GE’s JACK WELCH: HIS INNOVATION SEALED THE COMPANY’s SUCCESS

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Jack Welch launched a revolution at General Electric Co. by drawing three circles on a pad of paper.

The company’s new chief executive illustrated his battle plan in 1982 to fellow GE executive James Baughman. Welch was going to transform GE from lumbering Goliath to agile David.

The three circles represented the sectors Welch felt were GE’s bright future: services, core businesses and high technology. Inside the circles Welch place GE winners such as aircraft engines, lighting, medical systems, plastics and information services.

Outside the circles he placed the also-rans: GE central air conditioning and the popular but dowdy housewares. Welch offered these companies one of three fates: “Fix, close or sell.”

quote-number-one-cash-is-king-number-two-communicate-number-three-buy-or-bury-the-competition-jack-welch-195403If this natural selection seems brutal, so was the foreign competition in the 1970s and 1980s that had grabbed U.S. market share in autos and steel – turf long considered almost an American entitlement. Business was going global. Competition was feverish. GE’s 350 businesses, 600 profit centers and 12 layers of management needed a shakeup.

Welch believed he was the man to do it.

“I want a revolution at GE. Let’s go for it,” Welch told an executive the day after Welch took the reins at GE in 1981, wrote Robert Slater in The New GE. 

By building on GE’s strong suits, he aimed to turn the company, founded in 1878 by Thomas Alva Edison, into the most competitive operation on earth. “We believe this central idea – being No. 1 or No. 2 (in each of GE’s business segments) – more than an objective, a requirement, will give us a set of business which will be unique in the world business equation,” Welch said.

jack-welch-geEnemies of his undertaking could be found within and without. Inside was bureaucracy. Outside was tough overseas competition.

“(That bureaucracy) was right for its time, but the times were changing rapidly,” Welch said. “Change was occurring at a much faster pace that business was reacting to it.”

So Welch delivered the changes. They were jolting. By 1984, he’d jettisoned 150 GE businesses worth more than $5 billion. By 1986, he’d axed 130,000 jobs – a quarter of the company’s personnel. But returns for 1985 proved he was on the right track. That year, GE was the fifth-most-profitable U.S. company, Slater says.

Some critics take into account more than GE’s strong numbers, though, in evaluating Welch’s career. James J. O’Toole, a professor at the University of Southern California’s Marshall School of Business who wrote about Welch in his book Leadership A to Z, says that Welch’s leadership missed the mark in one significant area.

“I think there is also a moral component to leadership and that moral component has to do with gratitude to your followers, how they are treated, viewing the organization as something larger than merely a moneymaking machine. I think Welch very clearly ignored that aspect of it,” O’Toole said.

But the crux of Welch’s revolution involved retooling employees’ mind-sets.

“We are trying to get the soul and energy of a start-up into the body of a $60 billion, 114-year-old company,” he said. “We must have every good idea from every man and woman in the organization; we cannot afford management styles that suppress and intimidate.”

Jack_Welch_QuoteWelch asked GE managers to approach their jobs through a fresh set of eyes. One senior manager, told by Welch that his sector was underperforming, asked Welch for help.

“What I’d like you to do is take a month off and just go away,” Welch said, according to Slater. “Come back and act as if you were just assigned to the business and you hadn’t been running it for four years. And you just want to come in brand new, hold all the reviews and start slicing everything in a different way.”

He assigned his senior team members tough goals and kept close track of their progress during the year.

The three vice chairmen and the heads of GE’s 12 business units who reported to him directly received handwritten two-page performance evaluations each year. He often popped in unexpectedly to visit their various GE operations. He also tethered all GE businesses to the Internet.

Besides adding billions of dollars in new businesses, Welch fostered a company culture for GE’s next CEO to turn to when Welch retired in September 2001. Welch started or expanded programs such as the GE Management Development Institute at Crotonville, N.Y. – now known as the John F. Welch Leadership Center – Work Out, Best Practices, and Six Sigma to keep GE well defined and at the cutting edge. The company spends more than $1 billion a year educating its employees.

jack welch of GE - 01“Real communication,” Welch told company workers in 1987, “is an attitude, an environment. It’s the most interactive of all processes. It requires countless hours of eyeball-to-eyeball back and forth. It involves more listening than talking. It is a constant, interactive process aimed at creating consensus.”

The company’s Management Development Institute is one such consensus builder. Here the Welch philosophy is taught in courses such as “The New Manager” and “Applied Creative Thinking.”

Welch inaugurated Work Out to open lines of communication among GE’s people. Here problems and solutions bubble to the surface. Work Out brings managers and workers from all over the company into groups of 50 for three days of talking together.

Case in point: The editor of a popular plant newspaper stood up at one Work Out session and said it took her seven signatures to release each issue.

“Why does it take seven signatures?” she asked. Her manager, sitting nearby responded: “This is crazy. I didn’t know that was the case. From now on, no more signatures.”

Welch demanded direct and honest communication from these sessions. “These meetings are predicated on a belief that the people closest to the work know it best and are best qualified to make it better,” said Welch in Jack Welch Speaks, by Janet Lowe. “(They are a) relentless, endless companywide search for a better way to do everything to do.”

To keep new ideas flowing, Welch designed Best Practices, a program that helps workers look outside GE for inspiration. Company teams are sent for two weeks to high-performing companies to learn how they do things. Visited companies, in turn, send teams to GE.

For 20 years as GE’s CEO, Welch was in constant improvement mode. In 1995 he launched the Six Sigma program to find defects in GE processes and pare them to as lose to zero as possible. Tens of thousands of GE workers were trained in this statistical approach. It save GE hundreds of millions of dollars and surpassed Welch’s expectations.

jack welchWelch looked at his role as that of a facilitator.

“My job,” he said, “is to put the best people on the biggest opportunities and the best allocation of dollars in the right places. That’s about it. Transfer ideas and allocate resources and get out of the way.”

In the end, Welch strove for simplicity. “You can’t believe how hard it is for people to be simple, how much they fear being simple. They worry that if they’re simple, people will think they’re simple-minded. In reality, of course, it’s just the reverse. Clear, tough-minded people are the most simple,” he said.

Source: “BUSINESS LEADERS & SUCCESS – 55 TOP BUSINESS LEADERS & HOW THEY ACHIEVED GREATNESS” (With an introduction from William J. O’Neil, founder of INVESTOR’S BUSINESS DAILY, New York: McGraw-Hill, 2004, pages 226-229. 

Jakarta, 2 April 2014 

Frans Indrapradja

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