Business the Jack Welch Way10 Secrets of the World’s Greatest Turnaround King

By Stuart Crainer

In Summary1. Make your job description easily understood…and then tell everyone2. Revolutionize, don’t tinker3. Change continually4. Think positive5. Surround yourself with quality6. Learn, always7. Keep it simple, stupid8. Look after your people9. Plan succession10. Make mistakes

The life and times of Jack Welch At the age of 33 he became GE’s youngest general manager Jack Welch was an “entrepreneur …willing to take well considered business

risks – and at the same time know how to work in harmony with a larger business entity”

The natural average life span of a corporation should be as long as two or three centuries, however the reality is that companies usually die young – 12.5 years or 40 years, for a multinational

Failure is attributed to the focus of managers on profits and the bottom line rather than on the human community that makes up their organization

For a company to survive, it has to be more like Ronald Reagan than James Dean

A successful company is one that can learn effectively GE’s genius has been the faultless succession planning of CEOs Success is also dependant on the climate of the company: respect for one

another and working at our jobs to have as much fun as possible, keeping it simple and not being too smart

It is better and cheaper to nurture and promote from within Jack Welch was considered to be a prophet/crusader whose management

perspective…brought a renewed sense of purpose to the company During the 1980s, Welch overhauled the whole business, throwing some

entities out and acquiring others. Nearly 200,000 GE employees left the company and over $6b was saved

The leader who tries to lead a large organization counter to what his followers perceive to be necessary has a very difficult time

By the end of the 1980s, GE was leaner, fitter and devoid of complacency Shun the incremental and go for the leap Jack Welch doesn’t understand halfway measures Work-out: the relentless company-wide search for a better way to do

everything we do Six Sigma: the spread of responsibility for quality – quality was an issue for

everybody in the company

The GE business:

o Aircraft engineso Applianceso Capital serviceso Industrial systemso Information serviceso Lightingo Medical systemso Broadcastingo Plasticso Power systemso Transportation systems

Welch set a new contemporary paradigm for the corporation that is the model for the twenty-first century

GE wasn’t ailing in the first place, but it wasn’t going anywhere either The essential ingredients of the Jack Welch style of management:

o Invest in people: He talks, pontificates, cajoles and educates. But most of all, he connects.

o Dominate your market…or get out: He wants to be first or a close second. Gain leadership, take the market by the scruff of the neck and lead it forward.

o Never sit still: GE never rests on its laurels. It changes and then changes again. It is always nearer to achieving its goals by never staying in one place

o Think service: GE used to be a manufacturing company that was also a service company. Under Welch, GE is now a service company that is also a manufacturing company. Quality and service link its activities

o Forget the past; love the future: GE embraces the new. Welch speaks enthusiastically about the future. GE creates the future.

o Learn and lead: the new model leader is not a corporate dictator. The leader is committed to learning, deciding and moving forward. Learning from failure is more important than wallowing in success.

o No bull: talk straight – whether it be to higher level managers or the lowest level employee.

o Kill bureaucracy: eradicate bureaucracy with a vengeanceo Stick around: you don’t have to move from company to company to

be successfulo Manage the corner store: The same things matter in GE as in a corner

store – quality, service, cash flow, keeping abreast of what sells, what parts of the business are doing well and people. The fact that you are selling a nuclear power plant and not candy bars is immaterial.

Chapter 1: Invest in people Your most precious possession is the people you have working there, and what

they carry around in their heads, and their ability to work together People are the bread and butter of Welch’s managerial style We are betting everything on our people – empowering them, giving them

resources and getting out of their way Welch spends at least half his time talking to people (he knows 1000 people

by name and has a good idea of their job responsibilities) The idea flow from the human spirit is absolutely unlimited At the leadership level an A player is a man or woman with a vision and the

ability to articulate that vision to the team, so vividly and powerfully that it also becomes their vision. A person with the courage to make tough decisions with fairness and integrity

Reward packages are geared towards individual and company success Developing people is too big a task to delegate to business schools or training

companies GE has effectively cherry-picked management ideas GE has Crotonville – a management development complex designed to teach

management and to inculcate the corporate culture in newer managers – business schools are considered too far from the pulse of the action and developing people is too important to be delegated elsewhere

It is important to put a succession plan into place so that the business lives on long after retirement

Succession planning is good management practice – effective leaders realize that the ultimate test of leadership is sustained success

Learning is one of the cornerstones of Jack Welch’s leadership style Leadership is about commitment to people All that matter is talent – talent wins Attracting the best people revolves around four baits:

o People want to join winning companieso People are attracted to high risk, high salary jobso People like industry leading/world changing companieso People want to join a company that complements their lifestyle

Good leaders grow people

Chapter 2: Dominate your market…or get out The most effective use of cash is to defend cash cows “Stars” will require the most cash investment to hold or gain relative market

share Taking money from cash cows and investing in question marks is the second

lowest priority The lowest priority for use of money is investment in dogs Market share is now not commonly used as a measure of success/corporate

performance Welch has unequivocally placed his faith in simple measurement of market

share Jack Welch demands that his businesses rank either a 1, 2 or 3 in their

industries

Welch resurrected the concept of measurement by market share when others denounced it as an ineffective measurement because everybody can understand what market share means, people know where they stand and it is not an overriding philosophy – just a convenient rationale

GE also tends to be in businesses where market share matters and is important for competitive success.

GE has avoided businesses where market share is of little benefit Welch thinks beyond the product to the entire economic equation of the

customer’s use of the product GE looked to the future and reinvented itself to continue to increase the

shareholder value “Value” has become the new rallying cry of GE, but market share remains an

important measure Identify clear measures for success: sales, profit, shareholder return, ROI,

market share? Make sure people know what the rallying point of the company is: people

know what market share means so it is easily used as a measurement. Provide focus.

De decisive: measurements need to be acted upon rather than collected ad infinitum

Chapter 3: Never sit still Welch’s trademark is to change everything, then change it again Executives must develop new skills to make themselves more employable and

to keep up with the heady pace of development Leaders are energetic – they have to be Effective leadership and high energy go hand in hand Quantity is no longer vital – it’s a combination of quantity and quality Do the important things more often and more intensively and you will be

working smart Jack Welch’s guide to working smart:

o Every day is different, every day is a challenge: when you are a $70billion company you are doing so many things wrong that the possibility for improvement is infinite

o Peel away the layers; reverse engineer: leaders have to dig deep and deeper and deeper still. Ask questions and figure out what is really happening

o Love your job: The job must matter. Leaders look beyond the narrow motivation of money alone.

o Get a life: Use after hours to relax and do the things that you want to do. Work enough to get the job done well – don’t neglect your need to recharge

Jack Welch has kept on learning through his entire career – never become stagnant

He has changed and then changed some more The people who reach the top are high performers who don’t make mistakes.

They are often better at the skill than the people who work for them. For CEOs, managing people is the source of their greatest frustration and often their greatest area of ignorance

Only immersion in an environment of learning, constant questioning and openness can create a culture geared to transformation.

There are four indicators that tell us how a company is likely to adapt:o Power: do employees feel that they have some influence on the course

of eventso Identity: to what extent do individuals identify with the organization as

a whole, rather than with a narrow group?o Contention: is conflict brought out into the open and used as a learning

toolo Learning: how does the organization deal with new ideas

Jack Welch believes that you should never get comfortable in your comfort zone

Get fit: today’s corporate giants have constitutions as formidable as their profits

Pick people with energy Know your job: distill your job down to a couple of lines. Jack Welch’s

answer is: to find great ideas, exaggerate them and spread them like hell around the business with the speed of light… what counts is what you deliver

Motivate through energy Nothing must stay the same – keep the company moving constantly

Chapter 4: Think service Our job is to sell more than just the box There are seven principles to becoming intimate with your industry:

1. Know your customer2. Strive for one-and-done servicing: condense the interaction with their

customers to involve the minimum numbers of people and processes3. Promote value enhancing self servicing: allow customers to do more

for themselves if they choose to do so4. Provide one-stop shopping: if you really understand your customers

you can provide associated services5. Service competence must be institutionalized: don’t rely merely on the

competence of individuals6. Let customers design the product: customers increasingly require the

ability to tailor the product to their own needs7. Build long term customer relationships

Jack Welch wants to move from industrialized service to customer intimacy. He did this in a number of ways:

Developing the softer side of GE’s business: GE Capital provides credit to customers purchasing equipment from GE’s other businesses. It complements almost every other business under the GE umbrella

Making multiple channels work: GE developed a better system of servicing and meeting the needs of its customers, especially the smaller ones. GE also provided the opportunity for the smaller customers to take advantage of business loans, store remodeling kits and software to help manage their stores more effectively. GE became a business partner to the smaller customers

Developing customer knowledge: Gather invaluable market research on evolving product and service preferences

The Six Sigma Initiative: The quality program. “Quality is something you work at. It is a learning process”. Six Sigma revolves around 5 basic activities:

o Definingo Measuringo Analyzingo Improvingo Controlling processes

GE no longer only sells the product, it sells the product as a lure to get you to sign up for other GE services

Lead quality initiatives from the top – the very highest echelons of the company should be actively involved in quality control and improvement

Steal the best ideas – six sigma was an idea originally used in Motorola and Allied Signal

Do it yourself: don’t use consultants for things like quality control – they may end up buying a brand new carpet and just laying it down on top of the dirt

Chapter 5: Forget the past; love the future The further you look, the better the future is going to be There are four preconditions to wealth creating strategies:

o New Passions: people inside the organization must care deeply about the future

o New Voices: young people are often disenfranchised from strategic planning

o New conversations: more people need to become involved in the process of strategy creation

o New perspectives: you cannot make people any smarter, but you can give them new lenses

“We need antidotes to Dilbert” Focus on the future, the past is history Yesterday’s achievements will mean nothing tomorrow Any organization has to shift, develop and move forward or face becoming

immersed and immobilized in the past Envision the future then seek to create it A vision should be a real raison de’etre A vision is a sense of direction that we need to keep in mind when assessing

leadership Vision is central to ensuring that everyone in an organization knows what the

goals of the enterprise are and how their particular job contributes to them Companies are in business to achieve goals Good business leaders create a vision. They articulately drive it to completion.

Above all else, good leaders are open. They go up, down and around their organization to reach people…They make a religion out of being accessible

The importance of IT should be recognized – companies shouldn’t just lie back and think of the balance sheet

An IT chief with a business background is more valuable than one with an engineering background

IT needs to be perceived as a driver of revenue Make the future today: don’t fall into the trap of feeling that the future is too

daunting Get ready but be flexible: plan all you like but you have to be prepared for

change

The future is going to be different: you can never plan the future by the past Look outside: leaders have to be able to look over the walls, to look outside

for new perspectives, examples and inspirations Utilize technology: use technology wisely – only fools rush in Be optimistic: Jack Welch is positive and relentlessly optimistic. He sees

potential for growth and discovery and efficiency everywhere he looks

Chapter 6: Learn and lead The interesting quality of Jack Welch is that he is an ever-growing, ever-

evolving character Don’t focus on short term events and charismatic leaders; concentrate on

systematic forces and collective learning The traditional myth of a leader is one who helps those who are seemingly

unable to help themselves. The new idea of a leader is one who helps his people to help themselves, grow and learn

A leader’s role has become complex and involves:o Ensuring high performance levels are achieved and sustainedo Handling growing complexity and ambiguityo Initiating and leading change processeso Ensuring that the organization and its processes constantly developo See that people within the company are motivated, developed and

rewarded to produce outstanding results Today’s leaders have to be pragmatic and flexible to survive – be people rather

than task oriented Now the foot soldiers are encouraged to voice their opinions and shape how

the organization works – followers are becoming more powerful The new leaders must add value as coaches, mentors and problem solvers,

must allow people to accept credit for success and responsibility for failure and must continually evaluate and enhance their own leadership roles.

Leaders have the ability to excite people within their organization Leading by example is not dead Leaders find good people who can fill the areas in which they themselves are

lacking The ability to delegate effectively is critically important – empowerment and

leadership are not mutually exclusive Leaders that are addicted to power kill companies Business leaders must be able to involve themselves in the nitty-gritty while

maintaining an overall perspective – this is the prerequisite for success Get beneath the surface to identify where the cultural problems lie A leader must recognize that change causes stress and distress Leaders must maintain disciplined attention – leaders must help others to

maintain focus People must be involved in any process of change and must be allowed to

express their opinions even if they are discordant Leaders need to ask the right questions, but not necessarily know the right

answers Welch lost $1.2 billion in buying Kidder Peabody. He says that if the CEO can

make a $1.2 billion mistake and still survive, others in the company should be encouraged to take risks wherever they feel that they can pull it off. Even if it fails, you can hardly do worse than a $1.2 billion mistake.

Build a culture where failure is accepted as a positive thing – punishing failures assures that nobody dares

We learn the most from our mistakes Fear of failure is a fundamental instinct, one that organizations only serve to

magnify “When I stop learning something new and start talking about the past versus

the future I will go” – says Jack Welch Today’s leaders must lead and learn Learning involves taking risks and taking risks makes us vulnerable Leaders will win by their ideas, not by whips and chains Increasingly CEOs have to be coaches to their managers and to help people

develop The skill of being able to influence people is the most important skill for those

at the top Business is a series of trial and error GE’s Work-Out

o Work-Out is an adaptation of “Action Learning”o Work-Out uses action teams to solve problemso This is all about a group of people coming together to learn with and

from each other as they confess failures and expand victories Add the human touch – central to the leadership role: marshaling, motivating

and engaging everyone in the organization is one of the prime responsibilities of the leader

Learn and learn some more – “I am always ready to learn although I don not always like being taught” said Sir Winston Churchill

Set direction and build values – the leader needs to carry out a precarious balancing act: setting the long term objectives and vision of an organization and connecting with people throughout the organization

Change things: the leader’s hob is to help everyone see that the platform is burning, whether the flames are apparent or not

Create tomorrow’s leaders - “the function of leadership is to create more leaders, not followers” – Ralph Nader

Chapter 7: No bull “It is vital for the success of our companies that businessmen and women

emerge as real leaders and demonstrate their ability to communicate effectively, internally and externally” – Sir Colin Marshal (Chairman B. Airways)

Welch has an uncanny ability to simplify things and that makes it easier to communicate more effectively. Jack Welch talks straight (no management jargon)

Jack Welch communicates continually - a few scribbled words from him is a powerful message. It shows that he has taken time that the person matters.

“Real communication is an attitude, an environment…it involves more listening than talking. It is a constant interactive process aimed at creating consensus”.

The rules of communication as defined by Heinz Goldman:o Empathy: managers must be able to put themselves in someone else’s

shoes.

o Commonality: managers have to find a common denominator with their target group

o Projection or impact creation: the impact created is base on projecting a strong message, portraying a powerful personality, impressing by determined persuasion

Face to face communication is 90% more effective than written or printed messages

Disagreement is inevitable and vital Welch suffers fools badly and is impatient if results don’t come. He pushes

and then pushes some more. Welch has created an environment of constructive confrontation –

communication means exchanging ideas. Exchanging ides means that people are going to have differing views and there will be conflict. Constructive confrontation is when you accept that there will be conflict, listen to the other arguments and consider them - especially when they are at odds with your ideas.

Agreeing to disagree is crucial Take “yes” for an answer but then ask “why?” Most companies are conflict averse and need to open themselves up to

flexibility and variety – to learn to disagree without being disagreeable – to keep the company on its toes

A threat avoided is more harmful than a threat tackled Distrust consensus and embrace contention (“Why is there no conflict at this

meeting?”) Leaders need to surround themselves with people who counter their

weaknesses and supplement their strengths Invest in communication Communication is the best route to innovation Clear communication creates clear expectations Communication makes life simple Be straight, tell them the truth first because it is the right thing to do and

because they will find out anyway

Chapter 8: Kill Bureaucracy “A boundaryless organization will ignore or erase group labels such as

“management”, “salaried”, “hourly” which get in the way of people working together”

Welch has communicated his message of the “boundaryless organization” so often that it borders on an obsession. Obsession is one of the unspoken facts of business life

There are culturally acceptable obsessions, such as musicians practicing 12 hours a day; there are culturally unacceptable obsessions such as being a workaholic.

We encourage the young to become obsessed with things like sports. When they become managers we expect them to be obsessed with their jobs. When they achieve senior management positions we expect them to throw away their obsessions and take a wider view

Managers often lead by obsessional example eg: working longer and longer hours to motivate staff

When you start a new business, you have to have boundless enthusiasm which is an obsessive behavior in order to succeed

Henry Ford believed that all people wanted a low-cost uniform car. His obsession with this belief cost him a huge number of customers as GM sped past with an ever-changing array of models in different colours and styles

Psychologists say that there is a fine line between commitment and enthusiasm (which is healthy) and obsessive behavior (which is unhealthy)

Managers can become obsessed with searching for promotions or obsessed with corporate politics. This obsession has to be diverted into productive channels and harnessed for the good of the company.

GE developed an array of management layers and internal systems. Jack Welch wanted to take down some of the walls that divided the layers and departments within GE. “if we do that, we will be getting more people coming up with more ideas for the action items that a business needs to work with”

“During the 80s we eliminated layer after layer of management. We took down wall after wall separating functions. We reduced staff – the checkers, kibitzers. As we did this, we found…that people who were given space- trusted, allowed to make their own decisions – worked harder at making sure they made good decisions”.

GE cut the number of layers of management from 29 to 6 Speed: Traditional large companies were slow, but by eliminating the layers of

bureaucracy, GE shaped itself to move quickly and make decisions speedily Informality: Pointless formality makes people uncomfortable and gets in the

way of real work Ideas, not management layers: Businesses are driven forwards by ideas, not by

layers of supervision Sharing information: in the old system if you had an idea you wouldn’t share it

because the system worked in such a way that someone else would end up getting the credit. In the new system there is an environment of “information shared is information multiplied”.

Chapter 9: Stick around “…the average young man cherishes the idea that his relationship with the

organization is to be for keeps” – that was the old world where loyalty and solid performance brought good job security

The companies were prepared to employ these people for life, but in many cases the companies themselves did not last (12.5 years for businesses and 40-50 years for multinational corporations

The “psychological contract” was a product of the ‘job for life’ attitude of the workforce. A number of issues are raised:

o Loyalty to what? What if the company’s corporate strategy was wrong or if they were involved in unlawful or immoral acts?

o Employees had a career all mapped out at the same company and did not accept a world view outside the company and the corporations became self-contained and self-perpetuating

o The foot soldiers, the steady dependable performers were rewarded and this did not encourage risk taking or branching out into new areas

o Loyalty was of far more value than ability “there was a must corner where mediocrity could reside”

The new psychological contract puts more emphasis on building skills than on blind loyalty (this also leads to your employees become more employable by other companies)

There will always be a psychological contract because both employer and employee have expectations and aspirations of the other side.

The perception today is that being a “corporate man” is a bad thing (“What would have happened if that person had looked outside the company? What heights could he have climbed? What achievements could he have achieved that he could not embark upon in the current company?”)

Jack Welch is a on-company man, but he remains questioning and does not sit still long enough to get comfortable

The corporate person lives on, but only by learning and nurturing Welch says that CEOs should stick around for a minimum of ten years,

otherwise they do not implement long term goals and they try to make their mark on the company as quickly as possible, rather than over a period of time

Imperfection means that you can do better next time Two groups of managers have emerged in companies:

o “High-Potential” managers who are given the most developmental opportunities

o “Solid Citizens” You need to give the managers on-the-job training to managers by assigning

job assignments strategically to assist in their development – being on a special team or task force, managing a particular product, launching a new business etc

Different assignments serve different purposes Experience is the best teacher of leadership Organizations have to provide support for development via coaching,

counseling and mentoring. Here are some warnings regarding using assignment for developmental

purposed:o Those chosen for developmental assignments should be told why they

have been given that assignment and support systems should be put in place

o Developmental moves won’t fix every weaknesso Most organizations don’t have enough big assignments to develop all

the leaders that they will need Every assignment is potentially developmental

All jobs need new skills all the time Learn from experience: sticking around in one company helps you to gain

experience in how the company operates and then you get to the stage where you are in a position to fix all those things that you have learned are wrong with the business

Give people time to make mistakes, learn from them and put them right. Developing people is the new focus of business

Chapter 10: Manage the corner store GE: Just your average everyday $60 billion family grocery store Jack Welch “…is incredibly smart. He can think strategically, but he is also

good with people, with deals, with organization, with politics…” Jack Welch is simply doing his job the best he can Jack Welch’s philosophy is that you manage a global organization like a

corner store: if the customers aren’t satisfied or if the stock isn’t moving, you have to fix it – just like a corner store.

The three most important things that you need to measure in business is customer satisfaction, employee satisfaction and cash flow

Cash flow is the vital sign of the business Cash is a fact, profit is an opinion Welch is concerned with the nitty-gritty: cash flow, goods in, goods out The rewards of liberating capital can be considerable Watch the cash: the concept of cash flow is widely understood and is thus a

good measure of managing a company’s finances Keep the parameters of performance simple: Welch’s parameters of success

are cash, service and business basics like inventory Management is management: the basics of running a small shop as compared

to running an international organization are comparable.

Epilogue: How long can Jack Welch be effective? Skills that make leaders successful often outlive their usefulness Charismatic leaders are often blinkered by an illusion of their own infallibility

and are thus inflexible You must watch for signs of egotism and lack of willingness to acknowledge

mistakes” The GE culture is too robust and carefully constructed to fall to the ambition

or ego of one person – Jack Welch helped to reinforce this quality The great lesson of Jack Welch’s career should not be forgotten, “Change

when the going is good. Change now to get ahead of the competition. If you delay you will be forced to change.