GE

9-304-049REV:MAY3,2005________________________________________________________________________________________________________________ProfessorChristopherA.BartlettandResearchAssociateAndrewN.McLeanpreparedthiscase.ThehelpfulinputofJimEttamarna,MBAClassof2003,isgratefullyacknowledged.HBScasesaredevelopedsolelyasthebasisforclassdiscussion.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2003PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.CHRISTOPHERA.BARTLETTANDREWN.McLEANGE'sTalentMachine:TheMakingofaCEOFormorethanacentury,GeneralElectric(GE)hadbeenrecognizedasoneoftheworld’sleadingdiversifiedbusinesses,andregularlyfounditselfatornearthetopofAmerica’sandtheworld’smostadmiredcorporations.Fromitsfoundingin1878byThomasEdison,thecompanygrewtobeatitanintheworldofelectricalgeneration,distribution,anduse—andawidelyfollowedmodelofmodernmanagementpractice.GEwasapioneerofcentralizedcorporatecontrolinthe1930s,anexemplarofthedecentralizedmultidivisionalorganizationforminthe1950s,aleaderinstrategicplanninginthe1970s,andamodeloftheleanandagileglobalcompetitorofthe1990s.Throughoutitshistory,GEalwayspromoteditstopleadersfromitsownranks.Thecompany’smuchadmiredexecutivedevelopmentpracticeswererootedintheculturalvaluesputinplacebyCharlesCoffin,theCEOwhosucceededEdisonin1892.Overthenext20years,Coffin’scommitmenttocreatingameritocracybasedonmeasuredperformancebecamethefoundationforaculturethatwastomakeGE“aCEOfactory”asoneobservercalledit.1Throughoutthe20thcentury,thismachineproducedapoolofskilledmanagersthatnotonlymetthecompany’sownneeds,butalsobecameamajorsourceofCEOtalentforcorporateAmerica.SopowerfullyenduringwasCoffin’saccomplishmentthata2003FortuneMagazinearticlenamedhim“thegreatestCEOofalltime.”2OnSeptember7,2001,when44-year-oldJeffImmeltwasnamedthecompany’stwelfthleaderafterEdison,hefacedadauntingchallenge.Notonlywouldhebeleadinga$130billionglobalcompanymanagingbusinessesfromlightingtoaircraftenginestofinancialservices,buthewoulddosofollowingJackWelch,alegendaryCEOwho,overtwodecades,hadgeneratedanaverageannualtotalreturntoshareholdersofmorethan23%.(SeeExhibit1forselectedfinancialdata.)AsImmelttookononeofthebiggestmanagementjobsintheworld,somewonderedwhetherGE’svauntedmanagementdevelopmentprocesshadpreparedhimtoleadsuchacomplexorganization.ButforthenewCEO,thebiggerquestionwas,howcouldheensurethatGE’stalentmachinekeptdevelopingexecutiveswhocouldcontinuedrivingthecompany’ssuperiorperformance?BuildingtheTalentMachine:HistoryofGE’sHRPracticesBuildingonthefoundationlaidbyCoffin,GE’shumanresource(HR)policiesandpracticesunderwentsignificantdevelopmentandchangeinthelasthalfofthe20thcentury.FoursuccessiveCEOseachmadethedevelopmentofmanagementtalentahighpriority,andindoingso,madeGE’shumanresourcemanagementprocessesamongthemostsophisticatedintheworld.304-049GE'sTalentMachine:TheMakingofaCEO2StrengtheningtheFoundations:Cordiner’sContributionsTransformedbyWorldWarIIproductionneeds,GE’ssalesballoonedfrom$342millionin1939to$3.46billion15yearslater.Aparallelburstofdiversification,drivenbydemandsforwartimeproducts,expandedGE’straditionalbusinessesintoareassuchasnucleartechnology,silicones,jetengines,andradar.ThisdiversificationputstrainsonGE’shighlycentralizedmanagementstructure,leadingCEORalphCordinertoimplementabolddecentralizationplanthataimedtocarveoutbusinessesthat,asCordinerputit,“amancouldfithisarmsaround.”ImplementingCordiner’scommitmentto“athoroughdecentralizationoftheresponsibilityandauthorityformakingbusinessdecisions,”budgetingpowers,forecastingresponsibilities,andprofitaccountabilitywerealltransferredtothemanagersofnearly100department-levelbusinesses.Thesedepartmentsweretoactasmini-companies,eachwithitsownmarketing,finance,engineering,manufacturing,andemployeerelationsfunction.3Becausedecentralizationentailedunprecedentedlevelsofdelegation,itmadehugedemandsonmanagersdeepintheorganization.Facedwithamassivemanagementdevelopmenttask,Cordinerbuiltthefirstcorporateuniversity,knownwithinthecompanyasCrotonville.In1956,GEspent$40millionannuallytosupportmanagementeducation,almost10%ofits$424millionpre-taxearnings.4CordinerreinforcedhisemphasisoneducationwithanequallystrongcommitmenttoupgradeGE’son-the-jobmanagementdevelopmentprocesses.Anewcorporatesystem,knownasSessionC,wasdesignedtosupportanongoingdialogaboutmanagers’careerinterestsanddevelopmentneeds.Startingatthelevelofdepartmentmanager,theprocessgeneratedevaluations,careerforecasts,andsuccessionplansforeverysinglemanagementpositionatGE.Afterfillingoutaformrequiringaself-evaluation,theircareerinterests,andplansfortheirdevelopment,eachsubordinatewouldme