GE's Welch loved and laughed with his employees, but was generous with the ax
Jack: Straight from the gut
When Jack Welch wanted GE to establish a presence in China, he decided to start with lighting, a key business from which the company had built its powerful brand name. GE execs scouted out national competitors, and, unimpressed with them, decided to proceed.
Little did they know. "It turned out that almost every local mayor was putting up light bulb factories," writes the former GE chairman in his new autobiography, Jack: Straight from the gut. "Today, there are more than 2,000 in China."
Welch today is widely recognized as having been one of the most successful CEOs in history. The superlatives are well known. He retired from GE this year, culminating his stint with five consecutive years of top and bottom line growth.
The company ended 2000, with revenues of U.S. $130 billion, and earnings of U.S. $12.7 billion. GE's market capitalization this week stands at close to U.S. $350 billion, the largest of any company on the planet.
Welch's success is all the more extraordinary considering that GE is for all intents and purposes a 1970s-style conglomerate. Its fingers are in a diverse group of businesses ranging from aircraft engines, financial services, plastics and medical devices to broadcasting, few of which have anything in common.
So how did Welch manage to run such a wide variety of companies in an era where management consultants almost universally preach specialization and niche strategies?
If you ask Welch, it starts with human resources. "Getting the right people in the right jobs is a lot more important than developing a strategy," writes Welch. "We learned the hard way that we could have the greatest strategies in the world, (but) without the right leaders developing them, we'd get good-looking presentations, and so-so results."
Welch's people policy boils down to a "hug and kick" approach. That means an informal atmosphere, long hours and lots of human contact both at work, and afterwards in the bar or on the golf course. You get the feeling that GE execs don't see their wives much.
But at the end of the quarter the only thing that counts is performance. And the price of poor results is a pink slip. "Neutron Jack" - as he became known in the business press -- got his nickname from a Cold War nuclear device.
The neutron bomb explodes with a small blast that emits massive radiation. The result is lots of dead people, with surrounding buildings and infrastructure remaining intact. Welch's career path is littered with body bags. Victims are canned through layoffs, plant closings, incompetence or just because Jack doesn't like 'em.
In fact getting rid of the deadwood is one of Welch's key operational strategies. GE's human resource assessments consist of formal reviews. Each year all employees are classified by their managers on a bell curve with the top 20 per cent rated As (the leaders), the middle 70 per cent Bs, and the bottom 10 per cent Cs.
But this isn't just bureaucratic rating system. During the year the Cs -where possible --are laid off, transferred or fired. The only problem is that the next year managers are required to classify another 10 per cent of their staff as Cs. This gets harder to do as the years pass, and managers get more attached to their employees. Welch is convinced that ditching poor performers brings up the rest of the team.
Despite, and perhaps because of his success, Welch maintains a wonderful sense of humor. He not only admits, but also to laughs at his mistakes, which makes his autobiography immediately accessible.
His story is filled with insightful management tips such as his views about the Internet (old industry latecomers have an advantage because their brands and infrastructures are in place), to quality control (97 per cent efficiency is a disaster, try for 99.99 per cent).
But the book should come with a "don't try this at home" warning. Welch, who joined GE's plastic division after completing his Ph.D. in chemical engineering, comes off as a brilliant, energetic, utterly driven executive.
However Welch never fully explains how he was able to juggle so many businesses -- and the CEOs reporting to him -- so well for so long. And the reader is left with a picture of him as a bit of a gifted freak, whose results are simply not duplicable.
Peter Diekmeyer is a Montreal-based business writer. He can be reached at firstname.lastname@example.org
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