Advances in Social Science, Education and Humanities Research, volume 466

Proceedings of the 2020 4th International Seminar on Education, Management and Social Sciences (ISEMSS 2020)

Research on General Electric Organizational Structure

Reform Based on Hofstede's Cultural Dimension Theory
Fan Dongxuan1,*
1
School of Economics and Management, Beijing Jiaotong University, Beijing 100044, China
*
Corresponding author. Email: [email protected]

ABSTRACT
General Electric Company is the world's largest multinational company that provides technology and service
business. This article first sorts out the reform of the organizational structure of General Electric Company.
Then, based on the cultural dimension theory of Hofstede, we make an analysis of the internal organizational
structure reform of General Electric Company from the power distance, uncertainty avoidance, short-term
orientation - the long-term orientation dimensions. Finally, we find that General Electric Company gradually
clarifies the core business of the enterprise to realise a flat organization structure with lower power distance,
stronger uncertainty avoidance and stronger long-term orientation. General Electric ’s organizational structure
reform provides a reference for the organizational structure management of enterprises all over the world.
Keywords: Hofstede's cultural dimensions theory, organizational strategy management, General Electric

2. HOFSTEDE'S CULTURAL DIMENSION

1. INTRODUCTION THEORY AND REFORM OF
General Electric Company (GE) is the world's largest CORPORATE ORGANIZATIONAL
diversified service company. Since its establishment in STRUCTURE
1892, the company is committed to creating a better life
through multiple technologies and services. GE ’s products
and services range from aircraft engines, power generation 2.1. Hofstede's Cultural Dimension Theory
equipment, water treatment and safety technologies, to
medical imaging, commercial and consumer finance, In order to distinguish the cultural characteristics of
media content and industrial products. After World War I, different countries, Dutch sociologist Gilt Hofstede
GE took the absolute lead in radio. When the World War conducted a survey of more than 100,000 employees from
II broke out, GE was no longer satisfied with its more than 40 countries employed by the large
dominance in the electrical industry. Instead, it took the multinational company IBM from 1967 to 1973, and thus
opportunity of war to get involved in military put forward the innovative analysis of the five dimensions
manufacturing fields such as aircraft and ships. Since then, of cultural differences in different countries: power
GE has slowly eroded many domestic and foreign distance, uncertainty avoidance, individualism-
companies, and gradually developed into a huge collectivism, masculinity-femininity, long-term orientation
multinational company. As an old American company -short-term orientation, forming a theoretical framework of
with a history of nearly 130 years, GE is famous for its cultural five dimensions [1]. The theory is widely used in
efficient and flexible organizational structure. This article interdisciplinary theoretical research and intercultural
uses Hofstede ’s cultural dimension theory to analyse the communication practice [2]. The specific definition is
development and evolution of GE’s organizational shown in Table 1.
structure in the process of development and management,
providing references for enterprises in various countries.

Copyright © 2020 The Authors. Published by Atlantis Press SARL.

This is an open access article distributed under the CC BY-NC 4.0 license -http://creativecommons.org/licenses/by-nc/4.0/. 360
 Advances in Social Science, Education and Humanities Research, volume 466

Table 1 Five dimensions of Hofstede's cultural 3. GENERAL ELECTRIC'S

dimensions theory ORGANIZATIONAL STRUCTURE
REFORM
In order to release and explore the enterprise's scientific
and technological innovation efficiency, GE has
successively carried out a far-reaching efficiency-type
centralized functional organizational structure and an
innovative divisional and decentralized organizational
structure to build professional management with excellent
innovation governance capabilities system [4]. In the early
stage of establishment, GE's continuous expansion of
business scale led to the complexity of the company's
operations, and the functional organizational structure
constituted an institutional obstacle to diversified
operations and continuous innovation [5]. The
2.2. The Application of Cultural Dimension transformation process of GE's organizational structure is
Theory in the Reform of Corporate shown in Figure 1.
Organizational Structure In the early 1940s, President Gerald Swarp began to plan
the decentralization reform of organizational management,
Hofstede's cultural dimension theory was originally based on technology and market, to enhance the
designed to manage human resources, but with the innovation performance of various diversified business
continuous development of social economy, it is now more departments. In 1953, President Ralph Cordiner formally
used in the organization and management of enterprises implemented decentralization reforms, establishing
[3]. Among them, the corporate organizational structure is multiple business divisions of diversified business
an extremely important part. It refers to the internal innovation organizations and splitting the company into
structure of the organization and the interrelationship 150 departments, independent of each other. In 1970,
between organizations in order to achieve the goals of the President Fred Borch built a more innovative strategic
organization. To a large extent, the competitive advantage management system-"Strategic Division". President
of an enterprise comes from the internal operating Reggie Jones strengthened R&D efforts to develop long-
mechanism of the organization. A reasonable term scientific and technological innovation strategy and
organizational structure can form the aggregation and established "Super Division" system organizational
amplification effect of the overall power. By optimizing structure.
the elements combination, resource utilization, and In the 1980s, GE faced "big enterprise diseases" such as
operation process, the efficiency synergy among the bloated institutions, multiple levels, complicated
elements of the enterprise can be achieved. procedures, serious bureaucracy, and unresponsiveness. At
Nowadays enterprises are carrying out organizational the same time, it had problems of "excessive
forms from linear system and functional system gradually diversification". President Jack Welch started "creative
moving towards flat, networked, borderless, diversified destruction" after taking office, he transformed strategic
systems. However, Hofstede's cultural dimension theory thinking, compressed management levels, broke
provides a new perspective to analyse corporate department boundaries, and gave play to people's
organizational structure changes. In the five dimensions, initiative. Welch cleared core business, focusing on
the power distance can most intuitively reflect the changes traditional manufacturing, high technology and services.
in the organizational structure of the enterprise. The Through frequent mergers and reorganizations, he
smaller the power distance means the more flexible, implemented of the "one of the best" strategy that
efficient and flat organizational structure, which is realized company should be either 1 or 2 in a particular industry, or
from the original "vertical pyramid structure". Actually else leave it completely. In 2001, after Jeffrey R. Immelt
this transformation enhances the enterprises' dynamic took over as president, he drastically adjusted the
response and coordination capabilities. In addition, the company's business portfolio, divested non-core
features of weak uncertainty avoidance, individualism, and businesses, concentrated resources for the innovation and
short-term orientation will also promote the formation of a development of growth engines, and established five key
corporate culture that advocates innovation and self- markets with power generation, aviation, transportation,
expression, thereby forming a more decentralized and medical treatment and oil & gas.
flexible organizational structure.

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Take Jack Welch's organizational reform as an example,

which has been called the largest organizational reform in
GE's history. In the 1980s, Welch used the "Work-Out"
strategy to reduce unnecessary bureaucracy and the power
distance within the organization to speed up the product
Figure 1 General Electric organizational structure development process of each department and improve the
reform organization's operating process. It also eliminated
unnecessary work and allowed information to flow freely,
thereby improving the value creation efficiency of the
4. GENERAL ELECTRIC'S APPLICATION entire business process. In addition, Welch advocated
OF HOFSTEDE'S CULTURAL extensive mutual learning among employees, departments,
and regions, and proposed borderless behaviour to reduce
DIMENSION THEORY the management level. Meanwhile, Welch created the
"hearing" system to further reduce the power distance,
As a large and diversified enterprise in the United States,
which allowed ordinary employees to participate in the
GE's development is inseparable from the scientific and
management of the company. In the 1990s, Welch
forward-looking perspective of organizational structure
officially implemented the Six Sigma plan to improve
management. With the changes in corporate strategic goals
product quality and optimize the enterprise quality process
and external environment, GE has adjusted and reformed
management mechanism, which greatly improved GE's
its organizational structure, strengthened the effective
organizational efficiency. It can be seen that the reduction
coordination of various functional forces, and enhanced
of the power distance of the enterprise, which is brought
the efficiency of corporate operations. Here, Hofstede's
by the flattening of GE's organizational structure, reduces
cultural dimension theory is used to analyse it from three
the management level of the enterprise and creates a more
dimensions: power distance, uncertainty avoidance, and
flexible and creative organizational atmosphere and
long-term orientation.
corporate culture.

4.1. Lower power distance 4.2. Stronger Uncertainty Avoidance

It can be seen from Figure 1 that GE's organizational
In general, the uncertainty avoidance in the United States
structure has generally undergone the development process
is relatively weak because of the adventurous spirit
from centralized operation to decentralized operation to
advocated by the United States. People are willing to
professional management, which also reflects the change
accept and dare to face the uncertainties in life. But in the
in power distance within GE. According to Hofstede's
entire organizational change process of GE, we can see
theory, the power distance will be more obvious in the
that its degree of uncertainty avoidance has increased.
organizational structure. Organizations with high power
Before the 1950s, GE was huge and involved a variety of
distances generally have distinct hierarchies, while
businesses, but its power was concentrated in its
organizations with low power distances are generally flat.
headquarters in New York, and its net profit was low, and
From the perspective of decision-making methods within
centralized operations were no longer suitable for the
organizations, organizations with large power distances
company’s development. Later, in order to reduce the risk
tend to adopt top-down decision-making methods, and
of "big business disease", GE began to implement
organizations with small power distances tend to adopt
decentralized reforms, and decided to adopt a business unit
bottom-up decision-making methods which contribute to
system according to different business categories, or even
absorbing bottom-level opinions. The main comparison is
a "super business unit system", and set up a "strategic
shown in Table 2.
business unit" within the business unit to be able to
selectively manage certain products or businesses. Based
Table 2 Comparison of corporate power distance
on that, the business department could flexibly and
characteristics effectively allocate human and material resources to use,
Characteristic High power distance Low power distance and compile a rigorous and predictable strategy for various
Organizational structure distinct hierarchies flat structure products, sales, equipment and organizations plan. In the
Decision-making method top-down bottom-up 1980s, GE’s “excessive diversification” problem was
Information flow unidirectional flow free flow
Organizational efficiency low efficiency high efficiency
serious. In order to clarify the core of the business, GE
adopted the “one of the best” strategy to focus on
The power distance of GE is gradually decreasing with the traditional manufacturing, high technology and services to
change of its organizational structure, which also means reorganize and streamline the organization.
that its organizational structure tends to be more flattened,
thus forming a free flow of information and more efficient
organizational structure and corporate culture.

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4.3. Stronger Long-term Orientation efficiently serve their organizational strategy. As an

industrial giant, General Electric applies Hofstede's
For a long time, GE has mainly operated industrial cultural dimension theory to the practice of enterprise
equipment and household appliances. After Welch took management, focusing on the dynamic adjustment of the
office in 1981, he believed that GE did not have a chance internal organizational structure and strategy, which
to compete with Japanese companies in the manufacturing provides references for the organizational structure
field. It has gradually moved away from traditional management of enterprises around the world.
manufacturing by selling manufacturing businesses such
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