29 Leadership Secrets from Jack Welch


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29 Leadership Secrets

from Jack Welch

Abridged from

Get Better or Get Beaten,

SECOND EDITION

Robert Slater

McGraw-Hill

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DOI: 10.1036/0071416846

iii

CONTENTS

Preface vii

PART I

THE VISIONARY LEADER: MANAGEMENT TACTICS FOR

GAINING THE COMPETITIVE EDGE

LEADERSHIP SECRET 1 Harness the Power of Change 3

LEADERSHIP SECRET 2 Face Reality! 8

LEADERSHIP SECRET 3 Managing Less Is Managing

Better 12

LEADERSHIP SECRET 4 Create a Vision and Then Get

Out of the Way 15

LEADERSHIP SECRET 5 Don’t Pursue a Central Idea;

Instead, Set Only a Few Clear,

General Goals as Business

Strategies 19

LEADERSHIP SECRET 6 Nurture Employees Who

Share the Company’s Values 23

PART II

IGNITING A REVOLUTION: STRATEGIES FOR DEALING

WITH CHANGE

LEADERSHIP SECRET 7 Keep Watch for Ways to Create

Opportunities and to Become

More Competitive 29

LEADERSHIP SECRET 8 Be Number One or Number

Two and Keep Redefining Your

Market 33

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iv 29 Leadership Secrets from Jack Welch

LEADERSHIP SECRET 9 Downsize, Before It’s Too Late! 37

LEADERSHIP SECRET 10 Use Acquisitions to Make the

Quantum Leap! 41

LEADERSHIP SECRET 11 Learning Culture I: Use

Boundarylessness and

Empowerment to Nurture a

Learning Culture 46

LEADERSHIP SECRET 12 Learning Culture II: Inculcate the

Best Ideas into the Business, No

Matter Where They Come From 50

LEADERSHIP SECRET 13 The Big Winners in the

Twenty-first Century Will

Be Global 54

PART III

REMOVING THE BOSS ELEMENT: PRODUCTIVITY SECRETS

FOR CREATING THE BOUNDARYLESS ORGANIZATION

LEADERSHIP SECRET 14 De-Layer: Get Rid of the Fat! 61

LEADERSHIP SECRET 15 Spark Productivity Through the

‘‘S’’ Secrets (Speed, Simplicity,

and Self-Confidence) 65

LEADERSHIP SECRET 16 Act Like a Small Company 69

LEADERSHIP SECRET 17 Remove the Boundaries! 73

LEADERSHIP SECRET 18 Unleash the Energy of Your

Workers 77

LEADERSHIP SECRET 19 Listen to the People Who

Actually Do the Work 81

LEADERSHIP SECRET 20 Go Before Your Workers and

Answer All Their Questions 86

29 Leadership Secrets from Jack Welch v

PART IV

NEXT GENERATION LEADERSHIP: INITIATIVES FOR

DRIVING AND SUSTAINING DOUBLE-DIGIT GROWTH

LEADERSHIP SECRET 21 Stretch: Exceed Your Goals as

Often as You Can 93

LEADERSHIP SECRET 22 Make Quality a Top Priority 97

LEADERSHIP SECRET 23 Make Quality the Job of Every

Employee 101

LEADERSHIP SECRET 24 Make Sure Everyone Understands

How Six Sigma Works 105

LEADERSHIP SECRET 25 Make Sure the Customer Feels

Quality 110

LEADERSHIP SECRET 26 Grow Your Service Business:

It’s the Wave of the Future 115

LEADERSHIP SECRET 27 Take Advantage of

E-Business Opportunities 119

LEADERSHIP SECRET 28 Make Existing Businesses

Internet-Ready—Don’t Assume

That New Business Models Are

the Answer 123

LEADERSHIP SECRET 29 Use E-Business to Put the Final

Nail in Bureaucracy 127

Afterword 133

vii

PREFACE

Jack Welch, the long-time Chairman and CEO of General Electric,

has been hailed as the greatest business leader of our era

and deservedly so. It was Welch who headed GE from April 1981

to September 2001 and who pioneered some of the most important

business strategies of the past two decades. We now take

these strategies for granted as part of the way American business

is done: restructuring, the emphasis on being number one or

number two, making quality a top priority (through his Six

Sigma initiative), and so on. Moreover, Welch, unlike most other

business leaders, created a tightly woven, carefully scripted business

philosophy that provided brief, crisp guidelines for every

aspect of business.

Welch’s main leadership secrets, spelled out in this book, continue

to resonate throughout the business world. Few other business

leaders have articulated how to achieve maximum performance

with such clarity and forthrightness.

Before Welch took over at GE, the business world had revered

large bureaucracies as critical for close monitoring of personnel;

it had placed great faith in a command-and-control management

system, encouraging senior management to overmanage; it had

allowed the employee to attain a protected status by being assured

of a job for life. Jack Welch punctured holes in each of

these notions. His legacy is that he has forever altered these

myths and has inspired managers of corporations around the

world to behave far differently: Bureaucracies are much smaller,

with fewer management layers; managers manage much less, delegating

far greater authority to empowered employees; the right

to a job for life is no longer guaranteed as management runs

much tighter, more productive ships.

Welch’s performance at General Electric lent mighty credence

to his ideas: When he assumed the post of Chairman and CEO

of GE, the company had annual sales of $25 billion and earnings

of $1.5 billion, with a $12 billion market value, tenth best among

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viii 29 Leadership Secrets from Jack Welch

American public companies. In 2000, the year before Welch retired,

GE had $129.9 billion in revenues; and $12.7 billion in

earnings. In 2001, GE’s revenues stood at $125.9 billion; and

earnings rose to $14.1 billion.

From 1993 until the summer of 1998, GE was America’s market

cap leader. Under Welch, the company reached a high of

$598 billion in market cap (but settled in at about $400 billion

during Welch’s final years as CEO). Fortune magazine selected

GE as ‘‘America’s Greatest Wealth Creator’’ from 1998 to 2000.

Anyone in business, from the most powerful corporate managers

to the hourly factory worker, has much to learn from Jack

Welch and his ideas. Studying his leadership secrets tells us what

American business was once like, and outlines how the tactics

he pioneered have changed business for the better in so many

ways.

PART I

THE VISIONARY LEADER:

MANAGEMENT TACTICS FOR GAINING

THE COMPETITIVE EDGE

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3

LEADERSHIP

SECRET 1

HARNESS THE POWER OF

CHANGE

FROM THE FILES OF JACK WELCH

The mindset of yesterday’s manager—accepting

compromise, keeping things tidy—bred

complacency. Tomorrow’s leaders must raise

issues, debate them, and resolve them. They

must rally around a vision of what a business

can become.

Is there a secret formula for succeeding in business? Probably

not. But it makes sense to study a master—the man widely

regarded as the ablest business leader of the modern era. And

that person is Jack Welch, the recently retired CEO and chairman

of General Electric.

“Perhaps the most admired CEO of his generation,” Fortune

magazine said of Welch in its May 1, 2000, edition.

How did Welch earn this kind of praise?

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4 29 Leadership Secrets from Jack Welch

BRINGING IN BIG NUMBERS

When he took over at General Electric in 1981, the company

had sales of “only” $25 billion. In 1999, GE’s sales reached nearly

$112 billion. Its profits in 1981 were $1.5 billion; Welch grew

the bottom line to nearly $11 billion in 1999.

Welch wasn’t just “doing something right.” To hit those kinds

of numbers, he did many things right. He had great ideas, and

he implemented them.

In the balance of this book, we spell out those ideas in detail.

Yes, Welch led a huge enterprise with 340,000 employees, but we

believe that his ideas can be put to work in organizations of all

sizes.

Of all of Jack Welch’s ideas, none carries more weight than

this: Change, before it’s too late!

Change is easy, right? The boss makes a decision, and employees

implement it—right?

If you’re in business, you know that change almost never

works like that. In fact, it can be the most difficult thing in the

world. Welch understood this fact, and yet he pushed for change

almost from the minute he took over at GE in the spring of

1981.

CHANGE WAS EVERYWHERE

Change was rampant in the early 1980s. Inflation was raging,

and global competitors were capturing unprecedented market

shares.

Welch understood the challenges his company faced:

It was a reminder that we’d better get a lot better, faster.

So I guess my message in our company was, “The game is

going to change, and change drastically.” And we had to get

a plan, a program together, to deal with a decade that was

totally different.

29 Leadership Secrets from Jack Welch 5

What did this mean for GE?

New products, a different business environment every day,

and a company within which every employee had to embrace

change.

MAKE EACH DAY YOUR FIRST DAY ON THE JOB

Welch loved to tell GE executives to start their day as if it were

their first day on the job.

In other words, always think fresh thoughts. Make it a habit

to think about your business. Don’t rest on your laurels.

Make whatever changes are necessary to improve things. Reexamine

your agenda, and rewrite what needs to be rewritten.

To many both inside and outside the company, it appeared

that Welch could have left well enough alone. After all, GE was

a model corporation, right?

Welch knew better:

I could see a lot of [GE] businesses becoming . . . lethargic.

American business was inwardly focused on the bureaucracy.

[That bureaucracy] was right for its time, but the times

were changing rapidly. Change was occurring at a much faster

pace than business was reacting to it.

THE GENESIS OF “NUMBER ONE, NUMBER TWO”

Welch responded by coming up with a new strategy for GE’s

businesses. From then on, he announced, those businesses would

have to be either number one or number two in their market.

If they couldn’t hit that high standard, they’d be shut down or

sold off.

So Welch wasn’t just asking for changes at the margins. The

6 29 Leadership Secrets from Jack Welch

“number one, number two” standard entailed many risks. But if

successful, it would position GE for double-digit growth for years

to come.

This was only a hint of things to come. Throughout Welch’s

tenure at GE, he continued to embrace change.

For instance, on December 12, 1985, GE announced plans to

purchase communications giant RCA for $6.28 billion.

It was the largest nonoil merger ever. General Electric then

ranked ninth on the list of America’s largest industrial firms.

RCA ranked second among the nation’s service firms. Together,

they formed a corporate powerhouse with sales of $40 billion,

placing it seventh on the Fortune 500.

The purchase represented a sea change for GE. Throughout

much of its history, the company had a tradition of growing

from within. Welch ignored that tradition. He intended to push

General Electric’s highest growth businesses and do whatever it

took to win.

EMPLOYEES HAVE GOOD IDEAS TOO

At the same time, Welch knew that there were good ideas inside

the shop as well. In 1989, he launched an initiative that he called

Work-Out, which was an ambitious 10-year program to harness

the brains of his employees.

In Welch’s words, Work-Out was intended to help people

stop:

wrestling with the boundaries, the absurdities, that grow in

large organizations. We’re all familiar with those absurdities:

too many approvals, duplication, pomposity, waste.

Change worked. By the 1990s, GE had emerged as the strongest

company in America. Yet even that record of achievement

did not keep Welch from exploring the next wave of change. In

1995, he took a bold new step and launched a companywide

29 Leadership Secrets from Jack Welch 7

initiative to improve the quality of General Electric’s products

and processes.

Why? Welch had grown convinced that GE’s quality standards

simply weren’t high enough, even though GE had always been,

in his words, a “quality company.” So why not stand pat? His

answer:

We want to be more than that. We want to change the

competitive landscape by being not just better than our competitors,

but by taking quality to a whole new level. We want

to make our quality so special, so valuable to our customers,

so important to their success, that our products become their

only real value choice.

An openness to change.

This is Jack Welch’s key business strategy:

Change, before it’s too late!

WELCH RULES

➤ Accept change. Business leaders who treat change like

the enemy will fail at their jobs. Change is the one

constant, and successful business leaders must be able

to read the ever-changing business environment.

➤ Let your employees know that change never ends.

Teach your colleagues to see change as an opportunity—

a challenge that can be met through hard work

and smarts.

➤ Be ready to rewrite your agenda. Welch always encouraged

his managers and employees to be prepared

to reexamine their agenda and to make changes when

necessary.

8

LEADERSHIP

SECRET 2

FACE REALITY!

FROM THE FILES OF JACK WELCH

The art of leading comes down to one thing:

facing reality, and then acting decisively and

quickly on that reality.

Jack Welch’s goal was to transform GE’s businesses into the

best in the world. To get there, he devised a strategy called

Face Reality.

Welch just couldn’t get enough of “facing reality”:

It may sound simple, but getting any organization or group

of people to see the world the way it is and not the way they

wish it were or hope it will be is not as easy as it sounds.

We have to permeate every mind in the company with an attitude,

with an atmosphere that allows people—in fact, encourages

people—to see things as they are, to deal with the

way it is now, not the way they wish it would be.

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29 Leadership Secrets from Jack Welch 9

Facing reality in the early 1980s meant taking an entirely new

look at GE’s businesses and deciding what to do with them.

Welch called this process “restructuring.”

Restructuring wasn’t about change at the margins. It was

about scrutinizing the whole company and changing things.

IT’S OKAY TO CHANGE A COMPANY

At the core of restructuring was the assumption that it was okay,

sometimes even necessary, to change the company.

In October 1981, just 6 months after he took over as CEO,

Welch addressed 120 corporate officers and spelled out his

agenda. It was nothing short of a revolution.

Bureaucratic waste would come to an end, he said. No longer

could anyone write deceptive plans or propose unrealistic budgets.

Henceforth, the tough decisions that had to be made would

be made.

Reading between the lines, Welch was really saying:

Check your old excuses at the door.

Stop insisting that life has been unfair to you. Stop seeing

conspiracies. Deal with situations as they are. In Welch’s words:

Most of the mistakes you’ve made have been through not

being willing to face into it, straight in the mirror that reality

you find, then taking action right on it.

That’s all managing is, defining and acting. Not hoping,

not waiting for the next plan. Not rethinking it. Getting on

with it.

MOVING QUICKLY

In his later years as CEO at GE, Welch admitted that he himself

had not always faced up to reality. Nor had he moved quickly

enough to implement major changes at GE:

10 29 Leadership Secrets from Jack Welch

I would have liked to have done things a lot faster. I’ve

been here for 17 years. Imagine if I’d taken 4, 3, or even 1

year too long in making my decisions. I would have had a

rude awakening.

On balance, though, Welch made bold decisions that indicated

he was (a) facing reality, (b) adjusting to that reality, and (c)

moving quickly.

In the early 1980s, when he realized that GE would have to

restructure, he was facing reality: GE needed to devote all of its

resources to its strongest businesses.

In the mid-1980s, when he authorized GE’s purchase of RCA,

he was facing reality: GE needed the acquisition to push hightech

growth.

In the late 1980s, when he began the Work-Out program, he

was facing reality: Employees needed a voice in running the company.

In the mid-1990s, when Welch started his now-legendary Six

Sigma quality program, he was facing reality: GE’s quality programs

were just not working.

And in the late 1990s, when the Internet came into its own,

Welch faced a new reality. At first, like so many other CEOs, he

avoided the Internet. But as new models for doing business in

cyberspace emerged, Welch set out to revamp the entire enterprise.

He talked about the Internet, and facing reality, when he addressed

GE shareholders in April 2000:

Seeing reality for GE in the ’80s meant a hard look at a

century-old portfolio of business . . . Seeing reality today

means accepting the fact that e-business is here. It’s not

coming. It’s not the thing of the future. It’s here . . .

To Jack Welch, facing reality was of supreme importance.

Stick your head in the sand, and your business will stay stuck

in the past.

If you face reality and move quickly, you have a chance to

compete and win in a changing business environment.

29 Leadership Secrets from Jack Welch 11

WELCH RULES

➤ Face reality. Business leaders who avoid reality are

doomed to failure.

➤ Act on reality quickly! Those who truly face reality

can’t stop there. They must adapt their business strategies

to reflect that reality, and they must do so

quickly.

➤ Turn your business around. Stick your head in the

sand, says Welch, and you will fail. Face reality, and

you may turn a bad situation into a great one.

12

LEADERSHIP

SECRET 3

MANAGING LESS IS MANAGING

BETTER

FROM THE FILES OF JACK WELCH

As we became leaner, we found ourselves

communicating better, with fewer interpreters

and fewer filters. We found that with

fewer layers we had wider spans of management.

We weren’t managing better. We were

managing less, and that was better.

One reason Jack Welch had an enormous impact on the business

community was that he headed one of the world’s most

respected, and most imitated, companies. Over the decades,

whenever General Electric came up with a new management

style, others in American business sought to emulate that style.

For example:

■ In the 1950s: GE decentralized, and decentralization became

the rage.

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29 Leadership Secrets from Jack Welch 13

■ In the 1960s and 1970s: GE created enormous bureaucracies,

and largeness became a virtue in the business world.

As these examples suggest, GE managers, in Welch’s view,

managed far too much. Not so under Welch. He threw out the

old rule book and constructed an entirely new set of principles

on how to manage.

Or more accurately, how not to manage.

Welch argued that managing less was managing better.

THE WELCH PARADOX OF MANAGEMENT

Welch made it very clear that he wanted his managers to manage

less. He wanted them to do less monitoring and less supervising

and to give their employees more latitude. Conversely, he wanted

far more decision making at the lower levels of the company.

Obviously, he wasn’t suggesting that managers should knock

off at noon every day and head for the golf course. Far from it!

But he didn’t want his managers interfering with their employees

at every turn. Instead, he wanted them to concentrate on creating

a vision for their employees and to make sure that the vision

was always on the mark and was being acted upon.

This is counterintuitive, right? Aren’t managers supposed to

manage? If they manage less, won’t the overall performance of

the business suffer? Who will make sure employees are working

as hard as they can? Who will monitor inventory levels? Who

will worry about maintaining the quality of the product?

In addition, managers want to manage. They want to keep

their fingers on the pulse of the business and keep close tabs on

their employees.

Welch responds with one word: Relax.

Stop getting in people’s way. Cut them some slack. Stop looking

over their shoulders. Stop bogging them down in bureaucracy.

Let them perform.

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SHOW RESPECT, INSTILL CONFIDENCE

Behind this prescription lies a key idea: Your employees deserve

respect. You’ve hired the best people and trained them well,

right?

So treat them with respect. Show them you understand that

they are doing something important for the company. Build their

confidence—in you, in the company, and in themselves.

And then get the hell out of their way.

One welcome by-product of this approach is an increased

management focus on the big issues. For Welch, “managing less”

at GE meant that his leaders had more time to think big thoughts

and be more creative. They gained time to look beyond their

own fiefdoms and think about how they might help other GE

businesses.

As the years wore on, Welch felt that his senior managers were

getting better and better at helping one another out. Had these

leaders spent large amounts of time firing off memos to their

subordinates, checking up on them, or worrying about fine-grain

issues, they wouldn’t have had the time to devote to the biggerpicture

opportunities.

But by managing less, they gained that time and were able to

help GE reach the next level.

WELCH RULES

➤ Manage less. Teach your managers to manage less,

even though their training may be to manage more.

➤ Instill confidence. Treat employees with respect and

build their confidence.

➤ Get out of the way. Employees do not need constant

supervision. Let them do their jobs. You will be surprised

at the results.

➤ Emphasize vision, not supervision. Managing less lets

managers think big thoughts and come up with new

ideas to benefit the business.

15

LEADERSHIP

SECRET 4

CREATE A VISION AND THEN

GET OUT OF THE WAY

FROM THE FILES OF JACK WELCH

People always overestimate how complex

business is. This isn’t rocket science. We’ve

chosen one of the world’s simplest professions.

This is one of Jack Welch’s fundamental beliefs about management.

As he phrases it:

I operate on a very simple belief about business. If there

are six of us in a room and we all get the same facts, in

most cases the six of us will reach roughly the same conclusion.

The problem is, we don’t get the same information. We

each get different pieces. Business isn’t complicated. The

complications arise when people are cut off from information

they need.

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16 29 Leadership Secrets from Jack Welch

To get the critical information, Welch says, a manager must

ask five key questions:

1. What does your global competitive environment look

like?

2. In the last 3 years, what have your competitors done?

3. In the same period, what have you done to them?

4. How might they attack you in the future?

5. What are your plans to leapfrog them?

GE, an enormous enterprise operating on an international

scale, is surely a good test of this philosophy. How did Welch

manage to keep up with all 12 of GE’s businesses? His answer:

There are a series of mechanisms that allow you to keep

in touch. I travel around the world often, so I’m smelling

what people are thinking . . .

None of us runs the businesses. I’m never going to run

them. I don’t run them at all. If I tried to run them, I’d go

crazy. I can smell when someone running [a business] isn’t

doing it right.

So again, Welch is more of a “supermanager” than a manager,

overseeing a dozen huge businesses simultaneously. He is actively

involved but mainly through recruiting talented people, providing

vision, and allocating resources.

My job 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.

But information was also critical. Downsizing at GE helped

by creating a company that was far more effective at communicating

with itself.

As we became leaner, we found ourselves communicating

better, with fewer interpreters and fewer filters. We found

that with fewer layers we had wider spans of management.

29 Leadership Secrets from Jack Welch 17

Inevitably, as managers and employees in the lower ranks were

asked to take more responsibility, Welch began to feel that it was

important to distinguish between leaders and managers:

Leaders—and you take anyone from Roosevelt to Churchill

to Reagan—inspire people with clear visions of how things

can be done better. Some managers, on the other hand,

muddle things with pointless complexity and detail. They

equate [managing] with sophistication, with sounding

smarter than anyone else. They inspire no one.

Jack Welch never involved himself in deciding on the style of

a refrigerator or what television programs NBC should schedule

for Thursday night prime time. As he put it:

I have no idea how to produce a good [television] program

and just as little about how to build an engine . . . But I

do know who the boss at NBC is. And that is what matters. It

is my job to choose the best people and to provide them

with the dollars. That’s how the game is played.

What companies and business leaders must do, he argues, is

to

provide an atmosphere, a climate, a chance, a meritocracy,

where people can have the resources to grow, the educational

tools are available, they can expand their horizons,

their vision of life. That’s what companies ought to provide

. . .

People say to me, “Aren’t you afraid of losing control?

You’re not measuring [anymore].” We couldn’t lose control of

this place. We’ve got 106 years of people measuring everything.

So we’re not going to lose control. It’s in our blood.

WELCH RULES

➤ Business is simple. Complications arise when people

are cut off from vital information.

➤ Always keep the five key questions in mind: What

does your global competitive environment look like?

In the last 3 years, what have your competitors done?

18 29 Leadership Secrets from Jack Welch

In the same period, what have you done to them? How

might they attack you in the future? What are your

plans to leapfrog them?

➤ Managing is allocating people and resources. Put the

right people in the right job, give them what they

need, and then get out of the way.

➤ Managers lead with vision. Managers must persuade

others to implement through the force of vision.

19

LEADERSHIP

SECRET 5

DON’T PURSUE A CENTRAL

IDEA; INSTEAD, SET ONLY A

FEW CLEAR, GENERAL GOALS

AS BUSINESS STRATEGIES

FROM THE FILES OF JACK WELCH

I am not going to attempt, for the sake of

intellectual neatness, to tie a bow around the

many diverse initiatives of General Electric.

At the end of his first year as CEO, Jack Welch explained what

he wanted to do at GE:

If I could, this would be the appropriate moment for me

to withdraw from my pocket a sealed envelope containing

the grand strategy for the General Electric Company over the

next decade. But I can’t . . .

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20 29 Leadership Secrets from Jack Welch

What will enhance the many decentralized plans and initiatives

of this company isn’t a central strategy, but a central

idea—a simple core concept that will guide General Electric

in the ’80s and govern our diverse plans and strategies.

Instead of directing GE’s businesses on the basis of a specific

step-by-step strategic plan, Welch preferred to set out only a few

clear, general goals. This would permit his employees to make

the most of opportunities that came their way.

Welch was impressed by what he had read about the Prussian

military strategists in the nineteenth century:

They did not expect a plan of operation to survive beyond

the first contact with the enemy. They set only the broadest

of objectives and emphasized seizing unforeseen opportunities

as they arose.

In running GE, Welch adopted the same attitude: Strategy

would not be etched in stone but instead would evolve over time.

It was important to set broad objectives that were consistent with

the company’s values and to apply those values as situations

arose.

The values that guided Welch through the 1980s and 1990s

were very general. But taken together, they provided a strong

management framework:

■ Create a clear, simple, reality-based, customer-focused vision

and be able to communicate it in a straightforward

way to all constituencies.

■ Understand accountability and commitment and be decisive;

set and meet aggressive targets; always with unyielding

integrity.

■ Have a passion for excellence; hate bureaucracy and all

the nonsense that comes with it.

■ Have the self-confidence to empower others and behave

in a boundaryless fashion; believe in and be committed

to Work-Out as a means of empowerment; be open to

ideas from anywhere.

29 Leadership Secrets from Jack Welch 21

■ Have, or have the capacity to develop, global brains and

global sensitivity, and be comfortable building diverse

global teams. Stimulate and relish change; do not be

frightened or paralyzed by it. See change as opportunity,

not just a threat.

■ Have enormous energy and the ability to energize and invigorate

others. Understand speed as a competitive advantage.

To show the consistency of Welch’s attitude toward change at

GE over the years, we include a version of those values from the

summer of 2000.

GE leaders . . . always with unyielding integrity:

■ Are passionately focused on driving customer success

■ Live Six Sigma quality, ensure that the customer is always

its first beneficiary, and use it to accelerate growth

■ Insist on excellence and are intolerant of bureaucracy

■ Act in a boundaryless fashion; always search for and apply

the best ideas regardless of their source

■ Prize global intellectual capital and the people that provide

it; build diverse teams to maximize it

■ See change for the growth opportunities it brings, e.g.,

e-business

■ Create a clear, simple, customer-centered vision, and continually

renew and refresh its execution

■ Create an environment of “stretch,” excitement, informality,

and trust; reward improvements and celebrate results

■ Demonstrate, always with infectious enthusiasm for the

customer, the 4-E’s of GE leadership: the personal Energy

to welcome and deal with the speed of change, the ability

to create an atmosphere that Energizes others, the Edge

to make difficult decisions, and the ability to consistently

Execute

22 29 Leadership Secrets from Jack Welch

Don’t get bogged down in details, Welch advises. Lay out your

goals and adjust to changing realities as you go along.

WELCH RULES

➤ Set out a general framework for your team. Do not

try to set a detailed game plan for every situation.

➤ Create values that are consistent with the company

vision. Values should reflect the vision, culture, and

goals of the organization.

➤ Make sure there is room to maneuver. Core values

should be constant, but the strategies may need to

change with the competitive environment.

23

LEADERSHIP

SECRET 6

NURTURE EMPLOYEES WHO

SHARE THE COMPANY’S

VALUES

FROM THE FILES OF JACK WELCH

The hardest thing in the world is to move

against somebody who is delivering the goods

but acting 180 degrees from [your values].

But if you don’t act, you’re not walking the

talk and you’re just an air bag.

Welch has often summarized his thoughts on the essential

traits of an effective manager. In his first such effort, he

described four categories:

A. Delivers on commitments—financial or otherwise—and

shares GE’s values. “His or her future is an easy call,”

says Welch. “Onward and upward.”

B. Does not meet commitments and does not share GE’s values.

“Not as pleasant a call, but equally easy.”

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24 29 Leadership Secrets from Jack Welch

C. Misses commitments but shares the values. “He or she

usually gets a second chance, preferably in a different environment.”

D. Delivers on commitments but does not subscribe to GE’s

values. What happens to managers who deliver the numbers

but do not live the GE values? According to Welch,

they get fired.

That’s a shell shock to our company, because numbers are

no longer job security. Values and numbers now mean job

security.

KEEP THE A’S; GET RID OF THE C’S

By January 1997, Welch was using different language to make

the same points. Speaking to the company’s top 500 managers,

he urged his colleagues to work hard to hang on to the “category

A’s”—in other words, the team players who subscribed to the

company’s values. He urged that they also nurture the B’s but

move quickly to get rid of the C’s:

Too many of you work too hard to make C’s [into] B’s. It is

a wheel-spinning exercise. Push C’s on to B companies or C

companies, and they’ll do just fine . . .

Take care of your best. Reward them. Promote them. Pay

them well. Give them a lot of [stock] options and don’t spend

all that time trying work plans to get C’s to be B’s. Move

them on out early. It’s a contribution.

Eight months later, Welch spoke again about the characteristics

of A, B, and C managers. He told managers that the key

was to demand more of the A’s, to cultivate them, and to nourish

them. The best thing to do with the C’s, he said again, was to

get rid of them.

Someone in the audience confessed that she had recently been

forced to let some people go and that she felt bad about it.Welch

replied without hesitation: Don’t feel guilty.

29 Leadership Secrets from Jack Welch 25

Callous? Not to Welch. As he saw it, it was simply good business.

As Welch watched the business environment grow much more

competitive and intense in the late 1990s, he concluded that

being a business leader had become far more demanding.

The thing I’ve noticed is that the intensity level and the

global understanding and the facing reality and the seeing

the world as it is, is so much more pronounced in December

1997 than it was 10 years ago, and certainly 15 years ago,

where form was very important . . .

Global battles don’t allow form. It’s all substance. Form

means somebody is not intensely interested in the company.

Welch likes to say that 20 years ago, being named CEO of a

company was the culmination of a career. But today’s CEO must

think of stepping into the top job as only the beginning of the

real battles:

No one can come to work and sit, no one can go off and

think of just policy, no one can do any of these things.

You’ve got to be live action all day. And you’ve got to be able

to energize others. . . . You’ve got to be on the lunatic fringe.

What does all this add up to? For one thing, it means surrounding

yourself with category A’s—that is, the best possible

people:

The biggest advice I give people is you cannot do these

jobs alone. You’ve got to be very comfortable with the brightest

human beings alive on your team. And if you do that, you

get the world by the tail . . .

Always get the best people. If you [don’t], you’re shortchanging

yourself.

WELCH RULES

➤ Give employees more responsibility, and they will

make better decisions. By making your employees

more accountable, you make your organization more

productive.

26 29 Leadership Secrets from Jack Welch

➤ Nurture the employees who live up to company values,

even if they don’t make their numbers. Consider

reassigning them if their numbers continue to falter.

➤ Eliminate employees who do not live the company

values, even if their numbers are good. Difficult, yes,

but absolutely necessary.

PART II

IGNITING A REVOLUTION:

STRATEGIES FOR DEALING WITH CHANGE

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29

LEADERSHIP

SECRET 7

KEEP WATCH FOR WAYS TO

CREATE OPPORTUNITIES AND

TO BECOME MORE

COMPETITIVE

FROM THE FILES OF JACK WELCH

The world is moving at such a pace that

control has become a limitation. It slows you

down.

Before Jack Welch’s arrival at GE, the company was steaming

full throttle toward the cliff edge.

Yes, the balance sheet was strong. But only a handful of the

company’s 350 business units dominated their markets. The only

GE businesses doing well on a global basis were plastics, gas

turbines, and aircraft engines (and overseas, only gas turbines

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30 29 Leadership Secrets from Jack Welch

were dominant). Something like 80 percent of GE’s earnings still

came from its traditional electrical and electronic manufacturing

businesses at a time when the manufacturing sector was nosediving.

A number of GE’s businesses—aircraft engines, for one—

often consumed more cash than they generated.

There were success stories such as financial services, medical

systems, and plastics. But these businesses contributed only onethird

to total corporate earnings in 1981.

GE’s ADVERSARIES

GE’s adversaries were a changing global business environment

and a weakening domestic economy.

For much of the twentieth century, America had dominated

the most important markets of the world economy: steel, textiles,

shipbuilding, television, calculators, automobiles.

Gradually, though, the competitive arena shifted. The Japanese,

in particular, began to lure clients away with higher-quality,

lower-cost products. To compete for business around the world,

the United States would have to become far more productive.

But by the early 1980s, the American economy was increasingly

unhealthy. Inflation, only 3.4 percent in 1971, had soared

to 18 percent in March 1980. (One culprit was the price of oil,

which spiked from $1.70 per barrel in 1971 to $39 per barrel in

1980.) As Jack Welch assumed the reins at GE in the spring of

1981, the American economy was mired in the deepest recession

in a half-century.

Welch’s business ideas were formed as a response to these

fundamental changes in the global business environment. He

understood, better than most, that the business arena had become

increasingly competitive. He had watched a whole new

array of enterprises with international capabilities pop up around

the globe. He understood that a completely new vision was re29

Leadership Secrets from Jack Welch 31

quired and, along with that new vision, a new set of business

strategies.

THE MOST COMPETITIVE ENTERPRISE ON EARTH

Jack Welch had a gut feeling that something required fixing.

I could see a lot of [GE] businesses becoming . . . lethargic.

American business was inwardly focused on the bureaucracy.

[That bureaucracy] was right for its time, but the times

were changing rapidly. Change was occurring at a much faster

pace than business was reacting to it.

Many in American business believed that layer upon layer of

management created the tightest possible command-and-control

system and, therefore, the best operations. But to Welch, those

layers wasted precious time and resources and distracted the

company.

The old organization was built on control, but the world

has changed . . . You’ve got to balance freedom with some

control, but you’ve got to have more freedom than you ever

dreamed of.

What was Jack Welch’s vision? Simply this: To make General

Electric the most competitive enterprise on earth. As he told

shareholders on his first day in office:

A decade from now we would like General Electric to be

perceived as a unique, high-spirited, entrepreneurial enterprise

. . . a company known around the world for its unmatched

level of excellence. We want General Electric to be

the most profitable, highly diversified company on earth,

with world-quality leadership in every one of its product

lines.

He could not wait to put his business ideas to work—to test

them, to find out which were valid and which were not. He

32 29 Leadership Secrets from Jack Welch

would shape and refine his ideas. He was determined to make

good on his promise to grow GE into the most successful business

enterprise in America.

WELCH RULES

➤ Don’t stick your head in the sand. From the start,

Welch had his finger on the pulse of the competitive

environment. Keep a close tab on those key variables

that create opportunities and challenges for your business.

➤ See things for what they are. Allocate resources to

market-leading businesses, fix ailing companies, and

jettison those that are not competitive.

➤ Begin with a vision. Nothing changes without a clear

vision of where change is supposed to lead. The boldest

vision may be the best vision.

33

LEADERSHIP

SECRET 8

BE NUMBER ONE OR NUMBER

TWO AND KEEP REDEFINING

YOUR MARKET

FROM THE FILES OF JACK WELCH

There will be no room for the mediocre supplier

of products and services—the company

in the middle of the pack.

In the early 1980s, Jack Welch decided to pursue a strategy that

would establish each of the company’s businesses as either

number one or number two in its market.

He warned that without such a strategy, the company’s prospects

would be dim.

The winners in this slow-growth environment will be those

who search out and participate in the real growth industries

and insist upon being number one or number two in every

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34 29 Leadership Secrets from Jack Welch

business they are in . . . or those who have a clear technological

edge, a clear advantage in a market niche.

Welch was establishing literally the highest possible standards

for his businesses. He made it clear that he would accept nothing

less.

SETTING THE BAR AS HIGH AS POSSIBLE

Given the large portfolio of businesses that he presided over,

Welch felt he needed a breakaway strategy that would create a

“survival of the fittest” mindset throughout the company.

GE’s managers, said Welch, now had to ask some difficult

questions:

Where we are not number one or number two, and don’t

have or can’t see a route to a technological edge, we have

got to ask ourselves [management theorist] Peter Drucker’s

very tough question: “If you weren’t already in the business,

would you enter it today?” And if the answer is no, face into

that second difficult question: “What are you going to do

about it?”

Within the company, there was widespread unhappiness.

“Why was it necessary to be number one or two?” anxious managers

asked. What was wrong with being a solid number three

or four?

In response, Welch pointed out that in many markets, it was

the number three, four, five, or six businesses that suffered the

most during cyclical downturns. Number one or two businesses

could defend their market share either through aggressive pricing

strategies or the development of new products. Runners-up

could not.

Moreover, Welch argued, many managers who believed they

were third or fourth in their markets were mistaken because they

were considering only their domestic competition. When international

competitors were factored in, they were likely to fall far

lower in the “rankings.”

29 Leadership Secrets from Jack Welch 35

Citing his own experience, Welch explained the difference between

a market leader and an also-ran:

I ran some businesses that were number one or two and

some businesses that were four or five, so I had the luxury

of a laboratory . . . And it was clear to me that one was a helluva

lot easier and better than the other one. The other one

didn’t have the resources and the muscle and the power to

compete on a global scale that was emerging in the ’90s.

But the skeptics persisted. “Why sell off a business,” they

asked, “when it’s making good money?” Again, Welch had an

answer.

When you’re number four or five in a market, when number

one sneezes, you get pneumonia. When you’re number

one, you control your destiny.

One problem quickly presented itself. The company was producing

a wide variety of seemingly unrelated products, from

time-shares to nuclear reactors to microwave ovens. Could GE

excel in so many different areas?

The answer turned out to be yes. By 2000, GE had achieved

dominance or near dominance in dozens of markets across the

globe:

■ Number one in the world: industrial motors, medical systems,

plastics, financial services, transport, power generation,

information services, aircraft engines, and electric

distribution equipment. NBC, which includes generalinterest

programming (and its CNBC business-news offshoot),

was ranked the number one American network.

■ Number two in the world: lighting and household appliances.

ADJUSTING THE STRATEGY

So Number One, Number Two was a big win. By the mid-1990s,

however, it was clear that the strategy had its limitations.

36 29 Leadership Secrets from Jack Welch

For one thing, it was vulnerable to GE managers defining

markets in ways that benefited them. GE managers learned to

define their markets in ways that guaranteed an outcome of

number one or two, often by defining their own markets far too

narrowly.

For example, GE’s power-generation business developed products

for the large utilities and defined its market as “large power

plants.” But by so doing, the division neglected the increasingly

important distributed-power market.

Welch ordered the strategy revised in early 1996. The refinement

came at an opportune time: just as GE was planning to

expand its service offerings. For example, for years, GE had serviced

only GE aircraft engines. In 1997, however, it expanded the

business and started to offer repair and parts for Pratt & Whitney

and Rolls Royce engines.

Might redefining these markets make it more difficult for divisions

to retain their hard-won number one or number two

positions? Temporarily, perhaps. But Welch insisted that he

would stay the course as long as he was convinced that the company

was (a) building on strengths and (b) had the opportunity

to be number one.

By revising the Number One, Number Two strategy, Welch

faced reality, embraced change, shook things up, and forced his

key managers to scrutinize their businesses all over again.

WELCH RULES

➤ Develop market-leading businesses. Number one and

number two businesses can withstand downturns, but

laggards fall further behind when times get tough.

➤ Define markets broadly. Don’t make the mistake of

defining markets so narrowly that you shut yourself

out of growing market segments.

37

LEADERSHIP

SECRET 9

DOWNSIZE, BEFORE IT’S TOO

LATE!

FROM THE FILES OF JACK WELCH

These are the businesses that we really want

to nourish. These are the businesses that will

take us into the twenty-first century. They

are inside the circles. Outside the circles you

have businesses that we would prefer not to

pursue any further.

Jack Welch felt he had no choice. He not only had to reshape

the company but also reduce its size dramatically.

Alone among American business leaders, Welch was willing

to downsize a company that was not facing an imminent crisis.

He knew this would be a heart-wrenching process. But the result

would be worth it: a GE that was sleek, aggressive, and competitive.

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38 29 Leadership Secrets from Jack Welch

DOWNSIZING: AN UPHILL BATTLE

Prior to the 1980s, conventional wisdom decreed that employees

should be let go only as a last resort and only when a company

was on the brink of a major business reversal.

So when “downsizing” first appeared on the American business

landscape, it was taken as an indication of a serious decline

in the downsizing company’s fortunes. Or perhaps worse, it was

seen as an evasion of corporate social responsibility.

Apart from that, it was difficult to fire people.

One principle that labor unions had hammered into the

American consciousness was the right of every individual to hold

a job. To some extent, this translated into a right not to be fired.

Meanwhile, the politicians in Washington had accepted the

notion that jobs, especially in one’s home district, were more

important than a corporation’s bottom line.

And for their part, corporate managers had little appetite for

firing employees. Some didn’t want to make the tough decisions.

Others believed in the principle of job security, arguing that it

fostered loyalty and productivity.

Jack Welch, however, believed that lifetime employment was

a failed strategy. GE’s competition in the early 1980s was coming

from foreign firms whose workers had achieved higher productivity

rates. To compete with those companies, GE would have

to invest in new equipment and cut payrolls.

Welch’s position constituted a dramatic shift in corporate

thinking. In 1981, GE rang up profits of $1.5 billion, and the

company didn’t appear to be in trouble. The effect of Welch’s

downsizing program would be to put thousands of GE employees

out of work. His tactics soon made him one of the most

controversial CEOs in America.

It was an uphill battle and no doubt a lonely one. No other

American CEO reached the decision to perform radical surgery

on his or her own company, even before conclusive evidence of

a life-threatening illness had emerged. Welch stood alone.

29 Leadership Secrets from Jack Welch 39

THE NICKNAME HE HATES

The reactions to Welch’s initial efforts at restructuring were

highly negative. He was dubbed “Neutron Jack”—an allusion to

the neutron bomb, which kills people but leaves buildings standing.

Neutron Jack: The name haunted Welch.

The media used it to characterize him as a heartless, evil individual—

a manager who cared only for the bottom line and

not for the good of his employees.

Welch’s bitterness is clear as he talks about his hated nickname:

I think it was a harsh term. Mean-spirited. They call me

“Neutron Jack” because we laid off people even though we

gave them the best benefits they had in their life.

Despite all the controversy, it wasn’t a close call in Welch’s

mind. He was convinced that only massive surgery would ensure

GE’s long-term success.

He did not think that he had a choice.

He was not at the helm of GE to make his employees happy.

He was there to make the company as profitable as possible.

WELCH RULES

➤ Even in the good times, regularly review expenses and

head counts. Welch downsized when GE appeared to

be healthy. Don’t assume that because all is well at the

moment, it will stay that way. (And are you sure all is

well?)

➤ Don’t lead by polls. CEOs should not run companies

as if they were popularity contests. Welch didn’t hesitate

to make himself unpopular in his early years,

bucking conventions and conventional wisdom. Do

what you know is right for the long-term health of the

organization.

40 29 Leadership Secrets from Jack Welch

➤ Remember that tough actions today may prevent far

more complex problems later. Had Welch not restructured

in the early 1980s, he might have had to eliminate

far more jobs in later years.

41

LEADERSHIP

SECRET 10

USE ACQUISITIONS TO MAKE

THE QUANTUM LEAP!

FROM THE FILES OF JACK WELCH

This [acquisition of Honeywell] is the most

exciting deal for GE since RCA . . . the success

of the RCA deal—which was probably

one of the most successful deals in corporate

history—will bode well for this one. . . .

We’re merging two real high-tech companies.

With real earnings. Doing real things.

—Jack Welch, October 2000

Call it a surprise move.

Call it the tactic that turns an above-average company

into a superstar.

Call it the bold ploy that you spring while others sit stunned,

unable to counter your adventurous gambit.

Surprise, boldness, and even shock—these are the features of

the quantum leap.

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42 29 Leadership Secrets from Jack Welch

Going for the quantum leap is what Welch had in mind when

he launched the two largest acquisitions in GE’s history: RCA in

1985 and Honeywell in 2000. And although GE was ultimately

frustrated in its bid for Honeywell, the gambit can hold interesting

lessons.

Welch’s goal, in both cases, was not simply to make the company

bigger. His goal was to build up GE’s highest growth businesses

and thereby grow earnings. Acquiring businesses that

could add to GE’s earnings became a hallmark of the new Welchdriven

culture.

THE FIRST QUANTUM LEAP

Welch first cast a covetous eye on RCA, the Radio Corporation

of America, in the mid-1980s.

Like GE, RCA was one of America’s most famous corporate

names. RCA had interests in defense electronics, consumer electronics,

and satellites. But the jewel in RCA’s crown was the National

Broadcasting Company (NBC), which it had created in

1926.

Until Welch made his move, the three major television networks

had seemed untouchable. Most people assumed that their

owners would never part with these highly profitable “trophy”

properties.

Not Welch. Sometime in 1984, Welch began pondering a GERCA

merger. General Electric in 1984 had sales of $27.9 billion,

and RCA had just over $10 billion. Together, they would constitute

a new corporate powerhouse that would rank seventh on

the Fortune 500.

Welch was convinced that the merger would augment GE’s

drive into the service and technology fields and reduce its dependence

on slow-growth manufacturing businesses.

The deal, announced December 12, 1985, was Jack Welch’s

29 Leadership Secrets from Jack Welch 43

boldest move to that point. GE and RCA agreed that General

Electric would buy the communications giant for $6.28 billion,

or $66.50 a share—the largest nonoil merger ever. Since Wall

Street analysts valued RCA at $90 per share, GE appeared to have

gotten a very good deal, indeed.

“This is going to be one dynamite company,” Welch said happily.

“We will have the technological capabilities, financial resources,

and global scope to be able to compete successfully with

anyone, anywhere, in every market we serve . . .”

Welch particularly enjoyed the spark he found among NBC

entertainment executives. “They’re our type of people. They

know how to be number one.” As a result of Welch’s audacity,

General Electric was now a very different company.

THE SECOND QUANTUM LEAP

Even as he was preparing to retire in the fall of 2000, Welch

came upon an opportunity to make another quantum leap.

Honeywell International, Welch’s new target, was a manufacturer

of aerospace systems, power and transportation products, specialty

chemicals, home security systems, and building controls.

Honeywell seemed like a great fit with GE. Both companies

made power-generation systems, plastics, and chemicals. GE aircraft

engines were a major force in the commercial aircraft field;

Honeywell was strong in avionics and business jet engines.

If the Honeywell deal went through, it would add $24 billion

to GE’s annual revenues of $112 billion. GE’s profits—already

on the order of $11 billion a year—would grow by another $2.5

billion.

On October 23, 2000, GE and Honeywell announced that GE

would purchase Honeywell for $48.4 billion in stock and assumed

debt. GE would acquire another 120,000 employees, giving

the expanded General Electric a payroll of 460,000. “I want

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44 29 Leadership Secrets from Jack Welch

an apology from everybody that ever called me Neutron Jack,”

Welch said pointedly. “We have more people today than we did

when I started.”

But Welch was not pleased when some wondered out loud

why GE had chosen to buy a so-called “Old Economy company.”

My answer is: What the hell do you think Honeywell is?

. . . We’re merging two real high-tech companies. With real

earnings. Doing real things. And using e-business tools. So

get that straight.

Buying Honeywell made sense, Welch argued, because there

was a 90 percent overlap between the two companies.

And yet with virtually every single activity there is no

product overlap. So the feels are the same in 90 percent of

the businesses and yet everything is complementary. That’s

not a speech for the antitrust people. That’s fact . . .

Welch had reason to be concerned about antitrust actions.

Merging the two corporate giants was sure to attract intense

governmental scrutiny. And at first, things went well. In May

2001, the U.S. Department of Justice approved the transaction.

(Canada and nearly a dozen other jurisdictions followed suit.)

But 2 months later, the European Commission demanded concessions

that Welch couldn’t accept. “What the Commission is

seeking cuts the heart out of the strategic rationale of our deal,”

Welch wrote in a letter to Honeywell CEO Michael R. Bonsignore.

The deal was dead.

THE “HIDDEN” QUANTUM LEAP

While the Honeywell deal was still alive, Welch announced his

intention to delay his retirement from GE to ensure that the

merger went smoothly. Critics suggested that he had contrived

29 Leadership Secrets from Jack Welch 45

the Honeywell deal just to stay on longer at GE. Ridiculous, he

responded:

This is not a story of the old fool who can’t leave his seat

. . . Don’t write that story. That story is stupid. In the paper, I

called it “B” with a bunch of dashes . . . Why not take advantage

of the experience I’ve got with RCA and over a thousand

other acquisitions?

In this response, Welch points to what might be considered

GE’s hidden “quantum leap”: the patient acquisition over 20

years of numerous companies, all designed to propel GE toward

higher sales and earnings.

Under Welch, GE was constantly on the lookout for small

companies that could be quickly integrated into the company’s

units and which would immediately add to earnings. In 1999

alone, for example, GE closed 125 of these deals. The $48 billion,

or $55 a share, Welch offered for Honeywell was half as much

as all the deals GE had done under his watch combined.

The result? A company that in 2000 operated in more than

100 countries and earned revenues of $130 billion.

WELCH RULES

➤ Go for the quantum leap, even if it goes against company

culture. When Welch acquired RCA, he rewrote

GE’s rule book.

➤ Think outside the box. Both the RCA and Honeywell

deals were audacious moves. One panned out; the

other didn’t.

➤ Keep hunting for the little opportunities. The big,

bold moves need to be part of a patient, systematic

approach to mergers and acquisitions.

46

LEADERSHIP

SECRET 11

LEARNING CULTURE I: USE

BOUNDARYLESSNESS AND

EMPOWERMENT TO NURTURE

A LEARNING CULTURE

FROM THE FILES OF JACK WELCH

The operative assumption today is that someone,

somewhere, has a better idea.

Before Jack Welch came along, many analysts thought GE to

be unmanageably huge, complex, and heterogeneous. Some

considered the company a rudderless conglomerate—a collection

of assets that lacked coherence and a unifying vision.

Welch did not agree.

He believed that GE’s diversity and complexity could be

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29 Leadership Secrets from Jack Welch 47

turned into an asset if he could create what he called a “learning

culture.” In a learning culture, GE’s employees would search for

new ideas—inside or outside the company—and implement the

best ones actively and aggressively.

Large and diverse corporations, as Welch saw it, have contradictory

needs. They need both strong integration and rich diversity.

In combination, these two ingredients enable the whole

to outperform the sum of its parts. Welch referred to this as

“integrated diversity,” and this was his goal.

OPENNESS IS ESSENTIAL

Learning organizations, said Welch, have an edge. Learning

translates into actions, and actions spark productivity.

The idea of the learning culture was simple: GE businesses

would share knowledge from every corner of the company.

Shared knowledge would provide a competitive advantage,

and that advantage would translate into higher annual growth

rates.

Welch observed that integrated diversity could work only

when the component parts of that diversity—GE’s businesses—

were strong in their own right. That was why it had been so

important to create strong, stand-alone businesses in the 1980s.

From strength came self-confidence, and from self-confidence

came openness.

Openness, Welch said, was essential.

LEARNING CULTURE ENHANCES PERFORMANCE

How do you build a learning culture? The Work-Out program

of the early 1990s set the stage. At the heart of Work-Out was

the assumption that in many cases employees knew what was

best. As Welch noted:

48 29 Leadership Secrets from Jack Welch

The operative assumption today is that someone, somewhere,

has a better idea; and the operative compulsion is to

find out who has that better idea, learn it, and put it into action—

fast.

The quality of an idea does not depend on its altitude in

the organization . . . An idea can be from any source. So we

will search the globe for ideas. We will share what we know

with others to get what they know. We have a constant quest

to raise the bar, and we get there by constantly talking to

others.

Welch was fond of saying that GE’s core competence lay in

sharing ideas across businesses, across what he termed the

“boundaryless organization.” He wanted GE to think of itself as

a series of laboratories that shared ideas, financial resources, and

managers. He encouraged a free flow of ideas not just among

GE businesses but also between GE and other companies as well.

Speaking to GE shareholders in April 2000, Welch reemphasized

his commitment to the learning culture. The ultimate, sustainable

competitive advantage of a company, he proclaimed, is

its ability to learn, to transfer that learning across its components,

and to act quickly:

That belief drove us to create a boundaryless company by

delayering and destroying organizational silos. Selflessly

sharing good ideas while endlessly searching for better ideas

became a natural act. We purged NIH—not invented here—

from our system, creating a company with an insatiable desire

for information.

All this was done the hard way, before the arrival of the

Internet. Today, with the Internet, information is available

everywhere to everyone, and a company that isn’t searching

for the best idea, isn’t open to ideas from anywhere, will find

itself left behind, with its survival at stake.

The result? Welch credited GE’s learning culture with enhancing

the company’s performance in several ways:

■ Operating margins, less than 10 percent for literally a

century, rose to 17.3 percent in 1999.

29 Leadership Secrets from Jack Welch 49

■ Inventory turns, which are a key measure of how well assets

are deployed and managed, had run in the three to

four range for a century but topped eight in 1999.

■ Company earnings, which had shown only single-digit increases

throughout the 1980s, showed double-digit increases

for most of the 1990s.

WELCH RULES

➤ Emphasize idea sharing inside the company. Does

your company have a way to make sure ideas are exchanged

at every level and from every corner of the

company?

➤ Find and implement the best ideas, no matter where

they come from. Welch demolished the notion that

the best ideas come only from within.

➤ Make sure that great ideas are followed by implementation.

Unless the idea is acted on, it will have little

impact.

50

LEADERSHIP

SECRET 12

LEARNING CULTURE II:

INCULCATE THE BEST IDEAS

INTO THE BUSINESS, NO

MATTER WHERE THEY COME

FROM

FROM THE FILES OF JACK WELCH

We really view ourselves as a series of laboratories

that share ideas, financial resources,

and management people.

Keep learning: This is one of the anchors of Jack Welch’s business

philosophy.

Don’t be arrogant, he insists. Don’t assume you know it all.

Always assume that you can learn from someone else.

From a colleague, for example, or even from a competitor.

Especially from a competitor!

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29 Leadership Secrets from Jack Welch 51

SCOUR THE LANDSCAPE

Welch exhorted his troops to scour the corporate landscape for

good ideas and then to appropriate those ideas. “Legitimate plagiarism”

he once called it: borrowing the best.

Some might wonder why GE—arguably one of the strongest

companies in the United States—needs to go hunting for good

ideas. Shouldn’t GE be teaching other companies what business

is all about?

Absolutely not, says Welch. Every organization has to learn,

and GE is no exception.

Here is Welch on the subject:

At the heart of this culture is an understanding that an organization’s

ability to learn, and translate that learning into

action rapidly, is the ultimate competitive business advantage.

THE BADGE OF HONOR

It is a true badge of honor, according to Welch, to grab good

ideas and run with them.

This kind of opportunism begins at home. Welch likes to

point out that GE businesses share many things such as technology,

design, personnel compensation and evaluation systems,

manufacturing processes, and customer and country knowledge.

The gas turbines business shares manufacturing technology with

aircraft engines. Motors and transportation systems work together

on new locomotive-propulsion systems.

But the learning continues beyond the walls of GE. For example,

GE has adopted and adapted new product-introduction

techniques from Chrysler and Canon, effective sourcing techniques

from GM and Toyota, and quality initiatives from Motorola

and Ford.

Note that by definition GE isn’t “first” with these ideas. GE

52 29 Leadership Secrets from Jack Welch

did not invent the Six Sigma quality initiative. (Motorola pioneered

it.) GE wasn’t even the next large company to get on

board. (AlliedSignal was an early adapter.) But GE watched Six

Sigma go through its shakedown cruises at other companies and

then adapted it for its own purposes.

A large company like GE has access to a whole world of ideas,

but the only way to turn that access into a competitive advantage

is to develop what Welch calls a “pervasive and insatiable thirst”

for those ideas, a compulsion to share them, and a mandate to

implement them.

These are our three ingredients for success, whether the

business is appliances, lighting, plastics, or something else:

Build a good team, share ideas across businesses, give them

resources to go. That’s it.

MOVING IDEAS: A KEY TO A LEARNING CULTURE

Moving ideas, Welch likes to say, is easy—assuming you have a

learning culture.

One favorite Welch example of the learning culture in action

came from its medical systems business, which created a CT

scanner that operated remotely. The scanner allowed a user to

detect and repair an impending malfunction on-line, often before

the customer even knew a problem existed.

Medical systems shared that technology with other GE businesses,

including jet engines, locomotives, motors and industrial

systems, and power systems. Using the new tool, those other GE

businesses could monitor the performance of jet engines, locomotives,

paper mills, and power plants.

Welch was once asked how knowledge was transferred among

the various GE businesses. He noted that every quarter some 30

GE managers hold a 2-day meeting. Each executive stands up in

turn and presents new ideas:

29 Leadership Secrets from Jack Welch 53

When we leave there after 48 hours, we may not be the

smartest people in the world, but we are the most knowledgeable

at that moment, because we have been exposed to

all these relevant topics. . . .

Most organizations don’t go for ideas in a meeting. Why

not? Because everybody present comes from the same business.

They talk about the vertical business. We talk about

compensation plans, about China, about generic experiences.

Building a learning culture has put pressure on GE’s business

leaders. They understand there is no reward for simply having a

good idea at GE. The rewards come from successfully sharing

that idea with others.

WELCH RULES

➤ Make searching for new ideas a priority of every employee.

In today’s competitive environment, organizations

can’t afford to leave anyone out.

➤ Hold idea-sharing meetings on a regular basis. Get a

diverse group of managers together regularly. Make

sure their ideas are translated into action.

➤ Reward employees for sharing knowledge. Find a way

to reward managers and employees for sharing ideas

and putting best practices to work at every level.

TEAMFLY

Team-Fly®

54

LEADERSHIP

SECRET 13

THE BIG WINNERS IN THE

TWENTY-FIRST CENTURY WILL

BE GLOBAL

FROM THE FILES OF JACK WELCH

The idea of a company being global is nonsense.

Businesses are global, not companies.

From the time Jack Welch became CEO at GE, he was convinced

that significant opportunities existed for company

growth by taking its businesses overseas.

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29 Leadership Secrets from Jack Welch 55

OVERCOMING INERTIA

In the early 1980s, few U.S. managers were pushing to globalize.

Their businesses had prospered by concentrating on the American

market; few saw any compelling reason to change.

The pre-Welch GE, which generated more than 80 percent of

its revenues in the United States, was no exception. At that time,

only two of GE’s strategic businesses (plastics and aircraft engines)

were legitimate global enterprises.

Welch delayed his push into the international arena for several

years—while the company went through its “fix, sell, or close”

phase—and then he pushed with a vengeance.

By 1999, international revenues had reached $45.7 billion,

representing 41 percent of GE’s total revenues. (The figure remained

at 41 percent through 2001.)

THE FORMULA

How did this transformation happen?

In part, it happened the old-fashioned way: through selective,

ground-up investments intended to capitalize on local business

opportunities.

This reflected Welch’s own experiences in the plastics business

in the 1960s:

When I was 29 years old, I bought land in Holland and

built the plants there. That was “my land” for “my business.”

I was never interested in the global GE, just the global plastics

business . . . the idea of a company being global is nonsense.

This perception reinforced Welch’s determination to look for

overseas markets with the greatest near-term opportunities. At

the time, this was Europe and Japan. Welch was eager to enter

other markets in Asia, but he understood that in the near term,

56 29 Leadership Secrets from Jack Welch

those markets were smaller, and success would come more

slowly.

So Europe was a clear focus. As of September 1999, GE had

paid nearly $30 billion for 133 European acquisitions with 90,000

employees. As a result, GE Europe generated $24.4 billion in

revenue, of which only $1.7 billion, or 11 percent, represented

imports from the United States. (By 2001, GE had $26 billion

in sales in Europe with 70,000 employees in that sector.)

But the transformation also grew out of a major shift in corporate

mindsets, beginning with Welch himself.

“Jack’s perception of the world changed in the late 1980s,”

says Gary Wendt, former head of GE Capital, “from trying to

sell things to the world to understanding that GE has to be all

over the world in order to sell around the world.”

Inevitably, this meant that good ideas had to come from places

other than the United States. And it explains the major step that

GE took at the end of the 1990s:

Our insatiable appetite for more advanced technology is

being fed not by a new wing on our world-class Corporate

R&D Center in Schenectady, New York, but by a soon-to-open

Greenfield laboratory in the suburbs of Bangalore, India.

The Bangalore R&D facility opened in September 2000. And

it was only a piece of a bigger picture. By that time, GE was

drawing on intellectual capital from all over the world: from

metallurgists in Prague to product designers in Budapest, Monterrey,

Tokyo, Paris, and elsewhere.

A “TRULY GLOBAL” GE

As a result of these changes, GE by the late 1990s was competing

successfully in markets around the world. To cite just three examples:

■ Aircraft Engines. In 1995, more than half of the world’s

large commercial jet engine orders were awarded to GE

and its joint venture, CFM International.

29 Leadership Secrets from Jack Welch 57

■ Capital Services. GE Capital Services, which had a minimal

presence in Europe at the start of the 1990s, exceeded

$845 million in net income in 1999. Global Consumer

Finance (GCF), launched in 1992, emerged as the

largest international consumer finance company in the

world, with more than $35 billion in assets and more

than 20,000 employees.

■ Lighting. GE Lighting’s operations include joint ventures

in China, Indonesia, India, and Japan and acquisitions in

the United Kingdom, Germany, Italy, and Hungary. As of

1999, more than 35 percent of Lighting’s revenues came

from outside the United States.

Welch pointed out in his 1999 annual report that there were

fewer and fewer American GE business leaders located outside

the United States. Local leaders, trained in GE’s practices and

values, were replacing them.

Our objective is to be the “global employer of choice.” . . .

This initiative has taken us to within reach of one of our biggest

and longest running dreams—a truly global GE.

WELCH RULES

➤ Get your house in order first. Make sure your domestic

base is solid before venturing abroad.

➤ Think globally and locally. To compete in the global

economy, companies must develop a distinct strategy

for each international market. Businesses, not companies,

are global.

➤ Recognize that there are phases in globalization. Exporting

often comes first. Local production may come

second. Finally, local sourcing (by companies run by

local managers) may be your third phase of globalization.

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PART III

REMOVING THE BOSS ELEMENT:

PRODUCTIVITY SECRETS FOR CREATING THE

BOUNDARYLESS ORGANIZATION

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61

LEADERSHIP

SECRET 14

DELAYER: GET RID OF THE FAT!

FROM THE FILES OF JACK WELCH

Every layer is a bad layer. Now we don’t

have all that nonsense. If Delhi wants something,

they fax me. It’s much easier.

Most of Welch’s early moves at GE—downsizing; number

one or number two; fix, close, or sell—were designed to

bring focus and discipline to a company that had been complacent

far too long.

He had one more such step in mind: cutting out excess layers

of management.

All those layers slowed things down, Welch thought, and prevented

senior managers from spotting trouble early enough. And

ultimately, bureaucracy sapped the company’s entrepreneurial

spirit.

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62 29 Leadership Secrets from Jack Welch

A FOUNDATION OF BUREAUCRACY

In the pre-Welch era, GE more or less assumed the existence of

a large bureaucracy. In fact, “bureaucracy” was not a dirty word

at GE. It implied a strong organization, a certain orderliness.

There were bosses, and there were channels. People could “manage

by memo,” and that was assumed to be efficient.

But bureaucracy has a way of creeping. Of the company’s

400,000 employees at the time of Welch’s arrival, some 25,000

held the title of “manager.” Approximately 500 were senior managers,

and 130 were vice presidents or higher.

In other words, there was a huge officer corps, whose members

did little except paperwork. They reviewed other people’s

memos and wrote memos to their own superiors.

One culprit was the planning system, which had grown cumbersome.

We hired a head of planning and he hired two vice presidents

and then he hired a planner, and then the books got

thicker, and the printing got more sophisticated, and the

covers got harder, and the drawings got better. The meetings

kept getting larger. Nobody can say anything with 16 or 18

people there.

DELAYERING LETS PEOPLE FLOURISH

Welch decided to slice away at management in a process he

called “delayering.” He explicitly disagreed with critics who complained

that getting rid of these levels would diminish GE’s

vaunted command-and-control capabilities and harm the company.

We attempted to eliminate the command portion while

keeping the subtleties of the control. Big corporations are

filled with people in bureaucracy who want to cover things—

cover the bases, say they did everything a little bit. Well, now

29 Leadership Secrets from Jack Welch 63

we have people out there all by themselves; there they are,

accountable for their successes and their failures. But it gives

them a chance to flourish. Now you see some wilt. That’s the

sad part of the job. Some who looked good in the big bureaucracy

looked silly when you left them alone.

Welch had two goals in mind. First, he wanted to turn the

strategic planning function over to the businesses. Second, he

wanted to remove the obstacles that prevented direct contact

among the businesses and between the business and the CEO’s

office. Control would survive; command would be diminished.

The pace of business would pick up.

Delayering speeds communications. It returns control and

accountability to the businesses, which is where it belongs.

We got two other great benefits from the sector delayering.

First, by taking out the biggest layer of top management,

we set a role model for the whole company about becoming

lean and agile.

Second, we identified the business leaders who didn’t

share the values we were talking about: candor, facing reality,

lean and agile. We exposed the passive resisters.

In retrospect, Welch was convinced that he had acted properly

by trimming GE’s bureaucracy. “By the time you get through the

levels, the barn has burned down, and you’ve got to get closer

to the game,” he said in 1997. “Every layer is a bad layer. Now

we don’t have all that nonsense. If Delhi wants something, they

fax me.”

Delayering requires a certain kind of resolve. It’s one thing to

lay off lower-level employees at distant factories, far from the

corner offices. It’s quite another to ax an associate, or a buddy,

in the next office.

But this is the kind of resolve that may be needed to transform

a low-performing organization into a higher-performing one or

to push a high performer to the next level. Deadwood and redundancy

in the executive suites can cost a company dearly in

money, flexibility, and spirit.

TEAMFLY

Team-Fly®

64 29 Leadership Secrets from Jack Welch

WELCH RULES

➤ Get rid of any layers of management that do not add

real value to the process. Ask yourself: How can I improve

communications with the folks down below on

the factory floor? If the answer is “lose layers,” then

lose them.

➤ Don’t let emotions get in the way. Cutting executive

jobs can be one of the most difficult decisions a manager

has to make. Make the call based on objective

criteria, not relationships.

65

LEADERSHIP

SECRET 15

SPARK PRODUCTIVITY

THROUGH THE “S” SECRETS:

SPEED, SIMPLICITY, AND

SELF-CONFIDENCE

FROM THE FILES OF JACK WELCH

It takes enormous self-confidence to be simple,

particularly in large organizations. Bureaucracy

is terrified by speed and hates simplicity.

In the late 1980s and early 1990s, Jack Welch began to outline

a new vision for GE’s future. In September 1989, for example,

he noted:

The biggest mistake we could make right now is to think

that simply doing more of what worked in the ’80s will be

enough to win the ’90s. It won’t. . . . We have to turn in the

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66 29 Leadership Secrets from Jack Welch

’90s to the software of our companies—to the culture that

drives them.

Welch summed up his prescription for that culture in three

words: speed, simplicity, and self-confidence.

THE FIRST TWO “S’S”: SPEED AND SIMPLICITY

Speed, obviously, meant having people make decisions in

minutes. It meant cutting back on paper flow and staff work.

Simplicity, as Welch defined it, meant different things in different

corners of the company:

To an engineer, it’s clean, functional designs with fewer

parts. For manufacturing, it means judging a process not by

how sophisticated it is, but how understandable it is to those

who must make it work. In marketing, it means clear messages

and clean proposals to consumers and industrial customers.

And most important, on an individual, interpersonal level,

it takes the form of plain-speaking, directness—honesty.

Writing to shareholders in 1995, Welch elaborated on the importance

of simplicity:

Simple messages travel faster, simpler designs reach the

market faster, and the elimination of clutter allows faster decision

making.

In the case of senior management, a critical component of

simplicity is a powerful, easily graspable core message—a vision:

Whatever it is—we’re going to be number one or number

two, or fix/close/sell, or boundarylessness—every idea you

present must be something you could get across easily at a

cocktail party with strangers. If only afficionados of your industry

can understand what you’re saying, you’ve blown it.

29 Leadership Secrets from Jack Welch 67

THE THIRD “S”: SELF-CONFIDENCE

The third S, self-confidence, is intimately related to the first two.

In fact, argues Welch, one can’t really embrace simplicity without

a healthy dose of self-confidence:

One of the hardest things for a manager is to reach a

threshold of self-confidence where being simple is comfortable.

Where does this self-confidence come from? Welch’s answer

has several parts:

Some people get it at their mother’s knee, others through

scholastic, athletic, or other achievement. Some tiptoe

through life without it. If we are to create this boundaryless

company, we have to create an atmosphere where selfconfidence

can grow in each of . . . us.

But many attributes of large organizations, such as the turf

battles, the parochialism, and so on, work against the development

of self-confidence:

Self-confidence does not grow in someone who is just another

appendage on the bureaucracy, whose authority rests

on little more than a title. Bureaucracy is terrified by speed

and hates simplicity. It fosters defensiveness, intrigue, sometimes

meanness.

Even if a company can’t manufacture self-confidence, says

Welch, it can work against the confidence-destroying aspects of

corporate culture. It can provide people with opportunities to

dream, take risks, and win. And it can make sure that employees

can see how their work contributes to the overall effort:

We can grow a work ethic that plays to our strengths, one

that unleashes and liberates the awesome productive energy

that we know resides in our work force. If we can . . . create

an environment where each man and woman who works in

our companies can see a clear connection between what he

or she does every day, all day, and winning and losing in the

68 29 Leadership Secrets from Jack Welch

real world, we can become productive beyond our wildest

dreams.

This was one reason GE devised its Work-Out program: to

design a process that gave people a voice and got them talking

to one another and learning to trust one another.

Again, the three S’s are interrelated and mutually supportive.

In his 1995 letter to shareholders, Welch commented:

Self-confident people don’t need to wrap themselves in

complexity, “businessese” speech, and all the clutter that

passes for sophistication in business—especially big business.

Self-confident leaders produce simple plans, speak simply,

and propose big, clear targets.

Speed. Simplicity. Self-confidence. They emerged and endured

as key watchwords in the Welch management philosophy.

WELCH RULES

➤ Promote the three “S’s”: speed, simplicity, and selfconfidence.

These three attributes build organizations

that are able to change with the changing environment.

➤ Start with a simple message. The most effective communications

are those that are easy to understand.

Making the vision clear sparks people’s passion and

productivity.

➤ Establish systems that foster self-confidence. Help

people understand how their efforts are helping the

company to succeed. Find ways to let people take risks

and win.

69

LEADERSHIP

SECRET 16

ACT LIKE A SMALL COMPANY

FROM THE FILES OF JACK WELCH

Small companies move faster. They know the

penalties for hesitation in the marketplace.

What we are trying relentlessly to do is get

that small-company soul—and smallcompany

speed—inside our big-company

body.

The goal of most big corporations is to get still bigger. Bigness

is considered a virtue (or at least a necessary evil) in the

corporate environment.

When Jack Welch took over at GE, the company was then one

of the largest in America, with more than 400,000 employees.

Through restructuring and downsizing, Welch pared the company

down to 270,000 employees. But meanwhile, GE’s acquisitions

were adding many more people to the payroll, as was

Welch’s Six Sigma quality initiative. By the summer of 2000, GE

had 340,000 employees.

But simple head counts can be misleading. Even as GE was

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70 29 Leadership Secrets from Jack Welch

getting bigger, Welch was making his company act as if it were

much smaller. He achieved this goal by simplifying GE’s complex

hierarchy and by creating programs that unleashed empowered

workers.

BIG HAS ITS ADVANTAGES

Does “big” have its advantages? Of course, says Welch:

Big allows us, for example, to spend billions on development

of the new GE90 jet engine, or the next-generation gas

turbine, or positron emission tomography [PET] diagnostic

imaging machines—products that sometimes take years of investment

before they begin producing returns.

Size gives us staying power through market cycles in big,

promising businesses . . . Size will allow continued heavy investment

in new products . . . Size gives us the resources to

invest over a half-billion dollars a year on education: cultivating,

at every level in the organization, the human capital we

must have to win.

Offshore, “big” permits us to form partnerships with the

best of the large companies, and large countries, and to invest

for the long term in nations such as India, Mexico, and

the emerging industrial powers of South Asia.

SMALL COMPANIES CUT TO THE CHASE

Big, it seems, can be beautiful. So what is it about small companies

that Welch loves? His answer:

For one, they communicate better.

Without the din and prattle of bureaucracy, people listen

as well as talk; and since there are fewer of them, they generally

know and understand each other.

Second, small companies move faster. They know the penalties

for hesitation in the marketplace.

Third, in small companies, with fewer layers and less cam29

Leadership Secrets from Jack Welch 71

ouflage, the leaders show up very clearly on the screen. Their

performance and its impact are clear to everyone.

And finally, small companies waste less. They spend less

time in endless reviews and approvals and politics and paper

drills. They have fewer people; therefore they only do the important

things. Their people are free to direct their energy

and attention toward the marketplace rather than fighting

bureaucracy.

Welch loves the idea that small companies are uncluttered,

simple, and informal.

They thrive on passion and ridicule bureaucracy. Small

companies grow on good ideas—regardless of their source.

They need everyone, involve everyone, and reward or remove

people based on their contribution to winning. Small

companies dream big dreams and set the bar high; increments

and fractions don’t interest them.

And he loves the way small companies communicate:

with simple, straightforward, passionate argument rather

than jargon-filled memos, “putting it in channels,” “running it

up the flagpole,” and worst of all, the polite deference to the

small ideas that too often come from big officers in big companies.

Everyone in a small company knows the customers—their

likes, dislikes, and needs—because the customers’ thumbs-up

or [thumbs]-down means the difference between a small

company becoming a bigger company tomorrow or no company

at all.

So size alone, says Welch, is no longer enough in a brutally

competitive world marketplace. Big companies must acquire the

soul of a small company. While you are growing, Welch cautions,

don’t lose your soul.

Don’t permit the attributes of bigness to overwhelm you.

Get bigger, but protect the soul of the more nimble organization

that you once were.

WELCH RULES

➤ Assume that your big company can act small. Welch

had to work at it, but he knew he could instill the

72 29 Leadership Secrets from Jack Welch

passion and informality of a small company into the

soul of GE.

➤ Structure for smallness. Welch removed layers and

sector heads that did not add value. If your organization

is too bloated, consider restructuring, removing

layers, boundaries, approvals—in short, anything that

bloats and slows the company.

➤ Check reality: Do you know your customers? This is

a good yardstick. Welch likes to compare his company

to the corner grocery store. Do you know your customers,

and do they know you? If not, you have your

work cut out for you.

73

LEADERSHIP

SECRET 17

REMOVE THE BOUNDARIES!

FROM THE FILES OF JACK WELCH

Our people must be as comfortable in New

Delhi and Seoul as they are in Louisville or

Schenectady . . .

When Jack Welch came on board, General Electric had hundreds

of boundaries.

Those boundaries kept people within the company from

communicating easily with one another. And by extension, they

kept GE personnel from communicating with outside constituents.

When Jack Welch assumed command, he tried to identify all

the debilitating boundaries within GE. He knew that if he could

eliminate boundaries, it would go far toward creating the open,

informal business environment that he believed was essential.

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74 29 Leadership Secrets from Jack Welch

THE GENESIS OF BOUNDARYLESS

Welch called upon GE to become boundaryless. The term was

certainly not in any dictionary. And as Welch was quick to acknowledge,

the made-up word was clumsy at best. But people

soon understood what it meant.

Welch first began using the term in the early 1990s. At that

time, he acknowledged that the business strategies he had employed

in the 1980s—restructuring, reducing the number of

management layers, and the like—were too incremental. They

took too long to affect the company.

Something new was needed. The answer was boundaryless.

WHAT’S IN A WORD?

The boundaryless company, Welch notes, is one in which “we

knock down the walls that separate us from each other on the

inside, and from our key constituents on the outside.” The boundaryless

company:

■ Removes barriers between functions

■ Removes barriers between levels

■ Removes barriers between locations

■ Reaches out to important suppliers and makes them part

of a single process

We no longer have the time to climb over barriers between

functions like engineering and marketing, or between

people—hourly, salaried, management, and the like.

How does one get rid of boundaries? At GE, it was easiest to

get rid of the vertical ones—the boundaries of hierarchy—and

the company made great strides in this area in the 1980s.

What happens after getting rid of the boundaries?

29 Leadership Secrets from Jack Welch 75

Instead of hierarchies, there are cross-functional teams.

Instead of managers, there are business leaders.

Instead of workers who are told what to do, there are workers

who decide what to do.

If you want to get the benefit of everything employees

have, you’ve got to free them—make everybody a participant.

Everybody has to know everything, so they can make the

right decision by themselves.

By the summer of 1993, boundarylessness had become one of

the core values at GE:

If you’re turf-oriented, self-centered, don’t share with people,

and are not searching for ideas, you don’t belong

here . . .

Being boundaryless allows us to jab one another and have

fun. We rag each other when somebody starts to protect turf.

THE CEC MODEL

One powerful force for boundarylessness at GE is the Corporate

Executive Council (CEC), which includes the top 25 to 30 executives

of the company. It meets every 3 months, from a Monday

to a Wednesday, for a free-flowing exchange of ideas.

In the bad old days, says Welch, GE functioned like a classic

conglomerate. “Each business quarter,” he explains, “the divisional

manager phoned the finance person to report the numbers.”

GE is very different today. Through the CEC, leaders don’t

merely discuss numbers; they exchange ideas.

By design, CEC sessions have no formal agenda. The point is

to keep it loose.

A senior GE official may distribute a brief memo in advance

of the get-together to alert the executives about the main topic

of the meeting. But that’s about it in terms of structure. The

76 29 Leadership Secrets from Jack Welch

whole purpose of the meeting is to foster learning about problems

being faced by other businesses and to pick up good ideas

that might work in one’s own business. Structure would work

against these goals.

The CEC is, in a sense, a model and metaphor. Welch urged

his colleagues at GE to break down boundaries, wherever they

existed, from the CEC level on down. The fewer the boundaries,

the more likely that employees could do their jobs well.

WELCH RULES

➤ Root out boundaries. Anything that disrupts communications

between departments and employees or

between employees and outside constituents is bad.

➤ Model behaviors with senior managers. Welch credits

his CEC meetings with helping to spread the flow of

ideas throughout all of GE’s diverse businesses. They

also set a positive pattern for others in the company.

➤ Involve everybody. To achieve boundarylessness in

your organization, involve everybody. If boundaries

are deeply ingrained, consider holding a Work-Out

session (see Leadership Secrets 18 to 20).

77

LEADERSHIP

SECRET 18

UNLEASH THE ENERGY OF

YOUR WORKERS

FROM THE FILES OF JACK WELCH

The way to get faster, more productive, and

more competitive is to unleash the energy

and intelligence and raw, ornery selfconfidence

of the American worker, who is

still by far the most productive and innovative

in the world.

The first phase of Jack Welch’s revolution at GE, in the early

1980s, brought massive change:

■ 350 businesses transformed into 12

■ The core electrical manufacturing businesses replaced by

high-tech and service as the focus of the company

■ Selected plants closed, and others made state of the art

■ Payrolls slashed, and layers of management pared away

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78 29 Leadership Secrets from Jack Welch

Jack Welch called these years the “hardware phase.” And although

the hardware phase boosted GE’s bottom line, it also

disconcerted many employees. They had been moved to new

plants, given new bosses, assigned new tasks. As a result, few felt

secure in the new GE.

By the late 1980s, Welch knew that a serious issue confronted

him. As a result of downsizing, GE’s remaining employees were

expected to carry a far greater work burden. They had to develop

the belief that they were not just cogs in a giant machine but

valued contributors.

They had to be made to feel like owners.

TURN EMPLOYEES INTO OWNERS

This was a tall order. At the time, a spirit of animosity prevailed

between management and workers.

“We spent 90 percent of our time on the floor figuring out

how to screw the management,” an employee later confessed to

Welch. “That was all right because you guys spent 95 percent of

your time figuring out how to screw us.”

So in the fall of 1988, Welch launched the second phase of

his revolution. It centered on shifting authority from managers

to employees.

The way to harness the power of these people is to protect

them, not to sit on them, but to turn them loose, let

them go—get the management layers off their backs, the bureaucratic

shackles off their feet, and the function barriers

out of their way.

In the past, managers had carried the burden of boosting productivity;

from now on, this would become the job of the men

and women on the factory floor.

Before at GE, we generally used to tell people what to do.

And they did exactly what they were told to do and not

29 Leadership Secrets from Jack Welch 79

one other thing. Now we are constantly amazed by how

much people will do when they are not told what to do by

management.

A new concept had been born. Welch gave it a name: empowerment.

As GE managers were fond of saying, workers tended to park

their brains at the factory gate each morning. No longer! Henceforth,

managers had to find a way to harness the brainpower of

the work force. They had to permit workers to make decisions,

contribute ideas, and organize their own workdays. They had to

give their employees more power, make their workday more fun

and interesting, and otherwise enable them to raise their own

level of productivity.

Welch later confessed that he regretted having waited 7 years

to empower the work force. But starting earlier would have been

impractical. In the “hardware phase,” there was too much uncertainty,

as employees worried whether they would still have a

job at the end of each day. And of course, there were too many

bureaucrats.

Empowering and liberating and exhilarating a bloated bureaucracy

in the beginning would have been impossible. It

would have produced a mixed message because we were

shocking them. I’m not sure you could have sold that and

been credible.

In 1990, Welch unleashed the next phase of his “empowerment

revolution”: a program he called Work-Out. As we will see

shortly, Work-Out was all about building up employees and

showing them that they were contributing directly to the health

of the enterprise.

Welch had at least one ulterior motive in effecting all this

change. He continued to be irritated by Wall Street’s persistent

assessment of GE as a portfolio of businesses lacking coherence

and focus. A spirit of common purpose would eventually impress

outsiders and perhaps even the skeptics on Wall Street.

But this was a secondary concern. At their heart, Welch’s

80 29 Leadership Secrets from Jack Welch

changes were about treating employees as an integral part of the

business.

WELCH RULES

➤ Unleash productivity by involving everyone. Make

sure that everyone knows how important his or her

contribution is to the overall effort.

➤ Turn workers into owners. Owners—literal and figurative—

have a far greater stake in the business.

➤ Have patience; attitudes don’t change overnight.

Welch waited until 1988 before implementing Work-

Out. He knew that other aspects of his plan had to

take effect before he could make his move.

81

LEADERSHIP

SECRET 19

LISTEN TO THE PEOPLE WHO

ACTUALLY DO THE WORK

FROM THE FILES OF JACK WELCH

Our desire to tap into this creativity . . . to

listen more clearly to these ideas . . . led us to

a process we call Work-Out.

The subject of this chapter began as a GE paradox.

Jack Welch, one of the country’s toughest and most aggressive

bosses, brought forth a program designed to let workers

become their own bosses.

By doing so, he changed his company.

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82 29 Leadership Secrets from Jack Welch

THE NAME AND THE MODEL

Like all ambitious programs, this one needed a name.

Welch had been talking about “working out the nonsense of

GE” and dealing with problems that needed to be “worked out.”

Not surprisingly, the name became “Work-Out.”

The model for Work-Out was the New England town meeting

in which residents charted the town’s course through dialogue

with each other and with the town leaders. Welch hoped the

Work-Out program would help GE accomplish four important

goals:

1. Develop trust among employees

2. Empower employees

3. Eliminate unnecessary work

4. Spread the GE culture

At the heart of Work-Out were two assumptions:

1. Employees had to be in a position to make suggestions

to their bosses face-to-face.

2. Employees had to be able to get a reply on the spot,

when possible.

Work-Out began in the fall of 1990. Welch wanted all GE

employees to complete at least one Work-Out session within a

year. Thus, the initial emphasis was on getting as many employees

through the program as possible rather than on developing

and refining specific techniques.

THE SPECIFICS

Once organizers decided who should attend a Work-Out session,

they sent out invitations, explaining what Work-Out was all

29 Leadership Secrets from Jack Welch 83

about. A subsequent letter, containing details about when and

where the session would occur, was mailed to those who expressed

interest.

The sessions were conducted far enough from the workplace,

often at a hotel, to get people’s undivided attention. Workshops

usually lasted 3 days. There might be as many as 50 participants

or as few as 20. They represented a cross section of GE personnel

from senior and junior managers to salaried and hourly workers.

During the first 2 days, no one was allowed to take notes. (Welch

was concerned that taking notes would “bureaucratize” the exercise.)

Generally, the leader of any GE business, large or small, kicked

off the first-day session, talking about the strengths and weaknesses

of that business and explaining how the business fit into

GE’s overall strategy. Then, for the time being, he or she left.

A facilitator then arranged for participants to break up into

small groups of 8 to 12 people. The groups brainstormed about

some of the weaknesses the keynote speaker had identified. The

facilitator shuttled from one room to another, keeping the breakout

sessions on track.

The facilitator had no veto power over what topics were discussed.

However, he or she was concerned with process. In particular,

senior employees weren’t allowed to dominate conversations

or bully others in the room.

Eventually, the facilitator reconvened the minigroups in a plenary

session. The participants then discussed their ideas about

the business’s problems, paying particular attention to four criteria:

reports, meetings, measurements, and approvals. What

should be eliminated? What should be reinforced? Their ideas

were summarized in a series of proposals, which might number

as many as two dozen or more.

In the final hours of the third day, the boss returned to undergo

a fairly remarkable experience.

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84 29 Leadership Secrets from Jack Welch

TURNING HIERARCHY UPSIDE DOWN

It was this final session that gave Work-Out its special power.

For 2 full days, employees had spent hours discussing not only

their business but also their boss. Employees were expected to

be completely candid in their critiques of both, and most often,

they were.

The result was a fairly dramatic shift of power. Previously, the

boss, standing in the front of the room, had an unchallenged

aura of authority. No more! Now, the boss had to listen and

learn.

The participants put forward their proposals, and the boss

could make one of three responses: (a) agree, (b) say no, or (c)

seek more information. In this last case, the manager would be

required to come up with an answer within a month.

The big surprise? Some 80 percent of the proposals got immediate

up-or-down answers. Work-Out suggested that, given

the right circumstances, it’s not difficult to reach decisions and

make changes in a business.

A participant was chosen to record all the proposals discussed,

along with the steps to be taken by management to determine

the feasibility of a certain proposal. After all other participants

certified the accuracy of this summary, it was distributed to

everyone else in that particular GE business.

Next to each recommendation was the name of the Work-

Out participant who raised the issue—the issue’s “champion”—

who followed up on the recommendation and informed the attendees

of progress.

The goal of Work-Out was to come up with specific, actionable

items. (Recommendations with fuzzy language were

dropped.) Each recommendation could comprise as many as

three action items, and each action item came with a deadline.

The Work-Out leader assigned a “roadblock buster,” who made

sure that each deadline was met.

29 Leadership Secrets from Jack Welch 85

WELCH RULES

➤ Turn hierarchy upside down. The Work-Out program

was clear evidence of Welch’s commitment to transferring

power within GE. Managers who could not

deal with the requirements of Work-Out were fired.

➤ Enable people to speak out freely. The success of this

sort of program depends on employees speaking candidly,

without fear of penalty.

➤ If a full-blown Work-Out session is not possible, consider

a half-day minisession. Follow the guidelines

presented in this leadership secret but compress the

entire session into a half-day program.

86

LEADERSHIP

SECRET 20

GO BEFORE YOUR WORKERS

AND ANSWER ALL THEIR

QUESTIONS

FROM THE FILES OF JACK WELCH

The people who are closest to the work really

do know it better.

At the outset of the Work-Out program, the invisible walls

between managers and employees often loomed large and

inhibited communication between the two constituencies.

The chains of history and tradition were too strong to be

broken so quickly. Initially, there were many awkward silences.

But over time, Work-Out began to catch on. Someone would

summon up the necessary courage and talk.

A question would get asked.

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29 Leadership Secrets from Jack Welch 87

A problem would be put on the table.

Once the ice was broken, others in the audience overcame

their timidity as well. And then things started to happen.

A CASE IN POINT

Armand Lauzon, a GE manager, faced Work-Out attendees

(from a GE facility in Lynn, Massachusetts) on the final day of

a session.

One by one, the group’s 108 recommendations were put to

him for one of three responses: “yes,” “no,” or “need more information.”

The proposals ranged from designing a plant-service

insignia to building a new tinsmith shop.

To 100 of the 108 proposals, Lauzon said “yes” on the spot.

One of the approved proposals was to permit Lynn’s employees

to bid against an outside vendor on new protective shields

for grinding machines. (An hourly worker had sketched a design

for the shields on a brown paper bag.) Ultimately, the internal

group won the bid for $16,000, far less than the vendor’s quoted

$96,000. It was an ideal Work-Out result: saving GE money,

bringing work to the Lynn plant, and empowering employees.

RATTLERS AND PYTHONS

At some Work-Out sessions, facilitators divided problems into

two separate categories: rattlers and pythons.

Rattlers were problems that could be resolved on the spot;

that is, they could be shot and buried in real time, like a rattlesnake.

Pythons, by contrast, were issues that were too complicated

to unravel straight away, comparable to a python wrapped up in

itself.

88 29 Leadership Secrets from Jack Welch

One rattler example involved a young woman who published

a popular monthly plant newspaper and had run into a wall of

bureaucracy. GE policies required her to secure seven signatures

before she could go to press. She pleaded her case to her boss

at a Work-Out session: “You all like the plant newspaper. It’s

never been criticized. It’s won awards. So why does it take seven

signatures?”

“This is crazy,” he replied. “Okay, from now on, no more

signatures.”

At the Research and Development Center in Schenectady,

New York, an employee at a Work-Out session asked why managers

got special parking places. No one could think of a good

reason. The privilege was rescinded on the spot.

At a Work-Out session for the company’s communications

personnel, a secretary asked why she had to interrupt her own

work each time something landed in the “out tray” on her boss’s

desk. Why couldn’t he drop the material off on her desk the next

time he left his office? On the spot, the change was made.

Pythons, by definition, are tougher to unwind than rattlers.

At one Work-Out session, field-service engineers griped about

having to write reports used to forecast which turbines might

need to be replaced the next time an outage occurred.

Their complaint was that no one was reading the reports,

which sometimes ran as long as 500 pages.

This problem was knottier. People actually did need some

version of this information, although clearly not in its current

form.

Eventually, as a result of some intense Work-Out sessions, the

huge reports were scrapped. In their place came briefer, more

up-to-date reports, which were actually read!

THE KEY ELEMENT

Jack Welch, for one, was ecstatic about Work-Out:

29 Leadership Secrets from Jack Welch 89

Work-Out is many things . . . but its central objective is

“growing” a culture where everyone’s ideas have value . . .

where leaders lead rather than control [and] coach rather

than kibitz.

Work-Out is the process of mining the creativity and productivity

that we know resides in the American work force . . .

In 1997, Welch spoke again as an advocate of high employee

involvement:

The most important thing a leader has to do is to absolutely

search and treasure and nourish the voice and dignity

of every person. It is in the end the key element.

The Work-Out program continues today. According to one

senior executive, it has proven itself as a “best practice which

targets bureaucracy and all its waste, pomposity, and nonsense.”

WELCH RULES

➤ Search out practices that have stopped making sense.

Every company has these foolish habits that should

have been abolished years ago. Root them out and

eliminate them.

➤ Build programs on a foundation like Work-Out.

Think of Work-Out as a prerequisite to more ambitious

initiatives such as Six Sigma.

➤ Nourish dignity. The most important thing a leader

does, Jack Welch asserts, is “treasure and nourish the

voice and dignity of every person.”

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PART IV

NEXT-GENERATION LEADERSHIP: INITIATIVES

FOR DRIVING AND SUSTAINING

DOUBLE-DIGIT GROWTH

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93

LEADERSHIP

SECRET 21

STRETCH: EXCEED YOUR

GOALS AS OFTEN AS YOU CAN

FROM THE FLIES OF JACK WELCH

Boundaryless people, excited by speed and

inspired by Stretch dreams, have an absolutely

infinite capacity to improve everything.

Most managers feel that reaching goals and meeting budgets

translate into doing a good job.

That’s not good enough for Jack Welch.

He feels that goals exist to be exceeded and even to be blown

away. He calls this business strategy “Stretch.”

Set the bar very high, advises Welch. If you don’t, you’ll never

know how much your workers can really achieve.

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94 29 Leadership Secrets from Jack Welch

MAKING STRETCH HAPPEN

Stretch begins with the definition of performance targets that are

within a company’s capabilities.

The second aspect involves setting those sights higher—much

higher—toward goals that seem beyond reach, requiring an almost

superhuman effort to achieve.

We have found that by reaching for what appears to be

the impossible, we often actually do the impossible; and

even when we don’t quite make it, we inevitably wind up doing

much better than we would have done.

Reaching and stretching, according to Welch, avoid the mediocrity

that can arise out of compromise:

People work for a month on charts and presentations and

books to come in and tell the CEO that, given the economic

environment, given the competitive scenario, the best they

can do is a 2. Then the CEO says, “I have to give the shareholders

a 4.” They eventually settle on 3 and everyone goes

home happy.

So Stretch means shooting for the stars. But what happens if

employees fail to reach goals? Welch considers this a crucial

Stretch issue.

If they don’t have the team operating effectively, you give

them another chance. If they fail again, you hand the reins to

another person. But you don’t punish for not meeting big targets.

If 10 is the target and you’re only at 2, we’ll have a party

when you go to 4. We’ll give out bonuses and go out on the

town and drink or whatever. When you reach 6, we’ll celebrate

again. We don’t waste time and money budgeting 4.12

to 5.13 to 6.17.

Jeff Immelt, former head of GE Medical Systems who ultimately

succeeded Jack Welch as CEO, observed that when Welch

began the Stretch concept in the early 1990s, he focused on financial

goals. By the late 1990s, he was concentrating on getting

29 Leadership Secrets from Jack Welch 95

GE business leaders to stretch goals dealing with process (the

new introduction of products, cycle time, etc.). “You’ll never get

there if you don’t do process,” says Immelt.

STRETCH DOES HAVE RISKS

Too much Stretch can be a bad thing.

“It makes you think that your plan won’t get you to the

Stretch goal,” explains David Calhoun, head of GE Lighting in

the late 1990s. “So you might think about acquiring a new company,

[or you] might decide to drop prices out of the bottom

to get to the Stretch goal. In other words, stretching forces them

to do stuff they wouldn’t otherwise do.”

And Stretch can lead to internal frictions. There was the example

of a lower level employee who worked hard to improve

on the previous year’s numbers. At the end of the year, that

person did indeed get his numbers up. Yet the person’s boss,

who was seeking a far higher Stretch target, scolded the worker

for “only delivering” what the boss deemed to be mediocre results.

The result, not surprisingly, was an unhappy manager and an

unmotivated employee.

Welch understands that Stretch is not an easy concept, and it

takes time to implement.

If you have a lousy relationship where a boss takes a

Stretch goal and stamps it as a plan and then nails you because

you didn’t reach it, the Stretch program is dead.

WORTH THE RISKS

To some business leaders, Stretch may be out of reach.

And indeed, in Welch’s early years, Stretch was out of reach

96 29 Leadership Secrets from Jack Welch

for GE. It would have been too much to ask of his GE colleagues

in the difficult years of restructuring. They first needed to regain

confidence in themselves and in their businesses. Once they did,

Stretch became possible.

Reach for the stars, Welch exhorted his people.

The worst that can happen is that you will fail.

Indeed, you probably will fail.

But by stretching yourself and stretching your business, you

may actually reach the stars.

WELCH RULES

➤ Get the most out of your employees. Each employee

should be “stretched” to the maximum.

➤ Set Stretch goals and then push to exceed them. If

people don’t reach those goals, fine—as long as

they’ve truly tried to stretch.

➤ Push for the impossible. Instill in your employees the

idea that they should go beyond ordinary goals.

97

LEADERSHIP

SECRET 22

MAKE QUALITY A TOP

PRIORITY

FROM THE FILES OF JACK WELCH

As boundaryless learning has defined how

we behave, Six Sigma quality will . . . define

how we work.

When Jack Welch embraces an idea, that idea becomes a

passion. This was true when he embraced quality—specifically,

“Six Sigma” quality—in the late 1990s. He was convinced

that focusing on quality would make General Electric the

most competitive company on earth.

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98 29 Leadership Secrets from Jack Welch

A HIDDEN FACTORY

GE had long been associated with quality. But in the 1990s, it

was becoming painfully clear that GE’s quality was not world

class.

It’s gotten better with each succeeding generation of product

and service. But it has not improved enough to get us to

the quality levels of that small circle of excellent global companies

that had survived the intense competitive assault by

themselves, achieving new levels of quality.

It wasn’t as if Welch had ignored quality. But he had assumed

that he could attack the issue of quality through other strategies.

For example, the Work-Out program captured Welch’s most important

“cultural” goals: openness, informality, boundarylessness,

high involvement, self-confidence, productivity, and so on.

Welch hoped that Work-Out (among other efforts) would help

keep GE’s quality high.

But by the mid-1990s, employees were arguing that greater

productivity was not possible without higher quality standards.

Too much time was being spent on reworking products. One

senior manager referred to the “hidden factory” in which all of

that reworking went on.

So Welch gradually became convinced that being as good as

the next guy, or even a little better, wasn’t good enough.

We want to be more than that. We want to change the

competitive landscape by being not just better than our competitors

but by taking quality to a whole new level. We want

to make our quality so special, so valuable to our customers,

so important to their success, that our products become their

only real value choice.

The question was: How?

As it turned out, the answer was Six Sigma. Simply put, this

measures mistakes per million operations. One sigma means that

68 percent of the products are acceptable. At six sigma, only 3.4

defects per million operations occur.

29 Leadership Secrets from Jack Welch 99

Pressure from Japanese competitors convinced American

companies like Motorola that it was time to rethink things. The

quality of American goods was then hovering at around four

sigma levels. Japanese manufacturers of products like electric

equipment, cars, and precision instruments were already at six

sigma levels.

In the late 1980s and early 1990s, Motorola pioneered Six

Sigma, increasing its quality from four sigma to five point five

sigma. This yielded $2.2 billion in savings, and other companies

soon launched their own Six Sigma programs.

A PHILOSOPHICAL PROBLEM

So Welch found himself in a dilemma.

He agreed that GE needed to push quality improvement. But

he worried that Six Sigma was inconsistent with his business

strategies. It was centrally managed. It seemed too bureaucratic

with its reports and standard nomenclature. It assumed specific,

agreed-upon measures.

Work-Out had been designed to eliminate reports, approvals,

meetings, and measures. Six Sigma seemed likely to put them

back in. “I don’t know that it’s us,” he told one colleague.

THE CONSENSUS: WE NEED QUALITY

In April 1995, a survey showed that GE employees were dissatisfied

with the quality of the company’s products and processes.

Many of them knew that a number of other companies had

achieved dramatically higher quality levels through a disciplined,

rigorous approach.

A few months later, Larry Bossidy reinforced the message.

Bossidy had been a GE vice chairman, but he left in July 1991

100 29 Leadership Secrets from Jack Welch

to become CEO of AlliedSignal, where (in 1994) he launched a

Six Sigma program.

“GE is a great company,” Bossidy told GE’s leaders. “I know.

I worked there for 34 years. But there is a lot you can do to

become greater. If GE decides to do it, you’ll write the book on

quality.”

Welch was impressed. Ultimately, he and his colleagues decided

that GE had to put together a serious quality program. But

they also decided to do it in a way that was special.

As former Vice Chairman Paolo Fresco commented: “When

GE decides to do something, it goes after its own objectives with

a vengeance, with an intensity which is unique.”

Within a few years, Six Sigma had become more than a GE

program.

It had become the new corporate mantra—a battle cry, as

much as a quality initiative.

WELCH RULES

➤ Tackle quality head-on. Don’t rely on other company

initiatives or strategies to tackle the problem of quality.

Attack it directly.

➤ Find the “hidden factory.” Don’t let low quality standards

necessitate endless reworking.

➤ Use quality to make sure that your products are your

customers’ only actual value choice. Quality can be

just as important as price, features, and so on.

101

LEADERSHIP

SECRET 23

MAKE QUALITY THE JOB OF

EVERY EMPLOYEE

FROM THE FILES OF JACK WELCH

By 2000, we want to be not just better in

quality, but a company 10,000 times better

than its competitors.

In January 1996, at the annual gathering of GE’s 500 top managers,

Jack Welch formally launched the Six Sigma initiative.

GE aimed to become a Six Sigma quality company by the year

2000, producing nearly defect-free products, services, and transactions.

Welch considered Six Sigma the most difficult Stretch goal GE

had ever undertaken. But if successful, he said, the program

would be “the biggest opportunity for growth, increased profitability,

and individual employee satisfaction in the history of our

company.”

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102 29 Leadership Secrets from Jack Welch

GOING FOR SIX SIGMA

Prior to Six Sigma, GE’s typical processes generated about 35,000

defects per million operations, or three point five sigma. GE’s

goal through the Six Sigma program was to cut defects to fewer

than four per million operations. To reach six sigma, therefore,

GE needed to reduce its defect rates by 10,000 times. And to hit

this goal by 2000, it would have to reduce defect levels an average

of 84 percent a year. But Welch was optimistic:

Very little of this requires invention. We have taken a

proven methodology, adapted it to a boundaryless culture,

and are providing our teams every resource they will need to

win. . . .

Motorola had gotten to six sigma in 10 years. Welch wanted

to get there in 5. Was this possible? Again, Welch was optimistic.

Motorola had to pioneer the program. GE could learn from Motorola’s

experience and also had a Work-Out culture to reinforce

the quality initiative.

There is no company in the world that has ever been better

positioned to undertake an initiative as massive and

transforming as this one. Every cultural change we’ve made

over the past couple of decades positions us to take on this

exciting and rewarding challenge.

The Six Sigma program relied on the creation of a new “warrior

class” within the company. This group—comprising Green

Belts, Black Belts, and Master Black Belts—would be made up

of managers who had undergone the complex statistical training

of Six Sigma and could implement its procedures.

Despite Welch’s enthusiasm, Six Sigma was at first considered

by many to be another new management fad. So Welch turned

up the heat. At the GE operating managers’ meeting in January

1997, he hammered away at the importance of the quality program:

29 Leadership Secrets from Jack Welch 103

You’ve got to be lunatics about this subject. You’ve got to

be passionate lunatics about the quality issue. You’ve got to

be out on the fringe of demand, and pressure and push to

make this happen. This has to be central to everything you

do every day.

Only the quality-minded individual, Welch warned, would

prevail at GE:

In the next century, we expect the leadership of this company

to have been Black Belt–trained people. They will just

naturally only hire Black Belt–trained people. They will be

the leaders who will insist only on seeing people like that in

the company . . .

Welch also put teeth behind his words. In March 1997, he

sent a fax to GE managers around the world directly linking

advancement opportunities to Six Sigma. Effective January 1,

1998, Welch wrote, one must have started Green Belt or Black

Belt training to be promoted to a senior middle-management or

senior management position. Effective January 1, 1999, all of

GE’s “professional” employees, numbering between 80,000 and

90,000, and including all officers, must have begun Green Belt

or Black Belt training. And in case anyone still missed the point,

Welch tied 40 percent of his 120 vice presidents’ bonuses to

progress toward quality results.

After Welch’s fax, the number of applicants for Six Sigma

training programs skyrocketed.

BACK TO THE LEARNING ORGANIZATION

A reporter asked Welch what the quality program meant to the

average GE factory employee.

“Job security,” Welch replied. “Enhanced satisfaction. Not

wasteful rework. Growth.” Without the quality program, he continued,

the factory employee might get laid off. And because the

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104 29 Leadership Secrets from Jack Welch

quality program focused in part on finding out what customers

wanted, the employee could increase his or her long-term job

security.

This is a key point: Welch believes that quality is, at its heart,

about the customer. When customers think they derive more

value from your products and services, they remain your customers.

The drive for quality is not some GE drive. The only reason

for the quality is to make your customers more competitive

. . .

It has nothing to do with what you want. All these things

are done in a way that the customer drives them. The customer

manages your factory.

Welch insisted that the quality initiative was simply the next

step in creating the learning organization:

Quality is the next act of productivity . . . Out of quality you

eliminate reworking. You get salesmen’s time improved dramatically.

They’re not spending 30 percent of their time on

invoice errors. . . .

Quality is the next step in the learning process. Getting rid

of layers. Getting rid of fat. Involving everyone. All that did

was to get more ideas. The whole thing here is to create the

learning organization.

WELCH RULES

➤ Think about quality universally. When implementing

a Six Sigmalike quality program, look at all products

and processes.

➤ Start with a quality cadre. Welch identified a core

group, with clear qualifications and characteristics, to

lead the quality charge. Then he broadened the base.

➤ Link compensation to quality performance. As soon

as pay and promotion prospects were linked to Six

Sigma, participation soared and change took root.

105

LEADERSHIP

SECRET 24

MAKE SURE EVERYONE

UNDERSTANDS HOW SIX

SIGMA WORKS

FROM THE FILES OF JACK WELCH

Quality is the next act of productivity.

Following Motorola’s lead, General Electric designed a Six

Sigma quality program comprising four steps to be applied

to every process and transaction:

1. Measure. Identify the key internal process that influences

“critical-to-quality” issues (CTQs) and measure the defects

generated relative to identified CTQs. Defects are

defined as out-of-tolerance CTQs. The end of this phase

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106 29 Leadership Secrets from Jack Welch

comes when the Black Belt can successfully measure the

defects generated for a key process affecting the CTQ.

2. Analyze. The objective of this phase is to learn why defects

are generated. Brainstorming, statistical tools, and so

on are used to spotlight key variables (Xs) that cause the

defects. The output of this phase is the identification of

the variables most likely to drive process variation.

3. Improve. The objective of this phase is to confirm the key

variables and then: (a) quantify the effect of these variables

on the CTQs, (b) identify the maximum acceptable

ranges of the key variables, (c) make certain the measurement

systems are capable of measuring the variation in

the key variables, and (d) modify the process to stay

within the acceptable ranges.

4. Control. The objective of this phase is to ensure that the

modified process enables the key variables (Xs) to stay

within the maximum acceptable ranges.

THE SIX SIGMA PLAYERS

There are four groups of key players in the GE Six Sigma effort:

1. Champions. These are senior managers who—although

not on Six Sigma full time—define, approve, and fund

projects and are responsible for the success of the overall

program. Most Champions report directly to the business

leader, and a GE business might have up to 10 Champions,

each of whom receives a week’s training. Several

hundred Champions have been selected.

2. Master Black Belts. These are full-time teachers with

heavy quantitative skills as well as teaching and leadership

ability. They mentor Black Belts. Master Black Belts

are trained for at least 2 weeks. In the fall of 2000, there

were 500 Master Black Belts.

29 Leadership Secrets from Jack Welch 107

3. Black Belts. These are full-time quality executives who

lead teams and report to the Champions. In the fall of

2000, there were 5000 Black Belts.

4. Green Belts. These are members of Black Belt project

teams who do not work on the projects full time and

have other jobs in the company. In the fall of 2000, there

were 100,000 Green Belts.

THE SIX SIGMA PROCESS

Each of the four phases—measure, analyze, improve, control—

takes 1 month. Each begins with 3 days of training, followed by

3 weeks of “doing” and 1 day of formal review by the Master

Black Belts and Champions.

A “successful” project is one in which (a) defects are reduced

10 times if the process began at less than three sigma (66,000

defects per million operations) or (b) there is a 50 percent reduction

in cases where the process started at greater than three

sigma.

GE defined five corporate measures to help its businesses track

progress in the Six Sigma program:

1. Customer Satisfaction. Each business conducts customer

surveys, asking customers to grade GE and the best in a

category on critical-to-quality issues on a one-to-five

scale, where five is the best. A defect is defined as less

than best in a category or, even if best in a category, a

score of three or less.

2. Cost of Poor Quality. There are three components: appraisal

(mostly inspection), internal costs (largely scrap

and rework), and external costs (mainly warranties and

concessions).

3. Supplier Quality. GE tracks defects where the defective

part either (a) has one or more CTQs out of tolerance

108 29 Leadership Secrets from Jack Welch

and therefore must be returned or reworked or (b) is received

outside the schedule.

4. Internal Performance. GE measures the defects generated

by its processes. The measure is the sum of all defects in

relation to the sum of all opportunities (CTQs) for defects.

5. Design for Manufacturability. GE measures the percentage

of drawings reviewed for CTQs and the percentage of

CTQs designed to Six Sigma. Most new products are

now designed with CTQs identified. This is an important

step because the design approach often drives the defect

levels.

THE VERDICT

Since Six Sigma began in January 1996, the results have far exceeded

Welch’s expectations. He noted the progress in his letter

to shareholders:

The Six Sigma initiative is in its fifth year—its fifth trip

through the operating system. From a standing start in 1996,

with no financial benefit to the company, it has flourished to

the point where it produced more than $2 billion in benefits

in 1999, with much more to come.

Consistently throughout this ramp-up period, Welch stressed

that quality-mindedness was critical to success at, and by, GE:

In the next century, we will neither accept nor keep anyone

without a quality mindset, a quality focus. It has been

remarked that we are just a bit “unbalanced” on the subject.

That’s a fair comment. We are.

WELCH RULES

➤ Understand the component parts of Six Sigma quality.

Measure, analyze, improve, and control to achieve a

new discipline in your company.

29 Leadership Secrets from Jack Welch 109

➤ Nothing is more important than follow-through. You

will need to make sure that quality does not fall off

in the future.

➤ Your customers know quality. Consider initiating customer

surveys to assess your quality effort.

110

LEADERSHIP

SECRET 25

MAKE SURE THE CUSTOMER

FEELS QUALITY

FROM THE FILES OF JACK WELCH

It’s really gone from a quality program to a

productivity program to a customer satisfaction

program to changing the fundamental

DNA of the company.

In his 1999 letter to shareholders, JackWelch proudly explained

the program’s impact on the company.

During the initial 2 years, he noted, GE had invested some

$500 million in training its work force. It had also dedicated

some of its best talent, literally thousands of employees, full time

to Six Sigma projects.

Nearly every professional worker at GE had become a Green

Belt, with 3 weeks of training and one Six Sigma project under

his or her belt.

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29 Leadership Secrets from Jack Welch 111

Another 5000 full-time Black Belts and Master Black Belts

were starting and supervising Six Sigma projects. A number of

those Master Black Belts and Black Belts had already been promoted

into key leadership posts.

As for the financial returns from Six Sigma, they were better

than expected. Savings in 1998 due to Six Sigma projects

amounted to $750 million, over and above GE’s investment. Billions

more would be saved due to increased volume and market

share.

In 1998, GE introduced its first major products designed for

Six Sigma. These products were “designed” by customers and

incorporated every feature the customer deemed critical to quality.

The first such product was LightSpeed, a CT scanner that

revolutionized medical diagnostics. Thanks to LightSpeed, a

chest scan that once took 3 minutes to perform now took only

17 seconds.

SIX SIGMA AT WORK

Here are some other examples of how Six Sigma has worked at

GE:

Example 1

GE’s lighting business had a billing system that didn’t mesh

very well electronically with the purchasing system of Wal-Mart,

one of GE’s most important customers. This caused disruptions,

delays in payments, and wasted time for Wal-Mart.

A GE Black Belt team secured a $30,000 budget and went to

work. Within 4 months, defects dropped by 98 percent.

Example 2

Employees at GE’s Capital Mortgage Corporation were handling

300,000 telephone calls a year from customers. When necessary,

they relied on voice mail. Although GE personnel always

112 29 Leadership Secrets from Jack Welch

returned these calls, sometimes it was too late: Customers had

already taken their business elsewhere.

A team led by a Master Black Belt got involved. It discovered

that one of the corporation’s 42 branches was able to answer its

phone calls the first time around. The team figured out how and

spread the word across the other 41 branches, leading to millions

of dollars of additional business.

CUSTOMERS FEEL VARIANCE

However, by 1999, Welch and his senior colleagues were aware

of a major problem. Although the company was saving significant

sums through Six Sigma, customers weren’t sensing these improvements.

Why? The answer lies in a concept called variance.

Consider a hypothetical example, presented in the chart on

page 113.

It appears there have been substantial improvements in customer

service: The mean delivery time has been cut from 17 to

12 days. But there are wide variances in the delivery times. Yes,

customers sometimes received the product in 4 days but other

times didn’t receive it for 20 days. And although the average

performance has been improved, lots of deliveries still take up

to 20 days.

Welch focused on these still-frustrated customers:

These customers hear the sounds of celebration coming

from within GE walls and ask, “What’s the big event? What

did we miss?” The customer only feels the variance that we

have not yet removed.

The challenge he laid out to his top managers was to turn the

company’s outlook “outside in.” This meant two things: (a) measuring

the parameters of customer needs and processes and (b)

working toward zero variability.

He explained this new priority in the 1999 annual report:

29 Leadership Secrets from Jack Welch 113

Customer Dashboard: Customer XYZ

Dashboard Dial: Order to Delivery Time

Order by Order Delivery Times

Starting Point After Project

28 Days 29 Days

Mean Aspect

18 6 Big Change

6 10

23 13

5 4

8 10

16 13

Variance Aspect

19 10 No Change

33 20

11 13

Average Performance

17 Days 12 Days

Today, Six Sigma is focused squarely where it must be—on

helping our customers win. . . . The objective is not to deliver

flawless products and services that we think the customer

wants when we promise them—but rather, what customers

really want when they want them.

And a year later, he presented another Six Sigma status report

to GE shareholders, this time against the backdrop of e-business:

We have the hard part, hundreds of factories and warehouses,

world-leading products and technology. We have a

century-old brand identity and a reputation known and ad-

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114 29 Leadership Secrets from Jack Welch

mired around the globe, all attributes that new e-business

entrants are desperate to get. And we have one other enormous

advantage—Six Sigma quality—the greatest fulfillment

engine ever devised.

WELCH RULES

➤ Customers must be brought into the process. Make

sure that your customers feel the results of your quality

program as quickly as possible.

➤ Don’t assume that the customer is as happy as you

are. Monitor customer reaction to the initiative on a

continuing basis.

➤ Keep the customer as the main focus. Make sure your

employees are aware that the point is to satisfy customers.

115

LEADERSHIP

SECRET 26

GROW YOUR SERVICE

BUSINESS: IT’S THE WAVE OF

THE FUTURE

FROM THE FILES OF JACK WELCH

The market is bigger than we ever dreamt.

In 1980, the year before Welch took over, GE was almost entirely

a manufacturing enterprise, with 85 percent of revenues

coming from manufacturing and only 15 percent from services.

The company had always been involved in services, but the

service sector was regarded as something of an afterthought—

known, tellingly, as the “aftermarket.”

At first, GE saw the service sector as merely a source of some

incremental business. But in time, company executives under-

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116 29 Leadership Secrets from Jack Welch

stood that a systematic focus on services could enlarge the potential

markets of GE businesses many times over.

HIGHER RATES OF GROWTH FROM SERVICES

To Jack Welch and other GE executives, the point was not to

give up on manufacturing. But it was clear that the service sector

had the potential for much higher rates of growth. And service

had another huge advantage: Profit margins were typically 50

percent higher on services than on manufactured products.

So a push began in the late 1980s to grow services. In 1990,

GE derived 45 percent of its revenues from its service businesses—

up substantially from the 1980 figure. Only 5 years later,

in 1995, GE’s nonmanufacturing business (financial services, aftermarket

services, and broadcasting) had grown to just under

60 percent of total revenues.

In 1995, Welch pushed the service initiative to full throttle.

And by the year 2000, manufacturing made up only 25 percent

of the entire GE mix, while nonmanufacturing businesses made

up the rest, for total nonmanufacturing revenues of just under

$100 billion.

The most important engine in this service growth—indeed,

the key engine of growth for all of GE—has been GE Capital

Services (GECS). In 1999, GECS revenue reached $55.7 billion,

or about half of GE’s total revenue of $111.6 billion.

But also extremely helpful to GE’s efforts in the service field

was a hidden asset: its installed base of industrial equipment,

including 9000 commercial jet engines, 10,000 turbines, 13,000

locomotives, and 84,000 major pieces of medical diagnostic

equipment.

By October 1996, GE was bringing in $7.8 billion—fully 11

percent of its total revenues—through servicing that installed

base. At the end of 1998, its product-service revenue exceeded

$12 billion a year.

29 Leadership Secrets from Jack Welch 117

MAKE SERVICE A PRIMARY MARKET

In 1997, Welch was asked how far he was prepared to go toward

becoming service oriented. Was he prepared to abandon certain

production lines?

In response, Welch noted that customer demand was pulling

the company in the direction of services, but there was clearly a

point of diminishing returns:

We offer them complete solutions not so much in order to

increase our equipment sales, but because they have a need

for them. That said, we will always be a company that sells

high-tech products. Without products, you’re dead. You go

out of business and become obsolete. If I fail to introduce a

new medical scanner, how many hospitals are likely to come

and see me for new services?

It’s worth noting that General Electric’s increased emphasis on

services can run counter to one of Welch’s earlier business strategies:

that all GE businesses must be either number one or two

in their markets.

What’s the challenge? A company that manufactures, say,

widgets can define its market quite narrowly and thereby seize

the number one or number two spot with relative ease. But when

that same company begins to provide services, its market share

may plummet because it may put itself into a new peer group

of service-oriented firms.

Welch, for one, can live with these kinds of complications.

All these things you learn. If Jack Welch knew 17 years

ago what he knows today, it would be a better company.

This is a learning organization. I learn every day. Keep

searching. I don’t know diddly. I got guys here trying to learn

more.

WELCH RULES

➤ Think hard about the services that might be directly

associated with your products. Is your company leav118

29 Leadership Secrets from Jack Welch

ing money on the table by not pursuing aftermarket

service opportunities?

➤ Think equally hard about services that are further removed

from your core product lines. GE Capital Services—

far from the light-bulb trade!—has been an

astounding success.

➤ Stay flexible. As you make the move into services, be

aware that some of your long-standing ideas about

your business may need to be adjusted.

119

LEADERSHIP

SECRET 27

TAKE ADVANTAGE OF

E-BUSINESS OPPORTUNITIES

FROM THE FILES OF JACK WELCH

While we are already generating billions in

Web-based revenues, the contribution of

e-business to GE has been so much more. It

is changing this company to its core.

Jack Welch viewed tackling the Internet as the fourth major

initiative of his tenure at the helm of GE, after Work-Out,

globalization, and Six Sigma quality.

During the 1980s, GE went through a substantial modernization

effort, in part to take advantage of emerging technologies.

Exploiting the Internet was a natural extension of these

efforts.

But large, established companies like GE needed time to figure

out the Internet. Many of these companies, especially retailers,

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120 29 Leadership Secrets from Jack Welch

moved slowly onto the Internet, fearful of cannibalizing their

long-established brick-and-mortar businesses. Many were unwilling

or unable to trade away profits for speculative ventures

into e-business. Yes, Wall Street loved the dotcoms in their heyday,

but Wall Street also expected companies like GE to make

money.

THE WAITING GAME

GE’s relationship with the Internet dates back to October 1994,

when GE Plastics set up the company’s first Web site. This was

a straightforward “brochureware” site that presented information

aimed at its key audience of design engineers.

Three years later, GE Polymerland, the distribution arm of GE

Plastics, became the first GE Web site to engage in electronic

transactions. This was only a small step forward, however, because

GE Plastics was still doing transactions both off-line and

on-line.

So GE was neither an early mover on the Web nor a

particularly adventurous player when it did move. To some extent,

this reflects the Old Economy background of its CEO.

Welch earned his doctorate in chemical engineering at the

University of Illinois in 1960. As the Internet gained increasing

attention in the early and mid-1990s, Welch began to feel his

way. He watched intently as other companies reacted to this new

phenomenon.

Like many other executives, he was bemused by Wall Street’s

embrace of the dotcoms. And no doubt, he envied these startups’

high valuations, but not so much that he was tempted to

plunge his company into the Internet world at an early, untested

stage.

So he watched and waited.

29 Leadership Secrets from Jack Welch 121

LATE, BUT NOT TOO LATE

For Welch, the year 1998 was a turning point. By that time, it

seemed that everyone around him was using the Internet for one

thing or another. His wife was making their vacation plans on

the Web. His colleagues at corporate headquarters were shopping

on-line. By Christmas 1998, Welch was persuaded that the Internet

Revolution was here to stay.

At that point, most of GE’s Web sites were like GE Plastics’:

essentially on-line brochures. “The epiphany,” observed Pam

Wickham, Manager, E-Business Communications and

http://www.ge.com, “which Jack got toward the end of 1998, was the

transaction piece, that this was the business model to pursue,

that the Internet could provide a revenue stream.”

So Welch issued a challenge: As quickly as possible, all GE

businesses would build Web sites that were fully equipped to

handle transactions.

When Welch issued his challenge, GE Polymerland’s Web site

generated revenues of only $10,000 a week. By the end of 1999,

that figure had risen to $6 million a week, and by June 2000,

the site was bringing in $15 million a week.

And of course, GE Polymerland was only one example among

many. In response to Welch’s challenge, GE’s many businesses

developed “e-businesses.” Critical aspects of these businesses,

such as sales, product development, and customer collaboration,

began to be performed partially or totally on-line.

One of the most appealing benefits of an e-business is increased

efficiency. Under the old system, for example, a number

of people took part in the ordering and fulfillment processes. At

each one of these “touch points,” human error could enter the

system. Such errors are all but eliminated on the Internet, where

the customer gets the chance to “create” the kind of product he

or she wants without intermediation.

Today, only a few years after Jack Welch’s strong push toward

122 29 Leadership Secrets from Jack Welch

the Internet, General Electric is widely regarded as one of the

best examples of an Old Economy giant successfully embracing

e-commerce.

WELCH RULES

➤ Look before you leap into e-business. Welch was criticized

for being a late mover on the Internet, but GE

avoided many of the problems on the “bleeding edge”

of technology.

➤ Look for appropriate e-business opportunities. Web

brochures are not enough. What products can you sell

in cyberspace?

➤ Take advantage of the Web’s efficiencies. E-business,

with its minimal transaction costs, can be highly profitable.

Elimination of human error in the orderfulfillment

process can further enhance profitability.

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LEADERSHIP

SECRET 28

MAKE EXISTING BUSINESSES

INTERNET READY: DON’T

ASSUME THAT NEW BUSINESS

MODELS ARE THE ANSWER

FROM THE FILES OF JACK WELCH

E-business . . . is already so big and transformational

that it has almost outgrown the

bounds of the word “initiative.”

Jack Welch acknowledges that GE may have been intimidated

by the Internet in its early days:

Why wasn’t the e-revolution launched by big, highly resourced,

high-technology companies, rather than the small

start-ups that led it? The answer may lie, as perhaps is true

in GE’s case, in the mystery associated with the Internet—the

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124 29 Leadership Secrets from Jack Welch

perception that creating and operating Web sites was Nobel

Prize work—the realm of the young and wild-eyed.

THE MISCONCEPTION

But even after deciding in 1999 to move aggressively into ebusiness,

Welch and his fellow GE executives labored under a

misconception.

They had devised an Internet strategy anchored in the belief

that there were Internet-savvy companies gunning for GE and

its traditional business models. The GE executives lumped these

presumed rivals together under a catch phrase: destroyyourbusiness.

com.

Welch believed that GE itself would have to play the role of

“GE killer”—that is, devising the new Internet-based business

models that would supplant the old ones.

To prepare for these efforts, GE put together e-business teams

consisting of young Internet-savvy types. Stationed in off-site

locations, they were tasked with figuring out tomorrow’s Internet

business models. Once those models were identified, GE would

pounce on them and adopt them before anyone else had the

chance to do so.

But in May 1999, the teams of young Internet hotshots delivered

a surprising report: There were no competitive threats out

there to any of GE’s businesses. GE was so far ahead of the pack,

they said, that it really didn’t need to worry about threats from

new business models.

Nevertheless, argued the young people, GE had to make its

traditional businesses Web-enabled. This would prevent customers

from jumping ship to competitors.

29 Leadership Secrets from Jack Welch 125

CHANGE TO THE CORE

The young people were talking Welch’s language. This wasn’t

brain surgery, as he liked to say. And so, in the spring of 1999,

e-business leadership teams were formed in all GE businesses.

Their mandate was to take GE’s business models, modify them,

get them Web enabled, and move business processes from offline

to on-line.

NBC was the attraction that lured Jack Welch to the Internet

party. It was the first business in the GE stable to become deeply

involved in the Internet.

Think about MSNBC. Think about cable. Now think about

what you can do as you get into the Internet . . . we can drive

traffic to sites. We’re communicating with millions of people

every day in that business. How many offshoots can we develop?

How many new things? I think CNBC.com will be an

incredible property.

These kinds of visions persuaded Welch to set his ambitious

goal for GE’s managers: Create and implement an Internet strategy

before the end of 1999.

As he noted in the 1999 annual report:

E-business . . . is already so big and transformational that

it has almost outgrown the bounds of the word “initiative.”

While we are already generating billions in Web-based revenues,

the contribution of e-business to GE has been so much

more. It is changing this company to its core.

Because 85 percent of its transactions were with other businesses,

GE was well positioned to take advantage of the businessto-

business (B2B) marketplace on the Internet. On the other

hand, this was still largely uncharted territory.

“It’s not as if you look at us versus our traditional competitors

and say we’ve been resisting it while all these other guys have

been doing it,” said Gary Reiner, senior vice president and GE’s

chief information officer. “Business-to-business commerce over

the Internet as we would define it today, in the kinds of busi126

29 Leadership Secrets from Jack Welch

nesses where we’ve been playing—we haven’t been doing much

of it, nor has anybody else.”

Ultimately, Welch’s Internet vision boiled down to three imperatives:

1. Keep upgrading people and retaining Internet-skilled talent.

2. Figure out how to leverage information technology to

create a competitive advantage for your businesses that

customers can see and feel.

3. Leverage information technology to support internal

business processes.

WELCH RULES

➤ Adapt your business model to the Internet. Don’t

worry that your business model will not work on the

Internet.

➤ Think “Web enabled” rather than “Web threatened.”

Your goal should be to take existing products and processes

on-line rather than attempting to build up from

zero.

➤ Think inside and outside. On the Internet, as in most

aspects of business, the two key challenges are (a) to

develop great people inside and (b) to present a compelling

value proposition to the customer.

127

LEADERSHIP

SECRET 29

USE E-BUSINESS TO PUT THE

FINAL NAIL IN BUREAUCRACY

FROM THE FILES OF JACK WELCH

There’s no question. Channels will be different.

Commerce will be different. People will

communicate differently.

Convinced that yet another business revolution was underway,

Jack Welch moved aggressively toward the Internet in

1999.

Welch wanted every senior executive at GE to share his passion

for this new form of commerce, and he took steps to make that

happen. He instructed each of GE’s 12 businesses to select an

e-commerce leader. He told the teaching staff at Crotonville

to make sure that every class taught at the Leadership Institute

in the coming year focused intensively on some aspect of

e-business.

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128 29 Leadership Secrets from Jack Welch

Welch also encouraged younger GE staffers to serve as Internet

“mentors” to senior GE executives. These mentors were asked

to work with their older colleagues for 3 to 4 hours a week,

surfing the Web and evaluating competitors’ sites. In short, the

older executives were learning to organize their computers, and

their minds, for work on the Internet.

Welch had his own mentor. He admitted that he was at best

a C or C-minus student: “I’m not the fastest gun in town.” But,

he said, the process worked:

It was this mentor-mentee interaction . . . that helped overcome

the only real hurdle some of us had: fear of the unknown.

Having overcome that fear, and experiencing the

transformational effects of e-business, we find that digitizing

a company and developing e-business models are a lot easier—

not harder—than we had ever imagined.

BREAKING THE GLASS

There was much more to be done.

By June 1999, the e-business initiative had affected the 1000

or so individuals who made up the e-business teams as well as

some 500 senior executives at GE.

But what about the other 340,000 GE employees, to whom

Welch wanted to convey his excitement about the Internet, preferably

in “Internet time”? By June 1999, fully 70 percent of GE

employees were using e-mail, and there seemed no reason not

to take advantage of that medium to reach employees instantaneously.

Welch decided to use the Internet to brief employees

on each quarterly senior management meeting.

In his first “e-brief,” issued on June 7, 1999, Welch observed:

We must have a “break-the-glass” mentality to get on top

of this fast-moving subject. You will see fanatical commitment

from the Business CEOs and from me on this subject.

29 Leadership Secrets from Jack Welch 129

The response to this first e-brief was remarkable. Energized

by the opportunity to communicate with Welch directly for the

first time, 6000 employees fired off e-mails to the boss within 2

days.

Of course, Welch couldn’t respond to each and every message

in this mountain, and as the novelty wore off, the flow subsided.

But something fundamental had changed. Formerly, Welch’s direct

contacts often were limited to his two dozen or so direct

reports. But after the implementation of e-mail, he regularly received

between 40 and 50 e-mails a day from all corners of the

GE empire.

And of course, people were e-mailing each other across the

company.

And they were e-mailing customers, suppliers, and everyone

else in the GE extended network. Welch loved it:

It puts a small-company soul into that big-company body

and gives it the transparency, excitement, and buzz of a

start-up.

It is truly the elixir for GE and others who relish excitement

and change. E-business is the final nail in the coffin for

bureaucracy at GE. The utter transparency it brings about is a

perfect fit for our boundaryless culture and means everyone

in the organization has total access to everything worth

knowing.

PART OF A BIGGER PICTURE

The first effect of GE’s Internet effort, Welch said, was to further

energize and refresh the company’s previous initiatives:

For 20 years, we’ve been driving to get the soul of a small

company into this sometimes muscle-bound, big-company

body. We described the contribution of Work-Out, and there

was more. We delayered in the ’80s, eliminating many of the

filters and gatekeepers. We got faster by reducing corporate

130 29 Leadership Secrets from Jack Welch

staff. . . . And we ridiculed and removed bureaucrats until

they became as rare around GE as whooping cranes.

Every year we got better, faster, hungrier, and more

customer-focused—until the day this elixir, this tonic, this

e-business came along and changed the DNA of GE forever

by energizing and revitalizing every corner of this company.

The Internet enabled GE to use the huge databases it had

compiled on customer processes in ways that directly benefited

those customers. In the future, said Welch, these benefits would

only increase:

What we are rapidly moving toward is the day when “Dr.

Jones,” in Radiology, can go to her home page in the morning

and find a comparison of the number, and clarity, of

scans her CT machines performed in the last day, or week, to

more than 10,000 other machines across the world. She will

then be able to click and order software solutions that will

bring her performance up to world-class levels. And the performance

of her machines might have been improved, online,

the previous night, by a GE engineer in Milwaukee, Tokyo,

Paris, or Bangalore.

Welch looked forward to the day when the chief engineer at

a local utility could check the heat rate and fuel burn of his

turbines—before he had coffee in the morning—to learn how

he stacked up against 100 other utilities.

And with a few mouse clicks, that same engineer could review

all the services that GE could provide to increase his facility’s

competitiveness.

With the advent of the Internet, Welch noted, amazing new

things became possible.

WELCH ON THE NET

GE, argued Welch, was well positioned to exploit the Internet.

It already possessed the nuts-and-bolts skills and strengths that

other companies sorely lacked:

29 Leadership Secrets from Jack Welch 131

We already have that! We already have the hard stuff—

over 100 years of a well-recognized brand, leading edge

technology in both product and financial services, and a Six

Sigma–based fulfillment capability. The opportunities

e-business creates for large companies like GE are unlimited.

In particular, it was the speed of e-business that got Welch’s

adrenaline flowing:

The speed that is the essence of “e” has accelerated the

metabolism of the company, with people laughing out loud

at presentations of business plans for “the third quarter of

next year” and other tortoiselike projections of action. Time

in GE today is measured in days and weeks.

And yet, Welch told shareholders in April 2000, some things

were constant:

You have undoubtedly read about the ongoing debate

about New Economy companies versus Old Economy companies

and the advantages, or penalties, for being one or the

other.

The fact is the Old Economy/New Economy scenarios are

just trendy buzzwords. There is now and will be in the future

only one global economy. Commerce hasn’t changed. There

is, however, a new Internet technology that is fundamentally

changing how business operates.

One area in which Internet technologies were having a profound

impact, Welch noted, was the measurement of progress.

Like most traditional companies, GE had measured things like

revenues, net income, cashflow, and so on. In the Internet world,

of course, these would continue to be measured, but they would

now be measured far more frequently. In addition, new things

would be measured, and these measures would be grouped into

four “buckets”: buy, make, sell, and strategic:

On our “buy” side, we now measure the number of auctions

on-line, the percentage of the total buy on-line, and the

dollars saved.

On the “make” portion, the Internet is all about getting information

from its source to the user without intermediaries.

132 29 Leadership Secrets from Jack Welch

The new measurement is how fast information gets from

its origin to users and how much unproductive data gathering,

expediting, tracking orders, and the like can be eliminated.

This tedious work in a typical big company is the last bastion—

the Alamo—of functionalism and bureaucracy. Taking it

out improves both productivity and employee morale.

On the “sell” side, the new measurements are number of

visitors, sales on-line, percentage of sales on-line, new customers,

share, span, and the like.

Welch noted that if GE got the components right (e.g., number

of on-line visitors, percentage of sales on-line, etc.), traditional

sales and net and cashflow measurements would follow.

In the end, all of this going on at GE is about using this

transformational new technology to better serve customers

and to be so good and so fast we become the global supplier

of choice.

WELCH RULES

➤ Manage in Internet time, using the latest technologies.

The Internet, in combination with intranets, allows

managers to communicate instantly with employees.

➤ Reinvent the company to compete in Internet time.

Think in terms of days and weeks rather than years.

Exploiting Internet time will change the fundamentals

of your business.

➤ Build on strengths. Success on the Internet in part

grows out of being a fundamentally strong company.

133

AFTERWORD

In September 2001, Jack Welch retired as chairman and CEO

of General Electric. He had been at the job for 20 years and

5 months. His memoirs, Jack: Straight from the Gut, were published

that month, and while Welch acknowledged to me that he

enjoyed the book signings more than writing the book, he could

certainly feel satisfied at the book’s warm reception. It remained

on bestseller lists for 6 months. Welch was circumspect about

the kinds of business activities he was pursuing in retirement.

He engaged in business consulting, but his clients were kept confidential.

As was befitting the man who many called the greatest CEO

of the era, Welch left General Electric in spectacularly better

shape than when he took over in April 1981. For the year 2001,

during which Welch served as chairman and CEO for the first

8 months, GE had revenues of $125.9 billion (down 3 percent)

and earnings of $14.1 billion (up 11 percent). Due to

an economic downturn and the September 11 terror attacks,

GE came under enormous pressure. The stock dropped 16 percent.

But no one blamed Welch or, for that matter, his successor,

Jeff Immelt. Fortune magazine named GE the “Most Admired

Company” for the fifth year in a row and the Financial Times

picked GE as the “World’s Most Respected Company” for the

fourth time.

The programs that Welch set in motion became part of his

legacy. At the forefront were Six Sigma and digitization. As for

Six Sigma, there were more than 6000 projects in 2001. With

respect to e-business, GE generated $19 billion of incremental

cost savings. His service initiative had grown to a $19 billion

portion of GE’s 2001 revenues.

But Welch’s legacy would not be measured only in the numbers.

He would be unhappy if it had been. To him, the “soft

stuff”—the company’s values—were uppermost. For instilling

Copyright 2003 by The McGraw-Hill Companies, Inc, Click Here for Terms of Use.

TEAMFLY

Team-Fly®

134 29 Leadership Secrets from Jack Welch

values that did so much for GE and for leading the way so remarkably,

the company renamed the Crotonville (N.Y.) management

institute the John F. Welch Learning Center. One could

imagine a huge smile breaking out on the former chairman’s face

upon hearing that news.

You can download this book at

EbookProvider.co.cc_LeadershipSecrets

  1. ratan rastogi

    what a superb article is this.!!!

  2. youngindiareformer

    Thats not an article.thats a book.

  3. Greeeeeeeeat Blog Love the Infomation you have provided me .

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