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case sixteen
General Electric:
Life after Jack

TEACHING NOTE

SYNOPSIS
The case looks at GE at a time of management change and considerable uncertainty.
Jack Welch, Chairman and CEO of GE for 20 years and widely regarded as one of
the greatest business leaders of the past 100 years, has retired. Jeff Immelt has the
daunting task of following Welch at a time when GE is facing a combination of chal-
lenges: sharply reduced demand in several key businesses (notably turbines and jet
engines), its financial reporting is subject to increasing scrutiny, and the financial strength
and stability of GE Capital is being questioned.
The case offers an opportunity to review the state of GE and assess its strategy,
structure, and management systems, as well as address the thorny question being
asked by an army of financial journalists and stock-watchers: where does GE go next?
GE is not just one of the world’s great corporations; it is also an anomaly. In
an era when most conglomerates have been breaking up their diversified structures
and releasing shareholder value by spinning off their separate businesses, General
Electric, one of the world’s biggest, oldest, and most diversified corporations, has
maintained a vast array of businesses that stretch from TV broadcasting to jet engines.
Under its remarkable CEO, Jack Welch, to whom much of the credit is due, the
company went from strength to strength. GE’s spectacular performance in terms of
growth, profitability, and shareholder return have been attributed to the two
decades of continuous strategic and organizational change, behind which Welch was
the driving force.
The bulk of the case is concerned with the strategic and organizational innova-
tions implemented by Welch from 1981 to 2001. Welch’s tendency to communicate

This note was prepared by Robert M. Grant.

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these initiatives through slogans (“Being #1 or #2 in your sector,” “Speed, simplicity,

self-confidence,” “the boundaryless corporation,” “The GE growth engine,”
“Workout”) makes them seem simplistic. Yet, taken together, Welch created a new
system of management at GE that reflects penetrating insights into the nature
of strategy and management in the mature corporation and a novel approach to
coordination and control in the multibusiness enterprise.
The case offers the opportunity for a retrospective view of Welch’s career as chair-
man of GE and to reflect on how the diversified firm can create value for its con-
stituent businesses through the management systems and processes that it creates.
It provides the opportunity to assess the extent to which such systems and processes
need to be associated with a charismatic leader, and whether a new CEO, with a
different personality and facing different external challenges, must inevitably redefine
the strategy and systems of the corporation.

TEACHING OBJECTIVES
The case asks how and under what circumstances a diversified corporation creates
value for its constituent businesses. This raises some fundamental issues concerning
the relative roles of firms and markets in coordinating different business activities.
The prevailing wisdom has been that, in an era of turbulent economic conditions
and efficient markets, the diversified firm is at a disadvantage to specialized firms
that transact through markets for their inputs and are free of the costs and inertia
of the corporate infrastructure of the diversified firm. GE’s success forces students
to reevaluate this conventional wisdom and to consider more circumspectly the poten-
tial for corporate management systems to contribute to business-level performance.
The case also introduces issues of leadership. How important can a single individ-
ual be in determining the performance of a corporation employing 300,000 people?
To what extent can a corporation’s strategy, structure, and systems be viewed as
an extension of the vision and personality of its CEO? Such issues are critical for
the management of executive succession and central to comprehending the challenge
facing the new CEO.

POSITION IN THE COURSE

The GE case fits into the corporate strategy section of a strategic management course.

ASSIGNMENT QUESTIONS
1. What were the principal strategic and organizational changes introduced by
Welch at GE and inherited by Immelt?
2. Why have the strategy, structure, and systems created by Welch at GE been
so successful, not just in delivering shareholder value during the 1980s and
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128 GENERAL ELECTRIC: LIFE AFTER JACK

1990s, but also in making GE seemingly invulnerable to the calls for breakup
that have overwhelmed most other conglomerates?
3. Can you detect a theory of management or set of general principles that link
together Welch’s various initiatives?
4. To what extent should other large, diversified corporations imitate the
management systems and leadership style developed by Welch at GE?
5. What changes in strategy, organizational structure, and management systems
and style should Jeff Immelt be implementing in order to sustain and revive
GE’s track record of superior performance? In particular, should GE consider
breakup (like so many other highly diversified companies)?

READING
R. M. Grant, Contemporary Strategy Analysis (5th edn), Blackwell Publishing, 2005,
chapter 16.

ANALYSIS
1. What were the principal strategic and organizational changes introduced by Welch
at GE?
I begin by building a list of the principal initiatives pushed by Welch during
his tenure as chairman. I organize these into three main categories as follows
(the table is just a partial list):

STRATEGIC CHANGES STRUCTURAL CHANGES CHANGES IN MGMT SYSTEMS

Being no. 1 or no. 2 in De-layering (including Bigger performance incentives

each global market removing the sector level)
The “3-circle” Widening spans of control Stretch financial targets
conceptualization
Divesting mining, Shrinking headquarters Reorganization of strategic
housewares, etc. departments planning
Growing in services – Workout – initiating Shifting basis of control from
especially financial organization change from approvals (inputs) to
services below performance (outputs)
Cost cutting The boundaryless company
Globalization The six-sigma quality program

2. Why have GE’s strategy, structure, and systems been so successful in creating value?
To address this issue, I ask why it is that most other highly diversified com-
panies (ITT, ABB, Vivendi, Hanson, Grand Metropolitan, General Foods)
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GENERAL ELECTRIC: LIFE AFTER JACK 129

experienced so much difficulty during the 1980s and 1990s and, for the most
part, were forced to refocus or break up entirely. Several factors should emerge
from this discussion:
n Lack of shareholder focus. Much of the diversification of this (and earlier
periods) was driven by corporate empire building rather than a quest for
shareholder value.
n The increasingly volatile business environment of the 1980s and 1990s
put huge pressure on the organizational structures and management
systems of these companies. The need for rapid decision-making and
fast-response capability meant that smaller, more focused companies were
able to respond more quickly and purposefully than the giant, multi-
divisional corporations with more hierarchical levels, and more complex
decision-making procedures.
n The increased efficiency of capital markets and markets for technology and
labor meant that the internal markets for capital, labor, and technology
of the diversified corporation became less efficient as compared to more
specialized companies that accessed factor markets directly.
So, what is different about GE? Several factors appear to be important here:
n Under Welch, GE was resolutely focused on shareholder value creation
and these goals were enforced by a culture and performance management
system that made GE’s individual businesses strongly oriented towards the
goals of profit maximization and value creation. The financial controls of
GE and its system of linking divisional CEOs’ remuneration very closely
to value creation resulted in GE’s internal system providing incentives to
business-level managers that were highly effective in driving value creation.
n GE avoided the problems of bureaucracy and unresponsiveness to market
requirements that are characteristic of large, multibusiness corporations.
Under Welch, GE de-layered, resulting in faster decision making and greater
responsiveness both to the external environment and to the performance
demands of the corporate HQ. The simplification of strategic planning
systems and increased accountability of business-level managers reinforced
speed and responsiveness.
n GE was able to combine a strong performance orientation of its indi-
vidual businesses with considerable gains from sharing resources between
businesses. Welch’s initiatives such as “boundarylessness,” “six-sigma
quality,” and globalization resulted in highly effective technology transfer,
sharing of best practices, and collaboration in new market development.
n GE’s human resources practices sustained not just strong performance incent-
ives among employees at all levels, but also considerable investment in
skills and expertise. This was especially evident among GE’s managers. GE’s
ability to attract highly capable MBAs and young managers, and its system
for developing these managers – especially through career paths that
allowed considerable internal mobility between businesses – provided GE
with the deepest and most accomplished cadre of business managers of
any corporation.
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130 GENERAL ELECTRIC: LIFE AFTER JACK

n GE’s business portfolio, although exceptionally broad, was also carefully

constrained to include only the types of business where GE’s resources
and capabilities had the potential to add value. GE’s business portfolio
seems impossibly broad – yet most of these businesses were mature, cap-
ital intensive, and global in scope. All represented potentially good fits
with the financial control, strategic management, and human resource
systems of the corporation.

3. Can you detect a theory of management or set of general principles that link
together Welch’s various initiatives?
I try to bring out the following points:
n Many of these initiatives are deceptively simplistic. I ask the students to
consider the “#1 or #2 position in your global market” dictum. This is
far less sophisticated than the GE portfolio-planning matrix deployed
during the 1970s (see Grant, pp. 477–84). Early in their strategy course,
students learn that competitive advantage and superior performance
cannot be equated with market share. So what is the thinking behind
Welch’s “#1 or #2 or else . . .” threat? First, it is simple, which means
it is easy to communicate and can provide an initial screen. Second, it
carries a powerful motivational incentive to divisional managers – we had
better move to a leadership position in our market quickly. Third, it focuses
divisional managers on the world market. Finally, it links with GE’s core
competencies – unlike Virgin, GE is not good at new business startups;
where it can add value is in squeezing costs and driving growth in big,
powerful businesses.
n Welch’s strategy involves a continued commitment to diversification,
but in a more focused way. GE’s business portfolio is designed around
the principles of (1) focusing on attractive industries (hence, exit from
mining and small household appliances), (2) focusing on businesses where
GE’s corporate-level capabilities of strategic planning, managing glob-
alization, financial control, and the development of general managers
can be effectively deployed, and (3) building interlinked sets of businesses
(the 3-circle views of GE).
n Welch’s organizational transformation of GE is built upon the view that
a large diversified corporation can outperform a set of independent spe-
cialized companies. The critical task is to build a corporate-level system
that can enhance the performance of the individual businesses. The key
to Welch’s model of the multibusiness corporation is reconciling the
advantages of size and diversity with the flexibility and responsiveness of
the small, specialized company. The changes in incentives, de-layering,
and control systems may be viewed as creating conditions for fostering
entrepreneurial flexibility in the business. Control becomes performance
based (i.e., ex post) rather than based upon decision approvals (ex ante).
Coordination and control are also shifted towards influencing behavior
and culture. Welch’s exhortations for “simplicity, speed, self-confidence”
and “boundarylessness” are attempts to boost performance through
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GENERAL ELECTRIC: LIFE AFTER JACK 131

influencing behavior and values. Finally, Welch recognizes that a critical

feature of GE’s corporate system is its management development process.
Throughout all of Welch’s leadership we can see the priority he gives to
developing general management capabilities throughout the company. If
GE is to survive and prosper for another century, it will be its ability to
continually develop high-caliber executives that will be the key.
n Welch embraces management as a dynamic process. Unlike his pre-
decessor Jones, Welch is not attempting to build an optimal system. Welch
recognizes that a performance-driven organization must be in constant
change. A key feature of Welch’s leadership has been the introduction
of a succession of initiatives. As soon as one is established, another is
introduced to drive some other area of company performance.
n Welch embodies a particular approach to leadership. His role has been less
of a decision-maker or corporate statesman and much more a catalyst for
organizational change. It is a tribute to Welch’s remarkable stamina and
commitment that he has spent 18 years continually battling with his own
company in continually pushing change and fresh thinking.
4. To what extent should other large, diversified corporations imitate the manage-
ment systems and leadership style developed by Welch at GE?
As one of the world’s most observed, written-about, and admired chief
executives, it is inevitable that Welch’s style and actions have been widely
imitated. Indeed, we must not go overboard in attributing all Welch’s
activities to his own initiative. From organizational de-layering to six-sigma,
Welch has adopted concepts and techniques from other companies and from
prevailing management practice. Probably the most important learning from
the Welch/GE case is that, even under conditions of turbulence with the
availability of highly efficient markets for capital and most other inputs, it is
possible for the diversified corporation to outperform specialized enterprises.
The critical issue is to establish corporate systems of coordination and control
and a corporate culture that foster motivation, entrepreneurship, cooperation,
best-practice sharing, and human resource development. The specific initiatives
and approaches introduced by Welch at GE can be and have been adapted
to the requirements of other companies.
5. What changes in strategy, organizational structure, and management systems
and style should Jeff Immelt be implementing in order to sustain and revive GE’s
track record of superior performance? In particular, should GE consider breakup?
Identifying the challenges that GE faces and recommending changes to meet
these challenges is a difficult task. The important issue here is to distinguish
strategic and longer term issues from the short-term problems that GE is
facing in 2002. These immediate issues concern the transparency of GE’s
public accounting, the stock-market slide of 2001–2, and the depressed
conditions facing several of GE’s major businesses (notably power systems
and jet engines).
Among the strategic and organizational questions that Immelt needs to
address are:
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132 GENERAL ELECTRIC: LIFE AFTER JACK

n What changes in GE’s business portfolio are desirable?

n What changes in GE’s structure can improve company performance?
In particular, should the two main sides of the company – industrial
businesses and financial services – be separated?
n What changes need to be made to GE’s management systems and man-
agement style, and do these call for a change in the culture of GE?
At the root of these questions is the issue of GE’s “corporate advantage.” How
is GE able to add value to its businesses? Given the sources of its corporate
advantage, what are the kinds of businesses where this corporate advantage
is likely to be especially effective in improving business-level performance?
GE’s corporate advantage has its roots in GE’s resources and capabilities.
At the resource level we can readily identify GE’s massive financial resources,
its brand and corporate reputation, its managers, and its global presence.
In terms of capabilities, GE is renowned for its mergers and acquisitions
capability, its financial management, its strategic management, its management
development, its international management, and its capability in sharing
technologies and best practices between companies.
What does this mean for the portfolio? GE creates value in making big,
capital-intensive businesses even bigger, extending their global reach, and
improving their management. Are there businesses within GE where prospects
for value creation still look good? During the past decade, financial services
has been the main area for GE’s growth. Opportunities for further growth
(especially through acquisition) probably lie in insurance and maybe other
financial sectors too. Are there sectors not already within the portfolio where
GE should consider entry? Are there any businesses within GE where the
prospects for adding additional value look poor, or where industry attractiveness
is deteriorating?
In terms of GE’s management systems and style, two factors are important:
n Given the changes in the external environment, what changes in organiza-
tion and management are needed for GE to continue to add value to its
businesses? The new decade is clearly a much more difficult time for busi-
ness in general than the “roaring nineties.” In 2002, much of the world
is facing economic stagnation, international political and economic instab-
ility has increased, and the need for flexibility, responsiveness, techno-
logical progressiveness, and strategic innovation is greater than ever. At
the same time, international opportunities – especially in China, India, and
elsewhere in Asia – are substantial. (Growth prospects look worse in North
America, Europe, and Japan.) Hence, continued international expansion
looks sensible. Given the depressed state of world equity markets, GE faces
interesting opportunities to make acquisitions at attractive valuations. In
terms of management systems, Immelt needs to continue the work of Welch
in fostering entrepreneurial vitality and market responsiveness among
GE’s businesses. This may require further de-layering (possibly breaking
up some of GE’s larger businesses), additional decentralization of decision
making, and increased use of information and communication technology
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to permit self-organization and a lower level of corporate involvement in

the individual businesses.
n Does Immelt need to remake GE to conform to his own management style?
One interpretation of the Welch era at GE is that GE was remade in the
image of Jack Welch. Thus, Welch’s values of self-confidence, aggressive-
ness, self-reliance, and simplicity became the basis for GE’s management
style more generally and the principles for designing GE’s management
systems. Immelt’s management style is different. His priorities are differ-
ent (to begin with, he appears to give greater attention to marketing and
customer satisfaction). What are the implications of this different orienta-
tion for GE’s financial control systems, its strategic planning, its human
resource management, and corporate initiatives?
Ultimately these questions require consideration of the GE business model.
GE is a company where value has been created through portfolio management
(the buying and selling of businesses) and through a corporate management
system that enhances the competitive advantage of the individual businesses
by transferring resources and capabilities and motivating and developing gen-
eral managers. This system has adjusted to changing business circumstances.
During the 1970s, GE created value through a highly sophisticated system
of strategic and financial management. During the 1980s and 1990s, GE
created value through a strategy that emphasized international expansion
and a shift from manufacturing to services, the transfer of best practices,
and a system of performance management that drove a sustained quest for
increased profitability. In 2002, GE is facing new internal and external con-
texts. Externally, the values of shareholder wealth maximization are subject
to increasing questioning. Internally, Immelt brings different skills, preferences,
and style to the position of chief executive. GE needs to adjust its business
model to both.

UPDATING THE CASE

For current information on GE, go to General Electric’s web site: www.ge.com.