the public via an IPO if the deal is not completed. On March 1, 2010, General Electric (GE) announced that the company is planning to sell its 20.85% stake in Turkey-based Garanti Bank. In August 2010, GE Healthcare signed a strategic partnership to bring cardiovascular Computed Tomography (CT) technology from start-up Arineta Ltd. of Israel to the hospital market.

In October 2010, General Electric acquired gas engines manufacture Dresser Inc. for a $3 billion deal and also bought a $1.6 billion portfolio of retail credit cards from Citigroup Inc. This is the first major deal since the start of the financial crisis. On October 14, 2010, GE announced acquisition of data migration & SCADA simulation specialists Opal Software. December 2010: For the second times of this year (after Dresser acquisition), General Electric Co. buy oil sector company British Wellstream Holding Plc. an oil drilling pipe maker for 800 million pounds ($1.3 billion). February 2011: The company has agreed to buy the well-support division of John Wood Group Plc for about $2.8 billion. It is another aggressive moves recently of GE Oil & Gas made GE's acquisition was the largest of oil-service unit world wide in 2010. March 2011: GE announced it has completed the acquisition of privately-held Lineage Power Holdings, Inc., from The Gores Group, LLC. GE Capital sold its $2 billion dollar Mexican assets to Santander for $162 million and exit the business in Mexico. Santander will additionally assume the portfolio debts of GE Capital in the country. The transaction will be finished at first half of 2011. GE Capital will focus in the core business and will shed its non-core assets.

Corporate Affairs
GE is a multinational conglomerate headquartered in Fairfield, Connecticut. Its New York main offices are located at 30 Rockefeller Plaza in Rockefeller Center, known as the GE Building for the prominent GE logo on the roof. NBC's headquarters and main studios are also located in the building. Through its RCA subsidiary, it has been associated with the Center since its construction in the 1930s. The company describes itself as composed of a number of primary business units or "businesses." Each unit is itself a vast enterprise, many of which would, even as a standalone company, rank in the Fortune 500. The list of GE businesses varies over time as the result of acquisitions, divestitures and reorganizations. GE's tax return is the largest return filed in the

United States; the 2005 return was approximately 24,000 pages when printed out, and 237 megabytes when submitted electronically. The company also "spends more on U.S. lobbying than any other company." In 2005 GE launched its "Ecomagination" initiative in an attempt to position itself as a "green" company. GE is currently one of the biggest players in the wind power industry, and it is also developing new environment-friendly products such as hybrid locomotives, desalination and water reuse solutions, and photovoltaic cells. The company "plans to build the largest solarpanel-making factory in the U.S.," and has set goals for its subsidiaries to lower their greenhouse gas emissions. On May 21, 2007, GE announced it would sell its GE Plastics division to petrochemicals manufacturer SABIC for net proceeds of $11.6 billion. The transaction took place on August 31, 2007, and the company name changed to SABIC Innovative Plastics, with Brian Gladden as CEO.

Businesses
GE's divisions include GE Capital, GE Energy, GE Technology Infrastructure, and GE Home & Business Solutions. Through these businesses, GE participates in a wide variety of markets including the generation, transmission engines, and distribution of It electricity (e.g. nuclear, gas and solar), lighting, aircraft jet GE Through industrial automation, medical and aviation services. imaging equipment, motors, railway locomotives,

co-owns NBCUniversal with Comcast.

Commercial Finance, GE Consumer Finance, GE Equipment Services, and GE Insurance it offers a range of financial services as well. It has a presence in over 100 countries. GE also produces General Imaging digital cameras. In 2010, General Imaging released the Bridge Camera GE X5 with 14MP and 15x optical zoom. In 2011, it is replaced by 16MP GE X500 with optional red color in Japan besides traditional black or white color in world wide. Since over half of GE's revenue is derived from financial services, it is arguably a financial company with a manufacturing arm. It is also one of the largest lenders in countries other than the United States, such as Japan. Even though the first wave of conglomerates (such as ITT

Corporation, Ling-Temco-Vought, Tenneco, etc.) fell by the wayside by the mid-1980s, in the late 1990s, another wave (consisting ofWestinghouse, Tyco, and others) tried and failed to emulate GE's success. It was announced on May 4, 2008 that GE would auction off its appliances business for an expected sale of $58 billion. However, this plan fell through as a result of the recession.

Corporate recognition and rankings

In 2011, Fortune ranked GE the 6th largest firm in the U.S., as well as the 14th most profitable. Other rankings for 2011 include the following.

#7 company for leaders (Fortune) #5 best global brand (Interbrand) #82 green company (Newsweek) #13 most admired company (Fortune) #19 most innovative company (Fast Company).

For 2010, GE's brand was valued at $42.8 billion. CEO Jeffrey Immelt had a set of changes in the presentation of the brand commissioned in 2004, after he took the reins as chairman, to unify the diversified businesses of GE. The changes included a new corporate color palette, small modifications to the GE Logo, a new customized font (GE Inspira), and a new slogan "imagination at work" replacing the longtime slogan "we bring good things to life", composed by David Lucas. The standard requires many headlines to be lowercased and adds visual "white space" to documents and advertising to promote an open and approachable company. The changes were designed by Wolff Olins and are used extensively on GE's marketing, literature and website.

JACK WELCH

John Francis "Jack" Welch, Jr. (born November 19, 1935) is an American chemical engineer, business executive, and author. He was Chairman and CEO of General Electric between 1981 and 2001. In 2006 Welch's net worth was estimated at $720 million.

Career Life
Jack Welch attended Salem High School and later the University of Massachusetts Amherst, graduating in 1957 with a Bachelor of Science degree in chemical engineering. While at UMass he was a member of the Alpha chapter of the Phi Sigma Kappa fraternity. Welch went on to receive his M.S. and Ph.D at the University of Illinois at Urbana-Champaign in 1960. Welch joined General Electric in 1960. He worked as a junior chemical engineer in Pittsfield, Massachusetts, at a salary of $10,500 annually. While at GE, he blew off the roof of the factory, and was almost fired for doing so. Welch was displeased with the $1,000 raise he was offered after his first year, as well as the strict bureaucracy within GE. He planned to leave the company to work with International Minerals & Chemicals in Skokie, Illinois. Reuben Gutoff, a young executive two levels higher than Welch, decided that the man was too valuable a resource for the company to lose. He took Welch and his first wife Carolyn out to dinner at the Yellow Aster in Pittsfield, and spent four hours trying to convince Welch to stay. Gutoff vowed to work to change the bureaucracy to create a small-company environment.

Welch was named a vice president of GE in 1972. He moved up the ranks to become senior vice president in 1977 and vice chairman in 1979. Welch became GE's youngest chairman and CEO in 1981, succeeding Reginald H. Jones. By 1982, Welch had disassembled much of the earlier management put together by Jones.

Tenure as CEO of General Electric

Through the 1980s, Welch worked to streamline GE. In 1981 he made a speech in New York City called "Growing fast in a slow-growth economy". This is often acknowledged as the "dawn" of the obsession with shareholder value. Later, in an interview with the Financial Times on the Global financial crisis of 20082009, Welch said, On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy. Your main constituencies are your employees, your customers and your products. Welch did not make such a comment while still the CEO of GE. He also pushed the managers of the businesses he kept to become more productive. Welch worked to eradicate perceived inefficiency by trimming inventories and dismantling the bureaucracy that had almost led him to leave GE in the past. He shut down factories, reduced payrolls and cut lackluster old-line units. Welch's public philosophy was that a company should be either #1 or #2 in a particular industry, or else leave it completely. Welch's strategy was later adopted by other CEOs across corporate America. Each year, Welch would fire the bottom 10% of his managers. He earned a reputation for brutal candor in his meetings with executives. He would push his managers to perform, but he would reward those in the top 20% with bonuses and stock options. He also expanded the broadness of the stock options program at GE from just top executives to nearly one third of all employees. Welch is also known for destroying the nine-layer management hierarchy and bringing a sense of informality to the company. During the early 1980s he was dubbed "Neutron Jack" (in reference to the neutron bomb) for eliminating employees while leaving buildings intact. During his tenure as CEO, GE had 411,000 employees at the end of 1980, and 299,000 at the end of 1985. Of the 112,000 who left the payroll, 37,000 were in sold businesses, and 81,000 were reduced in continuing businesses. In return, GE had increased its market capital tremendously. However, Welch eliminated basic

research, closed or sold off businesses that were allegedly under-performing. These and other moves placed basic research at the bottom of the list with respect to funding and attention. In 1986, GE acquired RCA, RCA's corporate headquarters was located in Rockefeller Center; Welch subsequently took up an office in the now GE Building at 30 Rockefeller Plaza. The RCA acquisition resulted in GE selling off RCA properties to other companies and ultimately keeping NBC as part of the GE portfolio of businesses. During the 1990s, Welch shifted GE business from manufacturing to financial services through numerous acquisitions. Welch adopted Motorola's Six Sigma quality program in late 1995. In 1980, the year before Welch became CEO, GE recorded revenues of roughly $26.8 billion. In 2000, the year before he left, the revenues increased to nearly $130 billion. When Jack Welch left GE, the company had gone from a market value of $14 billion to one of more than $410 billion at the end of 2004, making it the most valuable and largest company in the world. At the time of his retirement, Welch received a salary of $4 million a year, followed by his controversial retirement plan of $8 million a year, which included GE's $80,000 per month luxury apartment in Trump Tower (New York City), free food and wine, access to a $300,000 per month B737 corporate jet, VIP tickets to the Metropolitan Opera, the Knicks, Wimbledon, the US Open (tennis) and the Red Sox, an office and a secretary in the GE building and a limousine with driver. In 1999 he was named "Manager of the Century" by Fortune magazine. There was a lengthy and well-publicized succession planning saga prior to his retirement between James McNerney, Robert Nardelli, and Jeffrey Immelt, with Immelt eventually selected to succeed him as Chairman and CEO. Nardelli became the CEO ofHome Depot until his resignation in early 2007, and until recently, was the CEO of Chrysler, while McNerney became CEO of 3M until he left that post to serve in the same capacity at Boeing.

Controversies
Some industry analysts claim that Welch is given too much credit for GE's success. They contend that individual managers are largely responsible for the company's success. For example, GE Capital, under Gary C. Wendt, contributed nearly 40% of the company's total earnings while NBC, and Robert C. Wright worked to turn the network around, leading to five years of double-digit earnings growth. It is also held that Welch did not rescue GE from great losses as the company had 16% annual earnings growth during the tenure of his predecessor, Reginald H. Jones. Critics also say that "the pressure Welch imposes leads some employees to cut corners, possibly contributing to some of the defense-contracting scandals that have plagued GE, or to the humiliating Kidder, Peabody & Co. bond-trading scheme of the early 1990s that generated bogus profits". Welch has also received criticism over the years for an apparent lack of compassion for the middle class and working class. By his actions during acquisitions and wholesale shutdowns of GE business units Welch proved that his technique of only keeping the units your company is "good" at you can maximize ROI for the short term. In the meantime (as of the 1990) thousands of employees have been removed from the rolls of GE. Welch has publicly stated that he is not concerned with the discrepancy between the salaries of top-paid CEOs and those of average workers. When asked about the issue of excessive CEO pay, Welch has stated that such allegations are "outrageous" and has vehemently opposed proposed SEC regulations affecting executive compensation. Countering the public uproar over excessive executive pay (including backdating stock options, golden parachutes for nonperformance, and extravagant retirement packages), Welch stated that CEO compensation should continue to be dictated by the free market, without interference from government or other outside agencies. In addition, Welch is a vocal opponent of the Sarbanes-Oxley Act of 2002.

INCORPORATION OF SIX SIGMA IN G.E.

Jack Welch started Six Sigma quality concept in the late 1990s. He was convinced that focusing on quality would make General Electric the most competitive company on earth. GE had long been associated with quality since then. Early management practices In the early 1990s, it was becoming painfully clear that GEs quality was not world class. The issue of quality was worked out through other strategies. One of the most popular strategies was the Work-Out program which featured Welchs most important cultural goals. Work-Out strategy had been designed to eliminate reports, approvals, meetings, and measures. Some of the features of the program were: 1) Openness 2) Informality 3) Boundarylessness
4) High involvement 5) Self-confidence

6) Productivity Welch hoped that it would help keep GEs quality high. But by the mid-1990s, employees were arguing that greater productivity was not possible without higher quality standards. Too much time was being spent on reworking products. So Welch gradually became convinced that giving freedom to work wasnt good enough. SIX SIGMA in other companies The pressure from Japanese competitors convinced American companies like Motorola that it was time to rethink things. The quality of American goods was then hovering at around FOUR SIGMA LEVELS. Japanese manufacturers of products like electric equipment, cars, and precision instruments were already at SIX SIGMA LEVELS.

In the late 1980s and early 1990s, Motorola pioneered Six Sigma, increasing its quality from four sigma to five sigma. This yielded $2.2 billion in savings, and other companies soon launched their own Six Sigma programs. Moving to SIX SIGMA level Welch agreed that GE needed to push quality improvement. But he was worried that Six Sigma was inconsistent with his business strategies. It was centrally managed. It seemed too bureaucratic with its reports and standard nomenclature. It assumed specific, agreed-upon measures. In April 1995, a survey showed that GE employees were dissatisfied with the quality of the companys products and processes. Many of them knew that a number of other companies had achieved dramatically higher quality levels through a disciplined, rigorous approach. Ultimately, Welch decided that GE had to put together a serious quality program. He understood that one sigma means that 68 % of the products are acceptable. At six sigma, only 3.4 defects per million operations occur. Prior to Six Sigma, GEs typical processes generated about 35,000 defects per million operations or three sigma. GEs goal through the Six Sigma program was to cut defects to fewer than four per million operations. To reach six sigma, therefore, GE needed to reduce its defect rates by 10,000 times. And to hit this goal by 2000, it would have to reduce defect levels an average of 84 percent a year. But Welch was optimistic. In January 1996, at the annual gathering of GEs 500 top managers, Jack Welch formally launched the Six Sigma initiative. GE aimed to become a Six Sigma quality company by the year 2000, producing nearly defect-free products, services, and transactions. Welch considered Six Sigma the most difficult Stretch goal GE had ever undertaken. But if successful, he said, the program would be the biggest opportunity for growth, increased profitability, and individual employee satisfaction in the history of their company. Despite Welchs enthusiasm, Six Sigma was at first considered by many to be another new management fad. So Welch turned up the heat. At the GE operating managers meeting in January 1997, he hammered away at the importance of the quality program.

He said in his speech: Youve got to be lunatics about this subject. Youve got to be passionate lunatics about the quality issue. Youve got to be out on the fringe of demand, and pressure and push to make this happen. This has to be central to everything you do every day. In the next century, we expect the leadership of this company to have been Black Belttrained people. They will just naturally only hire Black Belttrained people. They will be the leaders who will insist only on seeing people like that in the company. In March 1997, he sent a fax to GE managers around the world directly linking advancement opportunities to Six Sigma. Effective January 1, 1998, Welch wrote, one must have started Green Belt or Black Belt training to be promoted to a senior middle-management or senior management position. Effective January 1, 1999, all of GEs professional employees, numbering between 80,000 and 90,000, and including all officers, must have begun Green Belt or Black Belt training. And in case anyone still missed the point, Welch tied 40 percent of his 120 vice presidents bonuses to progress toward quality results. After Welchs fax, the number of applicants for Six Sigma training programs skyrocketed. A reporter asked Welch what the quality program meant to the average GE factory employee. Job security, Welch replied. Enhanced satisfaction, No wasteful rework, Growth. Without the quality program, the factory employee might get laid off. And because the quality program focused in part on finding out what customers wanted, the employee could increase his or her long-term job security. He believed that quality is, at its heart, about the customer. When customers think they derive more value from your products and services, they remain your customers. The drive for quality is not some GE drive. It has nothing to do with what you want. All these things are done in a way that the customer drives them. The customer manages your factory. Welch insisted that the quality initiative was simply the next step in creating the learning organization. Quality is the next step in the learning process. The whole thing here is to create the learning organization.

Designing SIX SIGMA strategy

Following Motorolas lead, General Electric designed a Six Sigma quality program comprising four steps to be applied to every process and transaction: 1. Measure- Identify the key internal process that influences critical-to-quality issues (CTQs) and measure the defects generated relative to identified CTQs. Defects are defined as out-oftolerance CTQs. The end of this phase comes when the Black Belt can successfully measure the Defects generated for a key process affecting the CTQ. 2. Analyze- The objective of this phase is to learn why defects are generated. Brainstorming, statistical tools, and so on are used to spotlight key variables (Xs) that cause the defects. The output of this phase is the identification of the variables most likely to drive process variation. 3. Improve- The objective of this phase is to confirm the key variables and then : (a) Quantify the effect of these variables on the CTQs (b) Identify the maximum acceptable ranges of the key variables (c) Check if measurement systems are capable of measuring the variation in the key variables (d) Modify the process to stay within the acceptable ranges. 4. Control. The objective of this phase is to ensure that the modified process enables the key variables (Xs) to stay within the maximum acceptable ranges. There are four groups of key players in the GE Six Sigma effort: 1. Champions. These are senior managers who are not on Six Sigma full time but they define, approve, and fund projects and are responsible for the success of the overall program. Most Champions report directly to the business leader. Several hundred Champions have been selected.

2. Master Black Belts. These are full-time teachers with heavy quantitative skills as well as teaching and leadership ability. They mentor Black Belts. Master Black Belts are trained for at least 2 weeks. 3. Black Belts. These are full-time quality executives who lead teams and report to the Champions. 4. Green Belts. These are members of Black Belt project teams who do not work on the projects full time and have other jobs in the company. GE business might have up to 10 Champions each of whom receives a weeks training In the end of 2000, there were 500 Master Black Belts. In the end of 2000, there were 5000 Black Belts. In the fall of 2000, there were 100,000 Green Belts.

Each of the four phases i.e. measure, analyze, improve, control takes 1 month. Each begins with 3 days of training, followed by 3 weeks of doing and 1 day of formal review by the Master Black Belts and Champions. A successful project is one in which the defects are reduced 10 times if the process began at less than three sigma (66,000 defects per million operations) or there is a 50 percent reduction in cases where the process started at greater than three sigma. GE defined five corporate measures to help its businesses track progress in the Six Sigma program: 1. Customer Satisfaction. Each business conducts customer surveys, asking customers to grade GE and the best in a category on critical-to-quality issues on a one-to-five scale, where five is the best. A defect is defined as less than best in a category or, even if best in a category, a score of three or less. 2. Cost of Poor Quality. There are three components: appraisal (mostly inspection), internal costs (largely scrap and rework), and external costs (mainly warranties and concessions). 3. Supplier Quality. GE tracks defects where the defective part either has one or more CTQs out of tolerance and therefore must be returned or reworked or if it is received outside the schedule. 4. Internal Performance. GE measures the defects generated by its processes. The measure is the sum of all defects in relation to the sum of all opportunities (CTQs) for defects.

5. Design for Manufacturability. GE measures the percentage of drawings reviewed for CTQs and the percentage of CTQs designed to Six Sigma. Most new products are now designed with CTQs identified. This is an important step because the design approach often drives the defect levels.

RESULTS
Since Six Sigma began in January 1996, the results have far exceeded Welchs expectations. He noted the progress in his letter to shareholders. It said that The Six Sigma initiative was in its fifth year through the operating system. From a standing start in 1996, with no financial benefit to the company, it has flourished to the point where it produced more than $2 billion in benefits in 1999, with much more to come. Some of the events as a result of Six sigma are discussed below:
a) GEs lighting business had a billing system that didnt mesh very well electronically with

the purchasing system of Wal-Mart, one of GEs most important customers. This caused disruptions, delays in payments, and wasted time for Wal-Mart. A GE Black Belt team secured a $30,000 budget and went to work. Within 4 months, defects dropped by 98 percent.
b) Employees at GEs Capital Mortgage Corporation were handling 300,000 telephone calls

a year from customers. When necessary, they relied on voice mail. Although GE personnel always returned these calls, sometimes it was too late. Customers had already taken their business elsewhere. A team led by a Master Black Belt got involved. It discovered that one of the corporations 42 branches was able to answer its phone calls the first time around. The team figured out how and spread the word across the other 41 branches, leading to millions of dollars of additional business. Consistently throughout this ramp-up period, Welch stressed that quality-mindedness was critical to success. He also said that in the next century, they will neither accept nor keep anyone without a quality mindset and a quality focus.

DIVERSIFICATION FROM MANUFACTURING TO SERVICE SECTOR

In 1980, the year before Welch took over; GE was almost entirely a manufacturing enterprise, with 85 percent of revenues coming from manufacturing and only 15 percent from services. The company had always been involved in services, but the service sector was regarded as something of an afterthought. At first, GE saw the service sector as merely a source of some incremental business. But in time, company executives understood that a systematic focus on services could enlarge the potential markets of GE businesses many times over. To Jack Welch and other GE executives, the point was not to give up on manufacturing. But it was clear that the service sector had the potential for much higher rates of growth. And service had another huge advantage: Profit margins were typically 50 percent higher on services than on manufactured products. So a push began in the late 1980s to grow services. In 1990, GE derived 45 percent of its revenues from its service businesses up substantially from the 1980 figure. Only 5 years later, in 1995, GEs nonmanufacturing business (financial services, aftermarket services, and broadcasting) had grown to just under 60 percent of total revenues. In 1995, Welch pushed the service initiative to full throttle. And by the year 2000, manufacturing made up only 25 percent of the entire GE mix, while nonmanufacturing businesses made up the rest, for total nonmanufacturing revenues of just under $100 billion. The most important engine in this service growth indeed, the key engine of growth for all of GE, has been GE Capital Services (GECS). In 1999, GECS revenue reached $55.7 billion, or about half of GEs total revenue of $111.6 billion. But also extremely helpful to GEs efforts in the service field was a hidden asset: its installed base of industrial equipment, including 9000 commercial jet engines, 10,000 turbines, 13,000 locomotives, and 84,000 major pieces of medical diagnostic equipment. By October 1996, GE was bringing in $7.8 billion. Of it 11 percent came through servicing that installed base. At the end of 1998, its product-service revenue exceeded $12 billion a year.

DEVELOPMENT OF EMPLOYEES AND ORGANIZATION CULTURE

Nurturing a Learning Culture

Before Jack Welch came along, many analysts thought GE to be unmanageably huge, complex, and heterogeneous. Some considered the company a rudderless conglomeratea collection of assets that lacked coherence and a unifying vision. Welch believed that GEs diversity and complexity could be turned into an asset if he could create what he called a learning culture. In a learning culture, GEs employees would search for new ideas, inside or outside the company and implement the best ones actively and aggressively. Large and diverse corporations, as Welch saw it, have contradictory needs. They need both strong integration and rich diversity. In combination, these two ingredients enable the whole to outperform the sum of its parts. Welch referred to this as integrated diversity, and this was his goal. Learning translates into actions, and actions spark productivity. The idea of the learning culture was simple: GE businesses would share knowledge from every corner of the company. Shared knowledge would provide a competitive advantage, and that advantage would translate into higher annual growth rates. Welch observed that integrated diversity could work only when the component parts of that diversity i.e. GEs businesses, were strong in their own right. That was why it had been so important to create strong, stand-alone businesses in the 1980s. From strength came selfconfidence, and from self-confidence came openness. GEs core competence lay in sharing ideas across businesses, across what he termed the Boundaryless organization. He wanted GE to think of itself as a series of laboratories that shared ideas, financial resources, and managers. He encouraged a free flow of ideas not just among GE businesses but also between GE and other companies as well. Speaking to GE shareholders in April 2000, Welch reemphasized his commitment to the learning culture. The ultimate, sustainable competitive advantage of a company, he proclaimed, is its ability to learn, to transfer that learning across its components, and to act quickly

Welch credited GEs learning culture with enhancing the companys performance in several ways: Operating margins, less than 10 percent for literally a century, rose to 17.3 percent in 1999. Inventory turns, which are a key measure of how well assets are deployed and managed, had run in the three to four range for a century but topped eight in 1999. Company earnings, which had shown only single-digit increases throughout the 1980s, showed double-digit increases for most of the 1990s. The learning continues beyond the walls of GE. For example, GE has adopted and adapted new product-introduction techniques from Chrysler and Canon, effective sourcing techniques from GM and Toyota, and quality initiatives from Motorola and Ford. A large company like GE has access to a whole world of ideas, but the only way to turn that access into a competitive advantage is to develop what Welch called a pervasive and insatiable thirst for those ideas, a compulsion to share them, and a mandate to implement them. An example of the learning culture in action came from its medical systems business, which created a CT scanner that operated remotely. The scanner allowed a user to detect and repair an impending malfunction on-line, often before the customer even knew a problem existed. Medical systems shared that technology with other GE businesses, including jet engines, locomotives, motors and industrial systems, and power systems. Using the new I.T. tool, those other GE businesses could monitor the performance of jet engines, locomotives, paper mills, and power plants.

Making Boundaryless Organization

When Jack Welch came on board, General Electric had hundreds of boundaries. Those boundaries kept people within the company from communicating easily with one another. And by extension, they kept GE personnel from communicating with outside constituents. Welch tried to identify all the debilitating boundaries within GE. He knew that if he could eliminate boundaries, it would go far toward creating the open, informal business environment that he believed was essential. The boundaryless company defined by Jack Welch, is one which: Removes barriers between functions Removes barriers between levels Removes barriers between locations Reaches out to important suppliers and makes them part of a single process. So they got rid of the vertical ones i.e. the boundaries of hierarchy. Instead of hierarchies, there were cross-functional teams. Instead of managers, there were business leaders. Instead of workers who are told what to do, there are workers who decided what to do. One powerful force for boundarylessness at GE was the Corporate Executive Council (CEC), which included the top 25 to 30 executives of the company. It met every 3 months, from a Monday to a Wednesday, for a free-flowing exchange of ideas. By design, CEC sessions had no formal agenda. The point was to keep it loose. A senior GE official may distribute a brief memo in advance of the get-together to alert the executives about the main topic of the meeting. But thats about it in terms of structure. The whole purpose of the meeting was to foster learning about problems being faced by other businesses and to pick up good ideas that might work in ones own business. Structure would work against these goals. Welch urged his colleagues at GE to break down boundaries, wherever they existed, from the CEC level on down. The fewer the boundaries, the more likely that employees could do their jobs well.

Workout Sessions for Brainstorming

Welch had been talking about dealing with problems that needed to be worked out. Not surprisingly, the name became Work-Out. The model for Work-Out was the New England town meeting in which residents charted the towns course through dialogue with each other and with the town leaders. Welch hoped the Work-Out program would help GE accomplish four important goals: 1. Develop trust among employees 2. Empower employees 3. Eliminate unnecessary work 4. Spread the GE culture At the heart of Work-Out were two assumptions: 1. Employees had to be in a position to make suggestions to their bosses face-to-face. 2. Employees had to be able to get a reply on the spot, when possible. Work-Out began in the fall of 1990. Welch wanted all GE employees to complete at least one Work-Out session within a year. Thus, the initial emphasis was on getting as many employees through the program as possible rather than on developing and refining specific techniques. The features of work out sessions are discussed below: a) The sessions were conducted far enough from the workplace, often at a hotel, to get peoples undivided attention. Workshops usually lasted 3 days. b) There were 20 -50 participants in every session. They represented a cross section of GE personnel from senior and junior managers to salaried and hourly workers. During the first 2 days, no one was allowed to take notes.

c) Generally, the leader of any GE business, large or small, kicked off the first-day session,

talking about the strengths and weaknesses of that business and explaining how the business fit into GEs overall strategy. Then, for the time being, he or she left. d) A facilitator then arranged for participants to break up into small groups of 8 to 12 people. The groups brainstormed about some of the weaknesses the keynote speaker had identified. The facilitator had no veto power over what topics were discussed. However, he or she was concerned with process. In particular, senior employees werent allowed to dominate conversations or bully others in the room. e) The participants then discussed their ideas about the businesss problems, paying particular attention to four criteria: reports, meetings, measurements, and approvals. f) Their ideas were summarized in a series of proposals, which might number as many as two dozen or more. In the final hours of the third day, the boss returned to undergo a fairly remarkable experience. The employees had spent hours discussing not only their business but also their boss. Now, the boss had to listen and learn. g) The participants put forward their proposals, and the boss could make one of three responses: (a) agree, (b) say no, or (c) seek more information. In this last case, the manager would be required to come up with an answer within a month.
h) Around 80 percent of the proposals got immediate up-or-down answers. Work-Out

suggested that, given the right circumstances, its not difficult to reach decisions and make changes in a business. i) A participant was chosen to record all the proposals discussed, along with the steps to be taken by management to determine the feasibility of a certain proposal. After all other participants certified the accuracy of this summary, it was distributed to everyone else in that particular GE business.

BUSINESS PROCESS REINGINEERING

Jack Welch viewed tackling the Internet as the fourth major initiative of his tenure at the helm of GE, after Work-Out, globalization, and Six Sigma quality. During the 1980s, GE went through a substantial modernization effort, in part to take advantage of emerging technologies. Exploiting the Internet was a natural extension of these efforts.

Apprehensions at initial stage

But large, established companies like GE needed time to figure out the Internet. Many of small retailers, moved slowly onto the Internet, fearful of cannibalizing their long-established brickand-mortar businesses. Many were unwilling or unable to trade away profits for speculative ventures into e-business. GEs relationship with the Internet dates back to October 1994, when GE Plastics set up the companys first Web site. This was a straightforward brochure site that presented information aimed at its key audience of design engineers. Three years later, GE Polymerland, the distribution arm of GE Plastics, became the first GE Web site to engage in electronic transactions. This was only a small step forward, however, because GE Plastics was still doing transactions both off-line and on-line. As the Internet gained increasing attention in the early and mid-1990s, Welch began to feel his way. He watched intently as other companies reacted to this new phenomenon. Like many other executives, he was amused by Wall Streets embrace of the dotcoms. He envied these internet startups, but was not tempted to plunge his company into the Internet world at an early, untested stage.

Inception of E-Business model in G.E.

For Welch, the year 1998 was a turning point. By that time, it seemed that everyone around him was using the Internet for one thing or another. His colleagues at corporate headquarters were

shopping on-line. By Christmas 1998, Welch was persuaded that the Internet Revolution was here to stay. At that point, most of GEs Web sites were like GE Plastics on-line brochures. As quickly as possible, all GE businesses would build Web sites that were fully equipped to handle transactions.

When Welch issued his challenge, GE Polymerlands Web site generated revenues of By the end of 1999, that figure had risen to $6 million a week By June 2000, the site was bringing in $15 million a week.

only $10,000 a week.

And of course, GE Polymerland was only one example among many. In response to Welchs challenge, GEs many businesses developed e-businesses. Critical aspects of these businesses, such as sales, product development, and customer collaboration, began to be performed partially or totally on-line. One of the most appealing benefits of an e-business is increased efficiency. Under the old system, for example, a number of people took part in the ordering and fulfillment processes. At each one of these touch points, human error could enter the system. Such errors are all but eliminated on the Internet, where the customer gets the chance to create the kind of product he or she wants without intermediation. Today, only a few years after Jack Welchs strong push toward the Internet, General Electric is widely regarded as one of the best examples of an Old Economy giant successfully embracing e-commerce. Ultimately, Welchs Internet vision boiled down to three imperatives: 1. Keep upgrading people and retaining Internet-skilled talent. 2. Figure out how to leverage information technology to create a competitive advantage for your businesses that customers can see and feel. 3. Leverage information technology to support internal business processes.