The world is moving at such a pace that control has become a limitation. It slows you down. Before Jack Welch’s arrival at GE, the company was steaming full throttle toward the cliff edge.
Yes, the balance sheet was strong. But only a handful of the company’s 350 business units dominated their markets. The only GE businesses doing well on a global basis were plastics, gas turbines, and aircraft engines (and overseas, only gas turbines were dominant). Something like 80 percent of GE’s earnings still came from its traditional electrical and electronic manufacturing businesses at a time when the manufacturing sector was nosediving. A number of GE’s businesses—aircraft engines, for one— often consumed more cash than they generated.
There were success stories such as financial services, medical systems, and plastics. But these businesses contributed only onethird to total corporate earnings in 1981.
GE’s ADVERSARIES
GE’s adversaries were a changing global business environment and a weakening domestic economy.
For much of the twentieth century, America had dominated the most important markets of the world economy: steel, textiles, shipbuilding, television, calculators, automobiles.
Gradually, though, the competitive arena shifted. The Japanese, in particular, began to lure clients away with higher-quality, lower-cost products. To compete for business around the world, the United States would have to become far more productive.
But by the early 1980s, the American economy was increasingly unhealthy. Inflation, only 3.4 percent in 1971, had soared to 18 percent in March 1980. (One culprit was the price of oil, which spiked from $1.70 per barrel in 1971 to $39 per barrel in 1980.) As Jack Welch assumed the reins at GE in the spring of 1981, the American economy was mired in the deepest recession in a half-century.
Welch’s business ideas were formed as a response to these fundamental changes in the global business environment. He understood, better than most, that the business arena had become increasingly competitive. He had watched a whole new array of enterprises with international capabilities pop up around the globe. He understood that a completely new vision was required and, along with that new vision, a new set of business strategies.
THE MOST COMPETITIVE ENTERPRISE ON EARTH
Jack Welch had a gut feeling that something required fixing.
I could see a lot of [GE] businesses becoming . . . lethargic.
American business was inwardly focused on the bureaucracy.
[That bureaucracy] was right for its time, but the times were changing rapidly. Change was occurring at a much faster pace than business was reacting to it.
Many in American business believed that layer upon layer of management created the tightest possible command-and-control system and, therefore, the best operations. But to Welch, those layers wasted precious time and resources and distracted the company.
The old organization was built on control, but the world has changed . . . You’ve got to balance freedom with some control, but you’ve got to have more freedom than you ever dreamed of.
What was Jack Welch’s vision? Simply this: To make General Electric the most competitive enterprise on earth. As he told shareholders on his first day in office:
A decade from now we would like General Electric to be perceived as a unique, high-spirited, entrepreneurial enterprise . . . a company known around the world for its unmatched level of excellence. We want General Electric to be the most profitable, highly diversified company on earth, with world-quality leadership in every one of its product lines.
He could not wait to put his business ideas to work—to test them, to find out which were valid and which were not. He would shape and refine his ideas. He was determined to make good on his promise to grow GE into the most successful business enterprise in America.
WELCH RULES
- Don’t stick your head in the sand. From the start, Welch had his finger on the pulse of the competitive environment. Keep a close tab on those key variables that create opportunities and challenges for your business.
- See things for what they are. Allocate resources to market-leading businesses, fix ailing companies, and jettison those that are not competitive.
- Begin with a vision. Nothing changes without a clear vision of where change is supposed to lead. The boldest vision may be the best vision.