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Is GE a Good Model for Other Companies to Follow?
Robert M. Tomasko
Yes and no. Benchmarking the approach one company takes to manage itself against the approach of another company can be misleading, even dangerous. Management techniques can not be lifted from one company - with its unique culture and history - and just inserted in another business with an expectation of similar results. But companies can learn from each other as long as they consider not just the specific techniques but also the key features of the company in which they were used.
I. GE's culture To guide this learning, here is a summary of several key aspects of GE that - while in the background - are key drivers of GE's success with the management approaches described in this report. GE's culture is very, very American. GE is more American than most US-based companies. Here are some of the key aspects: · individual effort is much more important than group or collective efforts · rebels are heroes (Jack Welch was an effective rebel against most of GE's official management practices throughout his career before he became CEO) · going around the hierarchy is encouraged (this is the hidden purpose of work-out, not team-based participation and improvement) · competition is king, internally and externally · loyalty is determined by performance · poor performers loose face publicly · communications are direct and confrontational · leadership comes from individuals, not groups or teams
A company considering adopting some of GE's management practices should first evaluate itself against these aspects of the GE culture. To the extent its culture is very different from GE's, it will probably have difficulty making GE's techniques work well for it unless it makes major adaptations to the techniques.
II. Unintended consequences of GE's culture GE has one of the best reputations of any company in the world. It is high on most lists of the world's most admired corporations. As a result of this, and its strong economic performance, some aspects of GE are often ignored. A company wanting to become more like GE should also be aware that: · Success breeds success: almost all of the management innovations GE has had great success in implementing were installed during times of strong economic performance. These techniques were not used to deal with a crisis situation or to assist in turning around a poorly performing business. Companies that are not among the leaders in their industries should carefully consider the appropriateness of GE's techniques to their unique strategic needs. · GE has tended to do best in late growth and mature industries. It uses advanced technologies, but they are not so much the drivers of its success as are its managerial abilities. Its management systems, though, do not seem to allow for the kind of knowledge development and patience required for growth through breakthrough technology and product innovation, or in fast growing consumer markets. · The GE model of diversification across related and unrelated industries has grown out of favor with many companies who have found it better to stay focused in fewer and more related businesses. GE's success is driven by its abilities to obtain management-synergies across a broad of businesses. It is one of the most deliberately managed businesses in the world. It success is directly dependent on its creation of a process that produces generation after generation of extremely capable executive leaders. Companies without such a process will have a greater risk in following GE's strategies. · GE has a well documented history of ethical misconduct of the kind that is being less and less tolerated throughout the world. This has included, over several decades, a pattern of illegal behaviors including: price-fixing scandals, illegal stock trading, illegal payments to foreign officials, time-card violations in US government contracts, anti-trust and environmental violations. More recently, reports of cost-cutting efforts resulting in diminished product quality have surfaced. This is a situation that, while not well publicized by people promoting the economic success of GE through it management culture, may be an unintended result of some aspects of the same tough, performance-driven culture that produces strong business performance.
III. What are the drivers of GE's success? It is misleading to attribute GE's strong economic performance to any one or a group of its management techniques or business models (including portfolio management, the growth engine, work-out, stretch targets, boundrylessness, expansion into service businesses, 6-sigma quality, etc.). Many other companies do these without achieving GE's results. Instead it is more accurate to characterize GE's managerial core competences as: · the ability to select from among the best practices available the ones most relevant to its immediate (2-6 year time horizon) needs, · the ability to flawlessly implement these practices, · and - most important - the ability to periodically change its formula of management practices as new needs emerge - adopting new practices, ruthlessly discarding the old formulas for success before they led to weakened performance. GE knows better than most every company in the world how to manage the life cycle of a business idea: put it in place, exploit it, and then abandon it. GE does this by maintaining a "leadership engine" approach to executive development that hopes to create future Jack Welches.
© Robert M. Tomasko 2002
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