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Brief History
General Electric is one of the oldest conglomerates that are still actively present on the market. It consists of a wide variety of businesses and is involved in the production of a great multitude of items, resources, and services. The main segments of the company are focused on oil and gas production, renewable energy, aviation, additive manufacturing, lighting, healthcare, power generation, venture capital and finance, transportation, digital technologies, and lighting (Forbes 2018). General Electric is also involved in a variety of smaller enterprises which diversify its product line even further. The company was originally established in 1892 after Tomas Edison’s Electric Light Company and Thomas Houston Company were merged to create General Electric (Simonton 2015). The management of the company was focused on utilizing the numerous patents that Edison’s company held, especially those that were related to electricity generation and distribution (Allerhand 2017).
The company grew quickly by focusing on the adaptation of its technologies, a combination of research and development with effective business strategies. By 1970’s it became one of the most diversified organizations in the world (Edwards & Gandy 2014; Mahoney & Miller 2017). This paper will focus on two of the most prominent leaders of the company in the modern era. The first is Jack Welch, who was responsible for the success that the company achieved in the 1990s. His management style is often stated to be one of the reasons behind this success, but he may also be responsible for some of the difficulties that the company experienced immediately after his departure (Chung & Chen 2018; Schmidt et al. 2017; Zorn et al. 2014). The second is Jeff Immelt, who managed to resolve some of the most difficult situations in the history of General Electric while using a completely different approach to management (Agarwal & Brem 2015; Esty & Bell 2018; Smith 2017). This paper will analyze the core competencies and capabilities of the company, present two options for the company’s future strategy, as well as outline the differences in management styles of Jeff Immelt and Jack Welch.
Core Competencies and Capabilities of General Electric
Core Competencies Framework
General Electric is a unique company due to its long history on the market and the number of fields that it is involved in. In previous decades, this approach led to the company losing focus and creating ineffective business strategies. However, in the modern era, the company narrowed its focus on its core competencies (Hartung 2017). They include both organizational strategies, and its fields of operations. The first core competency of General Electric is its focus on innovation. Since the inception of the company, it was focused on creating new technologies, improving existing products, and overall investing heavily into research and development (Provasnek et al. 2017; Rosca, Arnold & Bendul 2017). Innovative technologies in power generation, aviation, appliances, and many other examples have become one of the primary elements of the company’s success.
The second core competency is the constant changes in the company’s management styles and other organizational elements. The management of General Electric sees the corporate change in a positive light due to the company previously benefiting from new experiments in organizational strategy. The case of Jeff Immelt and Jack Welch examined in this paper is one of the prime examples of such change making the company stronger and more sustainable (Intintoli, Serfling & Shaikh 2017). The company always keeps watch on the progress of possible candidates for management positions and quickly adapts to changes in operation (Fisher 2018). Excessive bureaucracy, ineffective business practices, and other underperforming elements of the organization are quickly removed or changed after their presence becomes known to management and then replaced with more effective strategies.
The third core competency of the company is its use of economies of scale. With the arrival of Jeff Immelt as the company CEO, General electric became aware of the emerging markets such as China, Russia, Eastern Europe, India, South-East Asia, and others. This led to a deeper focus on operating on a global scale but using the resources available in those markets. Each has its own needs and available resources. By utilizing them in a strategic manner, the company gained new sources of revenue while also utilizing synergies between various organizations (Taneja & Maney 2018). While General Electric entered the emerging markets later than its competitors, it still managed to reach a significant level of success.
The last core competency lies in the major sectors of the company. Currently, some of its core operation sectors include resource generation and distribution, aviation, and finance (The Economist 2018). General Electric is involved in the generation and distribution of power, water, oil, gas, and power (About GE Renewable Energy 2018; About General Electric Power 2018). This was one of the original goals of the company and is perhaps the most important sector of its operation. The company consistently adapted its technologies to create an energy infrastructure that would utilize their other inventions throughout the United States and the rest of the world. The second core sector in aviation. The company was involved in the aviation industry since its invention of electrical superchargers during the First World War and in the following decades extended its field of operation into civilian aviation. Currently, it is involved in both military and civilian aviation with many of the modern American planes utilizing technologies developed by General Electric (Commercial Aviation Solutions 2018; Military 2018). The major focus of its aviation division is on engines. The financial services of the company are provided by GE Capital, a subsidiary of the General Electric conglomerate. It began its operation in 1932 and is still one of the most successful divisions of the company. The majority of its operation is focused on leasing, commercial lending, as well as other services. General Electric actively utilizes the services of the company in many of its other divisions (About us 2018). For example, the aviation division of the company is actively involved in leasing aircraft to many of its international customers.
Capabilities Model
Strategic capabilities consist of resources and competencies. The company has three types of capabilities: physical, financial, and human. The first is in the variety of divisions that the company utilizes. It has a wide range of products, resources, infrastructures, data, and patents. The financial capabilities of the company consist of its available funds and its financial division which help the organization manages its monetary resources. Human capabilities of the company are represented by its managers and employees (2018 proxy 2018). The company utilizes its physical capabilities to create products and services that generate funds. These funds are then managed by its financial capabilities to grow further and sustain the company. The managers, employees, and suppliers of the company support both the physical and financial capabilities of the company.
Effectiveness in Support of the Corporation
Both competencies and capabilities of the company play a big part in the success of the corporation. The previous issues that the company experienced due to diversification were noted by its managers, which subsequently led to a deeper focus on the core competencies of the organization. Innovative products achieved through research and development allow General Electric to enter new markets and have a competitive edge. Corporate flexibility makes the company sustainable and ready for a change when a problematic element of business emerges. Economies of scale and its focus on core sectors of operation generate funds required for the company to operate (D’Aveni 2017). These competencies directly play into the capabilities of the company which make it operational and successful. The core sectors of the company especially showcase the importance of its core capacities. Throughout more than 120 years of the organization’s operation, the company relied on innovation in resource distribution, aviation, and financial services (Investor relations 2018). These divisions were the primary focus of the company and generated profits even in the least successful periods for the company. The company would not be able to achieve anything without them.
Two Strategic Options for the Next Five Years
In 2017, Jeff Immelt stepped down from the position of the General Electric CEO, and John L. Flannery took his position. While it is currently unclear which approach Flannery plans to use for the company, he has a multitude of choices (Bradt 2018). For example, he may choose to continue Immelt’s reserved but focused approach to management. By utilizing Kaplan’s Balanced Scorecard model, it is possible to outline the main elements of this approach. The mission of the company would be to grow through the focused use of the core competencies of the company. The vision of the company is to become the most successful conglomerate in its fields of operation (Hartung 2015). Core values under Immelt’s management were synergy between subsidiaries, globalization, and focus on core competencies (Winterhalter et al. 2017). Strategic focus areas were aligned with the values, as collaboration became essential for company operation. Success was measured based on profits and efficiency of the divisions (GE annual report 2017 2018). This approach is likely to be effective at sustaining the company but perhaps not as effective at growing the company (Eccles 2016). Immelt was met with a number of challenges, from the World Trade Center attacks to the Enron scandal and the financial crisis of 2008. He was able to adjust the company operation to the changes that these events brought to the markets in which General Electric operated. However, the company was not as profitable during his management and did not grow as much as in previous decades.
On the other hand, Flannery may choose a different approach. For example, the company may utilize the recent changes in domestic economic policy and reduce its focus on globalization and economies of scale (Flannery 2018; Holmes 2018; Hsu 2018; Worstall 2017). The new focus would be on the domestic market and competition with companies that attempt to disrupt the existing energy infrastructure. By focusing on upgrading the existing energy infrastructure to be more reliant on renewable energy the company may increase the effectiveness of three of its core competencies (Sharma 2018). They include power generation, innovation, and the energy infrastructure itself. There is a number of issues related to renewable energy that the company would need to resolve through research and development (Flores-Quiroz et al. 2016; Lew & Miller 2016; Shen & Luo 2015). This strategy may not require drastic changes in the company structure, which would reduce the resources and loss of productivity during the process of change. The company would have to evaluate the research and development process, and if renewable energy issues are not resolved in the first two years of research, a change in plans may be required.
Out of the presented two strategic options, the new CEO is likely to have more success with the approach established by Immelt. Despite the lack of growth during his operation, he established a stable ground on which the Flannery may choose to start growing the company. The emerging markets that were chosen by Immelt are currently experiencing growth which can be capitalized upon (Agnihotri 2015; Schleifer & Sun 2018). China is perhaps the largest of the listed markets (Huang & Zhu 2015). Its government has a number of restrictions on the international involvement of conglomerates which are likely to provide a barrier for General Electric (Zhang et al. 2015). However, the massive market provides opportunities for profit from a number of the firm’s subsidiaries.
Comparison of Jeff Immelt’s and Jack Welch’s management approaches
Management Approach of Jeff Immelt
Jeff Immelt became the CEO of General Electric shortly before the organization experienced some of its most difficult events. The first happened in the days following his assignment as a CEO (Denning 2018). On September 11, 2001, the World Trade Center was destroyed in a terrorist attack. This event had a profound effect on the global market (Aslam & Kang 2015). The aviation industry experienced a severe crisis because of new concerns for safety and higher control of air travel (Garefalakis et al. 2016). The aviation subsidiary of General Electric was put in the same danger as all the airlines that were not able to sustain themselves after the 9/11 attacks (Hunter & Lambert 2016). General Electric stock price fell 10.7 points which is the second-largest decline in stock price since the Black Monday market crash occurred in 1987 (Gresnigt, Kole & Franses 2015). The second major problem happened during the following month. Enron scandal caused a great disturbance in people’s confidence regarding the ethics of financial reporting (Lail et al. 2017). General Electric previously utilized similar tactics to Enron’s, which brought additional negative attention to the company (Chernov & Sornette 2016). In the following years, General Electric had to pay millions of dollars after it was revealed that some of the reports provided by it were not representative of reality (Pathak, Geeta & Kumar 2015). Another difficult period came with the financial crisis of 2008. The company was put into a critical state once more and had to look for an equity injection from any available source. Otherwise, it would be unable to continue operating in its current state. The equity injection was received in the form of $3 billion dollars from Warren Buffett’s Berkshire Hathaway group (Starr 2016).
Despite these issues, Immelt did not let the company fall apart. He took a very approachable attitude toward leadership. His approach was people-oriented, with a lot of positive attention being given to the employees. Positive reinforcement, encouragement, and respect towards the workers were used to increase productivity and reduce stress during this period (Hamel 2006). Immelt took personal responsibility for his actions and any issues that could occur because of them. He put a larger focus on innovation, research, and emerging markets while limiting diversification to only successful sectors of operation. Immelt removed a lot of complex and ineffective business systems that the company utilized and simplified them to reduce overhead and improve productivity (Gara 2017). It was important for him to have a clear understanding not only of company operation but also of the context in which it operates (Fernando 2017). He saw time management as a very important aspect of business and made sure to carefully plan his schedule (Grant 2010). Immelt’s approach could be identified as democratic leadership due to his close attention to employees and their heavy involvement in the operation of the company (Ch, Ahmad & Misbah 2017; Cunningham, Salomone & Wielgus 2015; Puni, Ofei & Okoe 2014). However, its focus on responsibility also reflects the practice of authentic leadership (Leroy et al. 2015; Regan, Laschinger & Wong 2016; Wang et al. 2014). Nevertheless, this approach saved the company from dissolving multiple times during these events without utilizing unethical practices.
Management Approach of Jack Welch
Jack Welch’s approach was almost completely opposite to Immelt’s. Welch became the CEO of General Electric in 1981. Unlike Immelt, he was not approachable. Welch presented himself as an authoritative figure of the company. He had large ambitions and confidence which led him to mostly rely on himself for guidance. He was the one to remove excessive bureaucracy from the company. With the simplified hierarchies, General Electric was able to work more efficiently (Hamel 2006). Welch also began to exit all sectors in which the company was underperforming. This element of this strategy was later continued by Immelt. However, his treatment of employees was actively negative, with taunts and confrontations being common (Hamel 2006).
Performance targets were constantly monitored and used to determine the value of the employee. Especially successful employees were rewarded with bonuses and incentives, but those who were not as efficient were not treated well (Scott-Jackson & Mayo 2018). The combination of these factors created an atmosphere of intense pressure within the company. Welch was also less focused on the ethical elements of the business. After his resignation, it was revealed that some General Electric financial reports were incorrect. His approach to finance also resembled Enron, which shows a possible malicious motive to his actions (Reagan 2015). His style of leadership is autocratic (De Hoogh, Greer & Den Hartog 2015; Naile & Selesho 2014; Schaubroeck, Shen & Chong 2017). It led the company to two decades of success and put its stock price to its peak, but his actions had a negative effect on the company in the long run and almost left it in an unsustainable state.
Most Suitable Approach
Table 1. Differences in leadership.
Welch’s approach was more entrepreneurial due to the large acquisitions that were performed by General Electric during his leadership. However, it is clear that his strategy was unsustainable for long periods of time (see table 1). The current state of the world is volatile, uncertain, complex and ambiguous (Ang 2018). An unsustainable strategy would resolve in severe consequences at the first instance of a crisis. Welch would not be able to handle the issues that Immelt had to solve, and it is unlikely that he would be ready for any upcoming problems. A careful and measured approach that Immelt took would allow for a more accurate business strategy to form around problems that the company may experience.
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