1. While most companies companies have difficulty producing sufficient quality candidates for top management succession, how has GE been able to create a surplus? What philosophy, policies, and practices have made it a “CEO factory” as
Fortune
called it, and “easily the world’s best machine for churning out corporate talent” as
T h e E c o n o m i s t described
it?
GE is a global company, which grew to become a titan in the world of electrical generation, distribution, and a followed model of modern management practice. For many years, GE has been able to create a surplus of top managers while most companies have difficulty producing sufficient quality candidates for top management succession. For many companies producing quality top managers is very difficult. However, GE has been producing managers not only for themselves, but enough to meet the needs of the whole industry. GE has one of most sophisticated HR practices and policies in the world. GE has been able to adopt policies, techniques, and practices that allowed them to fill vacant top positions. These techniques were continuous improvement, focus strategy, emerging culture, company strategy, and meritocracy 1. Coffin created meritocracy within organization to reward employees based on performance. GE started the process of strengthening HR during the World War II. Driven by demands for wartime products, GE expanded their business into areas such as nuclear technology, silicones, jet engines, and radars. As a result, GE’s centralized management structure was decentralized. By decentralizing responsibility and authority for making business decisions, GE transferred forecasting and profit responsibilities to
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GE's Talent Machine: The Making of a CEO. Bartlett, Christopher A. and McLean, Andrew N. Boston : Harvard Business School Publishing, 2005. 9-304-049.
managers of nearly 100 department-level managers. Because of decentralization, GE put emphasis on education (first corporate university Crotonville) and developed a corporate system (Session C). Session C was designed to support ongoing dialog about managers’ career interests and development needs. Session C involved evaluations, career forecast, and succession plans for every single management position at GE. After filling out a self-evaluation form, career interests, and plans for their development, each worker met with their boss face-to-face in order to discuss the development plan. After the meetings, managers prepared an Individual Career Forecast and rated their workers on a six-point scale from “high potential” to “unsatisfactory.” Managers would also identify three replacements for his or her own position. Basically, Session C focused on plans for promoting “high-potential” employees, remedying “unsatisfactory” ratings, and implementing succession plans. Later on, there was a disciplined performance management analysis added to Session C. Managers were asked to rank his or her employees performance. Also, GE had a system called PL hierarchy which acted like a smart goal for employees to become a higher level managers. GE was very effective in developing employees step by step. Every manager was constantly involved in different task and was rotated in different departments which enabled the employee to be an expert in almost every field. In 1963, GE expanded again into new businesses such as nuclear power, computers, and plastics. Naturally, GE had to make some changing in HR. Fred Borsh, who was a CEO at that time, created a corporate Executive Manpower Staff (EMS). Borsh challenged his business leaders to identify potential managerial talent from the engineers and professionals on their staff 2. Also,
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GE's Talent Machine: The Making of a CEO. Bartlett, Christopher A. and McLean, Andrew N. Boston :
Borsh required from his EMS consultants to participate in Session C reviews and track “high-potentials”. Jones who succeeded Borsh developed a SBU (Strategic Business Units) which temporarily shadowed Session C and EMS. SBUs made Session C and EMB more formal. GE considered employees as the asset of the company. GE was focused both on business and employees development. GE spent 10% of its pre-tax income on employees development. When Welch became a CEO, he encouraged a open dialog (“Work Out”) process where managers could talk about what was wrong at GE and how to fix it. “Work Out” opened the communication which generated “boundaryless behavior” culture within the organization. One of the GE’s recruiting mechanisms was to develop a relationship with U.S school and to recruit exconsultants instead of fresh MBA graduates in order to keep talented employees.
2. How generalizable are GE’s management development policies and practices? How transferable across cultures? Across industries? Across companies?
Overall policies and practices are very good and fulfill the requirement and need of management development. These policies and practices are generalizable at any location in the world to some extent, but not completely. The extent to depends upon the circumstances, situation, and environment of geographical areas, laws, and regulations of each place, which also vary from culture to culture. For example, moral values and ethics followed in American culture are not followed in China. Therefore, we cannot say that policies adopted by the human resources department in an American
company can be fully implemented in a human resources department of a Chinese organization without a lot of modification and restructuring. This transferability across cultures led Welch to consolidate a large number of hierarchical structures into seven broad executive bands (page 13) 3. In high hierarchical cultures such as India and China, the need to move up through the hierarchy provided psychological rewards that were no longer being given with Welch’s new method of consolidating positions. Of course policies and practices are implemented in European culture but it seems very difficult to implement these policies in Asian culture because HR policies have to deal with human behavior and culture. Human behaviors are different in different countries in similar situations. At GE, employees are recruited right after college and sometimes in college through internships. GE then polishes these employees so that they are able to meet the future needs of the company. Most of the required knowledge of employees is given from GE itself to employees, whereas most companies focus on external hiring, so a similar process may not work for another company. For transferring these policies and practices to other culture, industries, and companies, it is necessary to chance and create the circumstances and situations to that of GE. HR departments have to deal with factors like value, culture, and behavior — which are different from culture to culture and company to company.
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GE's Talent Machine: The Making of a CEO. Bartlett, Christopher A. and McLean, Andrew N. Boston : Harvard Business School Publishing, 2005. 9-304-049.
3. Put yourself in Jef f Immelt’s position, is it time to tune up or even overhaul GE’s management development practices and policies? Be specific and detailed in your analysis.
Immelt had the unfortunate events of Septemer 11 occuring at the beginning of his leadership in GE. The stock price dropped dramatically because of the terrorist attacks. Furthermore, the employees themselves were concerned about the future of the company and where it was going. With current processes at GE, I would recommend that GE should tune up the way they deal with their employees. The company should use their strength of merito cracy in the company’s culture and start ensuring that their employees feel like they are important and are needed for their work at GE. The company’s constant cutting of th e bottom portion of their employees results in a tremendous loss of employee loyalty to the company and presumably some very good talent. Immelt should increase measure of those in the “top performing” category while pushing a less emphasis overall on ranking. Furthermore, Immelt should focus on individual rewards in lieu of tier based rewarding 4 (242). The current system creates a dependency on other employees in their tiers, while potentially not rewarding standout employees in the middle and lower levels of the company. As it stands, around a large percentage of GE’s revenue stems from overseas sales. Recognizing this would be an opportunity for Immelt to change the current recruitment strategies for employees and interns by hiring more people that are local to the markets GE currently works in. Once these people are hired, GE should work to actually develop their employees, not just train them. By creating a reputation for
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Robbins, S.P. & Judge, T.A. (2010). Essentials of Organizational Behavior (10 Edition). Upper Saddle River, New Jersey: Pearson/Prentice Hall Publishing.
developing loyal, engaged, and educated management talent, they will see more qualified people wanting to dedicate their careers to GE. In a similar case, Disney has perfected this method very well. With the increase and development international talent, GE should acknowledge and use the existence of hierarchies to their advantage. They must first get rid of the seven executive bands in the countries that put a high value on castes. GE should be more flexible in the ways they motivate their employees. In the case of countries such as India and China, GE should consider using rewards that reflect the values and aspirations of the cultures of the locations they operate. By GE adopting a culture that rewards individual achievement and providing employees with many of the tacit rewards not currently offered, they will see a growth
4. What lessons do you take from this case? Reflecting on your analysis – positive and/or negative – of GE’s development of its management pipeline, what do you see as the key success factors in making talent management what Immelt claims is an important source of competitive advantage for the company?
GE has gotten to where it is today through flexibility and zeal in every project it has undertaken. The company has carried a philosophy of “be the best or not at all” through the years. However, if GE wants to be the best, it must reevaluate how it handles human capital and the processes within human resource management. By steadfastly holding on to their core values and philosophies, while implementing the changes recommended throughout this analysis, the company can gain a high ground
in human resource development. Meritocracy, good human resource development, and large levels of executive bands are their keys to human resource management success. Meritocracy has bolstered performance for GE ’s talent since it was introduced in 1982. Welch eventually changed the system so that people would strive to be in the top twenty percent, which worked for a little over a decade. However, companies such as Bank of American began to lure away the talent that GE had because of the lack of loyalty those in the seventy percent had for GE. Many employees felt that there would be no way to break into the top twenty percent and were willing to go to another company that would reward their work. Meritocracy has its advantages, but employees must be given realistic expectations and individualized rewards in order to reap the full benefits of the system. With Immelt’s philosophy of satisfying customers instead of being a profit machine as it was under Welch, GE’s hiring methods changed to satisfy this philosophy and management strategy. By hiring outsiders and people from other countries, the shift of focus helps to achieve this goal and execute a customer satisfaction strategy much more effectively. Human capital must be found in the areas most beneficial to the corporate strategy. With new leadership comes new strategies and we see that GE’s focus shift to customer satisfaction gives an opportunity to revaluate recruitment and promotion policies in place. Welch’s decision to consolidate executive bands was one that ended up being more costly that appeared on the outset. It became costly in terms of human capital, management turnover, and decreased loyalty. GE would be better off by going back to
the larger bands of management in countries with strong, hierarchical advancement desires and leveraging human capital for growth across the board.
