Transactional Leadership vs Transformational Leadership

1. Jack Welch had joined General Electric (GE) in the year 1960 as a junior engineer. However, Welch was greatly dissatisfied with the quality of organization operations and leadership that he witnessed at the organization. According to Welch, a bureaucratic leadership style was followed at the organization which created a negative working environment for the employees. Based on the case study, it can be said that Welch followed a transactional leadership style during his tenure as the CEO of GE (Odumeru & Ogbonna, 2013). Transactional leadership is one which focuses on the development of the organization, supervision and overall performance. In such a leadership style, the leaders are expected to promote compliance and enhance performance through reinforcements like punishments and rewards. The purpose of a transactional leader is to constantly supervise the work of his subordinates and juniors and evaluate their performance or output (Dumdum, Lowe & Avolio, 2013). Based on the quality of performance assessed, these employees would be rewarded or punished. On the other hand, transformational leadership style is more focused on the value and mission of the organization and imposing changes in the individuals and overall organization. However, a transactional leader is more emphasized on long term and short term goals. A transactional leader like Welch sets goals and articulates explicit agreements as to what is expected of the employees and the rewards and punishments in store for them. Such a leader also provides constructive feedback and highlights room for improvement (Breevart et al., 2014).

Transactional leaders also focus on increasing the overall efficiency of the established routines and processes within an organization. Such a leader would rather follow existing rules and norms and make improvements to the same than completely alter the overall structure of the organization. A few examples can be cited from the case study which defines Welch as a transactional leader. According to his rank and yank policy, Welch would fire at last 10 per cent of his bottom employees and was known for being brutally candid. He also had reward programs for the top 20 per cent employees. Welch also demolished the bureaucratic system of management at GE with nine layers of managers between the CEO and employees. He preferred a degree of informality within the organization.

2. Jack Welch was responsible for introducing incremental changes at the organization. An incremental change is usual gradual in nature and does not pose a threat to the existing organizational structure and conventions (Norman & Verganti, 2014). Instead, it works towards specific end results. During his tenure as the CEO, Welch introduced a number of small and big changes, like the aforementioned reward and punished programs which improved the performance of the employees. He also adopted the Six Sigma policy which would improve the quality of organization operations. Incremental changes also included embedded succession planning and also employee development policies. The main purpose of Welch’s incremental change was eradication of perceived inefficiency within the organization by the dismantling of bureaucracy and trimming of inventories. He also made changes to the organization structure in order to promote more efficient operations.

Incremental Changes Introduced by Jack Welch

3. The most important characteristics that Jack Welch demonstrates as a change leader are – candor and development of trust, clarification of mission and goals, motivation and confidence, emotional stability and action orientation. Welch was extremely result oriented and focused on the end results while implementing changes. For instance, he wanted an informal environment to prevail at the organization and thus demolished the nine layered management structure at GE. He also introduced the rank and yank policies which would improve the overall performance of the employees. In case of the myriad changes that Welch introduced during his tenure, it was his brutal candor that helped him throughout. He was known for being straightforward and brutally honest. He preferred to be straight up with his employees and maintain a degree of trust and transparency with them. This helped him win over the trust and goodwill of his employees.

1. During his tenure, Welch introduced a number of changes to the organization. However, any kind of change at the organization is met with a degree of resistance. For instance, when Welch introduced the six sigma policy or when he implemented the reward and punishment programs, he must have encountered severe resistance from his subordinates. However, it was his candor and goal oriented nature which helped him deal with resistance tactfully. Welch was of the opinion that brutal candor would help him maintain clear communication with his employees and also win their trust. Also, he specified the vision and the bigger picture before implementing the change. It is important for the employees to have a well defined idea of where the organization is heading. Similarly, Welch also implemented changes to the company’s culture by reducing the level of bureaucracy and demolishing the nine layered management system (Welch, 2014). He preferred an informal working environment since it would pave the way for better relationships between the management and employees.
2. When Welch was first appointed as the CEO, he undid the work done by his predecessor with consolidation and aggressive simplification. At that point, he was simply focused on one aspect – to position GE as one of the frontrunners in the industry. In the beginning Welch’s policies were quite ruthless and he did not hesitate to fire employees if they did not add value to his business. He did not even hesitate to shut down factors and terminate experienced employees. However, by the end of his career, his policies were more wholesome in nature and were focused on setting a vision for the overall improvement of the employees and the organization. His attitude towards change management and resistance changed gradually, and he was more upfront with his employees.

Kotter’s 8 step model of change management may be explained through the diagram:

According to the model, the first step is to develop an urgency or need for change (Hornstein, 2015). Welch was highly dissatisfied with the quality of management and operations at GE. He thus highlighted the room for improvement and the need for change to its employees and even specified a vision for it. He was goal oriented, and had the end results in mind when he implemented policies like six sigma or embedded succession planning. He also maintained clarity and open lines of communication with his subordinates and believed in being brutally honest with them. Moreover, the change management policies kept employees motivated by implementing reward programs which catered to short term goals. Also, till the end of his tenure, Welch continued to improve his change management policies and the year he left, the company made 130 billion USD in profits owing to his measures. Welch also believed in empowering action and motivating his employees to put in their best efforts. Apart from the reward and recognition programs, the informal working culture and environment that he inculcated had an integral role to play.

References:

Breevaart, K., Bakker, A., Hetland, J., Demerouti, E., Olsen, O. K., & Espevik, R. (2014). Daily transactional and transformational leadership and daily employee engagement. Journal of occupational and organizational psychology, 87(1), 138-157.

Dumdum, U. R., Lowe, K. B., & Avolio, B. J. (2013). A meta-analysis of transformational and transactional leadership correlates of effectiveness and satisfaction: An update and extension. In Transformational and Charismatic Leadership: The Road Ahead 10th Anniversary Edition (pp. 39-70). Emerald Group Publishing Limited.

Hornstein, H. A. (2015). The integration of project management and organizational change management is now a necessity. International Journal of Project Management, 33(2), 291-298.

Norman, D. A., & Verganti, R. (2014). Incremental and radical innovation: Design research vs. technology and meaning change. Design issues, 30(1), 78-96.

Odumeru, J. A., & Ogbonna, I. G. (2013). Transformational vs. transactional leadership theories: Evidence in literature. International Review of Management and Business Research, 2(2), 355.

Welch, J. (2014). Jack: what I’ve learned leading a great company and great people. Hachette UK.