Jack Welch

Jack Welch on Management: Change Before You Have To
RSM Erasmus hosted a seminar on leadership and management in co-operation with Focus Conferences on 18 May 2004. Speakers included a powerful array of European business leaders and the keynote speech by Jack Welch, former CEO of General Electric.
Floris Maljers, Chairman of the RSM Erasmus Advisory Board and former Chairman of Unilever, opened the conference while Wim Kok, Prime Minister of The Netherlands (1994-2002), discussed issues relating to management in The Netherlands.
Roel Pieper, Managing Director and Chairman, Favonius Ventures addressed the audience on the topic relating to how applicable American management practises are in the Dutch business context; and Ad Scheepbouwer, Chairman and CEO, KPN spoke about creating new perspectives within his organisation.

Driven by the Love of Learning
Welch was interviewed by Charles Groenhuijsen, US correspondent for the NOS Dutch Public Television and Radio. Groenhuijsen asked some tough questions about CEO pay scale, the war in Iraq, and if American management style as exemplified by Welch, has a place in The Netherlands / international business environment of the 21st century.

In answer to the question "What drives you?" the ebullient and energetic Welch said "I love to learn."

Asked to elaborate, he noted that he "probably had 500 mentors," and particularly had learned a lot from Japanese business leaders the Toyoda brothers (of Toyota) and Sam Walton of Walmart.

Move Faster
Asked about any regrets, he said, "I would have done everything faster. Too often we pause when we should have charged. You're never fast enough." Speed was also at the top of his list when describing what CEOs of the 21st century are faced with. "Go faster. Encourage much more employee participation. And you have to be comfortable as a partner in international business."

Welch also emphasized on the developments of talents in organisations, comparing the role of the CFO and the head of HR in most organisations. "Why do you want the scorekeeper getting the power? The person building the team is more important," said Welch.

The Ultimate Business How-To Book
Once dubbed "Neutron Jack" for his sweeping downsizing at GE during the 80s - an act that made him the self-described "toughest boss in America" - Welch may well be the best-known CEO in the world.

He is the author of such books as Get Better or Get Beaten!, Jack Welch on Leadership, and Jack: Straight from the Gut; meanwhile he is currently in progress on his hotly-anticipated book Winning: The Ultimate Business How-To Book, due out in May 2005.

Fortune Magazine once crowned Welch "Manager of the Century" saying, "Welch wins the title because in addition to his transformation of GE, he has made himself far and away the most influential manager of his generation."

"Change Before You Have To"
Perhaps the best and most general advice given by Jack Welch was his reinforcing of one of his oft-repeated quotes, "Change before you have to." He stands by it today. "Never be happy where you are. Get a culture at your company that loves change. And every time there's a quantum change [in the business world], jump!"

The seminar concluded with a roundtable discussion by Gerlach Cerfontaine, President & CEO Schiphol Group, Ewald Kist, Chairman of the Executive Board ING Group, Thomas Leysen, CEO Umicore, Karel Noordzij Executive Director PGGM and Ad Scheepbouwer Chairman and CEO KPN. Moderated by Groenhuijsen, each panelist was given a quote of Welch and asked to comment on its applicability to Dutch business.
More Info?
Contact: Theo Backx, Executive in Residence at development@rsm.nl
RSM Erasmus Network

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Downsizing the "Neutron Jack" Way

Arguably, Welch's most controversial move was the downsizing of the DI. At GE he was fond of saying: "Downsize before it's too late."

He hated bureaucracies and felt that the Agency should operate like a network of small businesses. He felt that even in good times, all organizations should regularly review expenses and the number of its personnel.

For example, Welch told me he downsized GE during one of its most healthy stages, earning him the nickname "Neutron Jack" (the guy who removed the people, but left the buildings standing).

He hated this nickname, and it hurt, but he said he hated bureaucracy and waste even more. At GE, Welch insisted that all businesses be number one or number two, or "fix, sell, or close." He added he learned over the years that there were glaring exceptions to this rule, but he wanted the DI to follow the spirit of this principle.

He said that good businesses have to be sorted out from the bad ones. During one of his frequent roundtable lunch discussions with DI analysts, Welch ruffled quite a few feathers when he said the DI has the tendency to overanalyze an issue or to take on too many "nice to know, but not critical" issues.

For example, he said that a significant number of DI products have very few customers. He exclaimed, "We shouldn't be bothering our very busy policymakers with obscure or hypothetical subjects on a country whose location most of us don't even know."Unless a specific DI issue met a certain threshold of policymaker interest, he said that the manager responsible for it should "fix" it or "close" the office down.

He said there were too many other more important issues to which DI analysts could be surged.When Welch began downsizing and closing offices and accounts, some DI managers complained, "You'll kill morale and you'll never be able to mobilize on this issue if it ever gets really hot."

Other DI managers complained, "You've already cut all the fat out. Now you're into bone and you'll ruin the organization if we cut more."

Welch said that both arguments were weak. He responded to his critics, "I've never seen a business ruined because it reduced costs too much, too fast. When good times come again, I've always seen business teams mobilize quickly and take advantage of the situation."

Welch felt it was wrong that the system in place in the public sector rewarded managers for being "empire builders" and not for downsizing, for expanding services and not for cutting costs.

He said he would continue to downsize, even if it risked congressional budget cuts in the near term. Welch had his own ideas for expanding in other areas, but he insisted that before he could do that he needed to make the directorate as lean and efficient as he could.

One day, in one of his most controversial moves, Welch also proposed cutting out an entire layer of management in the DI.He justified this by saying, "De-layering speeds communication." He added, "

As we became leaner at GE, we found ourselves communicating better, with fewer interruptions and fewer filters. We found that with fewer layers we had wider spans of management. We weren't managing better. We were managing less, and that was better."

He even caused much heartburn when he suggested DI managers should also consider drafting analytic papers instead of just editing them. He said, "Many believe we need more analysts in the DI. Perhaps this is true. Or perhaps, what we really need is less management."

An idea Welch was forced to abandon was his introduction of the concept of "managing by differentiation." "Winning teams come from differentiation, rewarding the best and removing the weakest, always fighting to raise the bar," he argued.Welch felt the DI should spend the next few years building a performance culture, and, when ready, begin systematically and frequently removing the bottom 10 percent of analysts and managers.

He stressed, "Lifetime employment is a failed strategy. I shouldn't have agonized as long as I did at GE on so many people who weren't going to cut it."

However, Welch stood down after unhappy HR managers reminded him that government employees enjoy many civil protections and that the CIA could not risk large numbers of disgruntled employees because of counterintel-ligence concerns.

One fuming HR manager even told him to his face, "I can't agree with you that lack of job protection is a good thing—in government or in business.

For example, people complain that Generation Xers have no loyalty. I think what is really going on is that Generation Xers can't be completely loyal because they feel that their employers won't be loyal to them during an economic downturn"




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