General Electric Under Jack Welch

In 1980 right before Welch took the position as CEO of General Electric, GE’s organizational rigid structure, resistance to change, and bureaucratic climate made it impossible to perceive important environmental changes. Furthermore, the organizational structure, decision-making process and information management procedures no longer fit the organization’s needs. In 1981 Jack Welch was not considered a leading contender for GE’s top job. However, his performance and earnings record ultimately won him the position over six other candidates.

When Jack Welch took office as the new chairman and chief executive officer of General Electric, the company had entered the stage between the maturity and decline. Even though he had no formal master plan for GE’s reorganization, he did have a vision of what he wanted the company to be. The first step in realizing his vision was a dismantling of the out dated administration that was strangling the company. At the start of Welch’s tenure the GE administration was built around three hundred separate businesses, basically a formula for inefficiency.

Welch tore through the company’s foundation with a vengeance and by the mid 1980’s had overseen nearly 120,000 layoffs. Entire lines of business were dismantled or sold off under Welch’s policy of exclusively maintaining operations that were ranked first or second in their given field. In other words, Welch took GE out of the declining industries and put it in markets where there was room for economic growth. By 1985 billions of dollars had been made or saved through sales and layoffs.

Welch sought opportunities for growth by reinvesting those billions and considered possible takeover targets. He eventually settled on RCA, originally a GE startup but at the time of the merger, a top competitor in the high-tech and defense industries. The merger made sense as an effort to unite American manufacturing in those fields against its Japanese competition. The deal was the largest merger of its kind in the history of American business, with RCA selling for nearly $6. 3 billion.

Within three years half of RCA’s employees were gone, as well as most of its businesses, only the National Broadcasting Corporation (NBC) television network and RCA’s defense businesses remained. In the 1990’s Welch established the Six Sigma program at GE. The program was developed to maximize the efficiency of manufacturing processes through the minimization of production of defective units. When applied at General Electric it became the largest quality-control measure ever adopted in corporate America.

The program required huge investments in training and tracking but ultimately led to great gains in profit and productivity. Jack Welch definitely thought out side of the box when it came to running GE. Welch firmly believed that top performers deserved to be handsomely rewarded, an attitude he had retained since his first job at GE. He established a performance-review program to identify the top 20 percent of employees, who were accorded bonuses, as well as the bottom 10 percent, the “lemons,” who were typically fired and replaced.

Besides the raw numbers measuring efficiency and profits, more personal aspects also characterized Welch’s leadership. He brought a form of informality to the company that stemmed from his belief that General Electric was little different in practice from a small local market. Customer satisfaction and positive relationships with both customers and employees were what made a business successful. Whether the product for sale was turbines or apples, the customer would determine the success of the enterprise. Thus, Welch made efforts to develop relationships with suppliers, customers, and employees alike.

Knowing his employees had a direct impact on productivity, Welch communicated with workers often enough for them to feel that at any moment they could receive a note or a visit from the boss. His efforts at communication created a sense of value and pride in employees. If a task was important enough for Welch to care about, it was important enough to perform with the maximum effort. Informality was also standard in company correspondence. Welch faxed handwritten notes to anyone in the company who he felt deserved personal communication, whether to motivate, correct, or congratulate.

Welch also personally reviewed everyone who worked directly for him, handwriting extensive performance evaluations that sometimes ran several pages. This exercise not only gave specific and ongoing feedback to employees but was a chance for Welch to reflect on the businesses that each employee was leading. The atmosphere of informality was perhaps most critical among GE’s top leadership, where the confidence that came from being in familiar company encouraged executives to openly praise or criticize each other.

Welch consistently forced executives to bicker in meetings, the idea being to force management to know their businesses, processes, and issues thoroughly before engaging in discussion with the boss. Under such conditions Welch could determine a manager’s level of dedication or passion for a plan or policy by noting the extent to which he was willing to argue. Welch was typically rude and had little patience for half measures and was equally combative in performance review meetings, in which company leaders would discuss the employees within their respective divisions.

Welch could be quick to make judgments with seemingly limited knowledge, but he wanted to stimulate encouragement from his management and ultimately trusted them to tell him when he was wrong. Under previous GE leadership, the administration had outlined management concepts designed to guide the company through the following year in formal annual presentations. As part of his sustained war against entrenched administration Welch trashed this system entirely in favor of more continual general guidance. Under Welch’s leadership, formal meetings and planned committees were no longer needed in order to apply change.

More authority was entrusted to lower level leaders, who were more familiar with immediate problems and possible solutions that were distant senior executives. The new system allowed greater latitude for managers and the opportunity for swifter responses in order to meet rapidly changing conditions. Jack Welch is known to be a relatively brash boss, but also an icon in today’s business world. He has set the standard to which many Fortune 500 companies are being benchmarked against in today’s competitive market. After reading about Jack Welch I was amazed at what I learned.

He is definitely a person that “thinks out of the box” and insists that his people do the same. He believes in constructive conflict and forces managers to defend their views. Mr. Welch came up with a very specific vision to “be the most profitable, highly diversified company on earth with world quality leadership in every production line” and would accept nothing short of this. He also set the goal to be number one or two in every business that the company was in, and cut his losses where this was not possible.