MGMT ESSAY

General Electric, Southwest and Barry Wehmiller

During this quarter we have examined companies with radically different ways of managing people and managing their business. On the one hand the material I handed out on General Electric (copies of two items are on Blackboard) show a company run by the book. While General Electric is currently stumbling, they use a management style that has been popular for over a half a century and it has worked. With respect to General Electric pay particular attention to the “rank and yank” personnel approach used by Jack Welch and the two segments in my write up about the post-General Electric careers of Bob Nardelli and James McNerney.

Here is some additional material from Forbes Magazine on James McNerney and his retirement from Boeing.

“Yesterday’s announcement that Jim McNerney was retiring as Boeing CEO wasn’t a major surprise – everyone knew he’d leave within a year or so – but it was rather abrupt and the timing was unexpected. He probably jumped, but there are certainly reasons to believe that he may have been nudged along in his move.

“Under McNerney, Boeing’s stock price did very well. Cash flow was generally strong, and investors like short-term metrics like these. But he also leaves behind a toxic legacy that future leadership will need to deal with…”

(Under McNerney Boeing created large deferred expense balances. This is a legal accounting approach. It increases current earnings and defers taxes into the future but will have a negative tax and cash flow cost years hence)

“This terrible drag on profitability would have been partly avoided if Boeing management had taken a different approach to labor. Rather than the McNerney formula of eliminating pensions, cutting wages, and shifting production to new facilities, the company could have proposed a partnership with their workers. After all, productivity improvements often come from the shop floor. That means getting the people who build aircraft to figure out ways to reduce scrap, improve work flow, and eliminate defects.

“To encourage the process improvements that happen in a factory, a workforce should be incentivized with profit sharing or other compensation. At a minimum, machinists and engineers need to feel that their work is valued. Taking away pensions at a time of record sales is a terrible way to motivate workers to go the extra mile.

“McNerney’s focus on the company’s stock price and cash flow at the expense of the long term wasn’t merely due to short-sightedness and greed. It was also likely due to a misunderstanding of how the aviation industry works. If a CEO comes from a different industry and doesn’t try to learn what makes aviation distinct, he’s likely to apply a one-size-fits-all template. For example, he might conclude that, as in many other industries, competition from China and other low cost manufacturers is creating tremendous cost pressures. McNerney’s previous CEO post was at 3M, a company that does face pressures from lower-cost producers. During tough labor negotiations, Boeing executives often cited competition from China as a rationale for their hard line on terms.

“Yet aviation is not like other industries. There are certainly cost pressures, but this is a capital-intensive business with very high barriers to entry. Labor costs just don’t matter as much compared with other industries, and most producers and major subcontractors are domiciled in high cost countries.”

Southwest Airlines and Barry Wehmiller use a much more people centric approach to managing people.

In your opinion which of these three has the best approach for satisfying the needs of shareholders, employees, customers and other stakeholders. You should be able to support your opinion with specific examples from the material.

You are to write an essay giving your opinion as to which is the best of the three companies’ management styles. This should be well reasoned explaining your opinion of the pros and cons of each of the management styles. Do not use any materials outside of the Blackboard material (article and my comments on it) that I posted there and the material in the two Harvard case studies. No references need be cited since we all have access to these same materials.

Assume your report will be the basis for a board room discussion and prepare it accordingly. I suspect the report can be done in about 1,500 words or less. Do not waste time writing a recap of the respective GE narrative and of the case studies. We all have copies of this material.