Every layer is a bad layer. Now we don’t have all that nonsense. If Delhi wants something, they fax me. It’s much easier.
Most of Welch’s early moves at GE—downsizing; number one or number two; fix, close, or sell—were designed to bring focus and discipline to a company that had been complacent far too long.
He had one more such step in mind: cutting out excess layers of management.
All those layers slowed things down, Welch thought, and prevented senior managers from spotting trouble early enough. And ultimately, bureaucracy sapped the company’s entrepreneurial spirit.
A FOUNDATION OF BUREAUCRACY
In the pre-Welch era, GE more or less assumed the existence of a large bureaucracy. In fact, “bureaucracy” was not a dirty word at GE. It implied a strong organization, a certain orderliness. There were bosses, and there were channels. People could “manage by memo,” and that was assumed to be efficient.
But bureaucracy has a way of creeping. Of the company’s 400,000 employees at the time of Welch’s arrival, some 25,000 held the title of “manager.” Approximately 500 were senior managers, and 130 were vice presidents or higher. In other words, there was a huge officer corps, whose members did little except paperwork. They reviewed other people’s memos and wrote memos to their own superiors. One culprit was the planning system, which had grown cumbersome.
We hired a head of planning and he hired two vice presidents and then he hired a planner, and then the books got thicker, and the printing got more sophisticated, and the covers got harder, and the drawings got better. The meetings kept getting larger. Nobody can say anything with 16 or 18 people there.
DELAYERING LETS PEOPLE FLOURISH
Welch decided to slice away at management in a process he called “delayering.” He explicitly disagreed with critics who complained that getting rid of these levels would diminish GE’s vaunted command-and-control capabilities and harm the company.
We attempted to eliminate the command portion while keeping the subtleties of the control. Big corporations are filled with people in bureaucracy who want to cover things— cover the bases, say they did everything a little bit. Well, now we have people out there all by themselves; there they are, accountable for their successes and their failures. But it gives them a chance to flourish. Now you see some wilt. That’s the sad part of the job. Some who looked good in the big bureaucracy looked silly when you left them alone.
Welch had two goals in mind. First, he wanted to turn the strategic planning function over to the businesses. Second, he wanted to remove the obstacles that prevented direct contact among the businesses and between the business and the CEO’s office. Control would survive; command would be diminished. The pace of business would pick up.
Delayering speeds communications. It returns control and accountability to the businesses, which is where it belongs.
We got two other great benefits from the sector delayering.
First, by taking out the biggest layer of top management, we set a role model for the whole company about becoming lean and agile.
Second, we identified the business leaders who didn’t share the values we were talking about: candor, facing reality, lean and agile. We exposed the passive resisters.
In retrospect, Welch was convinced that he had acted properly by trimming GE’s bureaucracy. “By the time you get through the levels, the barn has burned down, and you’ve got to get closer to the game,” he said in 1997. “Every layer is a bad layer. Now we don’t have all that nonsense. If Delhi wants something, they fax me.”
Delayering requires a certain kind of resolve. It’s one thing to lay off lower-level employees at distant factories, far from the corner offices. It’s quite another to ax an associate, or a buddy, in the next office.
But this is the kind of resolve that may be needed to transform a low-performing organization into a higher-performing one or to push a high performer to the next level. Deadwood and redundancy in the executive suites can cost a company dearly in money, flexibility, and spirit.
WELCH RULES
- Get rid of any layers of management that do not add real value to the process. Ask yourself: How can I improve communications with the folks down below on the factory floor? If the answer is “lose layers,” then lose them.
- Don’t let emotions get in the way. Cutting executive jobs can be one of the most difficult decisions a manager has to make. Make the call based on objective criteria, not relationships.