General Electric: From Jack Welch To Jeffrey Immelt

S w 908M09 GENERAL ELECTRIC: FROM JACK WELCH TO JEFFREY IMMELT Ken Mark wrote this case under the supervision of Professor Stewart Thornhill solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization.To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email  protected] uwo. ca. Copyright  © 2008, Ivey Management Services Version: (A) 2008-04-18 INTR ODUCTION General Electric (GE) was a U. S. conglomerate with businesses in a wide range of industries, including aerospace, power systems, health care, commercial finance and consumer finance. In 2007, GE earned US$22. billion in net profit from US$170 billion in sales. In 2008, GE expected to generate US$30 billion in cash from operations. Driving GE’s growth was what many commentators considered to be the â€Å"deepest bench of executive talent in U. S. business,†1 the result of two decades of investment in its management training programs by its former chief executive officer (CEO), John F. (Jack) Welch, Jr. The current CEO, Jeffrey Immelt, took over from Jack Welch four days before September 11, 2001, and had spent the last few years preparing the firm for its next stage of growth. GENERAL ELECTRICGE’s roots could be traced back to a Menlo Park, New Jersey laboratory where Thomas Alva Edison invented the incandescent electric lamp. GE was founded when Thomso n-Houston Electric and Edison General Electric merged in 1892. Its first few products included light bulbs, motors, elevators, and toasters. Growing organically and through acquisitions, GE’s revenues reached $27 billion in 1981. By 2007, its businesses sold a wide variety of products such as lighting, industrial equipment and vehicles, materials, and services such as the generation and transmission of electricity, and asset finance.Its divisions included GE Industrial, GE Infrastructure, GE Healthcare, GE Commercial Finance, GE Consumer Finance, and NBC Universal. 2 1 Diane Brady, â€Å"Jack Welch: Management Evangelist,† Business Week, October 25, 2004. Available http://www. businessweek. com/magazine/content/04_43/b3905032_mz072. htm, accessed November 12, 2007. 2 http://en. wikipedia. org/wiki/General_Electric, accessed November 12, 2007. at Page 2 9B08M009 For more than 125 years, GE was a leader in management practices, â€Å"establishing its strength with the d isciplined oversight of some of the world’s most effective business people. 3 When he became chairman and CEO in 1972, Reginald Jones was the seventh man to lead General Electric since Edison. Jones focused on shifting the company’s attention to growth areas such as services, transportation, materials and natural resources, and away from electrical equipment and appliances. He implemented the concept of strategic planning at GE, creating 43 strategic business units to oversee strategic planning for its groups, divisions and departments. By 1977, in order to manage the information generated by 43 strategic plans, Jones added another management layer, sectors, on top of the strategic business units.Sectors represented high level groupings of businesses: consumer products, power systems, and technical products. 4 In the 1970s, Jones was voted CEO of the Year three times by his peers, with one leading business journal dubbing him CEO of the Decade in 1979. When he retired in 1981, the Wall Street Journal proclaimed Jones a â€Å"management legend. † Under Jones’s administration, the company’s sales more than doubled ($10 billion to $27 billion) and earnings grew even faster ($572 million to $1. 7 billion). 5 Jack Welch Becomes CEO In terms of his early working life, Welch had:Worked for GE not much more than a year when in 1961 he abruptly quit his $10,500 job as a junior engineer in Pittsfield, Mass. He felt stifled by the company’s bureaucracy, underappreciated by his boss, and offended by the civil service-style $1,000 raise he was given. Welch wanted out, and to get out he had accepted a job offer from International Minerals & Chemicals in Skokie, Ill. But Reuben Gutoff, then a young executive a layer up from Welch, had other ideas. He had been impressed by the young upstart and was shocked to hear of his impending departure and farewell party just two days away.Desperate to keep him, Gutoff coaxed Welch and his wife, Carolyn, out to dinner that night. For four straight hours at the Yellow Aster in Pittsfield, he made his pitch: Gutoff swore he would prevent Welch from being entangled in GE red tape and vowed to create for him a small-company environment with big-company resources. These were themes that would later dominate Welch's own thinking as CEO. 6 In his memoirs, Welch noted that the CEO’s job was â€Å"close to 75 per cent about people and 25 per cent about other stuff. †7But Welch knew that his path to become CEO of GE was anything but smooth. As he recalled: 3 General Electric, â€Å"Our History: Our Company. † Available at http://www. ge. com/company/history/index. html, accessed June 4, 2007. 4 Christopher A. Bartlett and Meg Wozny, â€Å"GE’s Two-Decade Transformation: Jack Welch’s Leadership,† Harvard Business School Case, May 3, 2005, pp. 1–2. 5 Christopher A. Bartlett and Meg Wozny, â€Å"GE’s Two-Decade Transformation: Jac k Welch’s Leadership,† Harvard Business School Case, May 3, 2005, p. 2. 6 John A.Byrne, â€Å"How Jack Welch Runs GE,† Business Week, June 8, 1998. Available at http://www. businessweek. com/1998/23/b3581001. htm, accessed June 4, 2007. 7 Jack Welch, Straight from the Gut, Warner Books, New York, 2001, p. xii. Page 3 9B08M009 The odds were against me. Many of my peers regarded me as the round peg in a square hole, too different for GE. I was brutally honest and outspoken. I was impatient and, to many, abrasive. My behavior wasn’t the norm, especially the frequent parties at local bars to celebrate business victories, large or small. 8For Welch, there was a seven-person â€Å"horse race† to become CEO that was, in his words, â€Å"brutal, complicated by heavy politics and big egos, my own included. It was awful. †9 In the end, however, Welch prevailed, becoming CEO in April 1981. Later, he learned that he had been left off the short list of ca ndidates until late into the process. Welch recalled: I didn’t know that when the list was narrowed to ten names by 1975, I still wasn’t on it. . . . One official HR [human resources] view of me stated at the time: â€Å"Not on best candidate list despite past operating success.Emerging issue is overwhelming results focus. Intimidating subordinate relationships. Seeds of company stewardship concerns. Present business adversity will severely test. Watching closely. †10 1981 to 1987: Number One or Number Two and Delayering Welch wanted the company to do away with its formal reporting structure and unnecessary bureaucracy. He wanted to recreate the firm along the lines of the nimble plastics organization he had come from. He stated: I knew the benefits of staying small, even as GE was getting bigger. The good businesses had to be sorted out from the bad ones. . . We had to act faster and get the damn bureaucracy out of the way. 11 Welch developed this strategy base d on work by Peter Drucker, a management thinker, who asked: â€Å"If you weren’t already in the business, would you enter it today? And if the answer is no, what are you going to do about it? †12 Welch communicated his restructuring efforts by insisting that any GE business be the number one or number two business in its industry, or be fixed, sold or closed. He illustrated this concept with the use of a three-circle tool.The businesses inside the three circles — services, high technology, and core — could attain (or had attained) top positions in their industries. The selected few included many service businesses, such as financial and information systems. Outside of the three circles were organizations in manufacturing-heavy sectors facing a high degree of competition from lower cost rivals, such as central air conditioning, housewares, small appliances and semiconductors. Employment at GE fell from 404,000 in 1980 to 330,000 by 1984 and 292,000 by 198 9.The changes prompted strong reactions from former employees and community leaders. Welch was the target of further criticism when he invested nearly $75 million into a major upgrade of Crotonville, GE’s management development center. 13 Welch saw leadership training as key to GE’s growth. 8 Jack Welch, Straight from the Gut, Warner Books, New York, 2001, p. xii. Ibid, p. xiii. 10 Ibid, p. 77. 11 Ibid, p. 92. 12 Ibid, p. 108. 13 Ibid, p. 121. 9 Page 4 9B08M009 In addition, Welch undertook a streamlining exercise.By his estimate, GE in 1980 had too many layers of management, in some cases as many as 12 levels between the factory floor and the CEO’s office. The sector level was removed, and a massive downsizing effort put into place. Compared with the traditional norm of five to eight direct reports per manager, GE senior managers had 15 or more direct reports. Successful senior managers shrugged off their workload, indicating that Welch liberated them to behave like entrepreneurs. They argued that the extra pressure forced them to set strict priorities on how they spent their time, and to abandon many past procedures.Observers believed GE was running two main risks: having inadequate internal communication between senior managers and people who now reported to each of them; and the overwork, stress, demotivation and inefficiency on the part of managers down the line who had extra work assigned by their hard-pressed superiors. In 1989, an article in the Harvard Business Review reported â€Å"much bitter internal frustration and ill-feeling among the troops at GE. †14 During this period, Welch earned his â€Å"Neutron Jack† moniker, a reference to a type of bomb that would kill people while leaving buildings intact.On the other hand, Welch could see that changes had to be made to make GE more competitive. He recalled: Truth was, we were the first big healthy and profitable company in the mainstream that took actions to get more competitive. . . . There was no stage set for us. We looked too good, too strong, too profitable, to be restructuring. . . . However, we were facing our own reality. In 1980, the U. S. economy was in a recession. Inflation was rampant. Oil sold for $30 a barrel, and some predicted it would go to $100 if we could even get it.And the Japanese, benefiting from a weak yen and good technology, were increasing their exports into many of our mainstream businesses from cars to consumer electronics. 15 But Welch’s strategy was not simply a cost-reduction effort: from 1981 to 1987, while 200 businesses were sold, 370 were acquired, for a net spend of $10 billion. The turmoil that these changes caused earned Welch the title of â€Å"toughest boss in America,† in a Fortune magazine survey of the 10 most hard-nosed senior executives. In tallying the votes, Welch received twice as many nominations as the runners-up. Managers at GE used to hide out-of-favor employees from Welch†™s gun sights so they could keep their jobs,† Fortune said. â€Å"According to former employees, Welch conducts meetings so aggressively that people tremble. †16 But Welch’s credibility was bolstered by GE’s stock performance: After years of being stuck, GE stock and the market began to take off, reinforcing the idea that we were on the right track. For many years, stock options weren’t worth all that much. In 1981, when I became chairman, options gains for everyone at GE totaled only $6 million.The next year, they jumped to $38 million, and then $52 million in 1985. For the first time, people at GE were starting to feel good times in their pocketbooks. The buy-in had begun. 17 14 â€Å"General Electric Learns the Corporate and Human Costs of Delayering,† Financial Times, September 25, 1989, p. 44. Jack Welch, Straight from the Gut, Warner Books, New York, 2001, pp. 125–126. 16 â€Å"Fortune Survey Lists Nation’s Toughest Bos ses,† The Washington Post, July 19, 1984, p. B3. 17 Jack Welch, Straight from the Gut, Warner Books, New York, 2001, p. 173. 15 Page 5 9B08M009Late 1980s: Work-Out, Boundaryless and Best Practices Welch used GE’s Crotonville facility to upgrade the level of management skills and to instill a common corporate culture. After reading comments from participants, Welch realized that many of them were frustrated when they returned to their offices because many of their superiors had discounted the Crotonville experience and worked actively to maintain the status quo. Welch wondered: Why can’t we get the Crotonville openness everywhere? . . . We have to re-create the Crotonville Pit [a circular, tiered lecture hall at Crotonville] all over the company. . . The Crotonville Pit was working because people felt free to speak. While I was technically their â€Å"boss,† I had little or no impact on their personal careers — especially in the lowerlevel classes. . . . Work-Out was patterned after the traditional New England town meetings. Groups of 40 to 100 employees were invested to share their views on the business and the bureaucracy that got in their way, particularly approvals, reports, meetings and measurements. Work-Out meant just what the words implied: taking unnecessary work out of the system. 8 Work-Out sessions were held over two to three days. The team’s manager would start the session with a presentation, after which the manager would leave the facility. Without their superior present, the remaining employees, with the help of a neutral facilitator, would list problems and develop solutions for many of the challenges in the business. Then the manager returned, listening to employees present their many ideas for change. Managers were expected to make an immediate yes-or-no decision on 75 per cent of the ideas presented.Welch was pleased with Work-Out: Work-Out had become a huge success. . . . Ideas were flowing faster al l over the company. I was groping for a way to describe this, something that might capture the whole organization — and take idea sharing to the next level. . . . I kept talking about all the boundaries that Work-Out was breaking down. Suddenly, the word boundaryless popped into my head. . . . The boundaryless company . . . would remove all the barriers among the functions: engineering, manufacturing, marketing and the rest.It would recognize no distinction between â€Å"domestic† and â€Å"foreign† operations. . . . Boundaryless would also open us up to the best ideas and practices from other companies. 19 Welch’s relentless pursuit of ideas to increase productivity — from both inside and outside of the company — resulted in the birth of a related movement called Best Practices. In the summer of 1988, Welch gave Michael Frazier of GE’s Business Development department a simple challenge: How can we learn from other companies that are achieving higher productivity growth than GE?Frazier selected for study nine companies with different best practices, including Ford, Hewlett-Packard, Xerox and Toshiba. In addition to specific tools and practices, Frazier’s team also identified several characteristics common to the successful companies: they focused more on developing effective processes than on controlling individual activities; they used customer satisfaction as their main gauge of performance; they treated their suppliers as partners and they emphasized the need for a constant stream of high-quality new products designed for efficient manufacturing.On reviewing Frazier’s report, Welch became an instant convert and committed to a major new training program to introduce Best Practices thinking throughout the organization, integrating it into the ongoing agenda of Work-Out teams. 20 18 Jack Welch, Straight from the Gut, Warner Books, New York, 2001, p. 182. Ibid, pp. 185–187. 20 Christopher A. Bartlett and Meg Wozny, â€Å"GE’s Two-Decade Transformation: Jack Welch’s Leadership,† Harvard Business School Case, May 3 2005, p. 5. 19 Page 6 9B08M009 To encourage employees to put extra effort into reaching their goals, Welch instituted the idea of â€Å"stretch. He was frustrated with the compromise that was occurring as work teams tried to lower targets and top management tried to raise targets. With stretch, teams were asked to develop two plans: the first reflecting what they expected to do; and the second that reflected the toughest targets they thought they had a chance of reaching. Welch explained: The team knows they’re going to be measured against the prior year and relative performance against competitors — not against a highly negotiated internal number. Their stretch target keeps them reaching. . . Sometimes we found cases where managers at lower levels took stretch numbers and called them budgets, punishing those who missed. I do n’t think it happens much anymore, but I wouldn’t bet on it. 21 1990s: Six Sigma and the Vitality Curve One well-known program popularized by GE was process improvement, or Six Sigma. As a result of GE’s Best Practices program, Welch learned from Lawrence Bossidy, a former GE executive, how AlliedSignal’s Six Sigma quality program was improving quality, lowering costs and increasing productivity. Welch asked Gary Reiner, a vice-president, to lead a quality initiative for GE.On the basis of Reiner’s findings, Welch announced a goal of reaching Six Sigma quality levels company-wide by the year 2000, describing the program as â€Å"the biggest opportunity for growth, increased profitability, and individual employee satisfaction in the history of our company. †22 Subsequently, every GE employee underwent at least minimal training in Six Sigma, whose terms and tools became part of the global language of GE. For example, expressions like â€Å"CT Q,† were used to refer to customer requirements that were â€Å"critical to quality† in new products or services. 3 Whereas Six Sigma was focused on process improvement, to develop GE’s talent pool, Welch looked to differentiate his people. He remarked: â€Å"In manufacturing, we try to stamp out variance. With people, variance is everything. † Welch knew that identifying and ranking people in a large organization was not a simple task. GE began using what became known as 360-degree evaluations, in which managers and supervisors were evaluated by their subordinates and their peers as well as by their bosses. One exception was Welch. He did not get evaluated by his subordinates. I’ve peaked out,† he said. Nor did he evaluate the top executives immediately below him. 24 Next, Welch put in place an assessment based on a â€Å"vitality curve,† roughly shaped like a bell curve. He asked his managers to rank all their staff into the â€Å"to p 20,† â€Å"the Vital 70† and the â€Å"bottom 10,† with the intent to force executives to differentiate their employees. The â€Å"top 20† were groomed for larger assignments, and the â€Å"bottom 10† were coached out of the organization. In addition, Welch advocated categorizing employees as â€Å"A, B or C† players.He explained that how both assessment tools worked together: The vitality curve is the dynamic way we sort out As, Bs, and Cs. . . . Ranking employees on a 20-70-10 grid forces managers to make tough decisions. The vitality curve doesn’t perfectly translate to my A-B-C evaluation of talent. It’s possible — even likely — for A 21 Jack Welch, Straight from the Gut, Warner Books, New York, 2001, p. 386. Christopher A. Bartlett and Meg Wozny, â€Å"GE’s Two-Decade Transformation: Jack Welch’s Leadership,† Harvard Business School Case, May 3, 2005, p. 12. 23Matt Murray, â€Å"Can GE Find Another Conductor Like Jack Welch? † The Wall Street Journal Europe, April 13, 2000. 24 Frank Swoboda, â€Å"Up Against the Walls,† The Washington Post, February 27, 1994, p. H01. 22 Page 7 9B08M009 players to be in the vital 70. That’s because not every A player has the ambition to go further in the organization. Yet, they still want to be the best at what they do. Managers who can’t differentiate soon find themselves in the C category. 25 Welch reinforced the importance of the ranking system by matching it with an appropriate compensation structure.The A players received raises that were two to three times the increases given to Bs, and the As also received a significant portion of the stock option grants. C players received no raises or options. Welch admitted: Dealing with the bottom 10 is tougher. . . . Some think it’s cruel or brutal to remove the bottom 10 per cent of our people. It isn’t. It’s just the opposite. What I thi nk is brutal and â€Å"false kindness† is keeping people around who aren’t going to grow and prosper. There’s no cruelty like waiting and telling people late in their careers that they don’t belong. 6 In GE’s people review process, known as â€Å"Session C,† managers were expected to discuss and defend their choices and rankings. During these sessions, Welch was known to challenge his managers’ talent decisions aggressively, expecting them to defend their choices with passion. Welch was prone to making quick judgment calls on talent, and these snap decisions could be perceived both positively and negatively. An observer commented: Welch is impetuous, inclined to make lightning strikes and wage blitzkrieg.His decisions on people, assets, and strategies can be made in a heartbeat; one bad review with Jack may be the end of a long career. And the record shows that many of Welch’s snap decisions have turned out to be stupendous blu nders. 27 One example was Welch’s purchase of Kidder Peabody, then one of Wall Street’s most prominent investment banks. Although his board of directors was opposed to the idea, Welch’s persuasive arguments carried the day. But merging the two cultures proved more difficult than he imagined. Welch stated that at Kidder Peabody, â€Å"the concept of idea sharing and team play was completely foreign.If you were in investment banking or trading and your group had a good year, it didn’t matter what happened to the firm overall. †28 In addition, Kidder Peabody was hit by two public scandals: insider trading and fictitious trades that led to a $350 million writedown. Another example was NBC’s partnership with Vince McMahon in January 2001 to launch the XFL, an alternative football league to the NFL. After losing $35 million on the venture in four months, and accompanied by falling viewership, the league shut down in May 2001. 29 Some managers were worn down by the constantly evolving programs.A chemist who once worked for GE Power Systems stated: It’s management by buzzword. People chant Jack’s slogans without thinking intelligently about what they’re doing. I’ve been stretched so much I feel like Gumby. All Welch understands is increasing profits. That, and getting rid of people, is what he considers a vision. Good people, tremendous people, have been let go, and it is hurting our business. 25 Jack Welch, Straight from the Gut, Warner Books, New York, 2001, p. 160. Ibid, 2001, pp. 160–162. 27 Thomas F. Boyle, At Any Cost, Vintage Books, New York, 1998, pp. 1–12. 28 Jack Welch, Straight from the Gut, Warner Books, New York, 2001, p. 222. 29 Eric Boehlert, â€Å"Why the XFL Tanked. † Available at http://archive. salon. com/ent/feature/2001/05/11/xfl_demise/index. html, accessed January 11, 2008. 26 Page 8 9B08M009 I’m trying to meet the competition, but his policies aren ’t helping me. It’s crazy, and the craziness has got to stop. 30 Welch believed otherwise: â€Å"No one at GE loses a job because of a missed quarter, a missed year, or a mistake. That’s nonsense and everyone knows it. . . . People get second chances. 31 Over his tenure as CEO, Welch had grown GE’s market capitalization by 27 times, from $18 billion to $500 billion. The company was trading 28 times forward earnings versus about 24 for the Standard & Poor’s 500. 32 See Exhibit 1 for selected GE information over 25 years. After two decades as GE’s CEO, Welch retired, nominating Jeffrey Immelt as his successor. Immelt was one of three candidates short-listed for the job. Observers noted that Immelt was â€Å"starting his tenure at the end of an unprecedented bull market and in the midst of a global economic slowdown. 33 Despite GE’s consistent earnings growth even during the economic downturn, GE’s stock had fallen 33 per cent f rom its high of about $60 per share in August 2000. Many attributed this steady drop to the anticipation surrounding Welch’s departure. 34 Immelt’s first day on the job was September 7, 2001, four days before the terrorist attacks in the United States. The Transition from Welch to Jeffrey Immelt Immelt joined GE in 1982 and held several global leadership positions in GE’s Plastics, Appliance and Medical businesses. 5 At GE Medical, his last assignment before becoming CEO, Immelt became a star by: persuading a growing number of cash-strapped hospitals to trade in their old-fashioned equipment for digital machines that were capable of generating more dynamic images much faster. He inked lucrative, long-term deals with such hospital giants as HCA and Premier, and bought a number of smaller companies to round out his product line, all the while growing GE’s market share from 25 per cent to 34 per cent and moving the company into services such as data mining. 36Only the ninth man to lead GE since 1896, Immelt followed in the footsteps of his predecessors by abandoning the leadership approach favored by Welch. In contrast with Welch’s need to control and cajole his management, Immelt was â€Å"less a commander than a commanding presence. †37 â€Å"If you, say, missed your numbers, you wouldn’t leave a meeting with him feeling beat up but more like you let your dad down,† said Peter Foss, a longtime friend and colleague of Immelt’s and president of GE Polymerland, part of GE’s plastics business. 38 Immelt believed that leaders exhibited three traits: 30 Thomas F.Boyle, At Any Cost: Jack Welch, General Electric, and the Pursuit of Profit, Vintage Books, New York, 1998, p. 223. 31 Ibid, p. 274. 32 William Hanley, â€Å"An Eye on GE as Jack Bows Out,† National Post, August 23, 2001, p. D01. 33 Daniel Eisenberg and Julie Rawe, â€Å"Jack Who? † Time, September 10, 2001, p. 42. 34 Ibid. 35 â€Å"Jeff Immelt, CEO. † Available at http://www. ge. com/company/leadership/ceo. html, accessed January 6, 2008. 36 Daniel Eisenberg and Julie Rawe, â€Å"Jack Who? † Time, September 10, 2001, p. 42. 37 Jerry Useem, â€Å"Another Boss Another Revolution,† Fortune, April 5, 2004, p. 112. 38Daniel Eisenberg and Julie Rawe, â€Å"Jack Who? † Time, September 10, 2001, p. 42. Page 9 9B08M009 It’s curiosity. It’s being good with people. And it’s having perseverance, hard work, thick skin. Those are the three traits that every successful person I’ve ever known has in common. 39 Immelt aimed to continue GE’s transition â€Å"from a low-margin manufacturer to a more lucrative services company. †40 During Welch’s tenure, although revenues from services had grown from 15 per cent of revenues to 70 per cent, the majority of the revenues came from GE Capital (renamed GE Consumer Finance and GE Commercial Finance).In 2001, Immelt believed there was still room to grow services in many of its divisions, such as aircraft maintenance and monitoring contracts, and medical software and billing services. 41 There were differences in strategic approach as well. Whereas Welch had courted Wall Street by setting — and hitting — pinpoint earnings targets, Immelt gave the Street’s short-term demands a back seat to long-term strategy. Whereas Welch rapidly rotated managers through different divisions to develop generalists, Immelt wanted to keep them in place longer to develop specialists.Immelt explained: I absolutely loathe the notion of professional management. Which is not an endorsement of unprofessional management but a statement that, for instance, the best jet engines are built by jet-engine people, not by appliance people. Rotate managers too fast, moreover, and they won’t experience the fallout from their mistakes — nor will they invest in innovations that don†™t have an immediate payoff. 42 By 2007, Immelt had divested GE units representing 40 per cent of revenues.To grow $20 billion a year and more, new investments were made in areas where sizeable players had an advantage. Infrastructure and infrastructure technology, according to Immelt, was â€Å"a $70 billion business that will grow 15 per cent a year for the next five years. That’s a business where small people need not apply. †43 In addition, Immelt was focused on growing revenues in emerging markets such as China, India, Turkey, Eastern Europe, Russia, and Latin America. Immelt believed that the international arena was where GE’s future growth would come:In 2007, for the first time in the history of GE, we’ll have more revenue outside the United States that we’ll have inside the United States. Our business outside the United States will grow between 15 per cent and 20 per cent next year. We’re a $172 billion company. In 2008, with the U . S. economy growing at 1. 5 per cent, we’ll grow revenue by 15 per cent because we’re in the right places with the right products at the right time. 44 39 David Lieberman, â€Å"GE Chief Sees Growth Opportunities in 2008,† USA Today, December 14, 2007, p. B1.Daniel Eisenberg and Julie Rawe, â€Å"Jack Who? † Time, September 10, 2001, p. 42. 41 Ibid. 42 Jerry Useem, â€Å"Another Boss Another Revolution,† Fortune, April 5, 2004, p. 112. 43 David Lieberman, â€Å"GE Chief Sees Growth Opportunities in 2008,† USA Today, December 14, 2007, p. B1. 44 Ibid. 40 Page 10 9B08M009 EXHIBIT 1 GE: Selected Information from 1981 to 2008 ($ billions) Revenues Net Profit 1981 27. 2 1. 7 1986 36. 7 2. 5 1991 52. 3 2. 6 1996 79. 2 7. 3 2001 125. 9 14. 1 GE Stock Price 1975-2008 (Logarithmic, Adjusted for Dividends and Splits) 000 W elch announces retirement in 2001 Stock: $9. 31 Jack Welch becomes CEO Stock: $0. 65 Jeffrey Immelt becomes CEO Stock: $32. 58 $ 100 Best Practices Delayering, Six Sigma Bought 370 businesses Sold 200 businesses 10 e-business Stretch 1 Work-Out! Boundarylessness #1 or #2 Source: Case writers. Stock information from finance. yahoo. com, accessed January 5, 2008. 1/2/2007 1/2/2005 1/2/2003 1/2/2001 1/2/1999 1/2/1997 1/2/1995 1/2/1993 1/2/1991 1/2/1989 1/2/1987 1/2/1985 1/2/1983 1/2/1981 1/2/1979 1/2/1977 1/2/1975 0. 1 2006 163. 4 20. 7 General Electric: From Jack Welch to Jeffrey Immelt The need for Jeffrey Immelt to develop into a level 5 leader is imperative for GE to continue to grow and prosper in the current economic conditions of global expansion and constant change. Immelt can also benefit GE by becoming a level 5 leader by focusing on developing and empowering employee values and intrinsic motivations rather than facilitating initiatives to carry out his own vision. By Immelt developing into a level 5 leader and creating an open and trusting environment, he will empower employees to rebuild GE’s infrastructure that can hold strong and prosper through the new and demanding global expansion.Jack Welch led the way that was authentic to him and what economic conditions valued at the time. He was successful by giving the company of GE a clear vision and opening up opportunities for employees to efficiently carry out his objectives. He gave stability to shareholders at a time of economic worry and more than doubled GE’s market cap. Although his prac tices deemed profitable he did not build internal company infrastructure that would carry GE into the future. Instead he weakened internal relationships and did not empower employees to use their talents to embark on new and innovative projects.Immelt is faced with the challenge of getting the GE employees to develop a trusting and open relationship that can grow GE into new markets and hold stable in a time of constant change. His humility and professional will create a new environment for GE that will be profitable from long-term investments, social responsibility, and employee empowerment. Immelt is already leading in his own authentic way by being people-oriented and concentrating on effectiveness rather than efficiency.If he can continue to stay true to his authentic values while developing them further into a level 5 leader, GE will manage to stay competitive in the new economic market. Although authentic in his actions, Jack Welch had uprooted the GE internal infrastructure t o become a number generating, cash focused conglomerate that did not serve the intrinsic needs of GE’s talented employees. GE seemed to be thriving under Welch’s reign with stock prices continually rising and it’s market cap growing from $18 million to $500 billion. However there are more factors to a company that tell about its â€Å"success† than its cash generating enterprises.Many of the employees at GE felt worn down and stretched too far with their expectations being forced to drive success from extrinsic motivators and short-term returns. After thorough evaluation of the movement of CEOS from Jack Welch to Jeffrey Immelt, lays the fundamental management problem of a change of company values led by a previous level 4 leader, Welch, to a level 5 leader, Immelt. The GE company needs to recognize and be led to the different values that Jeffrey Immelt believes in order to drive success under a new environment.Immelt is focused more on long term strategi c investments that will require invested energy and cooperation from his employees to finally reach the high numbers and stock price returns that come along with the change to a strong infrastructure. While Welch was CEO he inspired the GE company by providing them with the vision that GE was meant for big returns, rapid expansion, and continually expanding market caps. He proved he was a level 4 leader by being focused on efficiency, and committing to a clear vision that â€Å"stimulated higher performance standards†.Everyone was aware of Welch’s vision: to act fast, push bureaucracy out of the way, and to generate numbers and cash. People who did not meet the results-delivered mindset were let go and ideas that did not deliver immediate results were abandoned. This level 4 leadership did not allow for the employees of GE to develop and grow the intrinsic values of the company and themselves because they were too nervous and focused on delivering results from small-ri sk projects. Welch did not focus on developing people; instead he focused on developing numbers.For example, his â€Å"vitality curve program† cut the â€Å"bottom 10% of employees† and rewarded the â€Å"top 20%†. The Vitality Curve organized people into three categories based on their past performance and deliverables. Although Welch implemented a number of â€Å"leadership development† programs, they ironically did not focus on molding leaders but molding opportunities for profit-centered growth. The underlying problem was that the employees of GE were expected to carry out Welch’s vision and return high profits to stockholders.It wasn’t that Welch wasn’t clear on his objectives or ways to complete objectives; it was the fact that employees were focused on completing work to produce Welch’s vision instead of using their own talents and ideas to grow the company’s infrastructure that could endure future economic condit ions. By Welch being a level 4 leader he facilitated employees to meet expectations in an efficient and demanding manner, which crushed innovation and employee self- fulfillment. According to Fortune Magazine â€Å"Welch conducts meetings so aggressively that people tremble.†Although this type of tough leadership produced high profits, it left employee satisfaction and infrastructure stability wounded. Welch was constantly implementing new projects and workshops that supported his vision and gave employees clearer objectives of his vision that produced results. Each time he implemented a new project GE stock prices rose; but this was at a time where the environment GE was competing in was domestic and results driven, which didn’t demand long term company infrastructure but rather thrived on short term high profits.Welch led the way the economy demanded, which led him to success and high numbers. Welch’s methodology was based upon cost cutting, efficiency, and de al making which would deliver high, reliable profits. Welch led at a time of an economic recession with high unemployment, high interest rates, and domestic competition. The idea of developing society and GE employees was put aside to develop high profits, which gave stockholders a sense of dependability and stability in a time of unknown and economic turmoil.This focus worked at the time, but would not continue to work in the current economy that holds new values and expectations. It is crucial that Immelt become a level 5 leader that invests in long term, strong infrastructure to continue to be able grow, expand, and stay profitable. For Immelt to become a level 5 leader he must discard the idea that â€Å"leaders must be the ones providing the direction or vision† and instead enable the implementation of additional drivers, such as employees or opportunities, that will take GE from good to great.Immelt is leading at a time of economic global slowdown and increased global c ompetition, which demands an infrastructure that can endure a change of markets and compete at a global level. Immelt’s responsibility isn’t to have one vision that the entire company follows, but to inspire GE employees to evaluate their own visions that correspond to their intrinsic values and allow them to act upon them with trust and resources. To enable and inspire employees to re-create the GE infrastructure Immelt needs to pave the way for employees to re-build their trust with GE and himself by increasing their motivation through a more open environment.Immelt can act upon becoming a level 5 leader and making GE into a growth engine for the future by investing in leadership programs that focus on developing employees as leaders and allowing them to create their own vision through their own intrinsic values. Welch’s leadership development programs focused on trimming the company’s edges instead of developing them to pave the way for number growing opportunities and profit based endeavors. Immelt can have leadership programs that ask employees to evaluate what values they have for their work and what are areas that can be improved to help them reach their goals.Immelt can also share his inspiration to facilitate external growth by moving markets into developing countries through risk taking, sophisticated marketing, and innovation. He can prove to employees that he wants them to embark on meaningful, long-term projects by notifying them that rotations will be removed to allow for specialists that are the most knowledgeable in their field, and therefore have the ability to produce the most effective long-term projects and returns.Immelt can teach the employees of GE of his values and leadership practices through company wide meetings, emails, or letters. He then needs to be mindful to follow through with his values to foster an open and trusting environment. Jeffery Immelt is leading as CEO in a time of worldwide growth and exp ansion that demands a different type of leadership style than the efficiency based style of Jack Welch in order for GE to stay profitable, and continue to be a leader in the business market.In addition to changing leadership styles in order to keep GE growing profits, Immelt has the opportunity to make GE employee’s jobs more meaningful and fulfilling by creating an open and trusting environment that will enable them to use their talents to carry out visions of their own that resonate with their intrinsic values. It is imperative that Immelt become a level 5 leader that will force GE to move from being a cash generator to a growth engine that will thrive in the current global expansion. General Electric: From Jack Welch to Jeffrey Immelt The need for Jeffrey Immelt to develop into a level 5 leader is imperative for GE to continue to grow and prosper in the current economic conditions of global expansion and constant change. Immelt can also benefit GE by becoming a level 5 leader by focusing on developing and empowering employee values and intrinsic motivations rather than facilitating initiatives to carry out his own vision. By Immelt developing into a level 5 leader and creating an open and trusting environment, he will empower employees to rebuild GE’s infrastructure that can hold strong and prosper through the new and demanding global expansion.Jack Welch led the way that was authentic to him and what economic conditions valued at the time. He was successful by giving the company of GE a clear vision and opening up opportunities for employees to efficiently carry out his objectives. He gave stability to shareholders at a time of economic worry and more than doubled GE’s market cap. Although his prac tices deemed profitable he did not build internal company infrastructure that would carry GE into the future. Instead he weakened internal relationships and did not empower employees to use their talents to embark on new and innovative projects.Immelt is faced with the challenge of getting the GE employees to develop a trusting and open relationship that can grow GE into new markets and hold stable in a time of constant change. His humility and professional will create a new environment for GE that will be profitable from long-term investments, social responsibility, and employee empowerment. Immelt is already leading in his own authentic way by being people-oriented and concentrating on effectiveness rather than efficiency.If he can continue to stay true to his authentic values while developing them further into a level 5 leader, GE will manage to stay competitive in the new economic market. Although authentic in his actions, Jack Welch had uprooted the GE internal infrastructure t o become a number generating, cash focused conglomerate that did not serve the intrinsic needs of GE’s talented employees. GE seemed to be thriving under Welch’s reign with stock prices continually rising and it’s market cap growing from $18 million to $500 billion. However there are more factors to a company that tell about its â€Å"success† than its cash generating enterprises.Many of the employees at GE felt worn down and stretched too far with their expectations being forced to drive success from extrinsic motivators and short-term returns. After thorough evaluation of the movement of CEOS from Jack Welch to Jeffrey Immelt, lays the fundamental management problem of a change of company values led by a previous level 4 leader, Welch, to a level 5 leader, Immelt. The GE company needs to recognize and be led to the different values that Jeffrey Immelt believes in order to drive success under a new environment.Immelt is focused more on long term strategi c investments that will require invested energy and cooperation from his employees to finally reach the high numbers and stock price returns that come along with the change to a strong infrastructure. While Welch was CEO he inspired the GE company by providing them with the vision that GE was meant for big returns, rapid expansion, and continually expanding market caps. He proved he was a level 4 leader by being focused on efficiency, and committing to a clear vision that â€Å"stimulated higher performance standards†.Everyone was aware of Welch’s vision: to act fast, push bureaucracy out of the way, and to generate numbers and cash. People who did not meet the results-delivered mindset were let go and ideas that did not deliver immediate results were abandoned. This level 4 leadership did not allow for the employees of GE to develop and grow the intrinsic values of the company and themselves because they were too nervous and focused on delivering results from small-ri sk projects. Welch did not focus on developing people; instead he focused on developing numbers.For example, his â€Å"vitality curve program† cut the â€Å"bottom 10% of employees† and rewarded the â€Å"top 20%†. The Vitality Curve organized people into three categories based on their past performance and deliverables. Although Welch implemented a number of â€Å"leadership development† programs, they ironically did not focus on molding leaders but molding opportunities for profit-centered growth. The underlying problem was that the employees of GE were expected to carry out Welch’s vision and return high profits to stockholders.It wasn’t that Welch wasn’t clear on his objectives or ways to complete objectives; it was the fact that employees were focused on completing work to produce Welch’s vision instead of using their own talents and ideas to grow the company’s infrastructure that could endure future economic condit ions. By Welch being a level 4 leader he facilitated employees to meet expectations in an efficient and demanding manner, which crushed innovation and employee self- fulfillment. According to Fortune Magazine â€Å"Welch conducts meetings so aggressively that people tremble.†Although this type of tough leadership produced high profits, it left employee satisfaction and infrastructure stability wounded. Welch was constantly implementing new projects and workshops that supported his vision and gave employees clearer objectives of his vision that produced results. Each time he implemented a new project GE stock prices rose; but this was at a time where the environment GE was competing in was domestic and results driven, which didn’t demand long term company infrastructure but rather thrived on short term high profits.Welch led the way the economy demanded, which led him to success and high numbers. Welch’s methodology was based upon cost cutting, efficiency, and de al making which would deliver high, reliable profits. Welch led at a time of an economic recession with high unemployment, high interest rates, and domestic competition. The idea of developing society and GE employees was put aside to develop high profits, which gave stockholders a sense of dependability and stability in a time of unknown and economic turmoil.This focus worked at the time, but would not continue to work in the current economy that holds new values and expectations. It is crucial that Immelt become a level 5 leader that invests in long term, strong infrastructure to continue to be able grow, expand, and stay profitable. For Immelt to become a level 5 leader he must discard the idea that â€Å"leaders must be the ones providing the direction or vision† and instead enable the implementation of additional drivers, such as employees or opportunities, that will take GE from good to great.Immelt is leading at a time of economic global slowdown and increased global c ompetition, which demands an infrastructure that can endure a change of markets and compete at a global level. Immelt’s responsibility isn’t to have one vision that the entire company follows, but to inspire GE employees to evaluate their own visions that correspond to their intrinsic values and allow them to act upon them with trust and resources. To enable and inspire employees to re-create the GE infrastructure Immelt needs to pave the way for employees to re-build their trust with GE and himself by increasing their motivation through a more open environment.Immelt can act upon becoming a level 5 leader and making GE into a growth engine for the future by investing in leadership programs that focus on developing employees as leaders and allowing them to create their own vision through their own intrinsic values. Welch’s leadership development programs focused on trimming the company’s edges instead of developing them to pave the way for number growing opportunities and profit based endeavors. Immelt can have leadership programs that ask employees to evaluate what values they have for their work and what are areas that can be improved to help them reach their goals.Immelt can also share his inspiration to facilitate external growth by moving markets into developing countries through risk taking, sophisticated marketing, and innovation. He can prove to employees that he wants them to embark on meaningful, long-term projects by notifying them that rotations will be removed to allow for specialists that are the most knowledgeable in their field, and therefore have the ability to produce the most effective long-term projects and returns.Immelt can teach the employees of GE of his values and leadership practices through company wide meetings, emails, or letters. He then needs to be mindful to follow through with his values to foster an open and trusting environment. Jeffery Immelt is leading as CEO in a time of worldwide growth and exp ansion that demands a different type of leadership style than the efficiency based style of Jack Welch in order for GE to stay profitable, and continue to be a leader in the business market.In addition to changing leadership styles in order to keep GE growing profits, Immelt has the opportunity to make GE employee’s jobs more meaningful and fulfilling by creating an open and trusting environment that will enable them to use their talents to carry out visions of their own that resonate with their intrinsic values. It is imperative that Immelt become a level 5 leader that will force GE to move from being a cash generator to a growth engine that will thrive in the current global expansion.