Jack Welch Leadership Strategies

Jack Welch Leadership Strategies

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.

2. Gardner, J - 'On Leadership', New York: Free Press, 1990

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 growth and the acquisition could just prove to be the answer. In the mid-nineties, Welch was quick to implement Six Sigma in GE, when there were signals that the quality systems in the company were falling short of the increasing expectations from the markets.

Leadership in management:

Welch was a leader who was ready and willing to throw the old rule-book of management at GE. Defying well-respected tradition, he dared to evolve a new set of principles. Much to the surprise of even the best management gurus, he emphasized that managers must learn to manage less and not more. At first glance, this may look contrary to common logic, according to which managers must be able to manager more for better performance. However, on deeper reflection it becomes obvious that Welch wanted decision making power and freedom to percolate down to the lower rung of employees. He had the strong conviction that GE's managers were spending far too much time in attending to routine and mundane things which could be best left to the employees who had the knowledge and skills to get them done effectively. Often, managers were getting in the way of subordinates and tried to question or alter their decisions, which resulted in waste of time.

This also meant that much of the productive time of managers was lost in dealing with day-to-day situations and the resulting weariness prevented them from contributing to the vision of the company. Welch believed and made sure that managers gave enough leeway to employees to do their work and more importantly, stay out of their way in decision making. To achieve this, managers had to give more respect and show confidence in sub-ordinates. Once they started doing so, the results were obvious. Employees showed greater responsibility and commitment to work. Over a period, managers started gaining more time to think of the vision and form strategies that will take company to higher levels.

Another one of his highly rated leadership virtues is total delegation. After hiring the best managers and providing them sufficient training and knowledge, he reposed confidence in them and never interfered in their decisions, unless something went wrong drastically. Amazingly, Welch had the courage to admit that he did not know many intricacies or the technicalities of the various businesses that GE ran. For instance, he never interfered in the style or specifications of the products that GE made, although he ensured, again through competent managers, that the products are in line what the market wanted. While he was glad to provide a vision for business, he steered cleared to the actual operations to his able managers. But it would be wrong to assume that Welch did not have any control of GE's businesses.

In fact, he closely monitored them to the extent that he was always able to sense situations when something goes or is about to go wrong. In such situations, he was quick to step in with remedial measures and provided resources and support to get the business back on track. Welch stressed great importance on information and evolved mechanisms that would provide him accurate information on a sustained business. According to him, no business can be too complex to manage and managers must develop the tendency to understand business by breaking it into five simple parts - (a) the global environment of the business in which the company operates (b) business strategy and activities of competitors - the company's strategy to counter competition (d) the possible future strategy of competitors (e) the company's counter strategy to keep ahead of competitors. Welch strove to find answers to these questions on a continuous basis and he knew that the answers could change quickly depending on the changes in market place. He realized that by tracking the fast changing business dynamics, he could alter even the vision of the company and take it to much greater heights.

Leading the team:

The quintessential element of leadership is the management of team members. Every leader, sooner or later, must face situations where he will evaluate members and provide reward or punishment, depending on their performance. When it comes to performance measurement, the traits of effective managers come into the picture. Yes, leadership is a very good concept, but performance is almost always measured in terms of effective management. In an attempt to understand the characteristics of managers, Welch was convinced the yardstick comprised of two distinct elements - performance and values. Once he started working on this angle, it was not difficult for him to come up with four types of managers:

Type A - managers who deliver on commitments and share GE's values

Type B - managers who neither meet the commitments nor share GE's values

Type C - managers who do not deliver on commitments but share GE's values

Type D - managers who deliver on commitments but do not share GE's values

In the early stages of dealing with this issue, Welch strongly advocated that the type A managers must be rewarded and groomed for higher responsibilities. This group was central to the company's success and hence he solidly backed anyone with these qualities. Most importantly, Welch ensured that such managers were promoted as many times as possible and as quickly as feasible. This endeared many excellent managers to GE and to its leadership. Type B managers were a full problem set and hence Welch had no hesitation in suggesting that GE would be better off without them. They provided no value in any form and hence there was no justification in carrying on with them. With respect to Type C managers, he felt it was a tricky situation.

After much deliberation, he came to the conclusion that managers who performed but did not share GE's values must be given another chance in another environment so that they are given enough leeway to fall in line. If they did not use the second chance, then they should be on their way out. While these were quite rational decisions, what shocked the mammoth workforce at GE was Welch's unrelenting position that Type D managers should be promptly sent out of the company. This meant that even competent managers could be tossed out if they did not display the expected behavioral codes. Welch reasoned that values were core to the organization and could not be compromised under any circumstances. Put simply, competence and performance came second to values, which is a not a measurable and tangible element. This stand evoked sharp criticism many on the grounds that value is a psychological parameter and may not be easily quantifiable.

A few years down the line, in 1997, Welch reaffirmed these views but with some changes. He suggested that Type B managers should also be given a chance, at least in certain cases. If such managers were willing to adopt GE's values then it is only matter of training before they start performing to acceptable levels. This time, he insisted that the Type C managers should not be tolerated, probably because the effort of trying to coax unresponsive managers towards better performance was not worth its salt. Till the end of his career, he maintained these principles and tried his best to follow them to the hilt. He gave importance to numbers, but then without subscribing values, numbers meant nothing to him.

Welch's ruthless moves to get rid of 'off-the-mark' managers evoked praise and criticism. At times, the criticism was more pronounced on the basis that he saw people who could be put in place and thrown out as one would do with lifeless objects. While he attached importance to values, he did not seem to care about psychological issues such as depression, anxiety and guilt when it came to dismissing employees. When confronted with this issue, Welch had a clear-cut answer. He said that the main factor behind all the emotional problems relating to firing was guilt. When one stops feeling guilty the bigger picture slowly but surely emerges. According to Welch, removing a person from a position in which she is not comfortable is nothing short of doing a favor to the organization and the business. Taking it a bit forward, it could also be a favor to the person herself, although the immediate reactions could be one of pain and disappointment.

Business leadership:

One of the most obvious but often overlooked characteristics of Welch is that he had the thirst to be a leader, real in every sense. In practical terms, he wanted all businesses of GE to be either number one or at worst, number two. He openly declared that he would not hesitate to shut down businesses that did not hit the top chart in the market arena. This was a real shocker, as common financial sense had drilled down the philosophy over generations that as long as businesses made money and good profits, ranking hardly mattered. But Welch had different ideas. He argued that in many markets, during downtrend conditions, it was the lower rung companies that suffer the most and often, get out of business. The first and second ranked companies had the muscle to last through bad times either by lowering prices or marketing new products and innovative services. The ability to be innovative in tough times was recognized as a key quality for survival in the nineties, which was the era of large-scale globalization.

On a global scale, only the best could compete and survive the challenges over a long time horizon. The medium and small-scale players are prone to get washed away with the winds of change at some point of time. When Welch first proposed this strategy, many considered it impractical as GE ran several businesses, many of which were unconnected. But, as a true leader, he did not budge and went to work in realizing this daunting task. By the start of the new millennium, GE was among the global top companies in many of its businesses - industrial motors, transport, financial services, plastics, medical systems, electrical equipment and satellite channel. In the lightning and household appliances business, GE was ranked number two in the world. This was one of the major achievements of GE under the leadership of Welch. By challenging the roots of conventional business philosophies, he had achieved the near impossible - turning a behemoth into a truly world class company.

However, this approach presented its drawbacks and limitations. Soon after this move was implemented, managers gave serious attention only to those businesses in which had a realistic chance of becoming number one or two. The risk of overlooking good business opportunities increased, which could affect the interests of GE in the long run. Managers were also developing the tendency of defining markets to suit their convenience so that the businesses under their control could be ranked among the top in the field. Welch was quick to note these issues and lost no time in revising this strategy by asking managers to redefine markets and expand product and service offerings to further growth. The change in strategy meant that some of GE's units stood to lose the number one or two ranking, obtained through tremendous effort. But Welch supported the managers and confirmed that as long as the businesses are steadily building their strengths and had the potential to become number one, he was ready to support them.

Having decided to pursue the policy of taking all businesses under the GE umbrella to the top, Welch wasted little time in downsizing or closing business units that were not profitable. As part of this process, GE had to turn hundreds of employees away from work. Till the eighties, tradition dictated that employees should be retrenched only if the company was on the brink of financial disaster and there was no other alternative. Life time job security was treated as an important part of corporate social responsibility. During the early days of 'downsizing', companies in America which laid off or cut employees were regarded as those having serious trouble and heading for imminent closure. Downsizing was almost a taboo and big corporations were hesitating to test the waters.

It appeared that Welch had to trigger this phenomenon, which then became the mantra not only in America but in several countries across the world. With the new strategies in place, thousands of employees had to be removed from their posts and this became one of the major controversies in corporate America. The main reason was that Welch implemented downsizing not because GE was in trouble, but when it made profits of U.S.$1.5 billion in 1981. The ruthless execution of jobs earned him the nick name of 'Neutron Jack' - a neutron bomb kills people, but does not affect the buildings in which they live. Welch publicly admitted that he hated this nickname and justified his move pointing out that he offered immense terminal benefits to the people who were fired.

It is a pointer to the fact that he was not a stonehearted, emotionless human being as portrayed by some during the early stages of downsizing. What separated Welch from other corporate leaders is that when he started the sensitive exercise of cutting down jobs, he was alone. No other corporate leader dared to downsize at that point of time. But an unfazed Welch went ahead and it took some years before his efforts bore fruits. The fine point is that had he not restructured GE in the early eighties by downsizing, the company would have been forced to eliminate many more jobs in the future and probably, the terminal benefits may not have been as good.

Decision making

Welch dumped the age old and time tested theory of companies building businesses right from the scratch. He recognized that there were other good companies which were better than GE in certain areas. Armed with this wisdom, he started looking for buying out other companies into the fold of GE. Contrary to popular belief, the main objective behind the acquisitions was not just to make GE bigger but provide it a reliable platform from where it could pursue the highest growth path. To Welch, the key element was growth and other things came later. One of the famous acquisitions of GE was that of Radio Corporation of America (RCA) in the mid-eighties. RCA was a well-known company, with sales of over U.S.$10 billion. One of its group companies, the National Broadcasting Corporation (NBC), was well-known and respected for its service since 1926.

At the time when Welch proposed the merger, GE had annual revenues of U.S.$27.9 billion in 1984. Many industry observers believed that the owners of RCA would never dare to let go of a business that enjoyed excellent reputation and returned handsome profits. But Welch seemed to have other ideas. He estimated that if GE could get RCA in its group, the combined entity would move up to the seventh position in the Fortune 500 list of global companies. This driving force was enough and he started negotiating with the promoters of RCA.

On December 12, 1985 the deal was formally announced to the markets and public. GE will take over RCA for a consideration of U.S.$6.28 billion at U.S.$66.5 per share, the largest merger outside the petroleum sector.

With Wall Street analysts valuing RCA's shares at U.S.$90 per share, Welch seemed to have got a very good deal for GE at a significant discount. In the course of his career, Welch completed many small and medium sized mergers and acquisitions, but none matched the intensity and value of RCA. At the twilight of his career, in fall 2000, Welch identified another opportunity that could make GE take another big quantum leap. The target company was the famous Honeywell International, with varied interests in aerospace systems, power, transportation, specialty chemicals and building controls.

Many of Honeywell's businesses were generally similar to GE's lines and it became apparent to Welch that the two companies could leverage their respective strengths and move to a much higher level in the international marketplace. He initiate discussions with Honeywell and made good press towards closing the deal. On October 23, 2000, the two companies said that GE would buy Honeywell for U.S.$48.4 billion in stock and assumed debt. Post acquisition, GE's annual revenues would increase from U.S.$112 billion by another U.S.$24 billions and profits expected to rise from U.S.$11 billion by U.S.$2.5 billion. GE would take in its rolls 120,000 employees from Honeywell, taking the total workforce strength to 460,000.

However, despite the American authorities clearing the deal, the European Commission wanted certain conditions, which Welch found it impossible to digest. Eventually the acquisition could not be completed. The two deals discussed here give some important lessons. First, companies must constantly try for avenues that will put them on the high growth trajectory. And when the right opportunity presents itself, companies must go for the kill and conclude profitable deals. Second, even Welch could fail in such attempts. Of the two deals, Welch failed in the Honeywell deal. Failure does not matter, as long as the effort was good and sincere enough.

GE could use this experience to tie up with other large companies in future. Three, it is important to ensure that the objectives of the mergers or acquisitions are met after the process is completed. After the GE-RCA merger, GE's results showed dramatic improvement in terms of operational, market and financial indicators. Welch's willingness to accept the 120,000 odd employees of Honeywell indicates his ability to change according to the demands of the situation - whether downsizing or increasing employee count, the decisions are always centered on the growth of the company.

Learning culture:

GE's size and operations were thought to be quite complex and unconnected in several ways, that many analysts that it was difficult to have a common vision. So diverse were the businesses and workforce that it was thought difficult, if not impossible, to achieve a smooth integration. But Welch did not take this view and saw diversity as a huge strength, which GE could leverage to great advantage. He believed that strong integration and rich diversity could be blended in the right mixture so that the organization as a whole could be a lot better than the sum of its individual units. Calling this approach as 'integrated diversity', Welch set out with the objective of turning GE into a learning organization. He inculcated a strong learning culture within the organization, where businesses would learn and share knowledge from every unit of the company, whether small or big.

In the process, he tried sincerely to establish a 'boundary less organization', quite a departure from the traditional command-and-control set ups which operated within well defined boundary limits. As the top leader, he ensured that company rules and hierarchical levels did not interfere with two-way flow of information and in fact, it was made part of the culture, with the subtle message that anyone standing in the way would not be welcome. Welch did not stop at this, he knew that learning and sharing of information was 'easier said than done'. No matter the level of professionalism, people tended to stop short of all the information they know as they felt it could make their invisible cupboard bare. Even great gurus took a lot of time before they taught all their tricks to the students and it would take a very special student to make the guru teach him the very last trick up his sleeve.

But Welch had a solution for this too - he made clear that GE would always be in the hunt for new ideas and the best ones would be immediately implemented, no matter where they came from - whether from a senior corporate manager or a down-the-line unit employee. The quality and feasibility of the idea were important, not the status of the employee. This provided motivation to employees at all levels to constantly learn and share ideas without hesitation, as they knew that good ideas would be acknowledged and rewarded. The major effect of this strategy was that it made GE managers understand that despite being one of the top global companies, there is always infinite scope for learning and every bit of new learning can contribute to better growth.

Welch also extended this concept and said that GE must also develop the habit of learning from competitors. His reasoning was simple - only competitors knew the pulse of the businesses as well or even better than GE. This was a radical change from the common accepted phenomenon that since GE had reached so high a position, it is left to the other companies to learn from the practices followed by GE. It is to Welch's credit that he smashed this conception and urged his managers to learn from even small companies. The unique learning culture that he so successfully percolated down the very roots of the organization is perhaps one reason why GE excelled in so many businesses.

Welch himself revealed that it was not easy to achieve this. Every quarter, some 30 senior managers from the various businesses of GE got together for a two-day meeting, where each would stand up, discuss issues and problems in their operations and share new ideas. Thus, the electrical lighting division got a good insight into how the medical systems division was run. This provided the opportunity for managers in one division to understand the successful practices in another division and apply it to their own divisions for greater success.

A classic example is the development of a remote-controlled CT scanner that enabled customers to detect and rectify faults online even before the user knew of the problem. Other divisions such as locomotives, jet engines, power systems and motors, adopted this innovation and they could monitor performance using remote control technology. It is simple to visualize the net result of this exercise. Each division was able to offer superior product and service to the customer, which meant greater customer satisfaction and better financial results. In a nutshell, Welch created a system which did not reward people for just having a great idea, but sharing it for the benefit of the overall organization.

Leading for maximizing productivity:

GE is a wonderful example of what effective leadership can do to productivity. Welch advocated the three's frame work for productivity - speed, simplicity and self-confidence. Of course these are well-known virtues, but Welch followed them with zeal and never compromised. He felt that bureaucracy, in whatever form, has the tendency to slow down decision making and relied more on paper work, protocols and meaningless procedures. As the foremost step, he got down to getting rid of the several layers of bureaucracy in GE. This step was a major shock to the corporate managers who were now faced with a situation to remove people who shared the same office and were good friends, more than just colleagues. There was also the danger of not knowing when an officer would find himself on the firing line.

Experts predicted that this would lead to uncertainty, confusion and frustration among the workforce, making even the best managers to under perform or even quit. But Welch was steadfast in his decision and he had a good enough reason. When he took over the reins, GE had about 400,000 employees of which approximately 25,000 were mangers, 500 senior manager and more than 150 vice presidents. This, according to Welch, had made GE a typical command-and-control organization, where decisions were made after moving through various levels. Memo writing and reviewing was more less a passion and managers spent more time in building paper work. It is to his credit that Welch first decided to remove the top layers of management, thereby setting a clear example and reinforcing the fact that the de-layering exercise was being done in the interests of the company and there were no emotional or personal issues involved.

In the second step, he took out those managers who did not share the values of GE. Even as he reduced the layers, he was also aware of the possible problems in communication and flow of information due to the sudden absence of well-set layers. To overcome this, he ensured that all business units could reach him and the top management team without much trouble. Next, Welch demanded that GE developed the hallmark of simplicity, again a departure from the bureaucracy, which by its very nature complicated everything that came its way. He appreciated that simplicity meant different things to different people - for the marketing team, it meant hassle-free movement of quality goods and services to the markets, for the engineering division, it meant easy-to-understand and efficient processes and systems and so on. However, Welch was able to take the message to the managers. He wanted them to present ideas and discusses issues in a manner simple enough that could be understood by others in quick time. In other words, he wanted people to take quick decisions, by adopting simple methods.

The third S, self-confidence, is perhaps the bed rock of decision making. Self-confident managers, who are simplistic in their approach to work, are more likely to come up fast and smart decisions. Welch valued highly those managers who set big and clear targets, yet go about in a simple manner, speak in simple language and propose simple plans. Somewhere down the line, he started realizing that GE, as a behemoth, was not expected to act in a simple manner, which was the case with most big companies. Put simply, customers and vendors were resigned to the fact that big companies would not take fast decisions or make immediate changes. If this was the case, then it was only a matter of time before customers moved over to faster and more efficient companies.

Welch realized that the only solution was for GE to act like a small company within its giant framework. Small companies have fewer people and minimum layers. People in such companies have time only for the relevant and important things. They communicate better and take fast decisions, as it is a matter of growth or threat to their very survival. Welch was convinced that while size was important for businesses to dominate and survive downturns, it was equally important that managers of GE act as if they were running a small business and like there is no tomorrow. The 'fire-in-the-belly' and 'no-nonsense' approach would take GE towards much greater heights and keep them always abreast of competition.

People management:

Like all great leaders, Welch laid great emphasis on people management skills. He accepted the reality people were bundles of emotions and the leader has the very important role of bringing the best out of them. One of his great initiatives was to unleash and harness the energy hidden in employees. In the first phase of his revolutionary management, GE underwent major changes. The number of businesses reduced from as much as 350 to just 12. The management de-layering exercise sharply brought the headcount to 270,000 from nearly 400,000. Business focus of GE shifted drastically from core electrical manufacturing to high technology and service.

A number of plants were closed and many others were upgraded with state-of-the-art technology and global scale production levels. With fewer people around to share the work, Welch realized that unless the workforce supported him, he was likely to fail. And he was also aware that the job cuts and closures had made even disturbed the mindset of good employees. With layers of bureaucracy cleared off, he then set about actually implementing his policies. He started giving more freedom and decision-making powers to employees and this included even the workers at the floor-shop.

To achieve this, he demanded that managers permit workers to take decisions and implement them. Of course, he made every decision accountable and made it clear that good decisions that resulted in measurable benefits to GE will be handsomely and quickly rewarded. Towards this objective, he freely used the method of differentiation for identifying performers. He instructed all managers to analyze the performance of their staff on a yearly basis: the top 20% were to be given lavish rewards, the next 70% were to be treated as the heart and soul of the operations and also rewarded to some extent, but they were expected to make efforts to move into the top 20.

The last 10% had to be made clear that unless they improve drastically and quickly, they would be eliminated. 4 Welch also made a very important and risky change in the way GE operated. He shifted the strategic planning and decision making from the corporate level to the businesses, thus enforcing greater responsibility on unit business managers. In 1984, he cut down the strength of corporate planning group by almost half, from 58 to 33.

4. Bock, W - 'Professional spotlight: Jack Welch', 2001, accessed 2004, available at www.mondaymemo.net/010910feature.htm. Accessed on 18 April, 2004

This was in sharp contrast to the then prevailing American culture of multiplying executives at will. 5 In a nutshell, he was willing to grant powers to employees to make decisions and implement them. The concept of 'empowerment' was thus born and corporate America would never be the same again.

The Work-Out Program:

To instill a sense of ownership among employees, Welch rolled out a program named Work-Out, which was intended to carry on the revolution that was taking place at GE. This program was implemented in 1990 and the message was crystal clear - employees were an integral part of GE and thus had to share all the good, bad and evil that resulted from their actions. The work-out program had four primary goals - (1) develop trust among employees (2) empower employees (3) eliminate unnecessary work and (4) spread the GE culture. To achieve these goals, the program set out many objectives:

encourage and broaden debate throughout the company reduce bureaucracy by cutting down on paperwork, reporting systems and cumbersome approval procedures redefine the notion of management by compelling managers to listen and respond to workers improve efficiency at GE by making processes simpler and improving worker productivity eliminate wastage in all areas - time, effort and resources and do only what is required and essential

5. Heller, R - 'Jack Welch: The Giant of Corporate Management who created Billions for Investors', DK Dorling Kindersley, 2001

The program's major thrust was on empowering employees and it included not just a select few, but all employees in the company. Welch made it very clear that the program was governed by two defining elements - workers are free to make suggestions and recommendations to bosses directly and managers would respond to the suggestions on the spot, if feasible. He considered Work-Out sacrosanct and demanded that every employee went through the program within a period of one year. So, employees and managers the program was not optional but compulsory, although initially he initially started with volunteers to douse fears that this could another way of downsizing.

Welch was categorical that work-out programs are not tailor-made and depended on the division or department that wanted to carry out the program. The program did not require specific agenda like conventional meetings, but to avoid lack of focus and direction, the issues for discussions had to be identified in advance so that expected results can be drawn up in advance. A typical work-out lasted for usually 3 days, at times two-and-half. An amazing feature is that bosses and senior managers of the employees participating in the program are not allowed to sit in the program. The boss can commence the program and leave the rest to the employees and come back only at the end of the program. The program is managed by a facilitator usually a person who has no direct control over the participants.

On the first day, after the introductory session, the facilitator breaks the participants into four or five teams and asks each team to evaluate their businesses from four angles - reports, meetings, measurements and approvals. The participants were encouraged to develop new ideas and solutions to problems and there were no boundaries or limits imposed, as long as they were aimed at improving the performance of GE. On day two, the groups get together and discuss all issues together so that every team gets to know what the other is talking about. The team members put together their proposals in definite terms.

Since this was a very important phase, Welch made arrangements that necessary expert advice was available on phone between 9 A.M and 11 A.M from the head office. He went to the extent of providing a hotline from the head office to the program venue. Experts in various functions such as finance, legal, marketing would be available on call during the stipulated hours and they were instructed not to go out, attend other meeting or even take phone calls during this period. The aim was to provide full back-up support for the employees to draw up their proposals and recommendations. Day Three was the defining day - the bosses have to face the employees together and listen to their proposals and recommendations. The bosses, after giving an ear to the proposals, can come up with three responses - (1) agree on the spot (2) say no to the proposal and (3) ask for more information to defer the decision to a later team.

The boss asking for more information must assign a team to get that and respond to the proposal within a month. Once the program is over, a thorough follow-up action is required. An employee is given the responsibility of preparing a report on all the proposals and the action plan. For implementing each approved proposal, one of the participants is assigned the task and given the tag of 'champion'. The champion follows the implementation of the proposal and keeps the participants informed of the progress and has to complete the task within the agreed deadline. It can be observed that Welch seems to have thought out every pitfall that can contribute to the failure of the program and also identified solutions to overcome the pitfalls. No doubt, the program was a remarkable success, confirming that by removing the shackles, employees tend to come up with far superior results.

Analysis of the outcome of work-out programs revealed that four out of five proposal were approved by bosses on the spot. GE officially reported three major benefits that accrued from the program - productivity improved, unnecessary tasks were eliminated and workers satisfaction and involvement improved by leaps and bounds. Welch did not rest on the laurels of this success. In 1999, years after the work-out program was first implemented, he began to notice that GE tended to revert to some of the old habits that slowed down progress and growth. He lost no time in putting together a new work-out program, this tend led by information technology and the internet. Based on the experience gained over many programs, Welch came up with seven steps that made work-out programs successful:

select issues for discussion choose a multi-functional team capable of handling the issues to be raised in the program appointment of a 'champion' who will ensure that the program recommendations are implemented the program should have duration of two-and-a-half or three days the managers selected for responding to the proposals must have the capacity to take decisions quickly and preferably, on the spot for implementation of approved proposals, conduct meetings as and when necessary ensure that the process is always on the move and includes more and more issues

The reasons for the success of Welch's work-out program are not very hard to seek - decisions are left to the employees who knew best about the work they are into and they are given the freedom to come up with problems and more importantly, answers. With freedom comes responsibility and accountability and hence employees are committed to deliver the best.