Chapter 10 How Jack Welch Runs GE

Much has been said and written about how Welch has transformed what was an old-line American industrial giant into a keenly competitive global growth engine, how he has astutely moved the once Establishment-maker of things into services. Welch has reshaped the company through more than 600 acquisitions and a forceful push abroad into newly emerging markets.

Less well understood, however, is how Jack Welch is able to wield so much influence and power over the most far-flung, complex organization in all of American business. Many managers struggle daily to lead and motivate mere handfuls of people. Many CEOs wrestle to squeeze just average performance from companies a fraction of GE's size. How does Welch, who sits atop a business empire with $304 billion in assets, $89.3 billion in sales, and 276 000 employees scattered in more than 100 countries around the globe, do it?

He does it through sheer force of personality, coupled with an unbridled passion for winning the game of business and a keen attention to details many chieftains would simply overlook. He does it because he encourages near-brutal candor in the meetings he holds to guide the company through each work year. And he does it because, above all else, he's a fierce believer in the power of his people.

Welch's profound grasp on General Electric stems from knowing the company and those who work for it like no other. First off, there are the thousands of "students" he has encountered in his classes at the Croton-on-Hudson campus, which everyone at GE just calls Crotonville. Then there's the way he spends his time: more than half is devoted to "people" issues. But most important, he has created something unique at a big company: informality.

Welch likes to call General Electric the "grocery store" . The metaphor, however quirky for such a colossus, allows Welch to mentally roll up his sleeves, slip into an apron, and get behind the counter. There, he can get to know every employee and serve every customer. "What's important at the grocery store is just as important in engines or medical systems," says Welch. "If the customer isn't satisfied, if the stuff is getting stale, if the shelf isn't right, or if the offerings aren't right, it's the same thing. You manage it like a small organization. You don't get hung up on zeros."

You don't get hung up on formalities, either. If the hierarchy that Welch inherited, with its nine layers of management, hasn't been completely nuked, it has been severely damaged. Everyone, from secretaries to chauffeurs to factory workers, calls him Jack, Everyone can expect — at one time or another — to see him scurry down an aisle to pick through the merchandize on a bottom shelf or to reach into his pocket and surprise with an unexpected bonus. "The story about GE that hasn't been told is the value of an informal place," says Welch. "I think it's a big thought. I don't think people have ever figured out that being informal is a big deal."

Making the company "informal" means violating the chain of command, communicating across layers, paying people as if they worked not for a big company but for a demanding entrepreneur where nearly everyone knows the boss. It has as much to do with Welch's charisma as it has to do with the less visible rhythms of the company — its meetings and review sessions — and how he uses them to great advantage.

When he became CEO, he inherited a series of obligatory corporate events that he has since transformed into meaningful levers of leadership. These get-togethers — from the meeting in early January with GE's top 500 executives in Boca Raton, Fla., to the monthly sessions in Croton-on-Hudson — allow him to set and abruptly change the corporation's agenda, to challenge and test the strategies and the people that populate each of GE's dozen divisions, and to make his formidable presence and opinions known to all.

Welch also understands better than most the value of surprise. Every week, there are unexpected visits to plants and offices, hurriedly scheduled luncheons with managers several layers below him, and countless handwritten notes to GE people that suddenly churn off their fax machines, revealing his bold yet neat handwriting. All of it is meant to lead, guide, and influence the behavior of a complex organization.

"We're pebbles in an ocean, but he knows about us," says Brian Nailor, a fortysomething marketing manager of industrial products who was at the Croton-on-Hudson session. "He's able to get people to give more of themselves because of who he is. He lives the American dream. He wasn't born with a silver spoon in his mouth. He got himself out of the pile. He didn't just show up."

Just look at the Corporate Executive Council (CEC) sessions, where GE's top 30 officers gather before the close of each financial quarter. The antithesis of the staid, staged off-site meeting, these sessions earn descriptions from executives like "food fights" and "free-for-ails." They are where Welch collects unfiltered information, challenges and tests his top players, and makes sure that the organization's triumphs and failures are openly shared. "I may be kidding myself," says Welch, "but going to a CEC meeting for me is like going to a fraternity party and hanging around friends. When I tell my wife I can hardly wait to go, she says, Well, why wouldn't you? You hired them all!' If you like business, sitting in that room with all these different businesses, all coming up with new ideas, is just a knockout."

Welch believes that efficiencies in business are infinite, a faith grounded in the belief that there are no bounds to human creativity. "The idea flow from the human spirit is absolutely unlimited," Welch declares. "All you have to do is tap into that well, I don't like to use the word efficiency. It's creativity. It's a belief that every person counts."

It is not surprising, then, that Welch chose to embrace — as the ultimate expression of those beliefs — the largest corporate quality initiative ever undertaken. GE's Six Sigma program, Welch is convinced, can add up to $5 billion to GE's net earnings through the year 2000.

For years, Welch had been skeptical of the quality programs that were the rage in the 1980s. He felt that they were too heavy on slogans and too light on results. That was before he heard former GE Vice-Chairman Lawrence A. Bossidy, a longtime friend, wax on about the benefits he was reaping from a quality initiative he had launched at AlliedSignal Inc., where he has been CEO since 1991. Bossidy had borrowed the Six Sigma program from Motorola Inc. and reported that the company was lowering costs, increasing productivity, and realizing more profits out of operations.

Welch invited Bossidy to share his story with GE's top management at the June, 1995, CEC meeting. As it turned out, that was the only one Welch ever missed — he was home recovering from open-heart surgery. However, Bossidy's presentation won such rave reviews that when Welch returned to work in August, he agreed to pursue it.

A Six Sigma quality level generates fewer than 3.4 defects per million operations in a manufacturing or service process. GE is running at a Sigma level of three to four. The gap between that and the Six Sigma level is costing the company between $8 billion and $12 billion a year in inefficiencies and lost productivity.

Still, it was no small decision to launch a quality initiative because it called for massive investment in training tens of thousands of employees in a disciplined methodology heavily laden with statistics. To make the ideas take hold throughout General Electric would require the training of so-called master black belts, black belts, and green belts to impose the quality techniques on the organization.

Welch launched the effort in late 1995 with 200 projects and intensive training programs, moved to 3000 projects and more training in 1996, and undertook 6000 projects and still more training in 1997. So far, the initiative has been a stunning success, delivering far more benefits than first envisioned by Welch. Last year, Six Sigma delivered $320 million in productivity gains and profits, more than double Welch's original goal of $150 million. This year, he expects GE to get about $750 million in net benefits. "Six Sigma has spread like wildfire across the company, and it is transforming everything we do," boasts Welch.

Show and Tell

The success of the program was evident this January at Boca Raton, where Welch kicks off each year with a confab for the top 500 executives. Amid the ocean breezes and palms, it is Welch's opportunity to set the year's agenda and toast the company's newest heroes. An invitation by Welch to pitch in front of GE's most accomplished executives is like winning an Olympic medal in GE's intense locker-room culture. This past January, 29 managers gained the privilege, most of whom spoke glowingly about their Six Sigma projects.

With Welch in the front row of the auditorium furiously scribbling notes on a yellow pad, the managers recounted how they used new ideas to squeeze still more profit out of the lean machine that is GE. One after another explained how quality efforts cut costs and mistakes, enhanced productivity, led to greater market share, and eliminated the need for investment in new plant and equipment.

It's more than a bragging feast. The show-and-tell routine allows managers in plastics to exchange lessons with their counterparts in GE Capital. It's a place, like Croton-on-Hudson, where "best practices" get transferred among GE's differing businesses. In between sessions, managers who make bulbs or locomotives swap ideas with those who finance cars and service credit-card accounts.

Welch seldom disappears early. One night, for example, he was up until 3, shooting the breeze with 20 executives — half of them fast-rising women. But the main event is Welch's wrap-up comments when he steps out onto the stage under a spotlight and a pair of video cameras. Even though GE had just ended a record year, with earnings up 13%, to more than $8.2 billion, Welch wants more. Most CEOs would give a feel-good, congratulatory chat. But Welch dispenses with the kudos and warns the group that it will face one of the toughest years in a decade. It's no time to be complacent, he says, not with the Asian economic crisis, not with deflation in the air.

"The one unacceptable comment from a GE leader in 1998 will be" Prices are lower than we thought, and we couldn't get costs out fast enough to make our commitments.' Unacceptable," he shouts, like a preacher. "Unacceptable behavior, because prices will be lower than you're planning, so you better start taking action this week."

Then, after asking every GE business to resubmit annual budgets by the end of the month to account for deflation, the ideas tumble out of him for how they can combat it. "Don't add costs," he advises. "Increase inventory turns. Consolidate acquisitions. Use intellectual capital to replace plant and equipment investment. Raise approvals for price decisions. Make it harder to give away prices."

Welch then throws out yet another challenge. "The market is rewarding you like Super Bowl winners or Olympic gold medalists," he says. "I know I have such athletes reporting to me. Can you put your team against my team? Are you proud of everyone who reports to you? If you aren't, you can't win. You can't win the game."

When the executives return to work on Friday morning, a videotape of Welch's talk is already on their desks along with a guide for how to use it with their own teams. Within one week, more than 750 videos in eight different languages, including Mandarin and Hungarian, are dispatched to GE locations around the world. Welch's words will be absorbed and reinforced by as many as 150000 employees by month's end.

Surprise, Surprise

Welch's reach is long, frequent, and idiosyncratic. "It's part of living with jack," a former General Electric executive says. "If you're doing well, you probably have more freedom than most CEO5 of publicly traded companies. But the leash getspulled very tightly when a unit is underperforming."

Truth is, it often gets pulled, period. Outside of the obvious — a $200 million- plus acquisition, a new strategic initiative like Six Sigma, or the naming of a top executive — it's almost impossible to predict when Welch will swoop down. How does he decide what to involve himself in? "It's this," laughs Welch, putting his forefinger to his nose. "I smell it. I try to pick out what matters."

When Welch intervenes, he is rarely indecisive. "Welch will say yes. Welch will say no. But he never says maybe. A lot of CEOs do, and decisions lay there like three- legged horses that no one wants to shoot," says George Stalk Jr., a partner with Boston Consulting Group Inc. who has worked with GE. Late last year, for instance, GE Capital argued in favor of buying AT & T Universal Card, the credit-card operation of AT & T (T). Within 24 hours of the presentation, Welch vetoed the idea and sent a note to the GE Capital manager who had spent hundreds of hours studying it. Welch wanted her to know that despite his decision, he had been impressed with the quality of her analysis and her presentation.

Welch understands that an organization can be as impressionable as an individual. Every time he intervenes, the stories reverberate through the company. Barely four weeks before CNBC and Dow Jones & Co. (DJ) formally launched their joint-venture cable program on April 1, for example, Welch called up NBC head Robert C. Wright to tell him he wanted to examine the blueprint for the launch. Less than 24 hours later, a group of managers and programmers marched into Welch's New York office for a detailed presentation. "They had a month before the launch, and I think that's an important moment," says Welch. "That (request) will create frenzy, and we'll have a discussion about it. Not that I'll add a helluva lot of value, but I'll be there banging away at it," he adds, clearly satisfied that the hustle he provoked will give the project a renewed intensity that can only favor its success.

Or consider how Welch became involved in the excruciating details of the tubes that go into GE's X-ray and CAT-scan machines. Five years ago, Welch, who spends 15% to 20% of his time interacting with customers, heard some gripes about the poor quality of the tubes. The product was averaging little more than 25 000 scans, less than half what competing tubes were getting.

To fix the problem, Welch reached two levels down into the organization in mid-1993 and summoned to corporate headquarters Marc Onetto, 48, who had been general manager for service and maintenance in Europe. His marching orders, recalls Onetto, were simple and direct: "Fix it," Welch demanded. "I want 100 000 scans out of my tubes!"

33. For the next four years, Onetto faxed weekly reports direct to Welch, detailing his progress. Back would come notes from Welch every three to four weeks. Some would nearly growl for greater progress; others would flatter and cajole. "You're not going fast enough," Welch scrawled at one point.

34. The experience astonished Onetto, a Frenchman who had joined GE in early 1988. "I was just running a little business here, about $450 million in revenues, and I was so amazed that he could find the time to read my reports and then even send me back notes," he says. Since then, Onetto's team has created versions of the tubes that average between 150000 and 200000 scans. The improvements added about $14 million in productivity benefits to the division last year. "It's a double-edged sword to be under Jack's detailed look," says Onetto. "If you do well, it's great. If you don't, it's bad news, lack is not famous for patience — which is an understatement."

　Supplementary Reading