Organizational Analysis of General Electric (GE) - Essay Example

Analysing Organisations Introduction No company in the world across any industry in any location is as well respected and appreciated as GE (Demos, 2006). Throughout its existence, and more recently in current years, analysts from the fields of management, administration, human resources and organisational behaviour have all given their highest respect to GE (Fisher, 2006). A large part of this respect comes from the way GE handles its organisational aspects of Power and Control of which examples have been given by those who have been a part of GE as well as those who have observed it from afar. The Businesses Eleven different technology, services and finance related businesses with more than 300,000 employees spread in more than 150 countries around the world work under the umbrella of GE. It is one of the few large companies where the values and actions, power and control systems, culture and technological adaptation have remained more or less the same across the board. In terms of products and survives, GE deals with computer systems, jet engines, energy plants, capital services, plastics, illumination equipment, medical tools and military hardware. Regardless of the business they get into, GE dedicates itself to converting powerful ideas into imaginative products for the benefit of their stakeholders (GE, 2006). In my opinion, this makes GE a perfect company to analyse as an organisation and to examine the organisational aspects which make GE tick. The Paradigm The observations with regard to GE are being made with the Functionalist Paradigm which suggests in brief that human beings can largely be expected to act in ways which are rational. The supporters of this paradigm also say that organizational behaviour can be understood through experimental observation and hypothesis evaluations (Burrell, 1979). I feel that this paradigm is certainly useful because GE acts in a manner which is very rational for the most part and the methods used for controlling employees, establishing power and keeping GE running as well as profitable are founded in rational thought. There was certainly was a man at the top who ran GE for many years before stepping down to make way for the new guard, the policies and methods used by Jack Welch have remained popular with the company and little has changed despite his exit (Colvin, 2006). In fact, the systems created by Welch were so good that they are continued in place with modifications made only when necessary. It is clearly no wonder than Business Week hailed him as America’s Best Manager long before he wrote his own book on management which also is considered essential reading for management students (Byrne, 1998). Implications of the Paradigm The primary data collection implication for this paradigm is to see how the experiments and choices made by the management at GE affect the results of the company. This is a good experimental basis to work with since it covers a broad viewpoint of how management skills of the company leaders and the organisational setup at GE help them outperform the competition. There is a lot of data about GE since as reported by Grote (2002) it is a company often emulated by others therefore research materials were not that difficult to find. However, understanding the implications made by the writers was sometimes problematic. The problem was overcome by looking at the financial results of GE which showed how the company has gone from strength to strength. In terms of resources, the best resource for the structure, operations, systems and leadership methods used at GE has to be the management skills book written by the former CEO of GE, Jack Welch, titled Winning. It contains a wealth of information about how things run at GE and gives a lot of insight into a company which has certainly stood the test of time. The subjective analysis is more important here because many of the sources give first hand accounts of what goes on in GE. The objective analysis is greatly helped by information provided by GE’s website which gives data for their financial and situational standings over the past few years (GE, 2006). The Pairing of Power and Control We understand it as a common fact that no individual is irreplaceable and GE has successfully Welch. At the same time, the value they derived from the power structures as well as the control systems which Welch and the executive team had created for GE remains with GE. The power and control at GE were not established overnight, rather there was some struggle involved before they were (Byrne, 1998). At the same time, the rewards for GE have been significant enough for the company to continue with the same systems. The selected paradigm goes a long way to show how power and control are used for the benefit of GE. At the same time, the paradigm alone does not give the total picture therefore the aid of other theories has to be enlisted in the analysis (Burrell, 1979). With the concepts of power and control, there is also a lot to be said for motivation and leadership which become intrinsic parts of the management style at GE (Schmitt, 2001). It would be best to analyse each of these aspects on their own to understand how they apply to the paradigm as well as other theories of analysing organisation. Power Between individuals as well as groups, power can be established in many different ways as discussed by Burrell (1979) and Armstrong (1999) but with respect to the paradigm under discussion, power is established when one person has the ability to influence the behaviour of the other. Since individuals are assumed to behave rationally, power is given more or less voluntarily. Of course any discussion of power also assumes that the individual exercising power has the legal and ethical authority to exercise that power. With those definitions, it can be shown that power at GE is maintained with the use of other normal tools which any other organisation uses e.g. salaries, employee perks, medial insurance, health insurance etc. but the way rewards such as bonuses, awards and stock options become a part of the culture at GE is quite important (Kerr, 1996). Additionally, things like the power exercised by the line managers and eventual group heads of the company is also as significant as the power exercised by the friends and co-workers at GE (Grote, 2002). There is also a negative side to the power structure since rewards alone may not be enough to motivate all individuals and some might need to be shown the negative side of not performing (Schmitt, 2001). This threat comes in the form of employee differentiation conducted at GE whereby the bottom ten percent of the employees are politely asked to leave the company since they could not be a useful fit in terms of skills and commitments (Grote, 2002). However, before a discussion of punishment, it would be more appropriate to discuss rewards since they are far more commonly given and received at GE than punishments or termination letters. Rewards The functionalist paradigm connects greatly with the idea of rationality and rewards are a rational method for ensuring continual behaviour of one type or another. Consequentially, rewards are an intrinsic part of the management system at GE and the rewards for individuals who gave outstanding performance are significant and public (Kerr, 1996). Welch (2005) reports that, “We publicly rewarded people who drove the mission and let go of people who couldn’t deal with it for whatever reason (Welch, 2005, Pg. 16)”. The idea of publicly rewarding top performers rationally ensures that those who see it happen know why those individuals are being rewarded. On a simple management level, the individuals who were rewarded would have a harder time in leaving the company and their power relationship with the management would only be strengthened. Therefore, rationality and rewards go hand in hand with the functionalist paradigm in mind. Though the field of management and the applicable rules can change on a day to day basis as discoveries are made in the field (Beardwell &Holden, 1997), as early as the 1930s, GE was focused on cooperative labour relations instead of merely being satisfied with a traditional power structure. By the 40s, GE had created profit based employee bonuses as well as pension plans for those who had an extensive career with the company (Colvin, 2006). This shows that the company has had a long history and a good track record of forging and maintaining power relations with the employees. The Usefulness of Rewards To further establish the paradigm and to understand how additional applications of rewards can help GE, the rationality argument is not enough and power relations have to be studied as well. The creation of the power relations between the individual and the company begin at the recruitment stage as suggested by Shelly Lazarus who has been a long standing member of the board of directors for GE (Colvin, 2006). This relationship is taken further as the power relationship turns itself into a partnership with continual rewards and promotions coming to the individual who performs for GE (Grote, 2002). In my analysis, it would seem that the power relation reverses itself when a person has rose high enough to have control over the company rather than the company have control over the individual. However, by the time that person is in such a position, the partnership relationship might be internalised to such a state that no harm could come to the company from that person. It can be assumed that an established and internalised power relationship could also help in reducing the negative influence e.g. corporate fraud, internal trading practices, etc. of those who are in a position to harm the company from the inside. The power of friends The functionalist paradigm depends on organisational relationships and good managers would know how to use co-workers to motivate other individuals in a company. At GE, any bonuses, stock options, increments or gifts given by the company to individuals working for the company are made public knowledge to the members of the department and as suggested by Morris & Colvin (2006), that helps to motivate other employees to emulate the success of winners and managers are careful not to let demoralisation set in. The QuickThanks Program as discussed by Kerr (1996) and explained further in this paper, also supports the idea that employees can reward their peers for a job well done. The review and evaluation process for the peers ensures that no person is rewarded for average performance and every high performer is adequately rewarded (Welch, 2005). This public nature of rewards and bonuses disclosure means that friends and worker groups are included in the power relationship since they have a collective connection to the company. Therefore, as recommended by Boxall and Purcell (2003) GE is using rewards and bonuses as tools for strategic management as well as motivation that keep the power relationship alive. Control The power relationship using salaries alone can only be kept as a strong method to get the employees what the management wishes them to do for only a limited time. It is rational as per the functional paradigm that sooner or later, control systems need to be called in which motivate employees to improve their performance to maximise their human potential (Boxall & Purcell, 2003). Such control systems require leadership abilities, management skills and a large amount of charisma which is expected of any leader. The leadership architecture at GE is a distributed setup in which the CEO is connected directly with many different managers and the size of the company is such leadership often has to be a delegated responsibility (Fisher, 2006). Leadership Jack Welch is very open about his leadership which he discusses at length in his book titled Winning. In terms of his control ideal, he gives eight rules of leadership. The eight rules as suggested by Welch (2005) are that all good leaders: 1. Spread their vision and mission of the company. 2. Are full of positive energy and remain optimistic. 3. Are trusted by their employees and should remain transparent. 4. Should have the courage to make unpopular decisions. 5. Should seek answers and positive action from the employees. 6. Should inspire people to take risks. 7. Continually upgrade and train their teams 8. Celebrate when they win. These rules may not be comprehensive enough to cover all the various areas of management control that a company needs to govern but for GE these rules were perfect. Whenever these rules were not followed, the symptoms of bad leadership emerged along with bad management practices (Welch, 2005). Bad Leadership Logically, the functionalist paradigm would not work if rational leadership elements are missing from the managers. Without effective control, a company will end up with bad leadership and a bad leader will not only bring down his/her own output but also of those who fulfil the role of subordinates (Armstrong, 1999). GE saw high turnover in their international communications department and even though the department was not one of the primary departments of the company, significant junior level turnover caused the senior managers to get worried. After making some inquires and revaluations of exit interviews, the company discovered that a line manager was causing problems for others. The department could not be made productive until that manager himself was not taken out of the picture (Welch, 2005). Investing Time in Control Establishing control certainly requires a significant investment in the form of time spent on managing people. When GE ranks employees into various categories, it splits them in 3 levels which include the top 20%, the middle 70% and the bottom 10% (Welch, 2005). While common wisdom would suggest that the most time should be spent with the top 20% to earmark those individuals who can get top positions within the company. On the other hand, extra time can also be given to the bottom 10% so their performance can be improved and even with a relatively low time investment a company could see significant returns. According to Welch (2005), the managers at GE are told to give their most time to the middle 70% since this is the largest group created out of the employee differentiation process. Additionally 50% of a department’s overall rewards and bonuses are handed out to this group since they form the backbone of the company and are responsible for doing the most work (Welch, 2005). Of course in certain situations no amount of control or motivation can help an individual in which case they are best removed from the company. The termination process is not instantaneous nor is the decision taken in haste because the person is given enough warnings and time to correct their behaviour if they can (Grote, 2002). Controlling with Threats To balance the rewards side for motivating employees, a threat of termination would be a good tool to use as per the functionalist paradigm. Fear can be used as a motivating factor so while behaving like a family and a closely knit group; GE functions plainly as a meritocracy in which there is no room for poor performance. Yearly, the bottom 10% of the company is removed from service, which allows fresh blood to take replace outgoing individuals at a rapid pace. At the same time, it keeps all those on their toes who missed the axe or were told to shape up or even seek different departments within the same company or different groups within the same department (Welch, 2005). It must be noted that the final threat involved here is not the threat of termination, but rather replacement on merit. Quick Control Performance can only be controlled sufficiently if the rewards or punishments associated with the performance of some act come quickly. Kerr (1996) uses the example of rewarding mice in a cage for pushing a button and suggests that if a sugar cube comes a year or more after the lever was pulled, there would be little to connect the two actions. To control employee behaviour in a more improved fashion, the amount of reward and the speed of rewarding good work must be high enough to make a difference. The QuickThanks program lets peers rewards others with instant gift coupons worth with 25$s for something which they think should be appreciated. The appreciation from the peers is not easy to get since peer evaluations at GE are often harder to ace than evaluations coming from the bosses and managers (Kerr, 1996). This concept is perfectly inline with rational behaviour and motivation as suggested by the functionalist paradigm. Other Theories Looking at the power and control systems used at GE, several theories can be applied to the management and leadership styles normally used in organisations and the most prominent here are the trait theories of leadership and the situational theories of leadership. Gardner (1995) discusses such leadership styles and with his support it can be said that GE follows the trait theory of leadership when it seeks out individuals for leadership positions. The structural view of an organisation which is similar to a functionalist approach is applicable to GE in a significant way since there is an extreme differentiation between top performers, middle performers and bottom performers in terms of people working for the company. However, GE breaks the mould for the structural approach because rewards and motivation can come not only from the top of the ladder but also from the peer group and other individuals who hold the same or lower rank from the person being rewarded. A Radical Humanist view of GE would also be useful since the use of power and the control of employees which GE has with rewards and differentiation between employees mean that every individual working for the company is free to break the social constraints which limit his/her potential (Burrell, 1979). GE permits everyone to move up from wherever they may in the company to either strive for a higher position within the company or to move towards a higher salary point which means continual opportunities for growth for all concerned (Welch, 2005). Even though the Radical Humanist view of an organisation is often anti-organisational, the family like relationships which are created at GE hold the company together rather than pull it apart. Finally GE may be a large company, but it operates on the theoretical basis of a small company which manages to cut through the chains of hierarchy and control associated with large organisations (Armstrong, 1999). Byrne (1998) says that GE has been made an informal small company simply because people know when to violate the chain of command, how to communicate across layers, and work as if they worked not for a big company but for a demanding entrepreneur. He further attributes this efficient setup to Welchs charisma as well as his management systems (Byrne, 1998). Conclusions Power and Control are two very important aspects of any organisation especially when it operates on a scale like GE. The Functionalist paradigm clearly shows how scientific principles of differentiation and control which group employees according to their abilities are rational and useful. It is to the credit of the company that their employee differentiation and ranking process has been emulated by many other companies across the world including names like SUN, Microsoft, HP and PespiCo. This validation of GE’s system is also a validation of Jack Welch as the person who established these systems which fall in line with the Functionalist Paradigm. Word Count: 3,265 Works Cited Byrne, J. 1998, ‘How Jack Welch Runs GE: A Close-up Look at How Americas #1 Manager Runs GE’, BusinessWeek.com, [Online] Available at: http://www.businessweek.com/1998/23/b3581001.htm Burrell, G. 1979, Sociological Paradigms and Organisational Analysis, Heinemann Educational Books. Gardner, H. 1995, Leading Minds: An Anatomy of Leadership. Basic. Boxall P. and Purcell J. 2003, Strategy and Human Resource Management, Palgrave & Macmillan. GE, 2006. ‘General Electric’. ge.com [Online] Available at: http://www.ge.com/en/ge/morefaqs.htm Beardwell I. and Holden L. 1997, Human Resource Management: A contemporary Perspective, 2nd Ed., Pitman. Colvin, G. 2006, ‘What Makes GE Great?’, Fortune, vol. 153, no. 4, pp. 90-96. Armstrong, M. 1999, A Handbook of Human Resource Management Practice, Kogan Page. 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