SUCCESSION PLANNING AT GE

You dont get succession candidates if you dont start with a pipeline. - Gestrude G. Michelson, an outside director, GE, in April 2002. THE SUCCESSOR In November 2000, General Electric Inc. (GE) announced that Jeff Immelt (Immelt), the president and CEO of GE Medical Systems, would be the successor to Jack Welch (Welch), the Chairman and CEO of the company. Welch was to retire in September 2001, after a successful 41-year stint at GE. According to GE sources, Immelt would become the president and chairman-elect of GE, and a member of GE board and Corporate Executive Office, with immediate effect. The announcement ended the battle that was viewed on Wall Street as the hottest corporate succession race of the decade. The three candidates for the top spot at GE were Immelt, W. James McNerney (McNerney), CEO of GE Aircraft Engines, and Robert L. (Nardelli), president and CEO of GE Power Systems. Neither GE nor Jack Welch revealed exactly why Immelt had been preferred over the other two. Welch himself went on record to say that the other candidates were equally capable of running GE. Welch wrote in his autobiography, that choosing between the final trio was the most difficult and agonizing [decision] I ever had to makeAll the three exceeded every expectation we set for them. Their performance was off the charts. Any one of the three could have run GE. 2 According to Welch, it was his nose and his gut, which prompted him to select Immelt. Analysts believe that the fact that Immelt was younger than the other two aspirants at 44 years of age, contributed to his selection. GE is known to favor steady leadership over a long period. Since Immelt was six years younger than his rivals, he would have an opportunity to plan for a further 20 years at GE, like Welch who became CEO about the same age, and stayed at the company to implement his plans. Welch too characterized Immelt as a natural leader, and ideally suited to lead GE for many years, adding weight to this view. As soon as Immelt was selected to take over as CEO, the media began to make comparisons between Immelt and Welch, and some expressed doubts as to Immelts ability to match Welchs charisma or impeccable record. Many Wall Street analysis believed Welch was one of the most important and influential business leaders of the 20th century, and clearly Immelt would have to work hard to match the performance of his predecessor. During Welchs tenure of two decades as CEO, GE transformed

itself from a manufacturer of light bulbs and appliances into an industrial conglomerate, with annual revenues increasing from $27.9 billion to $130 billion. Given GEs record of effective leadership, and the care and intensity of its succession planning program (Refer Exhibit I for an overview on succession planning), most industry observers expressed their confidence in GEs choice of Immelt. The fact that McNerney and Nardelli were taken on as the CEOs of 3M and Home Depot, respectively, within weeks of their losing out to Immelt, was in itself taken by observers as testimony of corporate Americas confidence in leaders groomed by GE.
1 2

Grow Your Own CEO, www.boardmember.com, March/April 2002. Jack: Straight from the Gut, written by Jack Welch with john A. Byrne

BACKGROUND NOTE The roots of GE can be traced back to Thomas Alva Edison (Edison), the inventor of the

incandescent light bulb. Edison set up The Edison Electric Light Company (EELC) in 1872, to conduct experiments on electricity, and in 1879, he invented a carbon-filament lamp and direct current generator for incandescent electric lighting. The EELC was comprised of a number of smaller companies involved in different business ranging from power stations and wiring grids to electrical appliances. The EELC merged with The Thomas-Houston Electric Company3 in 1892, to form General Electric (headquartered in Schenectady, New York). In 1894, Charles Coffin(Coffin) replaced Edison as CEO of GE. Coffin brought about a number of changes in the company by creating a rigid hierarchy and organizing the company around different individual works, or units dealing with specific product lines or jobs. He also imposed rigid financial controls to keep the different units on track. By the end of the century, GE was able to consolidate its position by licensing its electric bulb technology to other companies. Gerard Swope (Swope), who succeeded Coffin in 1922, played an influential role in making positive changes in industrial relations at GE. He introduced many schemes such as group insurance, profit sharing, bonuses, pensions, home-mortgage assistance, and stock-purchase plans, which were widely appreciated. He consolidated GEs position in the industry further. GE also became the first company to establish unemployment pension plans, which guaranteed its laid-off workers a stipend of $7.5 per week for a period of 10 weeks after layoff.

Charles Wilson (Wilson), who became CEO in 1940, undid most of the changes that Swope had brought about in industrial relations. After the Second World War (1939-45), GE faced a major crisis in industrial relations due to the increasing clout of the trade unions. The crisis peaked with a major strike in 1948, and a rift between blue-collar workers and GEs management was apparent. During this period, the trade union leaders became so powerful that they resisted efforts by GEs headquarters to diminish their authority. Ralph Cordiner (Cordiner), who succeeded Wilson in 1950, undertook a company-wide restructuring to improve management practices at GE. He also promoted decentralization by breaking up GEs operations into separate departments. To indoctrinate managers in the new principle of decentralization, he established Crotonville school in 1956. He also played a key role in the development of many important management techniques like Management by Objectives (MBO), SWOT Analysis and Strategic Planning. Fred Borch (Borch) took over from Cordiner in 1964. He contributed substantially to the growth of the company by making some major investments. Borch added three new capital-intensive lines to GEs portfolio of businesses computers, nuclear power and aircraft engines. By 1968, GE had become a conglomerate comprising of 190 departments manufacturing a wide range of products. Borch also gave a lot of importance to strategic planning, and was instrumental in creating 46 strategic Business Units (SBUs) within GE. Reginald Jones (Jones), who became CEO in 1972, accelerated the companys shift from electromechanical to electronic technology. He also emphasized the need to be responsive to the international environment and competition from overseas. Jones invested heavily in office automation in a bid to increase productivity, and took some strategic decisions to strengthen promising businesses like plastics and to divest the unproductive computer businesses.
3

In 1879, Elihu Thomson and E J Houston formed the Thomson-Houston Electric Company. The company was involved in producing electrical equipment and building electrical power stations.

In 1981, Welch became CEO and began a major restructuring effort to cut red-tapism within the company, as part of which he cut more than 100,000 jobs a fourth of GEs work force. He decentralized operations and adopted a strategy of operating only profitable ventures and divesting

GE of the unprofitable ones. Welch emphasized that GE should be No.1 or No.2 in all business, or get out of them. As a result, GE divested itself of several businesses like air-conditioning and housewares and acquired others like Employers Reinsurance and Radio corporation of America (ERRCA)4 which included the National Broadcasting Corporation (NBC) in the 1980s and 1990s. In the mid-1990s, GE also introduced the Six Sigma quality management program at its companies, which was to make GE products practically defect-free5. The company also embraced information technology under the guidance of Welch, to make production processes more efficient. In 1999, GE acquired a total of 134 companies, in deals worth $17 bn. By the turn of the 20th century, the company was operating in wide variety of businesses. Some of the business divisions of the company were Aircraft Engines, Appliances, Aviation Services, Commercial Equipment Financing, Commercial Finance, Employers Reinsurance Corporation, GE Equity, GE Financial Assurance, GE Consumer Finance, Lighting, Medical Systems, Mortgage Insurance Corp., Plastics Power Systems and Real Estate. Industry observers felt that GE performed very well under Welch (Refer Exhibits II and III). The companys 2000 net earnings of $12.7 bn were more than 8 times the profit it reported in 1980 ($1.5 bn). In 2000, GEs shares had risen over 5,096%, including the dividends, from the day Welch took over. In September 2001, Immelt became the CEO. Analysts feel that the foundation laid by the series of GE CEOs over the decades contributed strongly to the companys success. During its 125-year existence, GE has had only eight leaders (excluding Immelt), each changing the course of GE to meet changing market requirements during their period and contributing to its growth. Analysts feel that this steady, uninterrupted leadership has undoubtedly been one of the major reasons for GEs success over the decades and many attribute this to the companys focus on succession planning beginning from the mid-1900s. Commenting on this, Jim Collins, a business analyst and author of Good to Great, says, What GE seems to have a genius for is picking the right person for the right time - for more than 100 years.

LEADERSHIP DEVELOPMENT IN GE

Succession planning is an ongoing, rigorous and challenging process at GE. GE adopted succession planning right from the mid-1900s. At GE, succession planning was not confined to only the top management, but was applied across all tiers of management. The managers of GEs various businesses were encouraged to identify potential candidates and fulfill their development needs, and transform them into efficient leaders ready to take up jobs at the company. As part of CEO succession planning, GE shifted its key candidates from one business to another to enable them to gain experience across all its businesses. The company used mainly annual performance reviews for identifying potential candidates, until the early 1980s. However, after Welch took over as the CEO, the succession planning process at GE became a more systematic process, with the use of various analytical tools and the involvement of the top management in leadership development and succession planning. Since early 1980s, the annual Human Resource Reviews (popularly called Session C) had been at the heart of succession planning at GE. The Session C process was reportedly given as much importance as financial monitoring in GE. GE identified differentiation as a key factor in its leadership development and succession planning program, and hence used many tools as part of its Session C reviews to differentiate talent. The major tools GE used were Vitality curve, 9-Block and Accomplishment Analysis (See Box 1).

4 5

Set up as a GE subsidiary in 1919 to manufacture wireless radio. Six SigmaCurves: Under this, the managers across program that focuses required to rank a Vitality is a quality measure and improvement the organization were on the control of processemployees on a six sigma (standardvitality curve reveals the top or 3.4 players, per their to the point of 20-70-10 scale. The deviation) from a centerline, 20% defects mn items. It players and bottom factors criticalin all processes and levels across the vital 70% includes identifying 10% players to quality as determined by the customer, reducing process variation curve was used capabilities, increasing stability and designing organization. The vitality and improving by senior GE executives during Session C systems toto make the six sigma goal. performing employees were being rewarded and process support sure that GEs best Another Boss, Another Revolution, www.fortune.com, April 05, 2004. recognized. 9 Block: It is a nine square chart, used to plot an employees potential against his Box I performance. The criteria used for ratingfor Differentiating Talent on GEs corporate Major Tools Used at GE the employees were based objectives and key initiatives such as Six Sigma, e-business and customer focus. Similarly, the 9 Block was also used to plot employees ability to meet their performance targets against their demonstration of GEs values. According to GE sources, the employees position on the 9 Block charts helped the company to determine their annual performance rating and also to analyze their growth and succession potential. Accomplishment Analysis: It is a 10-15 page report prepared on every manager at GE by a team of two HR professionals. This report is based on extensive data & interviews and analyzes every aspect of the managers performance & potential and identifies the managers strengths and weaknesses, and his development needs. After the completion of the report, the manager, on whom the report is prepared gets the opportunity to read

Compiled from Various Sources. Such tools helped GE to sort its employees across the company into A, B and C players. The As were people who had essential leadership qualities identified and termed by Welch as E 4 (See Box II). They were the people who got the most incentives and promotions, and were continuously moved across different jobs to develop their skills and to evaluate their potential. Welch connected the four Es with one P-Passion. According to him, it was the passion that separated the As form Bs; while As had the passion, Bs lacked it though it though they had E4. However, as Bs were considered very important to the company, GE encouraged them and helped them to become As. The Cs were people who could not get their job done; according to Welch, Cs were the people who were likely to enervate rather than energize.7
7

Jack: Straight from the Gut, written by Jack Welch with John A. Byrne. Box II Key GE Leadership Ingredients e4

Energy Energizer Edge

Enormous Personal Energy Strong Bias for Action Ability to Motivate and Energize Others Infectious Enthusiasm to Maximize Organization Potential Competitive SpiritInstinctive Drive for Speed / ImpactStrong Convictions and Courageous Advocacy

Execution

Deliver Results

Source: The GE Way Fieldbook, by Robert Slater. The Session C review process, at the executives end, started in February each year when every executive filled a self-assessment review, which was later discussed with their managers. Apart from the self-assessment of the executives, the managers and the HR executives assessed the individuals based on different criteria like their performance, growth, potential, etc. All the assessment reports were sent up the management chain. At the top management level, the Session C review process began in April and continued through May each year. In order to help identify and develop leaders and successors, the CEO and the vice-president, Human Resources, of GE met with the CEOs and HR chiefs of the 13 GE businesses at their respective headquarters, to personally review the performance and progress of the top 3000 executives of the company, with more focus on the top 500 executives. The qualifications, achievements and development needs of all these top executives were discussed in these sessions. During these reviews, the CEOs and their HR chiefs were required to develop succession plans for all key jobs, draft early-career stretch assignments for potential executives, and also to decide which high-potential executives should be sent to Crotonville for leadership training. During his tenure as CEO, Welch carried a briefing book that contained assessment of every top executives strengths and weaknesses, development needs, short-term and long-term goals, along with their photographs, miniature biographies and their self-assessment placed along with their mangers analysis. This helped him challenge the CEOs and HR chiefs regarding their recommendations as to promotions and succession plans, forcing them to sell their ideas, and ensure that the best talent was recognized, rewarded and nurtured for filling leadership positions in future. These reviews also enabled the CEOs and HR personnel to identify ways to help their best talent to improve their skills and plan their careers.

Under its succession planning program, GE paid great attention to the identification of the right development program for its high potential executives. Managers worked closely with HR executives, to identify an individuals deficiencies like skill gaps, and chart out plans to help that individual address the problem. Commenting on this, Steve Bertamini (Bertamini), CEO, GE Australia & New Zealand, said, For example, should we be sending a person to an outside course to address a specific skill deficiency, or do we take more of a counseling or mentoring type approach to develop them. Its all about developing the individual.8
8

Plugged in HR: The GE Strategy, www.humanresourcesmagazine.com.au, December 03, 2003.

GE leadership and board met its top talent pool regularly to ensure that they were monitored and that their development needs were fulfilled. Gertrude Michelson, a GE director said, Twice a year at the board meetings, we talked about management development. There were the plant visits that were usually a half-day or a whole day. There were lots of conversations on the phone. Wed talk about a new assignment for someone who was in the running. Peoples eyes glaze over when they find out how much time it takes.9 GE constantly reviewed the growth of their talent pools. Commenting on the rationale for this, Bertamini said, We take a whole new look at our talent pools each year and look at peoples achievements. Its a fairly active process. That then gets rolled out and goes through several other screens, so by the time you go through that thorough process you really do have a group of people who stand out from the others.10 At GE, succession planning was closely tied up with management and leadership development. The company spent over $1 bn on its management and leadership programs annually. GEs management and leadership development program was divided into three categories-the Manager Development course, which focused on training executives in managing a multi-functional organization; the Business Management course, aimed at potential general managers and focused on enhancing their business and leadership skills required to compete in global environment; and the Executive Development course that focused exclusively on potential top managers, and combined the current of both the above courses, aimed at enabling them to gain a comprehensive understanding of toplevel management in global organizations.

As part of the Business Management Program, participating managers were required to take twoweek courses in areas like strategic marketing and organizational change, and then divide into teams to participate in a month-long project proposed by one of the GEs businesses. The teams were given complete access to marketing, product and financial information. They were encouraged to come up with options and business plans for the project assigned to them and had to defend their plan of action against that of opposing teams. Such exercises helped managers to gain extensive leadership and team-based experience. The Executive Development Program, focused on developing and facilitating change process by providing potential top managers with an opportunity to discuss problems or solutions with other managers form different businesses. The program was mainly aimed at encouraging adaptability and the ability to see things from different perspectives, to enable managers to shift from one GE business to the other, with few or no transitional problems. As part of this, in the final stage of the Executive Development leadership development process, GE conducted officer workshops at Crotonville, where the CEO discussed unresolved company problems with the top 30 GE executives who are selected for the program. GE also developed Impact Programme, a leading benchmarking technique, which focused on competitive aspect of manufacturing and engineering. As part of this program, GE sent its managers across various businesses to visit competing companies in Asia and Europe, to analyze the quality, workforce management and technology. The managers were required to share and discuss their experience and learning from competitors with their peers back at Crotonville. According to GE sources, values played a vital role in running the companys business, as they helped GE to identify behaviors needed by executives to climb the companys leadership ladder. Compliance with GEs corporate values viz. Passion, Curiosity, Teamwork, Resourcefulness, Accountability, Commitment, Openness, and Ability to Energize, were the key factors for differentiating between leaders and managers.
9 10

Grow Your Own CEO, www.boardmember.com, March/April 2002. Plugged in HR: The GE Strategy, www.humanresourcesmagazine.com.au, December 03, 2003.

Commenting on the importance of values in GEs leadership development and succession planning process, Sam Sheppard, vice-president, HR, GE Australia & New Zealand, said, Theyre a good indication as to whether an individual is a genuine leader or a manager who simply gives workers a set task, manages deliverables and gets results. If a person achieves his results through autocratic management or using bullying, then you have no place in the GE portfolio. So our processes really examine how individuals demonstrate those values to inspire the people that they actually work with. Sure, they can achieve results, but the focus is on how they achieve those results.11 According to media reports, this world-class management and leadership development approach enabled GE to develop a ready regiment of successors for every managerial position across its 13 businesses. Commenting on this, Bertamini said, If a person is promoted or is not performing, we know who the right person is to put in their place. We also track who is ready to move to a different business in order to accelerate their career development. We also drive diversity to ensure we have a strong diverse pipeline of future leaders we are developing at every stage at their career.11

THE CEO SUCCESSION PLANNING PROCESS The succession planning by Welch for his post had started way back in 1994, when Welch, with help of Bill Conaty (Conaty) and Chuck Okosky (Okosky), both vice-presidents, HR and Executive Development, created a list of essential qualities, skill and characteristics and ideal CEO should posses. The list mainly included elements such as integrity and values, vision, leadership, experience, edge, stature, fairness, energy, balance, insatiable appetite for enhancing knowledge, courageous advocacy, and most importantly, stomach to play for high stakes and being comfortable operating under a microscope. Based on the above list, Welch submitted a list of 23 potential CEO candidates, to the management development committee of GEs board in the same year. The candidates list included names of senior vice presidents of GE to high potential managers, all ranging between the age group of 36 years to 58 years. Welch also had, what he called, a hit-by-a-truck succession plan, which included a short list of potential CEO candidates to take over, in case something happened to him. The older candidates on his list of 23 potential CEO candidates were in the list largely because they could provide leadership for such an emergency.

From 1994 onwards, all the key decisions made by GE with regard to the careers of the potential CEO candidates were done with succession in mind. According to GE sources, during this period, all the candidates were put through a rigorous testing process; they have put into various jobs across GEs businesses, and were closely monitored by the top management for their ability to face those challenges and in order to identify their development needs. Welch and the board reviewed the succession process every June and December, and Welch also gave real-time assessments of how the process of succession was going on to the board every February and September each year from 1995. To have a closer look at the potential CEO candidates, GEs board members had informal interactions with them played golf, and attended Christmas parties with them12. There were many instances when committee members in charge of the succession exercise, spent a whole day with each of the potential candidates and his team (from the business unit he was heading) and at the end of that day, gave Welch feedback on the candidate.
11

Plugged in HR: The GE Strategy, www.humanresourcesmagazine.com.au, December 03, 2003. Jack: Straight From the Gut, by Jack Welch and John A Bryne.

12

By 1998, the original list of 23 had narrowed down to eight serious candidates, after retirements, departures and candidates failure to meet expectations. Commenting on the efforts put in by the GEs top management to select these eight candidates, Welch said, Over the years we watched these guys like hawks. We kept throwing new tests in front of them. The eight who remained contenders by June 1998 had moved through 17 separate jobs.13 To make the process more focused, Welch, with Conaty and Okasky, developed a list of eight basic objectives for selecting the successor (See Box III). The list helped Welch and the board settle on the final three McNerney, Nardelli and Immelt. BOX III Eight Basic Objectives for Selecting CEO Successor Eight objectives identified by Welch and his team to help selection of CEO successor includedPick the strongest leader. Look for the best complementary mix of corporate executive officer skills. Retain all contenders through transition and into the next administration. Minimize dysfunctional competition. Create opportunities for up close and personal view of the contenders before the final decision. Provide the necessary transition time given the companys breadth and complexity.

Source: Jack:Straight From the Gut, by Jack welch and John A Bryne

Source: Jack: Straight From the Gut, by Jack Welch and John A Bryne.

By this time, Welch had been closely monitoring and interacting with them for years. For example, Welch put all the three on the GE Capital Board in 1997, and from that point onwards, he had an opportunity to meet them at the monthly board meetings of GE capital. After each meeting he also had lunch with them, where he listened to their views on the deals GE Capital was proposing. However, he stopped doing this by 1999, as these meetings had become a bit awkward as they moved closer to the end of the process (selection of successor due in December 2000). Instead, Welch had private dinners with each of them in mid 1999, where he asked them their opinions on GEs businesses. During these dinners, he also asked the potential CEOs to pick three leaders who should, according to them, make the top leadership team in the company. Welch repeated the same course of dinners in early 2000 with the top three, and this time concentrated on learning their opinions about things outside their own businesses, which included issues like current union negotiations, business environment issues, their opinions of other two contenders, what they liked about GEs processes and values and what they would like to discard. One major question Welch asked the final three during his interaction with them with them was whether they would leave GE, if they werent chosen; two of them made it clear that they would. This helped Welch to understand that one of his basic objectives of CEO selection retaining all contenders through transition, was unrealistic. According to Welch, any one of the three contestants was capable of running GE and it would be doing them injustice, to try retaining them at GE, when they could easily become CEOs of any leading company. Moreover, as the competition for the post was very close, he felt that it would be in the better interests of the new CEO (and chairman), if the other two left the company. Commenting on this, Welch said, I know what its like. Whoever becomes chairman of this company has to be filled with self-confidence and full of enthusiasm. I want him to feel bigger than life. I dont want him looking over his shoulder.14
13 14

Jack: Straight From The Gut, by Jack Welch and John A Bryne. Jack: Straight From The Gut, by Jack Welch and John A Bryne.

Thus, in April 2000, Welch made it clear to Immelt, McNerney and Nardelli that GE preferred them not to stay back in case they were not chosen. He also asked the three to come up with a list of their successors in case they were chosen for the top position or left, which, he explained was in the best interests of the company. Due to its effective succession planning program which helped it to have a bench of successors for all managerial and leadership positions, choosing their successors had been very easy for Immelt, McNerney and Nardelli. In June 2000, GE announced its three new chief operating officers, Dave Calhoun, John Rice and Joe Hogan, who would succeed McNerney, Nardelli and Immelt respectively, when they stepped down as CEOs of GE Aircraft Engines, GE Power Systems and GE Medical Systems. GE explained this move as a natural step in their leadership succession plan. Finally in October 2000, Welch proposed Immelt as his successor. According to Welch, Immelt had transformed GEs medical businesses into a model for the future of GE. He also credited Immelt for having a perfect blend of intelligence and edge and also a unique trait of being comfortable in his own skin. According to Welch, though the competition for the post was very close, he thought that Immelt was the perfect selection. The board agreed unanimously to the selection and approved Immelt as chairman-elect in November 2000. In September 2001, Welch retired and Immelt took over as the new chairman and CEO of GE. IMMELT MAKES HIS MARK During the first two years as GEs CEO, Immelt had to face many problems on account of September 11, 2001 attacks, the Enron debacle, and the global economic slump during the early 2000s, which affected the companys earnings severely. As a result, GE for the first time in ten years, failed to report double-digit earnings growth in the fiscal 2002 (Refer Exhibit IV). Though Immelt was not held responsible for the companys problems during this period, as most of them were triggered by the external environment, nonetheless he had to deal with the crisis. Immelt took immediate measures to cut costs through layoffs. He also restructured GEs businesses into eleven business groups, which were then placed in two broader categories-Growth Businesses and Cash Generators. Growth Businesses included mainly the transportation, health care and energy groups, which Immelt believed had high potential for growth in the future and which the company would invest in heavily. Cash Generators included mainly appliances, lighting and insurance, which generated revenues to invest in Growth Businesses (See Exhibit V for Business Restructuring by Immelt).

Immelt also focused on customer service, for which GE introduced a new program dubbed At the Customer, For the Customer (ACFC). The program involved the company sharing its best practices (See Exhibit VI) with customers, to improve their businesses and win their loyalty. In order to ensure that its employees would be committed to this initiative, GE made improving customer productivity a key part of their performance evaluations. According to analysts, while Welch had transformed GE into a management laboratory and money-making machine, through his various initiatives like Six-Sigma and Work-Out, Immelt was trying to transform GE into a customercentric company. Though Immelt admired Welchs leadership style, he felt that the economic environment in the early 21st century called for a different management style and strategies. The difference between Immelts and Welchs management styles and ideologies became very clear. While Welch had put high bets on financial services, Immelt was getting out of that business as he felt that there was less potential for growth. While Welch compiled with Wall Streets short-term demands, Immelt focused on long-term strategies. Immelt also focused more on retaining managers in the same divisions for longer periods to develop specialists as against Welchs practice of rotating managers fast across various divisions to develop generalists. While Welchs relied more on acquisitions for growth, Immelt saw innovation as a potential means of growth. According to analysts, Immeltss focus on long-term planning was apparent from the heavy bets he took on the entertainment industry, which he believed had a high potential for growth in the years to come. In 2003, GE closed a deal with Vivendi Universal to merge GEs entertainment business NBC with Vivendi Universal Entertainment to form NBC Vivendi, with combined revenues of over $13 bn. Immelts focus on R&D and innovation was attributed to his belief that in the light of economic slowdown, the companies needed to make their growth. He felt that with the economy slowing down, companies could not buy growth through acquisitions, and should instead look for growth opportunities through innovations. Hence, Immelt spent about $100 million (mn) to revamp the House of Magic, a GE research lab, which had made GE an innovation leader during the early decades of 1900s but had lost its importance through the mid-1900s. Immelt renamed the lab the Global Research Center (GRC) and increased its budge to develop innovative technologies and products to support various GE businesses. Immelt said, Were keeping the technology robust, and this year we have 25% more new-product launches.

In early 2004, GE acquired Amersham Plc., a leading British medical imaging company for $10.3 bn, which it merged with GE Medical Systems business to form GE Healthcare unit. Though analysts applauded the deal, Immelts move of appointing William M. Castell (Castell), former CEO of Amersham, as the CEO of GE Healthcare unit, came as a shock as it went against the century old GE culture of sourcing CEOs from within. They felt that Immelts obsession with innovation was behind his decision to break the tradition and bring in an outsider to head a GE business. Considering the facts that Amersham generated just quarter of GE Healthcare sales and Castells lack Succession is the Amershams taking over another persons place in the ability to head GE of knowledge outside ofright or act ofoperations, many analysts felt he lacked office, rank, or duties. The world over, organizations have used the concept of succession planning Healthcare. Industry experts way to identify and cultivate employees with leadership qualities wholly or partially as a also warned that this decision might send the wrong signals down the to assume greater responsibilities in the future. The term succession planning can be organization. John G. Inch, analyst, Merrill Lynch & Co., There is a rigorous management process described as a process through which managers identify and help groom their where people workbeforewhole lives on to another position themselves. one swoop, its given to an replacements their they move to become senior officers. Here, in outsider.16 According to analysts, organizations which implement succession planning benefit significantly, as they have a ready pool of clearly candidates to on GE and was All said and done, by early 2004, Immelt haddeservingmade his markfill the leadership being positions when the need by many industry on the advantages derived from though he recognized as a natural leaderarises. Commentingobservers and corporate leaders, succession lacked planning, Welch. Analysts felt Chairman, Clark Consulting, Healthcare Immelt was the charisma of Donald C Wegmiler, that unless something went terribly wrong, Group said, sure to Succession planning may reduce his long-term plans as many people into outside, remain the CEO of GE and implement the need to bring in to transform GE from the 21 st century which involves expense, adaptation time, and lack of continuity. power house.
15 16

Can GE Light experts, the process of succession planning should 11, 2002. According to HR Up the Market Again? www.fortune.com, Novemberbe carried out in GE Breaks The Mold Spur Innovation, April 26, 2004 three stages: assessment,todevelopment and opportunity. An organizations succession planning for a group of people or an individual must start with assessment. The process Exhibit 1 of assessment involves identifying several factors like individual talents, skills and An Overview on Succession Planning personal characteristics, which fit the requirements of a specific position. Once individuals with the required competencies have been identified, the management must implement a development plan, which identifies various aspects which the potential candidate(s) must develop to move on to the next stage of management hierarchy. At this stage, the individual is expected to upgrade skills within a specific time-period. All through this process, potential candidates are assessed and based on their assessment candidates are assigned new responsibilities to fill the gap between desired skills and the skills they possess. Having identified candidates with the required skill and given them opportunities to spruce up their skills, the next step for the organization is to find out the candidates interest in being promoted. Though succession planning for CEOs is not entirely different from succession planning for managers at other executive levels, the stakes are very high and the ramifications are huge. Typically, the responsibility of CEO succession planning rests jointly with the outgoing CEO and the companys board. Also, the time required for

However, in the early 2000s, not many organizations across the world were giving succession planning any serious attention. According to a study conducted by Jeffrey Sonnenfeld of Yale University, which covered a survey of 100 retired CEOs, nearly 30% of the CEOs did not have any succession plan. Analysts felt that leadership succession becomes a problem when companies do not consider it an important issue worth years of preparation. For instance, when Phil Condit resigned as the CEO of Boeing in December 2003, there was no successor to take his place. The company had to put Harry Stonecipher, the previous president, in that position to avoid the embarrassment of being an organization without a CEO. Many other companies have faced similar problems.

According to analysts, a fumbled CEO succession plan hurts the morale of the companys staff and also affects business performance, affecting market sentiment and possibly resulting in a decline in share price. Moreover, the early departure of a new CEO might also prove to be costly to the company in terms of severance pay and tarnished reputation. In the early 21st century, as companies are operating in highly competitive and dynamic business environment, analysts insist that companies should focus on succession planning to develop efficient leaders from within the system, who can build on the success of their predecessors. Some of the companies which are highly regarded for their effective succession planning programs included Motorola, HP, Pfizer and American Express. Compiled from www.commerce-database.com, Healthcare Executive

81 '82 83 84 85 86 87 88 89 90 91

$27,977 27,131 27,383 28,965 29,611 36,391 40,098 42,336 46,238 49,696

GE Revenues 1981200 ($ In Millions)

00

20,000

40,000

60,000

80,000 51,283 60,109 89,259 53,051 70,028 100,469 129,853 140,000 55,701 79,179

92 93 94 95 96 97 98 99
100,000
111,630

120,000

Source: www.ge.com

Exhibit IV GE & Its Subsidiaries Financial Highlights (2000-2003) (in $ mns, except per share amounts) Year ended December 31 Revenues Earnings before accounting change Cumulative effect of accounting changes Net earnings Dividends declared Stock price range (in $) Year-end closing stock price (in $) Total Assets Source: GE Annual Report, 2003 Exhibit IV Business Restructuring Under Immelt 2000 130,385 12,735 12,735 5,647 60.50-41.67 47.94 437,006 2001 126,416 14,128 (444) 13,684 6,555 52.90-28.25 40.08 495,023 2002 132,210 15,133 (1,015) 14,118 7,266 41.84-21.40 24.35 575,244 2003 134,187 15,589 (587) 15,002 7,759 32.42-21.30 30.98 647,483

Growth Business Commercial Finance Energy Consumer Finance Transportation Health care NBC-Universal Infrastructure Source: www.ge.com

Cash Generators Insurance Consumer and Industrial Products Advanced materials Equipment services

Exhibit VI Major GE Initiatives under ACFC Black Belts For All: Experts share secrets about productivity innovations like Six-Sigma quality initiative which became a religion at GE. Brain Trust: Customers can access data such as basic research and market information generated by any GE business unit. Culture For Sale: GE offers training in trademark management techniques such as empowering through Work-Outs, creating learning culture and identifying and eliminating the bottom 10% employees. Going Global: GE shares its global expertise such as market trends and connections across various countries.

Source: www.businessweek.com

For Discussion on 29th Nov 2011 - Summarise the case - Discuss the factors on which Successor of Jack Welch had been identified - Discuss Several Leadership programmes that GE practices to differentiate talent.
-

Leadership qualities of IMMELT Vs Welch. Was the appointment of William Castell, Immelts lack of vision at that point in time or was it a step that went wrong?

For INTERNAL Assignment of 20 Marks

A. Compare the Succession Planning Process of GE with that of any one of the

organisations listed below a. Britannia b. ITC c. Ranbaxy d. Tata Group

B. (Answer any ONE 1500 2000 words)

10 Marks

10 Marks

(a) Do you think Vitality Curve, 9-Block and Accomplishment Analysis were best

tools to identify and differentiate talent at GE? If YES, why and if NO, what alternate methods would you recommend. Please analyse each of the three methods individually.
(b) Write a critical Analysis of Promote from Within vis-a-vis External Hire.

Substantiate with examples other than GE.

(c) Write a critical analysis of Developing Generalist Vs Developing

Specialist. Substantiate with examples other than GE.