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The Pros and Cons of Jack Welch’s Leadership

The Pros and Cons of Jack Welch’s Leadership

The Pros and Cons of Jack Welch’s Leadership

            Leaders adopts diverse leadership styles, may it be democratic, autocratic, laissez-faire, strategic, transformational, transactional or bureaucratic among others. The different leadership styles have their advantages and disadvantages and may be fruitful or detrimental to a given business or organization. A good example is Jack Welch’s leadership, which transformed the General Electric. He was the CEO of the corporation from April 1981 to 2001, growing the its revenue from $25 billion to $130 billion and profit from $1.5 billion to over $15billion (Catherine par 1). Despite his success, his leadership had its ups and downs and this case study analysis the pros and cons of his leadership over his 20 years tenure as the CEO of General Electrics.
The pros of Jack Welch’s leadership

His leadership was result oriented and from inauguration he always set goals to be achieved. When he took over he set the standard he termed as “fix, sell, or close” that required all the GE’s business to be ranked either position 1 or 2 in their respective industries (Christopher and Meg 2 par 4). The uncompetitive businesses risked the fate of being sold or closed and true to his goal between 1981 and 1990, over 200 businesses had been sold off freeing over $11 billion of capital (Christopher and Meg 2 par 6). Jack result oriented approach was able to get laid of non-performing businesses.

Jack Welch leadership embraced change – during his tenure he effected many changes including massive restructuring, reduction of the bureaucracies in the company and downsizing of the staff. He chipped away the corporation bureaucracy and scrapped the laborious strategic planning replacing it with real time planning (Christopher and Meg 3 par 3). A new structure was introduced giving a direct communication and transaction from the CEO to various businesses (Christopher and Meg 3 par 6). The non-performing businesses were sold off in the restructuring in first phase of his tenure. Over 300 new businesses were also acquired during this period (Christopher and Meg 2 par 6).
In 1994 Welch also spearheaded a new GE’s business model venturing in service industry. This is a vision he had earlier when he lead the acquisition of several service companies in 1980s such as Employers Reinsurance, Kidder and Peabody. The strategic initiative pushed the profits from services in 1995 to almost 60% of the overall GE’s profit, a drastic  growth from merely 16.4% in 1980 (Christopher and Meg 10 par 6).

From service, Welch spearheaded the company in venturing into product services, such as installation of diagnostic sensors on CT scanners and MRI equipment to offer continuous diagnosis of the equipment and transmission the data to GE’s online service center (Christopher and Meg 11 par 2-4). GE progressed to offer product services to even non-GE equipment and adopted it in other GE businesses including in commercial jets, locomotives, etc.. This led to GE acquiring more service businesses to add to its $8 billion 1996 equipment service business (Christopher and Meg 11). The changes facilitated effective communication, optimal performance, reduced unnecessary operation cost and increased the profit and profit margin.

In his leadership Welch was also directly involved leading from the front. He reduced the hierarchies in the corporation from approximately 9 to 4 eliminating department managers, sector mangers, subsector managers, unit managers and supervisors (Christopher and Meg 3 par 6).  This ensured he was in-touch with the issues and was able to make timely decisions and as he was informed on time. The communication time was also drastically reduced and communication breakdown elevated. He was also able to build better association and healthy relationship with those lowest in the organization hierarchy.

His leadership was also consultative and engaging. He consulted and discussed widely with the key business heads such as when they replaced GE’s strategic planning system with real time planning system (Christopher and Meg 3 par 3). He consulted all the 14 key business heads and together they developed a 5 page “strategy playbook”.  Welch engagement in his tenure also gave rise to the idea of having a forum where employees can present their views including how their business can be run best/effectively and give their feedback (Christopher and Meg 4). The employee engagement forums were conducted by external consultant in absence of their bosses to encourage the employees to open up and not only raise their issues  but also propose solutions. (Christopher and Meg 4 par 5).  Consultation and engagement ensured the business adopted only the best strategies which are well thought out. The employees took the idea positive as their own. By mid-1992, 66% of the GE’s workforce had been engaged and this resulted to doubling of GE’s productivity to 4% from the previous 2% pre-engagement period growth. (Christopher and Meg 5 par 3)

Jack Welch also practiced successful delegation of  authority and responsibilities leadership. Despite his hand-on approach he also gave other employees assigments, for example, he gave Baughman the responsibility of forming a small team  to implement the removal of the unnecessary bureaucracy in their initiative dubbed the “Work-Out” (Christopher and Meg 4 par 5). Jack also delegated the responsibility of finding out how other businesses are achieving higher productivity growth than GE to Michael Frazier of GE’s Business Development department under the “Best Practice” initiative that mushroomed from the earlier “Work-out” initiative (Christopher and Meg 5 par 3). He also delegated Paolo Fresco to head the International Operations in 1989 (Christopher and Meg 6 par 3). Delegation of responsibility ensured every role was played by the right professionals with the necessary required skilled resulting into outstanding outcome. This also freed Welch’s time to focus on other issues.

Employees motivation and job satisfaction was another pros of Jack Welch leadership. He is estimated to have spent over 70% of his time on people issues (Christopher and Meg 7 par 4), and gave his employees a platform to voice their issues and contribute to the company operations. Welch also introduced better performance-based employee bonus, award and compensation system (Christopher and Meg 7 par 5). As the CEO he also encouraged innovativeness and career growth spending over $45 million in improvement of Crotonville for the purpose of employee development (Christopher and Meg 8 ). All this contributed immensely to employees’ motivation and job satisfaction.

  1. External environment conscious / Competitive focused rather than inter growth focused – he redefined the corporation from internally focused to externally  competitive focused approach. For example, the GE’s business were now evaluated in accordance with the market performance and they had to attained position 1 or 2 (Christopher and Meg 2 par 4). The budgeting process was also changed from previous year performance focused to external competition based giving the business a more competitive muscle for drastic growth (Christopher and Meg 3 par 4)
  2. Opportunistic  – Welch lead in taking advantage and making investments and acquisition in different parts of the world during their respective economic downturns. For example GE invested over $17.5billion in Europe during the 1989 to 1995 Europe economic downtime, and acquisition of 16 Mexican companies when the Mexican peso collapsed in 1995. GE also invested in Asia when it slipped into crises in 1997-1998. He took the economic downtimes as an opportunity rather than a problem. This increased the international revenues to $42.8billion by 1998, almost double of what was earned 5 years earlier (Christopher and Meg 6 par 5).

The cons of Jack Welch’s leadership

Despite Jack Welch leadership being largely successful it also had its down times. His leadership style was rigid with little to no room for flexibility. Whenever he set a goal he would hardly deviate for example “fix, sell, or close” that proposed sale or closure of all non-competitive business It lead to the sale of over 200 GE’s businesses between 1981 and 1990 such as the central air-conditioning, housewares, coal mining and eventually the GE’s electronics business (Christopher and Meg 2 par 5). Despite the tough economic times coupled with stiff global competition especially from Japanese manufacturers  Welch didn’t change his stand and didn’t consider all the factors which would have led to their dismal performance.

Welch is also criticized for his stern stands leadership. For example when he said he wanted a “lean and agile” staff he meant every word and oversaw a massive lay-off of over 59,290 sallied and 64,160 hourly employees (Christopher and Meg 3 par 7). Under the Welch’s downsizing, de-staffing and delaying strategy, the number of GE’s employee went down from 404,00 when he took over to 330,00by 1980  and by 1989 the number was barely 292,000. This is a huge number of employee to ray off likely to affect the other employee motivation and job satisfaction from the fear of their positions also being terminated.

Another notable con in  Jack Welch leadership is over diversification . He drove GE into further diversification leading the corporation venturing into the service industry and product services industry. This further complicated the corporation management especially when the business went global (Christopher and Meg 2-11).  

Conclusion

Jack Welch leadership can be considered a mixed approach adopting democratic, strategic and transformational leader styles. His approach was largely successful with many pros including giving him ability to delegate tasks, consult and engage other employees, embrace transformative changes, motivate his employees and facilitate their career growth increasing their job satisfaction and allowed him to be directly involved. However hi approach also had its short comings: he was too rigid and had stern stands whenever he set a goal and in most cases gave no second chance. He also over diversified which was likely to strain the management.

Work Cited

Catherine, Clifford. Jack Welch: This is the No. 1 key to success as a leader. 17 November 2017. NBC Universal. 17 April 2019. <https://www.cnbc.com/2017/11/17/former-ge-ceo-jack-welch-how-to-be-a-great-leader.html>.

Chrístopher, A., Bartlett and Wozny Meg. GE’s Two-Decade Transformation: Jack Welch’s Leadership. Class Discussion Case. Harvard College. Boston: Harvard Business School Publishing, 2005. PDF. 17 April 2019.

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