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Organizational Structure – GE

Evolution of the Structure: Started by Thomas Alva Edison in 1876, General Electric has grown tremendously into successful organization and amongst the largest in the world. Before 1950, GE was managed centrally from Schenectady, New York. The basic organization was a general office with four departments: sales; ing, collection, and credit; manufacturing and engineering; and law and patent in 1895. There was a certain level of Decentralization before, but primarily this came into full power only after World War II. This was in spite of GE’s major competitor, Westinghouse, diversifying in 1930 (Chandler, 1977). Post World War, GE carried out an extensive program of expansion and decentralization (GE, 1966). In its first 50 years, their efforts were directed primarily toward consolidation, integration, and centralization of a number of previously separate organizations; however, as its business grew, the number of products, their sales volumes, and the locations for their manufacture expanded. It became obvious that the centralized organization scheme was unwieldy and slow to react to technical and market changes. The need for a more

decentralized organization became increasingly apparent. In 1950, Ralph J. Cordiner, their new president, was to lead the charge. The New Organization The basic organizational changes were to create an Executive Office, five groups of related product divisions, departments, and s together with the General Electric Supply Corporation, comprising 21 operation divisions, and 51 separate product departments (GE Annual Report 1951). The executive office consisted of the President, Chairman of the Board, group executives and services, i.e. functional, officers, and was located in New York City. Also, Cordiner initiated a massive three year effort entitled Management Development Study (Smiddy, 1955). It involved consultants, academics, and over 300 GE employees. The basis of the effort was Cordiner’s belief that the decentralized GE organization required thousands of managers and the traditional system had been producing them in the hundreds. GE’s organization structure consists of four verticals, each for the specific product. These are: 1. 2. 3. 4. 5. 6.

Energy Capital Appliances & Lighting Healthcare Aviation Transportation. The Energy division consists of three subdivisions: (1) Oil & Gas, (2) Power & Water, and (3) Energy Management. John Wood Group PLC, Wellstream Holdings PLC, and Dresser into GE, would be the three newly acquired companies added to the Oil & Gas subdivisions within the Energy division. Apart from the six subdivisions, GE also had Global Growth & Operations as a subdivision. This is responsible for the sales out of United States.

Multidivisional Structure Wide variety of products is offered by many organizations. Some of these organizations sell their offerings across an array of geographic regions. This requires the firm to be very responsive to the customer’s needs. Yet, as noted, functional structures tend to be fairly slow to change. As a result of which, many firms do not

continue the use of a functional structure as their services increase. And many times, the new choice is a multidivisional structure. Employees are divided, in this type of structure, into departments according to the product areas and/or geographic regions. General Electric (GE) is an example of a company organized this way. As shown in the organization chart that accompanies, most of the company’s employees belong to one of six product divisions (Energy, Capital, Home & Business Solutions, Health Care, Aviation, and Transportation) or to a division that is devoted to all GE’s operations outside the United States (Global Growth & Operations). Multidivisional structure allows a firm to act quickly. When GE makes a strategic move such as acquiring of John Wood Group PLC, only the division that is relevant needs to be involved in integrating the new unit into GE’s hierarchy. The transition would be much slower if the structure would have been functional because all the divisions in the company would need to be involved. A multidivisional structure also helps an organization to better serve customers’ needs. In the summer of 2011, for example, GE’s Capital division started to make real-estate loans after exiting that market during the financial crisis of the late 2000s.Jacobius, A. 2011, July 25. GE Capital slowly moving back into lending waters. Pensions & Investments Because one division of GE handles all the firm’s loans, the wisdom and skill needed to decide when to reenter real-estate lending was easily accessible.

Boundary less Organizations Most organizational charts show clear divisions and boundaries between different units. The value of a much different approach was highlighted by former GE CEO Jack Welch when he created the term boundary less organization. A boundary less organization is one that removes the usual barriers between parts of the organization as well as barriers between the organization and others. Askenas, R., Ulrich, D., Jick, T., & Kerr, S. 1995. The boundary less organization: Breaking down the chains of organizational structure. San Francisco, CA: Jossey-Bass. Eliminating all internal and external barriers is not possible, of course, but making progress toward being boundary less can help an organization become more flexible and responsive. GE in India: Change in Matrix structure GE, are adding more complexity to their organizations. It’s no longer enough for the separate businesses to act autonomously to make sales calls to the shared corporate customers, or to set up their own infrastructure in China and India. In 2011 regional executives in GE’s powerful divisions began to take on another reporting axis to corporate market executives who manage across product divisions to leverage infrastructure, build local relationships and manage key customers in 13 critical markets. That means another axis added to the matrix organization and it means tension. GE’s matrix is still not as complex as the structure of IBM or P&G. Both of these successful giants have mastered the complexity and turned it into an advantage for customers and shareholders.