Lesson 5
Great Managers

If leadership is an art, then Welch has proved himself a master painter. Few have personified corporate leadership more dramatically. Fewer still have so consistently delivered on the results of that leadership. «The two greatest corporate leaders of the 20th century are Alfred Sloan of General Motors and Jack Welch of GE,» says Noel Tichy, a University of Michigan management professor. «And Welch would be the greater of the two because he set a new, contemporary paradigm for the corporation that is the model for the 21st century.»

It is a model that has delivered extraordinary growth, increasing the market value of GE from $12 billion in 1981 to about $280 billion in 2000. No one, not Microsoft’s William Gates, not Walt Disney’s Michael Eisner, not even the late Coca-Cola chieftain Roberto Goizueta, has created more shareholder value than Jack Welch.

Of course, GE’s success is hardly Welch’s alone. The company boasts what most headhunters believe to be the most talent-rich management in the world. Thus, Robert Wright has managed an astonishing turnaround at NBC, leading it to a fifth straight year of double-digit earnings gains in 1997 and a No.1 position in prime-time ratings. Nor did Welch’s magic work everywhere in GE. The huge appliance operation, for instance, saw operating earnings fall 39% in 1998, to $458 million.

Welch has transformed what was an old-line American industrial giant into a highly competitive global growth engine. Welch has reshaped the company through more than 600 acquisitions and a forceful push abroad into emerging markets. How did Welch, who sat atop a business empire with $304 billion in assets, $89.3 billion in sales, and 276,000 employees in more than 100 countries, did it?

He did 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 did it because he was a fierce believer in the power of his people.

Welch’s profound grasp on General Electric stemmed from knowing the company and those who work for it like no other. There were the thousands of «students» he has encountered in his classes at the Croton-on-Hudson campus. Then there was the way he spent his time: More than half was devoted to «people» issues. But most important, he has created something unique at a big company: informality.

Welch liked to call General Electric the «grocery store». «What’s important at the grocery store is just as important in engines or medical systems,» said Welch. «If the customer isn’t satisfied, if the stuff is getting stale, if the shelf isn’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 undermined, it has been severely damaged. Everyone called him Jack. Everyone could expect to see him hurry down an aisle to pick through the merchandise on a bottom shelf or to surprise an employee with a bonus.

Making the company «informal» meant 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 had as much to do with Welch’s charisma as it had to do with the less visible rhythms of the company – its meetings and review sessions – and how he used them to great advantage.

When Welch became CEO, he inherited a series of obligatory corporate events that he transformed into meaningful levers of leadership. These get-togethers allowed him to set and change the corporation’s agenda, to challenge the strategies and the people in each of GE’s dozen divisions, and to make his opinions known to all.

Welch believed that efficiencies in business were infinite because there were no bounds to human creativity. «The idea flow from the human spirit is absolutely unlimited,» Welch declared. «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.»

Not surprisingly, Welch embraced the largest corporate quality initiative ever undertaken. For years, he 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 Lawrence Bossidy telling about the benefits he was reaping from a quality initiative he had launched at AlliedSignal. Bossidy had borrowed the Six Sigma program from Motorola and reported that the company was lowering costs, increasing productivity, and generating more profit.

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. To make the ideas take hold throughout GE required the training of so-called master black belts, black belts, and green belts. Welch launched the effort in late 1995 with 200 projects and intensive training programs, moved to 3,000 projects and more training in 1996, and implemented 6,000 projects and still more training in 1997. In 1998, Six Sigma delivered $320 million in productivity gains and profits, more than double Welch’s original goal of $150 million. «Six Sigma has spread like wildfire across the company, and it is transforming everything we do,» boasted Welch.