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This chapter is from the book

Six Sigma

To improve things, Welch instituted the “SIX SIGMA” quality program. Six sigma is a measurement that enables a company to know how effective it is in getting rid of defects and variations from its business processes, products, and services. Literally, six sigma is reached when only 3.1 parts per million are defective.

In June 1995, Larry Bossidy, then head of AlliedSignal, spoke to GE’s senior managers. Bossidy had been a vice chairman at GE, but he left in July 1991 to become the CEO at AlliedSignal. In 1994, Bossidy had launched a six sigma quality program at AlliedSignal. He told GE’s business leaders that GE was a great company (he knew; he had worked there for 34 years), but that there was much to do for it to become greater. Welch had tremendous respect for Bossidy and decided that if six sigma was good enough for Bossidy, it was good enough for him. Welch launched the GE six sigma initiative in January 1996 at the company’s annual gathering of its 500 most senior employees in Boca Raton, FL.

Many of Welch’s strategies certainly paid off. By the year 2000, GE had achieved dominance or near-dominance in dozens of markets across the globe. It was number 1 in the world in industrial motors (manufacturers of electric motors), medical systems (imaging and diagnostic equipment), plastics (plastics for various sectors), financial services (credit and credit card leasing), transport (locomotives and rail equipment), power generation (turbines for power stations), information services (company networks, electronic commerce, etc.), aircraft engines (aircraft jet and other engines), and electric distribution equipment (control systems for industry). NBC, which includes general-interest programming and CNBC (business news), was ranked the number 1 U.S. network. GE was number 2 in the world in lighting (makers of light bulbs and neon strips) and household appliances (stoves, refrigerators, washing machines, etc.).

GLOBALIZATION was an important part of Welch’s philosophy. He was ahead of his time; few U.S. businesses were going “global” when he pushed his own company-wide initiative. Almost from the time he became chairman and CEO of GE, Welch was convinced that GE’s competitors were increasingly non-American, and that important opportunities existed for the company to grow by taking GE’s business overseas.

In the early 1980s, globalization was largely an alien concept to many businesspeople. At that time, fully 80 percent of GE’s revenues were derived from doing business in the United States. Most business leaders believed it was too complicated to operate overseas; Welch, on the other hand, saw globalization as a reality and as a great growth opportunity for GE.

In 1980, only two of GE’s strategic businesses—GE Plastics and GE Aircraft Engines—were global enterprises. By 1999, international revenues had reached $45.7 billion, some 41 percent of GE’s total revenues. In the fall of 2000, GE had 340,000 employees worldwide, with 140,000 of them working abroad.

Another aspect of the business that Welch nurtured for the sake of becoming more competitive was SERVICES. Welch understood that the great growth engine at GE was going to be his services business. This was a new concept. In 1980, the year before Welch took over, GE was almost totally a manufacturing company, with 85 percent of revenues deriving from manufacturing and just 15 percent from services. For decades, GE’s growth had been inextricably bound to the company’s manufacturing side.

The shift away from manufacturing and toward services started in the 1980s and gained great momentum in the 1990s. Though at first, the services side of GE was seen simply as a way of getting GE some extra business, in time, GE executives understood that a focus on services would enlarge the potential markets of GE businesses many times over.

In 1995, when Welch turned the services initiative to full throttle, GE had an $8-billion-per-year services business. In the next five years, by 2000, GE had grown the business to $17 billion. Even in 1990, GE was deriving only 45 percent of its revenues from its services businesses. Just five years later, in 1995, GE’s manufacturing business constituted a smaller percentage of the total; it had gone from 53 percent to just over 40 percent.

The most important engine of GE’s services growth—indeed the key engine of growth for all of GE—was GE Capital Services (GECS). In 1999, revenues for GECS reached $35.7 billion, almost half of GE’s total revenue of $111.6 billion.

Don’t Leave Home Without It

Gradually, Welch’s business philosophy emerged and was reflected in a laminated statement of values card that each GE employee was expected to carry at all times.

Following these values, Welch was implying, would help GE employees build “THE MOST COMPETITIVE COMPANY ON EARTH.” Here are those values, first an early version, then a later one:

  • Create a clear, simple, reality-based, customer-focused vision and be able to communicate it straightforwardly to all constituencies.

  • Understand accountability and commitment and be decisive . . . set and meet aggressive targets . . . always with unyielding integrity.

  • Have a passion for excellence . . . hate bureaucracy and all the nonsense that comes with it.

  • Have the self-confidence to empower others and behave in a boundaryless fashion . . . believe in and be committed to Work Out as a means of empowerment . . . be open to ideas from anywhere.

  • Have, or have the capacity to develop, global brains and global sensitivity and be comfortable building diverse global teams .

  • Stimulate and relish change . . . do not be frightened or paralyzed by it. See change as opportunity, not just a threat.

  • Have enormous energy and the ability to energize and invigorate others. Understand speed as a competitive advantage and see the total organizational benefits that can be derived from a focus on speed.

The above set of values has gone through slight changes lately. The latest version:

GE leaders . . . always with unyielding integrity . . . :

  • Are passionately focused on driving customer success.

  • Live six sigma quality . . . ensure that the customer is always its first beneficiary . . . and use it to accelerate growth.

  • Insist on excellence and be intolerant of bureaucracy.

  • Act in a boundaryless fashion . . . always search for and apply the best ideas regardless of their source.

  • Prize global intellectual capital and the people that provide it . . . build diverse teams to maximize it.

  • See change for the growth opportunities it brings . . . for example, “e-Business.”

  • Create a clear, simple, customer-centered vision . . . and continually renew and refresh its execution.

  • Create an environment of “stretch,” excitement, informality, and trust . . . reward improvements . . . and celebrate results.

  • Demonstrate . . . always with infectious enthusiasm for the customer . . . the “4-E’s” of GE leadership: the personal Energy to welcome and deal with the speed of change . . . the ability to create an atmosphere that Energizes others . . . the Edge to make difficult decisions . . . and the ability to consistently Execute.

Few business leaders have had such a clear-cut and tightly knit business philosophy as Jack Welch. Few leaders have thought about business with such care and devotion. By developing a Welch-like business philosophy and a burning platform, executives stand a better chance of moving beyond business setbacks.

The same benefits can come from engaging in strategic recalibration. To get a better understanding of how one CEO used this strategy to break through the wall, it is time to turn to Cisco Systems’ John Chambers.

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