Biography of a Leader
Jack Welch
EDUC 802
December 11, 2001
General Electric is
a company with a history of leadership continuity. GE follows
a stable tradition in which a long-serving CEO passes company leadership
to a successor who carries on the traditions of this well established,
prestigious company. In 1981, General Electric was voted the
best run company and Reg Jones, the outgoing CEO, had just been voted the
best CEO by his peers in the Fortune 500 companies. In that same
year, Jones overturned tradition by turning over the reins of GE
to Jack Welch, a long time GE employee who was known as a ‘revolutionary’
for his ‘fix, sell or close’ strategies (Lowe, 2001). Welch was not
satisfied with being the CEO of a good company. He immediately set
his goal to be the leader of the best company in the world. In his
pursuit of perfection Jack Welch made drastic, quick changes, incorporating
aspects of various decision making perspectives and management styles but
aggressively shunning one particular perspective. (1)
John F.
Welch Jr. was born in Salem, Massachusetts in 1936 to an Irish-American
working class family. His mother, Grace, was 40 when he was born.
Jack credits his mother for his self-confidence. When he developed
a stutter as a child, Grace explained that he should be proud of it.
The speech peculiarity meant that his brain worked very fast and his tongue
couldn’t keep up. She encouraged Jack, her only child, to be
either a priest or a physician but he chose to study his passion, chemistry.
Not qualifying for a scholarship to an Ivy League university, the family
saved the $50 a semester it cost to send their son to the University of
Massachusetts. He was the first member of his family to go to college.
Jack Welch came to
GE in 1960. It was his first job after completing his Ph.D. at the
University of Illinois. He remained with GE until he was faced with
mandatory retirement at the age of 65. His 40 year career
at GE provided him with an outlet for his incredible energy and his high
standards. It also gave him the opportunity to hone his leadership
skills. By the time he retired in 2001, Fortune had named him
the Manager of the Century.
Jack Welch made a strong
distinction between management and leadership. As early as
1981, in Welch’s first address as CEO, he shared his concept of leadership.
As he addressed the shareholders for the first time, Welch did not go into
his specific plans for how he would proceed as leader but rather gave his
vision. He challenged the listeners to think of GE a decade from
that day:
We would like GE to be perceived as a unique, high-spirited,
entrepreneurial enterprise, a company known around the world
for its unmatched mark of excellence. We want GE to be
the most profitable, highly diversified company on earth, with world quality
leadership in every one of its product lines. (Report to shareholders,
1981)
(2) |
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Welch felt the
essence of leadership came from inside. He has frequently taught
at Crotonville, the GE executive training center, that leadership is not
a fancy euphemism for management, because sometimes it is the exact opposite.
In his 1998 address to the GE shareholders
Jack Welch expounded on this
aspect of leadership versus management:
This company cannot be ‘managed’ to perpetual double-digit growth.
Management implies stewardship of an asset, orderly, structured,
tightly controlled. With leadership, the question at
the beginning and at the end of the day is ‘How far can we take this...how
big can we grow it...and how fast can we get there? (Report to shareholders,
1998) |
In the same address,
Welch elaborates that a manager is the one who “controls things,
keeps them in channels, builds and respects boundaries between functions
and ranks, stays within internal and external company walls” (p.5).
He decries this as typical bureaucratic behavior. On the other
hand, a leader’s responsibility is to go after those boundaries with a
hammer, drawing the best ideas from anywhere: the factory floor,
other businesses, other companies.
From the beginning
of his tenure as CEO, Welch challenged GE leaders to be “better than the
best”. He told them that if the environment or economic
climate says that a situation is not possible then they should disengage
from that limiting way of thinking and proceed in another way. GE
executives were taught to think ‘beyond the box’. Rules are for managers
and vision is for leaders. Right to the end Welch challenged
the rules. He disregarded the mandatory retirement age of 65
by staying an extra year and retiring at 66.
In 1982, when Jack
Welch had been CEO of General Electric for one year, Tom Peters and
Robert Waterman published In Search of Excellence, which detailed
eight basic principles practiced by successful companies. GE, under
Jack Welch’s leadership had put most of the principles into action.
For example, the first ‘excellent’ principle is: a bias for action.
Welch embodied that principle. As CEO, he bought and sold divisions
to change the focus of GE from a company which received 85% of its revenues
from selling products like appliances to a company which got 70% of its
revenues from providing services. Throughout his tenure as
CEO, Welch urged his division leaders to be the best. If the company
which they led was not number one or two in their field then it would be
sold. That directive spurred his company presidents to action.
Tom Peters called Jack Welch’s management style ‘management by fear’
when Peters was working as a consultant for GE. But Welch defends
his style by saying that no one is working there against his will.
Welch says that the work is so challenging and exciting that no one wants
to leave. (Lowe, p 115, 172)
(3)
Peters and Waterman
also stress that excellent companies stay close to the customer because
the business is based on having a market and also because good ideas (feedback)
comes from clients. Welch comments that customers are the center
of GE’s universe not only because they provide a market but that customers
or clients set the standards for the quality which they will accept.
If the customer is not convinced that GE supplies the best quality then
they will go elsewhere. Service to the customer provided one of the
stimuli for instigating the Six Sigma program for quality control.
(4)
Peters and Waterman’s
4th principle, productivity through people, stresses the importance
of having individual workers take ownership and pride in their jobs.
This relates to the philosophy of ‘boundaryless’ behavior which Welch developed
and promoted at GE. He encouraged ideas for improvement from every
sector and employee level. The premise of a boundaryless organization
is that with the traditional boundaries of positions removed, the best
ideas and practices from anyone and anywhere would surface and be considered
and encouraged. This increased the information base and therefore
the effectiveness of the organization.
In the fifth principle,
hands-on, value-driven management, Peters stresses that successful
companies are lead by teams which operate on the same basic principles.
The successful company has to be bound by shared values and common goals.
Jack Welch practiced this principle also. It is most dramatically
demonstrated in the adaptation of the Six Sigma program developed at Motorola
in 1985. Six Sigma is a statistical control process which
sets a standard for the number of defects per million which are acceptable.
A sigma represents a standard deviation on a bell curve, so the fewer the
defects, the higher the sigma. Welch’s goal for quality control
was 2.4 defects per million which is Six Sigma. This program has
been successful at GE because it has complete support by Welch. He
insists that all leaders and managers be trained in it and the techniques
be drilled all the way down to the lower levels of the organization.
The GE homepage describes Six Sigma as having ‘changed the DNA of GE--it
is now the way we work--in everything we do and in every produce we design’.
(GE homepage) The emphasis on the Six Sigma design for quality gives
all employees a shared goal.
As a correlation to
the fifth principle Peters and Waterman also include the statement
that leaders of successful companies demonstrate “the ability to create
enthusiasm” and ‘unleash excitement’. (p. 291) Almost the same wording
is included in the GE mission statement when it states that GE leaders
‘demonstrate... always with infectious enthusiasm for the customer, ...
the personal energy to welcome and deal with the speed of change...the
ability to create an atmosphere that energizes others...”. (GE homepage)
Welch was an expert
at Peters and Waterman’s seventh principle: Simple form, lean staff.
Trim the upper levels and have fewer administrative layers. From
1981-1989, Jack Welch removed nine layers of GE hierarchy, reduced 29 pay
levels to five pay bands and reduced the total workforce by 100,000.
Included in that reduction of force was a two-fifths cut in upper management
in the first years of his tenure. By the end of his tenure Welch
had pared the executive force from 300 to 30. (Heller, p. 564)
Not all the Peters
and Waterman principles were practiced by Welch. He did not ‘stick
to the knitting’. He sold off companies which were not either first
or second in their field. Whether it was close to the knitting or
not didn’t matter. Welch challenged GE employees to keep their eyes
open for businesses which catered to the future. In his first years
as CEO, Welch asked each company president to define where his company
would be in 50 years. Those companies which seemed irrelevant in
any way to a forward looking GE were sold. Welch invested in high
technology providers rather than appliances which had been the mainstay
of GE since the beginning 125 years ago. He moved GE away from providing
‘goods’ and entrenched the company as a provider of ‘services’.
Peters and Waterman
conclude that excellent companies are defined by two commitments:
to provide the best quality and to provide the best service to the customer.
GE under Jack Welch strove to deliver exactly that. By introducing
and making mandatory the Six Sigma program for quality control, he assured
the customer that every product or service purchased from GE would be world
class quality. In effect, it would be the best. If In Search
of Excellence were updated and revised, GE would most likely be used as
an example of most of the excellent principles.
Because of Jack Welch’s
outgoing personality and high energy, on the surface he seems like the
embodiment of an overt leader. He is. However, he is much more.
To use Henry Mintzberg’s word, he is also a ‘covert’ leader. (Mintzberg,
1998) According to Mintzberg, a covert leader performs leadership from
behind the scenes. In an orchestra, all the players are professionals
and have to be treated as such. The conductor does not give orders
as much as channel the energies of the individuals into beautiful music.
Similarly, Welch believes that in order to be successful at GE, the worker
has to be 100% in tune with the shared vision. All workers have to
‘know the score’ and fine tune their vision so that everyone is playing
from the same page. If someone is not willing or able to do things
the GE way, they can be replaced. If a company does not come out
on the top of its field, it will be sold. Mintzberg also mentions
that in the case of a conductor and an orchestra, even though all concerned
are professionals, the players must accept the conductor’s authority to
lead them. As with GE, Welch has given his company presidents autonomy
but they must conform to GE’s mission and vision. Just as an orchestra
member can be fired for insubordination, a GE company can and will be sold
if it does not match the high standards of GE.
Another important role
of the orchestra conductor which is more covert than overt is ‘linking’
or networking. The conductor has to be out in the community
seeking support and promoting positive public relations. Welch also
believes that an important part of a CEO’s job is to promote the company.
Welch does this not only by his public relations efforts but more so by
training executives who are desired by other companies. Lowe comments
that no matter the reason someone leaves GE, their training at GE is an
asset on their resume and ‘makes a manager part of a fraternity whose members
keep in touch and network long after leaving GE.” Lowe then presents
a list of 25 top companies run by former GE executives who still network
with their former leader, Jack Welch. (p. 65)
In his final address
as CEO in April, 2001, Welch turned over the reins stressing that one of
the marks of leadership is change and that GE will change with the new
leadership. But he also stressed that two principles will not change.
GE will always stand for integrity and it will never give up its hatred
of bureaucracy. Welch minces no words when describing his feelings
about bureaucracy. In this same farewell address he expresses GE’s
‘...visceral hatred of bureaucracy [which] stems from the
evil and harm it wreaks on the spirit of a company, any institution,
and its people, and its dilutive effect on every other value
in which we believe. Bureaucracy hates change, could care less about
the customer, loves complexity, is afraid of speed and incapable
of it, and inspires no one. (Report to Shareholders, 2001) |
To examine Welch’s
antipathy towards bureaucracy, we need to understand what it is and what
it stands for. Webster defines bureaucracy as ‘the body of officials
and administrators, especially of a government or government department’,
and bureaucrat as ‘an official who works by fixed routine without
exercising intelligent judgment.’ In Essence of Decision by Graham
Allison and Philip Zelikow, a model for governmental or bureaucratic decision
making is described. Its key points conflict with Jack Welch’s philosophy.
In Allison’s description of governmental processes (Model II) , he emphasizes
how routines and standard operating procedures (SOP) dominate in order
to keep everyone on the same page. Welch would vehemently object
to this point because he believes that a common goal should provide the
vision which keeps employees focused. In Model II, change is brought
about as a response to a crisis or an error. According to Welch,
change should be an underlying current in all that a business does.
Change occurs so that errors are avoided. The possibility for change keeps
energy high in a company as it constantly seeks ways to improve on its
performance. (5)
Allison notes that
organizations working within Model II often lack farsightedness and flexibility.
Welch firmly believes that in order for a business to be successful it
constantly has to look 20 to 50 years ahead of itself to see if it is on
the right track in what it provides to the public. If it is not,
then an organization needs to have built into it the flexibility to change
direction and focus the way that GE changed when Welch came in as CEO.
Welch would agree with
the point of Model II decision making where organizational perspectives
or culture influence decisions. Welch would say that the GE mission
and vision influence his and other GE managers’ way of thinking when making
decisions for the organization. But, he would not let it be used
as an excuse for inaction. Lack of action as well as a lack of vision
are Welch’s often repeated criticisms of bureaucratic organizations
as we see in his farewell address quoted above.
Another conflict with
Model II is GE’s ‘meritocracy’. Under Welch, GE is structured
into 3 levels: the top 20% where the leadership comes from;
the middle 70% who are energized to move up or to move out to spread the
GE way as leaders of other top companies which can then network with GE;
and the bottom 10% who are encouraged either to change or to move
out.( Report to shareholders 2001, p.6) Welch promotes the person
he considers best for the job. He does not regard seniority or rank
as important. This contrasts directly with Model II’s hierarchical
way in which the SOPs dictate who can be promoted and when.
What lies ahead for
Jack Welch now that he has retired as CEO of General Electric? Now
that Welch no longer runs the company which he changed from a traditional,
industrial business to a sleek, financial conglomerate, what will he do
with his time and his boundless energy? Welch’s contract calls for
him to be on call as a consultant for GE 30 days out of every year for
the rest of his life. Also, Welch is a major shareholder in GE and
so will be able to overtly influence company decisions if he chooses to
do so. His covert leadership will continue through the programs he
instituted, especially Six Sigma, which focus the workers and management
towards a common goal, superior quality.
Lowe suggests
that Welch could continue his public contributions through politics.
He has international name recognition and is a friend of the present US
president. He could become a politically appointed ambassador. (p.
230) With his wealth, status and reputation of being a savvy business
leader, Welch could be considered for the position of Secretary of
the Treasury. The precedent has been set since the present secretary,
Paul O’Neil, is the former CEO of an international company.
Knowing the adamant
dislike Welch has towards Allison’s Model II organizations, I seriously
doubt that public service will be the future for Jack Welch. Without
the latitude to instigate change and to challenge standard operating procedures,
Welch would not be able to lead and would be relegated to becoming a manager.
If he were to accept an ambassadorial appointment Welch would also find
his hands tied since he would be the president’s representative and would
have to promote the president’s plans and ideas, not Jack Welch’s way.
According to Welch,
he will play golf and promote his new book,
Jack, Straight from the Gut,
published this year. But, on a 60 Minutes interview, Welch admitted
that he wouldn’t mind running another company ‘as long as it was large
enough for him to continue to paint in big, broad strokes’ (Lowe, p. 232)
Whatever Jack Welch decides to do, I am sure that it will fall close to
the Peters and Waterman models of excellence and will stay far away from
bureaucracy.
References:
Allison, G. & Zelikow, P. (1999) Essence
of decision, Explaining the Cuban Missile Crisis (2nd ed.)
New York: Longman
General Electric Homepage, Addresses to shareholders,
1981-2001. Retrieved December 8, 2001, from http://www.ge.com/news/welch/speeches/share.htm
Heller, R. (2001) Roads to success.
New York: Dorling Kindersley Press
Lowe, J. (2001) Welch, An American icon.
New York: John Wiley & Sons, Inc.
Mintzberg, H. (2000) Covert leadership:
Notes. Harvard Business Review, 11/12, 1998.
Peters, T.J. & Waterman, R.H. (1982). In
search of excellence: Lessons from America's best-run companies.
New York: Harper and Row.
___. Webster's encyclopedic unabridged dictionary
of the English language (1989). New York: Portland House
Press.
1. I have the sense that this is your thesis. It would
be stronger if you were specific about the perspectives you had in mind.
2. I am quite impressed that you found Welch's inaugural address
to shareholders.
3. This is interesting because the example also seems to violate
another recommendation from P and W: Stick to your knitting. (You
come to the same conclusion later in the paper.)
4. It would be helpful for you to explain what this is and
how it ties back to Welch. I see that you do this later, and I see
the logic behind waiting until you've introduced another principle from
P and W. That's ok, but you should signal this kind of delay to mitigate
the confusion created for the reader when you introduce a term without
defining it. This is a finer point of organization in your paper
that you ought to consider in the future.
5. You've done an excellent job using the Allison Model to
help explain what Welch worked against and why.
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You've done a great job with this assignment. You've used your
three perspectives quite effectively to produce persuasive arguments about
the nature of Jack Welch's leadership. I found my mind wandering
a bit while reading your paper only because I was so inspired by Welch's
example. I was thinking about how one might put those kinds of principles
to work as a superintendent. Wouldn't it be exciting to envision
where the school division should be in 10 or 20 years and actually pursue
that path? Anyway, good analysis and good job. |
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