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Jack Welch and General Electric’s Transformation Case Study


Why and how Jack Welch has tried to make business as simple as possible for the approximately 300,000 employees at General Electric

In many ways, Jack Welch was a true revolutionary in the field of business – not only because he significantly restructured one of the world’s biggest and oldest companies but also because he recognized the external changes that would affect businesses before other people did. Welch’s philosophy was founded on the notion that business is simple, and so should be organizations and corporations. For him, ‘simple’ did not mean basic or elementary bur rather straightforward, unambiguous, and clear. Welch believed that the speed and efficiency of production could only be improved in an uncluttered and orderly work environment.

However, the more than a century-long history of General Electric hindered progress because of the corporate bureaucracy that was created over the years and remained largely unchallenged before Welch came to the company. This leviathan-like organization needed to adapt to the changing market realities as the company entered a new era. For Welch, it meant a fundamental, rather than incremental, overhaul of the company’s structure and processes, with the hope of increasing General Electric’s productivity.

Among the first changes implemented by Welch was a reduction of the company’s workforce, or destaffing, when more than 70,000 employees left General Electric. It was a consequence of Welch’s restructuring of the company’s hierarchy as he attempted to reduce the number of different divisions and departments within the corporation. Essentially, he managed to bring this number down to fourteen. This simplification allowed us to eliminate previously existing communication filters and barriers and to reduce the associated paperwork. It also allowed for open rather than formal communication favored by Welch because it increased the speed and efficiency of the decision-making process.

Similar changes affected other employees in non-managerial positions. The divisions between different internal functions were intentionally blurred to achieve the so-called “integrated diversity”. This approach allowed for a smoother transfer of knowledge and human resources across departments. Welch also introduced the custom of holding regular “Work-Outs” in the late 1980s. Work-Outs are essentially a three-day-long semi-structured brainstorming session. They bring together several groups of employees from different divisions and positions to discuss operational and other issues. These people not only have the first-hand knowledge of the company’s everyday operations but also offer different perspectives on the same process or system. These sessions gave employees a forum to voice their opinions and directly participate in the management of the company while also improving its efficiency.

Welch also encouraged knowledge exchange with other successful companies in the industry through case study analysis of best practices. This approach allowed the company to identify the weaknesses in how it managed its operations. The findings of these studies directly affected the everyday activities of General Electric employees, ranging from inventory management to manufacturing practices. Such changes were possible thanks to the creation of cross-functional teams with shared responsibilities.

Finally, among one of the most important changes that affected General Electric employees was the restructuring of the company’s remuneration system. Previously, the company’s approach to rewards was based on the consistency of routine performance rather than the achievement of some outstanding results. Welch introduced a performance-oriented bonus system, with larger but fewer rewards. At the same time, the system was designed to encourage employees to produce superior results by not punishing their failures. Welch also changed the custom of giving stock options as rewards, making them available to all employees and not only senior managers.

Ethical dilemmas that may be created for employees by the structure/systems/processes that have been implemented at GE during the Jack Welch area

While the changes implemented by Jack Welch undoubtedly brought major success to the company’s performance, they also created several ethical dilemmas for its employees. First of all, the employees faced a conflict of interest when a newcomer to the organization challenged its very foundations. Many of General Electric workers have been with the company for many years and have developed a high degree of loyalty to the company, its practices, and customs. Thus, the employees faced the choice of accepting the changes imposed by someone they must have perceived as an outsider or preserving the heritage and legacy of the company as they knew it.

Secondly, while performance-oriented reward systems often bring positive results when it comes to the company’s productivity, they also tend to create cleavages and divisions among its employees. Such systems are built, for the most part, around competition, effectively pitching people against each other. With fewer bonuses available, everyone is a potential competitor and an enemy. Such an approach can create an unhealthy working environment, with employees being more likely to be hostile toward their colleagues. It also diminishes the level of trust and comradery in the community.

Finally, the cross-functional integrated diversity approach can lead to divided loyalties and confusion of roles and responsibilities among the employees. While it certainly makes it easier to transfer knowledge and skills across the company, it also becomes more difficult for the employees to understand who they are accountable to. Non-hierarchical structures can make the chain of command and communication unclear. In such a case, with roles and responsibilities blurred, non-hierarchical structures can also lead to insubordination.

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IvyPanda. 2020. "Jack Welch and General Electric's Transformation." June 8, 2020. https://ivypanda.com/essays/jack-welch-and-general-electrics-transformation/.

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