These are the businesses that we really want to nourish. These are the businesses that will take us into the twenty-first century. They are inside the circles. Outside the circles you have businesses that we would prefer not to pursue any further.
Jack Welch felt he had no choice. He not only had to reshape the company but also reduce its size dramatically.
Alone among American business leaders, Welch was willing to downsize a company that was not facing an imminent crisis. He knew this would be a heart-wrenching process. But the result would be worth it: a GE that was sleek, aggressive, and competitive.
DOWNSIZING: AN UPHILL BATTLE
Prior to the 1980s, conventional wisdom decreed that employees should be let go only as a last resort and only when a company was on the brink of a major business reversal.
So when “downsizing” first appeared on the American business landscape, it was taken as an indication of a serious decline in the downsizing company’s fortunes. Or perhaps worse, it was seen as an evasion of corporate social responsibility.
Apart from that, it was difficult to fire people.
One principle that labor unions had hammered into the American consciousness was the right of every individual to hold a job. To some extent, this translated into a right not to be fired.
Meanwhile, the politicians in Washington had accepted the notion that jobs, especially in one’s home district, were more important than a corporation’s bottom line.
And for their part, corporate managers had little appetite for firing employees. Some didn’t want to make the tough decisions. Others believed in the principle of job security, arguing that it fostered loyalty and productivity.
Jack Welch, however, believed that lifetime employment was a failed strategy. GE’s competition in the early 1980s was coming from foreign firms whose workers had achieved higher productivity rates. To compete with those companies, GE would have to invest in new equipment and cut payrolls.
Welch’s position constituted a dramatic shift in corporate thinking. In 1981, GE rang up profits of $1.5 billion, and the company didn’t appear to be in trouble. The effect of Welch’s downsizing program would be to put thousands of GE employees out of work. His tactics soon made him one of the most controversial CEOs in America.
It was an uphill battle and no doubt a lonely one. No other American CEO reached the decision to perform radical surgery on his or her own company, even before conclusive evidence of a life-threatening illness had emerged. Welch stood alone.
THE NICKNAME HE HATES
The reactions to Welch’s initial efforts at restructuring were highly negative. He was dubbed “Neutron Jack”—an allusion to the neutron bomb, which kills people but leaves buildings standing.
Neutron Jack: The name haunted Welch.
The media used it to characterize him as a heartless, evil individual—a manager who cared only for the bottom line and not for the good of his employees.
Welch’s bitterness is clear as he talks about his hated nickname:
I think it was a harsh term. Mean-spirited. They call me “Neutron Jack” because we laid off people even though we gave them the best benefits they had in their life.
Despite all the controversy, it wasn’t a close call in Welch’s mind. He was convinced that only massive surgery would ensure GE’s long-term success.
He did not think that he had a choice.
He was not at the helm of GE to make his employees happy.
He was there to make the company as profitable as possible.
WELCH RULES
- Even in the good times, regularly review expenses and head counts. Welch downsized when GE appeared to be healthy. Don’t assume that because all is well at the moment, it will stay that way. (And are you sure all is well?)
- Don’t lead by polls. CEOs should not run companies as if they were popularity contests. Welch didn’t hesitate to make himself unpopular in his early years, bucking conventions and conventional wisdom. Do what you know is right for the long-term health of the organization.
- Remember that tough actions today may prevent far more complex problems later. Had Welch not restructured in the early 1980s, he might have had to eliminate far more jobs in later years.