During Jack Welch’s tenure, GE increased its market capitalization by over $400 billion.
This is the story of a lucky man, an unscripted, uncorporate type who managed to stumble and still move forward, to survive and even thrive in one of the world’s most celebrated corporations. Yet it’s also a small-town American story. — Jack Welch
John Francis “Jack” Welch, Jr. was Chairman and CEO of GE between 1981 and 2001. Welch gained a solid reputation for uncanny business acumen and unique leadership strategies at GE. During his tenure, GE increased its market capitalization by over $400 billion. He remains a highly regarded figure in business circles due to his innovative management strategies and leadership style.
His net-worth is estimated at $720 million.
Welch was born in Peabody, Massachusetts, in 1935. He graduated from the University of Massachusetts Amherst in 1957 with a Bachelor of Science degree in chemical engineering. He received his M.S. and Ph.D. at the University of Illinois in 1960.
My mother 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. If I have any leadership style, a way of getting the best out of people, I owe it to her. She always insisted on facing the facts of a situation. One of her favorite expressions was “Don’t kid yourself. That’s the way it is.” “If you don’t study,” she often warned, “you’ll be nothing. Absolutely nothing. There are no shortcuts. Don’t kid yourself!” — Jack Welch
Welch joined General Electric in 1960. He worked as a junior engineer in Pittsfield, Massachusetts, at a salary of $10,500 a year. Welch was displeased with the $1,000 raise he was offered after his first year, as well as the strict bureaucracy within GE.
He planned to leave the company to work with International Minerals & Chemicals in Skokie, Illinois.
However, Reuben Gutoff, a young executive two levels higher than Welch, decided that the man was too valuable a resource for the company to lose. He took Welch and his first wife Carolyn out to dinner at the Yellow Aster in Pittsfield, and spent four hours trying to convince Welch to stay. Gutoff vowed to work to change the bureaucracy to create a small-company environment.
Over dinner, for four straight hours, he was hell-bent on keeping me at GE. He made his pitch, promising to give me a bigger raise and, more important, vowing to keep the bureaucracy of the company out of my way. I was surprised to learn that he shared my frustration with the bureaucracy.
— Jack Welch
Welch was named a vice president of GE in 1972. He moved up the ranks to become senior vice president in 1977 and vice chairman in 1979. Welch became GE’s youngest chairman and CEO in 1981, succeeding Reginald H. Jones. By 1982, Welch had disassembled much of the earlier management put together by Jones.
Through the 1980s, Welch worked to streamline GE and make it a more competitive company. He also pushed the managers of the businesses he kept to become more productive. Welch worked to eradicate inefficiency by trimming inventories and dismantling the bureaucracy that had almost led him to leave GE in the past. He shut down factories, reduced payrolls, cut lackluster old-line units.
The reality was that at the end of 1980, GE was a formal and massive bureaucracy, with too many layers of management. It was ruled by more than 25,000 managers who each averaged seven direct reports in a hierarchy with as many as a dozen levels between the factory floor and my office. More than 130 executives held the rank of vice president or above, with all kinds of titles and support staffs behind each one. (Today, in a company six times as large, we have roughly 25 percent more vice presidents. We have fewer managers, and most now average over 15 direct reports, not seven, with in most cases fewer than six layers between the shop floor and the CEO.) — Jack Welch
Welch’s philosophy was that a company should be either #1 or #2 in a particular industry, or else leave it completely. Although he was initially treated with contempt by those under him for his policies, they eventually grew to respect him. Welch’s strategy was later adopted by other CEOs across corporate America.
Being No. 1 or No. 2 wasn’t merely an objective. It was a requirement. — Jack Welch
Each year, Welch would fire the bottom 10% of his managers. He earned a reputation for brutal candor in his meetings with executives. He would push his managers to perform, but he would reward those in the top 20% with bonuses and stock options.
He also expanded the broadness of the stock options program at GE from just top executives to nearly one third of all employees. Welch is also known for destroying the nine-layer management hierarchy and bringing a sense of informality to the company.
During the early 1980s he was dubbed “Neutron Jack” (in reference to the neutron bomb) for eliminating employees while leaving buildings intact. In Jack: Straight From The Gut, Welch states that GE had 411,000 employees at the end of 1980, and 299,000 at the end of 1985. Of the 112,000 who left the payroll, 37,000 were in sold businesses, and 81,000 were reduced in continuing businesses. In return, GE had increased its market capital tremendously.
We went from 411,000 employees at the end of 1980 to 299,000 by the end of 1985. During that time we newly recruited 6,000 people. Of the 118,000 people who left the GE payroll, about 37,000 were in businesses we sold, but 81,000 people lost their jobs for productivity reasons. Throughout the company, people were struggling to come to grips with the uncertainty. — Jack Welch
In 1986, GE acquired NBC, which was located in Rockefeller Center; Welch subsequently took up an office in the GE Building at 30 Rockefeller Plaza. During the 1990s, Welch helped to modernize GE by shifting from manufacturing to financial services through numerous acquisitions.
Welch adopted Motorola’s Six Sigma quality program in late 1995. In 1980, the year before Welch became CEO, GE recorded revenues of roughly $26.8 billion. In 2000, the year before he left, the revenues increased to nearly $130 billion. When Jack Welch left GE, the company had gone from a market value of $14 billion to one of more than $410 billion at the end of 2004, making it the most valuable and largest company in the world.
At the time of his retirement, Welch received a salary of $4 million a year, followed by his record retirement plan of $8 million a year. In 1999 he was named “Manager of the Century” by Fortune magazine.
There was a lengthy and well-publicized succession planning saga prior to his retirement between James McNerney, Robert Nardelli, and Jeffrey Immelt, with Immelt eventually selected to succeed him as Chairman and CEO. Nardelli became the CEO of Home Depot until his resignation in early 2007, while McNerney became CEO of 3M until he left that post to serve in the same capacity at Boeing.
Throughout my 41 years at GE, I’ve had many ups and downs. In the media, I’ve gone from prince to pig and back again. And I’ve been called many things.
In the early days, when I worked in our fledging plastics group, some called me a crazy, wild man. When I became CEO two decades ago, Wall Street asked, “Jack who?” When I tried to make GE more competitive by cutting back our workforce in the early 1980s, the media dubbed me “Neutron Jack.” I’ve been No.1 or No.2 Jack, Services Jack, Global Jack, and, in more recent years, Six Sigma Jack and e-business Jack.
Those characterizations said less about me and a lot more about the phases our company went through. Truth is, down deep, I’ve never really changed much from the boy my mother raised in Salem, Massachusetts. — Jack Welch
While many chief executives take the opportunity of retirement to enjoy a more sedate existence, Welch has embarked on a second career and life, replete with books, magazine columns and speaking engagements that have added to his already considerable celebrity.
His fellow chief executives clamor for his time: he is a paid consultant to G100, an exclusive club for chief executives that meets twice a year. He is also a paid adviser to Barry Diller, the chief executive of IAC/InterActiveCorp, as well as Clayton, Dubilier & Rice, the private equity firm.
From Jack Welch
Managers muddle — leaders inspire. Leaders are people who inspire with clear vision of how things can be done better. “What we are looking for are leaders at every level who can energize, excite and inspire rather than enervate, depress, and control.”
2 Manage Less
“We are constantly amazed by how much people will do when they are not told what to do by management.” In the new knowledge-driven economy, people should make their own decision. Managing less is managing better. Close supervision, control and bureaucracy kill the competitive spirit of the company. “Weak managers are the killers of business; they are the job killers. You can’t manage self-confidence into people.”
3 Articulate Your Vision
“Leaders inspire people with clear visions of how things can be done better.” The best leader do not provide a step-by-step instruction manual for workers. The best leaders are those who come up with new idea, and articulate a vision that inspires others to act.
Keeping things simple is one of the keys to business. “Simple messages travel faster, simpler designs reach the market faster and the elimination of clutter allows faster decision making.”
5 Get Less Formal
“You must realize now how important it is to maintain the kind of corporate informality that encourages a training class to comfortably challenge the boss’s pet ideas.”
6 Energize Others
Genuine leadership comes from the quality of your vision and your ability to spark others to extraordinary performance. Getting employees excited about their work is the key to being a great business leader. “We now know where productivity - real and limitless productivity - comes from. It comes from challenged, empowered, excited, rewarded teams of people.”
7 Face Reality
Face reality, then act decisively. Most mistakes that leaders make arise from not being willing to face reality and then acting on it. Facing reality often means saying and doing things that are not popular, but only by coming to grips with reality would things get better.
8 See Change As An Opportunity
Change is a big part of the reality in business. “Willingness to change is a strength, even if it means plunging part of the company into total confusion for a while... Keeping an eye out for change is both exhilarating and fun.”
9 Get Good Ideas From Everywhere
New ideas are the lifeblood of business. “The operative assumption today is that someone, somewhere, has a better idea; and the operative compulsion is to find out who has that better idea, learn it, and put it into action - fast.”
10 Follow Up
Follow up on everything. Follow-up is one key measure of success for a business. Your follow-up business strategy will pave the way for your success.
11 Get Rid Of Bureucracy
The way to harness the power of your people is “to turn them loose, and get the management layers off their backs, the bureaucratic shackles off their feet and the functional barriers out of their way.”
12 Eliminate Boundaries
In order to make sure that people are free to reach for the impossible, you must remove anything that gets in their way. “Boundarylessness” describes an open organization free of bureaucracy and anything else that prevents the free flow of ideas, people, decisions, etc. Informality, fun and speed are the qualities found in a boundaryless organization.
13 Put Values First
Don’t focus too much on the numbers. “Numbers aren’t the vision; numbers are the products.” Focus more on the softer values of building a team, sharing ideas, exciting others.
14 Cultivate Leaders
Cultivate leaders who have the four E’s of leadership: Energy, Energize, Edge, and Execution; leader who share values of your company and deliver on commitments.
15 Create A Learning Curve
Turn your company into a learning organization to spark free flow of communication and exchange of ideas. “The desire, and the ability, of an organization to continuously learn from any source, anywhere - and to rapidly convert this learning into action - is its ultimate competitive advantage.”
16 Involve Everyone
Business is all about capturing intellect from every person. The way to engender enthusiasm it to allow employees far more freedom and far more responsibility.
17 Make Everyone A Team Player
Managers should learn to become team players. Middle managers have to be team members and coaches. Take steps against those managers who wouldn’t learn to become team players.
Stretch targets energize. “We have found that by reaching for what appears to be the impossible, we often actually do the impossible; and even when we don’t quite make it, we inevitably wind up doing much better than we would have done.”
19 Instill Confidence
Create a truly confident workforce. Confidence is a vital ingredient of any learning organization. The prescription for winning is speed, simplicity, and self-confidence. Self-confident people are open to good ideas regardless of their source and are willing to share them. “Just as surely as speed flows from simplicity, simplicity is grounded in self-confidence.”
20 Have Fun
Fun must be a big element in your business strategy. No one should have a job they don’t enjoy. If you don’t wake up energized and excited about tackling a new set of challenges, then you might be in the wrong job.
21 Be #1 Or #2
“When you’re number four or five in a market, when number one sneezes, you get pneumonia. When you’re number one, you control your destiny. The number fours keep merging; they have difficult times. That’s not the same if you’re number four, and that’s your only businesses. Then you have to find strategic ways to get stronger. But GE had a lot of number ones.”
22 Live Quality
“We want to change the competitive landscape by being not just better than our competitors, but by taking quality to a whole new level. We want to make our quality so special, so valuable to our customers, so important to their success that our products become the only real value choice.”
23 Constantly Focus On Innovation
“You have just got to constantly focus on innovation. And more competitors. You’ve got to constantly produce more for less through intellectual capital. Shun the incremental, and look for the quantum leap.” Now the fundamentals have got to be more education. More information knowledge, faster speeds, more technology across the board.
24 Live Speed
“Speed is everything. It is the indispensable ingredient of competitiveness.” Speed, simplicity and self-confidence are closely intertwined. By simplifying the organization and instilling confidence, you create the foundation for an organization that incorporates speed into the fabric of the company.
25 Behave Like A Small Company
Small companies have huge competitive advantages. They “are uncluttered, simple, informal. They thrive on passion and ridicule bureaucracy. Small companies grow on good ideas — regardless of their source. They need everyone, involve everyone, and reward or remove people based on their contribution to winning. Small companies dream big dreams and set the bar high — increments and fractions don’t interest them.”