Jack Welch and the Ge Way

Key Management Techniques of General Electric’s CEO JACK WELCH AND THE GE WAY

By Robert Slater THE SUMMARY IN BRIEF Jack Welch had his eye on the horizon when he took over GE in 1981. What he saw there concerned him. The previous decade’s high inflation rate and encroaching competition from Japan were changing the rules of the game. Welch knew that while GE looked healthy enough to outsiders, it had to “get a lot better, faster.” That meant change — a lot of change. Welch slashed the size of the work force, delayered management, and reduced the number of business units. For this, he earned the name Neutron Jack. Welch also tore down internal boundaries, improving communication and speeding up operations. He implemented programs that cultivated ideas and rewarded quality. He expanded the corporation’s global reach. For this, Fortune magazine voted GE the most admired company in America in 1998 and credited Welch for having “rewritten the book on management while keeping GE huge, nimble, and immensely profitable.” Management guru Warren Bennis added that Welch raised GE from “big and good” to “big and great.” INSIDE . . . Welch molded GE into the powerhouse it is today, raising its revenues Understand Your Role to record levels by the late 1990s. And he did it his way. As Leader 2 By understanding his role as a leader. By unloading the bureaucracy that weighed it down. Decide What You Do Best By looking for new ideas inside and outside GE. And Do It Better 3 By driving quality throughout the organization. Get Rid of Boundaries 4 The style may be quintessential Welch, but your company can follow his example. You can — and should — speed up your business processes, Assemble Type “A” Workers 5 constantly focus on innovation, and make sure you put only your best Find and Grow Ideas players on the field. Above all, says Welch, you should never forget that In a Learning Culture 6 business isn’t rocket science; it’s simple. Make Quality a Priority 7 Want to know more? Read on. Focus on Services 8 Published by Soundview Executive Book Summaries, 23 Pond Lane, Middlebury, VT 05753 USA *All rights reserved. Reproduction in whole or part is prohibited. LEAD Understand Your Role as a Leader Promote Your Values “I don’t run GE,” says Jack same message.“I don’t say one thing Values are such an integral part Welch. “I lead GE.” to outsiders and another to insiders,” of GE’s culture that Jack Welch Leaders inspire employees by cre- he notes. had them inscribed on wallet-size ating a vision of how things can be The CEO expects GE employees cards and gave every worker one done better. They get people to per- at every level to be able to identify, of these “Values Guides.” form at levels they didn’t think as well as to commit to, the compa- The cards say that GE leaders, possible. ny’s values, for example. always with unyielding integrity, Then they get out of the way. have a passion for excel- Get Real lence and hate bureaucracy, Simplify Welch believes leaders must face are open to ideas from any- When it comes to visions, Welch reality about situations, products, where and committed to Work- keeps them simple. He advocates and people, then act quickly and de- Out (see page 5), having what he calls an overarching cisively on that reality. live quality and drive cost message: “something big but simple Facing reality means acting on the and speed for competitive and understandable. knowledge that the world is becom- advantage, “Every idea you present must be ing increasingly competitive. It have the self-confidence to something you could get across easi- means understanding that no job is involve everyone and behave in a ly at a cocktail party with strangers,” guaranteed for life. It means reject- boundaryless fashion, he says. “If only aficionados of your ing the bureaucratic approach to create a clear, simple, reali- industry can understand what you’re management. And it means acknowl- ty-based vision and communicate saying, you’ve blown it.” edging that business is simple. it to all constituencies, One of Welch’s visions, for exam- Facing reality means making some have enormous energy and ple, was to have every GE business hard decisions sometimes. But Welch the ability to energize others, be number one or two in its market. is convinced that most mistakes come stretch, set aggressive goals, Clear and simple. from not facing reality and then act- reward progress, yet understand ing on it. He says his biggest mistake accountability and commitment, Spread the Word was not acting fast enough to imple- see change as opportunity, Welch takes advantage of every ment some major changes at General not threat, opportunity to promote his vision. Electric, for instance. have global brains and build He drives home his message in his More specifically, he regrets not diverse and global teams. annual Letter to Share Owners, in buying a food company early in his his speeches to the GE board, and in tenure as CEO — an investment he When you make a mistake, admit talks with financial analysts. believes would have paid off. But he it, advises Welch. Better yet, learn He makes sure everyone gets the was too slow to make a decision. from it.✰ Jack Welch and the GE Way by Robert Slater Selected by Soundview as an Outstanding Book for Business People The author: Robert Slater has over twenty-five years’ experi- To subscribe: Send your name and address to the address listed ence with Time, Newsweek, and UPI. He has written several business below or call us. Prices also listed below. books, including two others about Jack Welch. To buy multiple copies of this summary: Soundview offers Copyright © 1999 by The McGraw-Hill Companies, Inc. Sum- substantial discounts for quantity purchases of its summaries. Please marized by permission of the publisher, McGraw-Hill, Inc., 11 West 19th call or write for details. Street, New York, NY 10011. 328 pages. $24.95. ISBN 0-07-058104-5. To pay for books or Soundview publications: If paying by To buy the book: Call Soundview, 1-800-521-1227 (outside the check, use U.S. funds drawn on a U.S. bank. We also accept USA and Canada, 1-802-388-8910) or fax 1-800-453-5062 (outside American Express, MasterCard, Visa, Diners Club, and Discover. the USA and Canada, 1-802-388-8939) and charge to your credit Published by Soundview Executive Book Summaries (ISSN card. E-mail: [email protected]. Internet: 0747-2196), 23 Pond Lane, Middlebury, VT 05753-1164 USA, a di- http://www.summary.com. Send mail orders to Soundview, 23 Pond vision of Concentrated Knowledge Corporation. Publisher, Cynthia Lane, Middlebury, VT 05753-1164 USA. Please include the book Langley Folino. Editor, Roger Griffith. Published monthly. Subscrip- price plus $4.00 shipping and handling for the first book and $1.50 tion, $89.50 per year in the United States and Canada; and, by airmail, for each additional book; in Canada, $5.00 for the first book and $95 in Mexico, $139 to all other countries. 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2 RESTRUCTURE

The company also bought assets Decide What You Do Best and Do It Better worth $16 billion. These new acqui- Jack Welch believes only the sharpen GE’s purpose and focus. He sitions did fit the three categories. strongest survive. Weak businesses chose to keep and nourish business- For example, the purchase of RCA, don’t have the resources, muscle, es that concentrated on at least one which owned NBC, and investment and power to compete globally. of the following three functions: bank Kidder Peabody enhanced Early in his tenure as CEO, he core functions such as light- GE’s services function. made it his mission to strengthen GE ing, major appliances, motors, trans- Broader Markets by weeding out its weak businesses. portation, turbines, and contractor By the late 1980s, Welch had Number One, Number Two equipment high-technology, including achieved strategic dominance at In the early 1980s, GE boasted industrial electronics, medical sys- home and turned his attention to the 350 GE businesses in forty-three tems, materials, aerospace, and air- global arena. strategic business units. Only three craft engines He told business unit managers to GE products — plastics, gas tur- services like GE Capital as redefine or broaden their target mar- bines, and aircraft engines — had a well as information, construction and kets. This set the bar a little higher, respectable share of the export mar- engineering, and nuclear services forcing unit leaders to reevaluate the ket. And just one of these, gas tur- One hundred seventeen business- business of their businesses. bines, was a market leader abroad. es and product sectors that did not The result: By fall 1997, many Welch believed GE could, and GE businesses attained first or sec- fit these categories — from toasters should, do better. ond status in their markets world- to coal mines — were either sold or He developed a “number one, wide.✰ number two” plan to boost GE’s shut down. competitiveness. The strategy called for every GE business unit to be Rightsize Your Work Force to Efficiency either first or second in its market. One of Welch’s long-term goals and choke initiative. He was deter- Those businesses that weren’t, or has been to make GE as lean as possi- mined to tear down GE’s bu- that didn’t have a technological ad- ble, as fleet as a small company. reaucracy in order to make the vantage, risked dismantlement even Developing a sharper focus helped, company more competitive. if they were turning a profit. but it wasn’t enough. GE’s work force A slimmer GE meant fewer jobs. “When you’re number four or five had to be cut and reshaped as well. One-third of the work force was cut, in a market, when number one Delayer Management leaving roughly 270,000 jobs intact. sneezes, you get pneumonia,” noted A faster GE meant fewer man- The GE of the early 1980s was a Welch. “When you’re number one, agers. There were 25,000 managers large bureaucracy, employing you control your destiny.” when Welch took over as CEO. Five 412,000 people. hundred were senior managers; 130 Purpose and Focus Welch hates bureaucracies. He were vice presidents or higher. Part of Welch’s strategy was to believes they promote sluggishness Welch set about delayering GE’s management structure. He eliminated Give Bureaucracy the Boot: Think Small sector and group-level managers. He Jack Welch believes small companies offer some very big advan- reduced the number of vice presi- tages, like those he outlined in his 1992 Letter to Share Owners. dents within each business to ten. He “Most small companies are uncluttered, simple, informal,” he decreased the number of managers wrote. “They . . . grow on good ideas — regardless of their source. between himself and division chiefs They need everyone, involve everyone, and reward or remove people from nine to between four and six. based on their contribution to winning. He directed GE’s fourteen busi- “We love the way small companies communicate: with simple, ness leaders to report directly to him straightforward, passionate argument rather than jargon-filled or to one of his two vice chairs. memos, ‘putting it in channels,’ [or] ‘running it up the flagpole.’ Welch’s delayering strategy im- “Everyone in a small company knows the customers — their proved communications within GE. likes, dislikes, and needs. . . . Small companies have to face into the As a result, decision makers got the reality of the market every day, and when they move, they have to information they needed more move with speed. Their survival is on the line.” quickly and were able to get products to market faster.✰ 3 Get Rid of the Boundaries That Interfere with Business Most companies have too many that grows in large organizations.” day, all day, and winning and losing boundaries, says Welch. This program improved communica- in the real world — we can become There are boundaries between tions, enhanced innovation, and re- productive beyond our wildest management layers. Boundaries be- duced NIH by providing an impetus dreams.”✰ tween divisions. Boundaries be- to search the world’s best companies tween organizations and their for better ways of doing things. Barriers Create Waste clients. Boundaries between compa- Making GE boundaryless has nies and their suppliers. meant bringing suppliers and cus- Boundaries, even subtle ones, These boundaries get in the way tomers into GE’s design and manu- cause waste. This is one more of doing business. facturing processes. reason why Welch is on a cru- sade to fashion GE into a bound- The Problem with Walls GE managers are encouraged to ask themselves, What parts of the aryless organization. Perhaps Welch’s most critical ob- business are slowing us down? What The chair once discovered that jective has been to reduce GE’s are the obstacles in our way? And whenever he called a meeting, boundaries, particularly those be- then remove every possible road- some people spent hours prepar- tween the company and the out- block that stands in the way of get- ing for it, trying to answer ques- side world. He believes these bar- ting a product to market quickly. tions they thought he might ask riers support a deep-rooted corporate them. They were trying to erect a protective barrier between Welch prejudice against any idea not gener- A Bonus Benefit ated within GE — a bias he refers to and themselves. And they spent a as the “not invented here” (NIH) Tearing down boundaries offers lot of time doing it. Welch told syndrome. another benefit in addition to im- them to stop it. In a message to General Electric proving communications and In response, the staffers placed shareholders in 1996, Welch wrote speeding up processes. It creates an an assistant on call, ready at a that NIH “limited our ability to learn environment that fosters self- moment’s notice to research from suppliers, our customers and confidence. answers they didn’t know. This other global companies that had Self-confident employees are was yet another barrier. Welch ‘best practices’ that could be of more likely to embrace change be- knocked that one down too. enormous use to us.” cause they see it as an opportunity, No boundaries, says Welch. If Furthermore, boundaries prevent not a threat. They are less likely to you don’t know something, admit information from flowing internally. engage in the type of turf battles and it. Then take steps to find out. At one time, for example, GE’s plas- in-fighting that characterize bu- You’ll waste less time and effort. tics, lighting, and motors divisions reaucracies. They don’t need to The idea is gaining ground at sold their products to the automobile “get credit” for every idea they GE. industry separately instead of coor- originate. Shortly before GE’s Corporate dinating their sales efforts. Self-confident leaders are less Executive Council was to meet Similarly, GE engineers some- afraid of looking simple so they are one quarter, executive Steve Kerr times designed a product that was more willing to simplify. They don’t noticed a man sitting outside the difficult to manufacture, hard to sell, need the protection of bureaucratic meeting hall. Kerr asked him and nearly impossible to service. barriers. what he was doing. The left hand simply didn’t know When GE tore down barriers, it The man replied he was there what the right hand was doing. gave all GE employees a greater to handle “technical problems.” voice. They began to talk with, and Like what? asked Kerr. Becoming Boundaryless listen to, one another. They began to “Well,” the man replied, “let’s When you break down barriers, trust each other. GE’s leaders were say a bulb in the overhead pro- you empower employees. Boundary- given more independence and al- jector has to be changed.” lessness opens channels of informa- lowed to take bigger swings. Kerr was stunned. “There are tion to them and gives them oppor- “If you and I and the business five engineers in that meeting, tunities to contribute ideas and make leadership of the country can have including the chairman,” he told decisions. It encourages cooperation the self-confidence to let people go,” the man. “I’ll bet one of them across the board. notes chairman Welch, “to create an could change a light bulb!” Welch introduced the Work-Out environment where each man and He sent the man back to his program, described on the following woman who works in our compa- regular duties, reducing the num- page, to help people stop “wrestling nies can see a clear connection ber of barriers at GE by one. with the boundaries, the absurdity between what he or she does every 4 REBUILD Assemble a Team of Type “A” Employees The Personal Touch Only A players need apply at GE. to fire up enthusiasm in others. Welch is confident all the sen- These are people who subscribe to He seeks middle managers who ior managers on GE’s team are GE values and perform outstanding- embrace GE’s values — people who Type A players. And he is deter- ly. They have vision, courage, are team players and coaches. Mav- mined to keep it that way. integrity, determination, and excel- ericks, no matter how talented, aren’t The chief executive makes a lence — “the welcome. point of getting to know all of the best in the Always get the best people. If Welch admits five hundred top GE managers world,” says you haven’t got one who’s good, this approach and personally signs off on their Welch. you’re shortchanging yourself. means sometimes promotions. He also interviews A’s go beyond you may have to anyone hired to fill those posts. their defined roles, as engineers or bypass, or even get rid of, some His personal approach seems finance people, for example, to im- otherwise impressive people. But, as to work. Management recruiters prove their value to the company he noted in GE’s 1993 annual report, in a 1997 Business Week survey and increase the company’s value in if your managers can’t motivate and named five GE managers among the marketplace. Welch wants only coach others, “their debilitating effect the twenty executives most likely A managers and he urges GE’s man- on the team can outweigh the bene- to become CEOs at major corpo- agers to hire, and take care of, their fits of their individual talent.”✰ rations within five years. A players. “It’s too bad that we can’t define Get Everyone to Work Out Solutions people in business as easily as you In 1989 Welch instituted a ten- the boss would leave and partici- can on a basketball court or a hock- year program called Work-Out. Its pants were divided into small groups ey rink,” says Welch. “If the guy purpose was to provide the opportu- to brainstorm. A facilitator made couldn’t skate, you wouldn’t have nity for all GE employees to help sure senior employees didn’t domi- him at left wing. If the guy couldn’t solve problems and offer good ideas. nate discussions or pull rank. shoot, he wouldn’t be the forward. Engaged workers, he reasoned, were These brainstorming sessions He wouldn’t be on the team. And more productive workers. continued into the third day when it’s no different in the business team Welch made it clear to his man- the boss returned to listen to the you have to build. agers that everyone’s ideas counted. ideas and respond to the proposals. “Always get the best people. If “If there are three people, I want Bosses had only three options: you haven’t got one who’s good, three ideas,” he told them. “If you’re Agree to implement a proposal. Re- you’re shortchanging yourself.” only giving orders, I will get only fuse the proposal. Ask for more Not everyone at GE is an A play- your ideas. I’d rather select from the information, in which case the boss er, of course. Type B’s share GE ideas of three people.” had to authorize a team to get the values and are productive but need How It Works information by a certain date. As a to improve. They should be nour- Modeled after the New England rule, only 20 percent of the deci- ished, suggests Welch. town meeting format, Work-Out sions were postponed. As for Type C’s, people who allowed employees to make sugges- Work-Out may have been tough don’t exhibit the right stuff or share tions directly to their bosses and get on bosses, but it yielded good results the corporation’s values: “Push C’s a response — immediately, when for GE. Consider the following: on to B companies or C companies, possible. A proposal to allow aircraft en- and they’ll do just fine,” says Welch. Each three-day workshop was de- gine workers in Massachusetts to bid “Move them on out early. It’s a voted to a specific agenda or against an outside vendor on a proj- contribution.” goals, such as cost reduction or new ect saved the corporation $80,000. Hire Energetic Managers product introduction. Organizers in- A proposal at a Pennsylvania fac- Most managers overmanage, says vited who they wanted but invitees tory to purchase paint from one sup- Welch. They enervate rather than didn’t have to attend. Ultimately, plier instead of two improved paint energize, depress rather than excite. forty or fifty people from both staff consistency thus eliminating rework The GE CEO looks for senior and management might attend. and reducing delays. managers who are bursting with en- Typically, workshops at each A proposal to unseal vents and ergy, who can develop and imple- plant opened with an address by a buy fans at a Kentucky plant en- ment a vision, and who know how GE business leader or boss. Then hanced working conditions there.✰ 5 Find and Grow Ideas in a Learning No one has to adopt anyone else’s idea. The purpose of the CEC is to GE feeds on ideas and is con- holders in 1993 that GE had benefit- provide a learning experience as stantly looking for more food. It ed from a host of ideas from other well as a forum in which to ex- searches everywhere and anywhere. companies. change ideas. Work-Out feeds it from within by Over the years it has adapted “It’s a whole different way of encouraging a free flow of ideas at new-product introduction techniques thinking. ‘Let me learn,’” says every level. from Chrysler and Canon, effective- Welch. “If everybody in our place Likewise, GE businesses share sourcing techniques from GM and gets up every day trying to find a the ideas they get with each other. Toyota, and quality initiatives from better way, it’ll all take care of For example, GE’s Medical Systems Motorola and Ford. GE also used itself.” learned how to detect and repair advice and best practices from IBM, from a distance malfunctions in hos- Johnson & Johnson, and Xerox, Everyone Benefits pital CT scanners. Med Systems among others to move effectively The learning culture Welch has shared this technology with GE’s into the Chinese market. nurtured at GE has benefited the Aircraft Engines, Locomotives, corporation in a number of ways. Motors and Industrial Systems, and The CEC Factor Operating profits have risen to Power Systems businesses. One way ideas get around at GE the 15 percent level in the last five Now, these businesses have the is via the Corporate Executive years after hovering under 10 per- capability to monitor the perform- Council (CEC). This group includes cent during the last century. ance of jet engines in flight, loco- the corporation’s thirty or so most Increases in company revenues motives and paper mills in full oper- senior executives. Every quarter reached double-digit levels in the ation, and turbines in power plants. they meet for two or three days to mid-1990s. Inventory turns created a But the days when NIH — not go over forecasts, share war stories, record $6 billion in cash in 1996. invented here — reigned supreme and discuss any new initiatives. Employees also enjoy the rewards are long gone. Often one or several GE business of this learning culture. Welch offers Welch urges people to look for leaders will adopt another business’s generous compensation and makes it ideas “from any source. So we will idea or best practice. When the head clear that sharing ideas is critical to search the globe for ideas,” he says. of GE Capital announced at one earning one’s keep at GE. “We will share what we know with meeting that a full day of his em- Additionally, workers have the others to get what they know. We ployee orientation program is de- satisfaction of knowing what they have a constant quest to raise the voted to quality training, for ex- do matters. According to one survey, bar.” ample, several other leaders decided in fact, 87 percent of GE’s employ- Welch openly admitted to share- to follow suit. Others chose not to. ees believe their ideas count.✰ Challenging GE’s Leaders In and Out of the Classroom

GE’s learning culture is aug- Crotonville participants before ap- Like GE leaders before him, mented by its Crotonville Leader- pearing on the Values Guides. Welch appreciates Crotonville as ship Development Center in New Open interaction and frank dis- an invaluable tool for spreading York’s Hudson Valley. Junior and cussion rule the classrooms; titles his message. That’s why he has senior heads of GE businesses and seniority afford no protection. invested heavily in the institute, around the world come to the Junior executives are expected to even during those early years of management institute to brain- question conventional wisdom, his tenure when he downsized storm and to learn. even when it means challenging much of the corporation. Crotonville courses, some near- their bosses. Senior executives, in But Welch also frequents ly a month long, teach strategy, turn, expect to be subjected to Crotonville to learn. It helps him global competition, diversity, and close scrutiny. keep his finger on the pulse of a host of other business skills. Welch loves the open con- GE. Walter Wriston, a longtime The center has given birth to a frontational style that character- GE board member, once told him variety of ideas that have been izes learning at Crotonville. that as chair and CEO, Welch implemented at GE. The idea for Nearly every month he drops in would always be the last to know Work-Out was born here, for in- on classes to lecture on business when something was going on at stance. And GE’s values were de- strategy and philosophy and to GE. Welch is determined not to let bated for countless hours by chat individually with participants. that happen.

6 Make Quality a Priority in Your Company Six Sigma Works Quality has always been impor- achieved dramatic results. GE Lighting had a problem. tant at GE. But the company doesn’t Welch initially was concerned Its electronic billing system was- have a reputation for world-class that six sigma was too bureaucratic n’t a good fit with Wal-Mart’s quality yet. Welch is determined to and centrally managed to work at purchasing system. This caused change that. GE. But others at the company, disputes, delayed payments, and including participants at Crotonville, Why Now? made Wal-Mart unhappy — not urged him to reconsider. good because Wal-Mart was one In the eighties and early nineties, In 1995, Welch decided to initiate of Lighting’s best customers. GE had the luxury of choosing its a six sigma program at GE. market battlegrounds. It simply A GE black belt team applied abandoned businesses where it did Getting There six sigma methodology, informa- not have an edge. The first step in the six sigma tion technology, and $30,000 to By contrast, companies like process is to identify a project. Next, the problem. They reduced sys- Motorola, Texas Instruments, and characteristics critical to quality are tem defects by 98 percent in just Hewlett-Packard had to improve defined. Then a six sigma team of four months. their quality levels in order to sur- specialists, called master black belts Disputes and delays dropped vive against Japanese competitors. and black belts (see box below), take off. Wal-Mart improved its effi- Benchmarking against these com- the project through four steps. They ciency working with GE. panies revealed that GE needed to 1. measure the defects generated improve its quality standards. Too by a key process, reduction in defects. This translates much time was spent fixing and re- 2. analyze what variables cause to $70,000 to $100,000 in savings. working a product before it left the the defects, Although GE has spent consider- factory. This increased waste, re- 3. improve the process by deter- able money on quality initiatives, its duced speed, and lowered mining the maximum acceptable return generally is double the productivity. range of these variables, investment. Welch has decided to make quali- 4. control by making sure the Improved customer relations have ty a critical management focus. He variables stay within this range. proved another advantage. In the doesn’t want GE to be equal to, or The control phase is crucial. GE past, GE personnel felt they knew even better than, its competitors. He audits its quality initiative projects what was important to the customer. wants to take quality to a whole new for six to twelve months initially But six sigma taught them different. level. and every six months thereafter. To date, most quality efforts have “We want to make our quality so This ensures that once a problem is focused on improving business special, so valuable to our cus- fixed, it stays fixed. processes that help customers become tomers, so important to their success GE launched two hundred proj- more productive. The next step is to that our products become their only ects in 1995. Three thousand were improve GE’s existing products. real value choice,” he says. completed the following year. The Ultimately, Welch intends to in- The solution is six sigma. average project takes about four to corporate six sigma thinking into five months and yields an 80 percent every new product design.✰ The Six Sigma Concept Six sigma is a measurement of mistakes per one million discreet The Martial Arts of Quality operations. Fewer errors mean high- It takes a new category of employees to make sure six sigma er quality. works. At GE, these people consist of champions, master black Six sigma means that there are belts, black belts, and green belts. only 3.4 defects per million opera- Champions are the senior managers who approve projects, fund tions. By contrast, at three and a half them, and troubleshoot. sigma, there are 35,000 defects per Master black belts are full-time teachers. They also mentor and million operations. This is average review black belts. for most firms, including GE. Black belts are full-time team leaders who measure, analyze, Motorola pioneered the six sigma improve, and control key processes that influence customer satisfac- initiative in the 1980s in an effort to tion or productivity growth. They report to champions. reduce the number of defects in the Green belts are team members who work on six sigma projects communications equipment and while holding down other jobs at GE. The ultimate goal is for every semiconductors it produced. Other one of the firm’s professional employees to become a green belt. firms soon followed suit. All 7 Focus on Services as a Growth Strategy large part of Capital’s growth, particularly in the 1990s. Since 1994, In 1980 only 16.4 percent of GE’s the next six Olympic Games. for instance, GECS has spent $11.8 profits were from service businesses. By 1997 NBC had become one of billion on dozens of acquisitions in- Today nearly 60 percent are from GE’s most lucrative businesses. cluding First Colony of Lynchburg, services. Jack Welch would like that The Rise of GE Capital Virginia, a leader in term life in- percentage to top eighty. surance, and high-tech firm Another jewel in GE’s crown is This phenomenal growth is no ac- Ameridata Technologies. GE Capital Services (GECS). It be- cident. Welch understood early on It expanded its global influence that GE’s growth would have to gan in the Depression as GE Credit, lending money to financially in the nineties, helping to finance come from services and he took power projects in Mexico and China steps to make it happen. strapped people who wanted to buy major appliances. In the 1960s, it and an airport privatization project in NBC and GE Capital are two of Hungary. his success stories. began financing other products and changed its name to GE Capital. Despite embarrassing failures, such as the fall of investment bank Turning NBC Around Today GECS is the driving force behind services at GE thanks in Kidder Peabody and the bankruptcy In 1985 Welch arranged for GE to large part to Welch’s efforts to push of Montgomery Ward, GECS still buy Radio Corporation of America GE’s service industries. It boasts posted an 18 percent average annual (RCA). The $6.28 billion purchase twenty-seven businesses, from credit profit growth rate from 1991 to 1996. included television network NBC. cards to satellite leasing to computer Its success is a testament to GE’s The network had the highest rat- programming. Nineteen of these had strong credit rating, savvy leader- ings of the three major networks at double-digit growth in 1997. ship, and commitment to the GE that time but also the lowest profits. Acquisitions have accounted for a way of doing business.✰ The NBC News budget, for example, had increased from $207.3 million in 1983 to $282.5 million a year Global Markets Hold Risk and Opportunity later. Welch has long been determined Asia is another target market for Welch and his newly appointed to increase GE’s global reach. His growth, despite economic problems head of NBC, Robert Wright, cut efforts began in earnest in 1987 in Japan in the late nineties. Welch costs, turning the network around when GE exchanged its TV set busi- even is determined to crack the quickly. Forced to face reality, NBC’s ness for a medical imaging company notoriously tough Chinese market profits rose from $333 million in owned by French electronics firm although he admits GE may not 1985 to $750 million in 1989. Thomson S.A. The deal, which took make it in China. By 1992, however, profits fell to only half an hour to clinch, marked “There’s no expansion globally $204 million and NBC slipped to GE’s move into Europe. that isn’t fraught with risk,” he says. third place among the networks. After Thomson there were joint “But you can’t stay home. Clearly, Gulf War coverage and competition ventures with German industrial en- the risk side is long, but the oppor- from cable companies for ad dollars gines firm Robert Bosch and Japa- tunity side’s longer. That, I think, is reduced some revenues. The wrong nese electrical equipment specialists the difference.”✰ people in place reduced others. Toshiba. GE Lighting bought a Welch had a choice to make: Fix majority interest in lighting compa- Stretch to Reach Goals the network, close it, or sell it. He nies in Hungary and the U.K. And Jack Welch believes in setting chose to fix it. He did this by hiring there were others. goals that seem almost out of the right people — people who, like In fact, since 1989 GE has in- reach, a strategy he calls Wright, adhered to the GE way. vested $17.5 billion in Europe, half stretching. Wright and these other “A” on new plants and facilities and half Stretching is daring to dream. leaders sharpened NBC’s focus, on acquisitions. The strategy has It’s being more creative about slashed expenses, and made quality worked. In 1995 GE’s European your business. It’s knowing you a priority. Under their direction, operations raked in roughly $1 bil- might fail and trying anyway be- NBC launched its “Must-See TV” lion profit on revenues of $14.1 cause it’s the best way to grow. line-up, including such strong new billion. Stretching, says Welch, “re- shows as Frasier, Friends, and ER. It GE’s success varies with its busi- places a grim, heads-down deter- reduced its work force by more than ness interests, however. GE Capital mination to be as good as you 3,000 and expanded into a dozen Services Europe does well. On the have to be and asks, instead, how cable networks. And it moved fast to other hand, consumer appliances good can you be?” sew up broadcast rights for five of have been disappointing. 8