The passing of Jack Welch provides a good stimulus to consider what powerful, enduring lessons he taught us. No doubt some of his aggressive approaches are viewed skeptically by some today, but there is no doubt his fundamental thinking is as relevant as ever.
When he stepped into the CEO job at GE in 1980, the company was a massive bureaucratic mess. There were five volumes of rules and procedures managers were expected to rely on. The most trivial decisions had to get “management” approval. Managers were drowning in monthly reports that were incredibly voluminous. GE’s stock price had dropped 50% in the period from 1970 to 1980.
That was the world Welch inherited, hated, and transformed. GE was worth $14 billion when he took over; it was worth $400 billion when he stepped down 20 years later. So…what did this guy do that we should be learning from? Here are the core principles of his approach to fixing GE that are just as important as they were 40 years ago when Jack took the job.
Kill Bureaucracy and Focus on Increasing Value – He consistently preached that success does not come from making the company bigger; success was making the company more valuable. His view was: “you don’t get there by hiring strategists at headquarters, or adopting new procedures, or holding more meetings, or by adding more layers. You get there by freeing up managers to create value.” Managers of the businesses were expected to perform, and they were held responsible for the results. No hiding behind committees or staff groups. GE enrollment was reduced by an estimated 100,000.
The Goal; Each Business Must Become #1 or #2 in its Industry – The person in charge of a business unit was under the gun to deliver on this goal, and realize that if he or she can’t, Jack would find someone who could. He charged each business head to do the necessary analysis to achieve the very clear goal. Again, all of this was based on Jack’s belief that shareholders pay managers to make the company not bigger, but more valuable, and the leaders of industries almost always lead in value creation.
Reward You Star Employees, and Deal with the Weak Performers – Here is where some of today’s HR folks get nervous about Jack. He not only demanded annual performance appraisals, he stressed the need to, putting it rudely, “Rank and Yank.” It required managers to rank employees by performance annually and identify the bottom 10%, who had to improve or leave. The good news here is that it forced managers to do a much better job of giving feedback and confronting what is very uncomfortable; namely, discussing sub-par performance and what specifically the individually needed to do to improve. Today, plenty of critics loath the system as inhumane. On the other hand, there is no doubt that today Jack’s basic message regarding star and weak performers is just as relevant as ever.
The Key Message; Face Reality and Do Something to Significantly Improve - His favorite charges to his business leaders and to all employees were: control your destiny, or someone else will; change before you have to; be candid with everyone; and most importantly, face reality and do something significant.
No doubt, GE fell into disarray after Jack left, and his hand-selected replacement was a big disappointment. While some want to get into what blame should be placed on Jack for this, don’t pass up the opportunity to think carefully about the above principles that can serve any leader well.