Book of the Week: Jack Welch and the GE Way – Management Insights and Leadership Secrets of the Legendary CEO

Jack_Welch_Cover“Jack Welch and the GE Way – Management Insights and Leadership Secrets of the Legendary CEO”, by Robert Slater. © 1998 McGraw-Hill. 322 pages

Take-Aways

  • Jack Welch is considered the toughest boss and the most admired manager in the United States.
  • Simplify your business as much as possible. Don’t overcomplicate it. Business is essentially simple. Fight bureaucracy.
  • “Act like a leader, not a manager.” Manage less. By doing so, you manage better.
  • Always ask the famous Peter Drucker question: “If you weren’t already in the business, would you enter it today?”
  • If the answer is no, Welch’s motto is to fi x it, close it, or sell it. If the answer is yes, you want to be number one or number two in the industry.
  • Find out who has the best ideas, and implement them.
  • De-layer your organization: remove whole layers of management.
  • Get rid of conventional rigid budgeting. Instead of thinking about how little money where is, find new ways of spending it.

Review
Jack Welch and the GE Way
Robert Slater’s book is an inside account of General Electric’s history since Jack Welch became Chief Executive Officer in 1981. Under Welch’s direction, GE made great strides in the economic community, both domestically and internationally. Welch is considered to be the toughest boss and the most admired manager in the United States. Although this is a company biography, it also contains hands-on advice that will serve any company well. It teaches companies how to restructure and how to make their employees more enthusiastic. It offers advice on how to change management and gives many examples of specific ways to help a business become a leader in its field. This well-written, well-organized book is easy to read and very entertaining. Chief Executive Officers who want to take their companies to a higher level should study it. Today’s business leaders can learn a lot from the lessons of Jack Welch. I recommend this book to all managers.

Abstract
America’s Most Admired Manager
Jack Welch is the CEO of General Electric Company, one of the world’s most profitable companies. In the United States, he is considered one of the six most influential people, the toughest boss and the most admired manager. Welch took over GE in 1981. By 1990, GE had transformed into the most powerful company in the U.S. The company’s market capitalization made GE the most valuable corporation in the world at that time. The company is now more service-oriented than manufacturing-oriented, although it still produces light bulbs, refrigerators and locomotives. GE competes in many major international industries, including aircraft engines, appliances, capital services, lighting, medical systems, media (NBC) and power systems. Welch has made GE a global powerhouse. He expects the company to generate the majority of its revenues from overseas.

Jack Welch instituted an atmosphere in which all twelve of GE’s major businesses learn and share with one another. Welch does not assume that he knows it all. To the contrary, he is always learning. He believes an organization can always learn something from its competition. He enthusiastically communicates with employees.

Welch’s Seven Messages
Jack Welch has seven main messages he often conveys as a public speaker.

  1. “Business is simple.”
  2. “Don’t make it overly complicated.”
  3. “Face reality.”
  4. “Don’t be afraid of change.”
  5. “Fight bureaucracy.”
  6. “Use the brains of your workers.”
  7. “Discover who has the best ideas, and put those ideas into practice.”

Welch puts these messages into practice. Under Welch, GE fosters employee learning and idea sharing. This new attitude toward incorporating learning from all sources improved GE’s performance. Welch urges companies to face the truth and realities of their businesses. Firms should “act quickly and decisively,” and should be as honest about their faults as about their virtues. By being consistent, he believes, you can change people’s minds about your company.

Delayering GE
From the very moment Jack Welch took over the leadership of GE, he viewed the company as a “bureaucratic dinosaur.” He knew GE had to change to stay competitive. So in the early 1980’s, he started by dismantling GE businesses which were not leaders in their field. When a company examines its businesses, it has to ask the famous Peter Drucker question: “If you weren’t already in this business, would you enter it today?” If the answer is no, Welch’s motto is, “Fix it, close it or sell it.” It the answer is yes, then you want to be number one or number two in that industry.

Welch downsized GE from 412,000 to 270,000 employees. Because he found too many managers and titles, and too much bureaucracy, he removed whole layers of management. He calls this process “delayering.” With less management, employees work more on their own. Consequently, they work faster and produce more. Welch believes smaller companies have better internal communications and can move faster than big companies. Welch achieved his goal of getting GE’s remaining employees to work with “…speed, simplicity, and self-confidence.”

Welch doesn’t want his managers to be monitors. Instead, he wants them to be energizers and facilitators. Welch teaches his managers to manage less. He believes that by doing so, they manage better. Managers should always convey a strong vision; they should be energetic and enthusiastic, to stimulate employees to be excited about their work. Managers should set aggressive goals and should understand that achieving these goals is more important than putting in lots of hours.

Welch’s leadership turns his managers into inspirational leaders. He gives junior managers more responsibility and allows employees to have real contact with their managers. Instead of just writing memos, the managers now talk and brainstorm with their employees. Welch wants managers to spread enthusiasm like wildfire. He removed the boundaries between management, engineers and marketing staff; between GE and its customers; between full-time and part-time employees; and finally between GE and the local community.

The Work-Out Program
Welch tore down old buildings and improved the remaining ones. He built new plants for GE’s new businesses, which replaced the old ones. Income and earnings rose as a result of these measures. After downsizing, Welch knew that the remaining employees were afraid of losing their jobs. To make them feel more secure, he started a new program called “Work-Out.” The goal of this ten-year program was removing the “boss element” in GE and encouraging all employees to contribute new ideas. Welch wanted the remaining managers to have more communication with employees who weren’t managers. He wanted most of the decision-making to be done by the employees, not the managers. He knew this method would dramatically empower his employees. The Work-Out Program had two main components. First, suggestions and ideas from employees were to be given to their managers face-to-face. If possible, managers had to respond on the spot. Second, Welch held meetings off site and had employees and managers from all sectors dress very casually for them. This created an atmosphere of sharing. “Work-Out” encouraged people to speak up. And they did. Managers had to learn to let the employees criticize the business. Welch knew it was a risk, but he did it anyway, and it worked. New performance targets were set and achieved. GE quit doing conventional rigid budgeting. Instead of thinking about how little money there was, people began to find new ways of spending it.

GE began announcing a new product every ninety days. GE now can design and complete projects in half the time that new launches used to take. Businesses within GE produced more and worked faster than ever before. Once the business was simplified, the managers became more enthusiastic and energetic. Welch fostered an atmosphere of self-confidence.
Concentrate on the Service-End

GE’s primary focus had always been manufacturing. Welch changed that. He began focusing on service. Acquiring NBC in 1985 obviously infl uenced this change. Welch believes that service-oriented businesses are the right concentration for the new millennium. In 1990, 56 percent of GE was manufacturing-oriented. Five years later, the manufacturing sector was only 43 percent. Now, instead of just making locomotives, GE offers railway customers something new: computer-based dispatching systems. GE uses technology to help it make the switch to a more service-oriented business. GE is still a major manufacturer – and has no plans to become a service-only company – but its emphasis has changed from manufacturing to service.

Financial services have become another component of GE’s business. GE began offering financial services by lending money to consumers to buy GE products, such as washing machines. Today, the GE Credit Company has become the GE Capital Company. By offering consumers many financial service products, it has contributed immensely to GE’s revenue growth. The company finances cars and equipment, delivers services through the Internet, sells insurance and mutual funds, and issues more commercial paper than any other U.S. company.

Top Quality
Quality drives every GE business, whether national or international, whether electronic or financial. Welch believes quality will “make GE the most competitive company on earth” because quality creates customer satisfaction. Welch wants GE to produce the highest quality products in the world, and thus to be the most competitive. To that end, he instituted the “Six Sigma Program.” The program lists four steps to improving quality: “measurement, analysis, improvement and control.” Welch is close to achieving the program’s goal: reducing the number of errors in products to nearly nothing. Every GE employee is involved in this process, which saves time as well as improving quality. Many areas have improved, for example, the time it takes to answer a service call and repair a locomotive. Since Welch implemented the Six Sigma Program, the results have gone far beyond his expectations and the success continues to snowball.

Integrity
In spite of the GE’s recent successes, one problem has continued: ethical lapses. In 1985, the federal government accused GE of filing incorrect taxes and lying to the government about work it had performed. After that, other ethical problems emerged. In 1989, GE was sued in civil court by people who accused the company of issuing faulty time cards. In 1994, a GE’s T-bond trader showed $350 million in false profits. Welch issued a book about integrity and ordered all GE employees to read it and to tell management they had read it. The book is now issued annually and ethical practice has become a general policy at GE. An employee who violates ethical standards is immediately fi red. Violations are not tolerated.

Training and Development Campus
GE is proud of its Leadership Development Center – a campus for junior and senior management. The courses are informal and encourage candor among employees. Welch loves going there, because it gives him a chance to learn directly from his managers. When he visits, he makes a point of having at least one personal conversation with each attendee. He asks questions, gives a presentation and answers questions. If he doesn’t know the answer, he says so. Then, he has dinner with his managers. By talking with managers who are close to his employees, Welch learns more about GE’s business.

GE’s Future
What does the future hold for GE after Jack Welch retires a few years from now? Welch will, of course, choose a successor he has trained personally, someone who shares his vision and values. Welch says there is no limit to the ways GE can continue growing and being profitable, as long as its learning culture continues to thrive. He does not believe that breaking up GE and spinning off its components is a viable alternative. Welch is convinced that the economic collapse in Asia and the deflationary period that has started in the U.S. will be “…the most difficult scenario that most of us have ever faced.” At a meeting in 1998, he told his managers to make new budgets, and to be sure to make deflation a part of them.

Welch constantly strives to make things simpler. He is dedicated to quality, which will continue to be a main theme for the next several years. GE is hiring more people now, and Jack Welch is proud of that. However, he doesn’t apologize for laying off so many people in the 1980’s. He says GE’s vision for the next century is to be a “global service company that also sells high-quality products.” In 1998, seventeen years after Jack Welch took over, Fortune magazine called General Electric the “most admired company in America.”

About the Author
Robert Slater has 25 years of experience with Newsweek and Time magazines. He has written a number of business books, including: Ovitz: The Inside Story of Hollywood’s Most Controversial Powerbroker; Get Better or Get Beaten! 31 Leadership Secrets from GE’s Jack Welch; The New GE: How Jack Welch Revived an American Institution and Soros: The Life, Times & Trading Secrets of the World’s Greatest Investor.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s