Magazine article Management Today

GE's Hungarian Light Switch

Magazine article Management Today

GE's Hungarian Light Switch

Article excerpt

Jack Welch's turnround of General Electric in the 1980s was one of the decade's great management case studies. The techniques he used, developed within a year of his appointment as chairman in 1981, are now business-school gospel. If a business is not first or second in its market, close it, sell it or fix it. Emphasise ownership, teamwork and enterprise in everything you do. Draw and share good practice wherever you find it. Break down all internal barriers to action and communication. Become a `boundaryless' organisation, shifting resources and-expertise to wherever they are most needed.

On the back of this philosophy Welch transformed a company with a declining market share in every sector in which it competed into a $60 billion operation which, by 1991, ranked number one in the Forbes 500. Today, GE is one of the few truly global corporations, with a significant presence in 65 countries, including many in the former Eastern bloc. In establishing a hold in these markets, Welch has applied the same methods as those used on the parent - regardless of local difficulties. `Change has no constituency,' he declared. On current evidence he seems to mean it.

Such a philosophy has profound implications for the countries in which GE operates, particularly those still coming to terms with the workings of capitalism. Of these, there are few better examples than the operations of GE Lighting in Hungary - at its simplest, the story of the takeover and turn round of an ailing, state-owned company in a former command economy.

In 1989 GE acquired a half share of Tungsram, the Hungarian light-bulb manufacturer, at that time the fifth-largest in Europe. It marked the first stage in what has become a worldwide push by GE to build a base in lighting outside of the US. Hungary, aided by an easy-going government, low wages and a stable economy, appeared the ideal location for investment - and Tungsram, a sound though run-down company, the ideal business on which to centre a European lighting operation. From this initial stake, GE went on to acquire the UK lamp-making operations of Thorn in 1901 and those of Sweden's Lumalampan in 1993.

After two years of heavy losses in 1991 and 1992, GE Lighting Europe made a small profit in 1993, doubling its net sales in less than five years. Last year, after a 6% increase in sales, it more than doubled net income, enabling the company to acquire Lindner Licht, a German lamp maker, and buy the remaining 49% of Sivi, its Italian subsidiary.

The turnround followed a by-now familiar GE formula: divestment, integration, cost-cutting and large-scale investment in infrastructure, training and research. Its architect, Charles Pieper, was appointed chief executive in 1991 with the express purpose of moulding GE Lighting's European acquisitions into an integrated operation.

As part of the process two of Thorn's factories were closed and Tungsram's interests in products other than lighting divested. At the same time GE invested nearly $600 million in the remaining Tungsram businesses. Some of it has gone on the basics. When GE took over, for example, roofs leaked and much of the equipment failed to meet environmental standards. Simple things like telephone lines and fax lines did not work - in 1990, for example, there were only two lines serving 1,730 extensions.

The bulk of the money has gone on new products - in particular, on developing a range of compact fluorescent lamps. A site for a dedicated plant was found at Nagykanizsa, close to the former Yugoslav border, where a vast manufacturing operation was built. At a cost of $300 million it is GE's largest single investment in the world.

Under the supervision of production director Don McKenna, time between order and delivery at Tungsram has been slashed - from 90 days in 1990 to 32 days in 1994. In the past calendar year alone manufacturing cycle time has been reduced by over 50%. And breakages on the production lines have been cut from a staggering one in two lamps in pre-GE days to its current level of near-world standards. …

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