Jones Mouradian Perez Volland GE 10 Final for Review2

GE’s Talent Machine: The Making of a CEO - Case Study

Report of Findings and Recommendations

For: Professor Ernest Jewell

MGT 500 Human Behavior in Organizations

11/28/2011

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Table of Contents

Executive Summary.........................................................................................................................1

Analysis...........................................................................................................................................2

Human Resource Management for Growth.................................................................................2

Communication............................................................................................................................3

Recommendations............................................................................................................................4

The Vitality Curve.......................................................................................................................4

Recruitment..................................................................................................................................5

Executive Brands.........................................................................................................................5

Lessons Learned..............................................................................................................................6

Meritocracy..................................................................................................................................6

Recruiting.....................................................................................................................................6

Communication............................................................................................................................7

Executive Bands...........................................................................................................................7

Conclusion.......................................................................................................................................7

Works Cited.....................................................................................................................................8

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1104MGT500 - Module 10 Jones, Mouradian, Perez, VollandGE’s Talent Machine: The Making of a CEO

Executive Summary

GE, the world’s largest and most well know electricity producer and distributor had

always excelled over its competition in many feats. Among them, was their ability to develop

and sustain world quality managers and CEOs. What led GE to produce these talented and more

than capable leaders was the amount of emphasis they drove in developing top notch

management. Twelve CEOs since Thomas Edison as the inaugural leader of the company and

many of them with major contributions to management development helped GE position itself to

successfully maintain growth in both revenue and profit through most of the 20th century.

Among those CEOs were Charles Coffin, Ralph Cordiner, Fred Borsch, Reg Jones, Jack Welch,

and Jeff Immelt.

Methods implemented by each of these capable CEOs allowed for GE’s ongoing success.

Coffin, who immediately succeeded Edison as CEO in 1892, spent the next 20 years devoted to

creating a meritocracy within the organization to reward employees promotions based on

performance. This became the foundation which went on the make GE “a CEO factory” (in

2003, Coffin was named “The Greatest CEO of all time” by Fortune magazine). Ralph Cordiner,

committed to a thorough decentralization GE into 100 department-level businesses which

increased company management efficiency. In addition to this contribution, Cordiner built the

first corporate university dedicated to support management education and upgrade GE’s on-the-

job development process. Fred Borsch’s worked to include harnessing the decentralized

management structure to implement a bold new round of diversification that allowed GE to

expand into new businesses such as nuclear power, computers, and plastics. Reg Jones

introduced a more formal and structured approach to strategic planning which served as an

upgrade to Session C and EMS reviews. This further increased the development of managers.

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Among Jack Welch’s contributions, one of his most noted was the development of the “Work

Out” initiative which saw over 200,000 company employees meeting for two to three days to

discuss how their particular area of work could be made more effective. This initiative not only

increased company efficiency but allowed for individuals to step up, voice their once reserved

thoughts and take over the reins of management positions. Welch also moved EMS consultants

from headquarters out into the field to help business leaders develop their talent and personally

was responsible for the professional development of 600 SEB members. Jeff Immelt targeted

technology skills as a key organization development requirement during session C reviews and

also implemented resources reallocations by investing in businesses that were heavy in human

capital (skills and expertise). These CEOs during their tenures with GE took the responsibility of

management development seriously and were successful of implementing methods to do so each

in their unique way.

Analysis

The main reason for GE’s constant success was its talent to use sustainable human capitol

as competitive advantage, combined with continues improvements in the human resource

strategy, creating a culture with strive for operational excellence. GE used a variety of tools,

helping them to maintain being a cutting edge organization by constantly looking out for new

management talent, hiring from within the company. The following points were analyzed:

Human Resource Management for Growth

Ever since the foundations for HR management were laid by Coffin, GE managed to

develop a variety of tools to implement ever new strategies, procedures, and policies, enabling

them to maintain a healthy and necessary pool of new managers. GE’s “human resource

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management process [is] among the most sophisticated in the world”. (1) The company used a

well defined succession management process as part of their meritocracy-based culture. In this

process well performing mangers started off in lower management positions which were used as

on the job training, in a vast variety of industries, following very specific performance goals.

During this process GE did not only test a manager’s job specific skills, but also looked at their

personality and character in order to determine a person’s abilities as a whole. It was known to

GE how strong a manager had to be in specific industries and used this approach as training and

testing ground. During this process managers received support from higher level managers or

mentors who evaluated each person based on their characteristics, strength and weaknesses. Due

to an individually defined career path, and clear goals, new mangers felt motivated and could see

their progress within the company. At the same time, executives were able to get an overview of

highly motivated candidates, who had the potential of becoming managers in existing or new

branches, or even the new CEO of the company. This particular performance oriented

transparent culture was very difficult to maintain and implement in any business, and shows the

dedication of GE towards their human capital. Immelt mentioned: “Unless you are really

dedicated to a whole system, it doesn’t work. We give feedback, we coach, we invest in training-

and we have clear performance goals.”1 Following this approach, GE was for many the

employer of choice.

Communication

Even as a diverse and big corporation, GE was able to maintain direct communication

with their managers. Due to their focus on new talent, executives allowed for much face-to-face

meetings, trying to learn about the individual person, the characteristics and talents. They were

basically hand-picked for specific positions and industries. After Immelt became CEO, he

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implemented additional channels of communication, such as forums, in order to connect people

around the globe and different branches of their company. Immelt was able to understand how

important communication is to grow the company even further in a global market, and to keep

the cultures connected without geographic or industrial boundaries.

Recommendations

Immelt’s first year as CEO was challenged by the economic downturn. GE’s stock

declined and employees were uneasy about the future. Although management and employee

turnover was low, it is recommended that GE take steps to ensure that employees would be

engaged and motivated even after the economy improved. To that end, it is recommended that

Immelt enact changes to certain aspects of GE’s talent machine.

The Vitality Curve

The rankings-based vitality curve was considered by many long-term GE employees as a

core part of the company’s meritocracy-based culture. However, it was controversial to outsiders

and complex, relying on seamless integration of feedback, coaching, training, and clear

performance goals into a single process. While ensuring that high-performers are rewarded is a

critical and positive component of organizational culture, GE was beginning to lose employees

from the highly-valued middle 70% to targeted recruiting efforts by other companies.

It is recommended that the rankings be made more flexible so that effective employees

feel valuable. Immelt should consider expanding the top tier or introducing additional strata of

categorization so that those in the eightieth percentile are distinguished from those in the

eleventh. Simultaneously, less emphasis should be placed on an employee’s ranking along the

vitality curve. GE should consider implementing a system of reconnection and rewards that is

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less focused on the top tier and gives consideration to individual achievement throughout all

levels of the company.

Recruitment

To support GE’s drive toward more service-intense global businesses, it is recommended

that Immelt expand the talent pool to run these businesses by re-energizing the company’s MBA

recruitment program targeting MBAs with marketing management career interests. GE can

attract high quality candidates in this area by offering a Commercial Leadership Program entry

level development track. Although GE had had problems with MBA turnover in the past, similar

issues in the future could be avoided by solidifying the company’s reputation as the premier

developer of management talent.

In order reduce the company’s reliance on U.S.-based recruitment programs Immelt

should establish a more aggressive international recruitment approach. The number of non-

American GE officers should better reflect the fact that 40% of GE revenues are generated

overseas. It is recommended that Immelt set concrete goals to increase the number of non-U.S.

citizens in its executive band and officers group.

Executive Brands

After Welch collapsed Cordiner’s 29 PLs into seven broad executive bands, some

employees – particularly those in international locations with hierarchical business cultures

where perceived status was highly valued – felt that promotion opportunities were limited and

the frequency of clearly defined. While many proposed that Immelt expand the number of

executive and professional bands, doing so would likely be a step back to bureaucracy and

inflexibility. Rather than increase the number of executive bands, GE’s culture should adapt to

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provide employees with recognition and psychological reward through job enrichment and

acknowledgement of individual achievement.

Lessons Learned

GE has established itself as a well-diversified fortune 500 conglomerate business backed

by its strength in personnel. In doing so, GE has pioneered the business world and human

resource methods. In order to survive and thrive GE has always maintained flexibility in its

business. Although changes are aplenty, GE must now look at changing it long standing

recruiting and human resource approach. While leaving its culture completely behind isn’t

necessary, changes are required to adjust to the new business and global climate but not at the

cost of losing its core strengths. In the past, changes have proven to be successful and

unsuccessful in the following ways:

Meritocracy

Meritocracy has been a strength for GE, since CEO Coffin’s inception in 1892, with their

human resource management. Employees were motivated by the results and the goal setting and

advancement opportunities created the optimal work environment for GE employees. CEO

Welch eventually implemented a shift in the ‘vitality curve’ in order to encourage people to want

to be in the top 20, via rewards, praise and developmental efforts. While this has suited the

company for over a decade. the classification of the 70 percent has recently led to GE’s leading

indicator of employee desertion. Also, their global approach initiative provides conflicts with

cultures in other parts of the world with its current meritocracy system. The success built on their

meritocracy process aimed at inclusion and providing career steps that were obtainable, and they

were largely welcomed by employees.

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Recruiting

GE has always invested and preferred home grown talent. Immelt has recently boldly

hired from the outside when he felt an appropriate internal candidate wasn’t available. The shift

in focus to customer service identified this need. As future business shifts occur, finding the right

person for the job must always be the objective with their hiring. Since GE has a unique work

environment, if hiring from outside is explored the need to forecast the candidates immersion

into the GE environment needs to be evaluated carefully. The message that it hierarchy system

will not be honored can be toxic for their human resources strategy. The innovation and success

attributed to their human capital was home grown in the past because GE conducting such an

innovative type of business.

Communication

The reason GE has had a successful human resource department resulting in leaps and

bounds in innovation from within has been its communication. Team meetings, continuing

education and performance reviews and rankings lead employees to high levels of involvement

with their jobs. If it wasn’t for their strong communication, GE would not have been able to

install changes and programs to enhance their profitability.

Executive Bands

The contraction from 29 PLs to seven bands was a crucial cost savings step. The result

however left less hierarchy and less favorable supervisory jobs available. The recent

international push in India led them to a culture that was accustomed to promotions via job titles.

The retention level of non U.S. managers has been hurt by the contraction. While the cost

savings was crucial in a lean company, the elimination of leadership roles was not received well.

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Conclusion

GE has led the way for the world, not only as a business but as an innovator, for over a

decade. In that time, flexibility in identifying business opportunities along with a strong human

resource commitment has kept GE successful. By being the leader in innovation, GE cannot look

at other businesses for guidance. In its changing environment, GE must continue to improve

itself from within, looking for ideas and human capital.

Works Cited

1. 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.

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Jones Mouradian Perez Volland GE 10 Final for Review2