JACK WELCH’S INNOVATIVE,

BREAKTHROUGH LEADERSHIP

STRATEGIES REVOLUTIONISED

GENERAL ELECTRIC.

As CEO he transformed GE into a $400 billion

powerhouse. In his 20 year reign at GE, he inspired

executives, managers and CEO’s the world over to

adopt the simple but effective management strategies he

executed so well.

Jack Welch’s watertight business principles will offer you a

roadmap to success in commercial life. Perhaps more than any

other business leader in recent times, the clarity of Welch’s

vision shines through, a beacon you can use to guide your

own course – and that of your business – to ultimate triumph

on the corporate battlefield.

When Jack Welch took the reins at General Electric in April

1981, he found himself drowning in paralysing bureaucracy

and stifling micro-management. In the 20 years that he

presided over GE, Welch built the company into one of the

most valuable enterprises in the world.

In 1981, GE’s market value was $12 billion. It was the tenth

largest of American public companies. During Welch’s tenure,

it reached a high of $598 billion and ultimately averaged $400

billion a year. Earnings were up from $1.5 billion in 1981 to

$14.1 billion, and revenues had skyrocketed from $25 billion

to a massive $125.9 billion in 2001.

The Welch legacy has helped countless business leaders sweep

away layers of crippling bureaucracy and untie the hands of

staff and management alike by reducing over-management and

streamlining processes. Now you can learn the secrets that

Welch used to take GE to the top – and keep it there.

ES S E N T I A L BU S I N E S S KN O W L E D G E FO R HI G H AC H I E V E R S

IN THIS SUMMARY

Be A Leader – Not A Manager 2

Be Number One Or Number Two 3

Fix, Close Or Sell 3

Quality – The GE Obsession 6

Passionate Lunatics 7

Robert Slater

LEADERSHIPWELCH ON

JACK

ABOUT THE AUTHOR

Robert Slater is a journalist of 25 years’ standing and one

of the world’s foremost authorities on General Electric.

His book, Jack Welch and the GE Way, has inspired

a generation of managers to be more effective and

successful. He is also the author of the bestselling Get

Better or Get Beaten, and is regularly published by Time,

Newsweek and UPI.

“Find great ideas, exaggerate them, and spread them like hell around the business with the speed of light.”

BE A LEADER, NOT A MANAGER

From the minute he walked in the door at General

Electric, Jack Welch was revolutionary. In 1980, the year

before Welch joined GE, most people would have said it

was doing pretty well. $25 billion in sales, $1.5 billion in

profits – not too shabby by most people’s standards even

now – and that was 25 years ago. Even in those days, GE

was held up in business textbooks as a model of good

management.

But unlike most people, Jack Welch could smell the

changes in the air. The 1970’s and 1980’s brought

challenges never seen before in the business world. The

boom in high-tech industries, and the sudden shift to a

global marketplace – with global competition – threatened

every business, and GE was no exception.

The Asian market had suddenly shed its long-standing

reputation for low quality, cheap products by consistently

producing high quality products at a low price. American

companies were lagging behind. To compete in the new

marketplace, American companies had to get productive,

and aggressive – and they couldn’t afford to waste any

more time.

Without changes to its size, its structure and products, GE

would falter in the brave new world opened up by the

information technology explosion.

LEADING – NOT MANAGING – THE GE WAY

For so many years, conventional business wisdom said

that the role of a manager was to monitor, control and

supervise their staff. It seemed to make sense. Yet oddly, it

bred a generation of managers who sometimes lived in a

world of their own.

They sat in their offices, shooting memos to each other.

They held high-level meetings, comparing notes on their

monitoring and control of their divisions. They rarely

spoke to their staff, let alone listened to them. They were

detached from the realities of day-to-day business life, and

the real challenges facing their staff.

On the one hand this school of management was overly

controlling, rigid in its insistence on adherence to targets

which failed to recognise the realities of the workplace.

It interfered with normal work processes by demanding

unnecessary and bureaucratic administration. And on the

other hand, a manager probably wouldn’t recognise a

member of their own team if they saw them in the street!

Having the right managers in place is essential to

success. A great leader can shake an organisation out of

its complacency and inspire it to reach new goals. An

ineffective leader can shock an organisation into paralysis

or even kill it.

The idea of a manager, not as a soulless bureaucrat, but as

a vibrant leader who inspires staff with contagious energy

and enthusiasm, is a new development in the business

world. Welch was a pioneer of the new style of business

management – the kind that sets hearts and minds on fire

and then steps aside to give the team the chance to shine.

“My job is to put the best people on the biggest opportunities and the best allocation of dollars in the right places.”

Jack Welch

LEADERSHIP – THE WELCH WAY

Jack Welch’s style of management paved the way for the

new generation of inspirational business leaders. Follow

his tips to take the leap from management to leadership:

Managers Muddle – Leaders Light the Way

Old-school managers slow things down. They talk to each

other, instead of talking to their employees. Leaders create

the spark that fires the company vision. Leaders listen

– and talk – to their people. Leaders inspire – and then get

out of the way.

Less is More

Don’t get bogged down in over-managing. Keep a

watchful eye on the bigger picture but leave the nuts and

bolts to the experts – your staff! That’s why you hired

them after all! This will free you to think big thoughts and

create bold visions for the future.

Create a Vision

As a leader, you have to do more than just see the vision.

You have to shape the vision, and most important of all,

you need to communicate the vision to your people.

After all, if you don’t share your vision, your people can’t

bring it to life.

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Lead, Don’t Manage

For you to be a great leader who inspires confidence in

those you manage, you must treat everyone with respect

and keep the communication lines open.

Inspire Confidence

Treating everyone with respect, and keeping communications

open will inspire confidence in your leadership.

“What we are looking for…. are leaders…. Who can energize, excite and control rather than enervate, depress and control.”

KEEP IT SIMPLE….

Welch always said business was simple. He encouraged his

managers to break things down into their basic processes

– inputs and outputs – and not make things any more

complicated than that. Whatever they were moving around

– human resources, money, machinery and equipment

– the process was the same: inputs and outputs. Simple.

A true leader needs a far-reaching and powerful

message – something visionary, something big, but

still understandable, still simple. For Welch the simple

overarching messages were embodied in his famous

catchcries – like “Be number one or number two”, and

“Fix, close or sell”.

“Simple messages travel faster, simpler designs reach the market faster and the elimination of clutter allows faster decision making.”

BE NUMBER ONE OR NUMBER TWO

Jack Welch’s philosophy on building the market leading

company was simple but ruthless: unless your business

division is number one or number two in your field, you

have some explaining to do. If your business isn’t at the

top of its field, ask yourself, right now, if it is really worth

the resources it is consuming.

Jack Welch didn’t tolerate mediocrity – and neither should

you. It’s the best or nothing.

“When you’re number four or five in a market, when number one sneezes, you get pneumonia.”

At GE, excellence wasn’t just a buzzword, it was the

bottom line. By clearing out all the departments that

weren’t performing at or near the very top of their field,

Welch sent a clear message to the market – this is not some

big messy conglomerate with fingers in a million pies. This

was a company absolutely focused on being the best.

If a department was not number 1 or number 2 in its field,

and could not show how it was going to reach market

ascendancy, it was history.

FIX, CLOSE OR SELL

Jack Welch had to create a new GE, more in tune with the

evolving business environment – more equipped to move

and change to adapt to the shifting sands of the corporate

world. At the time what Welch did was so revolutionary it

didn’t even have a name. Now we call it restructuring, and

it’s a familiar element of business life.

The key to Welch’s restructure of GE was to focus on

the lines of business that dominated their markets. A GE

business would have to be first or second in its market

and if it could not bring its performance up to speed,

GE would close or sell it. This became the famous Welch

dictum: Fix, close or sell.

HOW TO STAY ON TOP

• Look closely at every line of business you are in and ask

yourself – what is underperforming? Any businesses that

are not at the top of their field should be jettisoned –

unless they can show you how they will get there – fast.

• If your business is on the borderline, decide whether it

is worth fixing. If you can get it to number one or two

in the market, go for it. Otherwise, forget it.

• Don’t define the market too narrowly. Otherwise you

might think you’re a marker leader while losing out on

new areas of business.

COPY CAT

In business, there’s no need to reinvent the wheel. If you

see another company doing something right, do it their

way. It’s not cheating. It’s not plagiarism. You’re not in

college anymore.

However, there is a very important disclaimer to be made

here. Infringing another person’s or company’s intellectual

property IS cheating, IS plagiarism, IS against the law, and

IS wrong. But short of infringing other people’s intellectual

property rights, copying is allowed in the business world.

Remember, imitation is the sincerest form of flattery. And

besides, once you’re doing it their way, you’ll probably

find a way to make the process even better. It would take

much longer to create a truly effective process if

you started from scratch.

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PRESCRIPTION FOR A QUANTUM LEAP

Surprise. Boldness. Shock. The essential ingredients

for a quantum leap. To take a quantum leap with your

organisation, remember the Jack Welch prescription:

• Think big and think outside the square. Don’t just

look for expansion from within. Find ways to build

partnerships outside your organisation that will create a

network with a life of its own.

• When you’re looking at outside acquisitions, examine

all prospects in minute detail. Don’t forget that timing is

crucial – if you hesitate the deal could be lost. Once you

know you’ve got the right deal – go for it!

• Boldness and stealth will outwit your opponents. Keep

your cards close to your chest, and your rivals will be in

the dark until it is too late.

THE NUMBERS GAME

Sometimes in business we get fixated with the numbers

– sales and revenue targets, growth percentages, earnings

per share. We focus so much on making the right

numbers, we forget that there is so much more to business

than just numbers. Like innovation, creativity, company

values and culture.

A fixation with hard figures tends to leave the so-called

“soft stuff” – the human elements of business – in the dust.

But it’s the soft stuff that business is made of. When it

comes to numbers, the Welch philosophy is simple – do

business right, and the right numbers will follow. Within

reason, the only numbers you need to be too concerned

about are being number one or number two in your field!

HOW TO PLAY THE NUMBERS GAME

• Don’t evaluate your own performance by whether you

bring in the numbers. The temptation will be strong but

you must resist! Such thinking constrains your creativity

and limits your options.

• Focus on achieving the company’s core values, creating

new processes or seeking out new talent.

• Of course you can’t afford to forget about the numbers

altogether – that would be throwing the baby out with the

bathwater. Just don’t give the numbers such a high priority

that you forget to deliver what really matters – excellence.

‘NEUTRON JACK’

When Jack Welch took over GE, it was a monolithic

creature. Its massive size made it an unwieldy beast, and

Welch realised the only way to compete was to whittle

down its monumental workforce of 412,000 employees.

At the time, it was a revolutionary step. In the 80’s,

people in America still believed in a job for life. Welch

was loathed when he slashed the staff down to 270,000.

He was accused of being insensitive and heartless,

although all employees were given plenty of notice, all

their entitlements and retraining. He earned the nickname

Neutron Jack – like a neutron bomb, he left the buildings

standing but vapourised everyone inside. He despised the

nickname, it stuck for a number of years.

Of course, Welch was simply the first of many CEOs to

recognise the need for downsizing on a significant scale.

The GE he walked into had grown so much that it was

choking on its own bureaucracy. The mountains of red

tape – and the pencil pushers, middle-managers and petty

bureaucrats who maintained them – had to go.

LONELY AT THE TOP? NOT LIKELY!

When Jack Welch took the helm of GE in 1981, there were

an astonishing 25,000 managers, 500 senior managers

and 130 vice presidents. There were nine layers of

management between Welch and each divisional CEO. The

sheer volume of meetings, minutes and memos generated

by all these managers was crippling. Before Jack Welch

arrived at GE, one thing was for sure. It was never lonely

at the top.

“Every layer is a bad layer. The world is moving at such a pace that control has become a limitation. It slows you down.”

The layers were cut in half and management numbers

were slashed. Welch called the process ‘delayering’. It’s

essential to remove all that dead weight so the company

can become lean and fast-moving.

STRIP IT DOWN – DELAYERING THE WELCH WAY

Remember Jack Welch’s delayering tips when bringing

your company down to its fighting weight:

• Delayering or downsizing is the hardest part of being a

leader. You have to let people down. It’s all too easy to

put it to one side and try to avoid it. But as a leader you

have to think long-term. If you don’t lose all the dead

wood, your company won’t compete. And long term, the

company that can’t compete, can’t survive.

• You must eliminate managers who slow the company

down and pour cold water on its entrepreneurial spirit.

This type of delayering will take you closer to the action.

Without all those layers, minutes and managers, you can

find out what’s actually going on.

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• Constantly seek to improve communications with your

people at absolutely every level – from the factory floor on

up. Take a long hard look at every layer of your company

and then look at how to cut down bureaucracy and

management for management’s sake.

THE BIG COMPANY TRAP

When companies start out, they are usually fired by a big

idea. They run on the passion of their people and a sense

of urgency to get to market. In the frantic pace of this

constantly shifting environment, bureaucracy can never

take root.

As companies grow and become comfortable in their

success, work settles into a routine. The expanding

workforce seems to demand some form of organisation

and bureaucracy begins to develop. Priorities shift:

• From speed to control.

• From leadership to management.

• From winning to preserving the status quo.

• From serving the customer to serving the corporate

bureaucracy.

If your company is to remain lean and mean, able to move

fast and react quickly to rapid shifts in the marketplace, it

must resist the tendency to settle into complacency. Never

forget the advantages of small company thinking – speed,

passion, urgency, communication. The big company that

can act like a small company will be streets ahead of its

competitors, large or small.

THINK BIG, ACT SMALL

It was clear to Welsh that in an increasingly competitive

world, big companies like GE had to stop acting like

big companies. Small companies could move fast. Their

people were versatile and passionate. Communication was

happening all the time – informally – without the need for

hours of wasteful meetings, which produce nothing but a

lot of hot air and useless paper.

These were the companies that were going to lead the

way in the emerging global markets. Small companies.

Fast companies. Lean companies. And big companies that

couldn’t act, move and think like small companies were

going to be left in the dust.

To streamline GE, Welch completely removed the second

and third levels of management. Now every business

leader reported directly to the CEO’s office – either to

Welch, or to one of his two vice-chairmen.

THE NEED FOR SPEED

“Speed is the indispensable ingredient in competitiveness. Speed keeps businesses – and people – young. It’s addictive.”

Welch knew that speed was going to be a key ingredient

for success in the global economy. And to get real speed,

decisions at almost every level would have to be made

in minutes, not days, weeks or – God forbid – months.

And decisions would have to be made face to face – not

memo-to-memo (or, nowadays, e-mail to e-mail).

The GE team made closing a deal in record time a badge

of honour. Like the time they sealed a deal in just three

days to forge an alliance with British firm GEC – a move

that increased their European market share for four key

GE businesses. And the time in 1995 when GE subsidiary

NBC took just one weekend to sew up the exclusive TV

broadcast rights to the next six Olympic Games. After all,

how many companies can move on a US$4billion deal in a

single weekend?

THE SECRET KEY

The key to moving boldly and fast is confidence. Without

confidence, you can’t make rapid decisions or take

courageous new directions.

Many of the problems generated by bureaucracy finally

come down to insecurity. People are afraid to take risks,

to be accountable and to buck the status quo because

they are not confident. Either they lack belief in their

own ideas, or they fear that the company will not

support them.

You can’t distribute self-confidence like a company benefit,

but you can create an environment where it develops

naturally. Without such an atmosphere, communication

will falter, bureaucracy will grow like a cancer and

productivity will go out backwards.

The antidote to this potentially crippling ailment is to create

an environment where your people feel safe to share big

ideas. Your people need to feel confident to challenge their

boss – even if that’s you – to make processes work better.

No-one should be punished for honesty. The company

should be a place where it is safe to take risks, even if

things don’t go exactly according to plan.

Welch encouraged staff at all levels to speak out, to share

ideas and proposals for change. He created an atmosphere

where his people dared to dream, risk, win – and lose

– knowing GE was behind them 100%. Ultimately, his

ability to open channels of communication and get people

working together was the secret key to his successful

leadership of GE.

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THE WELCH WORK-OUT

It’s true that the changes didn’t happen without pain, and

that Welch was sometimes unpopular for the decisions

he made. In the late eighties he became aware that some

employees were in need of a confidence boost, having

survived several rounds of layoffs.

He began to encourage them to get involved in day-

to-day operations and improve business practices and

productivity. It also helped employees feel more satisfied

in their jobs. Welch called it his Work-Out program.

GE was the first company to launch such a large-scale

employee action program.

Welch’s revolution was working – by the mid-90s, GE

had become the strongest company in the US and the

most valuable company on earth measured in market

capitalisation.

WHAT TO TELL YOUR MANAGERS…

Jack Welch had a very simple set of instructions for his

managers:

• Start each day as if it is your first on the job.

• Make whatever changes are necessary to improve things.

• Re-examine your agenda constantly. Re-write it if

necessary.

And he told employees:

• Make decisions for yourselves. If you’re confident that

you’re right, lobby your boss for change.

Try it on your workforce today!

QUALITY – THE GE OBSESSION

In the late 1990’s Welch fell in love with an idea – and

that idea was quality. Sure it wasn’t a new thing, but the

firebrand enthusiasm with which Welch applied it to every

facet of the organisation was.

In the global marketplace, GE couldn’t just afford to have

the best quality products in the USA. Their products had

to become world-class, to compete with the top-quality

products that were coming from Asia at prices that

plummeted by the day. American companies that couldn’t

meet the benchmark would be history.

“By 2000, we want to be not just better in quality, but a company 10,000 times better than its competitors.”

Jack Welch

Through listening to his employees, Welch learned that

although GE products were ultimately high quality,

time and resources were wasted in reworking them

after the initial manufacturing process. Manufacturing

and engineering staff also swayed him towards the Six

Sigma quality program. He embarked on implementing

a comprehensive quality program at every level of the

organisation. The results promised to be impressive – if

GE could reach the Six Sigma quality standard, they stood

to increase revenues by 10 to 15% - that’s between US$8

billion and US$12 billion.

A SIX-SIGMA SUMMARY

Six Sigma is a means of measuring errors per one million

discrete operations. It applies to all business operations,

from manufacturing to administration. The lower the

number of errors, the higher the quality.

One Sigma – means that 68% of operations are acceptable

Three Sigma – means that 99.7% of operations are

acceptable

Six Sigma – means that 99.999997% of operations are

acceptable

In essence, the six sigma process works like this:

1. Measure

Identify the key internal processes that affect quality and

measure the defects or errors generated by each process.

2. Analyse

The goal of this phase is to understand why errors are

generated. A number of tools – from brainstorming to

statistical analysis – are used to identify the key variables

affecting errors and defects. This phase should identify the

key variables in creating change.

3. Improve

Confirm the key variables and investigate their effects on

the key processes. Experiment with change until you find

out what works.

4. Control

The final phase is geared to ensure that the altered process

really does result in a measurable improvement in quality.

The Six Sigma program relies on a new ‘warrior class’ within

the company to carry out its objectives. Warriors are marked

by belts – as in the martial arts. Attaining each “belt” requires

training in statistics and Six Sigma quality techniques.

GREEN BELTS

Green Belts work on Six Sigma projects while still holding

down full-time positions in the company. They are

expected to take Six Sigma tools and philosophies back to

their own department.

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BLACK BELTS

Black Belts are full-time quality executives who lead teams

and focus on key processes, reporting results, monitoring

and analysing processes and driving change. They are

awarded their belts after successfully completing two

projects; the first under the supervision of a Master Black

Belt and then independently. They must also be approved

by the business champions team.

MASTER BLACK BELTS

Master Black Belts are full-time teachers with significant

skills in statistics, leadership and tutoring. They act as

mentors to black belts through the course of their training.

CHAMPIONS

Champions are senior managers who define the projects

and are accountable for the success of the Six Sigma

program. They are responsible for funding, approval and

troubleshooting. Although champions do not have to work

full-time in the program, they are expected to devote all

the time required to ensure it’s success.

PASSIONATE LUNATICS

The difference between Welch’s new quality drive and

the programs that had been launched in the past was

substance. In the past, quality programs had paid lip

service to the idea of quality, favouring slogans over any

real change. But this time, it was different.

This time having products of equal quality to competitors

was not enough. Welch wanted to revolutionise the

marketplace by taking quality to a whole new level.

At first, the legacy of all those ‘feel good – do nothing’

quality programs hung around the Six Sigma program like

a bad smell. Employees were inclined to dismiss it as just

the latest management fad. Welch launched a personal

crusade, evangelising the program at every opportunity.

Ultimately, he stunned an Operating Managers’ meeting by

declaring that managers who did not get with the quality

program would be fired!

“Simply put, quality must be the central activity of every person in this room…. You’ve got to be passionate lunatics about the quality issue.”

Jack Welch

BELT UP – OR YOU WON’T MOVE UP!

Welch’s next salvo was just as unexpected: if you didn’t

begin green belt or black belt training, you would not be

promoted to middle or senior management. Eventually,

all professional employees – between 80,000 and 90,000

– were required to begin green or black belt training.

And just to drive the point home, 40% of vice-president’s

bonuses were tied to quality results.

“We’ve got to say only people that have black belt training will lead businesses in this company in the next century.”

Jack Welch

The message was clear – no belt, no promotion.

HOW GE MEASURES PROGRESS

1. Customer Satisfaction

Every GE business surveys its customers on quality issues.

Results are reported quarterly.

2. The Cost of Poor Quality

GE uses three components of quality analysis:

• Appraisal

• Internal costs

• External costs

Totals are tracked as a percentage of revenue on a

quarterly basis.

3. Supplier Quality

GE monitors defects per million units to maintain quality

within Six Sigma guidelines.

4. Internal Performance

GE measures errors generated in its internal processes.

5. Design for Manufacturability

GE looks to design products for Six Sigma capability.

This makes it easier to streamline monitoring processes

throughout the organisation.

KARMA POLICE

GE was a huge community – with employees numbering

literally hundreds of thousands. Welch had been known to

comment that there was a reason that communities the size

of GE needed their own police force. In any community

of that size, it’s impossible to guarantee perfectly ethical

behaviour from everyone in the organisation at all times.

Welch was aware that in the past, GE employees had been

guilty of numerous breaches of integrity. And while Welch

recognised that it was impossible to stamp out unethical

behaviour completely in such a large workforce, he never

defended unethical behaviour or offered excuses. He

understood that people make errors of judgement. But

when it came to serious breaches of integrity, there were

no excuses – and no second chances.

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“We have no police force, no jails. We must rely on the integrity of our people as our first defence”

Jack Welch

Some commentators suggested that GE’s high performance

culture even encouraged rule-breaking. But Welch

disagreed. High performance should always be rewarded

and the pursuit of excellence should always be the goal.

But those who don’t play by the rules are out – instantly

and permanently.

“Our view is that you must run as fast as you can, jump as high as you can, but if you break the rules, your medals are gone and you’re out of the game for good.”

Jack Welch

At GE, employees were forgiven for making mistakes.

No-one was fired for a missed target, a bad quarter, a slow

year. They were trained, encouraged to learn, develop new

skills and branch out into new areas.

People are human, people make mistakes, people need

training and encouragement. People deserve second

chances. There was only one kind of breach that resulted

in termination with no second chances.

That was a clear integrity violation.

ENSURING INTEGRITY – THE GE WAY

• Be prepared – if you’re in charge of a large enough

workforce, some kind of ethical breach is probably

inevitable.

• Deal with the problem head-on. Fire the violator on the

spot.

• Make it clear to all that similar breaches will receive

exactly the same treatment.

• Separate the guilty from the innocent. If you were not

involved, make sure everyone knows. The same goes for

any other employees you know to be innocent parties.

AS EASY AS ABC

Jack Welch divides his leaders into A’s, B’s and C’s:

A’s – are the people who function effectively at a high

level and share the company’s values.

B’s – are the people who share the company’s values, but

whose effectiveness needs enhancement.

C’s – are those who do not share the company’s

philosophy and values.

Welch’s simple formula is this: keep the A’s, nurture the

B’s and let the C’s go. B’s receive a lot of training and

support. Fundamental values are more important than

specific competencies – those can be taught. A shared

vision is harder to come by.

This approach requires a real investment in training and

nurturing the staff who share essential corporate values.

But in the long term, in terms of staff retention and

loyalty, the investment is worth it.

As a leader, people will be your biggest challenge and

your most valuable resource. The money you invest in

their professional success will repay you tenfold.

“My whole job is people. I can’t design an engine. I have to bet on people.”

Jack Welch

A great leader does something ordinary leaders can’t do. A

great leader can see through the complexities of business

and bring people back to the simple truths that are

fundamental to long-term success.

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