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Finance Essay

4709 words - 19 pages

Copyright © Oxford Management Publishing 2009

Corporate Strategy Analysis: General Electric Co. (1981–2008) – A Case Study
Stanislav Bucifal

Introduction The General Electric Company (GE) is widely regarded as one of the world’s most successful corporations of the 20th century. This paper aims to analyse critically the corporate strategy of GE during the period from 1981 to 2008 under the leadership of two very different but equally influential CEOs—Jack Welch and Jeff Immelt. The paper is organised in four sections. The first section describes GE’s corporate strategy from 1981 to 2001 with Jack Welch as CEO, followed immediately by a critical analysis of Welch’s strategic approach in ...view middle of the document...

As part of his efforts, Welch led a sustained attack on bureaucratic processes and in its place he sought to instil a culture of openness, confidence, leadership and creative thinking at every level of the organisation. Through his organisational restructure Welch ruthlessly eliminated several layers of management and shed a large number of jobs, which earned him the nickname ‘Neutron Jack’ referring to the deadly neutron bomb

Published: November 2009 in Management Online REview, www.morexpertise.com

ISSN 1996-3300

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which kills people but leaves buildings standing (Economist.com 2009). The biggest staff cuts were made in administrative functions and business decision making was delegated to line operation managers. Welch implemented a major restructure of the GE business portfolio, focusing on a limited number of sectors with promising performance and growth potential, whilst retaining a fairly diversified portfolio of businesses. This was achieved through the sale of GE’s less profitable businesses and retention or acquisition of businesses identified as number one or number two in their industry (Grant 2008, p.304). The strategy led to several huge divestments and the shifting of emphasis towards GE’s technology-based businesses and service businesses (Bock 2001). A series of acquisitions that followed led to the phenomenal growth of GE Capital, which became one of the world’s leading diversified financial services companies (Grant 2008, p.304). Figure 1 shows GE’s organisational structure and business portfolio in 2001. Figure 1. GE’s Organisational Structure and Business Portfolio in 2001

Source: Adapted from Grant (2008)

The annual budget was a central component of GE’s existing strategic planning system. Welch moved strategic planning and other administrative functions into the business units (Bock 2001). The budget locked line managers into explicit performance and cost targets, regardless of changes in market conditions (Grant 2008, p.307). Welch retained the annual cycle but introduced two changes to the system. First, initial financial targets were prepared by the controller’s office rather than individual line managers. And second, the budgets were allowed to be revised as the competitive conditions changed (Grant 2008, p.307). The complex document-centric complex budgeting process was replaced with a much faster and less formal personal process based around a simple standardised five-page playbook in which line managers summarised the key strategic issues their businesses faced (Grant 2008, p.306). A central part of Welch’s corporate strategy was nurturing talent and leadership through the delegation of responsibility and deployment of powerful incentives. He designed a motivation scheme which permeated deep into ranks of middle management rewarding superior performance with generous bonuses and recognition of talent. Stock options on

Published: November 2009 in Management Online REview, www.morexpertise.com

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