Jack Welch- Management Guru/ Cost Cutting Slasher ?
After reading about the cost cutting effects of GE’s former CEO, Jack Welch, on GE, I wanted to find out more about the guy. I remember that he was rated highly as a leader and was even voted The Manager of the Century by Fortune.
However, in a book I am currently reading, Getting Started on Investment Analysis, by Warren Brusee, the author gave a rather damning indictment on Jack Welch management of the company. According to him, Jack Welch ‘dictated cost reductions and insisted on superb earnings performance across the company’. This ultimately lead to the decline of the company’s stock prices after he left the company as the spectacular performance during his tenure was built upon cost cutting not great product or process innovation.
While looking for more information, I came across this article, Jack Welch …. on Customers, which puts down 10 interesting tips from Jack Welch about how to lead a customer centric organisation:
1.WHAT TO MEASURE?
“If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction and cash flow.”2. BUILD CONFIDENCE. THAT’S YOUR JOB DESCRIPTION.
“If you’re not simple, you can’t be fast. And, if you’re not fast, you’re dead. So, everything we do (at GE) focuses on building self-confidence in people so they can be simple.”Welch recently said that his mother helped build the self-confidence that has been the bedrock of his success. She used to explain his speech impediment by saying that his brain worked faster than his mouth. Welch joked that he was stupid enough to believe her.
3. SET YOUR PEOPLE FREE
“You’ve got to balance freedom with some control, but you’ve got to have more freedom than you’ve ever dreamed of.”4. SHOUT WHEN YOU WIN
"People feel guilty about stopping to celebrate a little victory ... but it lets people know they've won. It's so critical to an institution. It brings it alive, gives it character."5. NUMBERS AREN’T ENOUGH
“Numbers aren’t the vision. Numbers are the product. I never talk about numbers.”6. SPEND MORE TIME ON TALENT DEVELOPMENT
“In most companies, the talent review process is a farce. At GE, Jack Welch and his top two HR people visited each division for a day. They reviewed the top 20 to 50 people by name. The talent review process is a contact sport at GE. It has the intensity and importance of the budget process at most companies.”
McKinsey’s Ed Michaels, in his book The War For Talent.7. FAIR DOESN’T MEAN ‘THE SAME’
“Every person should be treated fairly in an organization, but every person should be treated differently in an organization."8. MAKE PEOPLE SHARE GOOD IDEAS
“What makes a company flourish is transferring ideas.” At quarterly meetings, Welch insisted that GE bring together the leaders of all of its businesses to share generic best practice ideas. “We take the best of diversity and use it,” said Welch.9. MEET CUSTOMERS MORE OFTEN
Welch made a point of personally meeting GE’s major customers in the spring and fall of every year. He put much of his and GE’s customer insights down to these twice-a-year reality checks with customers.10 DON’T DITHER. JUMP
“I’ve learned in a hundred ways that I rarely regretted acting but often regretted NOT acting fast enough.”
As an investor, it is important to understand what the company management is doing and what the rationale is. Through learning more of this, you learn about the company’s ethos and values and whether they are in line with yours. If not, divest or don’t invest in the company.
But as the short example above shows, there is often two sides to the story and it is not that simple to gauge something quickly.
Source: Jack Welch… on Customers by Phil Dourado 2004
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