Jack Welch

Jack Welch is former CEO and Chairman of General Electric. One of the most renowned corporate leaders of the 20^th 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 19^th 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.