GE case study

General Electric: Major Appliance Business Group

GE Overview

Major Appliance Business Group (MABG)

RefrigeratorsRanges ovens

Microwaves

Kitchen appliances Home laundry appliances

DishwashersDisposal

units

1975 1976 1977 1978 19790

50,000

100,000

150,000

200,000

250,000

1.5%1.7%1.9%2.1%2.3%2.5%2.7%2.9%3.1%3.3%

138,726 168,190

194,168 220,407

235,078

2,913 3,700 4,466 6,171 7,522

2.1%2.2%

2.3%

2.8%

3.2%

Sales NetIncome Net Income to sales

Dishwasher Performance (1973-1979)

2

Introduction

Issue Analysis

Decision Analysis

Conclusion

Background

Approved for $28M investment for Project CDec1979

1980 Recession year• Lower volumes and profits than planned• Layoffs in Louisville of 17% (almost 2,000 employees)

Dishwashers had quality problems despite market shares exceeding 20% Medium Quality(Rust, Noise and High energy use)

Early1970s

Deployed PermaTuf A as new high end model1971

Deployed PermaTuf B as core of GE line and Model C as low-cost version 1973

Introduced GSD 1050 (Model A) 1976

Introduced GSD 1200, GSD 1000, and GSD 900 (Model B)1978

Ready to crate Model C as low-end dishwasher

Additional $4M investmentLower than planned

Lower than planned

Decide which modifications Tom needs to execute Nov1980

3

Introduction

Issue Analysis

Decision Analysis

Conclusion

Goal of this project

A world class product design and a world class factory Automation and manufacturing competitiveness in quality and cost Addressing workforce issue

A model for worker involvement and significantly improved worker attitudes and value-added

A chive worldwide dishwasher industry leadership in product quality and profitability

Achieve world class leadership in process quality, productivity, and quality of work life; and

Achieve increased job security through high quality, low cost products that gain increased market share

Goal of Project C

Jack Welch Request

If project C becomes a model for GE business and provide strong Financial return, Jack is willing to consider more capital.

Became CEO in 1981

4

Introduction

Issue Analysis

Decision Analysis

Conclusion

Issue

Issue“Which modifications should be applied for Project C?”

Project C Modifications

To be World Class Dish Washer Manufacturer

1. Improving the quality of the factory environment2. Skills training in technical problem solving3. Revision in GE’s management information and support systems4. Adding a value engineering development cycle5. Drop (postpone) construction of the integrated computer control room

5

Introduction

Issue Analysis

Decision Analysis

Conclusion

6

Options

2) Go ahead now…..increase no more than $2.8 million (10%)

3) Go back to the board of directors for authorization of budget increase

1) No change…..Wait until project C is completed in mid-1983

Introduction

Issue Analysis

Decision Analysis

Conclusion

7

Decision Criteria

Issue: Which modifications should be applied for Project C?

What should be considered?

How to evaluate each criteria?

Introduction

Issue Analysis

Decision Analysis

Conclusion

Original project C was approved by the board

of directors in 1979

Original project C was approved by the board

of directors in 1979

Current situation Jack Welch’s vision Recession Lay off

Current situation Jack Welch’s vision Recession Lay off

Modification


8

All should be achieved for the success of Project C !

Project C aims at

3) Positive impact on HRM

1) Product / process quality

2) Timeliness

Check Point

Introduction

Issue Analysis

Decision Analysis

Conclusion

Worldwide leadership in product quality and

profitability

World class leadership in process quality,

productivity, and quality of work life

Job security through high quality, low cost products, increased

market share

Reducing complaints?Reducing cost, Increasing sales?

Not causing delay for Proj. C?

Improving motivation, Increasing skilled workers?

Decision Criteria

9

Decision Criteria

The decision for the possibility of the success for Project C should be made based on both qualitative and quantitative evaluations


How to evaluate for each criteria?

How to evaluate each

criteria?

QualitativeApproach

↓Positive impact?

QuantitativeApproach

↓Profitable?

Introduction

Issue Analysis

Decision Analysis

Conclusion


1) Product / process quality

2) Timeliness

10

Quantitative approach

Original Project C IRR (w/o any modifications) = 6.1%

Increases? or Decreases?

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

-30000

-20000

-10000

0

10000

20000

30000

40000

50000

Market Share Impact Product Cost Savings Investment etc.CF Cumulative CF

$0

00

s

Introduction

Issue Analysis

Decision Analysis

Conclusion

11

Decision Analysis (1) Qualitative

1) Improving the quality of the factory environment

Modification 1 is recommended from the qualitative perspective

(1)Quality

(2)Time

(3) HRM

Increase workers’ motivation Positive

Strong support from Project C members in dishwasher business Positive

High motivation improves product process quality Positive

No delay for the project C Positive

The Union would press other plants to set similar facilities

Negative/Positive

Total Positive Positive Positive

Introduction

Issue Analysis

Decision Analysis

Conclusion

12

Decision Analysis (1) Quantitative

Modification 1 is recommended from the quantitative perspective

Investment Return

• $1.5 mil • Provided a quality environment consistent with product & process quality

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

-30000

-20000

-10000

0

10000

20000

30000

40000

50000


$0

00

s IRR increases to

9.4%

+17% increase* of labor, service call reduction costs, and warranty savings

(*) additional investment $1.5 mil / product & process development investment $9.0 mil of Project C

Introduction

Issue Analysis

Decision Analysis

Conclusion

13

Decision Analysis (2)Qualitative

2) Skills training in technical problem solving


(1)Quality

(2)Time

(3) HRM

Skilled workers reduce product defect Positive

Insurance for smoother product ramp-up 1983 and beyond Positive

Support from manager, union, and skilled worker since being trainee motivates workers Positive

No delay for the project C Positive

Workers in other plant might migrate to dishwasher plant Negative

Total Positive Positive Neutral

Introduction

Issue Analysis

Decision Analysis

Conclusion

14



Investment Return

• $1.5 mil• Added a higher paid job category

• Insurance for a smoother product ramp-up in 1983 and beyond

IRR increases to

6.6%1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

-30000

-20000

-10000

0

10000

20000

30000

40000

50000


$0

00

s

0.8 mil increase of labor cost*

+20% increase** of labor, service call reduction costs, and warranty savings

(*) $0.25 (labor cost / hour) * 8 (hours) * 200 (days) * 200 (employees)(**) additional investment $1.5 mil to 20% employees / quality related training $1.5 mil

Introduction

Issue Analysis

Decision Analysis

Conclusion

15


3) Revision in GE’s management information and support systems

Modification 3 is NOT recommended from the qualitative perspective

Introduction

Issue Analysis

Decision Analysis

Conclusion

(1)Quality

(2)Time

(3) HRM

Integrating information from accounting, material tracking to quality reporting - - -

Not essential to Project C Negative

Adding complexly and work load Negative

Causing delay for the project C Negative

Total Neutral Negative Negative

16


Modification 3 is NOT recommended from the quantitative perspective

Investment Return

• $2.8 mil• Additional time commitments

• The activities of Project C would be complemented

IRR decreases to

-0.1%1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

-30000

-20000

-10000

0

10000

20000

30000

40000

50000


$0

00

s

No financial positive effects

Introduction

Issue Analysis

Decision Analysis

Conclusion

17


4) Adding a value engineering development cycle


Introduction

Issue Analysis

Decision Analysis

Conclusion

(1)Quality

(2)Time

(3) HRM

Improving product quality, reducing defect→Reducing costs, Gaining market share Positive

Supported by workers in plant Positive

Causing delay of 3-4 months Negative

Total Positive Negative Positive

18



Investment Return

• $1.2 mil• Would add 3 to 4 months

• $1 per unit of product cost savings• Additional market share gains of up to 0.5%

IRR increases to

9.0%1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

-30000

-20000

-10000

0

10000

20000

30000

40000

50000

Delay considered Investment etc.CF Cummulative CF

$0

00

s

Delay of positive effects

Introduction

Issue Analysis

Decision Analysis

Conclusion

19


5) Drop (postpone) construction of the integrated computer control room


Introduction

Issue Analysis

Decision Analysis

Conclusion

(1)Quality

(2)Time

(3) HRM

Can be added later if necessary Positive

Unsure the value of control room Positive

Saving $ 1 Mil

Already publicized, accepted by the union Negative

Total Neutral Positive Neutral

20

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

-30000

-20000

-10000

0

10000

20000

30000

40000

50000


$0

00

sDecision Analysis (5) Quantitative


Investment Return

• The cancellation of publication • $1.0 mil

IRR increases to

8.5%

No any costs

Introduction

Issue Analysis

Decision Analysis

Conclusion

21

Recommendation

Modification Qualitative QuantitativeAdditional Investment

1Improving the quality of the factory environment

YES YES 1.5 mil

2Skills training in technical problem solving

YES YES 1.5 mil

3Revision in GE’s management information and support systems

NO NO

4Adding a value engineering development cycle

YES YES 1.2 mil

5Drop (postpone) construction of the integrated computer control room

YES YES -1.0 mil

3) Go back to the board of directors for authorization of budget increase

>$2.8Mil

Introduction

Issue Analysis

Decision Analysis

Conclusion

3.1 mil

22

Execution Plan

1. Prepare recommendation to senior management and the board. In this recommendation, additional costs, resource allocation, and risks should be completely included.

2. Assign team members to be in charge of each change. 3. Communicate and get an agreement from union.4. Get commitment with all team members involved.

1. Implement changes with PDCA cycles.2. Hold a monthly status meeting with senior management and

the board.

Mid term

Short term

Introduction

Issue Analysis

Decision Analysis

Conclusion

23

Future GE

To improve the processes and products to be a World Leader

Introduction

Issue Analysis

Decision Analysis

Conclusion

24

Positive impact on HRM

25

Achievement Recognition Satisfaction Responsibility Promotion Skill Development

Management objective Supervisor Human relationship Working condition Compensation Benefit package

Management objective Supervisor Human relationship Working condition Compensation Benefit package

Drawing proactive participation the job

Solving and preventing dissatisfaction of the job

Hy

gie

ne

fac

tors

Mo

tivatio

n

Herzberg's motivation-hygiene theory

Preferable decision (working environment) will be supported by the Union

Mod. 1

Mod. 2

26

GE applied Cellular approach

Line approachWorkers do the same process➔Product quality is consistent➔Easy routine work

Cellular approachWorkers assemble 1 product by themselves ➔Required various skills➔Easy to adjust the number of workers depending on demand

Process Improvement 1

27

GE applied TOC and Throughput

TOC is Theory of constraint

Identifying where is the bottleneck of the task and improve the process.

Bottleneck⇓

Process Improvement 2

28

Decision Analysis Decision Pros Cons

1Improving the quality of the factory environment

Strong support from Project C members, workers, the union, and others in DW biz

Increase workers’ motivation High motivation improve product

quality No delay for the project C

The Union would press other plants to set similar facilities

(90% of hourly workers) Additional cost $1.5 Mil

YES

2Skills training in technical problem solving

Increase skilled workers Improve product quality Insurance for smoother product

ramp-up 1983 and beyond? No delay for the project C

Support stuff view as vote of no confidence?

Workers in other plant might migrate to DW plant

Higher job category required higher pay

Additional cost $ 1.5 Mil

YES

3

Revision in GE’s management information and support systems

Improving GE’s information support system

Not essential to Proj. C Adding complexly and work load Additional cost $ 2.8 Mil Causing delay for the project C

NO

4Adding a value engineering development cycle

Improving product quality, reduce warranty cost

Supported by people in Plant Cost saving by 1$ per unit

Opposed by Marketing team Additional cost $ 1.2 Mil Causing delay of 3-4 months

YES

5

Drop (postpone) construction of the integrated computer control room

Supported by operations MNG Can be added later if necessary Saving $ 1 Mil

Causing delay of automation Already publicized Already accepted by the union with

long discussion

YES

Issue Identifications (5 Forces Analysis)

Competition (Low)

• High and stable market share : 26% in 1979

Suppliers (Low)

• GE’s buying power due to large amount of purchases

Substitutes (Low)

• Hand washing• Low quality dish

washers

Entry Barriers(High)

• Large initial investment ($40-50 mil)

Buyers (Strong)

• Building Contractor: Price Sensitive

• Consumers: Long term reliability, convenience and performance

To be World Class Dish Washer Manufacturer, high quality product is essential.

Dish washer market is “Attractive”.

29

Internal Issues

People

Products

• Negative power of union• Lack of skills in technical problem

solving• 17% Lay-off (almost 2,000

employees) in 1980

• Mid-class product • Susceptible to scratch • Excessive noise• Heavy water user

30

• Substantially lower volumes and profits than planned during 1980 due to a recession

Financials

Motivation improvement both from motivating and hygiene factors

Product quality improvement

Cost reduction opportunities

Issues Actions

Project C modification!!In order to cope with these issues, modifications of project C were identified. Five possible project modifications were identified for evaluation.

31

Decision Criteria


3) Improving product /process quality

2) Timeliness

4) Positive effects to the market

Consider which criteria are strongly related to the success of Project C.

5) Structure of organization6) Restructure of product portfolio


How to evaluate for each criteria?

What should be

considered?

Appendix project C

　 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989Market Share Impact 　　　　 706 1,740 2,896 3,873 4,281 4,752 5,260Product Cost Savings 　　　 -350 2,479 6,777 9,198

12,572

13,743

14,995

16,382

Investment etc. -20 -129 -326

-19,67

4 -3,033 -2,722 -4,030 -6,171 -7,011 -7,882 -8,829

CF -20 -129 -326

-20,02

4 152 5,795 8,06410,27

411,01

311,86

512,81

3

Cumulative CF -20 -149 -475-

20499-

20347-

14552 -6488 3786 14799 26664 39477

Appendix Modification 1

　 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Market Share Impact 　　　　 706 1740 2896 3873 4281 4752 5260 Product Cost Savings 　　　 -350 2844 7665 10268 13902 15156 16496 17982 Investment etc. -20 -129 -326

-21174 -3033 -2722 -4030 -6171 -7011 -7882 -8829

CF -20 -129 -326 -

21524 517 6683 9134 11604 12426 13366 14413

Cumulative CF -20 -149 -475 -

21999 -

21482 -

14799 -5666 5938 18363 31730 46142


　 1,979 1,980 1,981 1,982 1,983 1,984 1,985 1,986 1,987 1,988 1,989 Market Share Impact 　　　　 706 1,740 2,896 3,873 4,281 4,752 5,260 Product Cost Savings 　　　 -350 2,597 7,210 9,793

13,395

14,665

16,024

17,529


-21,17

4 -3,033 -2,722 -4,030 -6,171 -7,011 -7,882 -8,829

CF -20 -129 -326

-21,52

4 270 6,228 8,659 11,09

7 11,93

5 12,89

4 13,96

0

Cumulative CF -20 -149 -475

-21,99

9

-21,72

9

-15,50

1 -6,842 4,255 16,19

0 29,08

3 43,04

3


　 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989Market Share Impact 　　　　 706 1,740 2,896 3,873 4,281 4,752 5,260 Product Cost Savings 　　　 -350 2,479 6,777 9,198

12,572

13,743

14,995

16,382


-22,47

4 -3,033 -2,722 -4,030 -6,171 -7,011 -7,882 -8,829

CF -20 -129 -326

-22,82

4 152 5,795 8,064 10,27

4 11,01

3 11,86

5 12,81

3

Cumulative CF -20 -149 -475

-23,29

9

-23,14

7

-17,35

2 -9,288 986 11,99

9 23,86

4 36,67

7

Appendix Modification 4　 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989Market Share Impact 　　　　 1,588 2,828 4,213 5,487 6,065 6,732 7,452 Product Cost Savings 　　　 -350 2,779 7,467 10,039 13,611 14,782 16,034 17,421 Delay considered 　　　 -248 2,992 8,566 13,098 17,684 20,337 22,206 24,258 Investment etc. -20 -129 -326 -20,874 -3,033 -2,722 -4,030 -6,171 -7,011 -7,882 -8,829 CF -20 -129 -326 -21,122 -41 5,844 9,068 11,513 13,326 14,324 15,429 Cummulative CF -20 -149 -475 -21,597 -21,638 -15,795 -6,727 4,787 18,112 32,436 47,866 　　　　　　　　　　　　IRR 0 　　　　　　　　　　　　　　　　　　　　　　Product cost savings 　　　　　　　　　　　　　　　　　　　　　　　cost savings for Tuf C vs. Pla 　　　　 9 10 11 12 14 15 16 volume 　　　　 300 690 761 866 866 866 866 cost savings for Tuf C vs. Tuf B 　　　　　　 12 13 14 15 16 volume 　　　　　　 80 173 173 173 173 Total 　　　　 2,829 7,128 9,548 12,922 14,092 15,346 16,731 Penalty 　　　　 -350 -350 -350 -350 -350 -350 -350 　　　　　 2,479 6,778 9,198 12,572 13,742 14,996 16,381 UP cost savings for Tuf C vs. Pla 　　　　 10 11 12 13 15 16 17 UP cost savings for Tuf C vs. Tuf B 　　　　　　 13 14 15 16 17 UP total 　　　　 3,129 7,818 10,389 13,961 15,131 16,385 17,770 Margin 　　　　 300 690 841 1,039 1,039 1,039 1,039 　　　　　　　　　　　　　　　　　　　　　　　　Market share 　　　　　　　　　　　　　　　　 1,983 1,984 1,985 1,986 1,987 1,988 1,989 Market size 　　　　 1,525 1,650 1,810 2,000 2,000 2,000 2,000 Market share 　　　　 0 0 0 0 0 0 0 Unit 　　　　 6 13 20 24 24 24 24 Unit contribution 　　　　 116 132 146 161 178 198 219 Contribution 　　　　 706 1,740 2,898 3,873 4,281 4,752 5,260

Appendix Modification 4　 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989Market Share Impact 　　　　 706 1,740 2,896 3,873 4,281 4,752 5,260 Product Cost Savings 　　　 -350 2,479 6,777 9,198 12,572 13,743 14,995 16,382 Investment etc. -20 -129 -326

-18,674 -3,033 -2,722 -4,030 -6,171 -7,011 -7,882 -8,829

CF -20 -129 -326 -

19,024 152 5,795 8,064 10,274 11,013 11,865 12,813 Cumulative CF -20 -149 -475

-19,499

-19,347

-13,552 -5,488 4,786 15,799 27,664 40,477

　　　　　　　　　　　　IRR 8.5%　　　　　　　　　　