Running head: leading change



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RUNNING HEAD: LEADING CHANGE

Jack Welch: Leading Change at GE

Gary Martindale

Southwestern College

Abstract


This paper examines the American economy and the way it has affected many businesses. It then discusses one of the possible ways that many leaders are attempting to stabilize and improve their organization. By emulating Jack Welch, businesses hope to achieve success much like he enjoyed at GE in similar economic conditions. Welch’s philosophy is examined and it discusses whether it could potentially help organizations.

Jack Welch: Leading Change at GE

The American economy has proven to be very tumultuous over the past decade. Unemployment rates have risen and inflation on needed resources has occurred. Businesses have had to find ways to adapt in order to survive. In hopes to find ways to not only survive, but to exceed expectations, many executives have turned to looking for a magic bullet of leadership.

Business leaders hope to discover a secret that will give them an advantage over all of their competitors. Somebody walking through a bookstore’s business section would find countless self-help leadership books filling the aisles. Many books like The One Minute Manager series have achieved best-seller status. Despite the number of leadership books in stores, many leaders still search for the answer.

When books do not provide the answers, many leaders attempt to emulate other successful leaders. One leader that is emulated often is Jack Welch. He led General Electric to great growth in the 1980’s, and many leaders believe that his leadership practices will help lead their organizations through this turbulent time.

In order to completely understand the Welch’s success, first the American economic conditions need to be examined. Then, the leadership philosophy of Welch will be examined. This includes his vision, his 20/70/10 rule and finally his implementation of a boundaryless organization. Then the criticisms of Welch will be considered. Finally, it will be discussed if Welch’s philosophy is the right answer to organizations looking for success in the economy today.

American Economy

The current economic conditions in American have changed greatly from fifteen years ago. In the late 1990’s, the economy quickly exploded thanks to the advancements of the technology sector. Unemployment rates were at very low rate and the American people were enjoying the fruits.

The strength of the economy at the time is very evident by comparing the 2000 Presidential election with the 2008 and 2012 elections. Vice President Gore consistently asked voters if they were better off that day than they were four years earlier. Both he and the future President Bush, debated over the best way to cut taxes and put more money in the American people’s pockets. The Economist (2000) speculated that the surplus could reach as high as four trillion dollars. The article also warned that such speculation did not account for any recessions and the surplus could not ever truly materialize.

Shortly after the 2000 Presidential election, the economy did begin to falter. The internet bubble burst and the country began sliding in to a recession. Since that time, it felt almost like a roller coaster with the economy sliding and rising. By 2007, the economy slipped into what many media pundits refer to as the Great Recession (Yoon, 2011). While many different causes can be blamed for the economic slide, poor lending practices can be seen as one of the primary causes (Trumball, 2011). Many Americans found themselves unemployed, and the prices of many of life’s necessities quickly rose.

The federal government responded to the recession, by attempting to throw money at it. Yoon (2011) writes that the federal government is spending trillions of dollars of public money to fight the financial crisis. An enormous amount of money has been spent bailing out many companies, such as the auto companies and financial institutions. Yoon (2011) points out that the bailouts did help put out the fire of the financial crisis, but that threats still loom and the economy has yet to recover. Yoon (2011) promotes that it is up to the individuals and businesses to return the American people to the high standard of living that has previously been enjoyed.

Jack Welch and GE

How are organizations supposed to strengthen themselves and help boost the economy? As mentioned previously, many leaders have sought a secret way to success. While some attempt to learn from many self-help books, others have turned to emulating the successes of other leaders in the business world. One of the more popular choices for many people has been former General Electric CEO Jack Welch.

Perhaps one reason that many leaders are looking up to Welch in today’s economy is because of the economic circumstances that were occurring when he took over at GE. Welch became the CEO of GE in 1981. The US economy was just beginning to recover from a recession that had occurred over the previous decade. Welch (1983) gave a speech in which he touted doing the right things to enjoy prosperity. He discussed ridding bureaucracy and focusing on the things that an organization needed to do instead of wanting to do.

Over Welch’s career as head of GE, General Electric enjoyed a very prosperous run. Mouritsen (2008) writes that if somebody invested one thousand dollars in GE in 1981 when Welch took over, that investment would have been worth $38, 400 when he retired. That is an incredible return on investment that GE provided. How did Welch orchestrate such great success at GE?

Welch’s Vision

Welch began the success he had at GE by delivering a vision to the organization. In order to navigate the recovering economy, Welch first espoused his vision that GE would not be pursuing the business opportunities that they would not be successful in. Yager (2001) writes that Welch did not want to pursue any business opportunity that GE could not be first or second in the industry of. Welch shared his vision that GE would be industry leaders or else they would not be in the industry.

Yager (2001) continues that Welch also shared a vision in that the results are not rewarded above all costs. While results were considered extremely important in order to maintain employment, the expectation was that results should be achieved with integrity. He attempted to share this vision with the organization that GE would be an industry leader and a company that should be deeply respected. The company would work together to achieve success and it would not matter whose idea a plan was.

20/70/10 Rule

Ask many managers and leader what Welch did to achieve success, and most will probably answer with a discussion of the 20/70/10 philosophy. This philosophy is a variation of the Pareto Principle. The Pareto or 80/20 rule states that approximately eighty percent of problems are the result of twenty percent of workers (Gardner, 2004). It can also be viewed as eighty percent of the results come from only twenty percent of the workers.

Welch applied a version of this to GE. Each year, the top twenty percent of workers received raises for their performance. The middle seventy percent of workers were allowed to keep their jobs. Finally, the bottom ten percent of performers were let go. The lines were not in black and white though. For example, Yager (2001) writes that Welch would rather keep an underperforming employee that bought into the company philosophy than an employee that was performing but did not believe in the company philosophy. The basic expectation of the company was that every year, workers were expected to improve. If there was not improvement, then there were consequences for the employees. While this philosophy is often quoted by believers in Welch’s philosophy, there was another segment that led to GE success as well.

Boundaryless Organization

Perhaps the most revolutionary part of Welch’s success at GE was his implementation of the boundaryless organization. A boundaryless organization is an organization that has removed the boundaries, or bureaucracy, from the organization. Welch hoped to develop an organization that allowed leadership from below. It did not matter where an idea came from. All that truly matters is that an idea is good.

Welch envisioned an organization in which different departments worked together to solve any problems that arose. Welch and other GE leaders began expecting employees to network with each other in order to develop best practices to doing a job. Mackay (1994) writes that all 230,000 employees were expected to develop a network regardless of job title, function, or skillset. The goal was to create a culture where employees did not say “it’s not my job.” Mackay (1994) points out that engineering did not just pass off products to manufacturing any more. Instead, the two groups continued to work together throughout the process.

Welch helped reduce the hierarchy that employees dealt with. While employees were still held accountable for performance by their supervisors, employees were able to begin leading from below. When an employee had a great idea about how to do something better, there were avenues for the employee to pass along the idea. This helped create a knowledge network across the entire organization that employees were able to tap into. Welch understood that the people that were doing the job and not supervisors often had the most information about a subject. By eliminating the walls of the organization, employees were free to share ideas and help the organization become more effective.

Criticisms of Welch’s Leadership Style

Despite the widespread success of GE during Welch’s reign, some criticisms have arisen. The first regards the 20/70/10 principle. Many people felt that Welch was needlessly eliminating jobs and nicknamed him Neutron Jack. Welch and Welch (2006) write that some people felt that removing the bottom ten percent each year pushed out perfectly good employees. Welch and Welch (2006) responded to the criticism by making the case that it was only helping people find the right fit. They may not have been fitting in with their current company, but may find success in another place. Welch and Welch (2006) continue to warn though, that this only works if constant feedback is being given to employees about performance. Being terminated for performance reasons should never be a surprise for anybody.

Another criticism that has been raised about Welch’s leadership style is his focus on results. As mentioned earlier, Welch espoused the value that results must be achieved with integrity. Some critics would argue though that the enacted value was the opposite. People feared losing their jobs, so the adopted a Machiavellian philosophy. The ends would justify the means. Walker (2001) points out that many critics would point to pollution of the Hudson River as evidence of this. Nevertheless, he continues that GE did avoid massive scandals while Welch was at the Helm.

Walker does offer up one more criticism, so to speak, of Welch. Walker (2001) questions whether the success that GE attained with Welch was the product of Welch or the product of just being a strong company. He points out that GE had been considered a strong company for many decades already. The CEO that Welch took over for, Reg Jones, had also been revered in management circles. Walker (2001) suggests that Welch was just continuing the tradition of this strong company. He describes Welch as being a good or even great CEO, but suggests that Welch’s reputation is largely overvalued. Welch supporters would probably counter with the answer that he helped revolutionize GE before any true problems surfaced.

Will the Philosophy Lead Companies to Success

Jack Welch’s leadership led GE to great success during the recovering economy of the 1980’s and continued through the 1990’s. Can leaders that employ his tactics expect to achieve the same results? The simple answer would be maybe.

Fiedler (1972) describes effective leadership as being the right leadership at that point in time. He goes on to discuss that sometimes previous success in not a good indicator of future success. The most effective leader is one that has the proper traits for the current situation. The exact same traits may prove to be inadequate for leadership in another situation. A great example of this would be Al Dunlap. Kellerman (2004) writes that Dunlap enjoyed a great amount of financial success at Scott Paper thanks to his strategy of laying off massive amounts of workers. When he was hired at Sunbeam as CEO, he attempted to follow the same strategy, but failed miserably. His traits served him well in one situation, but those same traits were responsible for his inability to turn around Sunbeam.

Welch’s leadership philosophy may be the right philosophy for some organizations to strengthen themselves. On the other hand, they may be setting themselves up for failure. If a business leader chooses to enact the tactics, then there are a few things that will more than likely increase the chances of success.

First, the minds of many people will have to be changed. Implementing a boundaryless organization often is in stark contrast to the culture of many corporations. Many companies focus on the chain of command, and some ideas are not listened to if they did not originate at the top. In order to open up the flow of ideas throughout the company, middle management and supervisors will have to buy into the system.

In order to effectively change people’s minds, reasoning will have to be utilized. Communication is key and the entire organization needs to understand why the changes are taking place. This can occur by the leader sharing a vision for a boundaryless organization that will exceed profitability expectations while remaining scandal free. The reasons for the vision should be communicated to ensure that the entire organization understands.

Once the vision has been set, the work can begin on the plan. Again, communication is key to the success of the plan. Beach (2006) writes that the plan should not take much convincing for employees to take part in. The vision should have already communicated that need. Instead, communicating the plan should be ensuring that the entire organization understands their role and what is expected of them.

Finally, the resistances to the changes will have to be identified and neutralized. There may be some people in the organization that do not understand the need for the changes. Reasoning and communicating the vision may not inspire them. These are the people that were referred to earlier that Welch would rather employ an underperforming employee than. It is vital to the success of the organization to identify people that will not change for the sake of the organization. If they continue to be unwilling to adapt to the needs, then the employees may need to find different employment.

Conclusion

The American Economy has proven to be a difficult endeavor for many organizations. While has reached a point that government bailouts were necessary, it is not the first time that organizations have had to navigate this climate. Many leaders are looking for a way to strengthen their organization and become more successful in the recovering years.

Many leaders have chosen to emulate Jack Welch because of the success that he enjoyed at GE. Welch’s tactics included rewarding the top twenty percent of the organization and eliminating the bottom ten percent. Welch also implemented a boundaryless organization philosophy. The idea was for information to flow freely throughout an organization, and for ideas to be considered regardless of where they came from. Some people have criticized Welch for a win at all costs mentality and for potentially eliminating the roles of good employees.

Following Welch’s philosophy can potentially lead to success for an organization if the situation is right. In order to help ensure success, the organization needs to be able to adequately communicate the vision of the organization, and to formulate a plan to enact it. Some people’s minds will need to be changed in order to achieve success.

References

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Beach, L. R. (2006). Leadership and the Art of Change: A Practical Guide to Organizational Transformation. Thousand Oaks, CA: Sage Publications.

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Mouritsen, R. H. (2004, Aug.) Boundaryless Thinking. The American Salesman, 49 (8) p. 12.

Trumball, M. (2011, January 27). Causes of the Financial Crisis? Commission Ends In Hung Jury. Christian Science Monitor. Retrieved May 8th 2013, from http://140.234.17.9:8080/EPSessionID=db68e6144da508e63bac17e67635b/EPHost=search.proquest.com/EPPath/pqcentral/docview/847566693/fulltext?accountid=13979.

Walker, R. (2001, June 18). Overvalued: Why Jack Welch Isn’t God. The New Republic. 224 (25), pp. 22-25.

Welch, J. F. (1983, July 1) The New Competitiveness. Vital Speeches of the Day. 49 (18) pp. 549-552.

Welch, J. F. & Welch, S. (2006, Oct 1). The Case for 20-70-10. BusinessWeek. Retrieved May 8th, 2013 from http://www.businessweek.com/stories/2006-10-01/the-case-for-20-70-10.

Yager, E. (2001, Sept. 17). Jack Welch: The Master Teacher. The Enterprise. P. 13.



Yoon, B. J. (2011, January). The Great Recession of the US and Lessons from the Past. SERI Quarterly. Retrieved May 8th 2013 from http://140.234.1.9:8080/EPSessionID=7d8dbcd49f715952a173f2ae738abc/EPHost=search.proquest.com/EPPath/pqcentral/docview/845281396/fulltext?accountid=13979.


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