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Jack: What I've learned leading a great company and a great team

Bookcover

by Jack Welch, Warner books Inc, 2001.

Abstract

A great autobiography brings out the principles on which Jack Welch operated in General Electric. Getting the right people was an obsession with him, sustained by providing excellent management development facilities and the opportunity to contribute ideas eg in the "Work Out" sessions.

(Reviewed by Edgar Wille in Janauary 2002)

(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.

We aim to give enough information to enable readers to decide whether a book fits their particular concerns and, if so, to buy it. There is no substitute for reading the whole book and our reviews are no replacement for this. They can give only a broad indication of the value of a book and inevitably miss much of its richness and depth of argument. Nevertheless, we aim to open a window on to some of the benefits awaiting readers of management literature.)

General Electric

For twenty years Jack Welch was Chief Executive Officer and Chairman of the General Electric Company of America, from now on referred to as GE. In that time its market value shot from $13bn to $550 billion. It is a combination of individual companies bound together legally and by common values and general strategy, held together by unusually close attention to getting and developing the right people. Each company has much scope to do its own thing, to grow and develop in its own way. But all are answerable to the overall Board and a strong leader. Much local autonomy is encouraged, but there are frequent cross transfers of senior personnel to develop people for the future management of the company. It has long been regarded as a model for large companies and its individual components for all business managers.

Jack Welch wrote this book at the end of his long and famous tenure of the top job. It is an autobiography and he is engagingly frank about his successes and his failures, thus enabling managers who read the book to relate to his experience in a personal way. However a summary cannot hope to capture the flavour of the personal stories which highlight the quality and the excitement of his "reign". I shall concentrate on drawing out the principles and learning that he describes in the hope that managers will read the book for themselves, using this summary to help them to identify issues which are of particular use to their own situations.

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Jack Welch's objectives

Jack Welch was always honest and outspoken, even abrasive, but never tried to be what he was not. He valued integrity above all else, which did not mean he could not be a consummate negotiator and smart operator. Ruthless in decisions to dismiss those not equal to their tasks yet he often agonised over how to get rid of them. From the start he wanted GE to become "the most competitive enterprise on earth". His objective was to "put a small company spirit in a big company body, to build an organisation out of an old-line industrial company that would be more high spirited, more adaptable, and more agile" than some one-fiftieth their size. He was determined to create a company "where people would dare to try new things" - knowing that only the limits of their own creativity and drive and standards of excellence would be the ceiling of how far they could progress in the company. He believes that an already great company became "the greatest people factory in the world, a learning enterprise, with a boundaryle ss culture".

He speaks of his childhood and the impact of his mother who taught him how to be self confident, how to aim to win, to face reality, to motivate people by both kicking and hugging them, and following up to make sure that people did do what they said they would. Simple management principles, which might not appear in one of those old text books on Management Science. This early training in living helped him to see in his business years that one of the prime jobs of a leader was to inspire and build self confidence, which liberates people to take risks and rise to near impossible challenges. His mother even made him feel good about his early stammer. It was, she said, because his tongue couldn't keep up with his smart brain.

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Early days

He stayed on at university for a Doctorate. His main learning point at university, reading Chemical Engineering, was that, even in this area, there are no black or white answers. Business is "largely smell, feel and touch as much as or more than numbers." After university his first job was with a plastics company in GE. He nearly left quite early because of the bureaucratic trend to treat everyone alike, standard rises and so on. However he had differentiated himself in the way he did his job and this led to his being noted as someone to develop.

He never forgot the lesson that people are different and when they differentiate themselves positively, they need appropriate special treatment and should not be regarded as an identical member of a common herd. This viewpoint informed his way of developing managers for higher responsibilities and filling the key positions in the company. "Every one has to feel they have a stake in the company, but this does not mean that they all have to be treated the same."

In his early career, an explosion in a small scale experiment and an understanding manager taught him that mistakes were not best dealt with by discipline, but better treated as learning occasions. So much of his early, and even more of his later, experience gives rise to reflections, which are not new; management courses are full of them, but they emerge in this book from the story and yet are capable of being pulled out as a set of maxims, to be applied in our own situations.

Quite early he learned that prejudice that other races were inferior could rob the company of good opportunities. A run in with such prejudice over India taught him the idea of global intellect; tapping every great mind in the world, no matter where it was located.

The story part of the book is stimulating. Here he is not preaching so much as giving a living example. His first real promotion in plastics was to a job which could have finished off his career, but he accepted the risk and won. A potential failure in a product, by hard work and cooperative endeavour, became a world winner.

One story illustrates how the conventional assessments when developing people can miss people who can take a company to new heights. Years after he found an assessment which had been written concerning him. It recognised his good points but saw limitations which suggested an element of risk. These were arrogance, overreaction emotionally, gets too involved in detail. "Tends to rely too much on his quick mind and intuition and has a somewhat anti-establishment attitude." By paying too much attention to the dangers many managers who might have transformed companies have been overlooked in the interests of risk avoidance.

Jack Welch actually didn't fit the culture as it tended to be in some businesses. His language could be coarse, he didn't like canned presentations and preferred one to one discussion with a manager, where he would ask probing questions in an informal way, but with the understanding that if people didn't perform they would not last long. He was a wielder of the stick, but could show almost extravagant appreciation of a job well done. When the need was for someone to be replaced because of ineffectiveness, Jack Welch's style was that they should not be surprised, There would have been ample indication of need to change.

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On the way up

In his work as CEO of business units he enjoyed the situation where they operated like a family business, while having access to the resources of a big company. In the early days he realised that his own success was going to depend on hiring and promoting the right people. This never ceased to be at the top of his agenda, together with ensuring that they got the right development experiences in different parts and functions of the business. Again the text books will agree, but often companies fail to accord priority to people issues, whatever they say in their annual reports. In his selecting of people he was concerned to feel the passion for action in the candidate, rather than merely an impressive CV or resum?. When as CEO of the whole organisation he visited business units he often surprised the senior management by the detail about people's performance he expected to be available.

He also insisted on a departure from the blandness of appraisal forms, where everyone was equally good. This type of kindness did not seem kind to him. He was early in seeing the now generally accepted concept of intellectual capital as the key to success, smart and creative people.

The book is full of anecdotes which illustrate how he reached the top. He had failed to close an acquisition for which he had gone to much trouble to get Board support. He had to meet them at a time when he was one of those in the race for the succession to Reg Jones the previous CEO. He subsequently learned that one or two directors who thought he was a bit too competitive, were relieved that he knew when to walk away from a deal.

His story of the way in which Reg Jones had discussions with the candidates for the top job. He would ask them if he and they were killed in an air crash who would they select as the CEO and why. At another interview the interviewee survives and is asked to outline his actions on taking over and on another to outline his growth experiences with the company so far.

In summing up why he should be made CEO, Welch wrote to counter a view that he lacked sensitivity: "The people with whom I have been associated have worked harder, enjoyed it more, although not always initially, and in the end gained increased self respect and self confidence from accomplishing more than they previously thought possible." A valuable point is made that Reg Jones did not try to appoint a successor in his own image. He and Welch were totally different in style, yet that did not affect Jones' choice. The Wall Street Journal reported that GE had replaced a legend with a live wire.

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The live wire reaches the top

" On April 1,1981, I was like the dog who caught the bus, I finally had the job." He describes how he knew what he wanted the vast company he now headed to feel like. He wanted a company "filled with self confident entrepreneurs who would face reality every day. Every milestone could trigger a celebration that would make business fun." How many business leaders start with aspirations like that and make them happen?

He knew he wanted to trim bureaucracy. At the end of his tenure of office, Welch was able to point to a company six times its size when he had become CEO, with 25% more vice presidents and fewer managers, each of who now had 15 reports compared with seven then. And in the end they had only six layers between the shop floor and the CEO. He changed the style of planning sessions with less paper and more managerial debate, seeking company success not personal point scoring. The value of the new style sessions was in eliciting what was in people's heads and hearts, not what was in the books of facts.

He stopped signing appropriation forms which already had sixteen signatures on them. His signature was adding no value and if he had the right managers they could take responsibility for such approvals, against overall agreed allocations for which they had made a case to the Board. They owned these allocations and decided how far to delegate authority for the actual expenditure.

He did not only introduce fresh air into HQ, but on regular visits to all the units (he was not a stay in the office man) he would feel the pulse. Were people just going through the motions, seeing a promotion as a reward for past services, not as a fresh opportunity?

He tells the story of his visit to the nuclear reactor plant. The managers were making rose coloured plans which assumed the sale of three reactors in the year, He challenged this and told them that in the wake of Three Mile Island they were not going to sell any more - ever. What could they do therefore to keep the business afloat? They were shocked. They had passion about their product, but no sense of reality. He asked them to get to work on transforming themselves into a company that provided fuel and services to the 72 GE reactors still in service. They did succeed in reorienting the business over the next few years to services and fuel, while still working on research to be able to produce advanced reactors when at some point in the future the need arose.

These people were not the entrepreneurial types, yet they met the challenge. Welch comments that they were not loud, young or confrontational. They were not typical Jack Welch types; they were GE mainstreamers, but they made the transition. This gave Jack hope. You didn't have to fit a stereotype to make good in the new GE. Jack Welch became very visible and wherever he went he held meetings to enthuse people. Stories like the reactor one were part of his stock of motivational material. He used the story telling technique to get ideas transferred across the company.

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Number 1 or number 2

His first big speech to Wall Street analysts disappointed them. He did not number crunch with estimates of earnings by business segment. Instead he described the winners of the future. They would be companies which would search out and participate in the real growth industries and insist on being number one or two in every business they stayed in. They would be No 1 or No 2 leanest, lowest cost, worldwide producers of quality goods and services. They would not hang on to losers for any reason, tradition or sentiment. Yet at the same time he moved on to the need for the soft issues of getting and keeping the best people - of providing the environment where people would dare to try new things, where they would know that "only the limits of their own creativity and drive would be the ceiling of how far and how fast they would move".

Wall Street were unimpressed. It was just hot air to them. However the No 1 or No 2 concept became the central idea for GE for many years. Later he tells how he was flexible enough to move from it when circumstances changed as we shall see. (Many still quote the idea, not realising that GE moved on, still in Jack Welch's days.)

He described how this idea developed. It arose from reading Peter Drucker who asked "If you weren't already in the business, would you enter it today?" If the answer was 'No' what were you going to do about it? These were simple, but profound questions. They were very relevant to a company like GE which was in so many diverse businesses. Jack saw that if a business was without a long term competitive solution to the forces threatening it, it was only a matter of time before it would be all over. So the "fix, sell or close" slogan arose.

There were exceptions such as some commodity type businesses, such as electric toasters and irons where being No 1 or No 2 would give you little or no competitive advantage, so long as you were strong in your niche, product or region. Welch sketched out on a table napkin when eating at a restaurant the three circles in which he wrote the areas where GE could be No 1 or No 2. All the others would have to go. In the first two years of his reign 71 businesses or product lines were sold. 116 other deals were made including acquisitions, joint ventures and minority investments.

The sale of the air conditioning plant shocked many, but Jack Welch maintains it does everyone a good turn to sell a weak operation to a stronger business. The gains from such sales were not treated as normal income; the money was put into investment to improve the company's competitive position. In this connection there is a choice sentence from JW: "We managed businesses not earnings". Strengthening businesses for the long haul was better for shareholders in the long run than giving the sale gains away as dividends. This contributed to "consistent earnings growth" which he had pledged. "Accounting doesn't generate cash, managing business does!"

The cut and thrust of letting businesses go and finding others which supported the No 1 or No 2 strategy makes fascinating reading. It can't be detailed in a mere summary. Not surprisingly as the policy began to bite there was much protest from many employees whose souls had been fully involved in areas which were now were being ripped apart. Turmoil, angst and confusion were everywhere.

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Selective downsizing and investment

Here was a successful business, tenth largest in the world, with no current major problems and in five years from Welch taking over the top job, 118,000 people had left (one in four), including 37,000 in businesses which had been sold. Then he added fuel to the fire by investing millions of dollars in what might appear non productive activities, such as building a fitness centre, guest house, a conference centre at HQ as well as a major upgrade at Crotonville the management development centre - all this at a cost of $75m. This was an expression of his dedication to soft as well as hard values.

At the same time he was spending millions of dollars on new plants and equipment. But it was the relatively small expenditure on luxuries, as they were perceived, that really stuck in the gullets of employees at a time when businesses were being sold and large scale downsising was taking place to redirect the company.

He held debates with employees on these issues. How could you expect people to spend four weeks away from home and really learn from the training if they were housed in mere cells in a worn out development centre? The ambience of company activity had to reflect its standards and values. Visitors to HQ should not have to stay in third class motels. And as for the fitness centre this was a place where people would meet informally and strengthen the forces that bound the company together.

Jack Welch saw his policy as a series of paradoxes and had an answer for each:

  • Spending millions on buildings which made nothing, while closing down uncompetitive factories that produced goods.
  • Paying the highest wages, while having the lowest wage costs (you have to pay to get the best people, but you can't carry people you don't need).
  • Managing long term, while "eating" short term (it's no good dreaming about the future while not delivering in the short time; balance is required).
  • Needing to be hard in order to be soft ("soft stuff doesn't work unless it follows demonstrated toughness. It works only in a performance based culture").

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Neutron Jack

Nevertheless the sheer nerve needed to carry out such changes was put to the test as he became one of the most unpopular American business men. Neutron Jack they called him, the guy who 'like the neutron bomb' leaves the buildings standing, while the people were removed. Jack admits that it hurt. People couldn't see that not only was he preempting future trouble, but was also laying a secure foundation for future expansion. Companies normally restructure when they are in trouble and for a prosperous company like GE it just didn't make sense. It was called 'Putting profits ahead of people'. And Jack actually cared about people, but took the long view.

No place could be a safe haven unless it was winning in the market place. He wanted to make GE the best place in the world to be if you were willing to compete. Lavish opportunity would be given for training and development. He says :"We'd do everything to give them the skills to have life time employability, even if we couldn't guarantee them lifetime employment."

Jack Welch considers that anyone who enjoys doing this cutting out of people shouldn't be on the payroll, nor should anyone who can't do it . One of his memorable sayings was "We didn't fire the people. We fired the positions and the people had to go." They never resorted to the across the board cuts which were frequently followed in big companies or have pay freezes to get the numbers right. They cut where it was needed for specific reasons. Across the board pay freezes impede the policy of getting and keeping the best people.

As well as Neutron Jack, he was called the toughest boss in America. Yet when he looked back from sunnier days he wonders whether he acted fast enough. He had waited too long to close unproductive facilities and was not quick enough in destroying the unproductive layers of bureaucrats and specialists, churning out statistics and ring binders full of numbers and nice to know analyses. Yet while doing this, he was getting the right leaders in place who would take the company and its component businesses forward.

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Appointments and takeovers

He then tells the story of two of his appointments where people were appointed because they could manage or lead, not because of their technical knowledge or position in the traditional promotion stakes. A real estates man becomes Chief Finance Officer for the company as a whole and takes finance out of the mere control function into policy creation. Auditors became business supporters instead of corporate policemen, now transferring best practice from one part of the company to another.

In the mid eighties Jack Welch took over RCA and with it the NCB network, thus securing a place in the broadcasting and media world, with vast profit opportunities. A long way to come for a company which started with electric light bulbs. The details are beyond the scope of a summary, but the chapter which gives the story illustrates many of the management principles and gut feeling which were at the root of Jack's activities.

The need for trust in business life is also well brought out in this and other chapters. Negotiators and cooperators succeed in creating win win situations better if they feel comfortable with each other. Dinners and serious games of golf also seem to have a significant role. As I read I began to feel I would never have risen any where near to the top in GE - I don't play golf or want to! But I can see how of all games it does enable close business discussions to get started and personal relationships created.

Welch goes on to describe the company as a people factory. More than good intentions were needed to choose and develop 300,000 employees and 4,000 senior managers. He claims that GE "Is all about finding and building great people, no matter where they come from". As he went through the company and even as he met people outside, he felt that every time he met someone it was another interview, even down to the mechanic who effectively repaired his car and on the strength of the contact joined the company and stayed for 35 years. Jack Welch regards people as the company's core competency.

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Performance management

He goes on to speak of the need to undergird that passion with structure and describes the top management human resource cycle: an April full day 'session C' at every business location, a July two hour follow up video conference, and the November session s C-ii s to confirm and finalise the April decisions. Then there is the continual informal human resource activity as managers and others become known for their strengths and weaknesses.

In all this activity, the key as JW sees it, is differentiation, distinguishing what makes people likely to be special in which situations. In manufacturing the stamping out of variance is important. With people you want variety and you are constantly seeking it. As we saw earlier, differentiation is not only about finding the right people who will go on growing in the right slots. It is about their personal ability to achieve results, particularly in the management area. So all GE businesses had to identify their top 20% of senior executives, the vital middle 70% and the bottom 10%. This was the basic information which guided the Session C's and the related meetings.

The A people (the 20%) are people of passion, committed to making things happen, open to ideas from anywhere, with the ability to energise not only themselves but also all the people with whom they come into contact. They make business fun and productive at the same time. They have what JW calls the four E's of GE leadership, high energy levels, the ability to energise others, the edge to make tough decisions, the ability to execute and deliver on their promises, all connected by passion which may be less evident in the B's (the 70%). The B's are encouraged to find what they need to add in order to become A's. They are, after all, the heart of the company and need to be on the move, even within their B category.

C's (the 10%) are those who can't get the job done, who enervate rather than energise, who procrastinate rather than deliver, "You can't waste time on them, although we do spend resources on their redeployment elsewhere." This assessment of managers is set out graphically in vitality curves which are useful in the Session C's.

Then the differentiation extends to rewards, The A's have to be loved, hugged, rewarded with a variety of means and to lose them is a sin on which there will be post mortems. No less important is rewarding the middle 70%. Liberal stock options are a significant element as well as generous salary rises and promotions for both A's and B's. And promotions, especially for A's, are designed as development opportunities to stretch them and enable them to discover new strengths within themselves.

Dealing with the bottom 10% is the least enjoyable experience. After the first year, managers having lost some of their first bottom 10 % become reluctant to continue to maintain a list of a bottom 10%, because former B's are moving into it. One manager put into his bottom 10 the name of someone who died a few months earlier. Jack Welch believes it is not brutal or cruel to remove the C's. What is brutal and false kindness is to keep them and then they miss opportunities to get on to a different track elsewhere. It is cruel to leave it to late in their careers to tell them they don't belong, just when their needs are greatest and their job options most limited.

Performance management is part of all life, from school grading to late career handling. What Jack introduced was a performance culture with candid feedback at every level. The threefold sessions, April, July and November, in every business are described in some detail by JW. The Session C in April is prepared in the previous few weeks and binders are developed, with personal information about development progress, using charts and grids, though the meetings themselves are informal. Careers, promotions, vitality curves, strengths and weaknesses are discussed. Individual pluses and minuses are discussed and remedial action proposed where necessary. The grids show potential against performance. Everyone has to have a least strong characteristic as well as three strengths set out - this is for people who are very senior.

High potentials have lunch with the evaluation team and are also assigned a mentor who is seen in the role of a product developer and held accountable for his success with the mentee.

The afternoon reviews the initiatives that are in hand in the business with presentations by those involved and some tough questioning. Best practices are picked up to be passed on to other businesses. A clear cut to do list emerges and is checked in the July video conferences, and the loop closed in November.

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Management development

The emphasis on management development brings JW on to giving a fuller picture of his changes at Crotonville, the GE Management Centre. Even before he took office as Chairman and CEO, JW got to know Jim Baughman who had been named as head of the Centre and shared with him his vision for it. (We have enjoyed presentations from Jim at Ashridge.) Jack saw Crotonville as the key resource for the kind of changes he envisaged for GE.

To do this Crotonville needed to become a place where ideas could spread in a give and take environment. JW could break through the hierarchy and relate directly with managers, even those further down in the organisation, without his messages being reinterpreted by various layers of managers. Jim Baughman and Jack Welch began to plan to change everything, the students, the faculty, the content, the physical facilities - everything. JW writes "I wanted it focused on leadership development, not specific functional training. I wanted it to be the place to reach the hearts and minds of the Company's best people - the inspirational glue that held things together as we changed."

He wanted only people of potential to go there, not tired people as a reward. A new residential centre was built. You couldn't expect real progress if people had to stay in third rate accommodation.

Jack then regularly ran a major session on each course at which he outlined his vision for GE. Initially he scared people who had been used to a more traditional company, and who were worried by the flurry of sold units and downsizing, but gradually he got through as more and more managers realised that there were opportunities for them in the new approach. The courses moved from case studies of other companies to addressing the actual concerns of the GE businesses. Noel Tichy was brought in from Michigan Business School to develop this action learning approach.

Three main leadership courses were run. Executive Development (EDC) for the highest potential mangers, Business Management (BMC) for middle level managers, and the Management Development Course (MDC) for fast trackers early in their careers. Managers for EDC had to be nominated with the approval of the GE human resource manager, countersigned by JW himself.

EDCs and BMCs had to make presentations to top management and were taken seriously as tapping ideas, many of which could be implemented. They were encouraged to challenge as well as themselves being challenged. Students were turned into in-house consultants. Crotonville became an energy centre, a powerhouse for the exchange of ideas and at JW's frequent four hour sessions there he did not lecture but facilitated this exchange, He would elicit from their ideas for their bit of the company and then throw the challenge of what they would do in the first thirty days if they became CEO. He got them to discuss an actual leadership dilemma they had experienced. He too told them stories of his own successes and failures. Storytelling is a valuable way of getting principles to stick.

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Work out

He was frustrated by the fact that these sessions were revealing that the change message was not getting acceptance all the way down. So the famous WORK OUT was started all over the company. Trained University professors were brought in to facilitate meetings of 40 to 100 employees, patterned on New England town meetings. They were invited to share their views of the business and of any impediments, such as bureaucracy. These work outs lasted two or three days.

They were designed to work out unsatisfactory features from out of the system. The boss was not present, but any proposals had to be decided on the spot or a date given for a proposal. Between 1988 and 1992, 200,000 employees had been involved in work outs. They came from all levels and were free to speak their minds. Unions and shop stewards were there as well. One middle aged appliance worker summed the value of these workouts: For twenty five years you've paid me for my hands when you could have had my brain as well - for nothing!

The culture was changing and leaders were there to lead, not to control. Everybody's ideas counted.

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Changing attitudes

Jack's own ideas never ceased to flow. His next idea was of the "boundaryless company". This would remove all barriers among the functions, engineering, marketing. manufacturing and the rest. No distinctions would be recognised between domestic and foreign operations; customers and suppliers would be part of a single process. The walls of gender and race would go. The team would be more important than the individual ego. Finding a better way every day became the slogan. The new concept was worked into the Session C reviews, so that managers were assessed on the basis of their practical implementation of the boundaryless approach as well as on other factors.

Jack Welch was a continual ambassador for the values of the company. He divided people into four categories:

  1. Type 1 managers - deliver on commitments - share the values. A good future - therefore - easy to deal with.
  2. Type 2 - doesn't deliver on commitments and doesn't share the values - also easy to deal with.
  3. Type 3 - misses commitment. But shares the values. Might get a second and even third chance, in a different environment.
  4. Type 4 - delivers on commitments, but doesn't share the values. This was the most difficult to deal with. Managers who domineer, rather than inspire. With the boundaryless organisation, such managers were in the long term a liability and action had to be taken.

Another means of changing attitudes was to expand stock options as a means of remuneration. The gains from investing in their own company could be considerable and motivation and sense of ownership were enhanced.

A Corporate Initiatives Group was another idea to ensure that the best ideas spread, Jack was constantly on the move addressing meetings and challenging people. Some ideas were not sophisticated but they worked. For example one Company Vice President came up with twelve measurements and processes common to all plants. He then asked all his managers to rate themselves on a scale of 1 to 5 on each one, from inventory turns to order fulfilment. Then there would be discussion at staff meetings. Too many managers were giving thmselves too many fives and were asked to justify their view. The minority who could justify themselves with truly superior results then became places of pilgrimage from other managers who wanted to borrow their ideas.

The plant in another company which didn't have a single defect in 11 million components it shipped in 2000 would have been inundated with managers wantng to discover the secret in GE, but in this company no one really knew about it. When GE took it over you could guess things changed.

Learning took place also from companies in entirely different fields. Jack Welch learnt a lot from Sam Watson the boss of WalMart. A retail food company had systems which enabled the matching of local weather situations to ensure goods would be where circumstances needed them, eg climate variations and the need for antifreeze. Excess in the warm area meant transfer of appropriate goods to the cold ones. Nothing very clever, yet significant in profits and capable of transfer as an idea from one business to another.

One GE company found a ready supply of talent in junior military officers, who had completed their stint. Soon everybody was adopting the idea and at the end of JW's tenure there were 1400 of them in the various businesses.

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Redefining the market

One of the best outcomes of the openness to new ideas that JW had inculcated came from a challenge to one of GE's sacred cows. A link of some courses was made with US Army War College, merging them, because they had surprisingly common problems in a period where the Cold War was no longer a problem. Arising from this a US Army colonel observed that the famous determination to be No 1 or No 2 was holding GE back. You would have thought that Jack would have resisted a change to the pet theme on which he had lavished so much attention. The colonel said that many of the GE leaders were clever enough to redefine their markets so narrowly that they would still be No 1 or No 2 in their market defined that way. So the principle was rapidly coming to mean nothing.

The outcome of this was to redefine all the markets so that no one would have more than a 10% market share of such a redefined market. This would force everyone to think differently about the business and a new growth mindset would emerge. It played a big part in the increase of revenue from $70bn in 1995 to $130bn in 2000.

Jack Welch describes his frequent deep dives into specific businesses opportunities. These were spotting a challenge and throwing the weight of his position behind it and getting involved in negotiations to make it happen. Some might have called it meddling. This might include public contacts, selecting the right person to head up a new project, visiting other companies to see how they were doing things, where no competitive conflict was involved. He had a major part in setting up the business network on TV-CNBC, in developing the medical scanner technology, using six sigma quality approaches. Even manufacturing diamonds as good as the real thing by simulating natural processes was on his agenda.

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Downs as well as ups

Much of the second half of the book is a riveting story of the application of the principles of the first half out in the world - the downs as well as the ups. He describes the take over of Kidder Peabody, a major investment banking firm, and the cultural problems where people took their rewards for granted instead of having to work exceptionally for them and where personal commitment to be stretched was deficient.

Then, as if that wasn't enough, a major embezzlement scandal arose in Kidder with a lot of bad publicity. Phantom trades had been used and hundreds of millions of dollars had disappeared. The media pursued Jack relentlessly, but one of the characteristics of success at the top is to be able to carry on. It is interesting that he did feel personally hurt by it all. He was not without human reactions.

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GE Capital

The story of the development of GE Capital is a good one. It started life as GE Credit, with the aim of handling the financing of growth, finding the money for acqusitions and investment. In 1978 it had an income of $67m on $5bn assets, just in North America. By 2001 this had become $5.2bn income on assets of $370bn in 48 countries. It represented 41% of GE's total annual income. So what business is GE in? Well, still in the business of making money on the basis of engineering and marketing activities which occupy most of its employees. As a money company it derives its existence and its continuance from its basic though ever extending activity. The company as a whole has financial strength, when one of its major ingredients is concerned with the gathering and management of financial resources.

Its support in the many acquisitions made gave negotiating strength and ability to move fast in such matters. The deals of its 28 business units were in equipment manufacturing and management, in leasing trucks, cars, airplanes, real estate and in private label credit cards. Banks in Central Europe were added in the mid 90's and even pet insurance! Burtons, Harrods and the House of Fraser ran their credit card systems through GE Capital. Often it was a matter of financing and managing ailing companies into success.

In 1998 GE Capital made two deals in Japanese life insurance, consumer finance and leasing. One was a $575m joint venture with Japanese Toho Mutual Life Insurance. The other was a $6bn acquisition of Lake consumer finance company, with 600 branches across Japan and 1.5m customers! Such successes demonstrated the benefit of JW's people policy, that he could find within the overall company the managers to negotiate and run these activities.

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The NBC story

A company like GE illustrates the futility of certain kinds of statistics describing companies by their market. A chapter on "mixing NBC with light bulbs" illustrates the difficulty of categorising GE. It goes into some detail of how NBC, the TV and radio company, became a key part of GE. They entered fully into arresting signs of decline, restoring NBC to a prime place in entertainment and top place in news coverage.

Jack got into many specific issues like choosing chat show hosts and getting rid of senior managers who had too laid back an approach as compared with GE. The entertainment business is well known for unwarranted extravagance. Jack put in managers who would do something serious about this. NBC was also brought into cable in a big way, when they had been lagging behind. He soon learnt that he could not predict which shows and soap operas would succeed and left it to the experts who didn't know either. But for all his tendency to "meddle" he never took his eye off his main job, which was to deal with resources - people and dollars. He also brought to bear a long term approach, persuading the board to stick with NBC when there some doubts. He also negotiated the tie up with Microsoft which made MSN the No 1 news internet site.

Other interesting insights in the NBC story involve the deals over sports coverage and in particular the clinching of a big deal to cover five Olympics up to 2008. Three of them cost $2.3bn. The 15 years leadership of NBC in the hands of Bob Wright showed how in the words of Jack Welch " a light bulb maker could make it big in the TV business".

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Lawsuits and scandals

The story continues in a chapter entitled "When to fight and when to fold", This describes fighting a law suit brought by a disgruntled senior manager who had been dismissed. Jack had kept the little personal notes which were crucial to winning the case.

Then there was the scandal in 1990 of an employee in the aircraft engine business who had conspired with a general in the Israeli Air Force to divert money from major GE contracts for F16 planes into a joint Swiss bank account. This horrified Jack who had always made a big thing of integrity as he stomped around the company. There was a lot of adverse publicity. Legal advice was given to the company that they should admit legal fault and pay a fine. On principle Jack would not do this.

JW had to testify before a House subcommittee, whom he told "Excellence and competitiveness aren't incompatible with honesty and integrity". The company had an employee force the size of St Paul or Tampa. They had no police force, no jails. They had to rely upon the integrity of their people. 21 long term employees had been responsible by omission for the fact that the crime could happen. Jack took a personal hand in helping the business leader deal with it. Of the 21, 11 had to go; six were demoted and four reprimanded. This sent a message through the company that colonels and generals were not going to escape while sergeants got shot.

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Major change initiatives

The story is also told of the company's efforts to fend off criticism for supposed pollution of the Hudson River. They were able to agree on stringent policies, though still had to bear a good deal of the fall out of political scheming for votes. GE has had more factories in more towns than any other company in the world over its 110 years of existence. In the last decade they spent $1bn on clean up.

Section Four of the book is about four major change issues which revolutionised the company. He begins the section:

If you like business you have to like GE. If you like ideas, you have to love GE. This is a place where ideas can flow freely from and through more than 29 separate businesses and more than 300,000 employes.

This is boundaryless behaviour. In the nineties Jack Welch led GE in four major initiatives: globalisation, services, Six Sigma (quality) and e-business. They defined an initiative as something that grabs everyone - large enough, broad enough and generic enough to have a major impact on the company, Jack was the cheerleader, but the ideas came from all over the company. Crotonvile was a potent source of ideas. An employee survey led to the quality surge. Leadership from the top management of all businesses was essential; they had to be visible champions. Each initiative had to develop people and improve the bottom line. Individual rewards also had to flow to people who made them work. Follow up was relentless.

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Globalisation

GE has always traded in many countries. But this is not what globalisation is about, It is not about exporting your country's goods. It is about being involved all over the world, of being a corporate citizen of that world, being at home anywhere in it.

Jack Welch tells the story in his usual enthusiastic style. You can see why he believes in passion. We have already referred to GE's extensive involvement in Japan. He tells the story of his dealings with GEC in Britain with Arnold Weinstock. They shared the same company name, but when in 2000 GEC changed itsname, GE were able to buy the full right to the name. The two companies entered into a number of joint ventures from 1989 onward.

Jack became a globetrotter with Paulo Fresco, who was Mr Globalisation. They took a controlling share in the Hungarian lighting company, Tungstram, one of the oldest enterprises in Hungary, around the time of the fall of the Berlin Wall. GE became the No 1 light bulb company in the world after also absorbing the British firm Thorn in 1991. The negotiations in Hungary were going badly when they discovered that the phone lines were being tapped. So some bogus conversations were set up to give the impression that the deal would be dropped. These soon brought the asking price down and the deal was done.

JW is high in his praise of his Indian experience. He obviously enjoyed the VIP treatment they were given in palaces and the Taj Mahal, with government ministers in attendance. Jack saw India as an important consumer base in its own right with 100 million middle class population in a total of 800 million. He saw that the Indian people were highly educated and had an entrepreneurial streak. It was the intellectual capability of Indian people that provided the best opening for GE. The infrastructure was ridden with bureaucracy, but they found " terrific scientific, engineering and administrative talent there that today serves every business in GE."

As GE moved from thinking of globalisation in terms of markets to thinking of it in terms of sourcing products and components, and finally tapping the intellectual capital of countries, so India moved into the forefront. GE have invested heavily in an R&D centre which will eventually employ 3000 people. In 2001 it employs 1000 of whom 250 are PhD's. GE Capital has moved its customer service centres to Delhi, with better quality, lower costs, better collection rates and greater customer acceptance than their comparable operations in Europe and USA. They are sought after jobs and refute the idea that globalisation need to be bad for developing countries.

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Growing services

The next of the initiatives was growing services. Jack Welch emphasises that this is all about people. Most manufacturing companies used to think that the real job was producing the goods and selling them. What happened in terms of maintenance and other support services after the goods had been received by the buyer was regarded as secondary. "After Market" was the term often used. A matter of fixing their problems with spares and so on.

The end to the sale of nuclear reactors in USA after Three Mile Island, meant a rethink if they were to avoid shutting a large part of the reactor facilities. Safety gave the idea that it was more essential than ever to ensure that the many existing reactors were well maintained and that more than ever they would need a ready flow of components and also of advice. This concept was already operative in Medical equipment. Long term service contracts had been part of the selling deal and represented a big part of growth in that sector. Now the same principle became crucial to reactors. In fact it became a service support business.

The Crotonville class which led to the redefinition of markets influenced the company to widen the application of what Medical were already doing. GE might have sold 50 or so gas turbines in a year, but there were service opportunities for 10,000 existing turbines. The same with servicing several hundred planes a year, when there were 9,000 jet engines needing regular services. To make this even more effective they bought the Greenwich aircraft service company. In 1994 service revenue was 40% of total aircraft engine revenue. It was 60% by 2000.

Acquisitions played a big role in this service growth which extended to other forms of transportation and power. Service technology has also grown with much expenditure on R&D. Such service agreements are also a way of helping your business to business customer to make a better profit, which increases the demand for the services.

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Quality: Six Sigma

Initially Jack Welch and his colleagues had not been fans of the total quality movement. An employee survey had revealed an interest in the quality Six Sigma concept and a senior manager had become its champion. The procedures of Six Sigma, and the underlying philosophy would mean 3.4 defects per million operations in a manufacturing or service process and that is 99.99966% of perfection. This compared with an industry average of 35,000 defects per million operations.

Everybody got trained in the basic statistics of quality, with emphasis on learning about variation from standards and being able to detect an emerging undesirable variation. The reward system was also linked to success in it. In the first full year GE trained 30000 employees, spending about $200 million on it. Savings even that year amounted to $150million. Answering customer calls improved to near perfection, with a 99.9% of getting someone on the first try.

Some factories found that the quality drive so freed up space otherwise used up by spares and defective or rework goods that they did not have to expand their buildings. By 1999 the savings were up to $1.5million and new products were designed from the start to meet the standard. The approach was also expanded to enable the customers to feel the impact, for example in the improvement of time span, with waiting and delays eliminated to one tenth in plastics and even one fiftieth in the case of mortgage insurance. In 2000 aircraft engines had over 1500 projects at 50 airlines. The improvements enabled the customers to earn $230million in operating margin.

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E-business

GE were late in getting on the e-business bandwagon, the fourth of their initiatives. Transferring much of the sourcing to on line auctions reduced costs by $150m in 2000, expected to rise in 2001 to $1 billion, even after $600m spent in implementation. On line sales were $7bn in 2000 and set to double in 2001. E-business will improve many jobs. For example sales people spend too much time on administering, expediting orders, arguing over receivables and finding late shipments. E-business helps them to concentrate on fulfilling their true roles as face to face consultants to their customers.

There is a detailed chapter on the Honeywell merger which failed because of antitrust activities by the European Union after delays also by the American government. Welch objects to these bodies being allowed to act as prosecutor and judge at the same time.

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What this CEO thing is all about

As he moves toward to the end of the book, Jack Welch reviews, from his experience, what he believes this "CEO thing is all about". Yes fun, wine, perpetual motion, golf, friendship, all night sessions, winning, losing. Yes all that, but more. The job never leaves you. It is all absorbing. There is nothing boring about it. He does a day in the life of a CEO in one of his chapters. It seemed all hectic meetings with a lot of disagreement but an overall sense of purpose.

Jack Welch then throws together a list of the ideas that worked for him:

Integrity People always got it straight and honest from him and it actually benefited the business. It set the tone. Asked whether he could be a good Catholic and a business man at the same time he replied with an emphatic yes. He says he never had two agendas. Only one - the straight one.

The community He believes that social responsibility begins with a strong competitive company. Only a healthy enterprise can improve and enrich the lives of people and their communities. It pays taxes which pay for services. It meets safety and environmental standards. It provides good and secure jobs that give their employees the time, the spirit and the resources to give back to the community a thousand fold. A weak and struggling company is the opposite of all this. A money losing business provides no long term benefit to a community.

Setting a tone The personal intensity of the person at the top sets the tone for all employees, intensity of commitment. Being seen and frequent contact with all companies and their people in GE was therefore always a high priority.

Maximising the organisation's intellect This is done by encouraging everyone to share their ideas and setting in motion ways of transferring ideas from one part of the company to another. The idea of the boundaryless corporation and the Work Out meetings are good examples of Welch's approach.

People first, strategy second "Getting the right people in the right jobs is a lot more important than developing a strategy." You can't get or implement right strategies without leaders who develop them and own them.

Self confidence There is a fine line between arrogance and self confidence. The true test of self confidence is the courage to be open and to welcome new ideas whatever their source and even if it means that their pet ideas are challenged. Be who you are and don't pretend to be someone else.

Passion Winners care more than any one else. No detail is too small to sweat over or too large to dream. It doesn't mean flamboyance but it has to be deeply rooted.

Stretch This is reaching for more then what you thought possible. Not the artificial debates over budgets, but dreams which demand real effort and energy and which stem from "it must be possible to do better". Putting people of the right kind into jobs which seem just a bit beyond them will stretch them if they have the right support and even mentoring.

Celebrations It should be fun and when you have a success, celebrate, make everyone feel part of a good team.

Aligning rewards with measurements The specific behaviour required must be measured and rewarded. It's not just get more sales, but more margins as well. "By not aligning measurements and rewards, you often get what you're not looking for."

Differentiation develops great organisations Back to the vitality curve and pushing the top 20% and getting rid of the bottom 10%. Even apart from the bottom 10%, people are different and what they do with their difference should be reflected in their rewards and their opportunities. Mere monochrome equality is not good for the company or the individual.

Owning the people You're owning the business. You're renting the people. You have to keep the best and make them better. The boundaryless culture changed the game from hoarding your best people to sharing your best. GE ran a people factory to build great leaders.

Nothing is more important in a meritocracry, Not just at set times - all the time in all your dealings with staff, who should all know were they stand all the time. To his direct reports Jack would write a handwritten note with the annual bonus, with indication of what he thought was important and what he was looking for from them in the coming year.

Culture counts It needs to be clear from the start - what the company values and expects. And what you just don't do in this company and where the company won't go if it pollutes their values.

Strategy; bringing it to life:

  • What is the detailed global position of your business and that of your competitors; market shares, strengths by product line and by region today?
  • What actions have your competitors taken in the past two years that have changed the competitive landscape?
  • What have you done in the last two years to alter that landscape?
  • What are you most afraid that your competitors might do in the next two yeas to change that landscape?
  • What are you going to do in the next two years to leapfrog any of their moves?

Competitors Ask what is wrong with us, not what is wrong with them. Don't assume they will be sleeping while you come up with and develop your ideas into products. Don't underestimate them. Plan ever new product in the context of what the most effective competitor could do to trump you.

The field Get out and about. Headquarters doesn't make anything. By being constantly out in the field he heard the best ideas, motivated people and learnt a lot of reality.

Markets vs mindsets Markets don't stay for ever as they are. And our perspectives need not. The change from the No 1 or No 2 philosophy redefined the market; markets, where they had only 10% share were seen as growth opportunities.

Initiatives vs tactics Have fundamental changes as the focus of your activity, not quick fixes; eg the four initiatives referred to earlier. They affected everything in the company.

The communicator He went over the top in making sure everyone heard the message and he repeated it ad infinitum. He said the same thing from many angles. No one could escape what he wanted to put over yet when the nedd to change arose he would be just as enthusiastic about that.

Employee surveys Make them meaningful. Not just about the food in the cafeteria, Questions like: Is the company described in the annual report the same as the one you work for? Although they weren't running a democracy yet "Knowing and confronting what was on the minds of our employees was a key part of our success."

Upgrading a function A weak function would improve by strong leadership not structural changes and by a drive from the top man, removing the weak links.

The advertising manager "Image mattered. I was convinced it was my job." He never allowed an advertisement on the air if he didn't like it.

Managing loose, managing tight Knowing when to meddle and when to let go. "I managed tight when I could make a difference. I managed loose when I knew I had little to offer."

Chart maker He loved reducing everything to a simple chart, whether at a dinner on a napkin or on a white board.

Investor relations Wall Street is a big part of the job. Making sure that the right people were dealing with it and getting out on the road to know everybody and everything is a key activity of the CEO. They have to be proactive, not passively fielding enquiries.

Wallowing Getting people together, irrespective of rank, to wrestle with a complex issue. Fresh thinking without paper and memos. All equal partners.

Your backroom is somebody else's front room Outsource everything you can to people for whom it is a central task. Don't run your own cafeteria or print room. Do what you are good at. The back room work will never attract your best people. Often small entrepreneurial companies can do these jobs more effectively than you could. They put their best people on them.

Speed He more often regretted leaving a decision too long for further study, than taking it too quickly.

Forget the zeros Overcome the disadvantages of size by breaking off small projects, keeping them out of the mainstream as the best way to grow. A sense of ownership is greater in the small group. Informality and energy are more possible. The benefit of size is that it meant resources were available for small groups to operate riskily.

Jack Welch offered these points at the end of his book as ones that worked for him, along with a lot of luck.

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Epilogue

He has two more chapters; one on golf and its role in his life, and one on ensuring that the best successor was found and along with fellow contestants, developed in the process. Finally in an epilogue he reflects on his achievements:

"We took a bureaucracy and we shook it. We created a world class organisation, whose excellence is accepted on every continent. I believe the GE I'm leaving is a true meritocracy, a place filled with excited people, with good values and high integrity." It's a company that lives for great ideas, relishes change. Great people, not great strategies made it work. "We spent extraordinary time recruiting, training, developing and rewarding the best. Our reach and our success would have been limited without the best people stretching to become better."

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