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15/11/2013 01:54:23 PM

Learn how to manage through Jack Welch s Example - Part 1

Perhaps many of us have heard about Jack Welch, one former CEO (Chief Executive Officer) of General Electric Company (GE), with 20 years reign, the CEO who has created many differences and execute GE to achieve an overwhelming success. Former CEO of GE, Jack Welch has left us many lessons on management and leadership. From humble beginnings as a eager child in a class at Salem, in 1980 he became CEO of GE and 20 years later is always the head. The process of conquering the peak of Jack Welch also faced difficulties and how he overcame them through the way he ran GE. We learn about how Jack Welch managed organization through analysing of four managerial functions he did: planning , organizing, leading and controlling.

 

Jack Welch, whose real name is John Francis Welch, Jr. . He was born on 11/19/1935 in Salem, Massachusetts . He graduated in chemical engineering at the University of Massachusetts in 1957 and received a Master's degree, a doctorate in chemical engineering at the University of Illinois. He joined GE in 1950, was elected Vice Chairman in 1972 and Vice General Director in 1979. In 1980, he was the 8th Chairman and CEO in a company with 121 years history. He retired in the fall of 2001.

 

Grace Welch is the most profound influence in her son's life. She has taught him the value of competition, that happy with the victory and stood up after the failure. Leadership style of Jack Welch also influenced by her mother, tough and aggressive, enthusiastic and generous. Many his view of point in leadership - overcoming difficulties to win, motivating people in many ways, from intimately encouraging  to putting pressure, broadening future goals and keep them on track – all these lessons were from his mother.

 

Jack was a hard working person, always working long hours and have never leaved a working day. He likes to greet everyone and to meet interesting people. From the age of six, each day Jack Welch had read a lot of news and sport events from newspapers that his father brought home. Read the newspaper every night has become his life-long habit.

 

Jack Welch entried GE to work on 10/17/1960. He quickly bored bureaucracy here so that it almost caused him to resign just one year after. In 1961 he was awarded a $ 1,000 additional salary. Jack felt very happy until he discovers others also received the same. In 1964, after being soon promoted and awarded $ 3000, Jack held a party for all the staff at the new house. He bought a convertible car, liked to be called "Doctor Welch".

 

In 1969 he was promoted to General Manager of plastic Division, he was ready to become a businessman rather than an engineer anymore. He like everyone to call him "Jack". He was proud of his team because they broke the record of profitability and sales, and that the business of plastics has grown more than ten years before in his first year at the helm.

 

In 1971, Jack Welch transferred to be Leader of metallurgy and chemistry Division. This work brought him many new challenges. The first thing he did is to review his entire group. He was also the first person who admitted that he quite hasty in eliminating employees at the first days of inauguration. It was hard and the most repressive works, it was not easy.

 

On 12/15/1980, Jack Welch became CEO in the end. It was a long and tough road to achieve this. Former CEO Reg Jones assessed people in a different way. This happens because Reg is brave enough to recommend the person who was always opposite of what has always been considered the standard leader at the time.

 

The achievements of Jack Welch showed that Reg Jones made ​​the right decision. When Jack Welch began holding executive positions at GE in 1980, the company has a market value of 13 billion dollars. When he retired in 2001, the company has a market price of $ 400 billion. Profit in 2000 was $ 12.7 billion, 8 times more than the $ 1.5 billion in 1980.

 

Now we analyze how Jack Welch implemented the four managerial functions to achieve such an overwhelming success.

 

In planning functions, when he took the helm, he has advocated the restructuring company structure. He affirmed that GE would become the number one or number two in all businesses. That was a strategy which he committed that his company would perform with the entire effort, which was the strategy that  changed GE forever. In 1980, the U.S. economy was in recession, high inflation rate and soaring energy prices. In this crisis, GE still developped with net profit over $ 1.5 billion and sales at 25 billion dollars . It is seen that Jack Welch was predicted problems early. The vision that company would be the number one or number two Welch set has eliminated 118,000 people from GE's payroll. This action brought him the nickname "Neutron Jack" – the person who eliminated people to help the firm exist.

 

Jack Welch had a knack of sketching his ideas on paper, any kind of paper, anytime and anywhere. In a dinner sitting with his wife, Carol, he sketched the idea on the dining tissue. The draft included three circles: service, high tech were the cores. Many of GE's subsidiaries are also listed inside and outside the circle. A few weeks later, Welch was refined, and expanded and shared his model with everyone. Divisions inside the circle were service, technical or core manufacturing unit, was the core business of GE. Divisions outside the circle should be modified, sold or closed. These business units wes less efficient, less developed markets or simply not fit the strategy. In the first two years of implementation of the strategy, GE has sold 71 businesses and production lines, earning over $ 500 million. Although the money earned from this was small, but it was intended, because the company will be able to re-invest or rearranging other more potential businesses.

 

Welch also often invest millions of dollars to pursuit things that seem unprofitable, such as renewing the company's headquarters, and mainly upgrade Crotonville management development Center. Welch responded to the criticism by emphasizing that the fact that the business is a series of contrasts. Spending millions of dollars to build projects that seem for nothing, while closing uncompetitive factories but still producing products, both are needed to become a world leading competitor. Without doing so, GE can not hire and retain best people while ensuring that it is a supplier of low-cost goods and services.

 

In the early 1990s, GE was promoting its global development by series of mergers and alliances, and by assigning best people to do these works.

 

For years, Jack Welch was not a supporter of "quality movement", he said that quality programs has been strong advocates on slogans but the performance was unremarkable. However, quality topic has become the problem that a lot of employees of GE  interested in, in 1995. Jack Welch wanted GE to achieve Six Sigma quality standards. This means that the rate of damage goods and errors in services is less than 3.4 per 1 million units, or the perfect product rate is 99.99966 %. But Six Sigma standards are not only for the figure and quality control. It has led leaders to become better to make tools to consider difficult problems. The core of the Six Sigma standard is to help the entire company focus on customers. Welch encouraged GE executives aim to achieve Six Sigma standard. He asked them to recommend the best  people to be leaders of the Six Sigma standards, meaning that separate them from their work about two years to train them to be the "Black Belts" of this strategy and implementing of Six Sigma standards.

 

The company also trained thousands of "Green Belts" to solve the problems that arise in daily work environment, using perspectives and tools of Six Sigma standards.

 

Although Jack Welch admitted that he was late in realizing the power and opportunities of the Internet, but soon after realized he had used all resources and put GE enters digital era. He has seen the opportunities that the Internet brings in three fields: sales, purchasing and producing goods.

 

During his leadership tenure, GE had 933 acquisitions and sold 408 enterprises.

 

He focused much on building the mission and values ​​of the company. A mission statement and values ​​must be truthful. The mission statement must specify what goals the company needs to achieve and values must specify specific works to do to achieve those goals.

 

His point of view about change management: Change is essential for all businesses. A company must make change to continue in the game and to be the winner. To make positive change, we must implement 4 things:

- Conduct all change initiatives with clear goals

- Recruitment and promotion of trusted people

- Dismissing employees who obstruct even though they work very well

- Searches for opportunity - seize every opportunity to change, even if it is from the misfortune of others

 

That is the story of how Jack Welch planned.

 

Next, about how he organizzed: the first thing to say is restructuring corporate structure with the elimination of 118,000 people from the company payroll, thereby bringing his nickname "Neutron Jack". In a company with more than 300,000 employees and 4,000 senior managers, GE needs a suitable structure, so that all employees know and understand the rules of the game. The main of this process is personnel control progress. He uses software Session C to check employees. At GE, there is no written and informal control in lunch rooms, in the lobbies and in every meetings. All these effort in putting people centered  formally and informally were done in order ​​to distinguish best managers and employees from the rest. Jack Welch would love to use "Strength Curve" in classifying employees. Each year, he required every divisions in the company to rank its senior executives, in order to force enterprise leaders classify their subordinates. They must identify in their enterprise name, work position and the bonus of 20 % of employees ranked top, 70 % in the middle, and 10 % at the end. Those who do not meet expectations will have to go.

 

He said that the organizational structure should be designed as simple as possible, describe the specific relationships and responsibilities. If organizational structure has many levels, it will be more costly, complex, making everything slower means that burying company in bureaucratism.

 

To encourage his employees to support and comply with Six Sigma standards, he used the compensation system by : 60 % of the compensation is based on financial performance and 40 % based on the result of Six Sigma standards implementation. Rewarded with stock options is also done for the employees to be trained and become Black Belt, also to reward employees who perform best Six Sigma, in order to detect the weakest link in the company. Until 1998, employees could not be promoted to manager unless they were trained to become Green Belt at least. This led to the result immediately. The company has saved $ 150 million in the firs year and  $ 1.5 billion in 1999.

 

For recruitment eployees, he was looking for people who has 4E and 1P standards, including:

- Energy: positive energy, ability for development through actions.

- Energize: the ability of encouraging people with profoud knowledge about business and good persuasion skills.

- Edge: be courage to make different decisions.

- Execution: ability to acomplish the tasks.

- Passion: passionate and eager to work.

 

Dismissing employee is the difficult task. Sometimes, for various reasons, the employee can not continue to work in the company. This is a difficult work for both the employees to resign and the manager to make decision. There are a few mistakes when layoffs :

- Dismissing too urgent: this will affect the daily work in the company.

- Not straight enough:  some people unprepared to be layoff, they will mess outside the company.

- Endure too long: make people feel uncomfortable.

(to be continued)

 

 

 Đoàn Thị Thúy Hải, MBA

PSU Program

International School

Duy Tân University

 

References:

1.Alpha Books, Tinh hoa quản trị, NXB Lao động - Xã hội, 2009, Tập 1

2.Alpha Books, Tinh hoa quản trị, NXB Lao động - Xã hội, 2009, Tập 2

3.Jeffry A.Krames, Phong cách Jack Welch, NXB Tổng hợp TP Hồ Chí Minh., 2004

3.Stephen P.Robbin, Organizational Behavior, 10th edition Prentice Hall, 2003

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