What We Can Learn From Jack

By Michael Maccoby

Research Technology Management, Vol. 46 No. 2 March-April, 2002; pp 57-59.

In which kind of company would you rather work? One led by a charismatic CEO who makes change a constant, institutes big programs, but demands non-stop performance. Or one led by a self-effacing but determined CEO who sticks to a basic strategy, moves step by step, and balances high standards with family values?

This is the choice suggested by two recent books: Jack, Straight from the Gut, by Jack Welch with John A. Byrne (New York, Warner Business Books, 2001) and Good to Great, by Jim Collins (New York, Harper Business, 2001).

Welch describes the philosophy and practices he employed over 20 years to make GE the most valuable company in the world. Along the way, he expresses his powerful personality. Collins summarizes the leadership styles and practices he and his associates gleaned from companies that did very well for shareholders over a 15-year period.

The only advice you'll find in both of these books is that people are most important to a company's success and the company must have the right leader. Both of these books recommend only hiring the best people and getting rid of those who don't measure up. But who are the best people? Who is the right leader?

Good to Great isn't going to be much help to a technology manager who seeks advice about who to hire. Its message is that the best leaders are humble but determined and that they put the company ahead of their own egos. They don't believe in lavish perks, but tend to have a modest lifestyle.

Collins writes "Throughout our research, we were struck by the continual use of words like disciplined, rigorous, dogged, determined, consistent, focused, accountable, and responsible. . . people in the good-to-great companies became somewhat extreme in the fulfillment of their responsibilities, bordering in some cases on fanaticism." (p127) There is no mention of innovation, vision or risktaking. From a psychoanalytic point of view, this is a description of a productive obsessive, the kind of person you need on your team, but you might recommend that he read The 7 Habits of Highly Effective People to become more of a team player. Such a person in a top management role is unlikely to come up with a breakthrough product or vision to change the world. But he may be perfect as a chief operating officer or chief financial officer for a narcissistic visionary, like a Larry Ellison, Jeff Bezos, or Steve Case.

What the Critics Say

Critics of Good to Great are not convinced by Collins' claims of being "scientific," even though his findings are based on a huge amount of research. Writing in New York Times, (Nov. 25, 2001), William J. Holstein points out that the flaw is measuring "greatness" only by a continually rising share price over a 15-year period. He writes: "No wonder that spectacularly dull companies like Circuit City and Kroger, the supermarket chain, and Walgreen are on the list, but that Cisco Systems, General Electric, IBM, and Intel are not. . . . In business consulting lingo, Mr. Collins' enterprise has a misdirected sense of mission owing to a leader whose assumptions couldn't be tested. In the air was the whiff of self-assuredness--the precursor of many a corporate downfall."

In fact, The Economist (Dec. 1, 2001) reported a study of the companies that have created the most wealth for their shareholders between 1996 and 2001. None of Collins' companies were among the top 25, but GE was first and Microsoft second.

I was once on a panel on leadership with Jim Collins and before the meeting, we shared our thoughts about leaders. Collins didn't admire Welch. He was put off by Welch's publicity-seeking and self-centeredness. And Collins is not alone. Reviews of Jack not only look askance at the fact that he made many millions while downsizing thousands of workers, but that he fought the EPA to avoid cleaning up the PCB GE dumped in the Hudson River.

In The New York Times Book Review (Oct. 14, 2001), Joseph Nocera, executive editor of Fortune, writes that Welch "is a great C.E.O. who plainly likes to be told how great he is. He cares far too much about his press clips. He views the perks of the job--the jet-setting, the hobnobbing with the rich and famous, the chance to play golf at the most private clubs and of course the money--as nothing less than his just due. His egocentrism is everywhere on display, there is a sense throughout that everyone and everything are supposed to orbit around his sun."

However, Welch doesn't appear to be any less disciplined, determined, systematic, demanding and accountable than the C.E.O.'s Collins admires. But he combines the extravagant narcissistic self promotion of a technology visionary--he has a Ph.D. in chemistry--with the obsessive attention to process of a productive obsessive. Sigmund Freud considered this combined personality type ideal for an effective innovative leader.

Jack Welch's Achievemetns

It seems to me that because critics are turned off by Welch's personality, they miss the lessons he offers from his experience at GE. Here are what I consider Welch's achievements.

Bureaucracy busting.--Welch hated the unnecessary levels, organizational chimneys and wasteful practices of the GE he inherited. He started out with a "workout" program where outside facilitators encouraged employees to express their ideas for improvement and forced managers to do something about them. He then demanded that GE become a learning organization, a borderless company where managers sought best practices in other divisions and were evaluated on whether or not they adopted them. Furthermore, managers could not hoard good people.
Welch says he considers business a game. What comes across as his ideal organization is a professional team, as in baseball or hockey, with highly competent and motivated athletes. As in professional teams you can have a high level of teamwork and comraderie without any job security.

At one point, Welch told the executive who became his successor, Jeff Immelt, that he loved him, but if Jeff didn't get his numbers, Jack would take him out, like a pitcher who was allowing too many runs.

Also, as in professional sports, high performers make alot of money. This isn't the kind of company for everyone, and Welch doesn't want everyone. But he builds close relations with his top lieutenants, knows their families, sends flowers on anniversaries and gives advice freely.
Tough evaluations.--Welch demanded that executives grade managers as A, B, or C. The As got bonuses and stock options. The Cs were at risk. Every year, managers had to fire the bottom 10 percent of all managers.

Welch made performance evaluation a continual process. Managers were evaluated on both results and how they treated, developed their people, and upheld the company's values. If they did not do well on both results and culture, they were out.

Welch tried 360° evaluations, but decided they were too easy to game--people gave each other good grades. He looked for passion and intensity. While the A managers demonstrated the four e's: energy, energize, edge (toughness), execute, the C rated managers enervated others. According to Welch, it wasn't cruel to fire them; it would be cruel to others to keep them around.
Learning and changing.--Welch describes how he made mistakes but learned and changed his strategies. At first, he required every GE division to be 1 or 2 in its product market or get out of it. But division managers gamed this by narrowing the definition of the market. Welch then made divisions define their markets globally so that they had no more than 10 percent and had to grow. This stimulated a division like Power Systems to redefine its market to include services for their own and other manufacturers' products.

Welch flirted with a Deming total quality program but found it too theoretical. When he realized that 6 sigma quality had to do with customer focus, he instituted a company-wide program and went at it "with a vengeance." In similar fashion, he discovered the Internet as a tool to improve productivity by getting rid of unnecessary transactions and paperwork, and he learned to develop e-business as a revenue generating service.
Brainwashing the Organization.--Lots of companies have programs. Many start at the top and then like water, disappear into the clay layer of middle management. Not GE under Welch. He claims to be a teacher, but a teacher allows the student to arrive at his own point of view. Welch used carrots, sticks, opportunity, fear, dialogue, persuasion, meeting after meeting--anything he could get his hands on to make the organization not only do his bidding but think the way he did. He writes "every day I tried to get into the skin of every person in the place. I wanted them to feel my pressure."

He also saw himself as a sponge getting every good idea floating around. At the GE management training facility at Crotonville, NY, Welch loved to dialogue with managers, to hear their ideas and make sure they were programmed with his. Ratings, bonuses and the threat of failure backed up his purpose. For example, when he instituted 6 Sigma quality, 40 percent of a manager's bonus depended on execution of the program.

Where Would You Rather Work?

Back to my first question, in which kind of company would you rather work? I've described extreme types, both successful. But they are in different kinds of businesses and I doubt that what works for GE would work for Walgreens which after all, isn't making products or dealing with advanced technologies. In fact, I don't believe a company can directly copy another. Jacques Nasser former CEO of Ford tried to copy Welch's practice of rating managers A, B, and C and firing the lowest rated 10 percent. He provoked a rebellion that contributed to his downfall.

I'm not even sure Welch's incentives would have the same impact today when stock options no longer connect with a steeply rising share price. However, as he shows, you can learn from others if you then adapt it to your own style and business. If you are in a business that requires innovation and continual change, as is the case for technology companies, you need to learn from Jack.

Although you won't find many leaders with the combination of fire and brilliance Welch brought to GE, he shows that if you want your programs to succeed, it is not enough to just announce them and hope that managers implement them. Like Welch, effective leaders of change have to get into the mind of every person in the place. If you don't do it Jack's way, you better have a good alternative.