Zoe AtlasMG 610

April 30th, 2014

Introduction

From the very beginning of Welch’s reign as CEO, he took radical measures to challenge the

company to be “better than the best” (Bartlett and Wozny, 2005, p. 2). Throughout his career, the

economy of the United States changed drastically and the global environment shifted. Welch

reacted swiftly and promptly to keep the company success. Welch never stopped creating new

initiatives for the company such as globalization, services, Six Sigma and e-business. In addition,

Welch created a more compact company, eliminating different levels and divisions. His desire

was to have the feeling and culture of a small company, which he achieved through company

values and desires through programs like “Work-Out” and Best Practices.

1. How would you describe Jack Welch’s leadership style? Was his effect on organizational culture positive or negative? Defend your argument.

Jack Welch’s leadership style can be described as driven by change. Throughout his time at

GE, Welch was constantly trying to improve the company with different ideas and projects.

Welch’s constant devotion to the company was evident. He was aware that accountability is

always centralized and flows to the tops of organizations and therefore, felt an increasing need to

know what is going on at GE (Schein, 1992, p. 76). His dedication allowed him to be a successful

leader and he was an overall positive influence on the company as a whole.

Welch understood the importance of the Fiedler Contingency Model, which states that there is

no best style of leadership but instead the effectiveness is based on the particular situation. The

effectiveness discussed by Fiedler (1970) is the result of two factors: leadership style and

situational favorableness (p. 57). Welch knew that the type of leadership style needed to change

based on the particular situation or the particular place the company was in during that time. For

example, in the beginning of his reign as CEO, Welch wanted to “create the culture of a small

company—a place where all felt engaged and everyone had a voice” (Bartlett and Wozny, 2005,

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p. 4). In order to do so, he started a new process entitled “Work-Out”, which was an avenue to get

the employees and their bosses to find new ways to deal with each other (Bartlett and Wozny,

2005, p. 4). He believed that the internal operations were the center to the success of the company

and focused his leadership solely on that element. However, when globalization became the key

factor, Welch changed his leadership accordingly. Welch did not implement a corporate

globalization strategy instead he allowed each business to be responsible for their own plan that is

particular to their own needs. Welch realized that a change in focus and style was needed based

on the particular situation.

Fiedler (1970) also created the Least Preferred Co-Worker Scale, which shows two types of

leaders: task-oriented leaders and relationship-oriented leaders (p. 58). Welch was clearly a task-

oriented leader. Throughout his reign, he had a relentless pursuit to increase productivity in the

company. One of the biggest movements by Welch was “Best Practices.” This movement allowed

a group of individuals from the company to learn from nine companies and pick specific tools

and practices that worked best for them. In addition, the group also identified several

characteristics common to all of the other companies. This project was focused on taking the best

ideas from other successful companies and implementing them into GE to make the company as

productive and thriving as possible (Bartlett and Wozny, 2005, p. 5).

Welch understood the importance of emotional intelligence in a leader. As he stated, “A

leader’s intelligence has to have a strong emotional component. He has to have high levels of

self-awareness, maturity and self-control. She must be able to withstand heat, handle setbacks and

when those lucky moments arise, enjoy success with equal parts joy and humility. No doubt

emotional intelligence is more rate than book smarts, but my experience says it is actually more

important in the making of the leader. You just can’t ignore it” (Aldrin and Gayatri, 2013, p.

794). Goleman (1998) developed this theory that the trait shared by all successful leaders is

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emotional intelligence. Goleman states that while IQ and technical skills are important, a person

cannot be an effective leader without emotional intelligence (p. 85).

There are five components of emotional intelligence at work: self-awareness, self-regulation,

motivation, empathy and social skill (Goleman, 1998, p. 86). The first component, self-awareness

is defined as the ability to recognize and understand your moods, emotions and drives, as well as

their effects on others. Welch had strong self-confidence throughout his reign as CEO at GE. He

felt strongly about his ideas and the success of his company. In addition, he only wanted

employees that were similar to him. As he put it, he only wanted “A-Players—individuals with

vision, leadership, energy and courage” (Bartlett and Wozny, 2005, p. 13). The second

component, self-regulation is defined as the ability to control or redirect disruptive impulses and

moods and the propensity to suspend judgment or to think before acting. Welch was not only

open to change, but insisted upon an abundance of it. Throughout his time at GE, he implemented

several big changes, such as Six Sigma. Welch described the program as “the biggest opportunity

for growth, increased profitability, and individual employee satisfaction in the history of our

company” (Bartlett and Wozny, 2005, p. 13). Welch wanted to continuously improve the

company and was delighted by the success of the program. The third component, motivation is

defined as a passion to work for reasons that go beyond money or status and a propensity to

pursue goals with energy and persistence. Welch had a strong motivation to develop the best

company as possible. Welch created the “4E’s” to acquire the best employees as possible. The

“4Es” are known as energy, energize, edge and execution. Welch described energy as “excited by

ideas and attracted to turbulence because of the opportunity it brings. Welch also wanted people

who have the ability to energize others, which was explained as “infecting everyone with their

enthusiasm for an idea and having everyone dreaming the same big dream.” People with edge are

described as people with “the ability to make tough calls” and finally, people with execution have

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the “consistent ability to turn vision into results” (Bartlett and Wozny, 2005, p. 13). The fourth

component, empathy is defined as the ability to understand the emotional makeup of other people

and skill in treating people according to their emotional reactions. The fifth and final component,

social skill is defined as a proficiency is managing relationships and building networks and an

ability to find common ground and build rapport. Welch was incredibly success at allowing the

company to grow and succeed. He implemented a performance appraisal system, which properly

rewarded the type of employees he wanted at GE. Furthermore, he knew that “nurturing and

continuously upgrading the quality of management was one of the main keys to GE’s success”

(Bartlett and Wozny, 2005, p. 14). Finally, he kept close interaction with GE employees. When

the Crotonville facility was in the middle of its transformation, Welch was leading this change

and visited the facility twice a month to teach and interact with the employees (Bartlett and

Wozny, 2005, p. 17).

Welch was an overall positive effect on the company. He changed and improved the

organization’s culture. Barnard (1938) discusses three executive functions that are essential for a

good leader (p. 49). The first and third are particularly relevant for Welch as a leader. First, a

leader must develop and maintain a system of communication. Welch created a 360 degrees

feedback process. The employee was graded by his or her manager, peers and all subordinates on

a 1 to 5 scale in areas such as teambuilding, quality focus, and vision (Bartlett and Wozny, 2005,

p. 13). In addition, Welch began to create what he called “integrated diversity” in order to fully

create a “boundaryless” company. This company created an “open, anti-parochial environment,

friendly toward the seeking and sharing of new ideas, regardless of their origins” (Bartlett and

Wozny, 2005, p. 9). These processes allowed for the managers and the employee to have a deep

system of communication. The third function is that a leader must formulate and define the

purposes, objectives and ends of the organization. Welch constantly updated the company’s

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culture to be more in tune with the growing world. For example, when customer service was

becoming the most important aspect for businesses, Welch changed the focus of the company

from selling products to “helping our customers to win” (Bartlett and Wozny, 2005, p. 11). The

shift of the business was so radical. As Welch put it, “we have changed the very nature of what

we do for a living. Today, service account for two-thirds of our revenues” (Bartlett and Wozny,

2005, p. 11). Welch molded GE into one of the most successful companies.

2. From a motivational perspective, was Welch an effective or ineffective leader? How so? Explain and support your argument.

Welch adopted the “Six Sigma” quality program to improve quality, lower costs, and increase

productivity. The participation in the program was not optional and Welch tied 40% of the

employee’s bonus to their Six Sigma objectives (Bartlett and Wozny, 2005, p. 12). In addition, in

order to provide managers with the necessary skills, there were different levels of training

programs such as “Green Belts”, “Black Belts” “and “Master Black Belts” (Bartlett and Wozny,

2005, p. 12). The different levels required a varied amount of training time. “Six Sigma” and the

Hawthorne effect created by Roethlisberger go hand in hand. The central idea before the

Hawthorne effect is that changes in participants’ behavior during the course of a study may be

“related only to special social situation and social treatment they received” (Roethlisberger, 1941,

p. 141). For example, “Green Belt” training took about four weeks, which was followed by

implementation of a five-month project aimed at improving quality. On the other hand, “Black

Belts” required six weeks of training in statistics, data analysis, and other tools which prepared

the employee to “undertake three major quality project that resulted in measureable performance

increases.” Finally, “Master Black Belts”, full-time “Six Sigma” instructors mentor the “Black

Belts” through the two-year process (Bartlett and Wozny, 2005, p. 12). These individualized

trainings allow for changes in behavior not only to occur but to also benefit the company. The

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“Six Sigma” initiative was so successful that Welch claimed that the managers working on the

program “have begun to change the DNA of GE to one whose central strand is quality” (Bartlett

and Wozny, 2005, p. 13).

Vroom’s expectancy theory is based on three employee beliefs: valence, expectancy and

force. These three factors work together to create a motivational force to work towards pleasure

and avoid pain. Valence refers to emotional orientations which people hold with respect to

outcomes or rewards, expectancy refers to employees’ different expectations and levels of

confidence about what they are capable of doing and force refers to the perception of employee

whether they will actually receive what they desire, even if it has been promised by a manager

(Vroom, 1964, p. 169). Welch was a strong believer of incentives, he “radically overhauled GE’s

compensation package” (Bartlett and Wozny, 2005, p. 7). He changed the system to follow a

model where stock options became a primary component of management compensation. In

addition, he started to make more aggressive bonus awards and created the options specifically to

the individual’s performance for the current project, such as globalization or the best practices

initiatives. This created an incentive for the employees and produced a realm where the

employees knew they would be rewarded for their hard work. Furthermore, Welch was constantly

updating the compensation system to reflect the goals of the company. In doing so, people were

being rewarded in conjunction with the objectives of GE. For example, when Welch wanted to

create a “boundaryless” company, where all divisions would work together and labels such as

“management” or “salaried” wouldn’t get in the way of collaboration, he changed the bonus

criteria to reward idea-seeking and sharing, instead of just idea creation (Bartlett and Wozny,

2005, p. 8). However, Welch knew that motivating employees could not be built solely on

monetary rewards. He knew that people would only stay motivated if you continued to help them

develop and grow. In order to do that, he adapted GE’s human resources systems to his goals. He

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wanted to continue the tradition of an organization “deeply committed to developing its people”

(Bartlett and Wozny, 2005, p. 6). The company’s top executives committed “substantial amounts

of time to the rigorous management appraisal, development, and succession planning reviews

known as Session C” (Bartlett and Wozny, 2005, p. 7). These sessions were created to keep the

employees motivated so that the company could continue to thrive.

Motivating employees is an incredibly important but also an incredibly challenging task.

Herzberg (1968) discusses what truly motivates employees, which is surprisingly not about

whether they are managed well or badly, instead, people are motivated by interesting work,

challenge and increased responsibility (p. 175). One of the ways Welch kept his employees

challenged is with “stretch targets.” He used it to set performance targets and described it as

“using dreams to set business targets, with no real idea of how to get there” (Bartlett and Wozny,

2005, p. 10). Managers were still require to set basic targets, but they are also required to set

higher, “stretch” goals for their businesses. While, managers were not held accountable for these

higher goals, those that did achieve them would receive substantial bonuses or stock options. The

“stretch targets” were a huge success, as a senior executive explained it, “people like problem-

solving. They want to go that next level” (Bartlett and Wozny, 2005, p. 10).

3. What was the influence on organizational design and strategy at GE of Welch’s leadership? Jones (2012) states that a CEO is responsible for setting organizational goals and designing its

structure, selects key executives to occupy the topmost levels of the managerial hierarchy and

determines top management’s rewards and incentives (p. 25). From the very beginning, Welch set

goals and established structure for the company. Welch set the “standards for each business to

become the #1 or #2 competitor in its industry” (Bartlett and Wozny, 2005, p. 2). Welch

elaborated on this general concept into a “three circle concept” of his vision for GE, which were

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described as (1) core, “with the priority of reinvesting in productivity and quality”, (2) high-

technology, “challenged to stay on the leading edge by investing in R&D”, and (3) services,

“required to add outstanding people and make contiguous acquisitions” (Bartlett and Wozny,

2005, p. 2). Welch wanted the company to be viewed as unique, profitable and highly diversified.

In addition, Welch chose the right type of leaders who were not only committed to the company

but also shared the same distinct values as the company. Finally, Welch constantly updated and

changed the rewards system for its managers. He used bonuses, stock options and compensation

closely tied to the visions of the company.

Jones (2012) discusses the differences between integration and differentiation (p. 47).

Integration is the process of coordinating various task, functions, and divisions so that they work

together and do not have different purposes. Horizontal differentiation, on the other hand, is

supposed to enable people to specialize and become more productive. However, specialization

often limits communication between subunits and prevents them from learn from one another

(Jones, 2012, p. 49). Welch focused the company on being one of integration. He wanted the

culture of a small company and through programs like “Work-Out” he wanted all employees and

their bosses to be able to speak clearly, openly and without barriers.

Welch changed the internal design of the company. He eliminated the sector level, which was

previously the powerful center of strategic control (Bartlett and Wozny, 2005, p. 3). As

demonstrated in Exhibit 4, Welch radically reduced the number of hierarchical levels (Bartlett

and Wozny, 2005, p. 17). By reducing the number from nine to as few as four, Welch ensured

that all businesses reported directly to him. He stated, “We used to have department managers,

sector managers, subsector managers, unit managers, supervisors. We’re driving those titles out…

We used to go from the CEO to sectors to groups to businesses. Now we go from the CEO to

businesses. There is nothing else” (Bartlett and Wozny, 2005, p. 3). In doing this, he changed the

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company from a tall organization, a hierarchy that has many levels relative to the size of the

organization to a flat organization, which is one that has few levels relative to its size (Jones,

2012, p. 53). Welch used the principle of minimum chain of command to choose the number of

hierarchical levels consistent with the goals of the company (Jones, 2012, p. 55). As he wanted a

company that acted as a small one would and had less boundaries, he radically reduced the

number of hierarchical levels.

4. Discuss how Jack Welch’s leadership affected organizational change and learning at GE.

From the very beginning of Welch’s reign as CEO, he took a stance of dramatic change and

growth. Welch eliminated the sector level and reduced the number of hierarchical levels from

nine to four. In doing so, Welch ensured that all businesses reported directly to him. This drastic

restructuring earned him the nickname, “Neutron Jack,” a term which demonstrated his high

demand for change and innovation (Bartlett and Wozny, 2005, p. 3). Welch new team consisted

of managers with a “strong commitment to the new management values, a willingness to break

with the old GE culture, and most of all, an ability to take change and bring about change”

(Bartlett and Wozny, 2005, p. 4).

The basic rationale for such organizations is that in situations of rapid change only those that

are flexible, adaptive and productive will excel. For this to happen, it is argued, organizations

need to “discover how to tap people’s commitment and capacity to learn at all levels” (Senge,

1990, 74). Welch realized that a company can “boost productivity by restructuring, removing

bureaucracy and downsizing, but it cannot sustain high productivity without cultural change”

(Bartlett and Wozny, 2005, p. 9). In order to fully tap into this, he constantly motivated his

employees and updated the vision of the company.

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According to Senge (1990), learning organizations are “organizations where people

continually expand their capacity to create the results they truly desire, where new and expansive

patterns of thinking are nurtured, where collective aspiration is set free, and where people are

continually learning to see the whole together.” (p. 438) Welch discusses the four distinct ways a

leader can be characterized. The first one is one who “delivers on commitments—financial or

otherwise—and shares the values of our company” (Bartlett and Wozny, 2005, p. 8). This type of

employee is the easiest to place in the company. They have a bright future with the company and

are the ideal type of leader. The second type of leader is one who does not “meet commitment

and does not share our values” (Bartlett and Wozny, 2005, p. 8). This type of employee is equally

as easiest to place. They will be easily and swift let go of the company. The third type of leader is

one who “misses commitments but shares the values” (Bartlett and Wozny, 2005, p. 8). This type

is usually given a second chance, most likely in a different environment. The four type of leader

is one who “delivers on commitments, makes all the numbers, but doesn’t share the values we

must have” (Bartlett and Wozny, 2005, p. 8). These leaders are the most difficult to deal with as

they “typically force performance out of people rather than inspire it” (Bartlett and Wozny, 2005,

p. 8). While many companies often will ignore and tolerate these types of managers since they

“always deliver—at least in the short term,” Welch understood that values were essential to the

long-term success of any company (Bartlett and Wozny, 2005, p. 8). Therefore, Welch focused

his intentions on identifying and weeding out the Type 4 managers. One of the five elements of a

learning organization, as explained by Senge (1990), is shared vision, which explained as a

“practice of unearthing shared pictures of the future that foster genuine commitment and

enrollment than compliance” (p. 439) By identifying these types of leaders and focusing Welch’s

energies on getting rid of the ones that may be hardworking, but don’t share the values of GE,

Welch truly understood the importance of a shared vision. He knew that an employee who shares

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the visions of the company was more important than an employee who can only deliver. That is

why Type 2 employees were the first to leave and Type 3 employees were often given a second

change. Another one of the elements is team learning, which “starts with dialogue, the capacity of

members of a team to suspend assumptions and enter into genuine thinking together” (Senge,

1990, p. 440). Welch wanted a company based on openness, candor and an honest and energetic

interaction throughout the company. Welch’s objective was to create the “culture of a small

company—a place where all felt engaged and everyone had a voice” (Bartlett and Wozny, 2005,

p. 4). Along with James Baughman, GE’s director of management development, Welch

developed the idea of a forum where employees could speak their mind about the business and

how it might be run more effectively as well as receive immediate responses about their ideas and

proposals (Bartlett and Wozny, 2005, p. 4). Welch realized that for a company to succeed, there

must be an open dialogue between all members of the organizations, whether they may be a top-

level executive, manager or an employee.

The avoidance of common errors that an organization makes is essential to the success of any

company. Kotter (1996) discusses the errors that organizations typically make: (1) allowing too

much complacency, (2) failing to create a sufficiently powerful guiding coalition, (3)

underestimating the power of vision, (4) under-communicating the vision by a factor of 10 (or

100 or even 1,000), (5) permitting obstacles to block the new vision, (6) failing to create short-

term wins, (7) declaring victory too soon, and/or (8) neglecting to anchor changes firmly in the

corporate culture (p. 446). Welch had an ideal leadership profile and was clear about the

characteristics he wanted in a leader, such as creates a “clear, simple, reality-based, customer-

focused vision and are able to communicate it straightforwardly to all constituencies,” as

expressed in Exhibit 8 (Bartlett and Wozny, 2005, p. 21). The fourth type of leader is one who

delivers on commitments, make all the numbers, but do not share the values of the company were

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identified and weeded out. By creating these standards, the organization is avoiding too much

complacency from occurring among the employees. In addition, Welch was aware that victory is

never fully realized, he was constantly updating the company through programs such as “Work-

Out”, a process designed to get “unnecessary bureaucratic work out of the system while providing

a forum in which employees and their bosses could work out new ways of dealing with each

other” (Bartlett and Wozny, 2005, p. 4). These projects allowed the company to continuing

growing and expanding. Finally, Welch committed fully to his vision of the company. For

example, when he wanted to create a “boundaryless” company, he followed through completely

with this idea. Welch let go the employee that didn’t follow this vision, stating that “we take

people who aren’t boundaryless out of jobs...if you’re turf-oriented, self-centered, don’t share

with people and aren’t searching for ideas, you don’t belong here” (Bartlett and Wozny, 2005, p.

9). By making the vision clear to all employees and taking drastic measures, Welch and the

company avoids under-communicating the vision to all of its members.

Conclusion

Welch was an extremely triumphant leader, through his strong demand for change, his clear

vision of the company and his dedication to the success of GE. Despite, the dramatic changes in

the world and the increasing demands of the global market, Welch continued to soar. He

constantly changed the company with limiting its hierarchical levels and adjusting the

compensation packages to better reflect the goals of the company. Welch always created new

initiatives for the company such as globalization, service, “Six Sigma” and e-business. In

addition, he managed to create the feeling and culture of a small company, through projects such

as the development of strong company values and programs like “Work-Out” and “Best

Practices.” For these reasons and many more, Welch helped GE not only succeed but also thrive

in this bloodthirsty, competitive global market.

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Work Cited

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Bartlett, C., & Wozny, M. (2005). GE's Two-Decade Transformation: Jack Welch's Leadership. Harvard Business School, 9, 1-14.

Fiedler, F. (1970). The Contingency Model: A Theory for the Transformational Leader. Classic Readings in Organizational Behavior (4th ed., pp. 55-64) Belmont, CA: Wadsworth/Cengage Learning.

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Kotter, J. (1996). Transforming Organizations: Why Firms Fail. Classic Readings in Organizational Behavior (4th ed., pp. 445-451) Belmont, CA: Wadsworth/Cengage Learning.

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Senge, P. (1990). The Fifth Discipline: The Art and Practice of the Learning Organization. Classic Readings in Organizational Behavior (4th ed., pp. 438-444) Belmont, CA: Wadsworth/Cengage Learning.

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