Jack Welch is rated as the greatest CEO of the current generation and one of the greatest business leaders of all times. The legendary leader, donned the top post in General Electric (GE) from April 1981 to September 2001, taking the company from mediocre levels to the very top levels, in the process turning the very basic concepts on which businesses were run till then. When he took over the top job as Chairman and CEO in 1981 at a relatively young age, GE had annual revenues of U.S.$25 billion and profits of U.S.$1.5 billion, rated as tenth best among the American public companies.
In year 2001, when Welch finally hung up his boots, GE did sales of U.S.$125.9 billion with profits soaring to U.S.$14.1 billion. During the rather long tenure of almost twenty years, GE delivered dramatic results on many counts. From 1993 to 1998, GE was the market capitalization leader in the United States. Since 1992, GE had recorded double digit growth rates consistently, even in the year of recession. Considering the size and complexity of GE's businesses, it was a remarkable feat. In 1999, only Microsoft was rated as a more valuable company than GE. For the shareholders of GE, the returns delivered by Welch were beyond the wildest dreams. Over the 15-year period ending 1998, GE has provided a total return of 2026%, nearly double the return from S&P 500 for the corresponding time span.
1. Slater (1), R - '29 leadership secrets from Jack Welch', New York; Tata McGraw Hill, 2003 great deal of analysis has gone into Welch's leadership style and strategy that steered GE to such high levels of professional excellence. More often his strategies have puzzled and shocked even the best management and psychological experts. Only in hindsight, after Welch proved the success of his strategies beyond doubt, the merits of his actions became apparent. For instance, he implemented the now famous corporate practices of 'restructuring' and downsizing', years before the other companies started following suit. He shunned bureaucracy at a time, when it was fashionable to have complex layers of managers and fancy designations. He started a revolution when he fired senior managers and vice presidents, who failed to conform to the GE's values, although they performed well. Without letting emotion in the way, he did everything he thought right with the singular objective of turning GE into a lean and world-class company in every sense. As a true leader, he took responsibility for whatever he believed, said and did and never compromised on his core values. In the following paragraphs, some of Welch's well-known leadership strategies are discussed and attempt is made to understand the reasons for his astounding success.
Key Leadership ingredients:
In the view of Welch, good leaders must have better qualities than good businessmen. His idea of effective leadership was centered on passion that is leaders, must be passionate about the business and able to connect this feeling to others in the organization. As part of his six sigma initiatives Welch formalized five most important characteristics that leaders of GE are expected to possess. (1) They must have endless energy and passion for the job and have an operational approach, contrary to the 'staff function' approach which was in vogue (2) Leaders must have the ability to energize, execute and mobilize organization for overall benefits; they must not have a bureaucratic attitude (3) Leaders appreciate the reality that business is all about customers winning in the market place and contribution to increasing GE's bottom-line (4) They must have a sound technical understanding of the technical aspects of the job, matched by equal or better understanding of the financial implications (5) Leaders must have the real edge to deliver bottom-line results rather than just technical solutions.
From the list, it can be noted that Welch placed great emphasis on psychological aspects like passion, energy, attitude and motivation. Skills and competency elements come down the list. Therefore it is reasonable to assume that people with real passion and energy are bound to deliver better results than those who are only clinically efficient in their jobs.
After extensive internal debate and discussions, Welch finally packaged the essential ingredients of leadership into four E's, often referred to as E4. They are:
Energy: Leaders must have enormous personal energy and strong preference for action. They must be prepared to do everything that is required to get the job done, effectively and efficiently.
Energizer: Besides having energy, they must be able to motivate and energize others in the team; they must spread the enthusiasm and the desire to act for maximizing organizational potential
Edge: Leaders must have competitive spirit and instinctive drive for speedy decisions and action that will produce favorable impact on the organization's performance. They must have strong convictions and the courage to advocate their views and beliefs.
Execution: Finally, leaders must have the capacity to deliver results.
The four Es had become quite popular in GE and for quite some time, it was common practice to rate personnel in terms of Es. According to the cognitive approach in psychology, effective leadership must have three distinct traits - the need to appreciate the enduring features of leadership, the need to anticipate and deal with new trends and the need to encourage recognition of the problems, paradoxes and possibilities of leadership. 2 Welch appeared to have these traits in good measure, which is one of the reasons for his big victories.
In a different approach, four basic ingredients are required to make an effective leader - guiding vision, passion, integrity, curiosity and daring. 3 This approach also suggests that leaders manage dreams, embrace error, encourage dissent, take long-term view, understand stakeholder symmetry and create strategic alliances and partnerships. Welch did most of these things successfully and consistently which justified his rating as a great leader.
Leadership and change management:
One of the best leadership qualities that Welch displayed was his innate ability to embrace and harness the benefits of change. He showed remarkable alacrity in the need for change management as early as the eighties. Further, he made managers recognize the importance of change and understand the reality that change is a never ending phenomenon. Welch encouraged managers to change their professional agendas, if necessary and ensure that every employee actually embraced change in the right manner.
3. Bennis, W and Nanus, B - 'Leaders: Strategies for Taking Charge', HarperCollins, 1985
Change meant newer businesses, operating in varied business environments and constantly overcoming challenges. Welch took steps to ensure that managers and employees are equipped to fresh challenges and constantly generate innovative ideas and practices. He used the paradigm of change to push GE to unimaginable growth levels. For instance, in December 1985, he decided to acquire telecommunications giant RCA for a consideration of U.S.$6.28 billion. Post-acquisition, GE became the seventh ranked company in the Fortune 500 list. Welch held the strong view that companies should change before it is too late, otherwise even changing would not help.
Welch displayed tremendous guts and gumption in facing what most people fear - reality! He formulated a strategy under the name and style of Face Reality. He urged managers and employees to see the world as it was and not as they wished. For GE, it meant that the entire business had to be seen from a new perspective, one that is aligned with the reality of marketplace. If the need arose, Welch was ready to overhaul the very fundamental premises on which GE operated and aptly named this approach as 'restructuring', which is now the mantra of almost every corporation, big or small. What is amazing about this is the fact that GE, as a company, was doing quite well when Welch took over the reins. Many CEOs would have felt no need to usher in major changes but not Welch. He was alert to the reality that unless GE changed it could soon prove to be a white elephant and a struggling behemoth. In October 1981, in a terse meeting with 120 corporate executives, Welch announced in no uncertain terms his new rules. He wanted managers to shed old habits - excuses, assumptions, complacency and maintaining status quo.
More importantly, he wanted managers to move and act quickly, without waiting for things to happen. However, Welch acknowledged that facing reality was no easy task. He admitted unflinchingly that, on certain occasions, he failed to face reality and in some other cases, he wished he had moved faster for better results. But what separated him from most others is his constant endeavor to pull himself up to reality rather than sinking into wishful thinking or dreams. A case in point is his bold decision to buy out RCA in the mid-eighties. As he was going forward, he knew that securing RCA meant rising to the challenge of reality - GE simply had to strengthen its technology prowess for…