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Work Out

In the fall of 1988, Welch came up with the solution: a company-wide program he initiated and called “Work Out.” It was an effort that aimed at capturing whatever good ideas employees had for improving the company’s operations and implementing those ideas. Over the next few years, every GE employee attended a Work Out session, where he or she was encouraged to propose ways to improve GE’s operations. The head of the business unit where a Work Out session was occurring was required to appear in front of the group and decide on the spot to implement a select set of proposals. The program worked wonders. It got GE employees involved in the company’s problems and challenges, and it forced everyone to look at the company’s operations from top to bottom on a continuing basis.

Another anchor of Welch’s business philosophy was to AVOID FOCUSING TOO MUCH ON ACCOMPLISHMENTS. To be sure, he encouraged colleagues to celebrate the attaining of financial goals—usually by going out and buying pizza for everyone (he did not believe in wasting money, either!). But on the whole, Welch had little love for milestones because he had little love for the past. He constantly put down the past as irrelevant to what he was doing—at that moment! He could not change it. He was, of course, proud of what GE had achieved during his time at the helm, but he preferred discussing the present and the future. He believed firmly there was nothing he could do to change the past, so the most he would do was to thank everyone for having a great year and then get on to talking about the future.

His strategy of “stretch,” another anchor of the Welch philosophy, was clearly designed to make the company more competitive. This strategy aimed at getting the best out of his employees. Always willing and eager to reinvent himself and his company, always trying to convert change into an opportunity, always on the prowl for what should be the next corporate-wide initiative at GE, Welch simply did not sit still. He did not allow complacency. He wanted managers to “stretch” their financial goals and try to beat their budget objectives.

The first aspect of the stretch philosophy was to figure out performance targets that were achievable, reasonable, and within the company’s capabilities. The key second aspect involved setting those sights higher—far higher—toward goals that seemed beyond reach, requiring superhuman effort to achieve.

Welch began his stretch program in the early 1990s. To have done it sooner would have asked too much of employees still reeling in the aftermath of the restructuring phase.

Creating what Jack Welch called a “LEARNING CULTURE” became an important part of his business philosophy in the 1990s. Welch liked to say that the operative assumption was that someone, somewhere, had a better idea. By sharing knowledge, GE businesses would gain a competitive edge, and that advantage would translate into higher earnings for the company.

He credited GE’s learning culture with adding to the company’s performance in several important ways:

  • Operating margins, under 10 percent for the last 100 years, had risen to 17.3 percent in 1999. In the first half of 2000, GE crossed the 18 percent threshold (the second quarter was over 20 percent).

  • Inventory turns, a key measure of utilizing assets, had run in the three to four range for a century, but was over eight in 1999.

  • Company earnings, which had shown only single-digit increases through the 1980s, had attained double-digit increases since 1992.

No matter how well GE did—and by the 1990s, the company had emerged as the nation’s strongest—the CEO did not rest. In 1995, he took a big new step.

Six Sigma

WELCH SOUGHT TO MAKE GE “THE MOST COMPETITIVE COMPANY ON EARTH” by launching a company-wide initiative to improve the quality of GE’s products and processes.

It had taken Welch a while, but now he was convinced that GE could no longer assert that its quality was high. Nothing was as fundamental to a company’s performance as its quality and productivity. At first, this new push seemed a strange choice for Welch. GE had certainly made a dramatic point about having quality products and processes in the past. With respect to quality, the company’s reputation was solid. Why was Welch so convinced that GE had to focus on quality as if its very survival depended on it?

One part of the answer: GE’s products and processes had not yet attained world-class quality. Others like Motorola, Toyota, and HP enjoyed great reputations, but GE did not. Another part of the answer had to do with an error that Jack Welch later admitted to: He had long assumed that by instilling in his employees favorite Welch business values such as “the need to develop self-confidence” and to “look at business as a simple exercise” would in turn guarantee high quality for GE’s products and processes. He assumed that improving the speed with which GE employees operated, improving their productivity, and raising their level of involvement in company decision-making would inevitably result in employees producing high-quality work. But it did not work. Certainly, under Welch’s tutelage, employees became more self-confident and they came to appreciate the value of regarding business as simple. But, the level of quality failed to rise sufficiently.

Prior to the mid-1990s, Welch had been urging greater and greater levels of productivity from GE personnel. Yet, by the mid-1990s, employees insisted that greater productivity was only possible if there were improvements in the quality of GE’s products and processes. These employees told Welch that too much time was being spent on fixing and reworking a product before it left the factory. This bottleneck cut down on GE’s speed and reduced productivity. As a result, the performance side suffered.

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