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Table of Contents

Part I...........................................................................................................................4
Act Like a Leader, Not a Manager...............................................................................4
‘‘Find great ideas, exaggerate them, and spread them like hell around the business
with the speed of light.’’.............................................................................................4
Chapter 1................................................................................................................5
Embrace Change, Don’t Fear It...............................................................................5
Chapter 2................................................................................................................7
Stop Managing, Start Leading.................................................................................7
Chapter3.................................................................................................................8
Cultivate Managers Who Share Your Vision.............................................................8
Chapter 4..............................................................................................................10
Face Reality, Then Act Decisively..........................................................................10
Chapter 5..............................................................................................................11
Be Simple, Be Consistent and Hammer Your Message Home................................11
Part II........................................................................................................................13
Building the Market-Leading Company.....................................................................13
Chapter 6..............................................................................................................14
Be Number 1 or Number 2, but Do not Narrow Your Market.................................14
Chapter 7..............................................................................................................15
Look For the Quantum Leap..................................................................................15
Chapter 8..............................................................................................................16
Fix, close or sell: Reviving NBC.............................................................................16
Chapter 9..............................................................................................................17
Don’t Focus on the Numbers.................................................................................17
Chapter 10............................................................................................................18
Plagiarize - It’s legitimate: Create a Learning Culture...........................................18
Part- III......................................................................................................................21
Forging The Boundaryless Organization...................................................................21
Chapter 11............................................................................................................22
Get Rid Of Managers, Get Rid Of The Bureaucracy...............................................22
Chapter 12............................................................................................................23

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Be Lean And Agile Like A Small Company.............................................................23
Chapter 13............................................................................................................24
Tear Down The Boundaries...................................................................................24
Part-IV.......................................................................................................................24
Harnessing Your People For Competitive Advantage................................................24
Chapter 14............................................................................................................26
Three Secrets: Speed, Simplicity And Self-Confidence..........................................26
Chapter 15............................................................................................................26
Use The Brain Of Every Worker-Involve Everyone.................................................26
Chapter 16............................................................................................................27
Take The “Boss Element” Out Of Your Company..................................................27
Chapter 17............................................................................................................28
Create An Atmosphere Where Workers Feel Free To Speak Out...........................28
Chapter 18............................................................................................................29
Stretch! Reach For The Stars!...............................................................................29
Part V........................................................................................................................30
Push Service And Globalization For Double Digit Growth.........................................30
Chapter 19............................................................................................................31
Grow Your Service business-It’s The Wave Of The Future.....................................31
Chapter 20............................................................................................................32
Look to Financial Services to Bring In Earnings.....................................................32
Chapter 21............................................................................................................34
Have Global Brains –and Build Diverse and Global Teams....................................34
Part VI.......................................................................................................................35
Drive Quality Throughout the Organization..............................................................35
Chapter 22............................................................................................................37
Live Quality –and Drive Cost and Speed for Competitive Advantage...................37
Chapter 23............................................................................................................38
Make Quality the Job of Every Employee...............................................................38
Chapter 24............................................................................................................40
To achieve quality: Measure, Analyse, Improve, and Control................................40
Part VII......................................................................................................................41
The Toughest Boss/Most Admired manager in America...........................................41

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Chapter 25............................................................................................................42
Jack Welch Deals With Adversity...................................................................................42
Chapter 26............................................................................................................43
Jack Welch Deals With The Next Generation.........................................................43
Part VIII.....................................................................................................................45
Jack Welch’s Vision for the Millennium.....................................................................45
Chapter 27............................................................................................................46
Bolstering General Electric....................................................................................46
Chapter 28............................................................................................................48
Advice for Other Companies..................................................................................48
Advice for Other Companies

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Part I

Act Like a Leader, Not a Manager

‘‘Find great ideas, exaggerate them, and spread them like hell around the business with the
speed of light.’’
Main Idea
Conventionally, business managers thought their prime role was to supervise their employees.
Jack Welch, by contrast, thinks business leaders rather than business managers are required. A
business leader is someone who inspires co-workers with a vision of how to improve.
Supporting Ideas
Every GE employee carries with them a values card which outlines the key values GE stands for.
It reads:
GE Leaders...Always with Unyielding Integrity:
• Have a passion for excellence and hate bureaucracy
• Are open to ideas from anywhere and committed to work-out
• Live quality and drive cost and speed for competitive advantage
• Have the self-confidence to involve everyone and behave in a boundaryless fashion
• Create a clear, simple, reality-based vision and communicate it to all constituencies
• Have enormous energy and the ability to energize others
• Stretch, set aggressive goals and reward progress – yet understand accountability and
commitment
• See change as opportunity, not a threat
• Have global brains and build diverse and global teams.
The characteristics of good business leaders are:
1. Leaders inspire their co-workers, thereby encouraging them to perform today at a higher level
than they did yesterday.
2. Leaders keep things simple by asking the right questions focusing on the key issues. At GE,
Jack Welch asks those senior managers that report directly to him:
1. Describe your global competitive environment.
2. What have your competitors done in the last 3 years?
3. In the same period, what have you done to them?
4. How might they attack you in the future?

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5. What are your plans to leapfrog them?
3. Leaders energize, excite and control using the company’s values and cultures.
4. Leaders face reality and then act decisively.
5. Leaders are relentless and consistent, following through on everything they do meticulously.
6. Leaders love change, and try to consciously change the competitive environment by focusing
on quality and service.
7. Leaders deliver on their commitments.
8. Leaders talk with their co-workers face-to-face, rather than talking to one another or issuing
memos.
9. Leaders harp on about a few key themes every time they meet with co-workers. They repeat
the same message over and over.

Chapter 1

Embrace Change, Don’t Fear It


“Change can occur at a much faster pace than business was reacting to it.”

Too many managers are afraid to change, but Jack Welch says its nonsense to fear change. He
finds daring, imaginative and exciting. Thinking about change, he argues, keeps everyone alert
and on their toes.

In 1980, the year before Welch took over GE, the company had been doing very well or so most
people thought. It had sales of $25 billion and profit of $1.5 billion and was hailed as a modern
organisation by many of the popular management textbooks used by business schools across the
country.

When Welch took over as CEO of GE in 1981, he focused on two dominant trends: the high
inflation of the late 1970s, and the Asian threat that confronted every GE business. The changes
that Jack Welch pioneered in early 1980s were so new that process had no name. Today we call
it restructuring. Welch saw the crisis coming when no one else did. Only a handful of GE’s 350
business units were leaders in their markets: Lighting, Power Systems and Motors. Only three
GE products had a reasonably good share of the export market: Plastics, Gas Turbines and
Aircraft Engines. Of these only Gas Turbines enjoyed market leadership overseas. Still
deceptively, GE’s balance sheets in 1970s seemed to glow with health. Welch sensed a different
reality. He knew all too well that manufacturing in USA was becoming less and less profitable.

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Yet as late as 1970 fully 80 percent of General Electric’s earning came from its traditional
electrical and electronic manufacturing businesses. The company had financial achievements to
be sure, especially in plastics, medical systems and financial services. But these businesses
contributed only one third of GE’s total earning in 1981. In addition, a number of GE’s
businesses (aircraft engine was the best example) often consumed more cash than they generated.

Jack Welch could have argued that GE was so strong that it could withstand the economic ups
and downs. But Welch knew better, and it wasn’t in him to ignore the truth. An important
building block of Welch’s new strategy was weeding out certain businesses, keeping only those
that could dominate their markets. From now on, a GE business would have to be first or second
in its market. If company couldnot bring flagging businesses up to speed, it would close or sell
them. The new policy positioned GE for solid growth throughout the 1980s and early 1990s.
There were many other changes as well, and they marked only the beginning of what Welch
would do to improve the company.

GE had traditionally advocated that it was better to nurture one’s own business than to acquire
from outside. In mid- 1980s Welch took a dramatic step, reversing the time honoured tradition
by acquiring RCA, the communication giant, which included NBC Television Network, its jewel
in the crown for $6.28 billion. At the time GE was the ninth largest US industrial firm and RCA
stood second among the nation’s service firms. Two years later in 1987, Welch the driver of
change took another countercultural step: he discarded one of GE’s most cherished businesses
and acquired a company in medical diagnostics field. This he did as he understood that it would
be “mission impossible” to turn the business then ranked fourth in world market, into a first or
second rank player. GE had to get out of consumer electronics and to place its resources behind
something that had potential to become a market leader.

Change worked whether it was the change that made GE businesses leaders in their markets, or
that added profitable, productive businesses to GE’s family, or that tapped the brains of
knowledgeable employees. Welch knew that it worked because GE’s numbers were improving.
He knew that it worked because by the mid-1990s GE had become strongest company in the
nation and the most valuable company in the world as measured in market capitalization. Even
that record of achievement did not keep Welch from searching for next major change to bring to
his organization. In 1995, he took a bold new step, launching a companywide initiative to

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improve the quality of GE’s products and processes could stand some improvement. Once again
Jack Welch was facing reality and embarking on a change.

Chapter 2

Stop Managing, Start Leading


“Weak managers are the killers of business; they are the job killers”

If it were for Welch no one would be called manager. Instead he prefers the term leader. Leaders
are people who “inspire with clear vision of how things can be done better.”

Managers slow things down. Leaders spark the business to run smoothly, quickly. Managers talk
to one another. Leaders talk to their employees, talk with their employees, fill them with vision,
getting them to perform at levels the employees themselves did not think possible. Above all
else, Welch wants his business leaders to keep things simple. To Welch, the secret of running a
successful business is to make sure that all decisions makers in that business have access to same
set of facts. If they have, they will all reach roughly the same conclusion about how to handle a
business issue. The problem says Welch, is that they don’t get the same information; they get
different pieces of information pie and are cut off from vital pieces of information. Welch
believes that in business it is possible to quantify everything sufficiently which is necessary for
taking correct decisions.

To Jack Welch, the business leader who is good at keeping things simple knows just what
questions to ask of his subordinates:

1. What does your global competitive environment look like?

2. In the last three years, what have your competitors done?

3. In the same period what have you done to them?

4. How might they attack you in the future?

5. What are your plans to leapfrog over them?

To Welch, having the right kind of managers in place is essential for a business’s success. A
successful can shock an organisation and lead its recovery. An unsuccessful leader will shock an
organisation and leads its recovery. An unsuccessful leader will shock an organisation and

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paralyze it. Weak managers kill businesses. They are the job killers. So organisations need to
regenerated. There’s a constant flow of ideas, excitement and energy that has to put into an
organisation.

Jack Welch has given American business leaders a whole new outlook on how to manage or,
more aptly, how not to manage. In insisting that managing less is managing better, Welch has set
an entire new style for the management of large corporations. Of course, the “managing less is
managing better” notion is a paradox. And no one appreciates that more than the chairman of
GE. Yet, Jack Welch would never say that managers should not manage at all. What he’s really
saying to managers is this: “Don’t get bogged down over managing”. Manage by creating a
vision and then make sure that your employees run with that vision.

Chapter3

Cultivate Managers Who Share Your Vision


“What we are looking for are leaders who can recognize, excite and control rather than
enervate, depress and control.”

Jack Welch has little patience with autocratic managers who overmanage, overmonitor and over
supervise. He prefers managers who are bursting with energy. They should be able to develop
and implement a vision, not just talk about the vision incessantly.

As far as Jack Welch is concerned, middle managers have to be team members and coaches.
They have to facilitate more than control. They should be able to excite and praise people and
know when to celebrate. Managers should be energizers not enervators. Welch gives a
hypothetical example. Assume there is a multifunctional business consisting of engineering,
marketing and manufacturing components. The business has the best manufacturing person it
ever had, someone with excellent numbers who produces high-quality goods on time. But this
person won’t talk with people in engineering and manufacturing department, he won’t share
ideas. Previously GE used to reward these employees but they are being replaced by persons who
are team players.

It is important to have managers who are willing to be a team player. They may be the best
people around and can have a sound track record for themselves but their refusal to be a team
player may affect the performance of their department as well as other departments negatively.

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1.Delivers on commitments, shares GE values 2.Doesnot deliver commitments, doesnot share
GE values
3.Doesnot deliver on commitment but shares 4.Delivers on commitment, doesnot share GE
GE values values

The first type of managers are treated well at GE with company making sure that they stick
around by giving them challenging assignments and rewarding them adequately. The second
type of managers are shown the door as it is difficult to change the value system of a person. The
third type of managers are given a second chance preferably in a different environment in a hope
that they would succeed. The fourth type of mangers are the most difficult to deal with and Jack
Welch doesnot talk about them a great deal in this book. GE has a very stringent selection
criteria and the selected people always have the potential to be type 1 manager, but over the
years they may not fulfil their potential for reasons that are beyond control of GE.

Welch understands that the nurturing of his managerial talent is one of the main keys to GE’s
success. He feels that the talent he has amassed in the late 1990s, especially at the senior
management levels is of higher quality than in past years. He pays special attention to shifting
talent, particularly at higher levels. His involvement in these hiring decisions affecting people is
a testament to importance Welch places on decisions affecting people. He makes it a point of
getting to know every one of the 500 top GE managers, and he personally signs off on their
promotions. He also interviews anyone who is hired from outside for one of those top 500 posts.

Chapter 4

Face Reality, Then Act Decisively


“In the twenty-first century would you rather be in toasters or CAT scanners?”

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The art of leading (Jack Welch prefers “leading “to “managing”) comes down to one simple
thing: determining and facing reality about situations, products and people and then acting
quickly and decisively on that reality. Most of Welch’s business philosophy is based on the
simple premise that it is better to owe up to reality than to bury one’s head in the sand:

• Face the reality that the world is becoming increasingly competitive.


• Face the reality that no job is guaranteed for life.
• Face the reality that managing a business by erecting huge bureaucracies is ineffective.
• Face the reality that business is really simple.

The first reality Welch observed was the rising peril of foreign competition. To combat this
competition from abroad, it would be critical he believed to restructure the company in a
revolutionary way. Scrapping GE’s housewares business in 1983 was an early example of Jack
Welch facing reality. For employees of GE it was the most the most anguishing divestiture.
Giving up on toaster and irons and fans was like selling off the company’s heritage. GE’s
housewares business had been good for the company in the past, but Welch felt that it had no
role in the future for GE. GE’s strengths were technology, its technological resources, its
financial resources. GE had the ability to take the hundreds of millions of dollars and years that
are required to come up with a new generation of jet engines, a new of gas turbines, a new
generation of plastics etc. These businesses have certain common things: high technological
content, high development costs, staying power etc which are strengths of GE.

By late 1980s, Welch began to realise that he faced a new challenge, thus time in connection
with his efforts to make GE more productive. The reality was every facet of wisdom about how
to run a business did not reside with GE’s senior management. The factory workers and junior
executives had as good sense of GE’s operations as senior management, maybe better. By
tapping these workers’ potential, by tapping their brains, senior managers would enable them to
make a major contribution to GE’s productivity. So Welch faced reality and began company
wide Work-Out program.

By mid 1990s Welch began to face yet another reality. This had to do with the quality of GE’s
products and processes. For years Welch had not been a great believer in program designed to
boost the quality of GE’s products. Nearly everyone proclaimed GE’s products to be of a
superior quality to their competitors, so Welch felt no need to focus on this area. But GE

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employees began to complain to Welch that there was still much that could be done to improve
GE products and processes. In effect, those employees were urging chairman to face reality.
Welch responded and in 1995, GE began its companywide quality initiative.

Facing reality also means being candid, in Welch’s view, so on occasions he admits to making
mistakes. For instance, he regrets not buying a food company in the early days. That would have
paid off, he believes. But he was too slow to make a decision.

It is certainly true that with commendable track of Jack Welch, he is in a better position to make
confessions about his mistakes unlike other chief executives, especially those having a mediocre
track record, who might find it difficult to admit their mistakes. But more those CEOs face
reality, the more likely it is that they will learn from their mistakes and eventually bring their
business success.

Chapter 5

Be Simple, Be Consistent and Hammer Your Message Home


“The only way to change people’s mind is with consistency.”

A few themes, a few phrases: Follow up to Welch also means harping on a few themes and
repeating them over and over. These themes reverberate endlessly at General Electric. Add them
up and they amount to an effort to be consistent, to follow up. In the early days of the Welch era,
these were the key phrases:

• Number one, number two.


• Fix, close or sell.
• Speed, simplicity and self-confidence.

In the late 1990s, the key phrases are different. But Welch and GE pursue them just as doggedly
as in the past:

• Boundarylessness
• Work-Out
• Stretch
• Quality
• Service
• Learning Culture

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The key words and phrases pop up in all sorts of places –in Jack Welch’s annual letter to share
owners, in his speeches to GE board, in talks with financial analysts. Nowhere, however do these
words take on greater importance than on a small, wallet size card that GE employees carry with
them. GE’s values are so important to the chairman that he had them inscribed and distributed to
all GE employees at every level of the company.

But before the cards were furnished to the staff, GE had to come to some consensus on which
core values it wanted to cultivate in its employees. Countless hours were spent at Crontonville
and elsewhere deciding on what those values should be.

To Welch, one of his most crucial aspects of being consistent and following up is making sure
that he delivers the identical no-nonsense message to every audience. The CEO of General
Electric boats that his message never waivers, whether he’s talking to the GE board, the financial
analysts, the labour unions, or GE’s employees: “I don’t say one thing to outsiders and another to
insiders.”

Part II

Building the Market-Leading Company


‘‘What can I do to make one of my businesses dominant in its market?’’

Main Idea
GE has built an open and informal business atmosphere of market leading companies. GE’s core
competence is its culture which views GE as a series of business laboratories that share ideas,
financial resources and managers in a boundaryless organization. GE employees learn from each
other -- and from others who are strong in their own markets.

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Supporting Ideas
When Jack Welch took over as CEO of General Electric in the early 1980s, the company had 350
businesses, clustered into 43 strategic business units. Unfortunately, that meant investors had
trouble understanding exactly what GE produced -- and what its prospects were in the coming
years. Jack Welch set a target for GE to become the most competitive enterprise on earth. To do
that, he suggested that only those businesses that were number one or number two in their
markets should be nourished, and all others should be divested.
Other things that Jack Welch has done to position GE for future growth include:
1. Hiring good managers and giving them room to run their own businesses.
2. Focusing on a clear, well thought out management philosophy rather than focusing solely on
the numbers.
3. Creating a learning culture in which GE actively seeks out the best new ideas and puts them
into action – irrespective of where the ideas have come from. In this way, GE is attempting to
build a learning organization which is boundaryless -- in which good ideas learned in one area
can be applied profitably and successfully in other areas.

Chapter 6

Be Number 1 or Number 2, but Do not Narrow Your Market


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

In business only the strong survive, the weak do not. The trick lies in getting more competitive
day by day and it becomes easier to compete if you are the market leader. This was the
philosophy which drove GE out of the slump which it was getting in to in the ‘80s.

JW being with GE realized very quickly that one should not compare itself to its nearest
competitor but the leader setting a very high bar. The strategy was called “number one, number

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two.” The strategy took birth from JW’s realization that inflation would become most prominent
enemy leaving no room for number four or fives. In that market only the leanest, lowest cost
producers of quality goods would survive.

This strategy also meant that GE had to recognize businesses which were profitable but only fifth
or sixth in the relevant market. A number of these businesses were axed keeping in view which
were worth nurturing and which were not.

The need for this reshaping arose from the maintaining the size of GE behemoth. GE in its
diverse portfolio had 350 businesses, clustered in 43 SBU. Welch wanted to send a clear
message in to the market that GE was not an untidy conglomerate but an organisation with clear
focus and purpose.

Welch’s vision grew more concrete and to achieve more focus he introduced something called
“The three circles” concept. It comprised of Core circle, Technology circle and Service circle. In
this concept one fifth of GE businesses did not make to the circles. JW had very clear idea of
what he was doing and he did not keep any secret about his number one, number two strategy
thus driving everyone to limit to be in safe zone. Due to such large scale selling of businesses
media often termed JW as “Neutron Jack” corollary to bomb characteristic of leaving only
buildings but clearing out all the living habitation.

However, a work around was found to this strategy by executives in GE by defining the markets
very narrowly and suitable in which it would be easier for them to maintain the leadership. The
strategy was reshaped and reincarnated so that it fit ‘90s competitive market. Instead of one or
two it was modified to holding 10% of the broad market.

Chapter 7

Look For the Quantum Leap


“I don’t think I’ve moved fast enough or incisively enough.”

Surprise, boldness and shock the ingredients of quantum leap. This was the line on which JW
thought when going for RCA acquisition. This was a totally new phenomenon for an
organisation which has grown from within. JW’s only aim was to acquire businesses that would
bolster GE’s earning. In 1984 RCA was in perfect health with profits over $500million profit and

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NBC its crown jewel with more than 60% earnings. However in 1984 GE took largest
countercultural step and acquired RCA for over $6billion.

JW made it very clear to the executives at NBC that it would not be treated any differently than
other GE businesses despite its peculiar nature. This meant NBC to become lean, frugal and
efficient; all this was very new to NBC culture. JW appointed a new CEO at NBC, Bob Wright.
Contrary to classy, well liked, elegant Grant Tinker, former CEO, Bob was stiff and colorless
and it did not help much in countering stiff opposition from NBC employees. JW and Bob set out
to align NBC to GE way. With Bob looking after new cable business Jack looked after the
exorbitant costs incurred an NBC.

The results were soon seen with NBC registering more than 100% profit growth in six years
from ’83 to ’89. However, the scene changed with advent of new decade and NBC profits took a
downward spiral. The loss was attributed to several factors such as gulf war making the news
business more costly, slump in advertising industry and a new rival ABC. With dropping
margins GE fought back with hiring the best people in the industry however, the result was at
best consoling, definitely not the GE way. However, this was all not in vain as JW did what he
wanted to, surprised the competitor and grab the initiative.

Chapter 8

Fix, close or sell: Reviving NBC


“Getting great talent, giving them all the support in the world and letting them run is the
whole management philosophy of GE.”

Fix, close or sell – one of Welch’s key business strategies. This doesn’t need much elaboration
and three words tell the most. NBC hit troubled waters and Welch decided to fix NBC, it had too
much glamour with it to let it pass.

In early ‘90s Welch and Wright decided that they needed to replace current managers with more
entrepreneurial leaders. Three very distinguished veteran personalities of the relevant fields were
hired to head entertainment (Don Ohlmeyer), news (Andy Lack) and sports (Dick Ebersol).

Ohlmeyer demanded full control over entertainment and was given the same without any
question. First thing Ohlmeyer did was to tear down internal barriers and organize daily

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brainstorming sessions. NBC devised new promotion stunt “Must –See TV” and soon became
the no.1 prime time channel. Ohlmeyer’s did not believe in any golden gut. His strategy was very
simple and straight pay attention to detail, have good taste, know what you’re doing, source the
best people and support them with right assets.

How successful Ohlmeyer’s strategy really was? He won fifteen Emmys for his work, moved
NBC entertainment from third spot to first, profits rose by a whopping 180% from ’93 to ’95.

NBC news also showed a significant growth and for the first time since ‘80s posed any serious
threat to CBS news domination.

Dick Ebersol did a fine job for sports as the other two executives did for their undertakings.
Wright created a common vision and all the three executives were free to pursue it as they
pleased provided they moved fast. The stress on speed was what resulted in NBC acquiring five
of next six Olympics in 1995. By the time Fox, CBS and ABC woke up everything was done.
Welch and Wright when talking of this triumph always made a point about moving swift.

NBC, once a sick venture started to contribute about 7.6% of all GE profits and 5.6% of total
revenue earned by GE in 1995. Wright entered in to contract with Bill Gates of Microsoft to
launch MSNBC in 1996, a 24 hour news and information channel. Also MSNBC online made its
debut at the same time. This vision placed MSNBC ahead of Fox news services and made it clear
second in the business after CNN.

NBC earned a huge profit in the year 1996 standing at about $960million (up 30% from 1995)
with equal contribution from network and cable operations. The driving force for NBC in 1997
was Seinfeld, a show about nothing which became fixture in nearly every American family’s
television viewing week. The show was taken off air when Jerry Seinfeld decided to stop
production in 1998.

The turnaround in NBC fortune was made possible by choosing the right people to run the place.
Welch and Wright did exactly what the critics asked them not to do – import GE’s hard driving
culture to NBC. Keeping cost s low is one traditional business rule, managers and critics said that
his does not apply in highly creative business of media. The two men could not disagree more in
process paring $400million each year. It all worked out by thinking the “GE way” – strategically,
globally and long run.

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Wright was very skeptical about sticking to broadcasting only. He very rightly invested in
expanding NBC’s cable network all of which became profitable by 1997. NBC also obtained
stakes in NBA NY Knicks and NHL NY Rangers. The biggest cable gamble of NBC was CNBC
a business news channel. CNBC in later stage of its life paid off pretty well and came up on its
own. This far sightedness of NBC management poised NBC at a perfect position to launch in to
new millennium.

Chapter 9

Don’t Focus on the Numbers


“Numbers aren’t the vision; numbers are the product. I never talk about numbers.”

In hard calculative business world we often see people in perennial search of better numbers,
figures or ratios. The problem is, this “number speak” gets boring after sometime and human
need more than numbered targets to keep moving and upbeat. Numbers don’t still any value or
human growth it’s not management philosophy but just a lot of cheerleading.

It’s about people, not numbers. Welch always believed in people leading themselves not just
dwelling on the numbers. This can only be achieved by a clear-cut, consistent, well thought-out
management philosophy. At GE’s Leadership Development Center, Welch talks about core
values of the company, not the numbers. Welch’s dislike for plain numbers is most plain in his
letter to shareholders in GE’s annual report.

Every year Welch spends later half of January preparing his letter. The letter is the primary
vehicle for him to transmit his business strategies to GE. Welch first dictates the speech to a
dictating machine which is written down later by his secretary and then the letter goes under
severe scrutiny of Welch and edited and drafted several times. This version is then presented to
top ten senior executives at GE for their views and it is only after this the final letter is prepared.

So, how bothered is Welch about the whole number game in this all important letter? The
numbers are restricted only to first few lines after which Welch moves on to “more important
things.” The letter is driven by company values and has become a major platform to disseminate
business ideas and management strategies. It is this letter which introduced now famous concepts
as “number one, number two”, “boundarylessness” and “speed, simplicity, and self confidence.”

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At GE, leaders are to create and posses a clear, simple, reality based, customer focused vision in
their capacity. Welch doesn’t say it, perhaps because it is too obvious that adhering to these
values will automatically produce good numbers. Numbers do have a part to play but only
number with no integration with corporate culture might not be enough to keep you sailing, at
least at GE.

Chapter 10

Plagiarize - It’s legitimate: Create a Learning Culture


“The operative assumption today is that someone, somewhere, has a better idea”

In late ’80 and early ‘90s Jack Welch pushed for an open and informal GE. The stress was put on
learning from one another across business; this is what came to be known as “boundaryless
organisation.”

Work-Out program was incorporated in GE culture in early 1990s. This program put to rest the
belief that only CEO and senior executive knew what is best for its employees and company.
You get to become a hero not only by investing but also by recognizing a good idea and having
your team implement it. Work-out program permeated the GE culture deeply by late ‘90s. This
learning culture was often termed as “integrated diversity” which effectively meant elimination
of boundaries across 13 businesses of GE business.

Integrated diversity works very well only when the interacting businesses are self sufficient and
strong in their own right. The concept was a strict no no in having free riders. .

Each and every one in the organisation was encouraged to come up with new ideas. The rationale
was quality of an idea does not depend upon its altitude and it can be from anywhere. Welch
credits this learning culture with helping company perform better in several ways –

• Operating margin has risen from 10% to 15%.


• Inventory turns, measure of asset utilization, has doubled to around 7-8.
• Company revenues showing double digit growth only after ‘80s.

The learning was not only across GE businesses but GE adapted to best practices in the industry.
Few such examples have been learning like production technique from Chrysler and Canon,
sourcing techniques from GM and Toyota, quality initiative from Motorola. In GE as well the
divisions Lighting and Medical system (X-Ray), Gas turbine and Aircraft engines

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(manufacturing technology) etc worked together to for attaining better products by sharing
knowledge and implementing the best practices. Welch often boasts that outspoken young men
helped in bringing the open culture to GE.

Corporate Executive Council aka CEC is the most senior GE forum. This forum of most senior
GE executives meets four times a year with first meet scheduled few weeks before year end
quarter (15th March). Other three meets are scheduled at mid June, September and December.
The CEC meetings take place in Crotonville Leadership development Center; the idea is the
college like environment encourages better exchange of ideas. CEC sessions are typically loose
and have no fixed program.

CEC meetings start with an informal dinner on Monday night followed by day long fast paced
sessions on following two days. In the session several important stuff are discussed like winning
or loosing of particular sale, new product concept or technological development, alliances or
acquisition. All these matters are serious business but all shared in informal manner, everyone
off the cuff.

No finding or generated ideas at CEC are forced upon anyone. The basic idea is to share the
“best practices” one may have and let everyone decide for himself if they would like to
implement that idea or not. In CEC meetings no one sits taking notes or recording the
proceedings, the whole idea is to provide a learning experience by exchange of ideas not just
another deadly meeting.

The learning culture puts pressure on GE leaders. They know that just having a great idea or best
practices does not bring any reward but what actually matters is how many people you have
shared it with. This makes GE not just a learning culture but application of learning culture.

After a CEC meeting most of the executives feel that they have walked out of the meet with not
just one but three or four business ideas worth pondering upon. Now, GE is not short of ideas but
it has so many ideas that a narrowing down to one or two idea is new challenge for the
executives. In a recent survey about 87% of employees feel that their opinion counts at GE. At
GE you are rewarded for how many new ideas you generate. Whole behavior and evaluation
system at GE has been changed.

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People now wait and wonder what new idea their CEO would bring from CEC. Instead they
want to be the one who initiate the best practices. This culture helps those at GE to who want to
get ahead. Very clearly it is not at the expense of the other but attributed to each ones own ability
to come up with best practices. As two Merrill Lynch analyst pointed out – GE has grown over
the years consistently without having any star business like Nike, Disney or Microsoft neither it
has inherently growth businesses. But it has consistently grown over the years. The answer to
such a performance can be nothing but a outstanding management culture.

“Impressive management culture” which says that best way to run a business is to convince
yourself that you don’t have all the answers but as per Welch the trick is to find the solution and
implement them as quickly as possible.

Part- III

Forging The Boundaryless Organization


“We have to get rid of anything that was getting in the way of being informal, of being fast, of
being boundaryless”
Main Idea
To survive in a competitive world, large companies have to:
- Get lean
- Get agile
- Start thinking like a small company
Supporting Ideas
Small, sleek companies have huge competitive advantages:
1. They communicate better without the drag of bureaucracy. People (who usually know and
understand each other well) listen as well as talk.
2. They move faster because they instinctively understand the penalty for hesitating in the market
place.
3. Leaders show up very clearly with clear and precise impact.
4. They waste less. Energy and attention is directed to the market place rather than to the
bureaucracy.
Therefore, Jack Welch has directed a lot of attention towards getting GE to behave like a small
company, and avoid the inherent pitfalls of being big. In particular, he stresses that speed is

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critical. In order to create an organization in which the competitive advantages of speed can be
realized, Jack Welch has been keenly tearing down any barriers which had been erected between
GE’s employees. He’s tried to create a seamless, boundaryless company -- an open, informal
atmosphere in which employees can move swiftly and effortlessly between themselves and the
outside world with equal ease. As a leader, Jack Welch sees his role as removing any parts of
the business that is slowing forward momentum. Becoming boundaryless was an important step
in eliminating any obstacles that could hinder the successful production and marketing of GE
products.
Welch also created programs like Work-Out in 1996, which systematically explored the world’s
best companies so GE could learn from excellent business practices. This program was designed
to offset any intolerance GE employees may have had for ideas which were not invented at GE,
and instead focus on finding best practices irrespective of where they originated. In essence, Jack
Welch said to all GE employees they could and should challenge everything, and be unafraid of
what the ultimate outcome will be.

Chapter 11

Get Rid Of Managers, Get Rid Of The Bureaucracy


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

When Jack Welch took over in the early 1980s, General Electric appeared to be one of the
strongest companies in the United States. It was not in the throes of a crisis, nor was suffering
from any of the dozen maladies that plague large companies from time to time. Still Jack Welch
decided to act. He feared that GE rivals will get stronger at the expense of GE so wanted to make
the company more competitive. To achieve this goal GE needs to be small and aggressive.

At that time GE had 412000 employees of which there were 25000 managers, 500 senior
managers and 130 Vice- Presidents. It seems at that time one out of every two employees was a
manager of some kind or other.GE was characterized by too many managers, too many titles and
too much bureaucracy. Jack Welch decided to downsize.

According to Jack, survival of the company is what matters not a particular job. He was
determined for downsizing and restructuring which he did even after facing great resistance.
There were senior vice presidents who were the leader of each sector but they were actually

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transmitting information and have limited control over their sector. Welch abolishes this layer.
Similarly Welch reduced management layer from 9 to 4-6 in a decade time. Welch termed it
“Delayering”. The employee strength was reduced by 35% to 270000. This was termed as
“Welch Revolution. This painful act has earned him a name “Neutron Jack”.

Chapter 12.

Be Lean And Agile Like A Small Company


“Small companies move faster. They know the penalties for hesitation in the market place”

“ We have to find a way to combine the power, resources and reach of a big company with the
hunger , the agility , the spirit and the fire of a small one” says Jack Welch.

Welch is not against bigness per se but he wanted GE to avoid the inherent pitfalls of being big.
Big companies move too slowly, think too slowly and more importantly act too slowly. After
slicing away bureaucratic layer, Welch made another important stride in instilling the small
company soul into the body of GE, when he formulated the Work-out program in 1988. Under
this he encouraged his CEOs to constitute small profit and loss centre in their business.

Employees in small companies must be fast on their feet all the time, or risk falling into the same
traps as large companies. Speed is the key ingredient in competitiveness and it keeps people and
business young. Speed in business lead to greater cash flows, greater profitability, higher share
due to greater customer responsiveness and more capacity from cycle time reduction.

Now GE is known for its speed. It took only three days to build an alliance with the British firm
GEC and only a weekend to get exclusive right to televise five of the next sex Olympic.

Welch noted that companies a predictable life cycle. At the beginning, new businesses are
gripped with an urgency to get to the market place. In such an environment, bureaucracy has a

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hard time getting a foothold. But, as the institutions grow and become more comfortable, their
priorities shift:

• From speed to control


• From leading to managing
• From winning to conserving what they had won
• From serving the customer to serving the bureaucracy.

Chapter 13

Tear Down The Boundaries


“Our people must be as comfortable in Delhi and Seoul as they are in Louisville or
Schenectady”

Welch found too many boundaries within GE and outside GE. Welch hated boundaries and
wanted to get rid of them because they slow down the company. According to Welch the
boundary between GE and outside world was due to NIH (Not Invented Here) syndrome. NIH
syndrome had limited the ability of GE to learn from suppliers, customers and other global
companies that had best practices which could be very useful for GE. So boundarylessness is
important. Boundaryless Company is an open, informal company where employees can move
swiftly and effortlessly and where they can connect to the outside world just as quickly and
effectively.

Boundarylessness should not only be limited to getting rid of bureaucracy and increasing
productivity but also the work place should also be liberated. The workers should no longer be
told what to do, but should be empowered and given responsibility. To reap the full benefit of
every employee requires a new way of thinking, a new world where employees run free.

With the creation of the Corporate Executive Council in 1986 GEs senior Executives began
engaging in boundaryless behavior-talking to one another directly and informally, learning from
one another, adopting “best practices” for their own use. But welch’ most aggressive attempt to
get ridge of its boundaries was the launching of the massive companywide initiative called
Work-Out in 1990. Through Work –Out GE began to systematically explore the world’ best
companies for better ways of doing the things. Work –Out was also helping GE to get rid of
external wall by strengthening ties with customers and suppliers.

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Part-IV

Harnessing Your People For Competitive Advantage


“My whole job is people. I can’t design an engine. I have to bet on people”
Main Idea
To get GE employees to increase productivity, Jack Welch encouraged them to focus on:
- Speed
- Simplicity
- Self-confidence
He also took the boss element out of the company, encouraged employees to speak freely about
any and all issues, to stretch to exceed targets and to involve everyone in the business of the
company.
Supporting Ideas
Some GE ideas on increasing employee productivity:
1. Rather than trying to empower employees, focus instead on how best to increase everyone’s
involvement in decision making. That way, you harness everyone’s intellect instead of just a few
top people’s intellects.
2. Try everything possible to take the traditional "boss" concept out of the company. Actively
encourage employees to make suggestions face-to-face to their bosses by suggesting that every
employee will be able to get an immediate response -- no paperwork, no filters, no impediments.
That way, employees know their input has been considered rather than flowing off into the ether.
Bosses should:
- Agree on the spot to implement the proposal.
- Say no to the proposal immediately.
- Ask for more information by a set date, and then decide.
3. Whenever a new idea is being introduced, formally select a ‘‘Champion’’ will will assume
responsibility for all follow-up and implementation issues, as well as ongoing discussions
with managers.

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4. The key issues to focus on is ways to increase productivity. Often, this will be accomplished
by eliminating unnecessary paperwork that has crept into systems, by highlighting unwieldy
bureaucratic systems and in a host of other, frequently unexpected ways.
5. GE encourages its employees to do the best they can – and then to stretch a little further and to
reach for goals that are a little higher.

Chapter 14

Three Secrets: Speed, Simplicity And Self-Confidence


“ Bureaucracy is terrified by speed and hates simplicity”

The downsizing of 1980s resulted in worry among the rest of the employees about their job
security. He has justified his move by saying the American companies were getting globalised
and productivity was the key issue for survival as Americans were facing stiff competition from
Japanese companies. Welch came up three things for competing in the new environment- Speed,
Simplicity and Self-confidence.

Speed means decision at each and every level should be made in minutes not in days or weeks.
Decisions need to be made face to face not through memo to memo i.e. paper work should be
minimum. Welch from his experience learnt that as speed increased in an organization, control
decreased. But he thought that 1980s was the time for speed otherwise competitors would take
lead.

No matter how different GE business seems form one other employ have to think simply in terms
of inputs and outputs. The inputs are same for all enterprises as people, energy and physical
space. Simplicity is practically an art form to see everything in simple terms. Leaders have an
important role to impart simple and clear vision of the organization so that each and every
employee can understand and work on it. According to Welch simple message travel faster,
simpler designs reach market faster and the elimination of clutter allow faster decision making.

Insecurity makes people resist change because they see change only as a threat, never as an
opportunity. And the way to build self-confidence is to give people a voice, to get them talking
and listening to and trusting one another. A company cannot manufacture self-confidence but can
make an environment in which self- confident can propagate.

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Chapter 15

Use The Brain Of Every Worker-Involve Everyone


“Get the management layers off their backs, the bureaucratic shackles off their feet, and the
functional barriers out of their way”

The “Hardware Phase” (Downsizing and delayering phase) had made GE more competitive but
had a totally disorienting effect on the employees. The employees were facing a difficult and
uncertain future. More workers were competing harder for fewer promotions that were left and
also fearing for their job. Jack Welch was aware of these things and waited for the right to
intervene to bring confidence among the works.

He came up with a program called “Work-Out “in 1989 for ten years. The program was designed
to foster, capture and implement good ideas regardless of their origin. Work-out program gave
more emphasis on high involvement of workers in their work. Earlier workers were told by
managers to what to do but now workers would be empowered to take decision on their work.
Welch regretted for waiting for seven years to empower workforce. But he had a reason for that.
GE was undergoing transformation: thousands of employees were leaving, while thousands of
the others were joining the company’s ranks. It was simply not possible to make employees feel
better and at the same time boost productivity amid such uncertainty and sweeping change.

Welch believed that creativity and innovation that drove productivity lay with the men and
women closest to the actual work. Managers should not have the monopoly on ideas. Welch
urged to liberate and empower the GE workforce. Welch was concerned about that his managers
might bring hurdle in the process. So he came up with a statement “If you are controlling two
people and just getting them to do what you say, I would get rid of you and keep those two. I
want free ideas. If you are only giving orders, I will get only your ideas. I would rather select
ideas of free people.”

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Chapter 16

Take The “Boss Element” Out Of Your Company


“You’ve got to balance freedom with the control, but you’ve got to have more freedom than
you’ve ever dreamed of”

Work Out program was based on simple premise that those closest to the work know the best
even better than the manager. So the goal of the Work Out program was to give everyone a say
in the way the organization was managed and to keep away bosses from dictating every step in
the decision making. Work Out was design to reduce and ultimately eliminate all the waste hours
and energy that GE expends in day-to-day operations.

Work Out had two defining aspects:

1. Employees had to be able to make suggestions to their bosses face to face.


2. Employees had to be able to get a response on the spot, if possible.

Steps of Work Out “

1. Choose the issues to be discussed.


2. Select the appropriate cross-functional team to tackle the problems.
3. Choose a “champion” who will see the Work Out recommendation through to
implementation.
4. Let the team meet for three or two and a half days , drawing up the recommendations to
improve your company’s processes.
5. Meet the managers who make the decision on the spot about each recommendation.
6. Hold more meeting as required to pursue the implementation of the recommendations.
7. Keep the processes going with these and other issues and recommendations.

There were many benefit of this program- productivity would be higher, needless task would be
jettisoned, workers would feel liberated and satisfied at having those tasks done away with.

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Chapter 17

Create An Atmosphere Where Workers Feel Free To Speak Out


“Those who actually did the work ….had some ideas on how things could be done better.”

At the beginning Work Out program faced many problems. The chain of history and tradition
was strong to be sundered quickly. Slowly but surely Work Out began to catch on. Many
successful suggestions came up and implemented. With the growing use of Work Out concept
the concept itself was getting more specific. There were two category of issues raised –Rattles
and Pythons. Rattlers were simple problems, the ones that could be shot and solved at the spot
and Pythons were the issues too complicated to unravel right away.

Jack Welch once said “ Work-Out is many things……..meeting……teams….training…but its


central objective is “growing” a culture where everyone’s ideas have a value….everyone play a
part…where leaders lead rather control…..coach rather than kibitz. Work-Out is the process of
mining the creativity and productivity that we know resides in the American workforce….the
most creatives…..but irreverent….the most energetic, but independent….work force in the
world.”

The chapter has come up with many successful examples of Work-out program which proved
very useful for the GE.

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Chapter 18

Stretch! Reach For The Stars!


“In a boundaryless organization with a bias for speed, decimal points are a bore”

Stretch simply mean figuring out performance targets-on everything from profitability to new
product development-that are achievable, reasonable and within GE’s capabilities and then
raising it higher towards goals that seem almost beyond reach which require superhuman effort
to achieve it. It is assumed that when one try to achieve such stretched goal he/she either achieve
it or not achieve the stretched target but achieve more than he/she have normally achieved
normally achieved.

The stretch concept was launched in early 1990 and it mainly focused in the financial goals; but
in late 1990s the concentration was on stretching the process goal.

Budgeting and stretching have fundamental differences. Budgets are made in certain controlled
environmental conditions and it has enervating effect. In budget everyone think about the
minimal but stretch emphasis on maximization. Stretching needs free environment and make
employee to reach for their dream.

Stretching forces to do things we would not otherwise do. We have to be sure that we are doing
the right stuff. The business leaders need to think out of the box but to stick to their commitment
as well. This is the biggest challenge against stretching.

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Part V

Push Service And Globalization For Double Digit Growth


“The opportunity for growth in product services is unlimited”
Main Idea
Two key drivers of GE’s revenue growth in the recent past and into the foreseeable near-term
future are service businesses and globalization. The service component of GE’s operational base
has historically been quite low, but is steadily rising over the past decade and is expected to
continue to rise in the future. Similarly, GE is also finding an increasing number of its strongest
competitors are non-American companies as it starts to exploit business opportunities in overseas
markets.
Supporting Ideas
GE is currently making a transition from being manufacturing-oriented to being service-oriented.
The decision to build up GE’s service component was made in 1994,
as GE managers looked for opportunities to grow revenues. The service business is the wave of
the future as GE strives to become a global service business which also sells high-quality
products. In 1995 GE Capital Services had an operating profit of $3.5 billion, a substantial
proportion of GE’s total pretax operating profit of $9.8 billion. Again in 1996, GE Capital’s
profit of $4 billion was more than a quarter of GE’s total $11 billion operating profit. If GE
Capital were to be floated away from GE (a highly unlikely prospect), it would rank in 20th
place on the current Fortune 500 list. It would also rank as one of the United State’s top ten
commercial banks, providing funding for 900 airplanes, 188,000 railcars, 750,000 cars,120,000
trucks and 11,000 satellites. In addition, it is also active in reinsurance, computer services, life
insurance. The company is currently growing at an annual 18-percent growth rate. While GE’s
service business revenues have grown markedly, it has also focused more intensely on
international business opportunities. In 1985, GE derived 20-percent of its revenues from
overseas operations. By 1997, more than 42-percent of GE’s revenues were generated in non-
U.S. markets – mainly through joint ventures and acquisitions. GE now competes in a wide range
of international markets. Jack Welch has set a target that by the year 2000, $30 billion in sales
revenues will be earned in European operations alone, and that more than 50-percent of GE’s
total revenue stream will be derived from non-U.S. operations. The company is well on target
to realizing this objective.

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Chapter 19

Grow Your Service business-It’s The Wave Of The Future


“The [service] market is bigger than we ever dreamt. However , we will continue to expand
and to manufacture….without products, you are dead”

Over the years GE has undergone a steep transition. It has changed itself from a purely
manufacturing company to a more diversified company with service as a major component. In
1990 manufacturing services constituted of 56 percent of GE ‘s portfolio of businesses which
dropped to 43.5 percent in 1995 while the financial services side had grown to 38.2 percent. GE
Capital services have experienced explosive growth whereas the acquisition of the NBC
Television services also reaped profits for the company. Together they accounted for half of GE
‘s total profit of 10.8 billion in 1996.Welch visualises the service business as the driving force
behind the company’s future growth which not only includes the products like insurance and
annuities but also the services for users of manufactured goods both GE and non GE products.
Jack Welch vision was to manage the service business independently rather then managing it
functionally. Therefore they broke down service into a product apart from managing the
equipment side of the business. This was against the other employees who believed that the
service part should be controlled within the equipment business only. GE is involved in large
scale equipment manufacturing business which gave them an imperative to boost their service
business quickly. In earlier instances the service by GE was the “after market” component
whereas now service is GE’s prime focus wherein they serve the customer in the process of
providing them with equipment. Today GE offers complete solution to all its customers ranging
from selling of high tech equipments to servicing them.

But GE has maintained its core manufacturing business because GE service business will
become obsolete if their products don’t exist. Fresco rightly says that once the company decides
to sell not only the engines but also the services around it then the market becomes ten times
larger because they have to compete with other service companies in the domain.

But looking at the figures one could say that the service business is the future for GE after a
generation of manufacturing highly sophisticated equipm

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Chapter 20

Look to Financial Services to Bring In Earnings


“Our vision for the next century is a……………global service company that also sells high
quality products.”

Service is one of the key businesses of GE and one of the driving forces behind the whopping
growth is the GE Capital services. In 1995 and 1996, GE Capital services had an operating profit
of $3.5 billion and $4 billion respectively which was a major portion of GE’s total operating
profit of $9.8 billion in 1995 and $11 billion in 1996 respectively.

GECS took off in 1932 with the launch of GE Credit which lended money to the customers
willing to purchase major appliances. Later on it faced some turmoil but resumed successfully
with a launch of several new products. GE Capital has twenty seven businesses which range
from credit cards to satellite leasing to computer programming and are generating 39 percent of
GE earnings, up from 29 percent in 1990.Nineteen of its twenty seven business have double digit
growth. In 1997 GECS was providing other companies with capital, financing services,
transaction processing capacity, and heavy equipment. It has made 76 acquisitions in Europe
since the mid -1990s with a targeted earning of $1 billion by 2000.

GE Capital reaps a large part of its revenue from the parent company’s credit rating. Moreover
GE’s low cost learning nature helps it to inculcate business practices of some of the best run
businesses in US. One of the other reasons behind GE Capital success is Gary Wendt leadership
and the firm’s ability to manage those businesses that get into trouble thus saving the firm from
write-off a bad loan. One of the examples is that of Houston Astrodome which went bankrupt in
1980’S and most of the banks involved with it took large write offs. But GECS continued with
Astros baseball team instead of writing off the loans which at the end fetched good returns for
GE.

Acquisition has been integral to GE Capital’ rapid growth. Since 1994 GE Capital has done
dozens of acquisitions worth $11.8 billion. Wendt has been shifting GE Capital’s priorities
towards internal growth driven through value added services. The two advantages of this strategy
is that the return is higher with a comparatively low level of investment. GE Capital has got into
the business of leasing and servicing the equipments which ensures a larger return for a longer

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time period. Moreover GE clients save both their time and money in the process. GE has got into
insurance in a big way since the mid 1990’s thus making a transition into the savings business.

Over the years GECS has been continually changing its internal strategy. GECS is now
competing with the international computer giants like IBM and EDS for tapping the large market
of computer and networking deals. Post 1996 it has done a large number of acquisitions .The
Information Technology Solutions of GE is now a $5 billion company with its operation across
thirteen countries. Pre 1990s it had no overseas operation but post 1996 it has set its footprints all
across the world. GE Services contribute to approximately 60 percent of GE total profit which
shows GE transition from the manufacturing to services side.

Chapter 21

Have Global Brains –and Build Diverse and Global Teams


“Businesses are global, not companies”

Jack Welch was quick enough to visualise the changing business environment quite early
wherein most of the GE competitors were non American. Moreover their was a large overseas
market fro GE which was still untapped. GE was on its way to get into the global market. Earlier
in 1980’s only two of the GE business Plastics and Plastics were global in real sense. By 1990s
40 percent of GE revenues came from non US market and the growth rate in these markets were
three times that in US.

GE’s overseas operation took off in 1987 with an exchange alliance with French company
Thomson. Since Thomson had a virtual monopoly in France this deal marked GE successful
entry into the overseas market. After Thomson , GE got into joint ventures with many other
companies overseas. By early 1990s GE operating profit from the overseas market had grown by
30 percent. This was all not very sudden because GE plastics had been operating as a global
business since 1960s when Welch headed the unit. Europe was one of the main targets of GE.
Paulo Fresco is the man behind directing GE’s global expansion. The acquisition of fifty
business in Europe earned a $20 billion revenue for GE as targeted by Welch in 2000.

GE started its operation in Europe in 1989 with an investment of $17.5 billion. Since then the
operating profit for GE in the European markets have increased by 59 percent and GE has rapid
expansion plans in the Asian markets.

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In tune with its global strategy GE has been promoting a number of its non US nationals to the
senior management who are very competent and well experienced. Most of the GE divisions are
being run by the locals. Foreign operations are on top priority and Welch makes it sure that to
visit his overseas personals on a regular basis. Accordingly he schedules his visit plans across
Europe, Asia and other overseas destination. Paulo Fresco accompanies Welch in almost all his
overseas business trips. The growing presence of GE in the global arena has helped it to become
a stronger competitor in all fronts since the rivals face entry barriers due to the presence of GE in
the foreign markets.

Over the years Welch further visualised other emerging market and hence permitted his company
to shift its focus to high growth areas especially Asia. GE invested a whopping $1.3 billion in
China although people were sceptical about the returns China being a risky market. But Welch
denied saying that China has a huge growth potential with huge market and very intelligent
crowd. But as Paulo Fresco rightly says that the countries like India have bureaucracy at its roots
which to some extent slows down the growth potential but a long berm view is viable. Moreover
China has a centralised concept wherein the profit is considered worthwhile only when it is being
made by the Chinese government.

Today GE competes in world’s major markets and Welch has done a lot to make GE a global
powerhouse. Welch expects GE major revenue coming from its overseas operation in future and
he believes that this is the only way to ensure GE’s survival in the new millennium.

Part VI

Drive Quality Throughout the Organization


‘‘You’ve got to be passionate lunatics about the quality issue.’’

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Main Idea
In the late 1990s, a focus on quality is driving GE with intensity. In fact, Jack Welch has made
delivering quality the job of every GE employee.
Supporting Ideas
GE has set a target of becoming a six sigma quality company by the year 2000. To achieve that,
it will have to deliver products, transactions and services that are nearly defect free. In fact, to
achieve this goal, GE will have to reduce defect levels by an average 84-percent per year. (Six
sigma is achieved when a company has a rate of 25,000 defects per million operations). To
achieve this goal, GE has developed a four step program
called MAIC:
1. Measurement: Identify the processes that are critical-to-quality (CTQ) and measure the
number of defects produced by each.
2. Analysis : Try to understand why defects are generated by each specific CTQ process and the
key variables responsible.
3. Improvement: Quantify the effect of improvements in each of the key variables identified and
make system modifications.
4. Control: Ensure the modified process is now enabling key CTQ process variables to stay
within acceptable ranges.
GE measures the impact of its six sigma program using:
1. Customer satisfaction survey results.
2. Keeping track of internal and external cost savings.
3. Keeping track of supplier quality performance.
4. Measurement of internal defects generated by GE processes.
5. Designing new products and services with CTQs which areup to six sigma standards.
GE has also trained its employees with the skills necessary to successfully achieve the six sigma
goals, including:
1. 200 ‘‘champions’’ who are senior managers that define the specific six sigma projects.
2. 700 ‘‘master black belts’’ who are full time teachers acting as mentors to black belts.
3. 2,600 ‘‘black belts’’ who spend their full time leading quality focused teams which focus on
key processes.
4. 15,000 ‘‘green belts’’ who work part-time or on a temporary basis on six sigma projects.

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Since GE launched its quality initiative in 1995, the company has started to produce results. In
1996, 3,000 projects (with a total investment of $200 million) were commenced, producing $170
million in cost savings. In 1997, $300 million was spent on 11,000 new projects, which produced
savings of $600 million for GE. In 1998, the company is embarking on 37,000 six sigma
projects, with an anticipated benefit of more than $1 billion in cost savings for the company.
Ultimately, Jack Welch believes the six sigma program will save GE many billions, which will
flow directly to the bottom line

Chapter 22

Live Quality –and Drive Cost and Speed for Competitive


Advantage
“As boundary less learning has defined how we behave ,six sigma quality will ……define how
we work.”

The concept that has been driving all the GE businesses throughout the world could be zeroed in
to one word that is “Quality”. Companies like Motorola has been living quality since its
inception but Welch adapted to it in his passionate way as he does always. He was convinced
that quality enhancement will bear fruits for the company and will make GE the most
competitive company in the world.

Earlier GE chairman believed that the only way to improve quality was t o push speed, simplicity
and self confidence. But the three S trick failed and Welch and his associates felt the need to
embark on some other quality enhancement programs. He urged GE personnels for greater level
of productivity. In mid 1990s many of the GE employees argued that greater productivity was
not possible without improving the quality of GE’s products and processes.

The CEO of GE Electric emphasised hard on improving the processes so that the goods delivered
were perfect which would avoid repetition of maintenance services. He wanted to deliver
products that could be ranked high or better then that of GE ‘s competitors whereas Welch
expected more then that.As Welch says he wanted to take quality to as whole new level.
Ultimately they found the solution that was “Six Sigma” , a concept that droved pioneering
companies like Motorola.

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Six sigma is a measurement of mistakes per one million discrete operations and applies to all the
transactions, not just manufacturing. Quality is one of the valued imperatives in the Japan and
Motorola adapted to the same making quality as its bench mark.

One of the major problems with GE Executives was that the Six sigma was inconsistent with the
GE business value and strategies like-

• It was centrally managed.


• It seemed too bureaucratic-with its report and standard nomenclature.
• It called for specifically agreed upon measures.

All this was not in tune with any GE programs.

But later on CEO at Allied Signal had a meeting with GE Executive council wherein he
described that GE could benefit enormously from Six Sigma. Moreover Welch was heavily
inclines towards Six Sigma and hoped that this quality program would not sink in a tide of
indifference as the previous ones had. Welch further says that “This is not the program of the
month” but “This is a discipline. This will live forever.”

GE wanted to launch the quality improvement program in its own way with would again
establish the quality as a benchmark at GE. Mikle Harry , the Six Sigma expert was called for to
address the corporate officers whereas Reiner was put in charge of the new quality program. GE
focussed up on speeding up the processes. The work required to get to a six sigma quality was a
lot which again required a lot of trained resources and GE embarked on all of these quality
requirements.

Perfect implementation of Six Sigma has proved to be one of the successes of GE and it
proclaims it in the company banners. Most of the conversations after implementation of the
quality program had special reference to the quality efforts of GE. Fresco further adds that
improved quality meant not only cost reductions but increased sales. Hence Six Sigma is the new
mantra for GE today.

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Chapter 23

Make Quality the Job of Every Employee


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

Welch considers the six sigma program as the engine to company’s growth and individual
employee satisfaction. Motorola took ten years to reach six sigma whereas Welch hopes to do it
in five years. As Welch says that “ Six sigma-GE Quality 2000 –will be the biggest ,the most
personally rewarding, and, in the end ,the most profitable undertaking in our history.”

Moreover GE having the Work –Out culture enables its employees to be more responsive to a
quality initiative. Welch is realistic in his approach and believes that GE will do it more
efficiently in lesser time in comparison to the other companies. The six sigma entails of the
warrior class consisting of three belts namely-

• Green belts
• Black belts
• Master black belts

The various “belts” represent managers who have undergone the complex statistical training of
six sigma. He also wrote a letter to the corporate executive council attendees consisting a set of
five characteristics that people in charge of the steering the program should follow strictly while
implementing the six sigma.

Welch was very strict in his approach to implement six sigma efficiently and he reminded the
employees of paying penalty for not heeding to the norms as set by him to get to six sigma
programs. His message was a clear indication that if one didn’t had the belt he will not be
promoted. Welch repeated warnings to volunteer for six sigma dramatically rose the number of
applicants for the training program.

Welch knew that he had set petty tough targets in te quality enhancement program but he
considered it mandatory to achieve his ambitious goal. By 1997 Welch felt that six sigma was
already paying results .He believes that the quality initiative creates customers satisfaction dn

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enhanced volumes for all. The only reason to sticking to the quality is to make the customers
competitive.

But again GE was far too big with too many people who had been doing their jobs form too
many years to adopt major changes quickly. But Welch believes in speed and self confidence as
effective business strategies and thinks that all the GE personnel will inculcate in themselves the
six sigma quality quickly although hurdled with a lot of jargons and complex calculations in the
concept.

Chapter 24

To achieve quality: Measure, Analyse, Improve, and Control


“Quality is the next act of productivity”

The six sigma approach entails a four step process known as MAIC:

• Measurement
• Analysis
• Improvement
• Control

The control is one of the crucial phase for GE specifically but six sigma addresses this issue
quite efficiently.

Firstly a project is identified say at General Electric and then critical to quality(CTQs) are
defined. Then the following six sigma involves processes begins with the Master black belting
through the four MAIC steps-

Measure-Identifying the key internal processes that influences the CTQs and measures the
defects. Then the defects are defined as out of tolerance CTQs.

Analyse-The reasons for defects generation are identified and the variables that are likely to
drive the process variation the most.

Improve-Involves the measuring the variation in the key variables and modify the process to stay
within the acceptable ranges.

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Control-The objective of this phase is to enable the key variables to stay within the maximum
acceptable ranges using tools like statistical processes (SPC) or simple checklists.

GE has designed five corporate measures to track the progresses in the six sigma pogram that
entails –

• Customer satisfaction
• Cost of poor quality
• Supplier quality
• Internal performance
• Design for manufacturability

Welch’ s effort have fetched results very quickly. During 1996 GE Capital completed more than
300000 hours of six sigma training, in twenty one countries and fifteen languages. By the end of
the year it had 75 quality leaders on board, 135 master black belt and 550 black belts. It invested
$88 million the year and projected an investment of $153 million for 1997.Later in 1997 GE
Capital projected a net savings from quality of $150 million.

Most of the GE units were performing impressively adhering to the quality as the parameter.
Welch has a lot of hopes ,dreams and plans for the quality program and knows that a lot more
has to be done .GE has been concentrating on improving business processes and Welch hopes to
his vast resources to improving the quality of GE’s product.

Part VII

The Toughest Boss/Most Admired manager in America


“I don’t get involved in pricing. I’m more of a coach.”

Main Idea

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One of the most important functions of a leader is to identify talent and nurture them in order to
make them capable of taking bigger responsibilities in future.

Support Ideas

Inculcate values in the employees.

Create an open atmosphere where the people can question the things and thereupon learn from
them.

No organization can check ethical issues completely.

Involve the employees: both physically and mentally.

Chapter 25

Jack Welch Deals With Adversity


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

The word “integrity” is of prime importance in today’s corporate world. However, there have
been ethical lapses and GE is no exception to this phenomenon. Some attribute this to GE’s
pressure on its management to become successful. However, for the CEO, it is not a very
important affair as he says that to run a big organization like GE, one cannot avoid these ethical
lapses. He argues further that many countries have a police force to control the behaviour of their
citizens who are almost equal in number to that of GE’s employee strength. Still, they are unable
to contain the ethical lapses. Then how could this be possible in GE?

Mr Welch has a simple strategy in dealing with the ethical breaches. He applies his vintage, no-
nonsense, no-time-to-lose management style to quell the problem. First, he moves quickly to rid
GE of the transgressor. Next, he passes on a message that future transgressors would
automatically be dismissed. And last, he makes sure that everyone knows that he personally had
nothing to do with the integrity violation in question.

In 1987, Welch issued a companywide guidelines, an eighty page booklet called ‘integrity’: The
spirit and the letter of our commitment. Every new employee was required to read this booklet
and sign a card found in the booklet (or answer by e-mail) that they have read it. In that booklet,
Welch wrote in his statement of Integrity:

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Integrity is the rock upon which we build our business success – and our quality products and
services, our forthright relations with customers and suppliers, and ultimately, our winning
competitive record. GE’s quest for competitive excellence begins and ends with our
commitment.

Mr Jack Welch never made any excuse for GE’s misdeeds. For him, theft of a dollar is theft and
fraud is fraud. He also refuted the notion that his aggressive management style leads to the
integrity violations. He further says:

Competitive results must be written on a blackboard of integrity. Our competitiveness is not just
compatible with integrity. it’s built on integrity. Can anyone seriously contend that excellence
and competitiveness are incompatible with honesty and integrity?

Welch always sent a clear message to his employees that they would be given chances in case
they do not perform upto the expectations but no one would be allowed to work in case of an
integrity lapse. At the same time, Welch also admitted that it was almost impossible to police
each and every employee’s behaviour at GE. He makes it a point to discuss about integrity in
each and every meeting and create a brigade of like minded people. Welch aspires to make GE as
the most competitive and the most ethical company on earth.

So, the real lesson is that if you are running a company, particularly a good sized one, some sort
of ethical breach is probably inevitable. To contain the problem, fire the violator, let others know
that any similar breach will be treated the same way, and if you are not personally involved, let
the world know that as soon as possible. “There is no right reason for doing a wrong thing.”

Chapter 26

Jack Welch Deals With The Next Generation


“The ability to energise is the ingredient that counts.”

Fortune magazine calls General Electric’s management institute at Crotonville “The Harvard of
Corporate America”, and with good reasons. A 50-Acre campus nestled in the Hudson valley of
New York, it is a brainstorming center for GE’s senior managers and a center of education for
junior managers. The world’s first major corporate business school, Crotonville has something of
a split personality: to an outsider, it feels like something between a fraternity less college campus
and a super luxurious army-training center.

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While Crotonville does offer courses, it is not the typical old-style classroom. The key word at
Crotonville is “Confrontation”. The whole idea is to get the place open, candid and interacting
between and among GE personnel. Senior executives expect to be subjected to close scrutiny at
Crotonville. Junior Executives are given the opportunity and responsibility, as it is a badge of
courage – to point out all sorts of things to their bosses that could improve the company. This is a
breeding ground for ideas and helps in improving shared accountability and transparency
between the senior and junior management.

Crotonville provides Welch with the perfect forum for imparting his business insights to a large
number of employees. So it is really no surprise that he visits Crotonville some twelve times in a
year. he feels more at home at the training nucleus than at any other GE location including his
office. Since Welch welcomes confrontation and debate, he can hardly take exception when an
employee hurls a tough question at him. The GE Chairman finds this place suitable to gauge the
reactions of his management army towards the business; its present and future. Crotonville also
serves as the nurturing space for the future managers who would be developed to handle greater
roles and responsibilities at GE.

Welch does not like talking about the numbers; he prefers to talk values. if the company gets
right values, the numbers will follow. He emphasises more on the process than the result as for
him, the result will follow if the process is followed correctly. He urges his executives at
Crotonville to become “Cheerleaders” for the company and to talk about growth even when they
are struggling in their respective business. He says that it is more important for GE to grow as a
unit than growing in some businesses, as this is imperative for growth.

Addressing his management executives at Crotonville, Welch talks about both organic and
inorganic growth. He says that growth through existing business and through acquiring new
businesses is what the “success mantra” remains for GE. He brings up the fact that GE is
evolving into more of a service-oriented company. But he is careful to warn that “we are not
getting out of manufacturing. If we do not have good products, we won’t have good services.”

Answering a question raised by an executive on keeping customers happy when their GE


contacts keep moving on to different parts of the company, Welch commented that the people
who have spent fifteen years in a job, get stale. Here he tries to emphasize on the need for fresh
ideas and ways in which the business could be run.

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Welch feels that employees hold the key to organization’s success and hence remarks that a
business leader has to be able to make solid judgement about personnel. Welch applauds the
initiative of selective distribution of stock options to certain managers and leaders. He says that
GE executive owning stock options, is more likely to care about the company as a whole, since
his or her financial future is linked directly to the company’s financial future.

Welch says that a leader has to have a vision, has to be able to articulate that vision and drive its
implementation throughout that organization. Being able to articulate the vision “is where the
energy comes in”. Edge is all about making a decision. you may have had a great vision, but you
need to have the courage to have the edge. This is a number culture and the great leader without
managerial skills, runs into troubles. One needs to be a part of a solution else, he is a problem.
The ability to energize is the ingredient that counts.

The learning from this chapter is that open, honest, even confrontational debate is essential
ingredient for every good organization. Further, the people close to the business and to the
market can teach the leader a great deal about the business. They are the “eyes and ears” for the
organization. Jack Welch and GE place a great deal of value on training, and back that
commitment up by investing heavily in its vital function.

Part VIII

Jack Welch’s Vision for the Millennium


“People always overestimate how complex business is. This isn’t rocket science.”

Main Idea

Looking ahead, GE doesn’t plan on either standing still or on continuing to celebrate a glorious
history. Jack Welch believes the company’s rate of growth will accelerate, and that there are no
practical limits to that growth.

Supporting Ideas

To increase profitability, Jack Welch believes GE (and any other company looking to move
ahead) should focus on:

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1. Speeding up business processes.

2. Increasing investment in information technology.

3. Working to simplify business processes.

4. Continuing to build a learning organization.

5. Focusing on service and quality.

Chapter 27

Bolstering General Electric


“I want GE to develop a big-company body in a small-company soul.”

Jack Welch and GE have become synonymous with each other in today’s world. Jack Welch is
General Electric, and so much of what the company is about is due to him. But what will GE
become when Jack Welch retires in two years? What will the company’s goals and values be in
five years? In a decade?

One can expect the new leader to share the present CEO’s desire for an open, candid, boundary
less company, one that promotes a learning culture. Yet things will undoubtedly be different
because a change in the top management is bound to bring about a change in the organization.
What both Welch and his successor will inevitably share is a conviction that GE must not stand
still.

Growth is limitless for GE and stands as the engine for future. GE will never run out of ideas as
it nurtures talents and rewards great ideas, which motivates its employees at various levels to
engage with GE, to engage with its business. The growth and expansion has to come from the
areas of core competencies. GE has no experience in Telecommunications, and hence they have
never ventured into this industry. Moreover, the stiff competition makes this industry somewhat
similar to a Red Ocean whereas GE loves to play in the Blue Oceans.

Welch is strictly against “spin offs” and says that the vast empire of GE has been its core
strength. According to him, size of a company has nothing to do with competitiveness. Welch

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also talks on making the business simpler through simpler communication with each other, with
presentation and with products.

Business tends to overcomplicate things- most of life tends to overcomplicate things. So we are
going to be driving across our three values- boundary less, speed and stretch- a genuine pressure
and challenge to simplify. We think that simplification is the next goal in making our revolution
work. The challenge of the management today is to ensure that no one comes in a dull, mindless
endeavour.

Welch wants GE to develop into “a big company body and a small company soul”, one that has
the financial muscle and the speed to deal with global competition.

Welch wants GE to look outside for opportunities. He wants it to have curiosity and a soul and
that is his prescription for GE in the year 2020. Jack has done two things; he has been able to
keep youthfulness, the creativity, and the intellectual stimuli that are typical of entrepreneurial
organizations. In addition, he has been effective through the sharing of best practices to get the
best out of being big. This combination has remained the best model for large, multiline
companies.

Welch and GE are focusing now on “quality” and that will remain their key strategic initiative in
the coming years. Welch is apprehensive about cutting people but says that that is a necessary
evil. According to him, healthy companies are good for society. Fat and sloppy companies add
nothing to society. Growth, eliminating waste, continuing to make things better- that is what is
good for country. In an increasingly competitive world, GE notes that not only is the global value
added service market huge, but that a competitive advantage in services is more suitable.

The dynamics driving acceleration of GE’s growth are very evident today: six sigma, a rapid
shift to higher-margin, higher-growth aftermarket service and support revenues, accelerating
international growth, and an all-out race through the years by all GE operating managers to
become the company’s next Chairman.

Talking on the succession plan, Welch puts down the idea of an external candidate. It is a
difficult choice to make because of the talent pool that GE has created over the years. Moreover,
there is probability that some of these talents may leave GE if they do not get a place at the top

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level. Jack is optimistic that such things would not happen because of the congenial environment
that he has fostered over the years at GE.

Chapter 28

Advice for Other Companies


“Focus on innovation. Produce more for less through intellectual capital.”

Welch asserts that the key to survival for other companies will be their ability to boost
productivity well beyond the traditional levels of the past. He further argues that historical data
should not be accounted for targeting growth objectives rather should be based on market
scenario. The information flow across the organization will hold key to such growth. The old
advantage of patience, paternalism, and respect for tradition are now hurdles in a world that is
rapidly changing. In this ever changing world, the only constant is the change itself and it can
only be tackled through growth.

According to him, currency shifts would play a major role in determining the success of a
particular GE business. He also highlights the importance of innovation in competing with the
competitors. He suggests investing of intellectual capital to constantly innovate in order to
produce more for less. He says that the world is highly uncertain and nothing is secure here. So,
the people need to invest more on educating and developing themselves in order to beat the pace
of the world.

Jack is keen on regularly updating the information technology infrastructure at GE because it


holds the key to faster information access and dissemination and hence faster and informed
decisions by the management. Information system has become the heart of any organization.

Envisaging the future of America, Welch says that alone manufacturing or services would not
help much in driving the economic growth for the country. Rather, it needs to be a big
combination of both because both are interdependent and interrelated. Jack does not see much of
merit in the argument that political parties or the leaders shape the business environment. He
accepts that they do make some difference but can never thwart any business. No government

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can be anti business. Therefore, to truly improve itself, to increase its profitability, American
business must get more productive and restructure when necessary.

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