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The Story of Jack Welch – GE’s Wonderman

Business
The Story of Jack Welch – GE’s Wonderman

 Jack Welch is a native of Peabody, Massachusetts and earned his bachelor’s degree in chemical engineering at the University of Massachusetts. After finishing further studies at the University of Illinois in 1960, John Francis Welch Jr. or better known as Jack Welch started his career as a chemical engineer with General Electric. Proving his worth and expertise, he rose to become the chairman and CEO for 20 decades between the years 1981 and 2001. GE’s value grew to an astounding 4000% during Welch’s term with the company.   

 What he has become over the years, from very humble beginnings to being an influential honcho, is quite impressive. His no nonsense approach to managing the company earned him a reputation of having such candor and gut when dealing with the company’s internal concerns. This management practice paved way for the conceptualization of his trademark, the “Welch Way”, which many business schools all over the country teach their students.

 He is well-known for his very frank statements and he really is a man of action. He gets things done his way.     

 

Early Career with GE

 

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Since GE hired him in 1960 as a chemical engineer, Jack has made an extraordinary mark. He is successful but also experienced some setbacks. For instance, he almost got fired when a blast blew off the roof of the facilities of the factory he was managing. Early in his career, he even wanted to quit his job because he observed and experienced the lousy way GE was handled by the bosses. It was the company’s executive, Reuben Gutoff, who convinced Welch not to leave GE. That was when he started to make history. 

When Welch became the company’s chairman and CEO in 1981, he was the youngest executive in GE’s history to head the company. Here, he took charge of an unrelenting simplification and consolidation scheme as a means to revamp the company. His mission was to make certain that GE takes the top spot in whatever industries the company is engaged with. Unless that happens, it is better to leave the industry entirely. He wanted to make GE more efficient by cutting back inventories and removing the senseless bureaucracy of the company.

 

No-Holds Bar Actions

 

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Armed with his determination to make radical changes within the company, Jack Welch started closing or selling out factories or businesses that were not performing well. He cut dreary old-line units, reduced basic research, and even slashed payrolls. The worst performing managers were fired annually. Those managers who are in the top 20% were compensated with bonuses and other incentives, like stock options. These GE stock options programs were made comprehensive – from top executives to almost one third of the company’s employees. He dismantled the traditional nine-layer management hierarchy. This created an atmosphere of informality.

Welch managed to upkeep the buildings in one piece despite the fact that employees were eliminated. This earned him the nickname “Neutron Jack”. In 1980, GE had 411,000 employees but as the years went by, this number was reduced until it reached 299,000 in 1985. This resulted to a remarkable increase in market capital. But he didn’t stop there. Fast forward to the 1990s, GE was given a business facelift from the manufacturing industry to financial services. Fortune magazine named Jack Welch “Manager of the Century” in 1999. 

GE had a recorded revenue of about $26.8 billion when Welch was not yet CEO. By the time he left, the company was able to increase its revenues by almost $130 billion. Thus, by the end of 2004, it gained its place as the world’s biggest and most valuable company with a staggering worth of $410 billion.      

 

Making Him Famous    

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These words became the dictum during Welch’s time with GE: productivity, efficiency, and profitability. His straightforward management approach was to make sure that every component – employee, manager, equipment, and division – should positively contribute to the bottom line of the entire business. Otherwise, those who did not adhere get the ultimatum of being fired. It goes the same with a division, if it couldn’t perform well as expected and couldn’t contribute much to the entire company, he would eventually chuck it.

Thus, he made a mark as seen in the radical change in manpower GE has had over the years. It gave GE that recognition of being one of the world’s premier business giants. 

 The word “candor” speaks clear as day as Welch knows that this is the one important aspect needed to conduct good business. Whenever he talks publicly, he never forgets to speak of this term. Every worker should realize and must be fully aware of the values that will help the company gain more profits. The usual practice of performance evaluations that other companies conduct are generally not as effective as the way GE did it. If an evaluation showed a low rate of performance, then the worker should expect that he’ll be dismissed from his duties. On the contrary, most companies simply fire their employees without giving them a good justification for being kicked out.

 Having seen that Welch achieved phenomenal success after eschewing the old ways of doing business, numerous companies throughout America and even worldwide have adopted the famous Welch Way.

 

The Criticisms

 

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Of course, the way he handled every element of GE’s business was often criticized, thus making him controversial. He was branded for not having enough consideration for the working and middle class. His techniques and decision to keep only the GE units that were able to maximize the return on investment or ROI, often through acquisitions and wholesale shutdowns of business units, was seen as ruthless and cold-hearted.

Welch’s lack of concern over the issue of the discrepancy between the excessive CEO pay and the average employees’ salaries stirred public uproar. He believed such allegations were outrageous and he made it clear that he opposed the proposed SEC regulations concerning executive compensation. 

To counter the public outrage, he made a statement that CEO compensation should not be interfered by the government and other external organizations, but rather it should be continually dictated by the free market.

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