Features
The biggest winner
Jack Welch talks about the management principles that drove GE to excel and made him America's most-admired business leader.
By Michael Marzec
Smart Business Akron/Canton | June 2005
In 2001, when Jack Welch stepped down as CEO of General Electric Co., he closed the book on a 20-year run that established him as the most-admired business leader of the 20th century. But the man who increased GE's market value by nearly $400 billion during his tenure is quick to credit others with his success.
"The idea that one person could run a company with 360,000 people like GE with all those businesses is silly to even think about," he says. "But getting great people there to do it, you get the reflected glory of all their work. So you're nothing but a product of how many good people you get."
Welch got plenty of good people. In fact, four of the Dow 30 companies are run by CEOs who once were Jack's guys: Home Depot's Bob Nardelli, 3M's Jim McNerney, Honeywell's David Cote and, of course, GE's Jeff Immelt. In addition, dozens of other major U.S. corporations are run by ex-GE executives steeped in the master's ways.
Since retiring, Welch has consulted with Fortune 500 companies and written the autobiographical "Jack: Straight from the Gut." Now, following years on the road conducting question-and-answer sessions with businesspeople around the world, he has penned "Winning" with his wife, Suzy Welch, a former Harvard Business Review editor.
Smart Business caught up with Welch during his book tour to talk about the new work and the management principles that brought him so much success at GE.
Why did you use "Winning" as the title for your new book?
It sort of gets you down to this philosophy I have that the glass is half full. It gets you focused on all the things that you can do about not being a victim. I don't like victimhood.
So what I've tried to do in chapter after chapter is to show ways that people can get out of wringing their hands as victims. Whether it's how to get a new job, how to do a budget, how to do strategy, how to work for a bad boss - any of these things -- my wife and I try to put into perspective how you can take charge of yourself.
You open "Winning" with a section called "Underneath It All," in which you talk about your business philosophy. What is that philosophy?
My philosophy is that candor does wonderful things for people. It speeds the process. Everyone knows where they stand. One of the problems I see in business is people don't know where they stand. Differentiation is letting the best know where they are. And letting the weakest understand what their shortcomings are and what they have to do about it, not surprising them someday by laying them off.
So differentiation is how you build great teams. You are constantly raising the bar. And I think business is a lot like sports: The team that fields the best players wins.
Voice and dignity are, in fact, part of demanding or requesting or pulling the best ideas from everybody. Everybody wants to have a voice. We went through a workout process at GE that spent years and tens of thousands of town meetings asking for ideas from any level. And we tried to get to the point where ideas came not based on the stripes on your shoulder but from the quality of your idea.
The same thing is true about dignity: Respecting people by telling them where they stand. Never let them be in the dark. Always explain what they can do to do better, and if they can't do it, send them on their way.
But don't come in some day and say, 'We're having a recession and we've got to lay off two people and Mary and Joe, you have to go.' And Mary and Joe say, 'Why us?' And you answer, 'Because you weren't doing that well.' 'But we've been here 15 years and nobody's ever said anything.' That happens all the time.
I definitely think everybody has to know where they stand. One guy in Louisville said to me, 'You've had my arms and legs for 25 years; you could have had my brain for nothing.' That's true. The people closest to the work know the work. You should ask them.
So all those things are part of a fundamental philosophy. When they know where they stand and they are willing to speak out openly because candor is a value that's rewarded and you give them respect, you will get the most out of people.
How did you develop your philosophy of candor?
I've been that way all my life. My mother was that way. I'm an only child of an Irish mother. We didn't have any money. My father was a conductor on the railroad. Union household.
But she always said you have to face reality. 'This is the way it is, Jack. Don't wish for something. This is the way it is. Now go do something about it.'
Do you think it is difficult for people to have that kind of candor?
I think so. I see too much lack of it. I find it alarming. If your company doesn't decide it's an important value or behavior, they won't get it. You get what you define as the behavior you want.
If I tell you that what I want from you is candor and I'll reward you for it -- you'll get promoted for it, you'll get paid for it -- you'll do it. If you get slapped every time you do it because you're speaking up to the boss, you won't do it at all. You get the behaviors you ask for and reward.
If you start promoting guys that aren't candid and you say candor is important, you won't get any of it.
How would you describe your leadership style?
Hopefully, energizing. Hopefully, one that always gets the best out of people. One that recognizes the value of having smart people around you, people who are smarter than you are.
Searching all the time for the brightest people you can get your hands on. Knowing that, as a leader, the quality of the people you get determines how good you are. Not you. You can't determine how good you are. You're not good enough.
How do you identify the right kind of talent?
I always had a formula that was pretty straightforward: Four Es and a P. Do they have energy? Do they energize others? Do they have edge? Yes or no, and not maybe. Can they execute? And do they have passion? Do they care more than the next person?
If I'm hiring somebody from the outside, I'd always ask one question: Why did you leave your last job? Tell me why you are willing to leave if I am recruiting you. And then I let them talk for a while and listen.
You find out what they are griping about, where they are, where their pay is wrong or their boss stinks or whether they just want more challenge and they want to grow and flourish.
How do you get people to buy into your vision?
You better have a clear rationale. You have to lay it out. And you better be willing to say it until you're ready to throw up. You say it so many times, the last time you say it you can barely get it out of your mouth.
You can't repeat yourself enough in business. You can't change the mission every 15 minutes. You've got to make the case, rally the troops and then excite them to want to do it and then reward them for getting there -- in their soul with the job and in their pocketbook for doing it.
What skills do you need to be a successful CEO?
An ability to get great people. To excite people. This is no different than a sports team. If you get lousy players, you are going to lose. If you get great players, you win.
When you chose people for your management team, what traits were you looking for?
You really want people that can turn people on. You assume people have high integrity; that's sort of a ticket to the game. But you really want to have an incredible team of high-energy people that want to win, are excited by it and will be able to excite armies of others to do the same thing.
How do you measure success?
By setting some goals, a vision and the degree to which you achieve it. For me, long ago, it stopped being about money. It's about the team winning.
The big kick for me for years has been how many others won. Watching others get stock options, watching others grow, watching them change their lives.
How do you build loyalty in an organization?
I don't think you build loyalty. I think you build excitement. Loyalty is not the right word you're looking for. How do you keep energized people energized? How do you keep people excited about the challenges? Do you reward? Do you celebrate? Do you do all those things?
Loyalty implies a certain contract that you'll stay with this company for life. You don't have loyalty. The loyalty is to your customer. Only customers can give jobs. Companies can't.
So when you start talking about building loyalty, I don't want to build loyalty. I want to build exciting people who are excited to stay and are ready to leave if things aren't right.
I don't want people hanging on with the rope to the mothership. Loyalty is the wrong implication. I like people who, if we don't get it right here, they'll go somewhere else. So every manager has to excite his people to keep them there.
What's the most important business lesson you've learned?
Let's take getting the best team for a given. I was in Chicago for a Q&A session, and this guy said, 'I have a problem, Mr. Welch, with this differentiation thing and evaluations. I've got 10 people reporting to me. Two of them are smarter than me. How do I appraise them?' I said, 'What the hell happened with the other eight?' That's the point. He should have 10 that are smarter than him. That's what he should be looking for every day.
My other lesson is that culture counts as much in an acquisition as the numbers do. That's why so many acquisitions fail. The culture is so different from your own, that while the numbers might look good on paper, getting it to work is harder. [GE made 933 acquisitions during Welch's tenure as CEO.]
What was your toughest challenge in running GE?
[Long pause.] I don't think I ever had one. Every day was exciting. I loved every minute of it. I never it saw it as tough challenges. The worst thing you do in life is take people out of a job.
The toughest challenge has been when somebody can't perform up to your expectations and you've had the discussions with them for a year or so and you finally have to walk in and say, 'We have to part ways.' It's obviously the ugliest thing you do in business.
How to reach: www.jackwelchwinning.com
