HBS Case StudyGE’s Talent Machine – The Making of a CEO
...ees obtain cutting-edge skills and expertise such as Six Sigma, they become highly marketable and easily employable in the marketplace. Moreover, Wharton Business School Professor Peter Cappelli posits that “it is the market, not the company itself, which ultimately determines the movement of employees. [. . . ] And the company’s objective should not be one of preventing employees from leaving, but to control the direction and speed of their departure.” GE is experiencing low overall turnover in its two top performing ranks during a sluggish economy, but there is awareness that the “backbone” of GE’s workforce – the highly valued 70% – could experience higher turnover once the economy begins to improve. This perception is further corroborated by the 90-plus employees who left GE for Bank of American over an 18-month period. While GE’s people development practices have been extremely successful for those employees in the top 20%, those in the next category (the highly valued 70%) were indicating that they felt just average. A second problem facing GE is how best to handle their global expansion. As they currently generate 40% of their revenues overseas, they need to become less dependent on American managers and recruitment of U.S.-trained MBAs to support their international growth. Additionally, GE does not enjoy the same reputation for being an employer of choice overseas as it does in the U.S. For example, surveys of international employees indicate that they feel GE offers them limited career advancement opportunities. Finally, there was an unintended side-effect when Jack Welch compressed the executive bands from 29 to 7 because there were fewer incremental promotions available to employees as a result. It is important to note that promotions can offer a psychological reward to employees, especially in cultures such as India and China where status and prestige are highly valued. Alternative Approaches to Problems GE's continued dominance as a talent factory depends on them addressing several key HR issues. First, one possible approach would be to expand the current banding structure. Since the collapse of the 29 position levels into 7 broader executive bands back in 1981, the opportunities for promotion and differentiation between job levels within the same band have been few and far between. Another adverse effect of the band simplification is that base salaries can only rise by as much as 25% in a year without a promotion, while cash bonuses in general are limited to 20% and 70% of base pay. Thus, GE could provide an additional incentive to reward its employees by expanding the executive bands in concert with defining each job promotion more clearly. This move would not mean a reversal to the old ways, but a slight adjustment to GE’s new hierarchical business cultures such as the Indians and Chinese, as well as to those in other international locations that feel that their promotion opportunities are limited. The second approach would be to target/increase recruiting overseas. It seems that “GE’s reputation as a great developer of management talent” does not translate abroad. For instance, many Europeans do not consider GE a good place to start or develop their careers because of the company’s heavy reliance on its U.S.-based recruitment programs and over dependence on American top managers to run foreign business units. Sadly, the message this conveys is clear: Europeans see limited opportunities for career advancement at GE. Equally, GE could show that it is serious about diversifying its workforce by recruiting at top European business schools and hiring more from the European labor pool, in addition to providing an equal level playing field for non-U.S. recruits to move into the top 20% rank if they show potential. The third approach that GE should consider would be to ensure that employees in the highly valued 70% are engaged and motivated. If the majority of the employees in this category feel that they are pigeonholed into being average, a great number of them might feel compelled to take their expertise elsewhere. For instance, it seems that the lowest common denominator at GE is that employees must have a strong work ethic and be accountable. However, even the most diligent and hard-working employee can became frustrated if there is little room for advancement. Besides, it is common knowledge that if a company helps people to grow, they will inevitably help the business grow too, in turn, creating a virtuous cycle. Wharton Professor Peter Cappelli used the examples of three companies – Microboard Processing, Cascade and Burger King – to show how they were getting positive results after investing in their employees. With that said, GE should modify the vitality curve to better differentiate within the highly valued 70%, with the desired effect that you would also creat...