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Good Bad Jack Welch Best Books 2005 BEST GE, Wal-Mart, or whoever else’s BOOKS05 corporate garden is currently in bloom. And managers themselves frequently arrange their financial reporting to exhibit “flowers of success” that later turn out to be rootless and unsustainable. In the worst cases, such as Enron, the blossoms turn out to be entirely artificial. Similar charges could be leveled at those most ardent of flower arrangers: writers of books on manage- ment. Too often, their books depict managers as lone actors in generic landscapes, whose methods and tech- niques can be freely transferred from one corporate situation to another. Yet if we are to learn from the expe- rience of others, surely we have to understand their thoughts and actions in the particular situations in which they found themselves. When it comes to human action of any kind, context matters. f e Each of the five books reviewed in this essay under- a t u scores the importance of context in business, though in r e different ways and from very different perspectives. The s b first two, Winning (HarperBusiness, 2005), by Jack e s t Welch with Suzy Welch, and Will Your Next Mistake Be b u Fatal? Avoiding the Chain of Mistakes That Can Destroy s i THE Good, (Wharton School Publishing, 2005), n Your Organization e s by Robert E. Mittelstaedt Jr., are written specifically for s b managers. The other three are aimed at more general o THE Bad, AND o audiences, but provide important lessons for business k s leaders by reviewing both the recent and distant history Jack Welch of financial scandals: Conspiracy of Fools: A True Story (Broadway Books, 2005), by Kurt Eichenwald; Blood on the Street: The Sensational Inside Story of How Wall Street by David K. Hurst Analysts Duped a Generation of Investors (Free Press, 18 2005), by Charles Gasparino; and Ponzi’s Scheme: The True Story of a Financial Legend (Random House, 2005), he late historian and former Librarian of by Mitchell Zuckoff. Congress Daniel Boorstin once observed You would expect that Winning, by Jack Welch, the that planning for the future without a sense retired celebrity chief executive officer of General of the past is like trying to plant cut flowers. Electric, and his wife, Suzy Welch, former editor (under Dr. Boorstin’s remark is especially applicable to the field the name Suzy Wetlaufer) of the Harvard Business of management, where the florists always seem to out- Review, would surely illustrate the importance of context number the gardeners. Many business academics regu- to management action. GE, after all, was one of the larly represent competencies (managerial abilities arrived great laboratories of managerial thinking in the 20th at through on-the-ground experience and learning, century, and the authors set out to provide managers which apply only to the particular context at hand) as with guidelines to follow, rules to consider, assumptions strategies (context-free courses of action that can be to adopt, and mistakes to avoid. implemented anywhere). Some consultants fall into the Although Winning is well organized, clearly written, same trap, finding firms that are apparently doing well, and worthwhile, it is disappointing in one major respect: identifying their “key success factors” and then promot- its lack of concern for context. Mr. Welch freely ing these to other firms so that they too can be like Dell, acknowledges the importance of organizational culture (context writ large) by recounting, for example, the too often encourage otherwise smart people to do dumb problems that GE faced when it acquired Kidder, things — or worse, to compromise their integrity. Peabody (that firm’s top three values, he says, were “my The second crucial component of GE’s culture is bonus, my bonus, my bonus”), but he seems reluctant to the genuine elevation of the human resources (HR) accept the importance of a business environment or cul- function to the equivalent of finance and marketing or ture to the key policies and processes of organizations. an even higher function (this was one of Mr. Nardelli’s This reluctance is best seen in the discussion of the first moves at Home Depot). Could any action be bet- “20/70/10” people differentiation formula (in which the ter calculated than this to underline the importance of top performers are promoted, the majority in the mid- “people development” in an organization, heighten the dle are nurtured, and the bottom 10 percent are fired) critical role of differentiation, and give the process the for which both Mr. Welch and GE became famous. One right “spin”? In many, if not most, corporations, HR is problem with the formula is the validity of the numbers at the bottom of the functional totem pole, where it themselves: Even Bob Nardelli, Mr. Welch’s former mocks all those pious statements about people being our colleague and now CEO of Home Depot, has said, “most important asset.” “There’s nothing magic about 10 percent.” (See Winning has much to commend it, especially for “Winning Hearts and Minds at Home Depot,” by young managers setting out on their careers. There are f Victoria Griffith, s+b, Spring 2005.) excellent sections on the role of lead- e a Then there is the statistical nonsense ers, straightforward strategy, and the t u r of applying the formula to small handling of crises and mergers. If e s departments. More importantly, the only there had been more emphasis b e authors do not appear to consider on history and context, the reader s t that the measurement and reward of might have learned a great deal b u s individual performance works in more from this highly successful i n some contexts but does not work in manager’s experience. There is, for e s s others. The examples in the book, example, anecdotal evidence that b o drawn from the playground and pro- even GE’s star “alumni” often strug- o k fessional baseball, just don’t cut it gle on their first managerial assign- s as useful analogies to the business ments after they leave GE. If that is world. And surely the failure of true, there are many possible expla- the differentiation process in many nations, but one leading candidate organizations cannot be explained has to be that these alumni fail to 19 away by leadership teams “lacking in appreciate how different the con- brains or integrity or both,” as the authors maintain. texts of most firms are from that of GE. Isn’t it more likely that the 20/70/10 process works acceptably in GE largely because of the unusual context Disastrous Situations created by GE’s culture? It is generally acknowledged that tough assignments and Two key components of GE’s culture discussed in hardships are among the best developers of leadership Winning come to mind. The first is its budgeting skills, and that managers usually learn much more from process, wherein the functions of financial forecasting mistakes and even failures than they do from successes. and performance management are clearly separated. In Will Your Next Mistake Be Fatal? Robert E. Performance bonuses are not based on budgets; rather, Mittelstaedt Jr., dean of the W.P. Carey School of they are calculated retrospectively against the perform- Business at Arizona State University (and former entre- ance of the same individuals in prior years and against preneur and submariner in the U.S. Navy), examines 1 the performance of competitors. Very few companies some of the more notorious business and physical 4 e u s s make this commonsense separation between the need calamities of recent times. i s s for financial forecasting and the demands of perform- Professor Mittelstaedt suggests that there is a com- e n i s u ance management. Most practice more dysfunctional mon sequence of failure: b + y g budgeting and performance- 1. An initial problem, often minor, that goes uncor- e t a BEST r t BOOKS05 management processes, which all rected s BEST 2. A subsequent problem that compounds the effect cise. This demands an in-depth BOOKS05 3. An inept corrective effort understanding of the present 4. Disbelief at the accelerating situation and historical context in which the firm finds itself. 5. An attempt to remedy the situation while hiding In EBV, the management team surfaces its often implicit the facts assumptions about the business and examines which 6. Sudden recognition that the situation is out of are valid and which are not. The exercise also gives control managers a sense of what is possible and what might 7. The disaster scenario — with loss of life and/or be very difficult in their industry and organizational financial resources contexts. All these elements are intimately connected with School of Scandal the power of context to sway the perceptions and behav- The downfall of Enron is an enormous object lesson in iors of the actors in a given situation. The Ford the importance of context, but if we are to learn any- Explorer/Firestone tire debacle of 2000 is a perfect thing from its fate, we need to remember and under- example of a complex situation with numerous actors in stand what went wrong. Fortunately, we have financial multiple contexts that produced a disastrous result. The journalist Kurt Eichenwald to help us. In Conspiracy of first clues that there might be a problem with the tires Fools, he reminds us that Enron did exist not so long f e on the Explorer sport utility vehicle came, as they often ago, and shows us very clearly how its managers fooled a t u do in complex situations, from the periphery of the sys- so many people so comprehensively that they even r e tem — tire failures occurring in extremely hot countries fooled themselves.
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