REV: MAY 3, 2005
CHRISTOPHER A. BARTLETT MEG WOZNY
GE's Two-Decade Transformation: Jack Welch's Leadership
On September 7, 2001, Jack Welch stepped down as CEO of General Electric. The sense of pride he felt about the company's performance during the previous two decades seemed justified judging by the many accolades GE was receiving. For the third consecutive year, it had not only been named Fortune's "Most Admired Company in the United States," but also Financial Times' "Most Admired Company in the World." And, on the eve of his retirement, Fortune had named Welch "Manager of the Century" in recognition of his personal contribution to GE's outstanding 20 year record. Yet while the mood at GE's 2001 annual meeting had clearly been upbeat, some shareholders wondered whether anyone could sustain the blistering pace of change and growth characteristic of the Welch era. And specifically, many worried if any successor could generate the 23% per annum total shareholder return Welch had delivered in his two decades leading GE. It would be a tough act to follow. (See Exhibit 1 for financial summary of Welch’s era at GE.)
The GE Heritage
Founded in 1878 by Thomas Edison, General Electric grew from its early focus on the generation, distribution, and use of electric power to become, a hundred years later, one of the world’s leading diversified industrial companies. A century later, in addition to its core businesses in power generation, household appliances, and lighting, the company was also engaged in businesses as diverse as aircraft engines, medical systems, and diesel locomotives. Long regarded as a bellwether of American management practices, GE was constantly undergoing change. In the 1930s, it was a model of the era’s highly centralized, tightly controlled corporate form. By the 1950s, GE had delegated responsibility to hundreds of department managers, leading a trend towards greater decentralization. But a subsequent period of “profitless growth” in the 1960s caused the company to strengthen its corporate staffs and develop sophisticated strategic planning systems. Again, GE found itself at the leading edge of management practice. When Reg Jones, Welch’s predecessor, became CEO in 1973, he inherited the company that had just completed a major reorganization. Overlaying its 10 groups, 46 divisions, and 190 departments were 43 strategic business units designed to support the strategic planning that was so central to GE’s ____________________________________________________________
Research Associate Meg Wozny prepared this case under the supervision of Professor Christopher A. Bartlett. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 1999 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
GE's Two-Decade Transformation: Jack Welch's Leadership
management process. Jones raised strategic planning to an art form, and GE again became the benchmark for hundreds of companies that imitated its SBU-based structure and its sophisticated planning processes. Soon, however, Jones was unable to keep up with reviewing and approving the massive volumes of information generated by 43 strategic plans. Explaining that “the review burden had to be carried on more shoulders,” in 1977 he capped GE’s departments, divisions, groups, and SBUs with a new organizational layer of...
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“General Electric: 1984” (HBS Case No. 385-315), by Professor Francis J. Aguilar and Richard G. Hamermesh and RA Caroline Brainard. © 1985 by the President and Fellows of Harvard College. ii Noel Tichy and Ram Charan, “Speed, Simplicity, Self-Confidence: An Interview with Jack Welch,” Harvard Business Review, September-October 1989. iii Anon, “GE Chief Hopes to Shape Agile Giant,” Los Angeles Times, June 1, 1988. iv Tichy and Charan, op. cit., p. 112. v Robert Slater, Jack Welch and the GE Way: Management Insights and Leadership Secrets of the Legendary CEO (McGraw-Hill), 1998, p. 195. vi Tichy and Charan, op. cit., p. 120. vii GE Annual Report, 1991. viii GE Annual Report, 1989. ix GE Annual Report, 1995. x GE Annual Report, 1993. xi GE Annual Report, 1993. “Stretch Goals: The Dark Side of Asking for Miracles,” Interview excerpts with Steve Kerr, GE’s Vice President of Leadership Development. Fortune, November 13, 1995. xiii GE Annual Report, 1995. xiv Tim Smart, “Jack Welch’s Encore,” Fortune, October 28, 1996. xv Lewis Edelheit, “GE’s R&D Strategy: Be Vital,” Research Technology Management, March-April, 1998. xvi Slater, op. cit., p. 39. 24
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