Exploring General Electric’s Organizational Behavior Principles Essay

Exploring General Electric’s Organizational Behavior Principles

Introduction

As companies are venturing in a global scale, more and more companies are annihilating the traditional organizational hierarchies and they now more concerned to attend to the needs of the people that compose its organization. People at work in organizations today are already part of a new era. The institutions of society and the people who make them work are challenged in many and very special ways. The public at large increasingly expects high performance and high quality of life to go hand in hand, considers ethics and social responsibility core values, respects the vast potential of demographic and cultural diversity among people, and recognizes the imprint of globalization on everyday living and organizational competitiveness. All these expectations could be drawn upon organizational behavior, which companies could utilize to sustain its long term success in the Information Age.

One of the most successful global companies is General Electric Co. (GE). General Electric is engaged in developing, manufacturing, marketing and providing related services for a variety of products for the generation, transmission, distribution, control and utilization of electricity. Through its affiliate, NBC Universal Inc., Co. also produces and delivers network television services, produces and distributes motion pictures, and operates television stations, cable/satellite networks, theme parks, and program activities in multimedia and the Internet. Through another affiliate, General Electric Capital Services Inc., Co. offers an array of financial and other related services. The company manufactures a wide range of products from major appliances and lighting products to commercial and military aircraft jet engines; medical diagnostic imaging systems; bioscience assays and separation technology products to electrical distribution and control equipment. The company has operations in North America, Europe, Asia and South America. It is headquartered in Fairfield, Connecticut and employs about 316,000 people (Datamonitor, 11 November 2006).

The immense success of GE is recognized worldwide. Throughout the years, its chief executive officer Jack Welch had strived to build the multinational company for more than 40 years. In fact, he never had a fulltime job anywhere else—but that isn’t to say his thinking stayed in one place. He had to change. During Welch’s career the public image of a chief executive officer was subject to several incarnations and reincarnations. Certainly, Welch was pivotal to why General Electric is the most typically American of all companies. This is because Welch is the most blatantly American of any chief executive in the world. In the predictably American way, Welch has little patience with tradition for its own sake, and, as might be expected, he is unintimidated by trappings of social class. Welch, who stuttered for most of his life, gives his mother, Grace Welch, much of the credit for his self-confidence. “She told me I didn’t have a speech impediment,” he recalled. “Just that my brain worked too fast” (Harris and Power, 1986).

General Electric’s greatest advantage is that it is a well-known a global brand. A BusinessWeek-Interbrand ranking of top 100 global brands in 2005 ranked General Electric at fourth position, behind Coca-Cola, Microsoft and IBM. The BusinessWeek-Interbrand combine valued General Electric brand at $46,996 million in 2005. General Electric is known more for its industrial products such as jet engines and gas turbines, but it has a significant presence in consumer businesses such as home appliances and consumer finance. The company sells products such as refrigerators and dishwashers to consumers. In addition, General Electric markets financial products such as credit cards and, mortgages. A global brand strengthens General Electric’s competitive position in the consumer markets.

One of GE’s secret to success is their company and leaders stick to their organizational behavior principles. Organizational behavior principles have helped its managers understand the complexity within organizations and that most organizational problems have several causes. Organizational behavior principles play an essential role in assessing and increasing organizational effectiveness, which is a central responsibility of and focus for all managers (Sims, 2002, p. 2). This is why this paper will explore three of the major organizational behaviour principles that GE has incorporated that had spelled their unprecedented successes.

Decision Making

Jack Welch’s important decisions delivered most of the changes that GE had adopted for it to attain global recognition and success. By 1984, Welch jettisoned 150 GE businesses worth more than $5 billion. By 1986, he’d axed 130,000 jobs — a quarter of the company’s personnel. But returns for 1985 proved he was on the right track. That year, GE was the fifth-most profitable U.S. company (Slater, 1994).

Tyner (2000) had written that some critics saw beyond GE’s strong perfromance to evaluate Welch’s career. Tyner cited James J. O’Toole, in his book Leadership A to Z (1999), said that Welch’s leadership missed the mark in one significant area.

I think there is also a moral component to leadership and that moral component has to do with gratitude to your followers, how they are treated, viewing the organization as something larger than merely a moneymaking machine. I think Welch very clearly ignored that aspect of it.

However, Tyner evaluated that the crux of Welch’s transformation initiatives involved retooling employees’ mind-sets.

We are trying to get the soul and energy of a start-up into the body of a $60 billion, 114-year-old company,” he said. “We must have every good idea from every man and woman in the organization; we cannot afford management styles that suppress and intimidate (O”Toole, 1999).

Welch was also the force that insisted on using Six Sigma approach to their business General Electric’s dedication to Six Sigma has resulted in significant improvements. In 1995, he launched the Six Sigma program to find defects in GE processes and pare them to as close to zero as possible. Tens of thousands of GE workers were trained in this statistical approach. It saved GE hundreds of millions of dollars and surpassed Welch’s expectations.

Jack Welch credited the Six Sigma initiative with raising the company’s operating profit margins. Success stories abound within GE. GE Medical Systems introduced a $1.25 million diagnostic scanner, a product designed from start to finish using Six Sigma design principles. The chest scan that took 3 minutes (180 sec.) now takes only 17 seconds. At GE Plastics, a Six Sigma team improved a process to increase production of plastic by 1.1 billion pounds. Not only did this add to general increased revenue, but the increased production influenced acquisition of the contract for the coverings of the new Apple product, iMac (Eckes, 2001, p. 6).

GE has attributed a host of other benefits to Six Sigma. Inventory turns were at 5.8 and now are at 9.2, and getting better. At the core of Six Sigma is improvement in effectiveness and efficiency. The ratio of plant and equipment expenditures to depreciation is one measure of efficiency. At GE this number dropped to 1.2 and is anticipated to be below 1 as Six Sigma projects uncover and remove the “hidden factory” of processes that have to rework parts and services. How does an organization achieve Six Sigma methodology? Many of its proponents have made this approach seem more difficult than it needs to be. A common theme that Jack Welch has echoed in his many talks to GE employees is practicing the “rigor and discipline” of Six Sigma (Eckes, 2001, p. 6).

As a leader, Tyner (2000) shared that Welch’s secret was to look at his role as that of a facilitator. He said: “My job is to put the best people on the biggest opportunities and the best allocation of dollars in the right places. That’s about it. Transfer ideas and allocate resources and get out of the way.”

In decision making, leaders need to be energetic and to operate on an even keel. They crave power not as an end in itself but as a means to achieving a vision or desired goals. Leaders have to be very ambitious and have a high need for achievement. At the same time, they have to be emotionally mature enough to recognize their own strengths and weaknesses, and they are oriented toward self-improvement. Leaders also must not be easily discouraged when they make the wrong decisions. They need to stick to a chosen course of action and to push toward goal accomplishment. This why Jack Welch exemplified a good decision maker as he lead his company to its desired status today.

Organizational Structure

Based on a synthesis of successful management experiments by General Electric and its partners, a group of consultants and scholars put together a list of the changes firms need to consider if they are to compete globally in rapidly changing technical settings (Ashkenas et al., 1995). They used the buzz words of GE and labeled their package the “boundaryless organization.” In essence, the challenge to management is to eliminate barriers vertically, horizontally, externally, and geographically that block desired action. Specifically, an overemphasis on vertical relations can block communication up and down the firm. An overemphasis on functions, product lines, or organizational units blocks effective coordination. Maintaining rigid lines of demarcation between the firm and its partners can isolate it from others. And, of course, natural cultural, national, and geographical borders can limit globally coordinated action. The notion of a boundaryless organization is not to eliminate all boundaries but to make them much more permeable. We think the development of permeable boundaries is a key characteristic of all members of a virtual organization.

Facing the on how to improve the organizational structures, managers do not just face prospects for growth, more complex operations technology, new IT capabilities, or a more complex environment one at a time. For some firms, all of these internal and external contingencies are changing simultaneously and changing dramatically. Facing dramatic changes across the board, how do firms keep sufficient consistency in the pattern of their actions and yet co-evolve with their environment? That is, what is the design option when everything is changing and changing quickly?

While there is no simple answer, we can start by saying that firms do not do it alone. Some executives have started to develop what are called “virtual organizations” (Hedgerg et al., 2001). A virtual organization is an ever-shifting constellation of firms, with a lead corporation, that pool skills, resources, and experiences to thrive jointly. This ever-changing collection most likely has a relatively stable group of actors (usually independent firms) that normally include customers, competitors, research centers, suppliers, and distributors. There is a lead organization that directs the constellation because this lead firm possesses a critical competence all need. This critical competence may be a key technology or access to customers. Across time, members may come and go, as there are shifts in technology or alterations in environmental conditions. It is also important to stress that key customers are an integral part of a virtual organization. Not only do customers buy but they also participate in the development of new products and technologies. Thus, the virtual organization co-evolves by incorporating many types of firms.

The concept of “boundarylessness” has been GE’s way of improving their organizational structure as they took in a virtual organization in itself. According to Welch, a boundaryless company is one in which “We knock down the walls that separate us from each other on the inside and from our key constituents on the outside”, in other words, a company where there are no “turf” issues between people or groups of people (Slater 1994, p. 107). A boundaryless company removes barriers between company functions, removes barriers between organizational levels, removes barriers between company locations, and reaches out to important suppliers and makes them part of a single process (Slater 1994, p. 108). To remove “horizontal boundaries” between different company functions and locations, or “internal barriers,” Welch introduced cross-functional teams, project teams, and partnerships (Tichy 1993, p. 118). To remove “vertical boundaries” between organizational levels, or the “ceilings of a hierarchy”, Welch “delayered” the hierarchy by removing unnecessary levels of management, reduced perks for executives such as preferred parking spaces, and broadened gain-sharing incentive systems to include all employees (Tichy, 1993, p. 118). To remove “external boundaries” between GE and its suppliers, customers, and other external stakeholders, Welch created strategic alliances, measured customer satisfaction, and built teams with GE customers and suppliers (Tichy 1993, p. 118). The concept of a boundaryless GE was far more than merely getting rid of waste, Welch felt that it was the only way for GE to achieve its high productivity goals (Slater 1994, p. 108).

Knowing what an organization needs was GE’s goal. The next phase is to begin a process of improvement. Employees, managers, and executives need to ask how they can improve with others both inside and outside the firm. They need to prioritize before they begin implementation. And once improvements are started, they need to recalibrate to ensure that a new set of boundaries does not emerge. Of course, the notion of a virtual and boundaryless organization is very different from the conditions found in and across most corporations. A movement toward cooperating to compete and removing barriers calls on firms to learn. So we now turn to how firms do this.

Organizational Culture

Another of GE’s strength as a company is founded upon its organizational culture that it espouses to its managers, employees, suppliers, communities and the environment. More specifically, GE has adopted its Environment, Health and Safety (EHS) policies. In its website, GE adhered to its EHS performance to include provision of tools and expectations of results—are the same for all operations around the world.

This is why in 2005 the GE business unit have sought solutions to cut its emissions of carbon dioxide (CO2), the main greenhouse gas (GHG) behind global warming. According Jeffrey Immelt, GE’s current boss, the company planned to reduce:

Energy-intensive divisions such as plastics and locomotive manufacturing will need to make big cuts in emissions, while the paper-pushers at the group’s financial-services divisions will be told to aim at smaller, but still ambitious, cuts. GE’s new goal is to cut its overall GHG emissions by 2012 to 1% below their level in 2004. That might not sound ambitious, but if no climate policies are enacted, the company’s projected revenue growth would increase its GHG emissions by 40% above 2004 levels. The firm also vows to cut the intensity of its GHG emissions (that is, the amount of GHG emitted in terms of its economic activity) by 30% by 2008. By comparison, the UN’s Kyoto Protocol calls for Europe to reduce its GHG emissions by 2012 to 8% below the 1990 level and George Bush’s voluntary climate scheme calls for an 18% cut in America’s GHG intensity from the level in 2002 by 2012. This is a dramatic U-turn by any measure, but will be especially startling to environmentalists, who have long criticized GE for boosting coal and nuclear power and for dumping chemicals in New York’s Hudson River. It will also come as a surprise to many of GE’s industrial customers, who have long thought it a staunch ally against environmental campaigners (The Economist, 9 December 2005).

 This decision of GE to embody an organizational effort that would lean on to the international effort to thwart global warming is a wise move that would definitely earn the accolades of many countries so that other companies would follow suit. According to the report of The Economist:

Jeffrey Immelt, GE’s boss, is leading the effort himself, campaigning for it both inside and outside the company, as well as backing it with large amounts of new investment. In fact, it is not an exaggeration to say that Mr Immelt is embarking on the most ambitious and risky strategy for GE since the 1980s, when the combative Jack Welch, then its boss, reshaped the company by slashing costs and selling business units. Mr Immelt is so convinced that clean technologies will be the future of GE that, invoking the colour of American money, he has made his new mantra: “green is green”. If he is right, then not only will GE benefit, but businesses everywhere will have to follow in its tracks in one form or another. If he is wrong, Mr Immelt will have led one of the world’s biggest and most powerful companies down a dead-end, and the cost to its reputation, if not its financial performance, is likely to be huge… Mr Immelt has embraced a sweeping new strategy–dubbed “Ecomagination”–that he hopes will persuade Wall Street that clean energy can be a lucrative business. The firm has rolled out a flashy advertising campaign to promote its new “clean coal” technologies. GE is targeting politicians too. Mr. Immelt himself launched the new campaign in Washington, DC, Brussels and Tokyo, repeating his “green is green” slogan (9 December 2005).

As GE is now slowly resolving its environmental dilemmas, this move will definitely obtain positive impacts on how GE espouses ethics and social responsibility with its organization. When a leader has integrity, he or she earns the trust of followers. And when followers believe leaders are trustworthy, they are willing to commit themselves to behave in ways that live up to the leader’s expectations. Even though integrity may be listed among the core values espoused by organizations and be widely publicized in corporate mission statements, the real test is whether or not it is firmly embedded in organizational culture. Mere testimonies to ethics values are not enough; the values must be real, shared, modeled, and reinforced by leaders from top to bottom. With this management decision of GE, they had proven that GE is committed to its responsibility as an organization to the environment. The result of this move is organizational transformation, as GE, other businesses, government institutions, and nonprofits alike react to globalization by redesigning themselves for high performance in a changed world. In organizations with strong and positive cultures, like GE, members behave with shared norms and beliefs that support high-performance goals of their business as it will move to reap more successes in the future.

Conclusion

            Because of GE’s effective organizational behavior perspectives, GE has maintained a strong market positions in many of its market segments. The company is the market leader in the global power systems market (including both gas turbines and steam turbines), with a market share of 40% in 2005. The company is the world’s largest provider of private label credit cards. General Electric is also the market leader in North American lighting products market, with a market share of 45% in 2005. The company is the second largest manufacturer of home appliances in North America, with a market share of 26%. General Electric is the market leader in the US heavy-duty railroad diesel electric engines, with a market share of 60-65%. GE is the second largest company in the US Computed Tomography (CT) and Positron Emission Tomography (PET) equipment market, with a market share of 54%. The company’s NBC Universal division is one of the top five movie distributors in the US, with a 10% share of gross US box office receipts. Strong market position enhances the brand image of the company (Datamonitor, 11 November 2006).

            Jack Welch as the prime helmsman to how GE attained its current status, stuck on building a strong foundation of organizational behavior in his company. Besides adding billions of dollars of new businesses, Welch fostered a company culture for GE’s next CEO to turn to when Welch retired in September 2001. Welch started or expanded programs such as the GE Management Development Institute at Crotonville, N.Y. — now known as the John F. Welch Leadership Center — Work Out, Best Practices, and Six Sigma to keep GE well defined and at the cutting edge. In fact, the company spends more than $1 billion a year educating its employees. Thus, these organizational behavior perspectives of GE contributed well in transforming the company to what it is right now.

References

Ashkenas, D. Ulrich, Jick, T., and S. Kerr, S. (1995). The Boundaryless Organization: Breaking the Chains of Organizational Structure, San Francisco: Jossey-Bass.

Datamonitor. 2006, November 11. General Electric Company. NY: Marketline Business Information Center.

Eckes, G. (2001). The Six Sigma Revolution: How General Electric and Others Turned Process into Profits. New York: Wiley.

Environmental Health ; Safety. Retrieved February 17, 2007, GE Website: http://www.ge.com/en/citizenship/ehs/index.htm

Harris, M.A. and Power, C. (1986, June 30).“He Hated Losing—Even in Touch Football,” Business Week, p. 65.

Hedgerg, B.,  Hahlgren, G., Hansson, J. and Olve, N. (2001). Virtual Organizations and Beyond, New York: Wiley, 2001.

Lowe, J. (2001). Welch: An American Icon. New York: Wiley.

Sims, R. R. (2002). Managing Organizational Behavior. Westport, CT: Quorum Books.

Slater, R. (1994). Get Better or Get Beaten: 31 Leadership Secrets from GE’s Jack Welsh. New York: Irwin.

The Economist. (2005, December 8). USA Energy: The Greening of General Electric. Retrieved February 17, 2007, The Economist Online: http://www.economist.com/displaystory.cfm?story_id=5278338.

Tichy, N.M. (1993, December 13). Revolutionize Your Company: A Key Consultant to General Electric Tells How CEO Jack Welsh Dramatically Changed GE’s Approach to Business-And How Your Company Can Too. Fortune, 114-118.

Tyner, C.L. (2000, October 30). GE’s Jack Welch: His Innovation Sealed The Company’s Success. Retrieved February 17, 2007, Investors.com: http://www.investors.com/yahoofinance/2004w39/storyA10.asp.