how jack welch runs general electric

Prime Mover of Business: Jack Welch
by Jack Welch (February 27, 2002)

Summary:

Jack Welch worked for General Electric Company from 1960 until 2001. From 1981 to 2001, he was its Chairman and CEO. He retired on September 7, 2001.

[www.CapitalismMagazine.com] Jack Welch is arguably the most famous CEO in the world. His 20-year reign as the head of General Electric brought the company from bureaucratic behemoth to dynamic and revered powerhouse. During his tenure, GE market value grew from $13 billion to $500 billion. In the process, Welch's management innovations have made him the most influential CEO of his era.

The Early Years

An adored only child, Jack was raised in a working-class Irish neighborhood in Salem, Massachusetts, by his father, a railroad conductor, and his mother, Grace. "If I have any leadership style, a way of getting the best out of people," says Welch, "I owe it to my mother. She was the most influential person in my life. Grace Welch taught me the value of competition, just as she taught me the pleasure of winning and the need to take defeat in stride."

Grace Welch poured equal measures of love and self-confidence into young Jack, expecting top performance in academics and in sports. He excelled at both, despite a persistent problem with stuttering and a somewhat small stature. In the scrappy and competitive neighborhood in which he was raised, Welch learned many of life's lessons.

And, it was caddying at the local country club that began his life-long love affair with golf.

Welch earned a BS degree at the University of Massachusetts at Amherst, where he was one of the school's top engineering students. In 1958, he headed for the Midwest, earning both his MS and Ph.D. in chemical engineering at the University of Illinois at Champaign, where he also met his wife. Welch found himself attracted by two offers upon his graduation: one at Exxon in Baytown, Texas, and the second at GE in Pittsfield, Massachusetts. In 1960, Welch headed for the company where he would spend the rest of his career.

The Rise to the Top

Welch's path from $10,000-a-year engineer to CEO was not always an easy climb. A year after he joined GE, he almost quit when he was given the standard $1,000 raise. Securing a bigger raise-and getting himself "out of the pile"-- became an important life lesson. In 1963, he accidentally blew up a factory while working on a plastics project. But despite the setbacks and the fact that Welch's blunt and candid style alienated some, he was named a company manager at age 32, the youngest in GE history. In 1971, Roy Johnson, then head of GE's human resources department, recommended that Welch be promoted to VP of the chemical and metallurgical division, citing his "driving motivation, natural entrepreneurial instincts, creativeness, aggressiveness, and his abilities as a natural leader and organizer." However, in that same evaluation, which Welch discovered years later, Johnson expressed reservations about Welch's style, saying he could be "somewhat arrogant (and) reacts (or overreacts) emotionally -- particularly to criticism."

Despite the critics, in 1980 then CEO Reg Jones tapped Welch as his successor in a long process that involved eight final candidates and months of deliberations. While many thought the two were an odd pair - Jones, a courtly English executive and industrious church deacon; Welch, a scrappy engineer from working-class New England -- Welch says they shared many links. Both were hardworking men from modest backgrounds, both were only children, both loved numbers and analysis. "We were considerably more alike than anyone imagined," says Welch.

The Business of Being CEO

In April 1981, Welch assumed the helm of GE and it was here that his legacy would begin. In a series of controversial decisions and tough calls, Welch began to transform the company. First, he adopted a strategy that each division must be #1 or #2 in their markets-or, in his memorable phrase, they would need to "fix it, sell it, or close it." Within five years, one of every four people would leave the GE payroll, 118,000 people in all, including 37,000 employees in businesses that were sold. The layoffs and closures that resulted earned him the unflattering moniker "Neutron Jack."

While the media attacked his policies, Welch remained focused on the job at hand. After visiting a Japanese manufacturing plant in the mid-1970s he found himself awed by their efficiency. The awe gave way to fear that the Japanese would be a threat, as they tore apart the cost structure in industry after industry. It was the search for a business safe from the perceived Japanese threat that led Welch to aquire RCA for $6.3 billion in 1985. "We bought RCA primarily to get NBC," says Welch. "What came with it would transform us."

Part of that transformation was to make GE a people company where ideas flourished and boundaries disappeared. Welch pressed his theory of a "boundaryless" culture in which all levels of the company participated in innovation and problem solving. Ironically, in growing this people culture, he adopted a way of differentiating his staff that could seem brutal. He ordered all 4,000 managers in the company to analyze their staff annually. Everyone was to identify the top 20 percent of staff to be nurtured and strongly rewarded; the middle 70 percent were the strong workers who were the heart and soul of operations; and the remaining 10 percent were those that either needed to be improved or eliminated. The "vitality curve" became a model for building a "people factory" with the greatest talent in any corporation.

Buoyed by these early successes, Welch next moved ahead with what he would later consider the biggest mistake of his career -- the 1986 purchase of Kidder, Peabody, one of Wall Street's oldest investment firms. Welch bought the company against the advice of some key board members, and he now says, "It was a classic case of hubris. I was just full of myself." Eight months after closing the deal, scandal erupted when Marty Siegel, a star investment banker at Kidder, admitted trading insider stock tips to Ivan Boesky in exchange for suitcases full of cash. "The Kidder experience never left me," writes Welch. "Culture does count, big time."

Globalization, Services, Six Sigma, E-Business, and Honeywell

In his second decade, Welch focused on four basic initiatives: Globalization, Services, Six-Sigma, and e-business. During globalization, Welch traveled the world making deals. Never one to sit at headquarters, he outdid himself in this phase, in China, in Japan, in India, and in Hungary, where he completed the first big deal in the New Eastern Europe, the day after the Berlin Wall fell, GE took a contrarian view of globalization, focusing efforts on areas of the world that were either in transition or out of favor. The services division, meanwhile, grew from $8 billion in 1995 to $19 billion in 2001 under Welch's leadership.

The Six Sigma effort, a mathematically grounded program that improves processes, decreases variance, and creates more perfect products while reducing costs, was launched in 1996 in response to employee surveys that cited quality as a growing concern. It is a program embraced today at all levels at GE and is used for everything from improving calls from mortgage customers to GE Capital to meeting Sony's specs for high-density CD-ROMs.

Finally, in e-business, Welch says he came to the party late (helped by his wife Jane's on-line tutoring), but once there recognized the enormous impact this technology would have on the company. E-business allowed GE to expand its markets, find new customers, and make its supplier base more global.

Attracted by Honeywell's businesses in aircraft engines, industrial systems, and plastics that were a good fit with GE, Welch began talks with the company in October 2000. The merger was derailed by antitrust concerns from the European Commission. "If this deal had come along in the middle of my career, it would have been another swing and miss," writes Welch. "Coming at the very end, after I had postponed my retirement, the loss of GE's biggest deal seemed to loom larger".

In his book, JACK: Straight from the Gut, he made these comments about his career at GE:

Contrary to reputation, I have been too cautious. I was hesitant with some acquisitions, slow to embrace the Internet, even timid about blowing up all the rituals and traditions of what once had been a bureaucracy. Almost everything should and could have been done faster.
Learning to love change is an unnatural act in any century-old institution, but the GE I am leaving does just that.
Great people, not great strategies, are what made it all work.
On September 7, 2001, Jack Welch said goodbye to the company, and the people, who have comprised the whole of his business life. He appointed Jeff Immelt to succeed him and set in place a staff that he believes will support his successor. The next chapter in GE's history is set to begin.

Jack Welch,

Retired Chairman and CEO of General Electri