The News About Platitudes Is That GE Puts Them to Work
Why should we care that Chairman John F. Welch Jr. of General Electric made news last week by saying that too many bosses spoil a business and that inspiration gets a job done better than intimidation?
Because we’re all affected by the success or failure of American business, and Welch is one of the few executives who seems to understand that in this day and age big companies can be lousy places to work--with managers everywhere building “functional walls and management floors, pouring procedural cement and posting no trespassing signs”--as he wrote in GE’s annual report.
In recent years, Welch has been trying to change that pattern at GE, holding raucous sessions in which employees confront managers and take some control over their own jobs. The underlying belief is that self-confident workers will do more on their own, without interference from a hierarchy of bosses, and that managers get more done by encouraging people rather than ordering them around.
Such concepts may sound “shopworn and platitudinous,” Welch concedes, but he insists that GE’s 284,000 employees are making them work. And maybe they are.
Welch is worth listening to because he has made the 114-year old GE a notable survivor--while many big U.S. companies have faded--simply by recognizing that in a changing world, people and companies must change or be left behind.
The irony is that Welch himself has been an extremely demanding boss as he has led GE, amid controversy and skepticism, since 1981. It was a massive company, making power plants, aircraft engines, light bulbs and kitchen appliances, when he took the helm. And it has grown much bigger over the decade, more than doubling sales to $60 billion and trebling profits to last year’s $4.4 billion. GE stock sold at the equivalent of $17.50 a share in 1981, and now sells close to $78.
Yet while all that growth was going on, Welch reduced GE’s employment by 30%. In the early days, the staff reductions won him the nickname “neutron Jack,” after a Pentagon weapon that eliminated people but left buildings intact. But the nickname has lost its force as other big U.S. companies have announced massive job cuts in recent years.
What Welch saw ahead of others is that U.S. companies had to increase productivity--output per employee, per unit of capital--to stay competitive in global markets. When he became chairman of GE, its big competitor was Westinghouse. Now that Pittsburgh company is troubled financially and GE’s chief competitors are Siemens of Germany, Toshiba of Japan and Asea-Brown-Boveri of Sweden.
Welch is smart but he probably got to the top of GE because he’s a scrapper. Five-foot-eight and slight of build, he played hockey as a kid--and overcame a childhood stammer. With a doctorate in chemical engineering from the University of Illinois, he went to work for GE in 1960 in their new engineered plastics section--which developed hard plastics to replace steel in car bodies. It was a good place to see the world changing, but Welch quit GE in 1961--reportedly because he disliked the indifferent atmosphere of a big company.
He was hired back, rose through marketing, got GE’s top job--at age 46--and proceeded to shake up the company by selling some businesses, acquiring others. Critics called him just another deal-maker and questioned his claim to have something new to say. And their criticisms grew after he acquired RCA in 1986, and traded its TV set business for a European presence in medical electronics. Moreover, he openly used the profits of the NBC television network to support medical electronics and GE’s power plant business in lean times.
But Welch points out that GE leads the world in medical electronics. And now, the record is beginning to show that GE has staying power for global competition. The company revamped its aging light bulb factories in the 1980s, just in time to cope with a flood of new competitors from Europe. It held U.S. market leadership and has now advanced into Europe itself.
When big bets went bad, there was time to recoup losses. In the mid-1980s, GE’s aircraft engine business developed a prop-fan engine that promised a 40% saving in fuel. But the timing was lousy--the price of oil fell to $10 a barrel in 1986 and the prop-fan never caught on. But GE turned prop-fan research into success with an advanced-materials engine for a new breed of long-distance jets that will fly the Pacific.
But most revealing for the current emphasis on employee self-confidence is GE’s $1-billion investment in the ‘80s to bring its Louisville kitchen appliance plant up to global competitiveness. That meant total quality on the assembly line--employees couldn’t let defects go through. “Yes, it’s hard to hold back a $100-million line at 10% production until you get zero rejects,” Welch says. “But once you do, productivity just explodes because you eliminate rework, which in some cases used to take up a third of the plant.”
The lesson of quality manufacturing is that individual workers are not ciphers on an assembly line; they have responsibility, must know what they are doing and be in control. And of course a foreman who would try to undermine the workers’ control would only gum up the works.
All right, Welch is saying, total quality brought massive productivity increases to U.S. factories--those of GE and other companies. So now let’s try it in the offices and other departments, and in the service businesses--where productivity has been lagging.
The real irony last week was that Welch should make headlines with such a common sense idea.
