SECTION II

BUILDING A PHILOSOPHY

7

Dealing with Reality and “Superficial Congeniality”

On April 1, 1981, I was like the dog who caught the bus. I finally had the job.

Despite all the experiences that had gotten me this far, I wasn’t nearly as sure of myself as I pretended to be. Outwardly, I had a pretty good dose of self-confidence, and those who knew me would have described me as self-assured, cocky, decisive, quick, and tough. Inwardly, I still had plenty of insecurities. Whenever I had to get up in front of people, I struggled with my speech impediment. I fussed with a comb-over to disguise my receding hairline. And when someone asked me how tall I was, I had myself believing I was at least an inch and a half taller than the five feet eight I really was.

I came to the job without many of the external CEO skills. I had rarely dealt with anyone in Washington, even though the government was more into business than ever. I had little experience dealing with the media. My only press conference was the scripted session with Reg on the day GE announced I would be the next chairman. I had only one or two brief outings before the Wall Street analysts who followed GE. And our 500,000-plus shareholders had no idea who Jack Welch was and whether he would be able to fill the shoes of the most admired businessman in America.

But I did know what I wanted the company to “feel” like. I wasn’t calling it “culture” in those days, but that’s what it was.

I knew it had to change.

The company had many strengths. It was a $25 billion corporation, earning $1.5 billion a year, with 404,000 employees. It had a triple-A balance sheet, and its products and services permeated almost every part of the GNP, from toasters to power plants. Some employees proudly described the company as a “supertanker”—strong and steady in the water. I respected that but wanted the company to be more like a speedboat, fast and agile, able to turn on a dime.

I wanted GE to run more like the informal plastics business I came from—a company filled with self-confident entrepreneurs who would face reality every day. Every milestone could trigger a celebration that would make business fun. With a few notable exceptions, fun was not the norm at the time.

I knew the benefits of staying small even as GE was getting bigger. The good businesses had to be sorted out from the bad ones. I wanted GE to stay only in businesses that were No. 1 or No. 2 in their markets. We had to act faster and get the damn bureaucracy out of the way.

The reality was that at the end of 1980, GE was, like much of American industry, a formal and massive bureaucracy, with too many layers of management. It was ruled by more than 25,000 managers who each averaged seven direct reports in a hierarchy with as many as a dozen levels between the factory floor and my office. More than 130 executives held the rank of vice president or above, with all kinds of titles and support staffs behind each one: “vice president of corporate financial administration,” “vice president of corporate consulting,” and “vice president of corporate operating services.”

There were eight regional or “consumer relations” vice presidents located around the country without direct sales responsibility. The bureaucracy this structure created was huge. (Today, in a company six times as large, we have roughly 25 percent more vice presidents. We have fewer managers, and most now average over 15 direct reports, not seven, with in most cases fewer than six layers between the shop floor and the CEO.)

It didn’t take very long to bump up against some of the worst practices.

A couple of months into the job, Art Bueche, the head of our R&D operations, stopped by my office. He wanted to give me a series of cards with written questions for our upcoming planning sessions with GE business leaders. The centerpiece of these meetings, held every July, were thick planning books that contained detailed forecasts of sales, profits, capital expenditures, and myriad other numbers for the next five years. These books were the lifeblood of the bureaucracy. Some GE staffers in Fairfield actually graded them, even assigning points to the pizzazz of each cover. It was nuts.

I looked through the cards Art handed me, surprised to see corporate crib sheets filled with “I gotcha” questions.

“What the hell am I supposed to do with these?”

“I always give the corporate executive office these questions. That lets them show the operating people that they studied the planning books,” he replied.

“Art, this is crazy,” I said. “These meetings have got to be spontaneous. I want to see their stuff for the first time and react to it. The planning books get the conversation going.”

The last thing I wanted was a series of tough technical questions to score a few points. What was the purpose of being CEO if I couldn’t ask my own questions? The corporate staff had its rear end to the field—and it was too busy “kissing up” to the bosses.

The corporate executive office, including my vice chairmen, wasn’t the only group at headquarters getting crib sheets. For every business review, headquarters people loaded up their own staff heads with questions.

We had dozens of people routinely going through what I considered “dead books.” All my career, I never wanted to see a planning book before the person presented it. To me, the value of these sessions wasn’t in the books. It was in the heads and hearts of the people who were coming into Fairfield. I wanted to drill down, to get beyond the binders and into the thinking that went into them. I needed to see the business leaders’ body language and the passion they poured into their arguments.

There were too many passive reviews. One annual ritual was the spring trip to the appliance product review in Louisville. A team of designers and engineers hauled out cardboard and plastic mock-ups. Here we were from Fairfield, being asked for our opinions on futuristic refrigerators, stoves, and dishwasher models.

I’ll never know how many of these models ever made it to the dealer’s selling floor. I did know that some of the mock-ups had to have the dust brushed off them because they had been paraded out in prior reviews for years. I also knew that the comments from the Fairfield contingent, including myself, were of little value. This ritual was a waste of everyone’s time.

I wanted to break the cycle of these dog-and-pony shows. Hierarchy’s role to passively “review and approve” had to go.

 

After the planning sessions my first summer, I tried to create the environment I was looking for with my own staff. I thought a good way to break the ice was to take everyone off site for a couple of days. In my earlier jobs, we always found a way to make sure we got a dose of golf mixed with the business at first-class golf courses (places like Harbor Town at Hilton Head and the Cascades at the Homestead).

I had just become a member of Laurel Valley, a wonderful golf club just outside Pittsburgh. So in the fall of 1981, I invited about 14 executives to Laurel for the two-day retreat. The group included all the functional staff heads and our seven sector executives. It was my first real attempt at creating a collegial group at the top, what we would later call the CEC, or Corporate Executive Council.

Among the 14 executives, a core group of at least seven or eight advocates signed up for the new agenda. Reg was right when he picked John Burlingame and Ed Hood as vice chairs. They were supportive and never undermined my efforts, despite the fact that they may have had some reservations about the pace of change.

Together, in fact, they served as a moderating force. Larry Bossidy, the guy I had discovered over a Ping-Pong table, had come to Fairfield as a sector executive in 1981 and had become a business soul mate. We both shared a hatred of bureaucracy. I had strong support from two of my most senior staff guys, chief financial officer Tom Thorsen and human resources chief Ted LeVino.

Tom was an old associate from Pittsfield. He had been tapped a few years earlier by Reg to come to Fairfield as CFO. He understood what we wanted to do. While he thought it was a sport to take shots at me, I still loved him for his candor and his smarts. LeVino represented the bridge between the old and the new GE. His support for many of the early initiatives was vital.

If I didn’t have all 14 of our top executives completely behind me at this moment, I knew I had enough to start the process. The first morning at Laurel Valley, I filled a conference room with blank easels, anxious to capture everyone’s thoughts. I got up in front of the crowd and started asking what they thought about our No. 1 or No. 2 strategy, what they liked and disliked about GE, and what things we ought to change quickly. We spent time discussing the just-concluded planning sessions and how they could be improved. Creating an open dialogue was difficult. Only those I worked closely with were willing to let it rip. Most of the guys didn’t want to stick their necks out.

We got through the morning with only half the group engaged.

After a fun afternoon of golf and a few drinks over dinner, things loosened up a little bit and a few more got involved. The second day was more of the same. Perhaps it was too early. Many of them weren’t sure where they stood or what they were dealing with. The two-day outing failed to build any kind of consensus for change.

I thought we needed a revolution. It was obvious we weren’t going to get one with this team.

GE’s culture had been built for a different time, when a command-and-control structure made sense. Having been in the field, I had a strong prejudice against most of the headquarters staff. I felt they practiced what could be called “superficial congeniality”—pleasant on the surface, with distrust and savagery roiling beneath it. The phrase seems to sum up how bureaucrats typically behave, smiling in front of you but always looking for a “gotcha” behind your back.

Organizational layers were another residue of size. I used the analogy of putting on too many sweaters. Sweaters are like layers. They are insulators. When you go outside and you wear four sweaters, it’s difficult to know how cold it is.

On one early plant tour in a Lynn, Massachusetts, jet engine factory, I ended up in the boiler room with a group of employees who knew many of the guys I grew up with in Salem. During a casual conversation about old times, I happened to learn that they had four layers of management supervising the boiler operation. I couldn’t believe it. It was a funny way to find out about layers. I used that story at every opportunity.

Another effective analogy was comparing an organization to a house. Floors represent layers and the walls functional barriers. To get the best out of an organization, these floors and walls must be blown away, creating an open space where ideas flow freely, independent of rank or function.

In the 1970s and 1980s, big business had too many layers—too many sweaters, too many floors and walls. The impact of these layers was seen most easily in the capital appropriations request process. When I first became CEO, almost every request for a significant capital expenditure would come to me for approval. A package of paper would arrive on my desk for a signature to buy something like a $50 million mainframe computer. In some cases, 16 other people had already signed it, and my signature was the last one required. What value was I adding?

I did away with that process and haven’t signed an appropriations approval in at least 18 years. Each business leader has the same delegation of authority that the board gave me. At the beginning of every year, the business made the case for the capital it needed. We allocated the dollars, ranging from $50 million to several hundred million. They own it and decide how far to delegate the spending authority. The people closest to the work know the work best. They become more accountable. They take their recommendations more seriously if they know a bunch of signatures aren’t piled on top of them.

In those days, I was throwing hand grenades, trying to blow up traditions and rituals that I felt held us back. In the fall of 1981, I tossed one in the middle of the Elfun Society, an internal management club at GE. (Elfun was short for Electrical Funds, a mutual fund that its members could invest in.) It was a networking group for white-collar types. Being an Elfun was considered a “rite of passage” into management.

I didn’t have a lot of respect for what Elfun was doing—I thought it represented the height of “superficial congeniality.”

It evolved into an elitist group for those who wanted to be seen by their bosses or their bosses’ bosses at dinner meetings. I remember paying dues and going to a few of these dinners early in my career. If a corporate vice president who oversaw a business in the town showed up, he’d get a packed house. Everyone would go to win points and get face time. If the speaker had no real impact on their careers, Elfun would have trouble filling a small conference room.

As the new CEO, I was invited to speak before the group’s annual leadership conference in the fall of 1981. It was supposed to be a nice meeting, one of those pat-on-the-back speeches from the new guy. I showed up at the Longshore Country Club in Westport, Connecticut, where some 100 Elfun leaders from all the local chapters in the United States gathered. After dinner, I got up and delivered what one member still remembers as a classic “stick-in-the-eye” speech.

“Thank you for asking me to speak. Tonight I’d like to be candid, and I’ll start by letting you reflect on the fact that I have serious reservations about your organization.”

I described Elfun as an institution pursuing yesterday’s agenda. I told them I never could identify with their recent activities.

“I can’t find any value to what you’re doing,” I said. “You’re a hierarchical social and political club. I’m not going to tell you what you should do or be. It’s your job to figure out a role that makes sense for you and GE.”

There was stunned silence when I ended the speech. I tried to soften the blow by milling around the bar for an hour. However, no one was in the mood for cheering up.

The next morning, one of our senior officers, Frank Doyle, went as he always did to meet with the group at its opening business session. This time he had a real job. He had to pick up the pieces from my speech the evening before. Frank just about walked into a wake. They felt as if they had been run over by a train. Like me the night before, he challenged them to change.

A month later, Elfun president Cal Neithamer called me and asked for a meeting. I invited Cal, an engineer in our transportation business in Erie, Pennsylvania, to Fairfield for lunch. He came armed with charts, but more important, he was excited about a new idea for Elfun. His dream was to turn the organization into an army of GE community volunteers. The idea came at a time when President Reagan was urging people to volunteer their time—to step in where government was reducing its role.

God, was I excited by Cal’s vision! I’ve never forgotten that lunch. Although Cal retired a few years ago, I still hear from him more or less once a year. What a job he and his successors did. Today, Elfun has more than 42,000 members, including retirees. They volunteer their time and energy in communities where GE has plants or offices. They have mentoring programs for high school students that have achieved remarkable results.

At Aiken High School, an inner-city school in Cincinnati, coaching by GE volunteers raised the percentage of graduating students going on to college to more than 50 percent from less than 10 percent in the past ten years. Similar programs are going on in schools in every significant GE community, including Albuquerque, Cleveland, Durham, Erie, Houston, Richmond, Schenectady, Jakarta, Bangalore, and Budapest.

They’ve also done everything from building parks, playgrounds, and libraries to repairing tape players for the blind. Today, no one is excluded from the organization, whether the person is a factory worker or a senior executive. Membership is determined solely by the desire to give back. Some 20 years later, the organization I almost turned my back on has become one of the best things about GE. I love the organization, the people in it, what it stands for, and what it has done.

Elfun’s self-engineered turnaround became a very important symbol. It was just what I was looking for.

 

Not everything I wanted to change was at headquarters. Some of the real eye-openers were far from my office. I spent most of 1981 with a team in the field reviewing businesses—just as I had done for ten years. I had a good feel for about a third of the company and wanted to dig into the rest.

I quickly found that the bureaucracy I saw when managing appliances and lighting was nothing compared to what I would see in some of GE’s other operations. The bigger the business, the less engaged people seemed to be. From the forklift drivers in a factory to the engineers packed in cubicles, too many people were just going through the motions.

Passion was hard to find. Schenectady, the home of our power turbine business, was particularly frustrating. It had been our flagship business for GE for a long time, replacing lighting, our first business, as the core of the company. It had great technology, and its gas turbines were the envy of the world. With $2 billion in sales and 26,000 employees, more than 20,000 in Schenectady, it was important—and it “acted” important, despite only making $61 million of net income.

Power represented much of what had to change, not the technology and products, but the attitudes. Too many managers considered their positions as rewards for service to the company, a career capstone rather than a fresh opportunity. There was an attitude that customers were “fortunate” to place orders for their “wonderful” machines. The long-cycle nature of the business, with product life cycles and order backlogs measured in years, only compounded the lack of pace, excitement, and energy.

Little did I know that out of all of these field visits, I’d stumble upon a relatively small and troubled business that would prove to be a big help. It was our nuclear reactor business in San Jose, California. Nuclear power was one of GE’s three big 1960s ventures, along with computers and aircraft engines. Our engine business was going strong, but computers had already been sold, and our nuclear business was filled primarily with “hope.”

No business was undergoing more change than the nuclear power industry at that moment. Only two years earlier, in 1979, the Three Mile Island reactor accident in Pennsylvania put an end to what little public support remained for nuclear energy. Utilities and governments were reevaluating their investment plans for a nuclear future. Ironically, this once promising GE business would become the perfect role model for my “reality” theme.

The people who worked in San Jose were among the best and brightest of their time. Coming out of graduate school in the 1950s and 1960s, they had invested their lives in the promise of nuclear energy. They were the Bill Gateses of their generation, expecting to change the way we live and work.

In the spring of 1981, I visited this billion-dollar business. During my two-day review, the leadership team presented a rosy plan, assuming three new orders for nuclear reactors a year. They had a terrific track record in the early 1970s, selling three to four reactors each year. The business saw the Three Mile Island disaster as little more than a blip.

Their view was completely at odds with reality. They had received no new orders in the last two years and had suffered a $13 million loss in 1980. Though they would turn a small profit in 1981, the reactor side of the business by itself was on its way to a $27 million loss.

I listened for a while before interrupting with what they saw as a bombshell.

“Guys, you’re not going to get three orders a year,” I said. “In my opinion, you’ll never get another order for a nuclear reactor in the U.S.”

They were shocked. They argued, with the not-so-subtle implication being, “Jack, you really don’t understand this business.”

That was probably true, but I had the benefit of a pair of fresh eyes. I hadn’t invested my life in this business. I loved their passion, even though I felt it was misdirected.

Their arguments contained a lot of emotion but few facts. I asked them to redo the plan on the assumption they’d never get another U.S. order for a reactor.

“You figure out how to make a business out of selling just fuel and nuclear services to the installed base,” I said.

At the time, GE had 72 active reactors in service. Safety was the principal preoccupation of both utility managers and government regulators. We had an obligation and an opportunity to keep those reactors up and running safely.

Obviously, our review didn’t go well. I had thrown a bucket of cold water on their dreams. Toward the end of our meeting, they resorted in frustration to one of the favorite “when all else fails” arguments heard in business.

“If we take the orders out of the plan, you’ll kill morale and you’ll never be able to mobilize the business when the orders come back.”

That wasn’t the first or the last time I heard desperate business teams use the argument. That reasoning falls into the same category as the other plea I often heard during tough times: “You’ve cut all the fat out. Now you’re into bone and you’ll ruin the business if we cut more.”

Both arguments don’t make it. They’re both weak. Management always has a tendency to take the smallest bite of the cost apple. Inevitably, managers have to keep going back, again and again, to cut more as markets deteriorate. All this does is create more uncertainty for employees. I’ve never seen a business ruined because it reduced its costs too much, too fast.

When good times come again, I’ve always seen business teams mobilize quickly and take advantage of the situation.

Fortunately, the leader of this business, Dr. Roy Beaton, was the most realistic GE trooper in the room. He reluctantly accepted the challenge. I left not knowing what I’d get. During the summer, we had a few more heated exchanges when the team pleaded its case to put one or two reactors in the plan instead of three. I remained stubbornly committed to zero and the full development of a fuel and services business.

To their credit, by the fall of 1981, the team—now headed by Warren Bruggeman, who succeeded the retiring Beaton—had a plan and was prepared to implement it. They reduced the size of the salaried employees in the reactor business from 2,410 in 1980 to 160 by 1985. They eliminated most of the reactor infrastructure and focused only on research for advanced reactors in the event the day would come when the world’s view of nuclear changed. The service business became very successful and was an early indicator that service could play a huge role in GE’s future. With its success, nuclear’s overall net earnings grew from $14 million in 1981 to $78 million in 1982, and to $116 million in 1983.

Some 20 years after that first meeting, the business has gotten orders for only four of their technologically advanced reactors. Not one of them has come from the United States. The team built a profitable fuel and services business that has made money every year. The nuclear business kept GE’s obligations to the utilities’ installed base and invested consistently to support advanced reactor research.

Their story of success was one of the thrills of my early days as CEO. It had little to do with economics but a lot to do with the company “feel” I was looking for. The people who engineered the transformation at our nuclear business were not “typical Jack Welch types.” They weren’t young, loud, or confrontational. They didn’t see the bureaucracy as the enemy. They were GE careerists and mainstreamers.

The opportunity to make heroes out of people who were not obvious Welch disciples was a breakthrough. It sent a clear message: You didn’t have to fit a certain stereotype to be successful in the new GE. You could be a hero no matter what you looked like or how you acted. All you had to do was face reality and perform. That message was a big deal at a time when some GE people were unsure where they stood or whether or not they had some kind of “nut” running the company.

I used this nuclear story over and over again in the first few years as CEO to pound home the need for a reality check. I shouted it out from every rooftop. Facing reality sounds simple—but it isn’t. I found it hard to get people to see a situation for what it is and not for what it was, or what they hoped it would be.

“Don’t kid yourself. It is the way it is.” My mother’s admonition to me many years ago was just as important for GE.

In a business plan, there’s little percentage in betting on hope. Self-delusion can grip an entire organization and lead the people in it to ridiculous conclusions. Whether it was appliances in the late 1970s, nuclear in the early 1980s, or dot-coms at the turn of the century, getting people to face reality was the first step toward an eventual solution.

When I became CEO, I inherited a lot of great things, but facing reality was not one of the company’s strong points. Its “superficial congeniality” made candor extremely difficult to come by. I got lucky. The changes at our nuclear reactor business and at Elfun gave me important weapons to demonstrate what I wanted GE to “feel” like.

I told their stories again and again to every GE audience at every opportunity. For the next 20 years, I used that same storytelling technique to get ideas transferred across the company.

Slowly, people started listening.

8

The Vision Thing

My first time in front of Wall Street’s analysts as chairman was a bomb.

I had been in the job for eight months when I went to New York City on December 8, 1981, to deliver my big message on the “New GE.” I had worked on the speech, rewriting it, rehearsing it, and desperately wanting it to be a smash hit.

It was, after all, my first public statement on where I wanted to take GE. You know, the vision thing.

However, the analysts arrived that day expecting to hear the financial results and the successes achieved by the company during the year. They expected a detailed breakdown of the financial numbers. They could then plug those numbers into their models and crank out estimates of our earnings by business segment. They loved this exercise. Over a 20-minute speech, I gave them little of what they wanted and quickly launched into a qualitative discussion around my vision for the company.

The setting for this event was the ornate ballroom of the Pierre Hotel on Fifth Avenue. The GE stagehands had been there for a full day of advance work. I rehearsed my remarks behind a podium hours before the analysts arrived. Today it’s hard to imagine the formality of it all.

My “big” message (see appendix) that day was intended to describe the winners of the future. They would be companies that “search out and participate in the real growth industries and insist upon being number one or number two in every business they are in—the number one or number two leanest, lowest-cost, worldwide producers of quality goods and services. . . . The managements and companies in the eighties that don’t do this, that hang on to losers for whatever reason—tradition, sentiment, their own management weaknesses—won’t be around in 1990.”

Being No. 1 or No. 2 wasn’t merely an objective. It was a requirement. If we met it, we were certain that by the end of the decade, this central idea would give us a set of businesses unique in the world. That was the “hard” message of the day.

As I moved into “soft” issues like reality, quality, excellence, and (would you believe?) the “human element,” I could tell I was losing them. To be a winner, we had to couple the “hard” central idea of being No. 1 or No. 2 in growth markets with intangible “soft” values to get the “feel” that would define our new culture. About halfway through, I had the impression I would have gotten as much interest if I’d talked about my Ph.D. thesis on drop-wise condensation.

I pressed on, not letting their blank stares discourage me. Today, some of this might sound like corporate cliché. In fact, looking back on that speech years later, I can’t believe how formal it was.

“We have to permeate every mind in this company with an attitude, with an atmosphere that allows people—in fact, encourages people—to see things as they are, to deal with the way it is, not the way they wished it would be,” I said. “Establishing throughout the organization this concept of reality is a prerequisite to executing the central idea—the necessity of being number one or number two in everything we do—or do something about it.”

I went on to say that quality and excellence would create an atmosphere where all our employees would feel comfortable stretching beyond their limits, to be better than we ever thought we could be. This “human element” would foster an environment where people would dare to try new things, where they would feel assured in knowing that “only the limits of their creativity and drive would be the ceiling on how far and how fast they would move.”

By doing all that, melding these hard and soft messages, GE would become a place that was “more high-spirited, more adaptable, and more agile” than other companies a fraction of our size. We wouldn’t merely grow with the GNP (gross national product), an objective of many big companies at that time. Instead, GE would be “the locomotive pulling the GNP, not the caboose following it.”

At the end, the reaction in the room made it clear that this crowd thought they were getting more hot air than substance. One of our staffers overheard one analyst moan, “We don’t know what the hell he’s talking about.” I left the hotel ballroom knowing there had to be a better way to tell our story. Wall Street had listened, and Wall Street yawned. The stock went up all of 12 cents. I was probably lucky it didn’t drop.

I was sure the ideas were right. I just hadn’t brought them to life. They were just words read on stage by a new face.

The highly structured formality of GE’s analyst meetings didn’t help my cause. Every detail was planned, even the seating arrangements. The analysts sat politely in their seats. GE staffers strolled up and down the aisles, collecting cards that the analysts had scribbled questions on. The cards were brought to three other GE people, including the chief financial officer, who sat behind a long table at the side of the room. Their job was to weed out the potentially embarrassing, controversial, or tough questions they felt the chairman wouldn’t or couldn’t answer.

The “lay-ups” were delivered to me.

What a difference between that day and GE analyst meetings now. Today there are no scripts. Charts are used, and you can’t get through two of them without a question or a challenge. We have intellectual food fights now, just like the reviews inside GE. We come away a lot smarter about what’s on the minds of investors—and the analysts are better informed about GE’s outlook and strategic direction.

My first meeting was a flop, but everything we did over the next 20 years, stumbling two steps forward, one back, was toward the vision that I laid out that day. We lived that hard reality of No. 1 or No. 2 and fought like mad to get that soft “feel” into the company.

The central idea came from my earlier experiences with good and bad businesses and was supported by the thinking of Peter Drucker. I began reading Peter’s work in the late 1970s, and Reg introduced us during my transition to CEO. If there was ever a genuine management sage, it is Peter. He always dropped a few unique pearls into his many management books.

The clarity of No. 1 or No. 2 came from a pair of very tough questions Drucker posed: “If you weren’t already in the business, would you enter it today?” And if the answer is no, “What are you going to do about it?”

Simple questions—but like much that is simple, they were also profound. Those were especially good questions to ask at GE. We were in so many different businesses. In those days, if you were in a business that was profitable, that was enough reason to stay in it. Changing the game, getting out of low-margin, low-growth businesses and moving into high-margin, high-growth global businesses, was not a priority.

At that time, no one in or outside the company perceived a crisis. GE was an American icon, the tenth largest corporation by size and market capitalization. The Asian assault had been coming for many years, swamping one industry after another; radios, cameras, televisions, steel, ships, and finally autos. We saw it in our television manufacturing business as global competition—particularly from the Japanese—began eating up profits. We had several vulnerable businesses, including housewares and consumer electronics.

Yet if you were in our housewares business back then, plugging along making toasters and irons, and if that’s all you knew and it was profitable, that was enough. Even today, we’ll have these crazy conversations where people will say, “Well, you’re making a profit. What’s wrong?”

Well, in some cases, there’s a lot wrong. If it’s a business without a long-range competitive solution, it’s just a matter of time before it’s over.

The No. 1 or No. 2, “fix, sell, or close” strategy passed the simplicity test. People discussed it and understood it, and most agreed to it intellectually. When it came time to implement it, the emotional connection was more difficult for people to make. Those working in a clear No. 1 business had no trouble. In businesses that weren’t leaders, people felt tremendous pressure. They had to face the reality that their business had to do something fast—or that new guy in Fairfield might sell it on them.

Like every goal and initiative we’ve ever launched, I repeated the No. 1 or No. 2 message over and over again until I nearly gagged on the words. I tried to sell both the intellectual and emotional cases for doing it. The organization had to see every management action aligned with the vision.

Like most visions, the No. 1 and No. 2 strategy had limits.

Obviously, some businesses have become so commoditized that leadership positions give you little or no competitive advantage. It made little difference if we were No. 1 in electric toasters or irons, for instance, where we had no pricing power and were facing low-cost imports.

There are other multitrillion-dollar markets like financial services that cover the ocean. In those cases, not being No. 1 or No. 2 is less critical as long as you are strong in your niche—product or region.

The vision was simple, but I was still having a helluva time communicating it across GE’s 42 strategic business units. I had been thinking about how to do it better for a long time. Oddly enough, I found an answer on a cocktail napkin in January of 1983.

I often drive people crazy by sketching my thoughts out on paper anytime, anyplace. This time, while trying to explain the vision to my wife, Carolyn, at Gates restaurant in New Canaan, I pulled out a black felt-tip pen and began drawing on the napkin that had been under my drink. I drew three circles and divided our businesses into one of three categories: core manufacturing, technology, and services. Inside the core circle, for example, I put lighting, major appliances, motors, turbines, transportation, and contractor equipment.

Any business outside the circles, I told Carolyn, we would fix, sell, or close. These businesses were the marginal performers, or were in low-growth markets, or just had a poor strategic fit. I liked the three-circle concept. Over the next couple of weeks, I expanded it, filling in more details with my team (see below).

The chart really hit home. It was the simple conceptual tool I needed to communicate and implement the No. 1 or No. 2 vision. I began using it everywhere, and Forbes magazine eventually featured it in a cover story on GE in March of 1984.

For people who worked in businesses inside the circles, it created a certain sense of security and pride. But it raised all kinds of hell within organizations placed outside the circles, particularly in operations that were the heart of the old GE, including central air-conditioning, housewares, television manufacturing, audio products, and semiconductors. The people in these “fix, sell, or close” businesses were naturally upset.

They felt angry and betrayed. Some asked, “Am I in a leper colony? That’s not what I joined GE to become.” Union leaders and city fathers complained. This turned out to be a bigger issue than I anticipated. I knew it was something I had to come to grips with.

 

 

In the first two years, the No. 1 or No. 2 strategy generated a lot of action—most of it small. We sold 71 businesses and product lines, receiving a little over $500 million for them. We completed 118 other deals, including acquisitions, joint ventures, and minority investments, spending over $1 billion. These were peanuts, but the cultural significance of this churning was felt throughout the company, especially the sale of our central air-conditioning business.

With three plants and 2,300 employees, it was not one of GE’s larger businesses, and it wasn’t very profitable. Its sale to Trane Co. in mid-1982 for $135 million in cash raised eyebrows, because air-conditioning was right in the belly of our company. It was a division in our major appliance operations in Louisville. Yet its market share of 10 percent paled in comparison with the other GE appliance businesses.

I disliked the business the first time I was exposed to it as a sector executive. I felt it had no control of its destiny. You sold the GE-branded product to a local distributor like “Ace Plumbing.” They installed it with their hammers and screwdrivers and drove away, leaving the GE-branded air conditioners behind. How Ace installed our products and how it serviced its customers reflected directly back on GE. We were frequently getting customer complaints that had nothing to do with us. We were being tarred by something we had no control over.

Because of our low market share, our competitors had the best distributors and independent contractors. For GE, this was a flawed business. You never would have known it by the reaction we got when it was sold. It really shook up Louisville.

The air-conditioning sale to Trane reinforced my thinking that putting a weak operation into a stronger business was a true win-win for everyone. Trane was a market leader. With the sale, our air-conditioning people became part of a winning team. A month after the sale, a phone call confirmed my thinking. I called the general manager of our former business, Stan Gorski, who had joined Trane with the divestiture.

“Stan, how’s it going?” I asked.

“Jack, I love it here,” he said. “When I get up in the morning and come to work, my boss is thinking about air-conditioning all day. He loves air-conditioning. He thinks it’s wonderful. Every time I talked to you on the phone, it was about some customer complaint or my margins. You hated air-conditioning. Jack, today we’re all winners and we all feel it. In Louisville, I was the orphan.”

“Stan, you’ve made my day,” I said, before hanging up.

Through the onslaught of criticism to come, Stan’s comments helped to fortify my resolve to carry out the No. 1 or No. 2 strategy, no matter what. The air-conditioning deal also established another basic principle. We used the $135 million from its sale to help pay to restructure other businesses.

Every business we sold was treated the same way. We never put those gains into net income. Instead, we used them to improve the company’s competitiveness. In 20 years we never permitted ourselves or any of our businesses to use one-time restructuring charges as an excuse for missing an earnings commitment. We paid our own way.

 

From the day I wrote Reg about my qualifications for the CEO job, I adopted “consistent earnings growth” as a theme of mine. Fortunately, we had a number of strong and diverse businesses that could deliver on that pledge. We managed businesses—not earnings.

When we sold a business like air-conditioning and realized an accounting gain as well as cash, this gave us the flexibility to reinvest in or fix up another business. That’s what shareowners expected from us and paid us to do.

I liken our treatment of these gains to fixing up a house. When you don’t have the money to repair the ceiling, you put a bucket underneath the leak to catch the drips. When you find money in the budget, you fix the leak. That’s what we did at GE with much of the cash from a divestiture. We took actions to strengthen our businesses for the long haul.

Every now and then we’d get a critic, challenging how we achieved “our consistent earnings growth.” One reporter even suggested that if we took a charge to close a business in one quarter and took a gain to sell another business in the following quarter, our earnings would not have been consistent.

Duh!!! Our job is to fix the leak when we get the cash.

If you didn’t do that you’d be managing nothing. If you follow the cash, and in this case GE’s cash, you see what’s really happening in a company. Accounting doesn’t generate cash, managing businesses does.

 

Getting out of the air-conditioning business sparked a firestorm, but it was principally contained in Louisville. The next sale, of Utah International, was a much more difficult situation for me. Reg Jones had purchased the business for $2.3 billion in 1977. At the time, it was the largest acquisition ever—for Reg, for GE, and for all of Corporate America.

Utah was a highly profitable, first-class company that derived its income largely from selling metallurgical coal to the Japanese steel industry. It also had a small U.S. oil and gas company and large proven but undeveloped copper reserves in Chile. Reg purchased the company as a hedge against the wild inflation of the 1970s.

To me, with inflation abating, it didn’t fit the objective of consistent income growth. Its lumpy earnings clashed with my goal to have everyone feel their individual contribution counted.

GE makes its money every quarter by bringing in cash from every corner of the world, nickel by nickel. Every day, everyone’s contribution counts. As a sector executive and vice chairman, I had sat in meetings with my peers, listening as we all told how valiantly we had worked to make the quarter’s or the year’s numbers. Then, the executive in charge of Utah would stand up and unknowingly overwhelm those contributions one way or another.

“We had a strike at the coal mine,” he’d say, “so we’re going to miss our profit projection by $50 million.” All of us would stare in disbelief at the size of the number. Or he could just as easily come to the meeting and say, “The price of coal went up ten bucks, so I have an extra $50 million to toss into the pot.” Either way, Utah tended to make our nickel-by-nickel contributions seem fruitless.

I felt the cyclical nature of Utah’s business made our goal of consistent earnings impossible. I didn’t like the natural resource business, where I felt events were often beyond your control or, in the case of oil, the behavior of a cartel diminished the ingenuity of the individual.

As an aside, I believe DuPont’s acquisition of Conoco in 1981 had some of the same impact. Conoco was also purchased as a hedge against natural resource inflation—oil. But it too was large enough to make the individual efforts of many of DuPont’s business units less meaningful. Some of my Illinois graduate student friends had joined DuPont. I heard from them and others I had known in DuPont’s plastics business how personally enervating the swings in Conoco earnings could be to them. DuPont eventually spun off Conoco in 1998.

Natural resource businesses belong with natural resource companies.

Despite my feelings about Utah, I was hesitant to undo Reg’s biggest deal, which he had concluded only four years earlier. I owed everything to him. I didn’t want to appear disrespectful by selling it immediately. Before making the decision, I sent Reg a presentation laying out the rationale for the sale. I followed up with a telephone call, asking him to think about it.

Over the years, I called Reg a lot. I never did a major thing without letting him know—even though he left the board the day I became chairman.

A few days after our phone conversation about Utah, Reg called back and after grilling me for a while gave me his support. In fact, for more than 20 years, he never second-guessed me inside or outside the company.

Within a year of becoming CEO, I had privately met in New York’s Waldorf Towers with Hugh Liedtke, CEO of Pennzoil. I offered to sell him Utah. He looked at it for a while but decided it didn’t fit. He had bigger fish to fry—and he ultimately went after Getty Oil in a highly publicized takeover battle with Texaco.

I talked with other potential U.S. buyers, but found little interest.

Fortunately, my vice chairman John Burlingame had a better idea. John found what he considered the best strategic buyer for Utah, the Broken Hill Proprietary (BHP) Co. This Australian-based natural resources concern seemed the perfect fit. John contacted BHP and the company showed initial interest. He then pulled together a team with himself, Frank Doyle, and his old friend Paolo Fresco. John and Frank would strategize the discussions in the back room, while Paolo, brought back from Europe for this special assignment, would do the face-to-face negotiations.

The discussions with BHP went on for several months, complicated by size and geography. Utah’s headquarters were in San Francisco, while its assets were all over the world. BHP was based in Melbourne. After the usual ups and downs of any big deal, the teams reached a definitive letter of intent by mid-December 1982.

We were ecstatic. This was a massive property with a big price tag, and there weren’t all that many buyers for it. The sale was a huge hit for us and fit our strategy perfectly. The purchase had the same impact for BHP. The plan was to take the deal to the directors for final approval at the regular December board meeting.

The Thursday evening before that session, all the senior officers of the company and our directors were gathered in New York at the Park Lane Hotel for what had become an annual Christmas dinner and dance party. I began these social get-togethers the year before to bring management and the board closer. This time everyone at the party was pumped because of the deal. About 11 P.M., however, I noticed a staff person hurriedly escort John Burlingame off the dance floor. When the normally poker-faced John returned a half hour later, I could see he was visibly shaken—but still pretty cool.

Certainly cooler than I turned out to be after he came over to my table to report the bad news.

“Jack,” he said, “the deal’s off. I got a call from Paolo. He said that BHP just called him to say its board couldn’t go through with it. They can’t swing it financially.”

I was devastated. I was really counting on this one. The sale would have been the first big step on the strategic path I had outlined. Now, as the band continued to play, I saw all this blowing up in my face. Carolyn and I stayed till the end of the party, before returning to a suite at the Waldorf that we were sharing with Si Cathcart and his wife, Corky.

Si had quickly become a close confidant on the board. He and I stayed up until 3 A.M., talking through all the alternatives. We were somewhat in the dark, without the benefit of many details on what had gone wrong. That night, I was lower than whale manure, and poor Si had to listen to me ramble on into the wee hours.

The next morning, Burlingame and I filled in all the directors on the news. They were obviously disappointed but encouraged us to try to get the deal back on track. When I returned to my hotel room on Friday evening, I found on my bed a stuffed teddy bear with its thumb stuck in its mouth. Si had attached a note to the bear, which his wife had gone out that morning to buy. “Don’t let it get you down,” Si had written. “You’ll find a solution.”

Having been in the job just 21 months, I wasn’t sure if I had blown a big one. Si’s note hit the spot. This was the first of many times that he would prove a great help to me. He was not alone—I had enjoyed incredible board support from the first day in the job, and it would turn out to be needed on more than this occasion.

After Christmas, the Burlingame-Doyle-Fresco team went back to work on the deal. They dealt with BHP’s financial constraints by offering to take businesses out of Utah, including U.S. oil and gas producer Ladd Petroleum. This made the deal acceptable to Broken Hill, and the company bought the remainder of our Utah subsidiary for $2.4 billion in cash before the end of the second quarter of 1984. It took another year to get all the necessary government approvals. Six years later, in 1990, we sold the last piece, Ladd, for $515 million.

With the divestiture of air-conditioning and now Utah, I was feeling pretty good about our strategy and its implementation—probably a bit too good. The air-conditioning deal had upset only people in the major appliance business, where it resided. Utah didn’t cause even the slightest blip. We had held the company only a short time, and it had never really become part of GE.

The next move—our sale of GE housewares—would prove to be a lot different.

 

I had overseen our housewares operations for almost six years and thought it was a terrible business. Steam irons, toasters, hair dryers, and blenders aren’t very exciting products. I recall a “breakthrough” being the electric peeling wand, a device to make potato peeling a lot easier.

Not the type of “hot technology” we needed.

These products weren’t for the new GE, and we were sitting ducks for Asian imports. The industry’s manufacturers were primarily U.S. players, and all were plagued with high-cost factories. The business had low barriers to entry, and retail consolidation was diminishing any brand loyalty that existed.

I had put it outside the three circles. For me, selling this business was a no-brainer. I thought we would be losing nothing, and this would put another stake in the ground for our No. 1 or No. 2 strategy. Black & Decker had apparently heard of our view of housewares and decided it fit with their business. The company boasted a strong consumer brand in power tools and had a strong position in Europe, where we didn’t participate. Its leadership wanted to aggressively expand into a new area of business and targeted housewares.

In November of 1983, I received a telephone call from Pete Peterson, a B&D director and investment banker whom I had met on several occasions.

“Would you be interested in selling your appliance business?” asked Peterson.

“What kind of a question is that?” I said.

We played a little cat-and-mouse game for a few minutes, until Peterson said he was calling on behalf of Black & Decker’s chairman and CEO, Larry Farley.

“Okay, if you’re serious,” I said, “what can I do for you?”

“On a scale of one to five, one being you’ll never sell it, two being you’ll sell it only for a big check, and three being you’ll sell it for a fair price, where do you stand?” asked Pete.

“My major appliance business is somewhere between a one and a two,” I replied. “My small appliance business is a three.”

“Well, that’s what we’re interested in,” Pete said.

Within a couple of days, on November 18, Pete, Larry, and I were sitting in GE’s New York offices at 570 Lexington Avenue. Larry went through a long list of questions, and I answered most of them. Pete then asked straight out what I needed for the business.

“Not a penny less than $300 million, and the general manager of the business, Bob Wright, doesn’t go with the deal.”

By this time, I had enticed Bob back to GE from his Cox Cable post and put him in a holding pattern in charge of housewares. I didn’t want to lose him again. I saw Bob the next day and brought him up to date on my conversation, telling him, “Don’t worry. I’ll have a better job for you very quickly.”

It didn’t take long to hear back from Larry and Pete, who both agreed to go to the next step. While the due diligence was proceeding, an internal argument broke out over the pending sale. GE traditionalists claimed that the company benefited greatly by having our name and logo on these household products. We commissioned a quick study that showed just the opposite. The consumers’ perception of a GE hair curler or iron was okay but in no way valuable to the company. On the other hand, major appliances at that time and even today continue to rate highly with consumers.

The negotiations proceeded easily. We all trusted one another and wanted to get the deal done. Every time an issue came up during the negotiations, we resolved it easily. That would not be the last time Pete’s straightforward style and high integrity would be important to me. Within a few weeks of my first phone call, we sold the housewares business.

The ease of the business negotiation to sell housewares masked the turmoil going on inside much of GE. Employees in many of the traditional businesses were upset. The $2 billion divestiture of Utah didn’t raise an eyebrow, but selling this $300 million low-tech, tin-bending housewares business brought out unbelievable cries. I got my first blast of angry letters from employees.

If e-mail had existed, every server in the company would have been clogged up. The letters were all along the lines of “How could we be GE and not make irons and toasters?” or “What kind of a person are you? If you’ll do this, it’s clear you’ll do anything!”

The buzz around the water cooler was not good.

And there was a lot more to come, a helluva lot more.

9

The Neutron Years

In the early 1980s, you didn’t have to be in a GE business that was up for sale to wonder if Jack Welch knew what he was doing or where he was going. The turmoil, angst, and confusion were everywhere. The causes were the goal to be No. 1 or No. 2, the three circles, the outright sale of businesses, and the cutbacks now occurring in many parts of GE.

Within five years, one of every four people would leave the GE payroll, 118,000 people in all, including 37,000 employees in businesses that were sold. Throughout the company, people were struggling to come to grips with the uncertainty.

I was adding fuel to the fire by investing millions of dollars in what some might call “nonproductive” things. I was building a fitness center, guesthouse, and conference center at headquarters and laying plans for a major upgrade of Crotonville, our management development center. My take on this was that all these investments, at a cost of nearly $75 million, were consistent with the “soft” values of excellence I had outlined at the Pierre Hotel.

But people weren’t buying it. For them, it was a total disconnect.

It didn’t matter that the money I was investing in treadmills, conference halls, and bedrooms was pocket change to a company that was spending $12 billion over the same period on new plants and equipment. That $12 billion, spread across factories around the world, was invisible and considered routine.

The symbolism of the $75 million was too much for people to handle. I could understand why it was difficult for many GE employees to get it.

But I was sure in my gut it was the right thing to do.

A key supporter during this period—of spending while downsizing—was human resources chief Ted LeVino. He was the rock, a link to the past, an up-from-the-ranks GE veteran who had the respect of everyone in the system. His motives and integrity were unquestionable. I know many shaken executives sat on Ted’s couch fresh from one of their early encounters with me. Ted counseled many of the senior people who had to go. He had backed me during the selection process and, more important, knew what he was getting and believed GE needed it.

Ted’s support was important because people were out of their minds over these investments. Nothing I could say or do would ever completely satisfy the detractors or fully calm the organization’s jitters. I wasn’t going to hide. I used every opportunity to reach out. In early 1982, I began holding roundtable discussions every other week with groups of 25 or so employees over coffee. Whether administrative assistants or managers were in the room, the questions never varied.

One question inevitably dominated those sessions: “How can you justify spending money on treadmills, bedrooms, and conference centers when you’re closing down plants and laying off staff?”

I enjoyed the debates. I wasn’t necessarily winning the argument, but I knew I had to try to win people over, one by one. I’d argue that the spending and the cutting were consistent with where we needed to go.

I wanted to change the rules of engagement, asking for more—from fewer. I was insisting that we had to have only the best people. I’d argue that our best couldn’t be asked to spend four weeks away for training in cinder-block cells at a worn-out development center. Guests shouldn’t have to come to headquarters and stay at a third-class motel. If you wanted excellence, at a minimum, the ambience had to reflect excellence.

At these roundtables, I’d explain the fitness center was as much about getting people together as it was about health. A headquarters building is filled with specialists who make nothing and sell nothing. Working there is so different from working in the field, where everyone in a business can focus on and be excited by landing a new order or launching a new product. At GE headquarters, you’d park your car in an underground garage, take an elevator to your floor, and generally work in a corner of the building until the end of the day. The cafeteria was a common meeting place, but most tables were occupied by the people who worked together.

I thought a gym would provide an informal place to bring together all shapes, sizes, layers, and functions. If you will, it could be that back room of a store where people took their breaks. If investing a little over $1 million could make that happen, it was worth it. Despite my good intentions with the fitness center, people had trouble seeing the benefits in the face of layoffs.

Some of the same logic went into the decision to put up a $25 million guesthouse and conference center at headquarters, which was an island unto itself. It was in the country, some sixty miles north of New York City, off the Merritt Parkway. There was no natural place to congregate after work. Fairfield and the surrounding area lacked a decent hotel to put up employees and guests who came from all over the world. I wanted to create a first-class place where people could stay, work, and interact. The facility featured fireplaces in the lounges and a stand-up bar in the pub where everyone could mingle.

The traditionalists were shocked. I persevered because I wanted to create a first-rate informal family atmosphere and needed this ambience to get it. Everywhere I went, I was preaching the need for excellence in everything we did. My actions had to demonstrate it.

The story of Crotonville is no different. Our corporate education center was already a quarter of a century old—and unfortunately looked it. Managers were being housed in barren quarters four to a suite. The bedrooms had the feel of a roadside motel. We needed to make our own people and our customers, who came to Crotonville, feel that they were working for and dealing with a world-class company. Nonetheless, some critics began calling it “Jack’s Cathedral.”

My answers to the complaints during the early 1980s was that business is, in fact, a series of paradoxes:

 

• Spending millions on buildings that made nothing, while closing down uncompetitive factories that produced goods.

These goals were consistent with becoming a world-class competitor. You couldn’t hire and retain the best people, and at the same time become the lowest-cost provider of goods and services, without doing both.

 

• Paying the highest wages, while having the lowest wage costs.

We had to get the best people in the world and had to pay them that way. But we couldn’t carry along people we didn’t need. We needed to have better people if we were to get more productivity from fewer of them.

 

• Managing long-term, while “eating” short-term.

I always thought any fool could do one or the other. Squeezing costs out at the expense of the future could deliver a quarter, a year, maybe even two years, and it’s not hard to do. Dreaming about the future and not delivering in the short term is the easiest of all. The test of a leader is balancing the two. A favorite retort for at least the first ten years was, “GE and you are too focused on the short term.” That’s just another clichéd excuse to do nothing.

 

• Needing to be “hard” in order to be “soft.”

Making tough-minded decisions about people and plants is a prerequisite to earning the right to talk about soft values, like “excellence” or “the learning organization.” Soft stuff won’t work if it doesn’t follow demonstrated toughness. It works only in a performance-based culture.

 

Think of those dichotomies, those paradoxes, I was trying to get across. We needed to produce more output with less input. We needed to expand some businesses while shrinking or selling others. We needed to function as one company, but our diversity demanded different styles. And yes, we needed to treat people in a first-class way if we wanted to attract and keep the best.

The logic behind these paradoxes didn’t go far in an environment overcome with so much uncertainty. In fact, the internal upheaval was so great, it began spilling outside the company. By mid-1982, Newsweek magazine was the first publication to pick up the moniker “Neutron Jack,” the guy who removed the people but left the buildings standing.

I hated it, and it hurt. But I hated bureaucracy and waste even more. The data-obsessed headquarters and the low margins in turbines were equally offensive to me.

Soon, Neutron began cropping up almost everywhere in the media. It was as if reporters couldn’t write a GE story without using the tag. It was a painful new image twist for me. For years, people thought I was too wild, that I was too growth focused, hired too many people, and built too many facilities—in plastics, medical, and GE Credit. Now I was Neutron.

I guess that was a paradox, too. I didn’t like it, but I came to understand it.

Truth was, we were the first big healthy and profitable company in the mainstream that took the actions to get more competitive. Chrysler did it a few years earlier, but the stage was set for their actions by a government bailout and their widely publicized struggle to avoid bankruptcy.

There was no stage set for us. We looked too good, too strong, too profitable, to be restructuring. Our $1.5 billion in net income and $25 billion of sales in 1980 made GE the ninth most profitable company in the Fortune 500 and the tenth largest.

However, we were facing our own reality. In 1980, the U.S. economy was in a recession. Inflation was rampant. Oil sold for $30 a barrel, and some predicted it would go to $100 if we could even get it. And the Japanese, benefiting from a weak yen and good technology, were increasing their exports into many of our mainstream businesses from cars to consumer electronics.

I wanted to face these realities by getting more cost competitive, and that’s what we were doing.

I also saw firsthand the impact of this changing environment on many of the CEOs in the New York/New Jersey/Connecticut tri-state area. I served as a corporate chairman for the United Way campaign in the early 1980s. Time after time, as I visited with CEOs to strong-arm them for contributions, I’d hear them say, “We’d like to give it to you, but we can’t,” or, “We can’t give as much as we did in the past. Things are too tough.” This experience bolstered my notion that only healthy, growing, vibrant companies can carry out their responsibilities to people and their communities.

The costs of fixing a troubled company after the fact are enormous—and even more painful. We were fortunate. Our predecessors left us a good balance sheet. We could be humane and generous to the people we had to let go—although most probably didn’t feel we were at the time. We gave our employees significant notice and good severance pay, and our good reputation helped many find new jobs. By moving early, more jobs were available for them. It’s still true in 2001. If you were the first dot.com to cut the payroll, each of your employees had many job offers. If you were the last, your people could be in the unemployment line.

But that’s not what some thought when a “healthy” old-line company like ours was closing a steam iron plant in Ontario, California, in 1982. We learned that 60 Minutes was sending Mike Wallace and a film crew to cover it. Having 60 Minutes call to talk about a plant closing is not likely to be a pleasant event, and it ended up not being a pretty sight. Wallace reported that we laid off 825 people simply because we weren’t making enough profit and wanted to move those jobs outside the United States to Mexico, Singapore, and Brazil. He interviewed former employees who said they felt betrayed and a religious leader who condemned the plant’s closure as “immoral.”

That view was understandable then—but the facts were somewhat different. The plant made metal irons when consumers already overwhelmingly favored plastic models. We had four plants, including one in North Carolina, making plastic irons. Ontario’s product line had to be discontinued. Closing the plant was uncomfortable for everyone, but it was the highest-cost plant in our system, and we were going to be competitive.

In fairness to 60 Minutes, the program did point out that we had given our employees six months’ advance notice when the average then was only one week. Wallace also reported that we helped to fund a state-run job center on GE property to teach job-interview and other skills.

We did a lot more because our balance sheet let us. We extended life and medical insurance coverage for a year and placed 120 workers in other jobs by the time the plant closed. Nearly 600 employees would be eligible for GE pensions, and we also found a buyer for the factory that would eventually rehire many former GE employees. Despite all that, losing your job stank.

I had been in the CEO job less than a year when, in late February 1982, 60 Minutes accused us of “putting profits ahead of people.” Some critics used us as a counterpoint to such companies as IBM, which at that time still promoted the concept of lifetime employment. In fact, IBM itself launched an advertising campaign touting its nonlayoff policies in 1985. IBM’s tagline: “. . . jobs may come and go. But people shouldn’t.” Several GE managers brought the ads to our Crotonville classes and pointedly asked, “What’s your reaction to this?”

At a time when I was being routinely assaulted with the Neutron tag, those ads really pissed me off.

Sadly for the IBM people, their day would come as the company lost competitiveness.

Any organization that thinks it can guarantee job security is going down a dead end. Only satisfied customers can give people job security. Not companies. That reality put an end to the implicit contracts that corporations once had with their employees. Those “contracts” were based on perceived lifetime employment and produced a paternal, feudal, fuzzy kind of loyalty. If you put in your time and worked hard, the perception was that the company took care of you for life.

As the game changed, people had to be focused on the competitive world, where no business was a safe haven for employment unless it was winning in the marketplace.

The psychological contract had to change. I wanted to create a new contract, making GE jobs the best in the world for people willing to compete. If they signed up, we’d give them the best training and development and an environment that provided plenty of opportunities for personal and professional growth. We’d do everything to give them the skills to have “lifetime employability,” even if we couldn’t guarantee them “lifetime employment.”

Removing people will always be the hardest decision a leader faces. Anyone who “enjoys doing it” shouldn’t be on the payroll, and neither should anyone who “can’t do it.” I never underestimated the human cost of those layoffs or the hardship they might cause people and communities. To me, every action had to pass a simple screen: “Would we like to be treated that way? Were we fair and equitable? Can you look at yourself in the mirror every day and say yes to those questions?”

As a company, we could look at ourselves in the mirror when it came to softening the rough edges of radical change. The speech I had to give 1,000 times was, “We didn’t fire the people. We fired the positions, and the people had to go.”

We never resorted to “across the board” cutbacks or pay freezes, two old management favorites to reduce costs. Carried out under the guise of “sharing the pain,” both actions are examples of people not wanting to face reality and differentiation.

That’s not managing or leading. Edicts to impose a uniform 10 percent layoff policy or a wage freeze undermine the need to take care of the best. In the spring of 2001, several economy-impacted GE businesses, such as plastics, lighting, and appliances, were downsizing. Meanwhile, some businesses, such as power turbines and medical, couldn’t add people fast enough.

Unfortunately, in the 1980s most of GE’s employment levels were headed downward. We went from 411,000 employees at the end of 1980 to 299,000 by the end of 1985. Of the 112,000 people who left the GE payroll, about 37,000 were in businesses we sold, but 81,000 people—or 1 in every 5 in our industrial businesses—lost their jobs for productivity reasons.

From the numbers, you could make the case that there was either a Neutron Jack or a company with too many positions. I naturally took comfort in the latter, but the Neutron tag still got me down. I was fortunate to find remarkable support that got me through it—at home, in the office, and in the boardroom. I’d come home obviously a little down from the experience. Carolyn would always be supportive, no matter how tough the press. She always ended a conversation with, “Jack, you have to do what you think is right for everyone.”

In the 1980s, the massive nature of the changes at GE would have been impossible without a core of strong supporters inside the company. Once rivals and now partners, my two vice chairmen John Burlingame and Ed Hood backed all the moves. So did two of the most powerful staff players at headquarters, HR chief Ted LeVino and chief financial officer Tom Thorsen. Tom and I were thick as brothers in Pittsfield and happy to be reunited in bigger jobs at headquarters. Larry Bossidy, whom I brought to Fairfield in 1981 to take over a newly created materials and service sector, had become my sounding board, confidant, and close friend.

Without strong backing from the board, these changes couldn’t have happened. Board members heard all the complaints, sometimes from angry employees who wrote critical letters directly to them, and they read all the negative press. From day one, however, the board never wavered.

When I first became CEO, Walter Wriston went around New York telling everyone he met that I was the best CEO in the history of the company—even before I did anything. It sure felt good to hear that, especially during my Neutron days. He was a stand-up, gutsy guy who kept telling me to do what I had to do to change the company.

Still, the pressure to avoid some of these tough decisions was considerable. The lobbying wasn’t only internal—the calls came in from mayors, governors, state and federal legislators.

Once, on a scheduled visit to the Massachusetts state house in 1988, I met with Governor Michael Dukakis.

“It’s a great thing that you’re in the state,” said Dukakis. “We’d really like to see you put more work here.”

The day before my meeting, our aircraft engine and industrial turbine plant in Lynn, Massachusetts, had distinguished themselves once again by being the only GE union in the chain to reject our new national labor agreement.

“Governor,” I said, “I have to tell you. Lynn is the last place on earth I would ever put any more work.”

Dukakis’s aides were shocked. There was a long silence in the room. Everyone was expecting me to make some reassuring comment about our commitment to employment and possible expansion in Massachusetts.

“You’re a politician and you know how to count votes. You don’t put new roads in districts that don’t vote for you.”

“What do you mean?” he asked.

“Lynn is the only local in all of GE that has rejected our national union contract. They seem to do this as a ritual over the years. Why should I put work and money where there is trouble, when I can put up plants where people want them and deserve them?”

Governor Dukakis chuckled. He instantly understood the point and sent his labor representative to Lynn to improve things. Progress has been slow to say the least, but Lynn did vote for the national contract in 2000.

 

I took another solid hit in early August of 1984 when Fortune magazine put me at the top of its list of “The Ten Toughest Bosses in America.” This was a case where being No. 1 or No. 2 wasn’t something you were looking for. Fortunately, the article had some good things to say as well. One former employee told the magazine that he had never met someone “with so many creative business ideas. I’ve never felt that anybody was tapping my brain so well.” Another actually credited me “with bringing to GE the passion and dedication that characterize the best Silicon Valley start-ups.”

I liked all that, but the positive reactions were overshadowed by comments from “anonymous” former employees who said I was very abrasive and didn’t tolerate “I think” answers. “Working for him is like a war,” claimed another unidentified person. “A lot of people get shot up; the survivors go on to the next battle.” The article claimed that I attacked people almost physically with questions, in the words of the writer, “criticizing, demeaning, ridiculing, humiliating.”

In truth, the meetings were different from what people were used to. They were candid, challenging, and demanding. If former managers wanted a reason why they didn’t cut it, there were plenty of ways to spin the story.

I got the article as I was leaving the office for California to spend a weekend at the Bohemian Grove as the guest of director Ed Littlefield. I shared the story with Ed, who shrugged it off.

I couldn’t get it out of my mind. The story made it a long weekend. The net effect of all this publicity was that the “Neutron Jack” and “Toughest Boss in America” labels would stick for some time.

The ironic thing was that I didn’t go far enough or move fast enough. When MBAs at the Harvard Business School in the mid- 1980s asked me what I regretted most in my first years as CEO, I said, “I took too long to act.”

The class burst out laughing, but it was true.

The facts were that I was just too hesitant to break the glass. I waited too long to close uncompetitive facilities. I took too long to take apart the corporate staff, keeping on economists, marketing consultants, strategic planners, and outright bureaucrats much longer than I needed to. I didn’t blow up our sector structure until 1986. It was just another insulating layer of management and should have been cut the moment the succession race was decided.

The seven executives in these sector jobs were the best people we had. They should have been running our businesses. I was wasting them in these oversight positions. We promoted our best executives to those jobs, and in turn those jobs made some of our best people look bad. Once we blew it up, we quickly discovered something else. Without the sector layer, we got a much better look at the people really running the businesses.

It changed the game. Within months, we could see clearly who had it and who didn’t. Four senior vice presidents left the company in mid-1986. It was a huge breakthrough.

While the media focused on the layoffs, we focused on the “keepers.” I could talk my face blue about facing reality, or being No. 1 or No. 2 in every business, or creating an organization that thrived on change, but until we got the right horses in place, we didn’t get the traction we needed to truly change the company. I shouldn’t have wasted so much time on the resisters, hoping they’d “buy in.”

When we finally got the right people in all the key places, the game changed quickly. Let me illustrate what putting the right person at the top can do. I can’t think of a better example than our appointment of Dennis Dammerman as chief financial officer in March of 1984.

If you had asked thousands of employees at that time to come up with a list of five folks who would succeed Tom Thorsen as CFO, none would have named Dennis because he was so far down in the financial hierarchy.

Tom and I always had a complex relationship. I loved his brains, his cockiness, and his companionship. In spite of his outwardly flamboyant manner and his great support for where we were going, he saw himself as the protector of the strongest functional organization in the company.

Ironically, he was also the sharpest critic in the company, tough and decisive about everything and everyone, including me. Yet, when it came to finance, he couldn’t bring himself to step on the function’s sacred turf. We had many conversations about this but could never agree. Tom moved on to become CFO of Travelers.

With 12,000 people strong, finance had become too large and too entrenched a part of the bureaucracy. Most of the “nice to know” studies originated in the finance function, which at that time spent $65 million to $75 million a year on operations analysis alone.

Finance had become an institution of its own. It had the company’s best training program. Their smartest graduates went on to the audit staff, where they rotated from business to business for several years. The result was, we had a strong, capable, but set-in-its-ways financial institution that was controlling the hell out of the place but didn’t want to change either the company or itself.

By appointing Dennis to the job, I wanted him to lead his own revolution. When I asked him to become chief financial officer, he was general manager of GE Capital’s real estate division. He had never made a presentation to the board of directors. He was only 38 years old, which made him the youngest CFO in the company’s history.

Dennis had worked for me for two years when I was a sector executive. During that period, he demonstrated incredible smarts, courage, and versatility. He could slice and dice the smallest details of the appliance business on one day, then analyze the most complex deal at GE Capital the next. During the Session C people reviews, he instantly knew the difference between the A and the B players.

Just as important, he didn’t carry any of the bureaucratic baggage that the players on the more typical list of candidates would have had. I gave him the ultimate stretch assignment. Though Dennis wasn’t sure he was qualified for the job, I knew he could do it and I was completely committed to help him.

Dennis was as shocked as the finance organization over his appointment. He was sitting in his office at GE Capital when I called at 7:15 A.M. one day in March of 1984 and asked him to meet me at 6 P.M. at Gates, the same restaurant where I had written the three-circle strategy on a cocktail napkin.

I told Dennis to keep our meeting a secret from everyone. I have no idea what went through his mind during those ten hours before our session. I’m sure he figured this was something that was going to be good for him. One thing he never imagined was that I would ask him to take the top finance job.

When I arrived at Gates, Dennis was already sitting at the bar. I sat next to him, ordered a drink for myself, and got right to the point.

“Dennis,” I said, “I’d like to go to the board this week and appoint you senior vice president and chief financial officer. Are you okay with this?”

Completely surprised, he managed to mutter, “Yes . . . okay.”

Once over the excitement, Dennis started asking dozens of questions about the job, so many that I finally called home and invited Carolyn down to join us. We all celebrated Dennis’s good news together.

When his appointment became public, shock waves ran through the company and really rocked the finance function. This was just what I wanted. Dennis’s appointment created the crisis we needed. I added more heat to the situation by writing Dennis a three-page critique of his new function. Dennis shared it with his team.

In a May 1984 letter, I wrote, “The first thing I’d like to do is make it clear that I don’t ‘hate’ the function. I think its strengths . . . have made it the best single functional organization in the company. It has been ‘some of the glue’ that’s kept the company together. But that is the past. What worked before—control—is not enough for tomorrow. . . .

“Everything done in the past is open for question—question, not criticism—from the financial management program, its input, size, and the training it provides to the headquarters and field organization’s size and role.”

Change doesn’t come from a slogan or a speech. It happens because you put the right people in place to make it happen. People first. Strategy and everything else next. Dennis was in many ways the perfect inside “outsider” we needed to break the bureaucratic hold finance had on our company.

Over time, Dennis dramatically changed the face of finance. Two years into the job, he was still battling the financial bureaucracy. Headquarters loved data, and it took years to stop the financial people from overanalyzing it. In 1986, a detailed analysis of international sales came across my desk, projecting GE’s total revenues for the next five years in every country, including, of all places, Mauritius, the tiny island off the coast of Africa.

I went bonkers. The name at the bottom of the report was Dave Cote, a financial analyst, at headquarters, two levels below Dennis. I asked my assistant to call Cote and get him over to my office.

“Dave,” I said, “you look like a smart guy. What are you doing bothering people in the field to get this stuff? Sales? Five years out? In Mauritius? I doubt you even know where it is!”

Dave didn’t know what to say. Unbeknownst to me, he had tried to shut the report down two months earlier. We got rid of that report for good that day. Dave got visibility and a series of promotions within the company, the last as CEO of appliances. He left in 1998 and is now CEO of TRW in Cleveland.

Dennis Dammerman persevered against incidents like this and a hundred more like it. Over his first four years in the job, he cut the finance staff in half. He led the consolidation of the 150 different payroll systems we had in the United States alone. He changed the financial management program, which used to be 90 percent finance and 10 percent general management, so that nearly half of its content was on management and leadership. And he changed our audit staff so that our auditors became business supporters, not corporate policemen.

Changing the role of the audit staff would be a huge win for us—a very big deal. Getting auditors into this business partner role and out of the green eyeshade “gotcha” role changed not only what they did, but ultimately who they would become. Three of our key initiatives—in services, Six Sigma, and e-business—wouldn’t be where they are today without the passionate leadership and support of this young group of stars. They relentlessly transferred best practices from one GE business to another around the globe.

Today the CFOs of all of GE’s businesses see their jobs as COOs—and not controllers. In the 14 years that Dennis served as chief financial officer, until becoming a vice chairman of GE in 1998, he transformed an audit-driven finance organization into the best school for business leadership. Three of his former audit staff heads have become huge stars at GE: John Rice at power and Dave Calhoun at aircraft engines are now CEOs of our two largest single businesses. Jay Ireland became CEO of the NBC station group. Charlene Begley, a 36-year-old mother of three, ran GE’s 180-person audit staff and then went on to become CFO of GE’s specialty materials business in mid-2001. Charlene was replaced by 37-year-old Lynn Calpeter. She had been chief financial officer of NBC’s station group.

There’s a similar success story in the legal arena. We had a legal organization that was on the wrong end of the Rolodex. If a problem came up, our lawyers basically knew whom to dial up. The outside counsel would then run the case, and our legal staff would serve as backup. Unlike finance, there was no internal candidate to make the transformation we needed. I talked to all kinds of outside lawyers to get help in my search for the best.

Just as Dennis seemed an unlikely hire as chief financial officer, so was my new general counsel, Ben Heineman. He was a constitutional lawyer in Washington, D.C., whose practice was appellate Supreme Court litigation. Ben had been a Rhodes scholar, a reporter for the Chicago Sun-Times, the editor of the Yale Law Journal, a Supreme Court law clerk, and a public interest lawyer in Washington. His first job after clerking for Justice Potter Stewart was defending the mentally handicapped. He worked in government as undersecretary of the Department of Health, Education and Welfare and in private practice as managing partner of Sidley and Austin’s Washington office when I met him in 1987.

To some, Ben seemed a bizarre choice to head our legal staff. I didn’t think so—but even he had some doubts. Before our final interview, he said, “Remember, I’m a constitutional lawyer. I’m not a corporate lawyer. I’m not a New York lawyer.”

“I don’t care,” I shot back. “You’ll hire good lawyers. That’s what I want you to do.”

Ben didn’t have the same stable of talent Dennis inherited in finance. He had to go outside, and he did. I gave him carte blanche to pay as well as the best law firms and then added options into the mix as the upside kicker. He was able to pry out some of their smartest partners.

This was the classic case of As hiring As.

Ben was “over the top” about résumés. He couldn’t talk about people without getting into a line-by-line description of their credentials, from their school and position on the Law Review to which federal judge they clerked for. We all kidded him about it.

I’ll concede that in this case résumés counted, and Ben found stars. He brought in John Samuels, a former partner at Dewey Ballantine, to head our tax department; Brackett Denniston, the former chief legal counsel for Massachusetts governor Bill Weld, to run litigation; Pamela Daley, a partner at Morgan, Lewis & Bockins in Philadelphia, to head up M&A; Steve Ramsey, a former Department of Justice (DOJ) environmental litigation head, to run environmental health and safety; and Ron Stern, an antitrust partner at Arnold & Porter, to head up our antitrust practice based in Washington. (In 2001, Ron spent most of his time in Brussels, having an experience no one should go through.)

Ben put the same caliber of talent into the general counsel jobs at almost every GE business.

We got more than great legal advice.

Three of Ben’s associates left the law and played significant roles in GE operations: Henry Hubschman, former general counsel at aircraft engines, in now CEO of GE Capital Aviation Services. Frank Blake, general counsel at power systems, became head of business development for the company. Jay Lapin, former general counsel at appliances, went on to become president of GE Japan.

Ben turned the place upside down. Today, I believe GE has the best legal firm in the world (almost everyone agrees it is the best corporate legal team). Our lawyers design the work and plot the strategy, with the advantage of having an intimate knowledge of our company and its people. The outside law firms work much more closely with us. They are partners in our firm.

Ironically, I shouldn’t have agonized as long as I did on so many people who weren’t going to cut it. The consistent lesson I’ve learned over the years is that I have been in many cases too cautious. I should have torn down the structures sooner, sold off weak businesses faster than I did. Almost everything should and could have been done faster.

This so-called Toughest Boss in America honestly wasn’t tough-minded enough.

10

The RCA Deal

I’ll never forget the time I walked through a Japanese manufacturing plant. It was in the mid-1970s, after putting together a joint venture with Yokogawa Medical Systems. On a tour of a Yokogawa plant outside Tokyo, I watched in total amazement as ultrasound units were being assembled.

The process was like nothing I had seen in the United States. When the machines were finished, a worker unbuttoned his shirt, dabbed some gel on his chest, and ran the ultrasound probes over his body for a quick quality test. The same guy then wrapped up the product, put it in a box, attached a shipping label, and got it on the loading dock.

It would have taken a lot more people to get this done in Milwaukee—one of GE’s best plants.

The incredible efficiency of the Japanese was both awesome and frightening. What I saw in Japan was occurring in many of our markets. The Japanese were tearing apart the cost structure in industry after industry. Television sets, automobiles, and copying machines were being hammered.

I was looking for a business that would give us a place to hide. In the early 1980s, three businesses seemed to ring the bell: food, pharmaceuticals, and television broadcasting. Everyone needed to eat, and the United States had a strong agricultural position in the world. We evaluated several food companies, including General Foods, but couldn’t make the numbers work. At the time their price-earnings ratios were much higher than GE’s. As for pharmaceuticals, the numbers weren’t even close.

The government’s foreign ownership restrictions made TV attractive. Like the food industry, it had strong cash flow that could strengthen and expand our businesses.

The Japanese threat would lead to a deal that would really change GE—the $6.3 billion acquisition of RCA in 1985. At the time, it was the biggest non-oil deal in history. We bought RCA primarily to get NBC. What came with it would transform us.

The network business had always fascinated me.

Before RCA, we came close to getting CBS. In the spring of 1985, Ted Turner was trying a hostile takeover of the network. CBS chairman Tom Wyman and I met over dinner at our headquarters in Fairfield to discuss the possibility of our being a white knight. But Wyman fended off Ted’s threat, and we weren’t needed. The CBS deal evaporated. But my “secret” meeting with Wyman hadn’t escaped attention.

There are no secrets on Wall Street. As a Lazard Frères partner, Felix Rohatyn put together many of the biggest deals in those days. Though I hadn’t done an acquisition with him, I was a big admirer of Felix. He heard about my interest in CBS and knew of my earlier effort to get Cox Broadcasting. Meanwhile, Felix and Thornton “Brad” Bradshaw, chairman of RCA, were friends and had been discussing RCA’s strategic options.

Brad had been brought in to fix RCA in mid-1981 after a successful run as the president of ARCO. He was quiet, self-effacing, and incredibly wise. I felt very good about him right away. Brad had done a good job and was particularly successful with NBC by enticing TV producer Grant Tinker to head up the network.

From the start, Brad had no intention of staying all that long. Ironically, he found his replacement in Bob Frederick, who had been one of the GE executives in the race for Reg’s job. Bob had joined RCA three years earlier as chief operating officer and president. He was made CEO in 1985. Brad remained as chairman but was having all kinds of second thoughts about whether RCA could make it on its own.

Out of the blue, I got a call from Felix, who asked me if I’d like to meet with Brad. A few days later, on November 6 of 1985, we got together in Felix’s New York apartment for drinks. Brad showed up dressed in a tux so he could skip out for a formal dinner. It was quickly clear that, like me, Bradshaw was worried about Asian competition. He was as focused on being No. 1 or No. 2 as I was.

We never talked about a specific deal that night, but we found out we liked each other. Felix had been a good matchmaker. Brad and I were comfortable with each other and shared a common understanding for the strategic rationale behind a combination. Ours was a short meeting—a little less than an hour. When I left Felix’s apartment, we hadn’t scheduled a second meeting.

At this point, we were just dating. But I felt that there was a real shot at marriage.

The next day, I put together a team, including Dennis Dammerman, our chief financial officer, and Mike Carpenter, our head of business development, to dig through RCA. We worked on the project under the code name “Island.”

The day before Thanksgiving, our team got together to decide whether to take the next step. For more than four hours, Larry Bossidy, the Island team, and I wallowed through all the pros and cons of the acquisition. For me, “wallowing” has always been a key part of how we ran GE. Get a group of people around a table, regardless of their rank, to wrestle with a particularly tough issue. Stew on it from every angle—flush out everyone’s thinking—but don’t come to an immediate conclusion.

With RCA, we wallowed to the point of seeing that there was a lot more than just a broadcast network. We had a small semiconductor business. So did RCA. We had an aerospace division. So did RCA. We both were in the TV set business. Combining operations in these businesses would make each one of them a lot stronger.

We had been in the TV station business for years, and our short courtship with CBS gave us enough understanding to become reasonably comfortable with the network. We put a $3.5 billion valuation on the broadcast business. If we could stomach paying about $2.5 billion for everything else, then the deal could be a home run.

Our major concern was the valuation of NBC. Though its ratings were strong in 1985, cable television had started to eat into its network audience. We made some very aggressive assumptions on cable penetration and still decided that the deal was right.

I kept asking, “Ten years from now, would you rather be in appliances or in network television?”

We all agreed to go away and think it over during the long Thanksgiving Day weekend. We met again first thing Monday morning. All of us had come to the same conclusion: The numbers worked, and beyond the network we saw that most of RCA’s other businesses were a great fit with ours.

It was a go.

I let Felix know that at the right price, we were interested. He set up another meeting between Brad and me on Thursday, December 5, in Brad’s duplex at the Dorset Hotel in midtown Manhattan.

After some small talk, we quickly got to the point.

“I’d like to buy your company,” I told him. “Our companies are a perfect fit.”

The fit was obvious to him as well.

I tried a price in the $61-a-share range, more than $13 higher than RCA’s stock was trading at that time. He paused and, in his professorial way, let me know it wasn’t quite enough. By the time I left, we agreed to pursue the deal and to disagree on a final price.

The next day, things got a little hairy. It turned out that Brad hadn’t discussed our meetings with Bob Frederick. When Bob found out, he became angry, to say the least. He felt the company was being sold out from under him. Bob and Brad had a brief falling-out over this, and Bob tried to marshal some of the directors on RCA’s board against the deal. When the board met on Sunday, December 8, Brad was able to get a majority of the board to approve the deal.

Afterward, he called me to report the good news but said the price still wasn’t right. He had retained Felix to represent him. I needed an investment banker, so I signed up my good friend John Weinberg, who was running Goldman, Sachs.

Over the next few days, meeting at a suite in a New York hotel, Brad, Bob, and Felix negotiated with John and me. At the end, as usual, we got down to nickels and dimes. Brad was at $67 a share, and I was at $65. The deal closed when I gave Brad $66.50—probably 50 cents more than he expected.

I always tried to leave some goodwill on the table when the seller’s ongoing involvement was important to the company’s success.

By Wednesday evening, December 11, we had a deal to buy RCA for a total of $6.3 billion in cash.

There was an odd footnote to the deal. Only months before, in August, a lower-level lawyer at RCA had called one of our attorneys and said he would like to get rid of an old GE-RCA consent decree. During World War I, the U.S. government asked GE, AT&T, and Westinghouse to form the Radio Corporation of America for defense purposes.

In 1933, the Justice Department decided that we should spin it off as a separate company. We did that and took over their headquarters building at 570 Lexington Avenue as compensation. However, the consent decree resulting from that transaction restricted GE from buying RCA common stock. The Justice Department eliminated the 50-plus-year restriction by October, clearing the way for the deal two months later.

Talk about dumb luck! None of us had a clue the consent decree existed.

After wrapping up the deal that Wednesday night, I left RCA’s lawyers’ offices and went back to the GE building on Lexington Avenue to celebrate. It was the same building the company had gotten for its part of RCA in 1933.

What a night!

We broke out the champagne. We were laughing and giving each other high-fives. All of us—Larry Bossidy, Mike Carpenter, Dennis Dammerman, and the others—were like kids. I’ll never forget the kick we got looking out the windows through the fog and seeing the RCA sign illuminated on top of their building at Rockefeller Center. It was just three blocks away from ours. We could hardly wait to get the GE logo up there. We felt like hot stuff at the moment.

From my first meeting with Bradshaw to final board approval, it had taken 36 days to nail down the largest non-oil merger at the time. The deal, announced December 12, was a turning point for GE. The critics, and there were many, focused on GE getting into the network business. They asked, “What in the world was a light bulb company doing buying a TV network?” Broadcasting gave us pizzazz and great cash flow—and the hideaway I wanted from foreign competition. The hidden value would come in the less glamorous assets that got little attention.

The RCA acquisition gave us a great network and a lot more strategic chips at the table. It also sparked a new, energized GE. We had been going through lots of turmoil with our restructuring and downsizing. The deal changed the atmosphere. I remember walking up to the stage for the opening session of our operating managers meeting in Boca that January, a few weeks after the acquisition was announced.

All of a sudden, some 500 people in the room stood up in a spontaneous ovation. RCA became the kick-start to a new era.

Once the deal closed, we sold RCA’s nonstrategic assets, including records, carpeting, and insurance. We didn’t like the culture in the record business. The carpet business didn’t fit with anything we did, and neither did a small insurance company. Within a year of the deal, we had $1.3 billion of our $6.3 billion back.

I tried hard to keep Grant Tinker as head of NBC. With Brandon Tartikoff as his partner, the two of them had turned around the network with lots of great hits, from The Cosby Show to Cheers. Tinker had signed on for a five-year stay that would be up in July. He had been commuting weekly between New York and California and was tired of it. Although Tinker told Brad before the acquisition that he intended to leave, I tried to convince him to stay with us. We had dinner in New York where I offered him, what was for me, an ocean of money. There was nothing I could do to get him to reconsider.

Fortunately, I had a backup plan from day one. Bob Wright was now running GE Capital after the sale of housewares. He had been sent by us to Cox Broadcasting when I tried to buy it and stayed there three years as president of Cox Cable.

Bob was the perfect fit. He had a feel for the business, was familiar with GE, and was a close ally as we moved into strange territory. I appointed Bob head of NBC in August 1986. The media asked, “How could this GE guy run a network?”

The long and short of it is that 15 years later, Bob is still there with a great track record.

While we left NBC as a separate business, we immediately began to integrate the RCA and GE operations that complemented each other. We reduced overhead by putting joint teams together that met with me every week. The teams’ objective was 1 + 1 = 1: one GE and one RCA staff professional would equal one in the merged company. The integration teams agreed that the best from each company would get the jobs.

This wasn’t idle BS. GE got the top staff jobs, but in the complementary businesses, RCA won most of the big jobs. We ended up the No. 1 U.S. TV set producer and put in an RCA executive to run it. We did the same with our combined aerospace and semiconductor businesses, with RCA leaders selected. Heading up a fourth business in government services and satellite communications was Gene Murphy from RCA, later to become head of GE’s aerospace and aircraft engine business and eventually a GE vice chairman. Gene had a military bearing. He always delivered on his commitments. I considered him Mr. Integrity—as high a compliment as you could pay anyone.

These assets, or chips, gave us strategic options that weren’t possible before. Over the next decade, each of these chips would create real value for GE.

 

Unfortunately, while I was doing the biggest deal of my professional career, the biggest merger in my personal life was ending.

Carolyn and I had been having difficulty in our marriage for many years. Through all my GE years, I was the ultimate workaholic, while she did a great job raising our four kids. All of them were on their way and doing well. Katherine, our oldest, had graduated from Duke University and was in her first year at Harvard Business School. After getting an undergraduate degree from the University of Virginia, my oldest son, John, was getting his master’s degree in chemical engineering at Illinois. Our other daughter, Anne, graduated from Brown University and was going to the Harvard School of Architecture for her master’s degree. Our youngest son, Mark, was in his freshman year at the University of Vermont.

Carolyn and I simply found ourselves on different paths. Other than our friendship and mutual respect, we had little in common. It was difficult and painful, but we divorced amicably after 28 years of marriage in April 1987. Carolyn went to law school, got her law degree, and eventually married her undergraduate sweetheart, who is also a lawyer.

Suddenly, I found myself single again. Being single and having money was like standing six feet four with a full head of hair. Everyone is trying to fix you up, and you get lots of dates with interesting and attractive women.

Nothing really clicked until Walter Wriston and his wife, Kathy, arranged a blind date with Jane Beasley, an attractive attorney who worked for Kathy’s brother at the New York law firm Shearman & Sterling. When Jane’s boss called her to ask if she would go out with Jack Welch, she thought he was talking about another lawyer at the law firm.

“I can’t go out with him,” she said. “He’s a colleague.”

“Not him,” he said. “This Jack Welch is the chairman of General Electric, and he’s a little bit older than you.”

“That doesn’t matter. I’m not going to marry the guy.”

At the time, Jane was in London on an extended assignment with the firm. Six months later she returned, and in October 1987, we went out to dinner with the Wristons at Tino’s, an Italian restaurant in New York.

With Walter sitting there, the date was a little stiff. I had to be on my best behavior. But Jane and I left at 10 P.M. and went on to close the bar at Café Luxembourg. It took a second date over burgers at Smith & Wollensky, both of us arriving in leather jackets and blue jeans, to really make the match.

Jane was bright, witty, and seventeen years younger than I was. From a small town in Alabama, she seemed down-to-earth in every way. Her mother was a teacher, her father a lawyer, and as a kid, she was a tomboy who grew up with three brothers. After college, Jane went to law school at the University of Kentucky and then came to New York to become a mergers and acquisitions lawyer.

When Jane and I started to get serious, we had the “why it won’t work” talk. I told her it bothered me that she didn’t ski or play golf. She told me it bothered her that I didn’t go to the opera. We made a deal: I agreed to go to the opera if she agreed to ski and golf. I really wanted a full-time partner, someone who would be willing to put up with my schedule and travel with me on business trips. Jane would have to give up her career, which she did after taking a leave of absence to try the new arrangement out.

We got married in April 1989 at our house in Nantucket, with my four kids present. For the next few years, I went to the opera, calling it “husband duty” until Jane later relieved me of the obligation.

While my appreciation for opera didn’t grow, teaching her golf took me to a whole new level.

I had been trying to win club championships for years and had never gotten anywhere. We got better together. Even though Jane had never played golf before meeting me, she won the club championship at Sankaty Head in Nantucket four years in a row—and I won it twice. Our golf partnership was the strength of our marriage.

It was not, however, enough to sustain us. In 2001, Jane and I agreed to divorce. In the late nineties, our lifestyles had substantially diverged, and despite a split that unfortunately became very public, we knew we had to move on.

 

Back at work, the first chip that we played in the RCA deal was the TV manufacturing business.

In June 1987, Paolo Fresco and I were in Paris at the French Open, entertaining customers at this NBC telecast event. Alain Gomez, the chairman of Thomson, France’s government-owned electronics company, stopped by our hospitality suite. He was a fun and gutsy guy.

We already had planned to see him at his office the following day. When we got together, it was not unlike my first meeting with Bradshaw. Both our companies had businesses that needed help. Thomson had a very weak No. 4 or No. 5 medical imaging business called CGR that I wanted. We had a No. 1 U.S. position in medical equipment, from X-ray devices, CT scanners, and magnetic resonance imaging machines. We had no meaningful position in France because the government’s ownership of Thomson essentially closed the country to us.

Alain Gomez made it clear he had no interest in selling his medical business outright. Paolo and I decided to see if he might be interested in a trade. We always knew what businesses in our portfolio we didn’t like. I jumped up and went to an easel in Thomson’s conference room, grabbed a Magic Marker, and began to write down businesses we could swap for their medical operations.

My first try was our semiconductor business. That didn’t fly. Then I tried the TV manufacturing business. He liked that idea immediately. His TV business was subscale and strictly European based. Alain saw the trade as a way to unload his losing medical business and overnight become the No. 1 producer of television sets in the world.

The three of us got excited about this deal. We decided that Paolo Fresco would meet with one of Alain’s people to get the discussions started within a week. Alain took us down the elevator to our car waiting outside his office. As the car pulled away from the sidewalk, I grabbed Paolo by the arm.

“Holy s——,” I said, “I think he really wants to do this.” We were both giddy.

I’m sure Alain went back upstairs feeling the exact same way. Alain knew that his TV set business was too small to compete against the Japanese. The deal gave him the economies of scale and market position to mount a strong challenge. Our domestic consumer electronics business had $3 billion in annual sales and 31,000 employees. Thomson’s medical equipment business had $750 million in annual revenues.

The trade would triple our market share in Europe to over 15 percent, giving us a presence against our biggest competitor, Siemens. Within six weeks, the deal was done and announced in July. Besides the swap, Thomson gave us $1 billion in cash and a patent portfolio that for 15 years threw off $100 million annually in after-tax dollars. Meanwhile, Thomson became the largest TV set producer in the world.

Our move out of TVs, however, was a tough nut for many to swallow. Media critics claimed we were bowing to Japanese competition by selling out. Some attacked the deal as un-American. I even got called a chicken for running away from a fight.

The criticism was media nonsense at its best. We ended up with a more global, high-tech medical business—and a lot of cash. One year of the patent stream income was more than we had made in the previous decade in the TV set business.

We both struggled in the short term. We lost money in medical in Europe for almost a decade. Thomson did the same with the consumer electronics business. We both stayed with it and ultimately made each business successful.

 

Within two years, we found the solution for our semiconductor business. Harris Corp., like us, had a subscale chip business. In July, I got a call from Harris chairman Jack Hartley, who wanted to come to Fairfield to feel me out on buying the business. Harris was primarily a defense electronics contractor with a small semiconductor operation that mainly supported its military sales. Hartley didn’t think the company could survive in semiconductors if it didn’t bulk up and gain volume from the industrial side.

 

 

I never liked semiconductors. The chart I drew for our board captured my feelings (see page below). The business was capital intensive and cyclical, it had short product life cycles, and the returns for most players were historically low. Getting out of it would let us use our capital for other things, like jet engines, medical equipment, and power turbines that had better returns.

Fortunately, our major global competitors stayed with semiconductors. That business used large amounts of their capital and diverted a lot of their management attention.

My desire to get out made a deal with Harris pretty easy. I wasn’t asking for much, just a graceful exit. Over lunch, Hartley and I outlined the deal. We put on a piece of paper the six major deal points and gave them to our financial teams.

Two months later, by mid-September 1988, the deal was done. Harris got the GE people, the facilities, and the business, and we received $206 million in cash.

It took much longer, five years later, to move out of aerospace. The Cold War was over. There was too much capacity chasing too little business. We concluded we had to get out. The one company that seemed to be a good fit was Martin Marietta, a pure aerospace business.

In late October of 1992, I went to a Business Council meeting, looking for Martin Marietta CEO Norm Augustine. Norm is a guy with enormous integrity. He’s bright, thoughtful, and literate, a great storyteller. We had barely known each other when we met that fall in the lobby of The Homestead resort. I suggested to him that we ought to get together to talk about what each of us was going to do with our aerospace businesses. He had been thinking along the same lines but had been reluctant to approach us, partly fearful that we might want to buy his company.

“We treasure our independence,” Norm said. “While I’d love to talk to you, I don’t want to do anything that would jeopardize that independence.”

“I promise you it won’t be that kind of discussion,” I replied, and suggested a private dinner soon.

Within a few days, Norm came up to Fairfield. By then, our team had the deal rationale all laid out on charts. Norm sat and ate his fish while I pitched. A deal was clearly in both our interests. Martin Marietta had to get bigger. For us, a deal could give us another graceful exit, this time from a military business I didn’t like. Complex, almost Byzantine government procurement rules made GE a juicy target for attorneys general looking for a corporate scalp.

Over dinner, we agreed to put aside the usual tactics and lay down the non-negotiable positions of what a reasonable deal might look like. By getting right down to business and agreeing to place reasonable offers on the table, we were hoping to minimize the chances of a leak that could put Martin Marietta in play. Before Norm left, we were close enough to think a deal could be put together.

We agreed to close the gap without investment bankers or outside law firms. During negotiations, Norm made three secret overnight trips to our offices. Martin Marietta’s top 100 executives were in the middle of an off-site meeting on Captiva Island in Florida at the time. Augustine would spend his day in Captiva, grab a quick dinner, and then fly to New York to negotiate with me and Dennis Dammerman for half the night. Then he would fly back down, sleep on the airplane, and shave and shower before turning up for his company’s meeting. For three nights straight, until 2 or 3 A.M., that was the routine.

After the third night, we had the deal’s essentials sketched out on a cocktail napkin and shook hands on it. Our mutual trust accelerated the negotiation. We also agreed to control the egos of lawyers and bankers. Those outside teams often engage in food fights to prove who’s smartest. I told Norm, “Whenever that starts, let’s get on the phone and resolve it quickly.”

We did. Over the next three weeks, the deal got done.

When the sale was announced on November 23, 1992, the market capitalization of each company jumped by $2 billion in the first four hours. From our first dinner in Fairfield to the announcement of what was then the largest deal in the history of the aerospace industry took all of 27 days.

Martin Marietta couldn’t raise much more than $2 billion for the $3 billion deal. So Dennis Dammerman came up with a convertible preferred stock structure that helped to fund the deal and made us owners of 25 percent of Martin Marietta.

Now we had a continued interest in the success of the transaction. The deal doubled the size of Martin Marietta and sparked a massive aerospace industry consolidation. Two years later, Martin itself would merge with Lockheed. By the time we sold our Martin position in 1994, our convertible note had doubled the value of the original $3 billion deal.

The Martin Marietta and Harris transactions and the Thomson trade were possible because of the chips acquired with RCA. The scale created by combining businesses in aerospace, semiconductors, and TV set manufacturing was the key.

Our last RCA-related transaction didn’t occur until 2001. We had put RCA’s satellite business into GE Capital, where its appetite for cash could be more easily satisfied. We built a strong satellite communications company, expanding RCA’s original business. We had 20 satellites and access to every cable system in the United States, reaching 48 million households. While we were the largest fixed satellite provider in the United States, the business wasn’t global enough.

At our long-range planning review in July 2000, GE Capital CEO Denis Nayden and his team decided we had to either expand the business by making a big acquisition or sell to or merge with an existing player. Denis mapped out a strategy to find a partner and ultimately negotiated a deal with SES, a Luxembourg company with 22 satellites that reach 88 million households. We sold our satellite holdings to them for $5 billion, split almost equally in cash and stock. The pending deal would give us a 27 percent stake in the new SES Group and make the entity a true global player.

RCA ended up giving us a great network and station lineup with strong cable assets, a truly global medical business, a significant position in a global satellite company, and tens of billions of dollars in cash—all for an initial investment of $6.3 billion in 1985.

RCA was a strategic win for GE. The emotional lift from the transaction was every bit as important.

11

The People Factory

After I became chairman, Joyce Hergenhan was the first officer I hired from outside the company, one of a handful of officers ever brought in from the outside. She was outspoken and tough as nails, a very smart MBA who was well schooled in hard knocks. She had been Con Edison’s senior vice president for public affairs at a time when the utility was suffering power outages and generating more heat than light.

Before we met, I had done a little background check and learned she was a sports trivia nut. Over dinner, for fun, I decided to throw her a high, hard one for my first question.

“Who played second base for the 1946 Red Sox?”

“Bobby Doerr,” she said without any hesitation.

I was impressed. I was a lifelong Red Sox fan and remembered the 1946 World Series as if I were 11 years old again.

I decided to press further. “Right so far, but who held the ball too long?”

“Oh,” she came right back, “you mean when Enos Slaughter scored from first base on a single?”

“That’s right.”

“Johnny Pesky!”

Of course, I didn’t hire Joyce for her baseball knowledge. She offered a lot more. Over 16 years, she helped shape GE’s reputation as V.P. of Public Relations.

She wasn’t the first to get hired in an offbeat way. Almost 20 years earlier, I was in my VW on the New Jersey Turnpike when the engine blew. I got towed to a local garage, where I met a German mechanic, Horst Oburst. Over the course of the next two days, while he was scrambling to get parts, we struck up a relationship. Impressed with his gutsy determination, I offered him a job. A week later, he was in Pittsfield on the payroll at GE Plastics.

Horst worked there for 35 years, getting several promotions along the way.

Finding great people happens in all kinds of ways, and I’ve always believed “Everyone you meet is another interview.”

In fact, GE’s all about finding and building great people, no matter where they come from. I’m over the top on lots of issues, but none comes as close to the passion I have for making people GE’s core competency. In this case, while it may seem contradictory, the system plays a very important role in making it all happen. For a guy who hates bureaucracy and rails against it, the rigor of our people system is what brings this whole thing to life.

In a company with over 300,000 employees and 4,000 senior managers, we need more than just touchy-feely good intentions. There has to be a structure and logic so that every employee knows the rules of the game. The heart of this process is the human resource cycle: the April full-day Session C, held at every major business location; the July two-hour videoconference Session C follow-up; and the November Session C-IIs, which confirm and finalize the actions committed to in April.

That’s the formal stuff.

In GE every day, there’s an informal, unspoken personnel review—in the lunchroom, the hallways, and in every business meeting. That intense people focus—testing everyone in a myriad of environments—defines managing at GE. In the end, that’s what GE is.

We build great people, who then build great products and services.

While we have a system, with its binders and clear-cut agendas, it is by no means static. Other than the agendas, carefully prepared in advance, there’s nothing neat and pretty about the way the people review process plays out.

No matter what we put in our books—and we put everything in them—it’s not simply the binders that count. What counts is the passion and intensity everyone brings to the table. When managers put their necks on the line for their direct reports, you learn as much about them as the people you’re discussing.

Sometimes we can debate for an hour over one page.

Why are these sessions so intense?

One word: differentiation.

In manufacturing, we try to stamp out variance. With people, variance is everything.

Differentiation isn’t easy. Finding a way to differentiate people across a large company has been one of the hardest things to do. Over the years, we’ve used all kinds of bell curves and block charts to differentiate talent. These are all grids that attempt to rank performance and potential (high, medium, low).

We’ve also led the charge into “360-degree evaluations,” which take into account the views of peers and subordinates.

We loved that idea—for the first few years it helped us locate the “horses’ asses” who “kissed up and kicked down.” Like anything driven by peer input, the system is capable of being “gamed” over the long haul. People began saying nice things about one another so they all would come out with good ratings.

The “360s” are now only used in special situations.

We were always groping for a better way to evaluate the organization. We eventually found one we really liked. We called it the vitality curve. Every year, we’d ask each of GE’s businesses to rank all of their top executives. The basic concept was we forced our business leaders to differentiate their leadership. They had to identify the people in their organizations that they consider in the top 20 percent, the vital middle 70, and finally the bottom 10 percent. If there were 20 people on the management staff, we wanted to know the four in the top 20 and the two in the bottom 10—by name, position, and compensation. The underperformers generally had to go.

Making these judgments is not easy, and they are not always precise. Yes, you’ll miss a few stars and a few late bloomers—but your chances of building an all-star team are improved dramatically. This is how great organizations are built. Year after year, differentiation raises the bar higher and higher and increases the overall caliber of the organization. This is a dynamic process and no one is assured of staying in the top group forever. They have to constantly demonstrate that they deserve to be there.

 

Differentiation comes down to sorting out the A, B, and C players.

The As are people who are filled with passion, committed to making things happen, open to ideas from anywhere, and blessed with lots of runway ahead of them. They have the ability to energize not only themselves, but everyone who comes in contact with them. They make business productive and fun at the same time.

They have what we call “the four Es of GE leadership”: very high energy levels, the ability to energize others around common goals, the edge to make tough yes-and-no decisions, and finally, the ability to consistently execute and deliver on their promises.

 

 

We actually started with three Es: energy, energize, and edge. When we did our first Session Cs appraising people based on these Es, we saw several managers with plenty of energy, the ability to energize their teams, and a lot of edge. As we went from business to business, we kept running into one or two who met the three E criteria but didn’t look very good to us. Before we got home, we decided we were missing something. What these managers were lacking was the ability to deliver the numbers. So we added the fourth E—execute. That did it.

In my mind, the four Es are connected by one P—passion.

It’s this passion, probably more than anything else, that separates the As from the Bs. The Bs are the heart of the company and are critical to its operational success. We devote lots of energy toward improving Bs. We want them to search every day for what they’re missing to become As. The manager’s job is to help them get there.

The C player is someone who can’t get the job done. Cs are likely to enervate rather than energize. They procrastinate rather than deliver. You can’t waste time on them, although we do spend resources on their redeployment elsewhere.

The vitality curve is the dynamic way we sort out As, Bs, and Cs, the most important tool of the Session C. Ranking employees on a 20-70-10 grid forces managers to make tough decisions.

The vitality curve doesn’t perfectly translate to my A-B-C evaluation of talent. It’s possible—even likely—for A players to be in the vital 70. That’s because not every A player has the ambition to go further in the organization. Yet, they still want to be the best at what they do.

Managers who can’t differentiate soon find themselves in the C category.

The vitality curve must be supported by the reward system: salary increases, stock options, and promotions.

The As should be getting raises that are two to three times the size given to the Bs. Bs should get solid increases recognizing their contributions every year. Cs must get nothing. We give As large numbers of stock options at every grant. About 60 percent to 70 percent of the Bs also get options, although the same people might not receive them at every grant.

Every time we hand out a raise, give an option, or make a promotion, the vitality curve is our guide. Attached to every recommendation for a reward is the person’s position on the curve.

Losing an A is a sin. Love ’em, hug ’em, kiss ’em, don’t lose them! We conduct postmortems on every A we lose and hold management accountable for those losses.

It works. We lose less than 1 percent of our As a year.

This system—like any other—has its flaws. Identifying the As is one of the treats of managing. Everyone enjoys doing that. Developing and rewarding the valuable keepers in the middle 70 percent poses little difficulty.

Dealing with the bottom 10 is tougher.

The first time new managers name their weakest players, they do it readily. The second year, it’s more difficult.

By the third year, it’s war.

By then, the most obvious weak performers have left the team, and many managers can’t bring themselves to put anyone in the C column. They’ve grown to love everyone on their team. By that third year, if they have 30 people in their management group, they often can’t identify a single bottom 10 percent player, much less three of them.

Managers will play every game in the book to avoid identifying their bottom 10. Sometimes they’ll sneak in people who were planning to retire that year or others who already have been told to leave the organization. Some have stuck on these lists the names of employees who are already gone.

One business even went to the extreme of putting into the bottom 10 category the name of a man who had died two months before their review.

This is hard stuff. No leader enjoys making the tough decisions. We constantly faced severe resistance from even the best people in our organization. I’ve struggled with this problem myself and have often been guilty of not being rigorous enough. Every impulse is to look the other way. I’ve fought it. If a GE leader submitted bonus or stock option recommendations without identifying the bottom 10, I’d send them all back until they made differentiation real.

The problem with not dealing with Cs in a candid, straightforward manner really hits home later when a new manager shows up. With no emotional attachment to the team, he or she has no difficulty identifying the weakest players.

The bottom 10 percent is quickly identified.

Some think it’s cruel or brutal to remove the bottom 10 percent of our people. It isn’t. It’s just the opposite. What I think is brutal and “false kindness” is keeping people around who aren’t going to grow and prosper. There’s no cruelty like waiting and telling people late in their careers that they don’t belong—just when their job options are limited and they’re putting their children through college or paying off big mortgages.

The characterization of a vitality curve as cruel stems from false logic and is an outgrowth of a culture that practices false kindness. Why should anyone stop measuring performance when people leave college?

Performance management has been a part of everyone’s life from the first grade. It starts in grade school with advanced placement. Differentiation applies to football teams, cheerleading squads, and honor societies. It applies to the college admissions process when you’re accepted by some schools and rejected by others. It applies at graduation when honors like summa cum laude or cum laude are added to your diploma.

There’s differentiation for all of us in our first 20 years. Why should it stop in the workplace, where most of our waking hours are spent?

Our vitality curve works because we spent over a decade building a performance culture with candid feedback at every level. Candor and openness are the foundations of such a culture. I wouldn’t want to inject a vitality curve cold turkey into an organization without a performance culture already in place.

 

What’s a typical Session C like?

A month before we go out into the field, the corporate executive office and Bill Conaty, our head of human resources, put together an agenda for all the major businesses to follow. (See the 2001 agenda for our Session Cs in the appendix.)

The action then shifts to the units, which now have to prepare the elaborate information requested. The underlying purpose is not to win a paper war. The key objective is to show how our human resources strategy is being applied to all the major initiatives of the business.

The binders, the charts, the grids, may seem formidable, but the meetings themselves are built around informality, trust, emotion, and humor.

Nonetheless, there is a lot at stake. This review is our most important meeting of the year. A review breaks down this way:

In the morning, we talk about the organization and the people in it.

At lunch, we focus on diversity.

In the afternoon, we review the game-changing initiatives and the people who are leading them.

The morning is where most of the heat is generated. We’re talking about careers, promotions, vitality curves, the strengths and weaknesses of individuals. It’s a rule of the game that every person has pluses and minuses, strengths and development needs. We spend most of our time on those needs and whether in fact these managers are fixable.

The strengths of a manufacturing leader we recently reviewed were in delivering the results (great productivity, terrific yield improvement, strong Six Sigma). But there were glaring weaknesses—too tough on people and not open to ideas from others. After a long debate over these pluses and minuses, we all concluded that this guy ought to get a warning notice. He had to change.

He was running the risk of becoming a C. Not being an open thinker would be a killer.

Of course, we had our lighter moments.

I challenged nearly everyone, and often in outrageous ways. The Session C binders include photographs and miniature biographies of every executive. When a photo might reveal slumping shoulders, drooping eyelids, or a hanging head, I wouldn’t hesitate to point him out and say, “This guy looks half-dead! He can’t be any good. He’s in the job for six or seven years and he hasn’t gone anywhere. What the hell is going on? Why haven’t you moved on him?”

Obviously, every picture of an expressionless person doesn’t tell the story. What I wanted was a lively discussion. I expected to hear a business leader fight for his or her people. Everyone had to come out of a Session C knowing that people were the whole ball game: the players, the national anthem, the hot dogs, the seventh-inning stretch, the whole game.

In March of 2001, I was in Pittsfield again for a Session C review, accompanied by our new CEO, Jeff Immelt. Going through a binder, I spotted a funny picture of one of GE plastics’ high-potential managers.

“If this guy is that good, you better get him a new picture,” I joked. “Someone will get the wrong impression.”

Later that day, I met the employee and teased him.

“Geez,” I said, “you don’t act anything like your picture. The great job you’re doing doesn’t go with that photo.”

I think he got a kick out of it (and probably a new picture).

Each of these pictures is always accompanied by a nine-square grid, like a tick-tac-toe box in which one “X” has been filled in to show the manager’s potential and performance. The best rating is the upper-left-hand square. The criteria used to place that “X” rely heavily on our corporate objectives—the four Es as well as our critical initiatives: customer focus, e-business, and Six Sigma.

Under each picture, some quick capsule comments highlight a manager’s pluses and minuses. Most of these capsules are pluses, but our rules of engagement require that there be at least one negative that requires improvement. We don’t allow a total whitewash. One executive has pluses such as “financial pit bull,” “7,000-foot runway,” “gets e-business.” The negative: “Wears ambition on sleeve.” We never liked people more focused on the next job than the one they were doing. This could be a career killer. Another is called “bright, driven, and ramping up.” On the minus side: “Execution is still a question.” Failure to deliver on commitments is, in the end, unacceptable.

Behind these summaries are the backup details of accomplishments and development needs. Each employee also does his or her own assessment, which is placed on the same page as their boss’s analysis.

 

 

For the last several years, we’ve met with our diverse “high potentials” at lunch. Each one has been assigned a mentor from the business leadership team. I made it clear over the years that these mentoring programs had nothing to do with explaining the benefit plans. We were talking about personnel development and used the discipline of product development.

In this case, the mentees were the “products.” The business leadership staff—their mentors—had the responsibility to develop these products. That meant either taking their mentees to the A level or finding new ones. At lunch, we had candid conversations about the program’s progress. Both the mentors and mentees bought into the very tough ground rules. In our performance culture, both understood that each had a responsibility to deliver a superior product and would be measured that way. The senior leadership was being held accountable.

It’s working. Over 80 percent of the 1999 mentees have been promoted.

After lunch, the sessions were devoted to the initiatives. We wanted to see who was leading them and who was on each team. We got presentations from the teams on their results against their yearly targets. We picked up best practices from each business to take to the next. And most important, we got a great assessment of just how much horsepower was driving each initiative.

We’d leave each meeting with a clear-cut to-do list, which we’d share with the businesses. Two months later, in July, we’d revisit these priorities with a two-hour videoconference to check the progress. That same list would serve as the agenda for the Session II meeting in November to close the loop.

Despite the rigor of this process, I was surprised by what employees told us in our annual attitude surveys. Out of 42 questions, we always got the lowest marks on this statement: “This company deals decisively with people who don’t perform satisfactorily.”

In 2001, only 75 percent of GE professionals agreed with the statement—and that response was an improvement over 1999, when just over 66 percent agreed. The level of satisfaction on that issue contrasts sharply with exceptionally good scores across the rest of the survey. (When asked if an employee’s career with GE has had a “favorable impact on me and my family,” more than 90 percent of the responses were favorable.) The results vividly illustrate how important differentiation is at all levels of the company and how much our employees want an even more aggressive and candid approach.

 

During Session C, at major locations, we spent at least an hour meeting with local union leaders. We wanted the local union leaders to know us, and we wanted to know them and their concerns.

Our mutual respect for union leadership at every level was real and ran deep. At the national level, we fought like hell with Bill Bywater for 15 years and his successor, Ed Fire, presidents of the International Union of Electrical Workers (IUE). Once or twice a year, first Frank Doyle and for the last seven years Bill Conaty, our HR heads, and I would sit down with them over dinner and argue over pay, benefits, and the other typical issues. The biggest philosophical difference between us was my feeling that if we were doing our job right, our employees didn’t need an organization to represent their interests. My position always drew a heated response from Bill and Ed, who objected to our resistance to their organizing efforts. Our differences were always in the open. There were no hidden agendas between us, and GE never had a major strike in more than 20 years.

On the broader labor front, my predecessor, Reg Jones, had led a labor-management group of about ten labor leaders and ten CEOs that was active with George Meany and Lane Kirkland of the AFL-CIO in the 1970s. I liked the idea a lot and shared the leadership of this group first with Lane Kirkland and then John Sweeney. John and I can both be thick-headed Irishmen, but I always felt we shared a genuine respect for each other. We’ve tried to get agreement on subjects like health care, trade, and education. While the group has been only marginally successful on policy, over our many meetings, we’ve benefited from a better understanding of one another’s positions.

Our approach to dealing with labor unions was no different from the way we felt about all our employees. Many outsiders often asked me, “How can the GE culture possibly work in various cultures across the world?” The answer to that question was always the same: Treat people with dignity and give them voice. That’s a message that translates around the globe.

 

There weren’t enough hours in a day or a year to spend on people. This meant everything to me. I’d always try to remind managers at every level that they had to share my passion. While I might be the “big shot” standing in front of them today, they were in fact the “big shots” to the people in their businesses. They had to transmit the same energy, commitment, and accountability to their people, to whom Jack Welch didn’t mean a thing. My ex-wife, Carolyn, always reminded me that I worked in the company ten years before I ever knew who was chairman. The important thing I urged every GE manager to remember was that “they were the CEO” as far as their people were concerned.

Even our biggest and best stars know the rules. As Andy Lack, president of NBC, says, “Jack and I have been friends for eight years, and our wives see each other all the time. If I started down a path where I made four incredibly bad decisions, I know he would fire me. He’d hug me, say he’s sorry and maybe you won’t want to go to dinner with me anymore, but he wouldn’t hesitate to get rid of me.”

It’s all about performance.

12

Remaking Crotonville to Remake GE

Change has no constituency—and a perceived revolution has even less.

In early January 1981, just two weeks after being named chairman-elect, I was in Florida for GE’s annual general management meeting. I had been going to this event at the Belleview Biltmore in Clearwater since 1968. It was during a cocktail reception before dinner one evening that I searched out Jim Baughman. Jim was a bearded academic, a former Harvard Business School professor, who had consulted for GE over the years. He had been named the head of Crotonville, our management development center, a year earlier.

I found Jim mingling in a small crowd.

“You’re just the guy I’m looking for,” I said.

I grabbed Jim by the arm, introduced myself, and quickly got past the small talk. I told him to get ready for the ride of his life.

“We’re going to be making all kinds of changes in this company, and I need Crotonville to be a big part of it.”

Without Crotonville, I didn’t think we had a prayer. I needed to communicate the rationale for change to as big an audience as I could. Crotonville was the place to do it.

Crotonville, a 52-acre campus in Ossining, New York, had been at the heart of an earlier management makeover. Former CEO Ralph Cordiner built the facility in the mid- to late-1950s to push his decentralization idea down into the ranks.

Thousands of GE managers were taught to take control of their own operations with profit-and-loss responsibility. For many years, the center’s instructors taught a useful menu of training courses based on the “Blue Books,” nearly 3,500 pages of management dos and don’ts. Thousands of general managers were raised on this gospel. Back in those days, the POIM (Plan-Organize-Integrate-Measure) principles spelled out in the Blue Books were like commandments.

Once decentralization took hold, Crotonville was used less as a training ground for leadership development than as a forum to deliver technical training or important messages in times of crisis. During the 1970s, when escalating oil prices fueled rampant inflation, Reg sent hundreds of managers through seminars on managing in inflationary times.

By 1980, the facilities had aged. Crotonville gradually became more a consolation prize than a place where the company’s best gathered. The programs used open enrollment, and the quality of the attendees varied widely. Much of the company’s future leadership wasn’t bothering to attend. Only two of the seven contenders for Reg’s job had taken the multiweek general management course. I wasn’t one of them, although I remember taking a one-week marketing class in the late 1960s. I liked the course but didn’t particularly like the accommodations.

By 1981, Crotonville was tired. Real tired.

I wanted to bring the place to life and needed this former Harvard professor to lead the effort. I saw Crotonville as a place to spread ideas in an open give-and-take environment. It could be the perfect place to break through the hierarchy. I needed to connect with managers deep in the organization, without my message being interpreted by layers of bosses.

But if Crotonville was to do all this, it would have to change. Within a few weeks of meeting Jim Baughman in Florida, we were sitting together in Fairfield over a three-hour lunch, wrestling with the center’s future. I wanted to change everything: the students, the faculty, the content, and the physical appearance of the facilities. I wanted it focused on leadership development, not specific functional training. I wanted it to be the place to reach the hearts and minds of the company’s best people—the inspirational glue that held things together as we changed.

“I don’t want anyone to go there who doesn’t have great potential,” I told Jim. “I want the good ones coming up, not the tired ones looking for a last reward.”

If we were going to ask only the best to go, we had to make Crotonville a world-class center. We had to reinvest in facilities when we were in the middle of gut-wrenching change—the restructuring of our portfolio and downsizing. We renovated the Pit, the main multilevel classroom, right away and began building a helipad so our leadership team could get there and back faster. (It was an hour’s drive each way by car from Fairfield.) I asked Jim to pitch our case to the board. He did that in June 1983 and included a request for $46 million to build a new residence center there. Jim recalls that when I reviewed his presentation, I crossed out the payback analysis on his last chart. I drew an “X” over the transparency and scrawled the word Infinite to make the point that the returns on our investment would last forever.

I meant it.

It was slow going. My first session with a class of GE managers went over like so many of my early meetings. We weren’t set up yet at Crotonville. The executives in a four-week management course were bussed to Fairfield for what was billed “An Evening with the Chairman.” In June 1981, I was up in front of fifty managers in our headquarters auditorium. All of us were dressed in suits and ties. The class sat in front, and the company’s human resources staff sat in the back. My off-the-cuff remarks that night were based on my favorite themes: our No. 1 and No. 2 strategy and my desire to change the “feel” of the company.

After discussing where I wanted to take GE, I opened it up for questions.

There were a few, but no one in the room wanted to challenge any of my thoughts. At least 70 percent of the people in the auditorium had that skeptical look (you know the look I mean—when people aren’t with you).

To be fair, I’m sure I intimidated the hell out of them. Here I was, pacing back and forth in front of the class, threatening to fix, close, or sell the very businesses they worked in, while all the people in charge of their careers sat in the back row. It had to be pretty nerve-racking. Only the few managers frustrated with the bureaucracy liked it.

I understood the confusion and fear in the room. Hell, those managers signed up for a different, more traditional GE. I was struggling to find the right words and was blurring the impact of my message. The themes of excellence, quality, entrepreneurship, ownership, facing reality, and No. 1 and No. 2 were overwhelming these people, who were worried about whether they would still have a GE job.

I continued holding the classes at the Fairfield auditorium, bussing managers to headquarters for an evening session followed by a reception over drinks. Things gradually got better. But it was tough sledding.

 

The company’s mood fluctuated on the bullishness of our press clippings and the price of our stock. Every positive story seemed to make the organization perk up. Every downbeat article gave the whimpering cynics hope.

Fortune magazine weighed in early with an upbeat assessment in January of 1982, “Trying to Bring GE to Life.” Less than six months later, I got whacked with the Neutron tag. A strong endorsement followed in Forbes magazine in March of 1984, “Extraordinary Designs for a Whole New Future.” I remember flying in a helicopter from Fairfield to New York with Henry Kissinger when the cover story came out. He thought the story was sensational. Coming from media-savvy Henry, that was a big deal. Any good feeling from that was gone quickly. Five months later, Fortune was calling me “the Toughest Boss in America.”

In the media, at least, I went from prince to pig—and pig to prince—very quickly.

Fortunately, the equity market was on my side. After years of being stuck, GE stock and the market began to take off, reinforcing the idea that we were on the right track. For many years, stock options weren’t worth all that much. In 1981, when I became chairman, option gains for everyone at GE totaled only $6 million. The next year, they jumped to $38 million, and then $52 million in 1985.

For the first time, people at GE were starting to feel good times in their pocketbooks.

The buy-in had begun.

In 1984, I started going to Crotonville for every one of our top three management classes. We overhauled all of them. They had been based on case studies at other companies. We changed that to tackle real GE issues. Jim Baughman recruited an innovative University of Michigan management professor, Noel Tichy, who helped to remake the coursework. Tichy, who became head of Crotonville from 1985 to 1987, brought great passion to the job and introduced “action learning.”

Many courses ran at Crotonville, ranging from new employee orientation to specific functional programs. There were three courses that focused on leadership: the EDC (executive development course) for the highest potential managers; the BMC (business management course) for midlevel managers; and the MDC (management development course) for fast-trackers early in their careers.

The first level of these was the three-week MDC, which ran six to eight times a year. These courses, attended by 400 to 500 managers annually, were held exclusively at Crotonville in a classroom atmosphere.

Tichy’s “action learning” concept of working on real business issues became the heart of the more advanced BMC and EDC classes. Projects were focused on a key country, a major GE business, or the progress the company was making on an initiative like quality or globalization. Interestingly enough, we had BMC classes in Berlin the same day the Wall came down and in Beijing the very day of the Tiananmen Square protest. The students watched both events, but all came out safe and sound and smarter for the experience.

We held three BMCs a year, with about 60 in each class, and one EDC a year for 35 to 50 of our most high-potential managers. Both these courses were three weeks long and were scheduled so that each class could present their recommendations in a two-hour session at the quarterly meetings of our Corporate Executive Council (CEC). The CEC meetings bring together 35 GE executives—the CEOs of the major businesses and the top corporate staff.

These classes became so action-oriented, they turned students into in-house consultants to top management. The classes looked at our opportunities for growth and how other successful companies were going after it in just about every developed and developing country in the world. They evaluated how fast and effective our four initiatives were taking hold. In every case, there were real take-aways that led to action in a GE business. Not only did we get great consulting by our best insiders who really cared, but the classes built cross-business friendships that could last a lifetime.

The courses became an important recognition of achievement. No one could go to BMC without business leader approval. No one could go to EDC without approval from HR head Bill Conaty, the vice chairmen, and me. All nominations for the classes were reviewed at our Session Cs.

By the mid-1980s, the faces and the dialogue in the classrooms were improving. The makeup of these classes had changed dramatically. After we began handing out stock options to a larger number of managers in 1989, I began the entry class asking, “How many of you have received grants?”

At first, less than half would usually raise their hands.

“Well, I have good news for everybody. For those who got options, congratulations. You wouldn’t have them if you weren’t A players. The stock has been strong, and with continued strong performance, you should look forward to making real money on those options.”

By this time, the rest of the crowd, none of whom had ever seen a stock option, were wondering what was going to come next.

“And it’s good news for those of you who haven’t received a grant,” I said. “Now you know that your boss isn’t leveling with you. If your boss told you that you’re a star, something’s wrong—because all our stars are getting options. You should go back and talk to your manager and ask why you’re not getting them.” Surprisingly, many didn’t—because they knew in their gut where they stood.

During the 1990s, Crotonville’s leadership was passed to Steve Kerr. Steve is low-key, very bright, forward-thinking, and a real team player—just what we needed to bring the center to its next level. He not only developed the curriculum for our own people, but was fantastic in bringing customers into Crotonville to share best practices with them. He was a great ambassador.

In 1991, we decided that no one could attend Crotonville’s top programs if they didn’t receive a grant. All the A players should get stock options, and all should gain the experience of going to Crotonville.

In 1995, I read a piece in Fortune magazine on how PepsiCo executive Roger Enrico and his team were teaching leadership to Pepsi executives. I liked the Pepsi model and decided that every member of our leadership team should teach a session. Before, our senior staff and business leaders had done it only on a sporadic basis. The Pepsi model gave the classes a close look at our most successful role models, and it gave our leadership a broader pulse of the company. With the help of Steven Kerr, who joined GE as new Crotonville leader in 1994, we made the change. Today, some 85 percent of the Crotonville faculty are GE leaders.

Kerr, the former head of the USC Business School who was one of our early Work-Out consultants, led another major change. For years, our customers expressed interest over what we did at Crotonville and how we did it. With our business leaders, Kerr pushed to include GE’s major customers who wanted to sample our leadership development courses or a primer on Six Sigma. Kerr and the team made it a huge success for everyone. At one point, we were getting four requests a day from customers and suppliers who wanted to visit our leadership center.

By 1986, the physical overhaul of Crotonville had been completed. We had a new residence hall to go with our new classrooms. And most important, the people in the classrooms had really changed. They were more energetic and much more likely to ask challenging questions.

In all, it took perhaps ten years for most of our people to really get it. In the past decade, the Pit has been filled with excited and engaged people. The faces are young and diverse. The questions are smart and challenging—for me and for them.

Crotonville is now an energy center, powering the exchange of ideas.

 

When all is said and done, teaching is what I try to do for a living. Truth is, I’ve always liked teaching. After getting my Ph.D., I even interviewed at a few universities. In my first days at GE, I regularly taught math to one of my technicians, Pete Jones. During lunch hour, we’d get together in my Pittsfield office. I knew he was smart, and I wanted him to go back to school.

Pete would tell you I was an impatient teacher. Sometimes I’d throw chalk at him when he failed to understand the formulas I wrote on my office blackboard. Somehow it all worked. Pete left GE and got his degree and later taught for thirty years in the Pittsfield school system.

It was easy for me to get hooked on Crotonville. I spent an extraordinary amount of my time there. I was in the Pit once or twice a month, for up to four hours at a time. Over the course of 21 years, I had the chance to connect directly with nearly 18,000 GE leaders. Going there always rejuvenated me. It was one of the favorite parts of my job.

Whenever I went to Crotonville, I never lectured. I loved the wide-open exchanges. The students taught me as much as I taught them. I became a facilitator, helping everyone learn from one another. I had ideas that I brought to every class, and our exchanges enriched them. I wanted everyone to push back and challenge. For the last ten years, they have.

Before I showed up, I would sometimes send ahead a handwritten memo of what I expected to cover during a session. For our MDC, I typically asked them to think as a group about some issues (see below).

“I’ll be talking about A, B, and C players. I’ll be asking your thoughts about the differing characteristics of each . . . and want to engage you in a discussion about them.”

“What are the major frustrations you deal with . . . that I can help with?”

“What don’t you like about a career in GE that you would like to see changed?”

“Are you experiencing the quality initiative? How would you accelerate it in your area, your business, and the company?”

For our EDC program, I had a different set of issues. I asked them what they’d do if they were appointed CEO of GE tomorrow.

 

 

“What would you do in your first 30 days? Do you have a current ‘vision’ of what to do? How would you go about developing one? Present your best shot at a vision. How would you go about ‘selling’ the vision? What foundations would you build on? What current practices would you jettison?”

I’d also ask each person to be prepared to describe a leadership dilemma they faced in the past 12 months, such as a plant closing, a work transfer, a difficult firing, or the sale or purchase of a business. I’d bring my own experiences into the classroom to tee up these discussions. One favorite story involved a November meeting in 1997 I had with Boeing Co. chairman Phil Condit. At the time, we were trying to win a billion-dollar-plus contract to supply aircraft engines for Boeing’s new long-range 777 jet.

I had been the after-dinner speaker at Bill Gates’s annual summit in Seattle. That night, I sought out Phil and asked him for a private lunch the next day. The GE and Boeing teams had been working long and hard on the engine selection for the long-range version of the 777. Phil was well briefed on the subject. I made a pitch on why our engine was right for the plane and why GE was the right partner.

Phil listened carefully, asked a few questions, and ended the conversation with some great news.

“Let’s leave this luncheon by saying you’ve got the deal,” he said. “But you’ve got to make a promise to me. You won’t tell your people they’ve got it. They will have to continue to negotiate in good faith.”

I agreed. Over the next 60 to 90 days, those negotiating the deal were calling me up, saying we had to give Boeing more price concessions and more help with the development. I was dying each time my guys called to tell me about their latest concessions. Yet there was no way I could let them know of my conversation with Phil.

So they kept giving and giving.

Finally, it came down to the last day, and we were getting one more squeeze from Boeing. I couldn’t take it anymore. I picked up the phone and called Phil.

“Phil, I’m choking. I can’t sit here any longer. I’ve got to break this commitment.”

“You’ve gone far enough,” he replied. “Tell your team to say no. They’ve got the deal.”

Another dilemma I’d share was the decision to move the production of our refrigerators from Louisville, Kentucky, to Mexico in the late 1990s. The economics clearly favored the decision. On the other hand, the union had been incredibly helpful at the local and national levels in trying to make our U.S. facilities more competitive.

From a pure business case, the numbers dictated the move. We had other operations in Louisville and a national union leadership that was trying hard to work with us. In the end, we made the call to keep manufacturing a line of refrigerators there, saving roughly 900 jobs in Louisville. I told the class that the goodwill we gained from this decision would help us become more competitive in Louisville. Still, it was a real dilemma to go against the numbers.

I’d tell those stories and others like them, involving everyone in the class in my ethical and leadership quandaries. Then I’d call on someone I knew had just been in a tight spot to discuss their dilemma. The floodgates would open. These personal discussions were some of the richest moments we had at Crotonville. Everyone in the room left knowing they weren’t alone in facing a tough call.

In the first-level courses, I’d start off by asking each student to introduce him- or herself. I’d spend the first of four hours just doing this. I tried to strike a personal connection and get them talking for a minute. Then I’d listen to presentations on their likes and dislikes about the company and what they would change if they were in my shoes.

Crotonville also became an invaluable place to clarify any confusion our initiatives were creating in the organization. During our early globalization efforts, people were asking, “Do I have to have a global assignment to get ahead in GE?”

“Of course not,” I’d say, “but your chances are better if you have one. It’s a growth experience for you and your family.”

When I was trying to drive our shift toward services, class participants inevitably asked, “Are we getting out of products?”

“You can’t have services if you don’t have great products.”

During the early phase of our Six Sigma quality program, people began asking, “Does everybody have to have Six Sigma black belt training to get ahead in GE?”

“It would sure help,” I replied. “It’s another way to get out of the pile.”

And when we launched our e-business initiative in 1999, people asked whether they needed to have black belts anymore. Some of them were so eager to get into our digitization efforts that they didn’t want to invest two years in Six Sigma training. I’d reply: “Six Sigma is fundamental education, another differentiator for you, like getting your undergraduate or graduate degrees. Digitization is just one tool, like reading or writing. Everyone will have it.”

After every class, I usually joined the group for a drink in our recreation center before taking off for headquarters. Three days later, I’d get a response on what the class thought on three questions:

“What did you find about the presentation that was constructive and clarifying?”

“What did you find confusing and troublesome?”

“What do you regard as your most important take-away?”

The comments were helpful. In the early 1980s, many managers left confused and troubled. I took all the reviews seriously, trying to bring what I learned from their responses into the next class. I read every comment religiously. If someone signed their name to the comments, I’d sometimes drop them a quick note, especially if I’d created a misunderstanding.

By the mid-1980s, the responses were showing more buy-in. After hearing the strategy and the vision, they said they understood it better. What they heard me say, however, often didn’t jibe with what their bosses told them back home. Some of their managers had been prepping them for the session by saying that what they would hear was nonsense. Deep in the organization, pockets of resistance were still alive and well.

By 1988, some 5,000 GE employees were going to Crotonville for various courses every year. Yet I was still getting the same questions and comments over and over again. People were saying that the message and vision made sense. But they often added, “That’s not the way it is back home.” Damn it, after all this effort, the message still wasn’t getting all the way through.

 

One afternoon in September of 1988, I left Crotonville frustrated as hell. I had just about had it. That day had produced a particularly good session. The people in class poured out their frustrations about trying to change their businesses. I knew we had to get the candor and passion out of the classroom and back into the workplace.

On the helicopter ride back to Fairfield, Jim Baughman had to listen to me vent my frustrations. “Why can’t we get the Crotonville openness everywhere?”

I didn’t let him answer the question. I knew what we had to do.

“We have to re-create the Crotonville Pit all over the company.”

By the time we landed in Fairfield, we had the answer. We had sketched out an idea that when fully developed over the next few weeks would become a GE game-changer called Work-Out.

The Crotonville Pit was working because people felt free to speak. While I was technically their “boss,” I had little or no impact on their personal careers—especially in the lower-level classes. We had to create an atmosphere like this in all the businesses. Obviously, we couldn’t have the business leaders run these sessions because they would know everyone in the room. The dynamics would change, and openness would be more difficult.

We came up with the idea of bringing in trained facilitators from the outside, mainly university professors who had no ax to grind. Work-Out was patterned after the traditional New England town meeting. Groups of 40 to 100 employees were invited to share their views on the business and the bureaucracy that got in their way, particularly approvals, reports, meetings, and measurements.

Work-Out meant just what the words implied: taking unnecessary work out of the system. Toward this end, we expected every business to hold hundreds of Work-Outs. This was going to be a massive program.

A typical Work-Out lasted two to three days. It started with a presentation by the manager who might issue a challenge or outline a broad agenda and then leave. Without the boss present and with a facilitator to grease the discussions, employees were asked to list problems, debate solutions, and be prepared to sell their ideas when the boss returned. The neutral outside facilitator, one of two dozen academics drafted by Jim Baughman, made the exchanges between the employees and the manager go a lot easier.

The real novelty here was that we insisted managers make on-the-spot decisions on each proposal. They were expected to give a yes-or-no decision on at least 75 percent of the ideas. If a decision couldn’t be made on the spot, there was an agreed-upon date for a decision. No one could bury the proposals. As people saw their ideas getting instantly implemented, it became a true bureaucracy buster.

I’ll never forget attending one of the Work-Out sessions in April 1990 in our appliance business. Together with 30 employees, we were sitting in a conference room in Lexington, Kentucky, at a Holiday Inn. A union production worker was in the middle of a presentation on how to improve the manufacturing of refrigerator doors. He was describing a part of the process that occurred on the second floor of the assembly line.

Suddenly, the chief steward of the plant jumped up to interrupt him.

“That’s BS,” he said. “You don’t know what the hell you’re talking about. You’ve never been up there.”

He grabbed a Magic Marker and began scribbling on the easel in the front of the room. Before you knew it, he had taken over the presentation and had the answer. His solution was accepted immediately.

It was absolutely mind-blowing to see two union guys arguing over a manufacturing process improvement. Imagine kids just out of college with shiny new degrees trying to fix this manufacturing process. They wouldn’t have a chance. Here were the guys with experience, helping us fix things.

Small wonder that people began to forget their roles. They started speaking up everywhere.

Hundreds of stories like this one spread throughout the organization. By mid-1992, more than 200,000 GE employees had been involved in Work-Outs. The rationale for the program could be summed up by the comment made by a middle-aged appliance worker: “For 25 years,” he said, “you’ve paid for my hands when you could have had my brain as well—for nothing.”

Work-Out confirmed what we already knew, that the people closest to the work know it best. Almost every good thing that has happened in the company can be traced to the liberation of some business, some team, or an individual. Work-Out liberated many of them. From a simple idea hatched at Crotonville, Work-Out helped us to create a culture where everyone began playing a part, where everyone’s ideas began to count, and where leaders led rather than controlled. They coached—rather than preached—and they got better results.

 

Ultimately, Crotonville became a boiling pot for learning. Our most valuable teachers there became the students themselves. Through their classwork and field studies, they taught the company’s leaders and one another that there often was a better way.

Crotonville became, in fact, our most important factory. And soon we would make it even more productive with an idea that would change the organization forever.

13

Boundaryless: Taking Ideas to the Bottom Line

I was sitting on the beach under an umbrella in Barbados in December 1989 on a belated honeymoon with my second wife, Jane. My year-in-advance schedule had kept us from having a typical honeymoon when we were married in April. Now we were having our “romantic vacation” at last, but as usual I ended up talking about work—not what you’d call pillow talk.

Work-Out had become a huge success. We were kicking bureaucracy’s butt with it. Ideas were flowing faster all over the company. I was groping for a way to describe this, something that might capture the whole organization—and take idea sharing to the next level.

I was testing out on Jane my idea of focusing the brainpower of 300,000-plus people into every person’s head. It would be like having a great dinner party with eight bright guests all knowing something different. Think how much better everyone at the table would be if there was a way to transfer the best of their ideas into each guest. That’s really what I was after.

Sandy Lane in Barbados was a great place. I’d never experienced a Caribbean Christmas—it was different. Seeing Santa Claus pop out of a submarine while I was lying on the beach may have been just the jolt I needed. That day, I got the idea that would obsess me for the next decade.

Poor Jane. I was on a roll. I kept talking about all the boundaries that Work-Out was breaking down. Suddenly, the word boundaryless popped into my head. It really summed up my dream for the company. I couldn’t get the word out of my mind.

Silly as it sounds, it felt like a scientific breakthrough.

A week later, all wound up with my newest obsession, I went directly from Barbados to our operating managers meeting in Boca Raton. Boca is the two-day session that I always closed by outlining our challenges for the coming year. This time, the last five pages of scribbles were all about boundaryless behavior. (I think the remarks sounded better than they were jotted down [see page below].) As usual, I was a bit over the top. I had learned that for any big idea, you had to sell, sell, and sell to move the needle at all.

In my closing remarks, I called boundaryless the idea that “will make the difference between GE and the rest of world business in the 1990s.” (I was not bashful about this vision.) The boundaryless company I saw would remove all the barriers among the functions: engineering, manufacturing, marketing, and the rest. It would recognize no distinctions between “domestic” and “foreign” operations. It meant we’d be as comfortable doing business in Budapest and Seoul as we were in Louisville and Schenectady.

A boundaryless company would knock down external walls, making suppliers and customers part of a single process. It would eliminate the less visible walls of race and gender. It would put the team ahead of individual ego.

 

 

For our entire history, we had rewarded the inventor or the person who came up with a good idea. Boundaryless would make heroes out of people who recognized and developed a good idea, not just those who came up with one. As a result, leaders were encouraged to share the credit for ideas with their teams rather than take full credit themselves. It made a huge difference in how we all related to one another.

Boundaryless would also open us up to the best ideas and practices from other companies. We had already made a dent in killing NIH (Not-Invented-Here) by using ideas like kanban manufacturing from Japan, a precursor to just-in-time inventory. Boundaryless was much broader. It would make each of us wake up with the goal of “Finding a Better Way Every Day.” It was a phrase that became a slogan, put up on the walls of GE factories and offices around the world.

The idea gave new momentum to the learning culture Work-Out had started. By 1990, we were already getting some sharing across businesses. Boundaryless just gave us a word to express it and make it part of our everyday life. We ranted about it at every meeting. We’d use it to lightheartedly embarrass someone who wasn’t sharing an idea or a manager who wouldn’t give up a good employee to another business. Someone would joke, “That’s real boundaryless behavior!”

They got the message.

By 1991, in our Session C human resources reviews, we began grading managers on their degree of boundaryless behavior. Every manager in the company was rated high, medium, or low based on their peers’ evaluations and later the views of their supervisors. An empty circle next to a person’s name meant they had to change fast or leave. Everyone got feedback on where they stood on this value—and soon everyone knew how important this value had become.

In 1992, at Boca again, I did something that made our values, including being boundaryless, really come to life. We discussed the different kinds of managers based on their ability to deliver numbers, while maintaining GE values. I described four types of managers.

The Type 1 manager delivers on commitments—financial or otherwise—and shares the values. His or her future is an easy call.

Type 2 is one who doesn’t meet commitments and doesn’t share our values. Not as pleasant a call, but just as easy as Type 1.

Type 3 misses commitments but shares all our values. We believed in giving them a second or perhaps third chance, preferably in a different environment. I’ve seen some real comebacks.

Type 4 is the most difficult for all of us to deal with. That’s the person who delivers on all the commitments, makes the numbers, but doesn’t share the values—the manager who typically forces performance out of people, rather than inspires it. The autocrat, the tyrant. Too often, we’ve all looked the other way at these bullies. I know I have.

Maybe in other times this was okay. But in an organization where boundaryless behavior was to become a defining value, we could not afford the Type 4 manager.

In front of 500 people at Boca, without using names, I explained why four corporate officers were asked to leave during the prior year—even though they delivered good financial performance. When I wanted to make a point, I’d never use the traditional “left for personal reasons” excuse.

“Look around you,” I said. “There are five fewer officers here than there were last year. One was removed for the numbers, and four were asked to go because they didn’t practice our values.”

I explained that one officer was removed because he wasn’t a believer in Work-Out or idea sharing—he didn’t get what boundaryless meant. Another couldn’t build a strong team, while a third officer wouldn’t empower the team he had, and the fourth never got the idea of globalization.

“The reason for taking so much time on this is that it’s important. We can’t be talking about reality, candor, globalization, boundaryless, speed, and empowerment and have people who don’t embrace these values. Every one of us must walk the talk.”

You could hear a pin drop. When I used the lack of boundaryless behavior as one of the principal reasons for a manager’s leaving, the idea really hit home. You could feel the audience thinking, This is for real. They mean it.

Suddenly, “Finding a Better Way Every Day” wasn’t just a slogan. It was the essence of boundaryless behavior, and it defined our expectations. After years of working on the hardware of GE—the restructuring, acquisitions, and dispositions—boundaryless was at the heart of developing what we would later call the “social architecture” of the company.

These were the core values of GE that would set us apart.

We had to insist on excellence and be intolerant of bureaucracy. We had to search for and apply the best ideas regardless of their source. We had to prize global intellectual capital and the people who provided it. We had to be passionately focused on driving customer success. At the same time, over 5,000 employees worked at Crotonville over a three-year period to hammer out a values statement. We considered those values so important that we put them on laminated cards that we all carry.

 

 

In short, we wanted to create a learning culture that would make GE much more than the sum of its parts—so much more than a conglomerate. From my first day as CEO, I knew we were more than a portfolio of disconnected businesses. Early on, I came up with a term—“integrated diversity”—in an effort to communicate the advantage GE got from sharing ideas across businesses. That term didn’t work. It was “businessese.” It wasn’t personal or human enough.

Amazing what a couple of words can or can’t do.

Of course, a word or a phrase wasn’t enough. We had to back it up with a system that would make it happen. Primarily, we had to change how we paid our best. The prior system made the annual bonus the big reward. It was based on how your individual business performed.

If you did well—even if the overall company did poorly—you got yours.

I couldn’t stand the idea of the company sinking and some businesses making it to shore. The compensation system didn’t support the behavior I wanted. If we wanted every business to be a laboratory for ideas, we needed to pay people in a way that would reinforce the concept.

Our compensation system was working against us. The day I was announced as chairman in 1980, I had options on 17,000 shares of GE stock and had realized gains of less than $80,000—after 12 years of getting option grants. Imagine how little the other officers had. If someone was making $200,000 in salary then and their business unit had a great year, their bonus could be 25 percent of their base pay, or $50,000. The individual bonus far outweighed the value of the stock option grants. I wanted the overall company’s results and stock price to mean more to people than the results of their individual businesses.

I went to the board in September 1982 and got support to make a change. We increased the size and frequency of option grants. When the stock market cooperated in the early 1980s, people saw their gains from the company’s performance overwhelm anything they ever got from their businesses. That reinforced idea sharing among the top 500 people.

I should have done more, faster. It took me until 1989 to broaden the plan. In that year, instead of just 500 people, 3,000 of our best people got options. Today, 15,000 employees get them every year—and more than twice that number already have them.

These changes in the option plan and a healthy stock market drove idea sharing. In 1981, the value of exercised options for everyone at GE was only $6 million. Four years later, that number increased to $52 million. In 1997, 10,000 GE people cashed in options worth $1 billion. In 1999, about 15,000 employees got $2.1 billion from them. In 2000, about 32,000 employees held options worth over $12 billion.

Holding stock in employee savings plans and stock options make GE employees the single largest shareholders in the company.

What a kick! Every Friday I got a printout listing all the employees who exercised stock options and the size of their gains. The options were changing their lives, helping them put their kids through college, take care of elderly parents, or buy second homes.

The most fun was spotting names I didn’t know. It wasn’t only fat cats. Boundaryless was paying off for everyone.

 

Stock ownership changes behavior—and the compensation changes gave us momentum for the 1990 launch of boundaryless. Still, it was only one piece of the puzzle. We needed more. We needed a way to surface the best ideas and move them quickly through the organization.

That’s what our operating system came to be.

Like all companies, we always had a series of planned meetings and reviews throughout the year. What boundaryless did was link the meetings to create an operating system that was built on continuous idea flow.

I saw every meeting as a building block for ideas. Each one built upon the other until the ideas became bigger and better. That’s what made it more than just a bunch of boring, time-consuming business sessions. New employees often comment that what makes GE different is the steady drumbeat of reinforcing core ideas, meeting, after meeting, after meeting.

Our operating system kicks off in early January with the top 500 operating leaders meeting in Boca. It’s a celebration of the best people and the best ideas in the company. Over the two-day event, speakers from all levels showcase in ten-minute bursts their progress on a specific company initiative. No long, boring speeches, no travelogues—just the transfer of great ideas. (See Appendix D for 2001 agenda.)

In March, we have the first of our quarterly Corporate Executive Council (CEC) meetings in a room we call “the Cave” at Crotonville. At the CEC, the business leaders update their operations and describe their newest thinking around the initiatives. Everyone is expected to put forth one new outside-the-box idea that can apply to other units.

In April and May, the corporate executive office and our head of HR, Bill Conaty, go into the field to review every business for the Session Cs. These can be fun brawls: aggressive, gossipy, brutally honest meetings about our best people. We look at the business’ progress on our initiatives and the caliber of the people down in the organization who are working on them.

That gives us a look at our best and brightest young people. I always tell students at Crotonville, “Jump on the initiatives. That’s the way to get face time.”

In July, we have a two-hour follow-up by videoconference to see if the personnel changes we agreed on had been implemented. If we had concluded with the business that there wasn’t enough horsepower behind an initiative, it would always get fixed before the July videoconference.

In June and July, the business leaders come to Fairfield for strategy reviews of their businesses, the Session I. We focus on our competitors, trying to anticipate and leapfrog their moves. This is a chess game, and we assume our competitors are Russian masters.

In October, the company’s 170 officers get together at Crotonville for their annual meeting. Here the best ideas we found in the HR and strategy sessions are highlighted in 10-minute-long role-model presentations.

In November, we have Session II, where business leaders present their operating plans for the upcoming year. Half the day is spent on the specific plans for each initiative. Here we get another batch of fresh ideas.

Then it’s back to Boca. For this agenda we have a year’s worth of best ideas to pick from. It gives us the chance to launch the new year and another cycle of exciting, fresh stuff that everyone can put to use.

To assist this relentless sharing of best ideas, we built a corporate initiatives group. This is the only corporate staff I allowed to grow. I hired Gary Reiner from the Boston Consulting Group in 1991 as head of business development. We changed the group’s focus from acquisitions to driving ideas in support of the initiatives across the company. His group was principally made up of 20 or so MBAs who had been in consulting for three to five years and wanted to get into the real world.

They came to GE with the promise that if they delivered, the GE businesses would steal them within two years. They had to be “stolen.” That made sure they were not only moving ideas, but also seen to be helping the business leaders implement them. I didn’t want a corporate group squealing on the businesses. If they couldn’t sell the ideas and help the businesses, they were gone. Over 10 years, the businesses hired nine out of every ten people Gary recruited into his group. About 65 of them are still with GE, including several who are now officers.

Stock options got us a start. An operating system connected the dots, creating a learning cycle out of what otherwise would have been a series of routine meetings. An HR evaluation on boundaryless got everyone focused on idea sharing. A corporate initiatives group accelerated these changes.

All of these steps contributed to the idea that started when Santa popped out of the sub in Barbados.

 

Only four months after my Boca speech, I was in a Session C review with Lloyd Trotter, then a VP of manufacturing for our electrical products business. Lloyd told us about a “matrix” he had created that helped to capture the best practices from each of his 40 factories. Lloyd first came up with 12 measurements and processes common to all the plants. Then he asked the managers of each factory to rate themselves on each one, from inventory turns to order fulfillment.

On one axis of the matrix was their evaluation, a score of 1–5, with 5 being best. On the other axis was the process or procedure. When he gathered his plant managers together for a staff meeting, he asked everyone who rated themselves best to explain how they got there.

When “the 5s” were giving somewhat lame explanations as to why they had rated themselves so highly, it became pretty clear to Lloyd that his first try at best practices wasn’t taken very seriously. There were a lot of embarrassed people. It was during the next go-round that the real learning began. For instance, a Salisbury, North Carolina, plant had inventory turns of more than 50 per year. The average for the rest of the plants was 12. It didn’t take long for everyone to go to Salisbury to find out what they were doing right.

The self-evaluations quickly gave way to quantitative measurements.

Lloyd had a habit of drawing circles around the best practices and rectangles around the worst. Quickly these marks were called “halos” and “coffins”—appropriate recognition for their status in Lloyd’s mind.

Lloyd’s highly visible matrix got everyone’s attention. No one wants to be last. So people scrambled to visit the best plants to learn how to make theirs better. How do we know it worked? Well, in a slow growth market, Lloyd’s operating margins went from 1.2 percent in 1994 to 5.9 percent in 1996. In 2000, they hit 13.8 percent.

I talked up Lloyd’s matrix everywhere we went and anywhere we had common activities. The “Trotter matrix” became a hot tool all around GE. I’ve never seen a case—from a comparison of sales regions to an analysis of business-by-business sourcing savings—when the matrix failed to generate a significant improvement in performance.

Sounds obvious, but I found it wasn’t being done everywhere. Whenever we did an acquisition, we would often see people operating in silos. In 2001, during a Honeywell integration meeting, we met the manager of a sensor plant in Freeport, Illinois, operating at a Seven Sigma quality level.

Frankly, I was blown away. I’d never seen a plant operating with that kind of efficiency. The plant didn’t have a single defect in any of the 11 million components it shipped in 2000. I asked the 20 Honeywell people in the room how many of them had visited that factory. Not one person raised a hand. In GE, that poor plant manager would have been inundated with GE visitors. Like Lloyd in 1991, he would have been on the Boca agenda.

Every time we got an idea, we flogged it. Some we paraded out too early. A couple didn’t pan out. But when we saw an idea we liked, it went on stage at Boca. I sometimes fell in love too fast. But if the ideas weren’t working, I could fall out of love just as fast.

In the early 1990s, the ideas were coming fast and furious from everywhere, including from outside the company. I picked up a good one in a visit with Sam Walton, the founder of Wal-Mart. In October 1991, Sam asked me to come to Bentonville, Arkansas, to share a stage with him in front of Wal-Mart’s managers. I first met Sam in Nashville in 1987 during one of his regional managers’ meetings, when he agreed to link his cash register data with our lighting business (a perfect example of boundaryless). That way, we could replace the light bulbs on Wal-Mart shelves rapidly, without a lot of paperwork.

In 1991, I flew down to Arkansas, and Sam met me at the plane in his truck. He was visibly ill, with an IV bag attached to him, feeding him chemotherapy drugs. Before his management group, Sam had me go through my tales on how tough it was to get bureaucracy out of a company, and then he took over. He challenged his managers to never let bureaucracy creep into and take over Wal-Mart. We spent a couple of hours having a ball, exchanging ideas with his team about the evils of bureaucracy.

On the way back to the airport, Sam took me to a Wal-Mart store. We were walking the aisles when all of a sudden Sam grabbed a microphone to announce our presence. “Jack Welch is here from GE to go through the store,” he said. “If you have any trouble with their products, be sure to come and see him.” Luckily, there were no takers. Sadly, only six months later, Sam died, caring to the end about the company he built.

During the visit, I learned about a Wal-Mart idea that I really liked.

Every Monday, Wal-Mart’s regional managers in Bentonville would fly into their territories. They’d spend the next four days visiting their stores and those of the competition. They’d return on Thursday night for a meeting with the top officers of the company on Friday morning to deliver their intelligence from the field. If a regional manager found a store or region sold out of a hot-selling product, headquarters would shift inventory from other stores to fill the gap.

It was a weekly pulsing of the customer at the most basic level, the aisles of every store.

Wal-Mart had sophisticated computer and inventory control systems. At the Friday meetings, the sales managers would sit in the front of the room. One by one, they’d relate their experiences in the field. The high-tech team responsible for the information systems would be there to respond immediately to the needs of the regional managers.

The day I was there, managers reported that it had been warm in the Midwest and colder in the East. They had an excess of antifreeze in one region and a shortage in another. They fixed it on the spot. This match of high-touch from the field and high-tech at headquarters was one of the things that Sam and President David Glass used to keep Wal-Mart’s small-company responsiveness as it grew by leaps and bounds.

I came back from Bentonville excited about how we could use this system. Sam let me send several GE business teams to his place so they could sit in on the Friday sessions.

Once our people saw it, they loved it. The business leaders grabbed the idea and adapted it to the GE culture. They began holding weekly telephone calls with their sales teams in the field. Besides the CEO, the business’s top marketing, sales, and manufacturing managers would be on the call so that they could respond immediately to an issue, whether it was delivery, price, or product quality.

We called it “Quick Market Intelligence” (QMI)—and followed its progress at every quarterly CEC meeting. It was a big hit. It brought all our leadership closer to the customer. On the spot, we were solving product availability issues and finding quality problems that might not have shown up until much later.

Our business leaders also brought their own great ideas to the CEC. In 1995, Bob Nardelli, CEO of GE Transportation, described a new source of great talent. With its headquarters in Erie, Pennsylvania, the transportation business had struggled for years to attract the best people. Bob said he found an endless supply of talent in junior military officers (JMOs). Most were graduates of U.S. military academies who had put in four to five years of military time. They were hardworking, smart, and intense, had leadership experience, and were surprisingly flexible because they had served time in some of the toughest places in the world.

Nardelli’s idea spread like wildfire. After we had 80 former JMOs on staff, we asked them to come to Fairfield for a day. We were all so impressed with the quality of what we saw that we put a plan in place to hire 200 of them every year. We used our Session Cs to measure the success each business had hiring and promoting ex-JMOs.

Today we have more than 1,400 on the payroll. Bob had the idea—boundaryless helped our operating groups jump all over it.

 

The key to the operating system is the understanding that it’s all about learning and driving results. It’s used to regenerate and to reiterate ideas. During a meeting of our sourcing leaders in 1999, for example, it came out that our power systems business was getting great savings running supplier online auctions. They got the auction software from an outside firm for $100,000 and a pay-by-the-drink fee. Jack Fish, the sourcing leader of our transportation business, liked the idea but didn’t want to spend $100,000-plus for it.

Instead, he returned to the business and asked Pat McNamee, then transportation’s IT manager, if he could come up with one on the cheap. With a couple of Penn State students and some help from our software engineers in India, McNamee built a prototype in three weeks for $17,000. Two weeks later, they held the first online auction—for industrial gloves. I picked up the story from Jack during a Session II operating plan review in November and put Pat on the Boca agenda in January 2000.

The other businesses picked up on it quickly—and we dumped most outside vendor auction programs for good.

The next time I saw Jack Fish was four months later at the Session C for the transportation business. Jack updated his online auction activity. He told us his objective was to put $50 million of the division’s purchases online that year. By then, I had been around the circuit to Session Cs in other GE businesses where the auction goals were much higher. Power systems had a target of $1 billion. Another business was at $300 million; another one was $500 million. They were talking real savings. For every $100 million purchases we put online, we cut our buy costs by $5 million to $10 million.

“Jack,” I said to him half-jokingly, “I know this sounds like no good deed goes unpunished. You’re the guy who got everybody started. You’re the damn inventor. Now you have the lowest target.”

A week later, after checking with his peers, he sent me an e-mail with a new goal of $200 million and said he should be able to beat it.

He did.

The first person with the new idea has a pretty easy time. That person’s goals set the bar for the next—and the cycle begins again.

 

Gary Reiner’s corporate initiatives group not only spread ideas, they generated their own. In Gary’s wrap-up of our Session I strategy reviews in 1992, he found that our selling prices were going down 1 percent a year while our costs for purchased goods were still rising. He illustrated the trend in a simple view graph called the “monster chart.” It was a monster because the gap between our selling price and purchase costs was narrowing. So were profits.

If we didn’t do something about the monster, it would eat us alive.

Gary shared this analysis with the CEC in September. At the officers meeting in October and at Boca in January 1993, the company’s two best sourcing leaders explained how they were getting lower purchasing costs. During the Session C reviews in 1993, we looked in depth at every sourcing organization.

For the next four years, sourcing leaders came to Fairfield for quarterly Sourcing Council meetings to share their best ideas with a vice chairman or me. Business leaders knew they had to send their very best people. If they didn’t, we’d see new faces the next time.

Once we had better people, we had better ideas. This focus killed the monster—and the chart.

 

Of all the ideas that have been driven through the operating system over the years, however, one of the best came from a Crotonville Business Management Course (BMC). It’s a great example of how we directly linked Crotonville to all the company’s learning. In 1994, Bob Nelson and his financial team came up with an analysis that showed what GE had to do to become a $100 billion company with $10 billion in profits before the end of the century. At the time, GE’s sales were $60 billion, with $5.4 billion in after-tax earnings.

I liked the goal and in February 1995 challenged a management class at Crotonville to give us some new ideas on how to reach the $100 billion target. Part of the class assessed what GE did well by interviewing the senior leaders at 10 of our businesses. Another group visited key customers to hear what they thought of our growth prospects. A third team visited executives of high-growth companies to see what we could learn from them.

Ironically, though, the single best idea didn’t come from a company at all—it came from the U.S. Army War College in Carlisle, Pennsylvania. Tim Richards, who ran the four-week BMC class for us at Crotonville, drafted the plan to merge our class with a War College class of colonels. He read that the army was trying to radically change its mission from a Cold War model to one that gave it the flexibility to mount dozens of small, remote battles around the world.

Tim thought there might be a fit. “It was one of those harebrained ideas that happened to work,” he says.

During the four-day visit, an Army colonel told the class that our strategy of being No. 1 or No. 2 in a marketplace might be holding us back and stifling growth opportunities. He said GE had plenty of intelligent leaders who would always be clever enough to define their markets so narrowly that they could safely remain No. 1 or No. 2.

Ordinarily, this class would have reported its findings in Crotonville to our executive council at its June 1995 meeting. I was recovering from open-heart surgery at the time, so I didn’t hear the presentation until late September when seven members of the class came to Fairfield.

The colonel’s insight about how to redefine market share came in one of eight charts. On it, the team recommended a “mind-set change.” They said we needed to redefine all our current markets so that no business would have more than a 10 percent market share. That would force everyone to think differently about their businesses. This was the ultimate mind-expanding exercise as well as a market-expanding breakthrough.

For nearly 15 years, I had been hammering away on the need to be No. 1 or No. 2 in every market. Now this class was telling me that one of my most fundamental ideas was holding us back.

I told them, “I love your idea!” Frankly, I also loved the self-confidence they showed in shoving it in my face.

This was boundaryless behavior at its best.

Having a high share of a narrowly defined market may have felt good and looked great on a chart, but the class was right: We were getting boxed in with the existing strategy, which proved that any bureaucracy would beat anything you put in.

I took their idea and put it into my closing remarks a couple of weeks later at our annual officers meeting in early October (see page below).

“Doing this has to open your eyes to growth opportunities. Perhaps our stress on No. 1 and No. 2 or ‘fix, sell, or close’ now limits our thinking and hurts our growth mind-set.”

I asked each of the businesses to redefine its markets and give us a page or two of “fresh thinking” on this during the S-II operating plans in November.

 

 

Using this wider vision of our markets changed our growth rates. It reinforced our resolve to aggressively expand into services. GE went from a “market definition” of about $115 billion in 1981 to well over $1 trillion today, providing plenty of room for growth. In medical systems, for example, we went from measuring our share of the diagnostic imaging market to measuring all of medical diagnostics, including all equipment services, radiological technologies, and hospital information systems.

Power systems saw its services business mainly in supplying spares and doing repairs on GE technology. Defined that way, we had a 63 percent share of a $2.7 billion market. That looked pretty good—damn good. By redefining the market to include total power plant maintenance, power systems had only a 10 percent share of a $17 billion market.

If you continued to broaden the market definition to include fuel, power, inventory, asset management, and financial services, you could play in a marketplace potentially as big as $170 billion. Our share of that was just 1 to 5 percent.

Once again, the exercise opened our eyes and fueled our ambitions.

Over the next five years, we doubled our top-line growth rate at GE with the same yet newly energized portfolio of businesses. We went from $70 billion in revenue in 1995 to $130 billion in 2000. A lot of things made this happen, but this new mind-set played a big role. I loved the fact that we gave a Crotonville class a challenge and it went out and found a great idea in the head of an army colonel in Pennsylvania.

This was boundaryless behavior at its best. Our people really were finding “a better way,” and it was making the difference between GE and the rest of the business world. You could measure it by the results. Our operating margins went from 11.5 percent in 1992 to a record 18.9 percent in 2000. In our industrial businesses, our working capital turns jumped from 4.4 to a record 24 in 2000. Our revenues hit $130 billion, with nearly $13 billion of net income.

Boundaryless was helping a lot of us ordinary people do some extraordinary things.

14

Deep Dives

There are advantages to being the chairman.

One of my favorite perks was picking out an issue and doing what I called a “deep dive.” It’s spotting a challenge where you think you can make a difference—one that looks like it would be fun—and then throwing the weight of your position behind it. Some might justifiably call it “meddling.”

I’ve often done this—just about everywhere in the company.

I got involved in everything my nose told me to get involved in, from the quality of our X-ray tubes to the introduction of gem-quality diamonds. I picked my shots and took the dive. I was doing this up until my last days in the job.

One of my last dives involved CNBC in May 2001.

After a two-year absence, Lou Dobbs was returning as anchor of CNN’s Moneyline. His return was a potential threat to our Business Center on CNBC in the 6:30 to 7:30 P.M. time slot. Co-anchors Ron Insana and Sue Herera’s ratings had blown by Moneyline after Dobbs’s departure. I got a call from Sue in late April, asking me if I’d send an e-mail to psych up the team as it got ready to battle his return on May 14.

CNBC has always been a pet project of mine, and Sue has been the rock of CNBC from its first day. She had always been helpful across GE and our women’s network. I thought of her as a friend. With CNN doing heavy promotion on Dobbs, she canceled her family vacation to take on the challenge.

“Sue, instead of an e-mail, why don’t I come over to your place and meet with the whole team?”

“Let’s do it,” she said.

Within a week, I was sitting over cookies and soda at CNBC’s New Jersey studio, kicking around dozens of ideas with Ron, Sue, and 15 or so members of the team. To me, it felt like one of those early Work-Out sessions a decade ago. The team came up with the thought of going to a longer format, starting at 6 P.M., to gain a 30-minute jump on Moneyline. I loved that one and several other ideas they came up with.

By the time I left the meeting, I promised them an extra $2 million to promote the program. In the car on the way back, I called Andy Lack, who that day had been named NBC president. I asked him if he would put Sue and Ron on the Today show the morning of Dobbs’s relaunch. Then I called NBC Sports president Dick Ebersol, and he agreed to run Business Center promos during the NBA playoffs over the weekend.

By the end of the week, people from all over NBC, from graphics to set design, had jumped into the fray.

Dobbs’s return would get viewer sampling for sure, but we weren’t going to make it easy. This was going to be a long war—we wanted to win the first battle.

When my successor, Jeff Immelt, called to shoot the breeze at the end of that day, I had to confess. I told him I had been over at CNBC playing “project manager” again. From his days in plastics and medical systems, he knew what a pest I could be.

“Jeff, I promise it was the only meddling I did today. There’ll only be a couple more months of meddling and then you’ll be rid of me.”

Thank God for this book. It kept me out of Jeff’s hair during most of the transition.

Jeff and I left together on Sunday night for Tokyo, so I couldn’t watch the opening-night face-off. The CNBC team kept me posted with daily e-mail results. Business Center held even with Dobbs on Monday, the first night of his return. By Thursday, Business Center’s audience was much larger. Fortunately, I got home from Tokyo about 5:30 P.M. Friday, just in time to watch the final show of the week live.

Ron and Sue were great. The team had given the show new life. I was happy for all of them. They had won the first skirmish. What a kick!

Over the years, I did hundreds of these “deep dives.” They weren’t always successful, and many of my ideas were never adopted. For me, the satisfaction and fun was getting in there and mixing it up, creating excitement and debate over the direction a project should take.

Aside from my title, I think I “got away with it” because people felt I was trying to help. We always had a common goal, if not a common way, to get there. They knew that I didn’t hold any hard feelings if my ideas got tossed in the basket. (Editor’s Note: The hell you didn’t!)

Another business I always had my nose in was GE Medical. One way or another, I was involved in that business for 28 years. I loved the technology, the people, and the customers. It always felt special working on medical stuff. In the 1970s and early 1980s, I was the “virtual project manager” for CT scanners and MRI machines.

Early in the 1990s, I fell in love with another project, ultrasound imaging. GE had been an also-ran in this noninvasive, nonradiation technology. I was sure we could do more.

Starting in 1992, I jokingly became its unofficial “project manager.” After we decided against an expensive acquisition to improve our competitive position, we launched our own internal development effort. I asked John Trani, the CEO of medical, to bypass all the typical reporting relationships and have the project report directly to him. John loved results and got them by building loyal teams who could take any hill.

We set up the team in an old manufacturing building and totally renovated it to make them feel like winners. The corporate research lab made the project a priority. After the project manager retired, we decided to go outside GE to the ultrasound industry for a replacement. I interviewed the candidates, selling them on our commitment to ultrasound, which many industry pros questioned because of our false starts.

We found Omar Ishrak, a Bangladesh native and a guy you could feel had ultrasound running through his veins. He had worked for a major competitor. All of us thought he was just what we needed and hired him.

We were off to the races. I made sure he got lots of funding and attention. Every time I went to Milwaukee to visit our medical systems division, I’d make a big deal over Omar and ultrasound even though it was a small part of the total business.

I became his biggest cheerleader. He hired great people, many from the industry, and the rest is history. We went from nowhere in 1996 to number one in 2000, creating a highly profitable business growing 20 percent to 30 percent a year to more than $500 million in annual revenues today. Omar became a corporate officer, and I got as much fun out of his success as he did.

Another deep dive in medical had to do with the quality of the tubes that go into GE’s X-ray and CT scan machines. It started in 1993. I had been on a customer swing, visiting GE customer groups in several cities. The medical customers thought we had the best CT technology but were complaining loudly about our tube life. When I got back, I found that our tubes were averaging about 25,000 scans, less than half of what competing tubes were getting.

Our CT system was so good, it obscured what could become the Achilles’ heel of the business—the tube.

I went to Milwaukee and reviewed the problem with John Trani and his team. In a sexy high-tech business like medical systems, components can sometimes be second-class citizens. John took me on a tour of our tube facility. Ironically, it was in the same building as the ultrasound development where we had made all the renovations. Separated by only a dividing wall, the tube facility was being treated like an orphan.

To show we were serious, we asked the manufacturing manager for all of medical systems if he would take on the tube job, reporting directly to Trani. He thought our offer was nuts. He was a traditional manufacturing guy and already had the manufacturing job, with tube production reporting to him. No amount of money or “promised glory” would ever convince him this “tube job” made sense for his career.

We were lucky. We ended up with just the right guy. Trani suggested Marc Onetto, an excitable and effusive Frenchman who was general manager of service for our medical systems business in Europe.

I invited him to Fairfield to impress on him the importance of the job and the need to go from 25,000 CT scans to 100,000 between failures. I promised he’d get all the resources he needed to do it.

We gave Marc the funds to upgrade the factory and helped him recruit great talent, including Mike Idelchik, an engineer’s engineer who lived to design aircraft engines. Mike left his technical base at aircraft to come to the job as engineering manager. He and his engineers were key in improving the tube. In the middle of it all, Mike got an enticing offer to leave GE. Marc asked me to intervene and I spent a Sunday night convincing Mike to stay. He did and later became vice president of engineering for lighting and has a big leadership future ahead of him.

Marc came up with the slogan “Tubes—The Heart of the System,” to symbolize the importance of this previously ignored component, and he put signs all over the place to get everyone’s attention.

For the next four years, he faxed weekly reports to me, detailing the team’s progress. Marc recalls getting a response from me with the message: “Too slow, too French, move faster or else.” Marc would stuff these replies in his desk drawer.

Other times, I’d send notes, congratulating him for making progress. Marc would post these in the plant for everyone to see (opposite page).

In five years, the team took tube life from 25,000 scans to close to 200,000. By 2000, using Six Sigma technology, they came out with a new tube that averaged 500,000 scans and is considered the industry standard. Getting that key component right allowed us to introduce the fastest-selling CT scanner ever, the GE LightSpeed.

By making the tube the heart of the system, our team changed the mind-set of the component business. Everybody got something out of this success. Marc moved on to lead our Six Sigma initiative in the medical business and is now a corporate officer heading up medical’s global supply chain.

Another deep dive that’s clearly a work in progress involves our industrial diamonds business. In 1998, Gary Rogers, the CEO of GE Plastics, and Bill Woodburn, the head of industrial diamonds—asked to come to Fairfield for a “secret meeting” with me.

I didn’t know what to expect. GE has produced industrial diamonds since the 1950s. They’re made by treating carbon at very high temperatures and pressures. These diamonds aren’t gem quality and are used for cutting tools and grinding wheels in heavy industry.

 

 

Gary and Bill showed up with a bag of brown natural stones and half a dozen blue suede jewelry boxes, containing gorgeous gem-quality diamonds. These men are both soft-spoken. This time, they were practically whispering when they told me that our scientists had come up with a way to take brown natural diamonds from the earth and finish the natural conversion process to clear rare gemstones. In essence, the new process would re-create the conditions that form diamonds in the core of the earth over thousands of years and finish what mother nature started.

I was stunned and excited by the huge potential opportunity this new business might create. I could hardly wait to play. Talk about a fun project—here were gemstones as large as 28 carats, the challenge of entering a new consumer business we knew nothing about, plus the chance to completely transform an industry by technology we created.

I instantly became Bill’s No. 1 backer. I helped him free up resources and over the next three years sat in on countless meetings, consulting on everything from deciding what to call our product to how to price it.

Sounds easy, right?

Breaking into Fort Knox might be easier than getting into this centuries-old trade. Afraid we might undermine the pricing of gem diamonds, the old Antwerp network of traders and wholesalers did everything to freeze us out of the business. They leveled false statements, making our diamonds appear artificial and less desirable. An Antwerp boycott forced us to go from a strategy of selling them at wholesale, 50 to 100 at a time, to selling them in ones and twos to high-end jewelers at retail.

To jump-start the sales, we offered our gem diamonds at a discount to employees, who are now buying them at a rate of $100,000 a month. I even offered a similar deal to our board members, hoping the disclosure of their purchases in GE’s 2000 proxy statement would generate some publicity over this “perk.”

Several directors bought them at prices ranging from $26,000 to $410,000. Wouldn’t you know it? With all the media hype on pay and perks, the diamond purchases completely escaped notice. The one time you wanted the press, they were sleeping.

In our second full year, we’ll do about $30 million worth of business, less than a third of what we had originally planned. For a breakthrough in a multibillion-dollar industry, that’s obviously not what we were looking for. Our team keeps reminding me to be patient. It’s a work in progress—just another pet project I’ll have to leave to my successor.

Another idea I’ll leave behind is one that developed when I was visiting Japan in the fall of 2000. I had been going there for years and found it difficult to get the best male Japanese graduates to join us. We were having increasing success, but still had a long way to go.

Finally, it dawned on me. One of our best opportunities to differentiate GE from Japanese companies was to focus on women. Women were not the preferred hires for Japanese companies, and few had progressed far in their organizations.

Again, I got revved up. Fortunately, we had Anne Abaya, an ideal Japanese-speaking U.S. woman in a senior position at GE Capital. She agreed to go to Tokyo to become head of human resources for GE Japan. I gave her a million dollars for an advertising campaign to position GE as “the employer of choice for women.”

What I didn’t know was how much talent we already had in place. In May 2001, when Jeff and I were on a Japanese business trip, we had a private dinner with 14 of our high-potential women. They ranged from CFO of GE Plastics Japan, general manager of sales and marketing of GE Medical Systems Japan, marketing director of GE Consumer Finance Japan, to the heads of human resources for GE-Toshiba Silicones and GE Medical Systems.

Jeff and I had never been with a more impressive young crowd. It confirmed for me how big the opportunity could be.

This is a really early dive, but one I know Jeff will take to new levels.

I loved the excitement of these dives—perhaps more than the people who bore the brunt of them.

I’ll bet anything that Jeff will define his own deep dives and get the same kick out of meddling that I did.