Saturday, May 07, 2005

Why corporate change is hard and failure almost inevitable (III)

Part I

Part II

Jack Welch's leadership of GE was the greatest wealth creation exercise in business history. Between 1981 and 2000 he built $350 billion in market capitalization at a company that was already big and well-run when he took over. GE was, as all large corporations must be, procedures driven. Welch could not change that. But his leadership efforts did recognize the constraints Miaster's model imposed for his change efforts.

1. His dictum that all GE businesses be number 1 or number 2 in their marketplace was the perfect antidote to denial (Especially so since managers knew that under performing divisions would be "fixed, closed, or sold.")

2. Welch did not change GE's culture just by changing minds. The world-beating GE of 2000 was created by purchase, pink slips and divestiture. In 1981 the firm employed over 400,000. Over the next decade, 150,000 new employees came in through businesses that were acquired. During the same period, 190,000 employees left via businesses that were sold, and 170,000 left through layoffs and headcount reduction. When allowance is made for individual employees who left and were replaced by new hires it becomes clear that the vast majority GE employees today never worked at the pre-Welch GE.

3. During his tenure, GE tackled a major initiative every three years. This is in sharp contrast to the "solution de jure" approach that many companies fall into. By having fewer programs and committing completely to each, GE was able to reap real benefits from the programs. It avoided the cynicism which follows in the wake of multiple programs pursued halfheartedly and incompletely (i.e. fad-surfing).

4. Welch recognized that firm type imposes constraints and that effort is required to overcome these. Few CEOs devoted as much time to leadership development. He was not afraid to ask if GE had "the right gene pool" for a digital age and a global economy. At the end of his tenure, Fortune noted that he thought "a merciless push to upgrade human capital [was] vital." This, remember, at a firm considered by many to have the best and deepest management group in the world.

5. Welch recognized that change in a procedures environment is not pretty. As his fix/close/sell strategy demonstrated, it requires hard choices and painful decisions. After almost 20 years as CEo he was willing to admit that "we've got to break this company" to get ready for future changes.

6. By embracing "constructive conflict," Welch did not force GE-ers to stifle doubts, questions or disagreements. Instead, he helped the organization learn by opening feedback channels at all levels of the organization and throughout the life cycle of the change programs.

7. The face-to-face communications central to his leadership style forced GE out of its procedure ruts. The medium is also a message. Written plans and communications denote stasis and predictability. By demanding informal, fast, verbal feedback, Welch sent the message that GE no longer faced an environment which was stable and predictable.

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