Unit 8 Scholarly ldrsh
Top Executive Knowledge Leadership: Managing Knowledge to Lead Change at General Electric
C. LAKSHMAN
Department of Management, Marketing & CIMS, Longwood University, USA
ABSTRACT Using a single case study approach, this article highlights the role of Jack Welch as a knowledge leader. It provides a description of Welch’s role as CEO, focusing exclusive attention on knowledge management as an essential component of his leadership. Combining qualitative and quantitative sources of data, this study demonstrates the role of top executive leaders in knowledge management and its importance to organizational performance. The results establish knowledge leadership as an integral aspect of the executive leadership of Welch. These results are discussed in light of the literature along with implications for future research and limitations of this study.
KEY WORDS: Leadership, knowledge management, case study, structured content analysis
Managers traditionally haven’t shared information. Information was power, so they
held it back. They saw their job as control. I see that as unproductive, a waste of
energy.
(Welch on GE managers and their attitudes vis-à-vis boundarylessness)
Information and hence knowledge has become a key corporate resource and the necessity to manage it has become crucial with information explosion as a result of technologies such as the internet. MIS research on knowledge manage- ment has documented the importance of knowledge management and the impact of senior leadership on knowledge management to effective performance of organizations (see Armstrong and Sambamurthy, 1999). Leadership research has identified attributes such as business knowledge, behaviours such as
Journal of Change Management
Vol. 5, No. 4, 429–446, December 2005
Correspondence Address: C. Lakshman, Department of Management, Marketing and CIMS, Longwood Univer-
sity, Farmville, VA 23909, USA. Email: lakshmanc@longwood.edu
1469-7017 Print=1479-1811 Online=05=040429 – 18 # 2005 Taylor & Francis DOI: 10.1080=14697010500401540
information search, acquisition and use, and contingencies such as knowledge and information requirements of decision situations (Day and Lord, 1988; Fleishman et al., 1991; Viitala, 2004; Kets de Vries, 2005). Although the leadership literature has identified these behaviors, very little has been done in terms of systematic examination of such knowledge leadership and its impact on organizational per- formance (Viitala, 2004). Using a single case study approach (Luthans and Davis, 1982; Yin, 1994), this study examines the knowledge leadership and the organizational-level knowledge management aspects of Welch’s leadership at GE.
This article blends all of these knowledge sources with a study of one of the most admired top executives of Fortune 500 corporations (viz. Jack Welch) to identify and explicate the role of executives in knowledge management and their knowledge based strategies in organizations. Although a countless number of articles, interviews, and published works (including a few cases) exist on his leadership style, none focus on his knowledge management activities. The study reveals that effective leaders play an active role in knowledge management through mechanisms such as destroying the NIH (not invented here) syndrome, instituting programmes of internal and external knowledge transfer, establishing communities of learning, knowledge-based human resource strategies, and IT- based knowledge management systems, among others. This article details some of these knowledge management approaches to organizational change and their impact on performance.
Method
Consistent with triangulation approaches (Yin, 1994; Lewis and Grimes, 1999), this study combines archival sources (both internal and external) of information on General Electric, annual speeches by Welch to the stockholders, interviews with Jack Welch and structured content analysis (Jauch et al., 1980) of an in- depth interview (Tichy and Ram Charan, 1989) with the aid of a structured ques- tionnaire, to establish the role of executive leaders in knowledge management and thus organization-wide knowledge leadership. A review of the knowledge man- agement literature was conducted to identify the different components and indi- cators of knowledge management in organizations. The degree of presence of these indicators were then assessed both qualitatively, through the interviews and other archival sources, and quantitatively through a structured content analysis performed by having subjects read the in-depth interview with Welch and then provide ratings on a structured questionnaire on the CEO’s knowledge management.
Knowledge Management
Knowledge management is typically described as the systematic process through which various sources of business data and information are identified, brought together and co-ordinated in such a way as to glean knowledge and share and
430 C. Lakshman
disseminate such knowledge to various parts of the organization as required (Alavi and Leidner 2001). Sharing of data, sharing of information, creating and dissemi- nating knowledge from such sharing of information and knowledge are all crucial components of knowledge management. Such knowledge management can take two broad routes, viz., technological and sociocognitive (Hansen et al., 1997).
Components of Knowledge Management
As identified by Hansen and colleagues (1997), knowledge management can be operationalized through the existence of social and technological networks. The use of a team based organizational design, with extensive use of cross-functional and cross-divisional teams can be seen as the manifestation of the extensive social component of the organization-wide knowledge network (Grant, 1996). In addition, the development of strategic alliances for the purpose of learning— developing forums of interaction with different groups of constituents, job rotation and personnel transfers, ongoing training and development efforts, sharing knowl- edge through written documents—are other indicators of the social component of knowledge management in organizations (see Inkpen and Dinur, 1998 for evi- dence of the presence of all these indicators in joint ventures for knowledge acqui- sition purposes).
Extensive use of e-mail networks, the use of information systems, and knowl- edge management systems are key components of the technological knowledge network that are instrumental in organizational knowledge management (Alavi and Leidner, 2001).
Consistent with the indicators identified above, a number of Welchian approaches to leading a corporation fit under this umbrella of knowledge manage- ment. The establishment and effective running of the management development institute (of GE) at Crotonville in a way that facilitates sharing of information, cre- ation and dissemination of knowledge is one crucial aspect of Welch’s approach to knowledge management. The fabled ‘Work-Out’ process, the action-oriented, organization wide conversations and open debates about problems and issues faced by employees throughout the organization, is another component of Welch’s knowledge management.
In addition to a discussion of these, specifically focusing on the knowledge man- agement aspect, the case study also describes some of the other knowledge man- agement aspects that constitute Welch’s approach to leadership such as placing the best and only the right people (with the right knowledge requirements) in positions where they are needed, internal and external knowledge transferring practices such as benchmarking, the elimination of the Not Invented Here (NIH) Syndrome, pro- viding training and development on issues such as quality (six-sigma) to a signifi- cant portion of the organization, using cross-divisional and cross-functional teams such as the CEC (chief executive council), the teams that lead the work-out process, and the mirror of the CEC within each of the business units at GE. Several knowledge experts suggest that mobilizing people through such social
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networks is a more important component of knowledge management and thus the crucial responsibility of executive leadership (Buckman & Meek, 2005; Kets de Vries, 2005; Saint-Onge, 2005). All of these knowledge management activities of this executive leader are situated and discussed in the context of his vision, values, and strategies for the organization, some of which also adhere to the knowledge-based view of organizational strategy (Grant, 1996).
In addition to the qualitative evaluation of the archival sources, interviews and speeches at shareholders meetings, one in-depth interview of Welch (Tichy and Ram Charan, 1989) was distributed to respondents who content analysed it in a structured fashion using a questionnaire designed for the purpose. Structured content analysis involves the use of a content analysis schedule (questionnaire), which consists of a structured questionnaire that respondents answer based on information in cases or interviews. The questionnaire contained eight items asses- sing the nature and degree of knowledge management processes established by the CEO (e.g. ‘This CEO manages knowledge by transferring best practices within the organization’). The questionnaire reflected the indicators identified by the knowledge management literature review. Such structured content analysis of leaders is common in the analysis of leaders in the political realm (see Winter and Stewart, 1977).
In the following sections, quantitative and qualitative assessments of Welch’s knowledge leadership are presented in a triangulated manner. The qualitative assessments were determined by a comparison of the indicators of knowledge management identified from the literature above to their manifestations in General Electric in a grounded theory fashion (Glaser and Strauss, 1967). The quantitative assessments were developed through the use of a structured content analysis technique (Jauch et al., 1980), involving the use of a structured question- naire to rate leaders based on transcripts of in-depth interviews with them. For the purpose of this study, a total of 37 interviews of CEOs conducted by the editorial team at Harvard Business Review, and subsequently published in HBR (see Table 1.), were distributed to faculty members, two graduate students and a number of undergraduate students at two universities in the US (as part of a larger study on knowledge leadership). Each faculty member read and rated one interview, the two graduate students read and rated all interviews, and each under- graduate student read and rated one interview. Each interview was rated by a number of undergraduate students, ranging from 9 to 15. These respondents read the interviews and then responded to the knowledge management question- naire, providing ratings of the CEO’s organization-wide knowledge leadership on five point Likert scales. The use of questionnaires in structured content analysis facilitates the estimation of scale reliability, in addition to inter-rater reliability, both of which were found to be above acceptable levels in the larger study. Scale reliability for the knowledge management scale was 0.86, and inter-rater reliability was 0.81, in the larger study. A comparison of the average knowledge management scores of all CEOs in the analysis to Welch’s scores on knowledge management are provided in Table 2.
432 C. Lakshman
Table 1. List of executives included in structured content analysis study
Name(s) of interviewee(s)
Position in organization
Company represented
Name(s) of interviewer(s)
Date of publication in
HBR
1 Jack Welch CEO GE Noel Tichy & Ram Charan
Sep – Oct 1989
2 Yoshihisa Tabuchi CEO Nomura Securities
Michael Schrage Jul – Aug 1989
3 George Fisher CEO Motorola Inc. Bernard Avishai & William Taylor
Nov – Dec 1989
4 Paul Cook Chairman & CEO
Raychem William Taylor Mar – Apr 1990
5 Alain Gomez CEO Thomson, S.A. Janice McCormick & Nan Stone
May – June 1990
6 Rod Canion CEO Compaq Alan Webber Jul – 1990 7 Robert Haas Chairman &
CEO Levi Strauss &
Co. Robert Howard Sep – Oct 1990
8 John Reed CEO Citicorp Noel Tichy & Ram Charan
Nov – Dec 1990
9 Raymond Smith CEO Bell Atlantic Rosabeth Moss Kanter
Jan – Feb 1991
10 Percy Barnevik CEO ABB William Taylor Mar – Apr 1991 11 Lee P. Brown Commissioner
of Police New York City
Police Department
Alan Webber May – June 1991
12 Carl Hahn CEO Volkswagen Bernard Avishai Jul – Aug 1991 13 Robert
F. McDermott CEO USAA Thomas Teal Sep – Oct 1991
14 Arnold Hiatt Chairman Stride Rite Nan Stone Mar – Apr 1992 15 Arden C. Sims CEO Globe
Metallurgical Inc.
Bruce Rayner May – Jun 1992
16 Phil Knight CEO Nike Geraldine E. Willigan
Jul – Aug 1992
17 Paul Allaire CEO Xerox Robert Howard Sep – Oct 1992 18 Tom Chapman CEO Greater Southeast
Community Hospital
Nancy A. Nichols Nov – Dec 1992
19 Nicolas Hayek CEO SMH William Taylor Mar – Apr 1993 20 Ernesto Martens CEO Vitro Nancy A. Nichols Sep – Oct 1993 21 Edward McCracken CEO Silicon Graphics Steven E. Prokesch Nov – Dec 1993 22 David Whitwam CEO Whirlpool Regina Fazio
Maruca Mar – Apr 1994
23 P. Roy Vagelos CEO Merck Nancy A. Nichols Nov – Dec 1994 24 Lawrence Bossidy CEO Allied Signal Noel Tichy & Ram
Charan Mar – Apr 1995
25 John Sawhill CEO Nature Conservancy
Alice Howard & Joan Magretta
Sep – Oct 1995
26 Sir Colin Marshall Chairman & CEO
British Airways Steven E. Prokesch Nov – Dec 1995
27 Robert Shapiro CEO Monsanto Joan Magretta Jan – Feb 1997
(Table continued)
Top Executive Knowledge Leadership 433
The average scores for all the leaders in the data set were obtained from 524 total responses, whereas the average scores for Welch were obtained from 15 responses. The overall average and the scores on four of the eight knowledge man- agement items are higher for Jack Welch in the comparison set. These scores indi- cate a general above average score on organization-wide knowledge leadership for Jack Welch (3.74 vs. 3.67). Discussion of specific items and scores are blended in with the qualitative assessments in the next sections. Table 3 provides a compari- son of the knowledge management indicators identified in the literature review to their manifestations in General Electric obtained from the grounded theory and case study approaches to the evaluation of archival and interview materials.
Table 1 Continued
Name(s) of interviewee(s)
Position in organization
Company represented
Name(s) of interviewer(s)
Date of publication in
HBR
28 John Browne CEO British Petroleum
Steven E. Prokesch Sep – Oct 1997
29 Krister Ahlstrom CEO Ahlstrom Joan Magretta Jan – Feb 1998 30 Michael Dell CEO Dell Computers Joan Magretta Mar – Apr 1998 31 Franco Bernabe CEO Eni Linda Hill & Suzy
Wetlaufer Jul – Aug 1998
32 Victor Fung CEO Li & Fung Joan Magretta Sep – Oct 1998 33 Roger Sant &
Dennis Bakke Chairman &
CEO respectively
AES Suzy Wetlaufer Jan – Feb 1999
34 Jacques Nasser CEO Ford Suzy Wetlaufer Mar – Apr 1999 35 George Conrades CEO Akamai
Technologies Nicholas G. Carr May – June 2000
36 Andy Law CEO St. Luke’s Communications
Diane L. Coutu Sep – Oct 2000
37 Michael Eisner CEO Disney Suzy Wetlaufer Jan – Feb 2000
Table 2. Structured content analysis scores of Welch’s knowledge management at GE
KM Component Average score
on item Welch’s Score
on item
KM1 Best practice transfer 3.62 3.4 KM2 Job rotation 3.56 3.73 KM3 Information technology 3.65 3.6 KM4 Modifying organization structure 3.77 4.07 KM5 Organizing meetings/conferences 3.58 3.27 KM6 Ongoing & continuous processes 3.82 4.2 KM7 Participate in information sharing 3.69 4.13 KM8 Implement knowledge sharing 3.65 3.53 Avg KM Score 3.67 3.74
434 C. Lakshman
Jack Welch’s Leadership Centred on Knowledge Management
General electric had been the most admired corporation for five years in a row, thanks to the legendary role played by its tough and determined former CEO Welch, who stepped down in September 2001. Welch had been named the most admired CEO for a few years, thanks to the performance of the company under his watch (GE Annual Report 2001). The famous GE management development institute at Crotonville, usually referred to as the Croton-on-Hudson, has recently been renamed as the John F. Welch Learning Center in honour of this CEO who made such effective use of the learning centre in transferring knowledge and sharing organizational values, and made it a key component of GE’s effectiveness over the last 20 years (GE Annual Report 2001). The 3098% growth in GE’s stock since 1 April 1981, when Welch took over as CEO of GE, an annual average growth rate of 18.9% (comparable figures for the S&P are 896% and 12.2% respectively), gives an indication of the nature of the accomplishment Welch’s GE has achieved (Serwer, 2001).
Welch’s Mission, Values and Strategy
Although Welch did not inherit a company that was either weak or in poor finan- cial condition, he wanted a revolution upon taking up the job of CEO. Jack Welch felt that the financial strength of GE on paper hid a number of weaknesses that could surface to trouble GE in the near future. He noted in several interviews that a number of GE businesses were not in very strong competitive positions at the end of 1980, although they were all making money from orders won in pre- vious years. He visualized two important changes that were coming on the scene that could aggravate the ‘not so strong’ competitive position of these businesses, viz. technology and globalization. He undertook a number of knowl- edge management initiatives to permeate these two themes for change throughout the organization. During the peak of his reign as GE’s chairman, Welch undertook and implemented massive divestitures, downsizing and acquisitions of a number of businesses, following his visionary principle of being number 1 or number 2,
Table 3. Knowledge management components and their manifestations at GE
KM Component Manifestation of KM Component at GE
1 Use of teams & taskforces Corporate Executive Council, Business level executive council, Work-out
2 Training and development Crotonville Management development centre, Six-Sigma initiative
3 External benchmarking Global best practices programme 4 Modifying organization structure Delayering 5 Information technology e-business initiative, POS terminals in retail stores 6 Internal best practice transfer Through CEC and work-out 7 Micro-level knowledge leadership Personal side of knowledge management
Top Executive Knowledge Leadership 435
globally, in all of the businesses that GE operates in, and thus competing from a position of strength. Those that did not meet the criterion of being number 1 or number 2 were either fixed so they obtained that position of strength, or closed because there was no reasonable way of obtaining that position, or sold to other operators because the business did not fit into the distinctive and core competen- cies of the corporation. Welch stated in the 1983 annual report, ‘You’re either the best at what you do or you don’t do it for very long’. Combined with these down- sizing initiatives and sale of businesses that were either under performing or lacked a fit with the core competencies, Welch engineered a number of acqui- sitions of businesses that served to strengthen existing businesses and moved them to a number 1 or number 2 competitive position. The acquisitions of Tungs- ram lighting in Hungary and the purchase of a lighting business in Britain were of this nature. The acquisition of Radio Corporation of America (RCA, once owned by GE and sold to investors), along with NBC, was a major acquisition that was made at a time when Jack Welch was taking a lot of heat from many corners and was even named Neutron Jack for the massive layoffs implemented by him.
Welch’s Value of Boundarylessness
Welch wanted GE to be an enterprise where: (1) internal divisions blur and every- one works as a team, (2) suppliers and customers are partners and (3) there is no segregation between foreign and domestic operations. Characterizing Welch’s description of GE as a boundary-less company as awkward, The Economist (1991) listed the above-mentioned objectives, along with the other values, all of which are consistent with a more recent concept viz. knowledge management.
Structuring for Information and Knowledge Transfer
Welch subjected the organization’s structure to restructuring, what he called delayering, to enhance communication and transfer of information between the businesses and the CEO’s office, without any intervening layers filtering the infor- mation and transferring the information at a much more rapid pace in either direc- tion, increasing the speed of business. Speed was one of the core business values of Jack Welch, along with simplicity and self-confidence. The structured content analysis revealed that Welch’s score (4.07) on modifying organizational structure to effectively manage knowledge is higher than the average score of all CEOs in the dataset (3.77).
Along with such internal structural changes, he also wanted an organization wide sharing of information and knowledge in the form of ongoing, no-holds-barred debates on issues and problems being faced. This he implemented through the instruments of the Chief Executive Council (CEC) and the fabled work-out process. He also had teams of executives from across divisions working on pro- blems at the learning centre (Crotonville), and a number of teams that were leading the work-out process at each of the individual businesses. In all, he was
436 C. Lakshman
getting the organization to exhibit his principled value of boundarylessness, which according to him was an open sharing of information of all kinds, without regard to any boundaries. All of these internal organizational initiatives served to share and disseminate knowledge in a way that renders the whole organization more effective than before. The results of all these changes over a period of 20 years speak volumes to the effectiveness of the change effort. Under Welch, General Electric moved from a market capitalization of $13 billion to just over $490 Billion. Under Welch, General Electric’s revenues grew from around $26.8 billion to nearly $130 billion. GE averaged a solid 12 per cent annual earnings growth throughout Welch’s time at the top and about 15 per cent over the last eight years (Walker, 2001).
The Corporate Executive Council (CEC)
The council comprised the 30 or so highest ranking executives (business chiefs) and met for two days every quarter at the Crotonville learning centre. The formal mandate of the CEC was to share information, swap ideas and transfer learning and knowledge from one business to others. The CEC was also con- ceived to be a high-level think tank that would solve key problems that arose in the different businesses that GE operated. These were highly informal meet- ings, with one implicit objective being the building of trust and increasing the familiarity of the business executives with each other. ‘These aren’t stuffy, formal strategic reviews. We share ideas and information candidly and openly, including programmes that have failed. The important thing is that at the end of these two days everyone in the CEC has seen and discussed the same information. The CEC creates a sense of trust, a sense of personal famili- arity and mutual obligation at the top of the company. We consider the CEC a piece of organizational technology that is very important for our future success’, said Welch in one interview (Tichy and Ram Charan, 1989). These council meetings are where Welch collected unfiltered information (in addition to the delayering attempts for a similar objective), tested and challenged his execu- tives, and made sure that the organization’s triumphs and failures were openly shared (Byrne, 1998). The typical CEC session began with the CEO’s overview of GE’s current status and prospects along with a sounding of the big themes such as globalization, cost reduction, productivity increases and webifying businesses. This was followed by brief oral reports from the business leaders, with each of them lasting less than 10 minutes. The main agenda item was problem solving and transferring of best practices such as a new pay plan or a drug-testing programme, or stock options, which by 1998 more than 27,000 employees had received at least once (Dammerman, 1998). The CEC was also an expression of the values of candour, and facing reality, that formed the core set of GE values under Welch. ‘Every business is free to propose its own plan or program and present it at the CEC, and we put it through a central screen at corporate, strictly to make sure it’s within the bounds of
Top Executive Knowledge Leadership 437
good sense. We don’t approve the details. But we want to know what the details are so we can see which programs are working and immediately alert the other businesses to the successful ones’. As suggested by Table 2, Welch’s score on establishing ongoing processes to manage knowledge such as the CEC obtained a higher than average score of 4.02, relative to the overall average of 3.82 for all CEOs in the dataset.
The CEC concept was not limited to just the top executive levels. Welch first wanted the concept to flow down one level to the business leaders and their top executives from across functional areas within their business. He then took it organization-wide with the work-out concept. At the level of each business, the business leaders created their own executive committee to meet on policy ques- tions. This executive committee consisted of members from across functional areas that met every quarter for two days to function much like the corporate executive council. This resulted in people talking to each other across functions, helped them communicate with each other about their prospects and programmes. It made people realize that their contributions count, that their ideas matter, and they could see that what they say and do is noticed and rewarded. In all of these councils, the guiding principles set forth by Welch were openness, candour, facing reality and no-holds-barred debate. Welch wanted unfiltered infor- mation to be shared and discussed, which necessitated that these values were in place. Although these were highly effective sessions in building trust, increasing familiarity, transferring knowledge and learning, and in problem solving, Welch was not satisfied with the scale of these activities. He wanted much deeper pen- etration into the bowels of the organization and have people at all levels participate in such sessions:
We want 300,000 people with different career objectives, different family aspira-
tions, different financial goals, to share directly in this company’s vision, the infor-
mation, the decision-making process and the rewards. We want to build a more
stimulating environment, a more creative environment, a freer work atmosphere,
with incentives tied directly to what people do. (Tichy and Ram Charan, 1989).
The work-out was designed to achieve this purpose.
Work-out
By mid 1992, more than 200,000 Geers—well over two thirds of the workforce— had experienced Work-out, an ongoing process whereby on any given day about 20,000 employees may be engaged in dialog with their managers about their work processes, productivity and other issues that may concern them and their work places. In Welch’s words, ‘I want to get to a point where people challenge their bosses everyday: “Why do you require me to do these wasteful things? Why don’t you let me do the things you shouldn’t be doing so you can move on and create?” That’s the job of a leader—to create, not to control’. Welch was actively
438 C. Lakshman
involved in the process of work-out and going to every business to sit in on a work-out session. This is reflected in his higher than average score on personal participation in sharing information and knowledge (4.13 vs. 3.69 for the rest) as shown in Table 2.
The purpose of his presence was not to question the ownership of the business, which Welch wanted the business leaders to have, but to ensure that the process was accepted and implemented well and was effective in bringing about change in the work processes for positive business results. Just as the vision of number one and number two in each business took repeated communication and pushing, Welch thought that the work-out idea also needed such effort. Moreover, it permitted him and other top executives to identify and transfer knowledge from best units in terms of how they had understood and implemented the work-out process, to other business units that were having trouble with it.
Work-out was designed to deliver the Crotonville (John F. Welch Learning Center) experience to the great mass of GE employees as compared to the 10,000 people per year that were part of the elite corporate population who went to Crotonville. Building trust was one of the basic goals of the work-out process, where GE employees could discover that they could speak out as candidly as members of the corporate executive council, without jeopardizing their careers. Only then would GE get the benefit of employees’ best ideas and would truly be sharing or managing knowledge. One of the other objectives is to eliminate unnecessary work, much of which remained and eluded the delayering and restruc- turing attempts by Welch, in the form of unnecessary reports, filling out countless forms and taking superfluous measurements. The broader quest was for improved productivity. Another objective of the work-out, in Welch’s words,
the other thing we want to achieve, the intellectual part, begins by putting the leaders
of each business in front of 100 or so of their people, eight to ten times a year, to let
them hear what their people think about the company, what they like, what they
don’t like about their work, about how they’re evaluated, about how they spend
their time. Work-out will expose the leaders to the vibrations of their business—
opinions, feelings, emotions, resentments, not abstract theories of organization
and management. (1989 GE annual report)
Work-out began in October of 1988 under the guidance of Jim Baughman and his Crotonville team. The early stage was a series of local gatherings patterned after New England town meetings. In groups of 30 – 100, the hourly and salaried employees of a particular business would spend three days at an off-site confer- ence centre discussing their common problems. Dress was casual. The setting and behaviour was unusual. To ensure that people could speak candidly without fearing retribution, bosses were locked out during discussion times. Welch made it clear to business leaders that he would treat any obstruction of work-out as ‘a career limiting move’. Facilitators, all outside consultants at first, ran the sessions. Meeting in small groups, the employees would define the
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problems and develop concrete proposals. On the final day, the bosses would return. According to work-out’s rules, they had to make instant, on-the-spot decisions about each proposal, right in front of everyone. This kind of a process is highly similar to what happened at the Learning Center, groups of thousands of middle managers working on problems and presenting proposals to senior execu- tives. Some 80% of the proposals in the initial stages of the introduction of work- out got immediate yes-no decisions. The rest that needed study had to get decisions within a month. As Welch had hoped, the process quickly exposed managers who did not walk the talk.
Even though people spent much of the early work-out sessions griping, man- agers recount countless instances of how the process worked. At one plant, a manager said,
We were getting screws from one supplier that were not so good. The bits would break
off the screw heads, and scratch the product, and our people’s hands—we had one guy
get 18 stitches. Tempers flared, but management never fixed the problem. They said,
‘OK, we’ll get you some screws from the good supplier’. But the bad screws would
always reappear. So a shop steward named Jimmy stood up at work-out and told
the story. This guy was a maverick, a naysayer. He wanted to test us to see
whether we really wanted change. He knew what he was talking about. And he
explained the solution, which had to do with how deep the bit could be inserted
into the screw head. . . . We need to go tell the supplier what the problems are. Well, I was nervous about it, but I decided to charter a plane to fly Jimmy and a
couple of other guys to the plant in Virginia where they made the bad screws. They
left that very night. Jimmy got that problem fixed and it sent a powerful signal to
everyone here. He became a leader instead of a maverick. (Tichy and Sherman, 1992)
External Benchmarking
To supplement the work-outs, Welch developed the global best practices pro- gramme. GE’s team scoured the world for companies that were better than GE at some specific aspect of business and then asked to pick their brains. In return, GE promised to share with them the knowledge it gained. Nine companies worldwide were picked including Ford, HP, American Express, Digital Equipment and Honda. The case studies developed by each of these teams became part of the curriculum at Crotonville (The Economist, 1991). This process of external bench- marking is the one that is the most obvious component of Welch’s leadership centred on knowledge management. The best practices programmes and the associated teams were intertwined with the work-out process so much to be almost inseparable. The six-sigma initiative with its massive benefits in cost savings, productivity increases and innovation were the result of such benchmark- ing. In addition however, because the six-sigma initiative required thousands of personnel to be trained in methods, statistics etc., it represented another means
440 C. Lakshman
of knowledge management through such efforts as management development and training.
The Six-Sigma Initiative
Welch came late to this rigorous, statistical approach to quality control for he was sceptical about the approach and criticized it for being heavy on slogans and light on results. Welch launched the effort in late 1995 with 200 projects and intensive training programmes, moved to 3,000 projects and more training in 1996, and undertook 6,000 projects and still more training in 1997. More than 100,000 people had been trained in the quality process methodology as of early 2000. Business press sources report that just in the three years preceding 2002, the trained teams of employees had saved the company some $8 billion compared to his objective and initial belief in the company’s ability to achieve about $5 billion in saving by the year 2000 (Byrne, 1998; Arndt, 2002). Very briefly, six- sigma means going from 35,000 errors per million operations or 35,000 defects per million products produced (three sigma)—which is the average for most com- panies—to just under four defects (3.4 per million), six sigma, in operations as wide ranging as the production of locomotives to the handling of mortgage appli- cations. The six-sigma approach involves reducing the defects and making the process as perfect as possible and then controlling the process to maintain that level of perfection. The financial returns from Six Sigma, although exceeding expectations, is only one part of the story, with billions more to be captured from increased volume and market share as customers increasingly ‘feel’ the benefits of GE Six Sigma in their own businesses. Welch reported in his 1999 speech to shareholders,
We are now beginning to see the first major products designed for Six Sigma pro-
duction, designed in effect by the customer, incorporating every feature he or she
considers critical to quality.
The first major Six Sigma-designed product to reach the market—the LightSpeed, a
multislice CT scanner—reached our customers in 1998. This lifesaving machine is
revolutionizing medical diagnostics. A chest scan that takes a conventional scanner
three minutes to perform takes 17 seconds with LightSpeed. A full body scan for a
trauma patient, for whom speed can mean life or death, now takes 32 seconds when a
conventional scanner could take ten minutes or longer. I brought the tape of the cer-
emony that marked its introduction.
We’ve shown that tape to every single senior manager in this Company because it
represents the future, when every product in this company will be designed for Six
Sigma and every customer will be as delighted as those doctors are.
Thus, in one swoop, Welch combined knowledge management with quality and innovation, while enhancing customer responsiveness.
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The Technology Dimension of Welch’s Leadership Centred on Knowledge
Management
As early as 1993, GE information services had instituted systems that electroni- cally graded GE services to its customers and provided a daily report card (Financial World, 1993). Much like his other initiatives, Welch did not believe in half-measures and went full force into the e-business initiative at GE. Welch mandated that GE turn itself into an e-business in January 1999, soon after he was introduced to the Internet by his wife (McGinn, 2000). To kick its e-business initiative into high gear, Welch devised a technique by which he asked his unit chiefs to figure out how to save their businesses by determining how to kill them, the Destroy Your Business (DYB) exercise. This was followed by the Build Your Business (BYB) exercise, under the gui- dance of the CIO Gary Reiner and the General Managers of the e-business initiative for each of the businesses. In his speech to shareholders in 2000, Welch said of his longstanding value of reality,
Seeing reality today means accepting the fact that e-Business is here. It’s not
coming. It’s not the thing of the future. It’s here. Reality today means ‘go on
offense’. One cannot be tentative about this. Excuses like channel conflict, or ‘mar-
keting and sales aren’t ready’, or ‘the customers aren’t prepared’ cannot be allowed
to divert or paralyze the offensive. Moving aggressively raises some thorny issues
with no clear and immediate solutions, but the challenge is to resolve these issues
on the fly in the context of the new Internet reality. Tentativeness in action can
mean being cut out of markets, perhaps not by traditional competitors but by com-
panies never heard of 24 months ago.
Welch and GE were so aggressive with this initiative that InternetWeek named GE as America’s top e-business (Levinson, 2000). GE’s web-enabled systems provide such benefits to internal customers by sharing knowledge with suppliers and to external customers by sharing their own design and product knowledge with them that these systems more than adequately reached the 1991 Welchian goal of boundarylessness where he conceived of knocking down walls that separ- ate units and create divisions between the organization and the suppliers and cus- tomers on the outside. Welch wanted all of these divisions to blur and create a seamless system in which customers and suppliers would be partners, thus sharing increased amounts of information and knowledge. The system created at GE plastics, for example, provides new tools that let product engineers get a sense of which materials they should use and how much they will cost. For example, a product engineer at a cell phone manufacturer plugs the dimensions of her product into GE Plastics system and selects four different materials she’s interested in using (Levinson, 2000). GE’s system then helps her determine how many moulds she has to build to make a part. When she’s done in a few hours, she has a fairly extensive matrix of what products would work and a ballpark
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figure on costs. It gives her an enormous head start on the process of designing the product (http://www.cio.com/archive/071500_destructive.html). In appliances, the installation of POS (point-of-sale) terminals at retailers like Home Depot enables customers to enter selections, preferences for delivery, etc., and eventually have the product delivered to their homes and installed. The retailer gets a cut on the sale and stays very happy. At medical systems, the e-business initiative helps in such areas as facilitating the downloading of software by doctors and tech- nicians to run their MRI systems on a trial basis and then buy if they so desire. Numerous applications such as these help GE in managing knowledge, facilitating transactions with customers and suppliers, and thereby enhancing profitability, much more so than the oft-quoted cost reduction functions of such systems (Rudnitsky, 2000).
The Personal Side of Knowledge Management
Welch also embodied a very personal side of knowledge management, akin to micro level concepts such as knowledge leadership (Viitala, 2004). Every week, he made unexpected visits to plants and offices, hurriedly scheduled luncheons with managers several layers below him, and wrote countless handwritten notes to GE people that suddenly churn off their fax machines, revealing his bold yet neat handwriting. All of it was meant to lead, guide and influence the behaviour of a complex organization. Welch knew by sight the names and responsibilities of at least the top 1,000 people at GE. He knew their names. He knew what they did. That’s an incredible reinforcement to the individual that he or she counts. Welch was also known for writing personal notes to communicate with employees and managers at all levels in the organization. His handwritten notes, faxed to different target employees as appreciatory gestures, acknowledging excellent work, expressing gratitude, following up on ongoing work and providing timely feedback had great impact on its targets. These aspects of the personal side of knowledge management conform to Viitala’s (2004) ‘Creating climate that supports learning’ factor of knowledge leadership.
His belief in creating a personal touch and his immense belief in the power of the individual’s efficiency/creativity was unbounded. ‘The idea flow from the human spirit is absolutely unlimited’, Welch declares, ‘All you have to do is tap into that well. I don’t like to use the word efficiency. It’s creativity. It’s a belief that every person counts’ (Byrne, 1998). It was, perhaps, because of this belief that Welch also believed in standing up for and supporting your people, especially when you have spent so much time and energy finding the best people, which he did consistently. He expressed it thus: ‘A manager’s job is to make his people feel ten feet tall- strong, powerful, self-confident, willing to take risks. Running down your own team is one of the worst things a leader can do’ (Collingwood and Coutu, 2002). He also believed in putting the best people in positions where they were required. More importantly, he thought that one needs to put better people in positions than the positions seem to deserve at the time: ‘If it’s a $5 million business, put a $300 million person to work on it
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while it’s still $5 million, and they’ll make it $300 million. You put a $5 million person on it, and it’ll stay $5 million’ (Collingwood and Coutu, 2002). Attitudes such as this are reflected in the higher than average score on job rotation as a knowledge management device as shown in Table 2.
Discussion and Conclusion
Evidence provided by the triangulated set of data sources (Glaser and Strauss, 1967; Yin, 1994; Lewis and Grimes, 1999) presented above suggests that knowl- edge management played a significant role in Welch’s leadership of GE over the approximately 20-year period of his reign as CEO. Case study evidence suggests that he brought about revolutionary change with his organization-wide knowledge leadership through the two broad routes suggested by researchers (Hansen et al., 1997), viz. technological and sociocognitive. Use of the e-business initiative and its associated programmes such as destroy your business (DYB) and build your business (BYB), in addition to web-based applications, such as POS terminals, in all their businesses provide evidence of the technological dimension of knowledge leadership. Such technological knowledge management even won awards for GE as mentioned earlier. Use of modified organizational structures (delayering), and structural elements such as the CEC and work-out processes, along with management development efforts and personal knowledge management provide evidence of the sociocog- nitive route to knowledge management. The establishment of many of these practices and personal participation in them by the CEO Welch provide demon- stration of knowledge leadership as a significant component of Welch’s leader- ship in the organization.
This study provides rich evidence from qualitative sources and combines it with some preliminary quantitative evidence for the concept of knowledge leadership at the macro organizational level. This is a research area that needs further in-depth investigation to unearth the role of top executive leaders in knowledge manage- ment and to strongly establish knowledge management as a key leader function in organizations. More rigorous investigation of the role of executive leaders in knowledge management and its subsequent impact on organizational performance is thus called for. This study thus serves to throw light on a relatively unaddressed area in leadership research.
This study has also provided the detailed workings of a top executive knowledge leader and the structures and processes established by such a leader in an organ- ization that has been the most admired corporation for a number of years and has been on top of the Fortune 500 businesses for quite some time. The rich descriptions of the details of various processes established for the purpose of knowledge management provide the background for practising managers to draw from and emulate such practices. Thus, this study has far-reaching impli- cations for managers of corporations vying to be among the most respected and admired in the world. Managers can learn from the processes of information
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sharing and knowledge management instituted by Welch at GE and apply it to their own organizations in different forms. It is not surprising that Welch has been the most admired CEO in surveys conducted by Fortune magazine more than once. The time has come for knowledge leadership both at micro levels (e.g. Viitala, 2004) and organization-wide knowledge leadership to be investigated in all earnest.
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