The operative assumption today is that someone, somewhere, has a better idea.
Before Jack Welch came along, many analysts thought GE to be unmanageably huge, complex, and heterogeneous. Some considered the company a rudderless conglomerate—a collection of assets that lacked coherence and a unifying vision.
Welch did not agree.
He believed that GE’s diversity and complexity could be turned into an asset if he could create what he called a “learning culture.” In a learning culture, GE’s employees would search for new ideas—inside or outside the company—and implement the best ones actively and aggressively.
Large and diverse corporations, as Welch saw it, have contradictory needs. They need both strong integration and rich diversity. In combination, these two ingredients enable the whole to outperform the sum of its parts. Welch referred to this as “integrated diversity,” and this was his goal.
OPENNESS IS ESSENTIAL
Learning organizations, said Welch, have an edge. Learning translates into actions, and actions spark productivity.
The idea of the learning culture was simple: GE businesses would share knowledge from every corner of the company.
Shared knowledge would provide a competitive advantage, and that advantage would translate into higher annual growth rates.
Welch observed that integrated diversity could work only when the component parts of that diversity—GE’s businesses— were strong in their own right. That was why it had been so important to create strong, stand-alone businesses in the 1980s. From strength came self-confidence, and from self-confidence came openness.
Openness, Welch said, was essential.
LEARNING CULTURE ENHANCES PERFORMANCE
How do you build a learning culture? The Work-Out program of the early 1990s set the stage. At the heart of Work-Out was the assumption that in many cases employees knew what was best. As Welch noted:
The operative assumption today is that someone, somewhere, has a better idea; and the operative compulsion is to find out who has that better idea, learn it, and put it into action—fast.
The quality of an idea does not depend on its altitude in the organization . . . An idea can be from any source. So we will search the globe for ideas. We will share what we know with others to get what they know. We have a constant quest to raise the bar, and we get there by constantly talking to others.
Welch was fond of saying that GE’s core competence lay in sharing ideas across businesses, across what he termed the “boundaryless organization.” He wanted GE to think of itself as a series of laboratories that shared ideas, financial resources, and managers. He encouraged a free flow of ideas not just among GE businesses but also between GE and other companies as well.
Speaking to GE shareholders in April 2000, Welch reemphasized his commitment to the learning culture. The ultimate, sustainable competitive advantage of a company, he proclaimed, is its ability to learn, to transfer that learning across its components, and to act quickly:
That belief drove us to create a boundaryless company by delayering and destroying organizational silos. Selflessly sharing good ideas while endlessly searching for better ideas became a natural act. We purged NIH—not invented here— from our system, creating a company with an insatiable desire for information.
All this was done the hard way, before the arrival of the Internet. Today, with the Internet, information is available everywhere to everyone, and a company that isn’t searching for the best idea, isn’t open to ideas from anywhere, will find itself left behind, with its survival at stake.
The result? Welch credited GE’s learning culture with enhancing the company’s performance in several ways:
- Operating margins, less than 10 percent for literally a century, rose to 17.3 percent in 1999.
- Inventory turns, which are a key measure of how well assets are deployed and managed, had run in the three to four range for a century but topped eight in 1999.
- Company earnings, which had shown only single-digit increases throughout the 1980s, showed double-digit increases for most of the 1990s.
WELCH RULES
- Emphasize idea sharing inside the company. Does your company have a way to make sure ideas are exchanged at every level and from every corner of the company?
- Find and implement the best ideas, no matter where they come from. Welch demolished the notion that the best ideas come only from within.
- Make sure that great ideas are followed by implementation. Unless the idea is acted on, it will have little impact.