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INTRODUCTORY CASE
GE’S TALENT MACHINE
SUMMARY
GE This case continues the story of GE’s management development process covered in
the GE’s Two Decade Transformation case. It expands on the history of management
development at GE, the impact of Jack Welch in developing top leaders and how the GE
process led to the appointment of Jeff Immelt as Welch’s successor in 2001. The case
ends with Immelt just finishing his first year as CEO and describes the challenges he is
facing as he goes forward. The curious trainee will look at what has happened at GE
since 2003, under Immelt’s leadership, and how he has addressed the company’s
challenges.
Be sure to look at the exhibits in this case; they are arguably even more important to help
you understand this case than the written text itself.
GE had always promoted its top leaders from within the company. The company’s
commitment was to create a ―meritocracy‖ where people were promoted based on
measured performance. Jeff Immelt was named CEO in 2001, at the age of 44. Immelt
was a product of the GE ―talent machine‖ and as he took over his new responsibilities
he wondered if he could keep GE developing executives who could continue driving the
company’s superior performance.
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Ralph Cordiner was president of GE from 1950-1958 and CEO from 1958-1963. Under
his leadership, GE:
1. Decentralized its management structure, transferring authority down to nearly
100 department-level businesses.
2. Spent $40 million annually on management education, almost 10% of its
earnings.
3. Initiated a new management evaluation process, known as ―Session C‖ which
resulted in career development plans and rating subordinates on a six-point scale
from ―high potential‖ to ―unsatisfactory.‖
4. Introduced a system of objective performance evaluation tied to 28 position
levels (PLs), showing entry, median and maximum level salaries for each level.
Reg Jones was CEO from 1972-1981. He introduced a more formal and structured
approach to strategic planning, creating 43 strategic business units and adding another
organizational layer—the sector—to put groups together based upon common
characteristics.
Jeff Immelt joined GE in 1982. He was a 25-year old Harvard MBA who impressed the
GE Harvard MBA recruiting executive so much that Immelt didn’t even need to go
through the normal process of going through the corporate referral center. The
recruiting executive recommended Immelt to senior management and suggested that Jack
Welch get involved to make sure Immelt didn’t take a job somewhere else. Within 30
days of his hiring, Immelt was part of a team presenting to Welch.
Immelt started out as a regional sales manager for GE Plastics with 15 people reporting
directly to him. Over the next seven years, Immelt held positions as product manager,
sales manager and global marketing manager. He was one of 150 other young ―high
potentials‖ being tracked for positions at the highest levels of the company.
In 1989, Immelt was moved to the Appliances service business. By this time, he was a
company officer and vice president and was placed in the Appliances business to figure
out what to do about over one million defective refrigerators that had been sold by GE.
Immelt knew this was an excellent opportunity and that he would either ―sink or swim‖.
Over one million refrigerator compressors were replaced with new units that came from
competitors. The recall operation went well and Immelt was asked to run the entire
marketing and product marketing operations, reporting directly to the CEO of
Appliances.
Immelt got frank feedback during his Session C evaluations and was counseled that he
needed to listen better, to empower his subordinates more and to channel his energy into
bringing his people along with him when he wanted action. In 1992, Jack Welch moved
Immelt back to Plastics.
After a year back at Plastics, Immelt was named head of Plastics Americas, reporting
directly to the CEO of Plastics. Immelt faced challenges when his operation missed its
numbers by $30 million, due to cost overruns, and had tried to renegotiate prices with its
big customer, General Motors. GM was ready to stop doing business with GE when
Welch and GM’s CEO worked together to solve the problem. Welch checked with
Immelt regularly to see how Immelt was handling the situation.
Welch was not happy with Immelt but he knew that the decisions made regarding the
relationship with GM would be Immelt’s and that he would not be punished for making
a mistake. He knew however, that ―you can fail‖ but ―we don’t allow you to make the
same mistake twice.‖
In 1997, Immelt was appointed to run GE Medical Systems. Prior to Immelt’s arrival,
GE Medical had been focusing on cost-cutting. Instead, Immelt emphasized growth and
started to expand into other businesses and make GE Medical a more global company.
He started acquiring companies, investing in new technologies and restructuring global
operations. Immelt’s style was to engage and energize those around him.
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Immelt began to mentor and coach other high potential managers and as a result of his
leadership and the success of his team, in four years, GE Medical’s sales doubled and its
profit more than doubled. Because of his excellent work leading GE Medical, by 2001,
Jeff Immelt had become one of the front-runners to succeed Jack Welch as CEO of GE.
Welch’s list of CEO succession candidates included then-current business heads, some
senior corporate officers and about a dozen young ―hot shots‖, like Immelt. Over a
period of years, members of GE’s board would visit various GE businesses to get a
direct impression of potential CEO candidates. By 2000, it was widely speculated that
the three top contenders were Jeff Immelt, Jim McNerney and Bob Nardelli. In October
2000, the board discussed the three finalists and in November, Immelt was unanimously
voted CEO designate.
Jeff Immelt’s first day as CEO was September 10, 2001. He called that the ―one good
day‖ of his first year on the job. The next day was 9/11 and from then on, GE’s
businesses, like those of other companies, faced hard times and a drop in its stock price.
Immelt was committed to GE’s continued growth and he spent an estimated 40% of his
time on human resource issues. He said, ―Every initiative I’m thinking about gets
translated immediately into recruiting, Crotonville and Session C.‖
In 2003, Immelt was reflecting on his first year as CEO. Times had not been good, GE’s
stock was down and employees were uneasy about the economic downturn.
Management and employee turnover was low but Immelt wanted to make sure that when
the economy picked up, employees would be motivated and engaged. He wondered if it
was time to adjust or overhaul GE’s talent machine.
While the rankings-based vitality curve had been controversial to many outsiders, long-
term GE employees viewed it as part of the company’s meritocracy-based culture.
Immelt felt that other companies had experienced difficulty with the process because it
requires feedback, coaching, training and clear performance goals. All the elements of
the evaluation system must work together.
However, in early 2003, Immelt noticed that BankAmerica had successfully recruited
over 90 GE employees. These employees had been targeted, not from the top 20%, but
from the highly valued 70%. Immelt felt this group was the backbone of GE and were
not to be considered just average. Should the system be modified to differentiate within
this group? Should recognition and rewards be less sharply focused on the top 20%?
Or, should the entire concept of performance ranking at GE be questioned?
Recruitment
GE was driving toward more service-intense global businesses. Immelt wondered about
the talent pool he would need to run these businesses. One proposal was to target
MBAs with marketing management career interests. Immelt also wondered if GE was
not over-reliant on its US-based recruitment programs. Since 40% of GE’s revenues
were generated offshore, should there be more non-Americans in executive positions?
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Executive Bands
One problem with the collapse of the 29 PLs into seven broad executive bands was that some employees,
especially in international locations, felt that their promotion opportunities were limited and the frequency
of clearly defined job promotions decreased. In more hierarchical business cultures, such as India,
perceived status and level were highly valued. While it might not make much real difference between a
PL15 and PL16, for many it represented an important psychological reward.
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To prepare for any group discussion of this case, trainees should ask themselves some of these questions:
1. How does GE identify and develop its future leaders? How did this system work in Jeff Immelt’s
case?
2. The GE system is widely regarded as based upon meritocracy; that is, promotion and leadership
development based upon objective evaluations of merit and performance. How does this compare
or contrast with Samsung’s system of promoting leaders?
3. Should Samsung companies expand their recruitment of global talent? How?
4. How do Samsung executive levels compare or contrast with GE’s executive bands? Should
Samsung modify its managerial levels to suit employees’ cultural differences, such as in India? Does
Samsung do this already?
CONTENT ANALYSIS
3. As Jeff Immelt, is it time to tune up or even overhaul GE’s management development policies and
practices? Specifically, how would you deal with proposals to change the vitality curve, MBA and
international recruitment, and the executive bands?
4. What lessons do you take from this case? Reflecting on your analysis – positive or negative – of
GE’s development of its management pipeline, what do you see as the key success factors in making
talent management what Immelt claims is an important source of competitive advantage for the
company?
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GLOSSARY
Bail out (verb): to relieve or assist in an emergency situation, especially a financial crisis
Bands (noun): a group of people who share the same interests or beliefs, or who have joined together for a
special purpose
Blunt (adj): saying what you think without trying to be polite or considering other people's feelings
Consolation prize (noun): something that is arranged for or is given to a person to make them feel happier
when they have failed to achieve something better.
Daunting (adj): making you feel slightly frightened or worried about your ability to achieve something
Delegation (noun): the act of giving a particular job, duty, right, etc. to someone else
Elite (adj): people or organizations are considered to be the best of their kind.
Go-go (adj): period of time is a time when people make a lot of money and businesses are growing
Grab (verb): to take the opportunity to get, use or enjoy something quickly
Headhunted (verb): to persuade someone to leave their job by offering them another job with more pay
and a higher position
Hoard (verb): to collect large amounts of something and keep it because you don’t want others to have it
Hot shots (noun): a person of impressive skill and daring, especially one who is highly successful and self-
assured
Kept an eye on (idiom): to watch someone or something; to monitor someone or something closely.
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Knack (noun): a particularly clever or skilful way of doing something successfully, especially something
which most people find difficult.
Let the sun shine in (idiom): to make a change for the better, an improvement
Marshal (verb): gather something together and arrange it for a particular purpose
Matrix (noun): an arrangement of information in rows and columns which is used in evaluating information
Meritocracy (noun): a social system or society in which people have power because of their abilities, not
because of their money or social position
Middle of the road (adj): average, not to one extreme or the other
NASDAQ (noun): National Association of Securities Dealers Automated Quotations- one of the American
stock exchanges
Nickname (noun): an informal name for someone or something, usually based on your proper name or
your character
Plot (verb): to make marks to show the position, movement or development of something, usually in the
form of lines or curves between a series of points on a map or piece of paper
Polled (verb): to ask people for their opinion as part of a general study of what people think about a subject
Pummeled (verb): to defeat easily or to hit someone or something repeatedly; used figuratively here to
indicate that these GE businesses ―took a beating‖- they were damaged
Redux (adj): brought back (*this particular adj is placed after the word it modifies)
Rising star (noun): someone who is starting to do very well and who people think will soon be very
successful
Rite of passage (noun): an event in a person's life indicative of a change in position or social status
Sink-or-swim (idiom): succeed (swim) or fail (sink) completely by your own efforts
Sluggish (adj): moving or operating more slowly than usual and with less energy or power
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Sought-after (adj): wanted by many people and usually of high quality or rare
Talent pool (noun): a group of people within a team that can be employed to perform similar tasks.
Tenure (noun): the period of time during which someone holds an important job.
Titan (noun): a person or group who is very important, powerful, strong, big, clever, etc.
Traits (noun): a particular characteristic that can produce a particular type of behavior
Traumatized (adj): to shock and upset severely and for a long time
Trial by fire (idiom): a test of one's abilities, especially the ability to perform well under pressure
Under water (idiom): the market value of the stock is less than the discounted price offered to employees
through stock options