Jack Welch is former CEO and Chairman of General Electric. One of the most renowned corporate leaders of the 20th century, Jack Welch
maintained General Electric’s reputation as a world-beater throughout his 20-year reign as CEO. Under
Welch the company moved into new business areas and reached new heights. Jack
Welch, named in 1999
as Fortune’s ‘manager of the century’,
started at General Electric as a trainee in 1960. At the age of 33 he became the youngest general manager in the
company’s history, and in 1981 became
CEO. Over a 20-year period he oversaw
revolution, reorganization, Six Sigma, tough targets, and a blaze of corporate
acquisitions.
The results were a 600% increase in profits, 100 consecutive quarters of
increased earnings, and a status as one of the most profitable companies in the world.
Welch stepped down as CEO in
September 2001.
BACKGROUND AND RISE
Jack Francis Welch Jr,
one of the most celebrated managers and leaders of the twentieth century was
born on the 19th November 1935 in Peabody Massachusetts USA. He grew
up in Salem where his father worked as railroad conductor. As
a boy he suffered from a stutter that might have
badly affected his confidence, had it not been for his mother’s imaginative explanation.
‘She told me [it was] just that my brain worked too fast,’ Welch said.
At school he was a
keen sportsman; he also was described by classmates as the ‘most talkative and
noisiest boy’ they knew. After high school he set off for the University of
Massachusetts, where he studied chemistry. Then came the University of
Illinois, where he obtained a PhD in chemical engineering. From there he moved
to Pittsfield, Massachusetts, to start his first real job at General Electric.
On his employee evaluation form Welch was asked to state his long-term
ambitions—(to
become CEO), he wrote. By 1979 he was vice-chairman and executive officer.
DEFINING
MOMENTS
Welch’s meteoric
career at General Electric (GE) almost didn’t happen. In 1961, sick of the
cumbersome bureaucratic systems, Welch quit. Fortunately for GE, his boss at the
time persuaded him to stay. In 1963 Welch was put in charge of chemical
development, and in 1968, aged 33, he became GE’s youngest general manager
ever. By 1972 he had risen to the position of divisional vice-president and set
his sights on rising even higher. Along the way he built plastics into a
formidable $2 billion business, turned around the medical diagnostics business,
and began the development of GE Capital. In 1980 he was announced as the new
CEO and chairman of GE, at 45 the youngest chief the company had ever appointed
and only the eighth CEO in 92 years. At the time, GE was in reasonable shape.
That year Fortune
magazine
voted it the best-managed company in the United States, and Reg Jones, the CEO
who Welch had replaced, was ranked number one among CEOs. Yet GE’sstock was
performing poorly. Against the backdrop
of a faltering world economy, the Japanese were posing a real threat to US
manufacturers with new production systems such as ‘lean manufacturing’. During
the 1980s, recognising that GE would have to change in order to compete
successfully on the world stage.
BREAKING WALLS
Welch declared that
it was going become the world’s most valuable company. This meant getting rid
of all unprofitable areas. The focus was shifted to service industries,
creating over 1000 new businesses, and resulting in the disposal of 70 existing
businesses. But that was only a start. Next Welch turned his attention to the organizational
structure. He pared down the organization, devolving power to the individual
business units in a massive push for decentralization. An elaborate management
hierarchy was tossed onto the scrapheap.
‘Fight it. Hate it.
Kick it. Break it,’ railed Welch in an anti bureaucracy exhortation to the
troops.
Nearly 200,000 GE
employees left the company and over $6 billion was saved. The media dubbed
Welch ‘Neutron Jack’. But by the end of the 1980s, having proved that he could
tear the company apart, Welch moved on to stage two: rebuilding a company fit
for the 21st century.
To encourage
innovation and the communication of ideas, he vowed to create a ‘boundaryless’
organisation. ‘Knock down the walls that separate us from each other on the
inside and from our key constituents on the outside,’ was how he put it. In the
pre-Welch era, employees with a good idea would squirrel it away. Now they
would be encouraged to share their ideas, and the culture would make sure they
received the praise they deserved. So that all employees were pulling in the
same direction, Welch used corporate values to guide behaviour. He famously
carried a copy of them printed on a card. In the mid-1990s, in a drive for
quality, Welch adopted the concept of Six Sigma, developed by Motorola in 1985.
A statistical term, Six Sigma refers to products with a 99.9998% perfection
rate. Implementation relies on rigorous measurement and
testing to deliver results.
Welch made sure that the adoption of Six Sigma had
100% management backing, and attributed a 3% increase in profit margins between
1995 and 1999 to its roll-out. A stack of figures attest to the success of Jack
Welch’s reign: between 1981 and 1999, for example, the GE stock price rose from
just over $4 to $133 (allowing for four stock splits), an increase of 3,200%.
From 1980 onwards, the average total return on GE shares was about 27%, and the
company has returned 100 consecutive quarters of increased earnings from
continuing operations. If you had bought $10,000 worth of General Electric
shares in March 1981 and reinvested the dividends, by the end of 1999 they
would have been worth $640,000. Over the same period GE sales rose from $27.2
billion to $173.2 billion, while profits rose from $1.6 billion to $10.7 billion.
By 1999 General Electric was the second most profitable company in the world.
The only slight
tarnishing of Welch’s lustre came in 2001. Due to retire, Welch postponed his
departure for one last hurrah: a mega-deal with Honeywell Bull, snatched from
under the noses of intended purchasers, United Technologies. Despite Welch’s
best efforts, however, this deal was scuppered by European Union regulators. In
some ways it was an unfortunate end to a majestic career. Commenting on the
affair, Welch was his characteristic self: ‘GE was a great company before I
took a swing at it. It’s a great company after. It would have been better if we
had gotten it. But as far as regrets for doing it? No way. I’d do the same
thing again tomorrow.’ He finally handed over the baton to his successor, Jeff Immelt,
on 7 September 2001. His next job: to promote his autobiography, Jack:
Straight from the Gut. Retirement started with promise, a $7 million advance from his
publishers, and an extremely generous retirement package, but personal matters
changed public attitudes.
In 2002, he
admitted to an affair with an editor of the Harvard Business Review and, during the
subsequent divorce proceedings, there was public outrage when the scale of his
retirement package was revealed.
CONCLUSIONS
The failed
Honeywell takeover and personal revelations dominated press coverage of the end
of Welch’s rule at GE. The actions of the EU regulators briefly blotted out the
achievements of an exceptional leader. But the three stages of development
under Welch—destruction, creation, and quality—have reshaped GE and made Welch
the CEO role model of his generation.
Inevitably, he also
has his critics. They point to the size of corporate pay packets, GE’s ecological
record, high levels of redundancy, and the lack of loyalty throughout the
organization. But there can be little disagreement that Welch made a difference
where it mattered. History will remember him as one of the most important
corporate leaders of the 20th century.
