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ENCOUNTER
We have to create an environment in which people dare to try new things
Jack Welch
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EGON ZEHNDER INTERNATIONAL: Creating shareholder value is the topic on everyone’s lips right now. You have practiced value management more radically, more successfully than anyone else – and you started earlier. What made you want to swim against the tide?
JACK WELCH: This was in the early ’80s, at a time when GE looked prosperous. The world felt that, for such a healthy corporation, we were being so radical. But we had to clear out the under-brush, clean out the under-performing businesses. We were cutting out layers of management. We were trying to take a highly structured command and control organization and wire the place to be an open society. We worked around the theory that you had to be number one or number two in every game you compete in. The first thing we did was to fix what we called the hardware; our management and corporate structures.
At the time, to provide the right angle from which to evaluate GE’s different activities you quoted Peter Drucker’s provocative question: “If you weren’t already in the business, would you enter it today?”
WELCH: Right. And if the answer was no, we had to face into the second difficult question: What are we going to do about it? I knew that in the future there would be no room for mediocre players. The winners would be those who insisted upon being the number one or number two leanest, lowest-cost, worldwide producers of quality goods and services, or those who had a clear technological edge or a clear advantage in their chosen niche.
How did you set about implementing this strategic reorientation?
WELCH: It didn’t make sense to shoehorn all the individual initiatives at GE into a single all-embracing central strategy, one grand scheme. What we needed was a central idea, a simple core concept, supported by a selection of core values: values like reality, quality and excellence, and the human element. It really meant all of us stretching beyond our limits. We had to create an environment in which people would dare to try new things.
You mentioned the “hardware.” But surely even the best corporate structures are worthless without the software – the values – in place to support them?
WELCH: Correct. It is precisely these soft values that have made the company not only more high-spirited, but more adaptable, more agile than companies even a fiftieth of our size. We also discovered how essential it is for a multi-business company to become an open, learning organization. The ultimate competitive advantage lies in an organization’s ability to learn and to rapidly transform that learning into action.
How did you get the learning process started?
WELCH: We used very crude techniques in the early days, unsophisticated approaches. We started out by having what we called a Work-Out. Initially that involved me going to our management institute in Crotonville to get the best inputs from people at every level in GE. The people there knew I wasn’t going to directly impact their lives, because I didn’t know them. So they were very candid, and they gave me great ideas on everything. As a result, we decided to try to form an organization where, at every level, people would treat their supervisors and management the way I’m treated at Crotonville.
Did you handle that yourself or did you call in outside consultants?
WELCH: We had a group of outside consultants who helped us to facilitate. Because when a boss and his whole organization do something like this, it’s not quite the same without an independent third party to generate the conversation and get it all going. The only thing that counts is the quality of an idea, not the rank of the person originating it.
Is that what you mean by boundaryless management?
WELCH: Boundaryless behavior is our number one value. You must be open to an idea from anywhere – inside, outside, up, down. If somebody makes a comment and it is very narrow focused, we’ll say, “That’s real boundaryless behavior, right?” and they’ll laugh. So the values become part of the language. And we remove people who don’t have those values, even when they post great results.
That sounds harsh. Is it people’s values rather than their results that determine their personal future at General Electric?
WELCH: That has been my approach from the outset. Even senior people with good results, doing great jobs in terms of numbers but not walking the talk, have to be removed to support our values.
How do you arrive at a decision like that?
WELCH: We have a rigorous internal management assessment system. We go out and we spend a full day at each location. Then we go to dinner with the business leaders afterwards, spend time with them and talk. We do this in April. Then we go back in November and review what they said they were going to do in April.
Is that a centralized system or do the divisions conduct their own appraisals?
WELCH: It’s more complicated than at a single-product company. Divisional management review their own people. All I deal with is resource allocation: people and dollars. And spreading ideas. I don’t know the details of how to build a jet engine, how to do programming at NBC. Hopefully what I have is an ability to see a good idea and spread it rapidly across the organization, to put the right people on a job, design the right compensation systems, and allocate dollars to the various businesses.
Open organizations demand high quality corporate communications. How good does the flow of information have to be?
WELCH: When you get to be an open organization, speed becomes a natural output. The open organization breaks down the old “holding on to your knowledge is power” adage. People have the same information, and since we’re all operating on an IQ band that’s very close, people with the same information come to the same conclusion.
Discussions lead to a decision but you wanted speedy decisions and rapid implementation. How did you implement the discipline you have called speed management?
WELCH: Speed is the product of an open organization. Enormous energy and the ability to energize others is one of our critical values. Involve everyone and move quickly. If you can’t come to a fast decision, and you can’t get everybody in the game quickly, then you don’t have the right values.
One of the instruments you have applied with such success is the concept of stretch goals – stretched so far that, taking the prudent view, they are rather unlikely to be met.
WELCH: Stretch is something that we have had great success with. We ask people to reach for their dreams and not wade through the negotiation so typical of hierarchies. Haggling over budget plans is an exercise in minimization. With budgets everyone’s fighting for the lowest common denominator, rather than thinking about how big we can be. We’ve turned that around in GE. Now people come in with a plan and say: “This is the best I can pos-sibly do.”
Globalization is forcing international players to make dynamic changes. You geared GE to the new game plan very early on. How did you acquire this long-term perspective?
WELCH: I learned from experience. I started out with GE in the plastics business. Plastics eventually emerged as a truly global business. When I was 29 years old I bought land in Holland and built the plants there. That was “my land” for “my business.” I was never interested in the global GE, just the global plastics business.
In other words, the hierarchical structures of multinational corporations are liable to obstruct global strategies?
WELCH: The idea of a company being global is nonsense. Businesses are global, not companies.
Under your leadership, GE has become one of the world’s most successful companies but there must have been obstacles along the way. Where did you find yourself revising visions or strategies?
WELCH: We’ve been refining the ideas all the time but the core concept has stayed the same. You cannot reduce strategy to a formula. That much we learned from von Clausewitz. Detailed planning will necessarily fail, due to chance events, imperfections in execution and the independent will of the opposition. It is the human elements that are paramount: leadership, morale and the instinctive savvy of the best generals. When they perfected that concept in practice, the Prussian general staff set only the broadest of objectives and emphasized seizing unforeseen opportunities as they arose. Strategy was not a lengthy action plan. It was the evolution of a central idea through continually changing circumstances.
Add the virtues of a Prussian general to an anti-bureaucratic approach and you have consummate entrepreneurial skills?
WELCH: Being able to grab a new idea and implement it relentlessly is important, as well. When I ask people who join us from other firms, what they think is different about GE, they tell me it is all about relentless consistency. GE drives home the message.
Is it true to say that successful people at GE are extremely self-confident people?
WELCH: I think being outspoken is helpful.
Jack Welch was talking with Bernd J. Wieczorek, Damien O’Brien, and A. Daniel Meiland of Egon Zehnder International in Fairfield, Conneticut in February 1997.
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