I recently spent time reading a Harvard Business article that took me from the recent history of General Electric to its current state. I tried to analyze their case using concepts from complexity theory, leadership theory, and the fundamentals of talent strategy. I added in a mix of classic corporate strategy analysis as well to spice things up a bit.
Here are my notes…
General Electric has been a leader and on the forefront of corporate strategy for decades. Welch and later Immelt, built a management and training dynasty as the central key strategy to providing and creating value to their respective business lines.
In general, General Electric increased what we call a strategic parenting advantage (when the corporate HQ ‘parents’ the business lines) by focusing on change and skill transfers, and combining that with ambitious goals of being #1 or #2 in each business unit. They ensured that this would be a core part of the culture by providing discipline and incentives to managers who met or fell short of their goals.
Strategically, I think GE focused on the following items to manage their skills transfer corporate strategy:
- Value creation through skill transfers met the three predominantly accepted requirements:
- Increased the ability to see opportunities for improvement by having a close eye on the management of skills. “corporate ‘owns’ the top 500 performers in the company”.
- Corporate has the knowledge of the business and how to train, develop and attract the best talent.GE had sufficient understanding of the business and makes it part of the culture not to interfere with the business units unless it will sell/divest them.
- Changed the firm boundary to be generally nonexistent by removing silos, encouraging collaboration, punishing selfishness, and ensuring corporate ownership of the top performers in the company. GE made it unattractive, sometimes to the bitter end, for any manager not to collaborate with colleagues or counterparts. Coopetition was part of the culture.
- At least when it comes to people development General Electric decreased transaction costs relative to market, by ensuring that people-based transactions were conducted using less resources (time and finances) than other companies within the same space. This is a consequence of a reduction of administrative costs and better management and training that allows organizational decisions to be made more efficiently.
- GE also utilized a diversification strategy, but mainly used the corporate arm of the company as a training and development component. Though management structures and organizational capabilities are different for each business line, ensuring that the core competency is-based on top management teams allows the company to lead and provide value in many different ways. In other words, talent provided flexibility.
- General electric was superb at managing change. They broke the sound barrier in utilizing town hall meetings, Six Sigma, and quality and management initiative to instill particular changes that were important to General Electric’s leadership
- When Immelt became the Chief Executive he noticed that the short tenure of managers in their position Welch put in place could create the potential for value destruction taking place by transferring top managers every 18 months from one business unit to another. What Immelt accomplished was to decrease the potential for extreme value destruction by allowing for longer tenure in leadership positions. He did not remove the potential for skill transfer, simply will used a more effective method of holding versus transferring those skills.
- One major important key to General Electric’s overall strategy is that they inadvertently stumbled on the complexity theory method of managing organizations. Complexity theory describes how complex organizations working in complex industries are much better at succeeding if they have a boundary-less organization to work within. General Electric applied the principles of complexity theory by:
- Applying hands off management
- Allowing decision units to be more flexible adaptable with major decision pushed down to middle management
- Allowing for self-determination and self-organization
- Substituting formal for informal structures as key to innovation
- Allowing social networks to develop freely
- Instilling a culture of collaboration
- What General Electric also did was simplify all the bureaucracy and goals into a small amount of simple metrics centered around performance indicators, with general directives given to management and leadership initiatives—furthering the development of a free form or organizational dynamic.
Overall, General Electric utilized a people management approach supported by reduction in formal structure of governance and management and allowed social networks and complex strategies to develop on their own. They provided material and spiritual support, set the guidelines for competition and cooperation, and provided goals and general directives to leading managers to be first or second in any given business. Everything else they implemented was in support of this method.