Prosenjit Datta
Jack Welch strode like a colossus, redefining management practice during the two decades he was at the helm of GE. But his legacy needs a closer examination
Jack Welch, who passed away yesterday at the age of 84, was probably the first real business or corporate superstar. In fact, his fame and following over the two decades that he was the lord of General Electric (GE) is probably unsurpassed even today. At the peak of his career, he enjoyed the kind of admiration that has not been reached even by the current generation of US CEOs — Satya Nadella, Sundar Pichai, Tim Cook et al. (Welch was a professional manager who became CEO and so it would not make sense in this piece to compare him with entrepreneurs like Bill Gates, the late Steve Jobs, Jeff Bezos or Elon Musk). During the 20 years he led GE (he became CEO in 1981 and retired in 2001), the GE stock shot up from $14 billion to over $400 billion, an over 2700 per cent rise.
He bought and sold many companies during his two decades, constantly looking for high growth and high profit businesses to enter, while getting out of anything that did not meet his standards of revenue growth and profitability. His biggest success would be GE Capital, which grew to be bigger and more profitable than most banks in the US but would also almost take down GE itself post the financial meltdown after the Lehman Brothers crash.
In fact, though he set the gold standard for management and made GE the world’s most valuable company for almost a decade in the 90s, his legacy was tarnished after his retirement, when GE Capital imploded post the 2008 crisis. Like too many other financial giants, GE Capital had been fuelled by cheap money and wild expansion into all sorts of risky lending.
There had been many famous corporate leaders even before Welch. Alfred Sloan who stitched together GM from a bunch of independent companies and turned it into a powerhouse, Thomas Watson who built up IBM into a colossus, and finally Reginald Jones, who was Welch’s own predecessor and who had handpicked Welch at the time of retirement were all much feted managers. None of them though enjoyed quite the fame and adulation that Welch did during his peak years.
Welch’s management philosophies and theories worked wonderfully well for him — though it perhaps did not serve all the corporations that tried to copy them after they became popular. Welch was a great believer of Six Sigma and continuous improvement and at one point, it was difficult to find any corporation in the western world and even in India which did not swear by Six Sigma. Like many other things, Six Sigma probably worked better for Welch than for many other CEOs because he genuinely believed in it and had the single minded focus to drive it in every single part of the GE empire.
His constant focus on cost cutting and leaner management would also be followed assiduously by CEOs – and is being followed even now. Welch earned the sobriquet of Neutron Jack because of his ceaseless focus on paring costs and manpower and inefficiencies and I suspect Jeff Bezos of Amazon is his true successor in that regard.
The other management philosophy that Welch articulated — that he wanted only to be in businesses where GE was either number one or number two – should in fact be the goal of every other big CEO. Welch was not sentimental about GE’s legacy businesses — if they could not become market leaders, he would simply sell off those divisions. It was a pretty good philosophy because in most industries, only the top two players walk away with the bulk of revenues and profits and everyone else tends to just about eke out a living.
But Welch also initiated other practices that would leave a legacy of bad HR practices long after he retired. One of them was his absolute belief in the Bell curve during performance appraisals. Welch had started it initially to identify and weed out poor performers in every division — and since GE was a leviathan that had hundreds of thousands of employees in every division and every function, it was a good enough appraisal strategy for a first couple of years. The Welch diktat was that the bottom 10 percent should be asked to go every year, so that the team was left with only strong performers and those who were average and were striving to improve. But as he pointed out in his own book, after the first two years, division managers were desperate to protect good performers. The Bell curve forced manager to rate someone in the bottom even if they were pretty good otherwise. And this in turn created enormous problems for managers who were trying to protect good employees and also be huge source of anxiety for employees who would then do anything to stay ahead of team mates in the bell curve. Some managers put people who had died or were retiring that year in the bottom 5 per cent so that they didn’t have to fire someone. Employees took to backstabbing team mates to stay ahead of them.
There were other unintended consequences that Welch didn’t dwell on but would show up in practice in other companies. One was that while a company doing well like GE was doing, would always find it easy to find someone to hire after firing someone, other lesser companies could not do so. In booming markets, companies also got a bad rap for hiring and firing policies and the best performers did not come to work for them. Finally, it was also a costly exercise to replace people if the division was lean to start with.
The other unintended consequence of Welch’s style of management was his own personality and drive. Welch was one of the first managers who believed in working all the time — taking only a few hours off on Sundays. He was absolutely wedded to GE (which also meant three divorces) and family was secondary to him. He promoted people who were willing to do the same. Before Welch and GE, the work-life balance was not a huge problem in corporate America, but post him, the 24/7 corporate manager became the norm.
But all things considered, Welch probably completely changed the corporate world with his focus, and there is still a lot to learn from his books on managing the modern multi national corporation and succeeding in the toughest of marketss
Add comment