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General Electric's Jack Welch--a.k.a. "Neutron Jack" and "The Toughest Boss in America"--is as notorious as he is respected. Now readers can tap the source of Welch's courage, innovation, and success, in this guide that reads like a manager's "little instruction book."
Only a decade before Jack Welch took over as chief executive officer (in April 1981), General Electric was steaming full-throttle for a crisis that almost no one acknowledged.
Just a handful of General Electric's 150 business units were number one or number two in their markets (lighting, power systems, and motors).
Plastics, gas turbines, and aircraft engines were the only GE businesses doing well overseas. And only gas turbines had market leadership overseas.
Despite gleaming balance sheets in the 1970s, GE appeared headed for the shoals.
As late as 1970 as much as 80 percent of General Electric's earnings still came from its traditional electrical and electronic manufacturing businesses. Yet manufacturing was on the slide.
The company's successes were plastics, medical systems and financial services. But these businesses contributed only one-third of the total 1981 corporate earnings.
Finally, a number of GE's businesses such as aircraft engines often used up more cash than they produced.
GE's troubles were linked to the changing global business environment.
In former times, America had held sway over the most important markets of the world economy, whether in steel or textiles, shipbuilding or television, calculators or automobiles.
Then, with few taking notice, others, especially the Japanese, started to take away clients, seducing them with higher-quality products at cheaper prices.
Smokestack America was crumbling, and one dismal sign was in the steel industry, which in 1982 lost $3.2 billion. In parallel, the Japanese had grabbed 20 percent of the American market. What was happening in steel was felt as forcefully in the American car industry.
America's consumer electronics industry also failed to read the signals coming from across the Pacific. By the time it understood that Americans had a voracious appetite for videocassette recorders it was too late. The Japanese had cornered the market from the start.
With the arrival of the 1980s, the American economy looked increasingly unhealthy. Inflation, only 3.4 percent in 1971, had climbed to 18 percent in March 1980.
Other signs of distress were in evidence.
The price of oil, only $1.70 per barrel in 1971, peaked at $39 per barrel in 1980.
Auto and truck production, reaching 8 million vehicles In 1971, slid to a mere 6.4 million by 1980.
Still the highest in the world, American productivity outpaced the West Germans and the Japanese in 1979; yet it had been slowing since the 60s.
In 1979 the United States ranked only 10th in annual per capita income ($10,662) among members of the Organization for Economic Cooperation and Development.
Not surprisingly, America headed for a recession in the summer of 1981.
The United States had to become not only more productive, but also more aggressive in competing for business around the world.
World trade stood at $2 trillion in 1981 and was expected to grow dramatically over the decade. Yet thousands of American companies were not exporting.
Only 1 percent of American firms accounted for 80 percent of the country's exports.
Nine out of 10 American companies did not export at all.
Jack Welch's business ideas were a response to the changes in the global business environment.
The changes had come slowly, almost imperceptibly.
Before, only the American marketplace had counted: The remainder of the world economy appeared inconsequential. It was possible for companies like General Electric to flourish.
Yet, by the 1970s, changes were occurring. The "rest of the world" no longer seemed microscopic, irrelevant.
Welch, however, sensed correctly that the business arena had been growing larger and increasingly competitive: A whole new array of enterprises with international pretensions were popping up around the globe.
Jack Welch recognized all of these momentous changes long before others did.
When he became the chairman and chief executive officer of GE in the spring of 1981, he could have pretended
HE COULD HAVE CHOSEN TO STICK His HEAD IN THE SAND. BUT HE DID NOT.
Only by acting, by reshaping the corporation, did he believe there was a chance that General Electric would emerge stronger in the 1980s and 1990s.
Welch alone believed that a revolution was needed inside GE to weather the stormy ocean of economic and competitive challenges.
For companies like GE to survive in such a rapidly shifting environment, a whole new vision was needed, an entire new set of business strategies.
Others inside GE and outside scoffed at Welch. They insisted changes were not needed, that in time all would be well.
After all, this was a company that at the start of the 80s had been generating $25 billion in sales-and $1.5 billion in profits.
GE employees and business analysts alike greeted him at first with disdain and disbelief and outright fear.
Here was someone tampering with sacred tradition, fixing something that was not broken, playing with fire.
And yet, had other business leaders acted as Jack Welch did, had they followed one of his most important leadership secrets, they might well have avoided the crises that afflicted their companies in the early 90s.
That secret-Jack Welch's leadership secret 5-was this:
TAKE A HARD LOOK AT YOUR OVERALL BUSINESS, AND DECIDE AS EARLY AS POSSIBLE WHAT NEEDS FIXING, WHAT NEEDS TO BE NURTURED, WHAT NEEDS TO BE JETTISONED!
Jack Welch had a gut instinct that something needed fixing.
I could see a lot of (GE) businesses becoming. . . lethargic. American business was inwardly focused on the bureaucracy. (That bureaucracy) was right for its time, but the times were changing rapidly. Change was occurring at a much faster pace than business was reacting to it.
Others saw the virtue of a decentralized organization. But Jack Welch saw only chaos.
Others found orderliness in GE's bureaucracy. Welch complained that the company's bureaucracy was excessively sluggish.
Others were convinced that layers upon layers of management created the best possible command-and-control system.
But to Welch, those layers were merely wasting precious time and spinning their wheels, losing sight of their basic purpose.
The old organization was built on control, but the world has changed. The world is moving at such a pace that control has become a limitation. It slows you down. You've got to balance freedom with some control, but you've got to have more freedom than you ever dreamed of.
Because it had businesses in so many different fields, General Electric was bound to be affected by what was going on across the oceans....