The Competitor: Jack Welch's Burning Platform
Back in the early 1980s, in his first few weeks in office as chairman and CEO of GE, Jack Welch understood what few around him did, that the company was in serious trouble, and that serious changes were needed. His diagnosis was not popular, even less so were his solutions.
Welch, of course, has been dissected and analyzed in a hundred different ways by business thinkers who have tried to explain his overwhelming success. In this chapter, the singular focus is on how Welch dealt with the fact that his company, in the early 1980s, was about to face a rude awakening.
Remember the main argument of this book: LEADERS WHO HAVE PULLED THEMSELVES THROUGH VARIOUS SETBACKS CLEARLY DEMONSTRATE CERTAIN COMMON PRACTICES. EMPLOYING THESE PRACTICES IS THE SAME AS ENGAGING IN RUTHLESS EXECUTION.
Building and institutionalizing a business philosophy is critical in getting a company performing again. No business leader has employed the strategies of devising a business philosophy as adroitly as former GE chairman and CEO Jack Welch. To get the company on his side, to energize the company for the tasks ahead, he created a BURNING PLATFORM, wrapping it up in a single neat phrase: HE WANTED GE TO BECOME “THE MOST COMPETITIVE COMPANY ON EARTH.” This was the catchphrase around which everyone in the company congregated. Welch used the phrase often in speeches and interviews, whenever he wanted to encapsulate what he was trying to do at GE. It had the virtue of being succinct and serving as a rallying cry.
In addition to his burning platform, Welch laid out a tightly focused BUSINESS PHILOSOPHY that essentially answered almost every question about how to conduct business. By adhering to that philosophy, call it the “Jack Welch Way of Doing Business,” GE employees could implement the burning platform. It was a business philosophy that clearly emanated from the top, totally from the mouth of the CEO. Above all else, Welch’s business philosophy offered a roadmap, or set of guidelines, to employees on how to make decisions.
Since the platform had to do with making GE more competitive than anyone else, Welch decided to focus on a number of critical areas: 1) GE and the marketplace: its businesses had to be the best in their markets; 2) efficiencies: GE’s personnel and infrastructure had to be the most cost-efficient possible; and 3) the talent pool: GE had to acquire and promote the best of the best.
GE’s business philosophy helped shape its transformation. Throughout much of the 1990s, it was the most successful company on the planet and Jack Welch was constantly touted as the consummate business leader of the era.
When he took over GE in 1981, the company had annual sales of $25 billion and earnings of $1.5 billion, with a $12-billion market value, tenth best among U.S. public companies. In 2000, the year before Welch retired, GE had $129.9 billion in revenues and $12.7 billion in earnings. In 2001, GE’s revenues grew to $125.9 billion and earnings rose to $14.1 billion (Welch stepped down in September 2001).
From 1993 until the summer of 1998, GE was America’s market cap leader. GE stock averaged a return of 24 percent a year during Welch’s first 18 years. The stock climbed 40–50 percent each of the years from 1995–1999. Its market cap soared to over $400 billion during Welch’s final years as CEO. Fortune magazine selected GE as “America’s Greatest Wealth Creator” from 1998–2000.
Number 1, Number 2
When he became the CEO of GE in April 1981, Welch had the good sense and vision to understand what no one else could see: His company was about to hit a wall. Foreign competitors, especially in Asia, were springing up, offering cheaper products based on cheaper labor. GE was under-performing. Only a handful of GE’s 350 business units had become number 1 or number 2 in their markets: lighting, power systems, and motors. The only GE businesses that were coming in with good results on a global basis were plastics, gas turbines, and aircraft engines. And only GE’s gas turbines unit led its market overseas.
Welch saw that manufacturing in the United States had become less profitable, and yet, in 1970, 80 percent of GE’s earnings were derived from its traditional electrical and electronic manufacturing businesses. GE businesses such as plastics, medical systems, and financial services were doing okay, but they provided only one-third of the entire 1981 corporate earnings. A few other GE businesses, such as aircraft engines, spent more than they earned.
When Welch sought to invoke his burning platform—when he argued that GE had to become more competitive—he was considered an alarmist. No one wanted to endorse his seemingly radical re-engineering ideas. Welch, however, knew all too well how dependent GE had become on the manufacturing side of the business, and how costly that dependency would become if things were not rectified.
In developing a business philosophy that would help GE break through its wall, Jack Welch displayed a series of leadership traits that often exemplify the concept of ruthless execution. Certainly he was decisive; he had a no-nonsense attitude about him. He could be very demanding. Most important, he knew how to impose discipline on his organization. Not all of the traits that are congruent with the ruthless execution business philosophy are found in Welch, however. He is not impersonal or cerebral, for example. With regard to one of these traits—fervently believing in the power of facts—Welch had exhibited a certain ambivalence. Often he disparaged anyone who focused only on “the numbers.” However, toward the latter part of his career when he instituted the six sigma program at GE, he grew fond of measuring and admitted that there was great value in paying attention to numbers.