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Unique and High-Spirited

On the day that he took over as GE’s chairman and CEO, Welch told the board of directors and shareowners that he would like GE to be thought of 10 years down the road as a unique, high-spirited, entrepreneurial company, known for its excellence. His goal was to make GE the most profitable, highly diversified company.

Note what he did not say: He did not say he wanted GE to be the biggest (i.e., as measured in terms of revenues); nor did he even dream of the company acquiring the largest market capitalization in the country. HE WANTED GE TO BE THE BEST.

Allowing himself to think only in the short term, Jack Welch was bent on preserving GE’s bottom line. He had plenty of great ideas, as he would acknowledge in later years, but he knew that it was far too early to try such ideas out.

One of his ideas—an important part of the business philosophy that he devised—grew out of his early years as GE’s CEO, when he was restructuring the company, downsizing people, and rationalizing factory operations .

Devising a Business Philosophy

In pursuit of growth, Welch wanted only those businesses that were number 1 or 2 in their markets in the GE portfolio.

As a result of this restructuring, the business could employ more aggressive tactics, such as in pricing, and have the resources to develop new products.

Without the Number 1, Number 2 strategy, Welch said, inflation would start to impede worldwide growth. There would be no room for a mediocre supplier of products and services. Successful companies in such a slow-growth environment would be those that searched out and participated in growth industries and insisted on being number 1 or number 2 in every business they were in. They would need to be the number 1 or number 2 leanest, lowest cost, worldwide producers of quality goods and services, or they would have to have a definite technological edge in some market.

He downsized the GE payroll, ending the “no layoff” policy that had characterized the company and many other large U.S. firms. He sold $12-billion worth of businesses and purchased $26-billion worth of others. And, he pared GE’s workforce from 412,000 to a mere 229,000.

To Welch, keeping people in place who contributed little or nothing to the company represented a failed strategy. It was a major reason why a company under-performed. GE’s key competition in the early 1980s was coming from overseas enterprises that paid their employees less and achieved higher productivity rates. To compete successfully with such companies, GE had to upgrade equipment and cut employee rolls.

Another significant part of Welch’s business philosophy was his frontal assault on the company’s bureaucracy, DELAYERING (in his famous phrase) GE’s management tiers. When Welch took over, each GE business had 9–11 organizational layers; a decade later, that figure had been cut to 4–6.

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