Number
11
General Electric Company
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Less than a year before he was scheduled to step down as head of General Electric, Jack Welch signed the most lucrative non-fiction book contract ever awarded. The fabled chairman and CEO, called “the leading management revolutionary of the century” by Fortune magazine, was given an astounding $7.1 million to share his story with the world. That was far more than other business leaders had received for similar projects. It was also more than the amount paid for any previous big-name autobiography, including those written by General Colin Powell, and Pope John Paul II. (This advance was eclipsed in 2001 by the $8 million given to Hillary Rodham Clinton to pen her memoirs.)
Many obser vers, even some who readily acknowledge Welch as a bona fide business genius, expressed doubt that he could ever peddle enough copies to justify that type of advance. But Welch repeatedly faced such skepticism after taking over at GE in 1981 as the youngest leader in the company’s long and storied history. He always found ways to dispel it over the ensuing two decades, and his supporters were confident he could do so once more.
General Electric, to be sure, was already one powerful company when the 45year-old son of a railroad conductor took control. The year before, it reveled in a $12 billion market value and recorded earnings of $1.5 billion on sales of $25 billion. It could trace its roots to the great Thomas Alva Edison, and notable alumni ranged from Hewlett-Packard co-founder David Packard to offbeat novelist Kurt Vonnegut. It had a hand in developing everything from light bulbs and toaster ovens to televisions and jet planes. Its name was one of the most well-known on Earth.
Welch and his backers felt GE could do better, however, and under his direction it has. By emphasizing quality in both products and processes, the company’s sales increased nearly ten-fold while its stock moved consistently upward. Unproductive subsidiaries were jettisoned and promising new ones acquired. A bloated payroll was trimmed drastically and unnecessary layers of bureaucracy cut. In the process, GE was transformed from a successful if lumbering old-line industrial giant into a sleek money-minting conglomerate that now combines manufacturing with service and technology in a way that meshes perfectly for today’s global economy.
GE’s story begins in 1878, when Thomas Edison founded the Edison Electric Light Company to support his development of a practical incandescent lamp. He produced his first one, along with his first “dynamo,” within a year. As other products followed, he renamed the company Edison General Electric. Competing firms started surfacing. One, the Thomson-Houston Electric Company, grew particularly strong because of a series of mergers and acquisitions. Edison ultimately combined forces with it in 1892, and a powerful new entity dubbed General Electric was born.
Through his patents and consulting responsibilities, Edison remained involved with his old company for several years. During this time it moved into various related endeavors—such as building the world’s largest electric locomotives and transformers. Success in these fields led to GE’s listing in the original Dow Jones Industrial Index in 1896. Today, it is the only one of those initial entries still included.
Edison’s passion for invention also rubbed off on his peers. In 1900 the company established a novel research and development center run by Dr. Willis R. Whitney. Over the years GE’s in-house scientists developed many trailblazing ideas at this facility in Schenectady, N.Y. (which is now the world’s largest private lab of its kind). Among the many early products that took shape here was the first electrically-propelled ship developed for the U.S. Navy in 1912, and the first hermetically-sealed domestic refrigerator unveiled in 1925.
The 1920s additionally kicked off a lengthy period in which General Electric began focusing on the creation of TVs and radios. The company’s first connection to this burgeoning news-and-entertainment arena can be traced to 1919, when it helped David Sarnoff found the RCA Corporation. Its initial intention was to corner as large a portion as possible of the rapidly growing market for radio receivers, which soared in sales from 12 million in 1921 to 207 million in 1926. But during this time, GE also entered the broadcast fray, putting Schenectady’s WGY on the air in 1922 in direct competition with RCA’s own content providers.
As RCA organized the NBC network and began experimenting with an even more promising media called television—both as a broadcaster and a set producer— GE formed a plastics division to advance development of TV receivers and related products. It also moved into the production of airplane engines as World War II began. In 1942, its turbos powered the very first jet-propelled planes designed and built in the United States. A decade later, its J-79 jet engines were the first to transport aircrafts at twice the speed of sound. The smaller appliances, such as those it had become known for in the past were not neglected. In the 1950s, GE began building early computers (again with RCA) while its housewares division introduced the Toast-R-Oven, along with a clothes dryer that featured the industry’s first automatic termination device.
During the next few years General Electric played a role in the creation of even more technically advanced projects, such as the weather satellite and vacuum circuit breaker. And in 1969, it assisted in the Apollo moon landing—which was the result of 37 separate GE operations handled by 6,000 company employees. Dr. Ivar Giaever of its R&D Center was awarded the Nobel Prize for physics in 1973, and the facility designed a critical component for the CAT scanner in 1975. Its lighting division by this time had become a leading supplier of bulbs and other products around the globe. The appliance division was then also one of the world’s largest, producing refrigerators, freezers, ovens, ranges, washers, dryers, dishwashers, microwaves, disposals, compactors, air conditioners, and water purifiers. The aviation division had expanded into aircraft leasing, while other departments concentrated on electric power, medical technology, and a host of individual and commercial financial services.
Still, shareholders were not satisfied. In 1981, they shook things up by naming John F. Welch, Jr. to lead the firm. The Massachusetts native not only became the youngest person ever to head GE, but with his Ph.D. in chemical engineering he was also the first with a doctorate at the helm. Welch quickly showed that he would additionally be the first in modern times to demand big changes. Immediately, he announced that the 89-year-old institution would henceforth only compete in fields in which it could be first or second among all players.
To reach that goal, he pulled the company away from small household appliances. He downsized the workforce from 404,000 to 229,000, ending GE’s longtime no-layoff policy and earning the nickname Neutron Jack (after the bomb that destroys people but leaves buildings intact). He sold $12 billion in GE businesses and purchased others worth $26 billion. Among them was the RCA Corporation and its NBC television network, although he turned right around and swapped RCA’s consumer electronics division—which he deemed a loser—for a French medical technology firm. He agreed to combine GE’s European interests in appliances, medical equipment, electrical distribution, and power systems with the unrelated General Electric Company of Britain. And he “delayered” every one of the company’s division—going from as many as 10 or 11 management tiers in each to as few as four or five.
The combination generated some criticism even as it transformed the venerable manufacturing giant into a global service-oriented titan. It also boosted the company’s market cap from $12 billion to more than $100 billion—garnering increasing admiration along with the rapidly diminishing complaints.
Above all, Jack Welch prepared GE for the 21st century by insisting that all of its businesses would consistently perform at the highest level possible. In 1995—the year he underwent triple bypass surgery and started speculation about a successor— Welch implemented his most famous effort in this regard: “Six Sigma.” A quality initiative that permits just 3.4 defects per every one million possibilities, Six Sigma demands near-perfection across the board. Welch invested $200 million that first year to jump-start the program in 200 projects. When he learned it almost immediately generated $170 million in savings, it was rapidly expanded. Other firms also rushed to use it to boost their customer satisfaction, supplier quality, internal performance, and other gauges of accomplishment.
Welch’s legend expanded as GE became, in 1997, the first company in the world to exceed $200 billion in market value. After teaming its NBC division with Microsoft in order to launch the groundbreaking television and Internet news service MSNBC, he aggressively expanded the list of products the company sells online—including financial services such as insurance, mutual funds, credit cards, and home mortgages. He also achieved his goal of becoming number-one or number-two in a wide array of industries—from broadcasting to appliances, aircraft engines to locomotives, medical gear to plastics. Nonetheless, he was still acquiring as many as 100 new businesses a year.
And then Welch announced that he would step down late in 2001, after 20 years on the job. At the end of 2000, GE named medical systems division boss Jeffrey R. Immelt, 44, to replace Welch. Immelt immedately became presidentand chairmanelect, and began working closely with Welch until the transition was completed.
At number-five on the Fortune 500, with successful operations in dozens of fields and more than 100 countries, he had taken GE farther than almost anyone expected. Few were surprised, therefore, when he was offered the record book advance to explain how he did it—or with his subsequent pledge to give the entire $7.1 million and all additional earnings to charity. Welch, after all, had always been a quality guy.