What GE Teaches Us About Developing Leaders

Lessons From A Great Corporate Culture

General Electric recently announced that CEO Jeffrey Immelt would be retiring after 16 years at the helm of one of America’s most respected and enduring large corporations. Immelt followed the legendary Jack Welch, who spent 20 years at GE.

Without wading into the debate about Immelt’s performance, buried in the same news clips was a monumental lesson for anyone interested in how great organizations endure.

So what did GE do that was so monumental?

It replaced Immelt with John Flannery, the president and CEO of GE Healthcare. Here’s why that matters.

Flannery has worked his entire career at General Electric, working his way up from the bottom. So did Immelt. So did Welch. None of these men held any substantial long-term employment outside of, or before joining, General Electric.

General Electric as a company is engaged in many different sectors, from consumer products to finance to engineering. But one thing stands as the glue holding the company together: they develop their leaders from within the organization.

This matters for several reasons.

What it Says About Organizational Culture

When an organization develops leadership from within, it speaks to a culture that encourages professional growth in its members. When members of an organization see someone rising from their level all the way up to the top, they understand that it’s possible for them, too. It says that they’re in an organization that values its people enough to train them up to lead the entire thing, if they work hard and are good enough.

By contrast, consider an organization that brings in most or all of its top-level people from outside. Such individuals do not have a long history with the organization and lack the sort of knowledge that is more often passed down person-to-person than in a dusty handbook.

Outside leaders have to spend months or years adjusting to their environment, as well as the people below them adjusting to new leadership. Some organizations and companies make it work, but many do not.

This warning, in fact the entire post, doesn’t apply to corrupted organizations, or those filled up and down with poor managers. Governments are quite prone to this. In such a scenario, a person from within the bad culture may be the last thing needed to institute necessary change.

For private companies with some track record of success, however, there are almost always good folks who can be promoted. If there aren’t, the question must be asked: how successful, really, is the organization?

What it Says About Organizational Stability

Companies like General Electric understand that promoting from within creates stability in the company.

John Flannery will be GE’s 13th chief executive. All 13 have had at least some experience in GE prior to being named to the top spot. This assures shareholders and employees that leaders at GE will know something about how the company works. It’s not just the CEO. Most GE executives have a long history at the company.

This fosters a sense of continuity, the notion that GE has been and will always be a big, great American company.

By seeking outsiders to fill top spots, other organizations often expose themselves to volatility – the very opposite of continuity.

Outsiders are often tapped because they are well-qualified, having run or managed other organizations  in the past. In many cases, however, they bring new management styles and initiatives to the table.

In some cases, they lurch the company in a new direction that might send it off a cliff.

This happened to Hewlett-Packard in the late 90s and early 2000s when they hired all-star Lucent executive Carly Fiorina. As described by management expert Jim Collins in How the Mighty Fall, Fiorina attracted enormous media attention for being the first female CEO of a Dow Jones index company.

Fiorina announced numerous strategic changes to modernize the company starting the day she was installed as CEO, in spite of having had no time to become familiar with the workings of the company.

She then steered the great HP right into a disastrous merger with Compaq that eroded the company’s overall value and led to tens of thousands of layoffs. Much has been written about that elsewhere, but the point is this: bringing in outsiders, even those with genuine skill and talent, can be disruptive to a successful organization.

What It Says About the Organization’s Legacy

The grooming of internal candidates says more than just what an organization values in its culture or  remaining stable. It says a lot about legacy, too.

An organization that is steadfast and strong enough to pump out solid leadership time and time again is playing for more than survival. In such instances, a greater concept of legacy at stake.

GE is bigger than any individual. It’s an idea as much as a company. Generations of family members have worked at the company. It has become part of countless lives and life stories.

What happens when an organization rises above the traditional measures of corporate greatness? When it becomes a lasting institution intricately tied to families, communities, and society? At that point, it has established a legacy.

GE is that rare company which has. Much of that success is due to the leadership they’ve consistently developed.

My Own Lesson

I did a lot of things wrong when I started my first “real” business in College Station, Texas. I had not taken business classes or even read many books at that point and made plenty of rookie mistakes.

One thing I’m proudest of, however, is finding a great leader to take over when I was ready to move on.

I sold the business to my store manager, a brilliant Texas Aggie who is now expanding to a second location. It’s almost 10 years since I started that little store. I’m confident that under his leadership, the business will continue to grow and prosper into the future.

The lesson I took from my own experience is that a lasting organization requires great leaders to be developed and identified from within. The GE example provides a lot to think about.

Question: Have you seen any great examples of an organization developing leadership from within? Leave a comment below!