General Electric (“GE”), similar to many major corporations in the 1980s and 1990s, underwent a restructuring phase in line with the McKinsey Restructuring Pentagon. Through this restructuring, General Electric implemented….
Control mechanisms at general electric (ge)
Control mechanisms at General Electric (ge)
The General Electric Company, or GE, is a multinational American technology and services conglomerate that ranks second among the companies all over the world in terms of market capitalization. Founded in 1878 by Thomas Edison, GE currently has around 319,000 employees headed by its Chairman & CEO, Jeff Immelt. A publicly traded company, GE participates in a wide variety of industries through the numerous primary business units that compose it. (The GE website) In the light of GE’s dynamism, all types of control mechanisms are definitely used in the course of the company’s operations and in the conduct of its affairs.
Types of Control Mechanisms Used in GE & Their Effectiveness
Bureaucratic control is the use of rules, regulations, and authority to guide the performance of jobs in an organization. It is characterized by written guidelines and controls. (Bateman Snell; Management; 2004) True enough, there are manuals for each of the business units that make up the gigantic conglomerate that GE is. The company’s bureaucratic control mechanisms come in the form of written laws, job descriptions, memos, performance standards, disciplinary clauses, the organizational chart, and a lot more. Through these mechanisms everybody knows his place in the company, his authority, his limitation, his immediate boss and his subordinates. Without these, order and system would barely be maintained with all the executives and employees of the different segments operating in different locations and also in different time zones. This, then, attests to their effectiveness. As former GE Chairman and CEO Jack Welch wrote, a big bureaucracy like GE needed something as systematized as Work-Out – a session by tens of thousands of GE people to get each one of them to speak out his mind – to break the ice and get people to open up. (Jack Welch; Winning; 2005) When you run a company of over 300 thousand, you need methods and approaches for every objective to be accomplished with such painstaking thoroughness. Indeed, it must be largely thanks to the bureaucratic control mechanisms in place all over GE that it has emerged as an institution that people have a high regard for.
On the other hand, financial control is the use of various monetary measures to regulate performance. (Bateman Snell; Management; 2004) The mechanisms arranged in GE include the preparation, deliberation and approval of annual budgets that will set the minimum sales targets to work for and the expenses allowed for each year. Each business unit works on its own budget based on its own resources, market prospects and products or services. Budgets, then, are financial control tools for both evaluating each unit’s sales performance quarterly or semi-annually and controlling the costs and expenses to be incurred. It is an indispensable part of the financial procedures in place. Thus, business units and departments every year present and defend their plans and projects for the top management to approve. Jack Welch has written, “To make their case, the managers in the field prepare the usual stacks of slides. Since retiring from GE, I’ve seen such presentations with as many as 150 pages! Every competitive angle is covered, and usually overly so.” (Jack Welch; Winning; 2005)
The company’s periodic consolidated financial statements and those of the individual business units are analyzed and evaluated. These processes will involve the computation of the relevant ratios and the calculation of activity-based costs. All these financial reports make up effective and solid control mechanisms for reviewing past performance to know how the company is faring income-wise and stability-wise, and how the executives and employees are doing performance-wise.
Meanwhile, market control is the use of indicators of market values as standards for regulating performance. (Bateman Snell; Management; 2004) GE’s coveted post as the second largest company in the world in terms of market capitalization speaks for itself. Over a hundred years old, GE is one company that has consistently delivered stellar financial and operational results. It has established itself as an enduring leader in the business world, a century-old icon of history and culture. Jack Welch has written, “During the promotional tour for my autobiography in late 2001 and through much of 2002, I was overwhelmed by the emotional attachment people seemed to have to GE. From coast to coast, and in many countries around the world, people told me touching stories about their experiences working for the company, or what happened when their sister, dad, aunt, or grandfather did.” (Jack Welch; Winning; 2005) On January 25, 2008, the GE shares closed at $34.00 at the NYSE. With a total market capitalization amounting to $341.63 billion, it is easy to see that GE is one of the favorite stocks of many investors at the bourse – big and small alike. (Yahoo!Finance webpage)
Lastly, clan control is a reliance on corporate culture and the norms it develops as an informal means for regulating the work process. Clan control mechanisms are in place when employees control themselves and know what to do at all times, without total dependence on implicit guidelines and standards or spoken instructions. (Bateman Snell; Management; 2004) In this mechanism, the culture imbibed by the employees of the company has become an integral part of their system. In GE, Jack Welch did his own share of trying to establish a culture of integrity and goodness for people in the organization. In his book, he wrote, “It is in confronting a societal problem that results to a winning company and a good culture really coming together to make a difference. There are more than fifty thousand active volunteers among GE employees, involved in four thousand projects a year, from mentoring in schools around the world to participating in countless other programs for the disadvantaged. Not only were these projects great for the people who were helped, they were equally beneficial for the people doing the helping. Their volunteering in the streets gave their work at the office more meaning and vitality.” Clan control mechanisms, when used properly by the right leader, can be a potent tool. (Jack Welch; Winning; 2005)
The Positive and Negative Reactions to the Use of the Controls
Ensures order, system and discipline.
Gives authority and responsibility to deserving employees.
Sometimes can be used by bad bosses for their selfish whims.
Negative performance appraisals issued by a lousy boss can destroy a helpless employee’s chances for promotions in the future.
Shows accomplishments of the department in terms of deals and sales closed.
Provides a guide during mid-year as to the company’s operating results.
Limits the resources of the department to what is allowed in the approved budget; this can result to demotivation.
Provides a gauge for the company’s image and the public’s confidence in it.
Stock prices cannot always be objective valuations of the company’s shares. They sometimes can be influenced by other factors like economic recession or increase in T-bill rates, which bring all stock prices down.
If the company’s mission and goals are sound and noble, then the employees will thrive in a healthy, honest and happy environment. Through time, a strong culture of goodness and integrity will be absorbed by everybody.
This control pertains to the company’s norms and manner of doing things that are not really given out as written instructions. Thus, this control might just be ignored and not taken seriously by the employees.
Impact of the Controls on the Four Management Functions of GE
Operations management will need to exercise bureaucratic control to make sure that all the activities that make up the operations of the companies are carried out in an orderly and organized manner. This results to efficiency in the operations and later yields profits. The financial control mechanisms, meanwhile, will deliver timely reports on the digits pertaining to the operations, like the activity-based costing of specific transactions. Such reports and analysis of their contents can help detect irregularity in any aspect of the operations, and can assist in projecting some costs applicable to a future date – costs that somehow will have to be computed for use in the current discussions and plans. The market control, too, would be valuable to the operations management people. Knowing how the company stock is doing in the bourse will motivate them to ensure that the operations would go smoothly day after day to generate impressive financial statement figures and trigger an upswing in the company’s traded shares.
HUMAN RESOURCES (HR) MANAGEMENT
This aspect of the company management can use the bureaucratic control for some HR functions like the facilitation of the performance appraisal which the managers will have to do, based on both working attitude and the delivery of the duties detailed in the concerned employee’s job description. The HR people will also need financial control for dealing with the salary and benefit packages of the executives and employees. The clan control ought to be the domain of HR people. They will need to be attuned to what is going on in the corporate circles, both formal and informal. One way to always be in the know is to be in harmony with the group.
Marketing people will still have to adhere to the existing bureaucratic lines of communication prevailing in the company in the course of submitting their marketing reports and proposals. Likewise, they will have to know how the company is doing financially and how far they are, as marketers of the company’s products and services, from bagging their targets. The clan control, too, will work on them the culture imprinted by the company on its employees. Thus, when doing their marketing out in the field, they definitely would be representatives of their company both explicitly – through words and deeds – and implicitly – through the culture inherited. Lastly, they will need the market control mechanism to know how the company shares are doing in the stock market. In the course of the marketing, they will have to answer questions about the company – its stability, its reliability as a supplier, and its attractiveness as a company stock to invest in, among others.
The financial management people will recourse to the bureaucratic control in the conduct of their money-related transactions: who signs the company checks, who approves the budgets, and who will receive the cash advances for a team or a department. The market control, which deals with the market value of the company stocks traded in the bourse, will also have to be exercised. After all, the financial disclosures made by the company to the stock exchange, as required as law, are all based on reports generated by the financial management people of the company.
The General Electric (GE) Company website (www.ge.com)
Snell, B.; Management 4th Edition; The McGraw-Hill Companies; 2004.
Welch, J. Winning. New York: HarperCollins, 2005.
Yahoo!Finance webpage (http://finance.yahoo.com)