Awarded the most admirable company six times in the past few decades by Fortune, General Electric (GE) is obviously a very successful company. However, they were caught up in a trap of handing their CEOs a ridiculous amount of money like many other large corporations. According to one article from “Competition Forum” called Executive Compensation: The Case of General Electric by Nwabueze, Scott, Horak, and Chhotu, new management came in the form of Jeffrey Immelt in 2003 and changes were made.
Instead of continuing with this guaranteed payment, management made the long-overdue decision in regard to economic feasibility. Top leaders were seen as irreplaceable it seemed and paid as such to retain them. Alternatives were examined and it was decided that guaranteed stock options were replaced by performance based units (PSUs). Earnings instead would be based on meeting average earnings per share growth levels. These moves helped to stimulate the company and ties compensation to organizational performance, including helping stakeholder interests, both within the company and for investors.
Were I an investor in GE (come to think of it maybe I should be), these changes would make me very satisfied and confident that the company, with these decisions, has my best interest, as well as their own, at heart. Effective decision making is an enormously important aspect of any corporation. It seems to be especially important to GE. The textbook (Jones) defines decision making “as the process by which managers respond to opportunities and threats by analyzing options and making determinations about specific organizational goals and courses of action. Without decision making no changes would be made and improvement would be impossible within a corporation. Many organizations are run using groupthink, where members of the group strive to come to an agreement rather than the most valuable decision. This is not similar to decision making at GE. John Immelt, Chairman and CEO of GE, states “A leader’s primary role is to teach. People who work with you don’t have to agree with you, but they have to feel you’re willing to share what you’ve learned. As one can see, group think is not a form of decision making used at GE. This ensures the corporation that decisions are made in regards to what is the most beneficial options rather that what option is easiest to agree on. This tool is very valuable to GE by allowing the corporation to evaluate and analyze different options and alternatives. With such a large and diverse company, leaders at GE stress the importance of working collaboratively across different sectors when facing challenges and making decisions.
The company’s business strategy approach follows the typical top-down hierarchal command chain with starting at the top with the Board of Directors. The board is responsible for overseeing how management serve the interests of shareowners and other stakeholders while considering such issues as risk management, environmental, social and regulatory challenges, and global trends. GE also stresses the importance of receiving input from stakeholders and being aware of their concerns. This allows GE to hear new perspectives and better understand how its business goals can be reconciled and aligned with their concerns.
For example in 2008, GE undertook open dialogue with a diverse set of global stakeholders, including government representatives, non-governmental organizations, industry and financial analysts, environmental advocacy groups, the media, customers, community leaders, as well as employees. GE assembles stakeholders, thought leaders, and GE executives to discuss challenges together in hopes of giving the company a valuable opportunity to learn, drive innovation, and receive advice and feedback in order to improve the company’s approaches on strategic issues and decision making.
The three corporate-level committees responsible for collecting input and learning from stakeholders are the Public Responsibilities Committee, the Citizenship Executive Advisory Council, and the Corporate Executive Council. These committees relay the collected information to the top-level managers to help them make important decisions. In the 1990’s there remained questions about whether achieving results without living the values of GE would be tolerated. This question was quickly answered decisively when the CEO of the company answered this question once and for all.
He announced this landmark decision at the annual GE officers’ meeting and implemented several major changes in senior leadership including some of the heads of GE. He cleaned house and removed leaders who had achieved their numbers without exhibiting the GE values. He described the decision making process using a chart that had four quadrants. Quadrant one was a Type I manager which includes mangers that deliver results and exhibits the values of GE. Type II managers do not deliver results and do not exhibit the values. Type III managers do not deliver results but do exhibit the GE values.
Finally, type IV managers deliver results but do not exhibit the values of GE. Type I managers’ rise fast at GE while type II are quickly shown the door. Type III managers are often given another change because the company finds values more important than meeting the commitments set forth. Type IV was the most difficult decision. It is hard to take action, because they are delivering the short term results but often without regard to the values. By doing this GE feels that they are hurting the company in the long run by grinding people down in the company.
GE decided that type IV managers would also be quickly shown the door similar to type II managers. Welch was quoted saying, “It is clear the some of our leaders were unwilling, or unable, to abandon big company, big shot autocracy and embrace the values we were trying to grow. So we defined our management styles, and how they furthered or blocked our values. And then we acted. ” One of the managers that was fired, and made an example of at this meeting, later reflected on the importance of this and was quoted saying, “Just after Christmas, I got a call from Welch asking me to meet him in Fairfield.
Our business had just wrapped up the numbers for the year, and they were outstanding. We had come in well over our targets and had achieved a real turnaround. I was sure that Welch wanted to congratulate me and tell me about my bonus. You can imagine how shocked I was when he told me that I was being fired. I couldn’t believe it. Once he explained it to me, I certainly could see his perspective. I know that I can be pretty rough on people. So what he did was probably the right thing. But I sure didn’t see it coming. ” There are two types of decision making that are vital in order for a company to make successful decisions.
These include programmed and nonprogrammed decision making. Programmed decision making comes much easier for companies than nonprogrammed for many reasons. First and foremost, the programmed decisions generally have a precursor with an example of how they should be made and therefore are virtually automatic. Moreover, the nonprogrammed decisions are generally unexpected. General Electric has tried to make nonprogrammed decisions easier by taking numerous measures to improve planning. In order to do this, General Electric has incorporated an expensive but successful plan to educate its employees.
Not only has this helped its employees to improve their position and promote hiring from within; it also has helped the company save money on training through outside courses, therefore softening the blow of unexpected occurrences. In an article for the Human Resources Leader, the CFO of the Australian and New Zealand Operations states, “Fundamentally, we believe we can teach people new skills, or we wouldn’t be spending all this time on training. But having said that, some people are naturally better with employees, while some are naturally better with customers. For example, in 2001 the company lost its president to another company. In this case, the company was able to fill every position up and down the ladder because of their program. “Furthermore, the company announced at the same time who would take up all the positions created down the line as a result of the promotion. ” The company spends around one billion dollars per year in these types of operations. Overall, the company seems to be satisfied with the way they are handling the unexpected and nonprogrammed decision.
This is displayed thought the decision to spend one billion dollars per year that they have been on this kind of training. As one can see, effective decision making has been the survival and growth of GE. Without strong leaders to facilitate such decision making, GE would not be the success it is today. Overall, we feel GE is doing things right in respect to their decision making style. With being such a large firm in so many different sectors, and operating in so many different countries worldwide, we feel its method of collecting input from many different stakeholders and different areas and levels of the company is necessary.
This approach helps the leaders at GE strive to make sound decisions that everyone supports. On the other hand, there are a number of downsides to this strategy. With being so complex and multifaceted, the time to complete the process is greatly increased causing possible inefficiencies. In addition, it can be argued that “time” is the biggest restraint when it comes to decision making. Another key issue is that it is unlikely that everyone will agree on different issues. Different people at different levels are prone to having different opinions on what is est. This leads to difficulties in making decisions that everyone is happy with. To conclude, we support the methods GE is using to make decisions, but we recognize there are some areas that could potentially be improved, the main one being the amount of time it takes to get input from so many different stakeholders. Seeing as GE has remained successful even through the tough economic times, it’s obvious that GE is doing a number of things right, and we feel its approach on decision making is one of those. Work Cited
Chhotu, Joti, Mohammed, Sarah, Nwabueze, Uche, and Scott, George. “Executive Compensation: The Case of General Electric. ” Competition Forum 4. 2 (2006): 389-394. Web. 29 September 2009. http://libweb. uwlax. edu:3106/pqdweb? index=18&did=1268524281&SrchMode=1&sid=3&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1254281358&clientId=3845. “Plugged In HR: The General Electric Strategy. ” Human Resources Leader 3 December 2003: n. pag. Web. 4 Oct 2009. . Ulrich, David, Kerr, Steven, and Ashkenas, Ronald. The GE Work-Out. New York: McGraw-Hill, 2002.