Introduction
As one of the most iconic companies within the United States, General Electric has remained on the forefront of innovation since its inception. Due to its long history as an effective economic competitor in a number of areas, the company has had to constantly reinvent itself in order to remain relevant. In the 1980s, the company was facing slowing growth due to a number of macroeconomic factors within the United States. Under the leadership of Jack Welch, the company managed a stunning turnaround that has been used as a case study for a number of productivity and efficiency gains in a number of industries.
GE Corporate Strategy in the 80s
By the 1980s, the bureaucracy and organization became rather unwieldy due to the sheer size of the company. The company competed in a vast number of markets. The introduction of Jack Welch as the CEO of the organization brought upon dramatic changes to the management and organizational structure. As a part of his mantra, Jack Welch was highly aggressive in his actions, which drew the ire of much of the senior and middle level management. However, such tactics were necessary in order to force change within the company. Otherwise, the firm may have been too slow to enact any meaningful change due to the many managing layers within the organization.
Changes Initiated by Welch
Many of the initiatives undergone by Jack Welch focused on removing perceived inefficiencies within the company. Welch sought to create an energetic environment within the organization in order to challenge the status quo. Inventories were cut, bureaucracies were removed, and factories were closed, as well as payrolls. Furthermore, Welch sought to concentrate the company only on high profit industries, and dismantled units and departments that were not deemed to be profitable.
In terms of management, the bottom 10% were fired on a rolling basis each year with the top performing managers being rewarded with lucrative bonuses and stock options. Stock programs were expanded for nearly a third of employees; Welch felt that giving employees stock options would increase their personal stake within the performance of the company, which would lead to increases in productivity and efficiency. Rewarding top managers served an effective strategy, as it motivated managers to perform to their best abilities, rather than accomplish just enough to keep their jobs. By giving managers a personal stake in the results of their effort, quality of management was increased across the board.
Competitive Advantages of GE
The reforms initiative by Welch were greatly aided by the competitive advantages that GE maintained within the market. As a large firm, GE has great access to talent, financial assets, as well as the aid of favorable government policies that allowed GE room to restructure and create synergies throughout its various departments. The radical changes forced by Welch created new competitive advantages for GE, as the company became lean, efficient, and highly profitable by delayering its management structure.
The organization I have chosen can greatly benefit from these strategies, as they facilitate a positive change within the environment of the company in question. Frequently, companies grow to a point where there is a negative return on layers on management, and innovation is decreased within the company. By delayering and tying compensation to performance, the firm has a higher chance of forcing innovation and efficiency within its operations.
Evaluation
Ultimately Welch”s reforms set the ground for innovation and profitability of the corporation, as it was becoming bogged down by the sheer size of the organization. The delayering and cost cutting methods initiated allowed the company to focus more on products and services. As such, GE remains and will continue to remain a highly effective player within its dominant industries for years to come.
Wells Fargo
Wells Fargo can use a similar approach in order to remain competitive in the future, as this has been shown to be a highly effective way of reinvigorating a company”s management structure. Wells Fargo can create efficiencies within its operations by cutting staff, focusing on industries where profits remain high, and by focusing on new technologies in which there is great room to expand market share. By using the philosophy employed by Jack Welch, Wells Fargo can maintain its place as one of the major financial institutions within the US and other markets.
- Wozny, M., & Bartlett, C. A. (2005). GE’s Two-Decade Transformation: Jack Welch’s Leadership. Harvard Business Review.
