Jack Welch
…on Customers

“Hierarchy is an organisation with its face toward the CEO and its ass toward the customer”, said Jack Welch famously. The comment sums up Welch’s no-nonsense, clear-eyed view of the shift in power from supplier to customer that underpinned his 20-year reign at the head of industrial giant GE.

Welch’s radical re-invention of his companies in response to deep changes in their markets turned GE over twenty years from a bureaucratic behemoth to a dynamic powerhouse. During his tenure, the company’s market value grew from $13 billion to $500 billion.

At the heart of the Welch legend is his readiness to embrace change rather than shrink from or ignore it. The first imperative when he took over at GE, he said recently, was the need to make the sprawling collection of GE companies less complex and more agile, so they could respond to or even anticipate customers more quickly.

According to Welch’s analysis, if the pace of change inside your organisation does not keep up with the pace of change outside, then you are heading for trouble, which is exactly the situation he describes at GE in the 1980s. “Change was occurring at a much faster pace than the business was reacting to it,” he said. His recipe for long-term change was a three-step one: lower the waterline so the complex workings of GE could be seen; simplify and streamline processes ruthlessly; give control and performance management tools to managers at the front-line.

Lower the waterline
The first part of his solution was to strip out internal barriers and de-layer the organisation, a task achieved with such ruthlessness and speed that Welch’s first few years at GE earned him the nickname ‘Neutron Jack’, after the weapon the Pentagon was developing at the time that got rid of people but left buildings standing.

“Bureaucracy is terrified by speed and hates simplicity...we had to get rid of anything that was getting in the way of being informal, of being fast, of being boundaryless,” he explained. Welch’s business philosophy at the time was assumed to be simply one of hollowing out, of cutting waste and reducing headcount. The most infamous element of Welch’s relentless cost-cutting in his first few years as CEO was the policy of culling the bottom ten per cent.

The ‘cull’ was a periodic sacking of poor performers that provided the engine for what Welch calls the “Vitality Curve”, breathing energy into the organisation by changing how its people behave. As with all the processes that Welch introduced, this active management of people turnover was elegantly simple. It began with sorting people into A, B or C Players. “The basic concept was we forced our business leaders to differentiate their leadership,” he explained. “They had to identify the people in their organizations that they consider in the top 20 percent (As), the vital middle 70 percent (Bs), and finally the bottom 10 percent (Cs). The under-performers generally had to go.”

Simplify processes
Welch’s championing of re-engineering had a rationale that went beyond cost and efficiency. It was part of a long-term customer agenda, which the management guru Tom Peters explains this way:

“’Put customers first’ is nonsense unless you’ve cleaned the crap out to allow people on the front line to do it. That’s what Welch was doing for his first five years at GE. He was removing layers of bureaucracy, cleaning up the organisation inside before it could be customer-centred. It’s all about the raw, naked distribution of power to the front line without interference.”

Welch was one of the first bosses to tackle perhaps the central problem of the large organisation today: how to give people freedom to make decisions without having to go up the hierarchy for approval – which customers hate – but within a framework that keeps the whole organisation aligned. Becoming ‘boss free’, he says, “means you’ve got to balance freedom with some control, but you’ve got to have more freedom than you’ve ever dreamed of.”

Introducing the prescriptive Six Sigma system for improving and measuring quality across GE hardly sounds like a recipe for freedom. But Welch explains that “by aligning what we measure internally with our customers’ needs, Six Sigma gave us better customer intimacy and trust.”

The front line
Welch’s personal practices as a boss were far less ruthless than his ‘Vitality Curve’ would suggest. He was meticulous about faxing thank yous to employees and then followed up with a hard copy in the post. Although working ‘to’ the boss instead of working to the customer is frowned on at GE, the legacy that Welch left is one that current GE CEO Jeffrey Immelt describes this way: “We run the company so that 300,000 people feel the chairman might enter their world at any time. I spend roughly 40% of my time on people issues; so do our other top leaders.”

Welch, unlike most CEOs, pioneered this ‘people first’ approach to leadership. He and his top team would visit a GE company and spend the whole day talking about the individual people working there, identifying their strengths and recommending development paths. “We learned the hard way that we could have the greatest strategies in the world but without the right leaders developing and owning them, we’d get good-looking presentations and so-so results,” explained Welch.

As the Harvard researchers behind the Service-Profit Chain have pointed out, the evidence is that staff who have that much positive attention paid to them by the Boss take that as a role model for how attentive they should be to customers. And so it became at GE.

Jack Welch’s Top Ten Tips on leading a customer-centred organisation.

1.WHAT TO MEASURE?
“If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction and cash flow.”

2. BUILD CONFIDENCE. THAT’S YOUR JOB DESCRIPTION.
“If you’re not simple, you can’t be fast. And, if you’re not fast, you’re dead. So, everything we do (at GE) focuses on building self-confidence in people so they can be simple.”

Welch recently said that his mother helped build the self-confidence that has been the bedrock of his success. She used to explain his speech impediment by saying that his brain worked faster than his mouth. Welch joked that he was stupid enough to believe her.

3. SET YOUR PEOPLE FREE
“You’ve got to balance freedom with some control, but you’ve got to have more freedom than you’ve ever dreamed of.”

4. SHOUT WHEN YOU WIN
"People feel guilty about stopping to celebrate a little victory ... but it lets people know they've won. It's so critical to an institution. It brings it alive, gives it character."

5. NUMBERS AREN’T ENOUGH
“Numbers aren’t the vision. Numbers are the product. I never talk about numbers.”

6. SPEND MORE TIME ON TALENT DEVELOPMENT
“In most companies, the talent review process is a farce. At GE, Jack Welch and his top two HR people visited each division for a day. They reviewed the top 20 to 50 people by name. The talent review process is a contact sport at GE. It has the intensity and importance of the budget process at most companies.”
McKinsey’s Ed Michaels, in his book The War For Talent.

7. FAIR DOESN’T MEAN ‘THE SAME’
“Every person should be treated fairly in an organization, but every person should be treated differently in an organization."

8. MAKE PEOPLE SHARE GOOD IDEAS
“What makes a company flourish is transferring ideas.” At quarterly meetings, Welch insisted that GE bring together the leaders of all of its businesses to share generic best practice ideas. “We take the best of diversity and use it,” said Welch.

9. MEET CUSTOMERS MORE OFTEN
Welch made a point of personally meeting GE’s major customers in the spring and fall of every year. He put much of his and GE’s customer insights down to these twice-a-year reality checks with customers.

10 DON’T DITHER. JUMP
“I’ve learned in a hundred ways that I rarely regretted acting but often regretted NOT acting fast enough.”