Who was Jack Welch?
Jack Welch was president and CEO of General Electric (GE) from 1981 to 2001. Under his leadership, Welch dramatically increased GE’s market value from $14 billion to $410 billion. He had the reputation of being one of best CEOs all time. Fortune dubbed him “Manager of the Century” in 1999. When Welch retired, GE awarded him a rupture estimated at $420 million, the largest ever at the time. Welch died on March 1, 2020, at the age of 84.
Key points to remember
- Jack Welch was chairman and CEO of General Electric from 1981 to 2001.
- Welch closed factories, laid off workers and presented a vision of “rapid growth in a slow-growing economy”.
- In retirement, Welch was active as a writer and lecturer, writing the 2005 memoir, Winner.
- Welch died on March 1, 2020, at the age of 84.
Understanding Jack Welsh
Welch started working for GE as a junior engineer in 1960 after earning a doctorate. in Chemical Engineering from the University of Illinois at Urbana-Champaign. He rose through the ranks to eventually lead the company as chairman and CEO between 1981 and 2001. Welch threatened to quit the company several times during his first years of employment due to bureaucratic inefficiency. But as president and CEO, he worked to eliminate bureaucracy and increase growth.
During the 1980s, Welch streamlined GE’s sprawling business. He fired unproductive managers and eliminated entire divisions. He then acquired other companies and led them to adopt better business models and increase GE’s profits. He closed factories, laid off workers and presented a vision of “rapid growth in a slow-growing economy”, which was the title of a speech he gave in 1981, shortly after becoming president. This period of massive restructuring earned him the nickname “Neutron Jack” because he got people out while leaving buildings standing, like a neutron bomb.
Welch promoted the idea that GE and other companies should either be #1 or #2 in a particular industry or exit it altogether. Welch led Motorola adoption Six Sigma program to increase productivity in manufacturing, applying it to GE as a whole. He developed a “rank and yank” style of dealing with underperforming employees and managers by making sharp cuts in staff based on their rank relative to other employees and divisions.
At the same time, Welch trimmed the fat from what started out as a nine-tier management layer. He also worked to establish an air of informality, as if GE were a small company (rather than the merged company it became during his tenure). Welch’s fundamental management belief was that the most successful managers could turn around almost any business. So GE has experimented with everything from televisions to synthetic diamonds. Ironically, this led to an expansion phase, once again making GE a conglomerate by nature, even if it was a more aggressive management.
Jack Welch’s Legacy
In retirement, Welch was active as a writer and lecturer, writing the 2005 memoir, Winner.He joined a business forum created by former President Donald Trump to provide strategic advice on economic issues.
Welch’s legacy has been complicated somewhat by the fate of GE since he left. Welch left the company just as internet bubble burst, damaging some of GE’s expanding business. His successor, Jeff Immelt, was forced out of many businesses seen as distracting from GE’s core profit centers.
Immelt also presided over a decline in GE shares as the Financial crisis of 2007-08 affected GE’s financial operations.The role model left by Jack Welch was good at pulling profits from the best companies. However, this left GE ill-equipped to survive external shocks and develop new businesses and innovations that would carry the company into the future. In short, GE’s success was largely the product of excellent timing that was difficult to sustain over the long term.
More importantly, Welch was perhaps the first CEO whose performance was viewed primarily through the lens of stock performance. Although investors generally appreciate this view of companies, it has led managers to focus on short-term performance. This focus on short-term performance can have a negative long-term impact on a company’s sustainability when taken to extremes.