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General Electric Reg Jones and Jack Welch
Introduction
Wall Street Journal proclaimed Reg Jones as a management legend. Jones was well known for the creation of sectors that managed the strategic business units exclusively designed to support strategic planning activities, key characteristic on GEs management process. Jones entered to the CEO position with a challenging, decentralized organization (10 departments) changed at the time from 10 departments to 4 SBU, nevertheless, the new structure was still shaky. He successfully managed through the change and as a result, Jones was very pleased with the accomplishments and continued pushing the strategic planning approach. By 180’s, Jones vision was to positioned the company to a sustained earnings growth faster that the growth of the US economy at the time. This is when he started preparing the road for his successor, at the time one of his Sector Business head, Jack Welch. As described by the Wall Street Journal, GE “replaced a legend with a live wire”. Full of ideas, energy and extremely aggressive he took over the CEO position with the idea of making GE #1 Or # in any arena where they were competing, as well structure and diversified company. Every business needed to be evaluated under the following criteria Fix, sell or close. On the other hand Welch believed in a lean and agile organization, eliminating all those positions that were not adding direct value to the processes in placed. Jack Welch was also very radical in chipping away bureaucracy eliminating the sector organization previously established by Jones, serious reductions of personnel took place.
Contributions
REG JONES CONTRIBUTIONS JACK WELCH CONTRIBUTIONS
He made the SBU structure and planning processes inherited to work At first he created two additional sectors Technical Systems, Services and Materials
He hired strategic planners during the transition period Introduce a new planning approach oriented to key issues.
Exited from businesses that were not providing the expected returns. A total of 7 product lines. Introduce the plan being better than the best, targeting computer-aided design and manufacturing, medical systems and financial / information services.
The planning system implemented helped identify flat businesses Automated most of its core businesses
Jones was able to assign resources to those businesses that were growing or expected to grow based on GE Business Mix Exited those business were GE was not #1 or #
First time management performance measurements (planned vs delivered) Included restricted stocks and special bonuses for meeting their goals
Created incentive compensation based on performance Added additional benefits for the employees’ individual contributions.
Strategic Planning became ingrained to 80% of GE employees, it helped justify resources and gain confidence at the top level. Strategies were approved on a yearly basis, streamline the processes and ensure that staff acted as a consultant rather than a police force.
Created the Sector concept, six major categories Sectors were finally reduced to four, with some business reporting directly to CEO
Introduction of corporate planning challenges Created the Three-Circle concept, which required one of the following fix, sell or close
Sectors facilitated the Board review process Focused on establishing a lean and agile structure, serious destaffing took place.
Jones corporate planning staff identified GE greatest potential areas energy, communication / info / sensing, energy applications / productivity, materials / resources, transportation/propulsion and services
The Sector creation helped him identify his successor
Reg Jones had very good relationship with the government
Sales growth at rate of 185% from 170-80 and Operating profit by 08% Sales growth at a rate of 111% from 180-0 and Operating profit by 15%
Employees were reduced by 7.7% from 170-80 Employees were reduced by 18.6% from 180-0 (6% from 181-10)
Conclusion
At the time when Reg Jones took over the CEO position and even though the changes were drastic, it still required a lot of efforts from the Head office to evaluate and fully understand 4 in depth analysis and strategic plans. At first Jones hired the necessary individuals and trained others in strategic planning, however eventually he realized that a new layer was required. Jones divided the evaluation process within six (6) sectors, paying particular attention to business development opportunities. He exerted a tremendous amount of pressure in order to make sure that everyone was on board the companys philosophy at the time, and that precisely is one of the reason why employees, years after, were surveyed and it surfaced that 80% of the employees had engrained the strategic thinking and planning approach. Having said that, it facilitated the path to Jack Welch to eliminate layers in the organization, since the mindset was already established. Nevertheless, Welchs approach was more aggressive and specific to staff and bureaucracy reduction. Welch also believed that line managers, who had the capacity to execute, are the ones who have to develop their own strategies and that they should focus on key issues rather than theoretical strategy, which I happen to fully agree. However, we have to bear in mind that the changes proposed by Welch would not have been successful if the foundation was there, foundation created by Reg Jones vision. Under Jack Welch management financial forecast were also amended, giving more flexibility to the line managers to change it when the market conditions changed or competitive situation deviated from the original one. This proposed change is somehow difficult to accept since the numbers can be easily manipulated, even though what Welch wanted to create was a more responsive management style. It also gives room to the manipulation of the final results to the convenience of the line manager.
Today
In summary, Reg Jones set the foundation to the empire the Jack Welch as GEs CEO built. Jones wisely recognized the opportunity of strategic plans, but more so the need to measure and compensate based on performance (results vs plan). Jones recognized the necessity to expand on the International arena as well as the importance of the Service industry, which as of 000 it represented 75% of GEs revenues in comparison to GE products.
In the late 188 GE employees were submitted to what is called work out sessions, which sole intentions was to get rid of unnecessary bureaucracy while providing a forum where employees and their supervisors could work out new ways in dealing with each other. Also, GE started looking into developing effective processes rather than controlling individual activities, increasing customer satisfaction, treating suppliers as partners and constantly striving for high quality levels. Welch did not try to impose a corporate global strategy, he let each business take responsibility for implementing the appropriate plans, but always monitoring their performance and making sure they comply with GE philosophy. Welchs commitment for employee development is shown through the 60-degree feedback session, which helps identify training needs, coaching opportunities, and career planning (in or out the company). But his latest contribution to the quality of the company is what he called the A players with Four Es, which established the you have to rank your employees in five categories, which are top 10% as 1, strong 15% as , highly valued 50% as , borderline 15% as 4 and least effective 10% as 5. Meaning that anyone rank 5 had to leave the company. Jack Welch called this initiative a contribution to the quality of the company, however in my opinion, this philosophy is the beginning of a major future problem, creating high levels of uncertainty among employees, which leads to dissatisfaction, which leads to lack of commitment or loyalty and ends up in high turnover levels, not without mentioning strikes and problems with unions, as we are currently witnessing.
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