John F. "Jack" Welch Jr. (born 1935) rose from the ranks of General Electric (GE) to be named the company's youngest ever chief executive officer in 1981. After making difficult personnel decisions early in his tenure, which included shedding more than 100,000 employees, Welch began a period of growth and success that is unparalleled in business history. As the new millennium dawns, GE, under Welch's leadership, is the largest company in the world and a symbol of American ingenuity and power.
Bold, competitive, and controversial are all traits that describe Jack Welch, one of the world's most powerful business leaders. Although he is now worth countless millions, Welch was born on November 19, 1935 into a middle class family in Peabody, Massachusetts, the only child of a train conductor/union leader and a strong-willed mother, Grace. Welch's father worked grueling hours to support his family, often leaving the house at 5:30 a.m. and not getting home until 7:30 p.m. Grace and the boy used to wait for the elder Welch at the train station. Welch recalls that the talks he had with his mother at the station served as his early education.
Welch's competitive fires can be traced back to his teenage years playing hockey, basketball, and baseball. In high school, Welch was co-captain of the golf team, lettered in hockey, and served as treasurer of the senior class. The five foot eight inch Welch was known as a feisty competitor whose will to win was limitless. Welch's mother also instilled in him a fierce will to achieve through long discussions and games of blackjack and gin rummy. "I had a pal in my mom," Welch told John A. Byrne of Business Week. "We had a great relationship. It was a powerful, unique, wonderful, reinforcing experience."
Welch combined popularity and intelligence with a quick wit. He was the class jokester. With his mother encouraging him, Welch studied chemical engineering at the University of Massachusetts, becoming the first person in his family to go to college. Several professors acted as Welch's mentors and persuaded him to attend graduate school. He then went on to earn a doctorate from the University of Illinois in 1960. When he got the degree, his mother was so proud that she called the Salem newspaper to report that "Dr. Welch" received his Ph.D.
Joined General Electric
After graduate school, Welch joined General Electric as a junior engineer in Pittsfield, Massachusetts. Frustrated by the company's bureaucracy, Welch quit a year later. He saw little room for advancement at GE. His boss, Reuben Gutoff, recognized Welch's talent, and talked him into staying. Gutoff even promised Welch that he would provide him a more entrepreneurial work environment, although supported with all the resources of a corporate giant.
As Welch climbed the corporate ladder, he was convinced that even a huge corporation like GE could remain nimble. By 1967, Welch was among the rising young stars in the GE plastics division. He kept the small company mentality close to heart and would later lead the charge to erase the big company malaise that could stifle ideas and action. In his early years, he helped GE Plastics explode from a $28 million after-thought into a billion dollar business.
The "Neutron Jack" Years
Welch moved through several different divisions as he progressed. Eventually, at age 42, he moved to the corporate headquarters in Fairfield, Connecticut, when he was named one of three vice-chairmen. After a fierce competition for the top spot, Welch was named chairman in 1981, the youngest CEO ever appointed at GE. "I think I'm the most happy man in America today," Welch told Thomas C. Hayes of The New York Times, "and I'm certainly the most fortunate."
Welch attracted controversy almost immediately. He was much different than his predecessor, the British gentleman Reginald H. Jones. Welch was brash and told managers that if they did not move quickly enough, he would "kick ass." The new leader was obsessed with turning GE into a flexible, lean business that ranked first or second in every industry in which it did business.
An early spotlight was thrust on Welch when GE purchased RCA, the parent company of NBC, in late 1985 for $6.3 billion in cash. At the time, it was the largest corporate acquisition in history and brought RCA back into the family. GE had founded RCA in 1919, but had to sell the subsidiary in 1933 because of antitrust threats. After the initial euphoria surrounding the deal wore off, Welch realized that NBC was losing $150 million a year, despite dominating prime time television and news rating. Welch set high financial goals for NBC and turned the business around by cutting costs and replacing unhappy network executives. By 1997, after more than a decade of Welch's cajoling, NBC became the undisputed leader of network television. GE transformed NBC into a profitable company that still provided high quality.
Welch and GE were successful economically across the board. However, during his first seven years as CEO, Welch cast off more than 100,000 workers, nearly 25 percent of GE's workforce. The mass layoffs earned Welch the derogatory nickname "Neutron Jack." Critics equated his name with corporate greed, arrogance, and contempt for workers. GE sold off many of its traditional businesses, such as housewares and televisions, and moved into high-tech manufacturing, broadcasting, and investment banking. Welch was willing to take risks and change the company's ingrained corporate culture to fit his strategic vision.
Welch's supporters countered by noting GE's amazing return on equity. In Welch's first six years, GE's total return to shareholders reached 273 percent. Welch told Russell Mitchell of Business Week that he wanted GE "to become the most competitive business enterprise in the world."
World's Greatest CEO
Despite picking up other monikers, such as "Trader Jack," based on his love of acquisitions, Welch transformed his image as GE's fortunes improved. Soon, he was becoming widely regarded as the best CEO in the world. The company had always been heavily watched by business analysts for the latest management trends, but under Welch's tenure, GE came to define successful business management.
Part of Welch's improving image was his emphasis on GE's Management Development Institute corporate training program. The center at Croton-on-Hudson (Crotonville), known within GE as "The Pit," was a showcase for Welch. The company spent $500 million a year on education and training at Crotonville. He appeared at the center more than 250 times over 17 years and worked with 15,000 GE managers and executives. "The students see all of Jack here," wrote Byrne of Business Week. "The management theorist, strategic thinker, business teacher, and corporate icon who made it to the top despite his working class background."
In recent years, Welch has turned his attention to "people" issues and has worked to create informality at the company. This push has allowed communications to open across layers and fostered a sense of entrepreneurship at the world's largest corporation. Throughout the year, Welch met with managers across several levels of leadership. As Byrne wrote, the meetings also allowed Welch "to make his formidable presence and opinions known to all."
When Welch needed information, he often slipped into factories and plants unexpectedly. A Welch trademark has been the handwritten notes he dashes off to employees. Welch wrote them out and then faxed them all over the company. Welch saw this extra effort as another way of breaking through the bureaucracy that initially hindered his progress at GE. "The idea flow from the human spirit is absolutely unlimited," Welch told Byrne, "All you have to do is tap into that well. I don't like to use the word efficiency. It's creativity. It's a belief that every person counts."
Since taking over in 1981, Welch has used the company's economic diversity as a tool to move into other industries with fast-growing profits. He has reshaped GE with more than 500 acquisitions worth $53.2 billion. Welch was also instrumental in the mid-to late 1980s movement among American companies to get leaner, tougher, and globally competitive. GE's non-U.S. sales grew to 45 percent in 1994, up from 22 percent in 1986. Forbes writer James R. Norman wrote, "Nearly every one of its (GE's) major products has become a growth business with the stepped-up development overseas."
The Future of GE
Welch's newest strategy was called "Six Sigma," which was a quality program that generated fewer than 3.4 defects per million operations in a manufacturing or service process. Despite the program's huge investment in training thousands of employees, Welch believed Six Sigma will save GE billions. In 1995, Welch launched the program with 200 projects, but the next year it grew to 3,000 and then 6,000 in 1997. The productivity gains and profit of $320 million exceeded Welch's expectations.
Welch was both revered and feared within GE. While not a cult personality, Welch realized what his leadership symbolized. To many, Welch was as synonymous with GE as Thomas Edison. In 1997, Welch was named to the National Business Hall of Fame in Cincinnati.
The GE that Welch has led since 1981 is a company that employs between 240,000 and 260,000 people in more than 100 countries. Shareholders have been rewarded throughout Welch's tenure. A $100 dollar investment in GE the day Welch took over would have been worth over $2,000 in 1998. He also achieved his goal of making GE the company with the highest market value in the world. In 1997, GE's stock value eclipsed $200 billion.
It is impossible to pin down exactly how Welch has achieved all the lofty goals set year in and year out at GE. Perhaps, it is simply the fact that Welch may be the hardest working CEO ever. While leading a company worth more than $200 billion, he also found the time to know by sight the names and responsibilities of the top one thousand people at GE. In fact, the CEO met and interacted with several thousand employees each year.
Characteristically, Welch summed up his thoughts in a few short sentences in an interview with Fortune magazine, "I have the greatest job in the world. We go from broadcasting, engines, plastics, the power system-anything you want, we've got a game going. So from an intellectual standpoint, you're learning every day."
Welch will retire in 2000 when he hits GE's mandatory retirement age of 65. Do not, however, think Welch will fade into the sunset or even slow down. He may play much more golf (one of his lifelong passions), but Welch will also remain an important figure in corporate America. Nearly akin to an ex-president, like Jimmy Carter, Welch's retirement will allow him to redefine the way an ex-CEO operates.
Further Reading on Jack Welch
Lowe, Janet, Jack Welch Speaks: Wisdom from the World's Greatest Business Leader, John Wiley & Sons, 1998.
O'Boyle, Thomas F., At Any Cost: Jack Welch, General Electric, and the Pursuit of Profit, Knopf, 1998.
Slater, Robert, Jack Welch and the GE Way: Management Insights and Leadership Secrets of the Legendary CEO, McGraw-Hill, 1999.
Tichy, Noel M. and Stratford Sherman, Control Your Destiny or Someone Else Will: How Jack Welch is Making General Electric the World's Most Competitive Company, Doubleday, 1993.
Business Week, December 14, 1987; June 8, 1998.
FW, September 8, 1987.
Forbes, October 10.
Fortune, January 11, 1999.
Industry Week, December 2, 1991.
Time, October 3, 1994.
Wall Street Journal, August 4, 1988.
"History of GE," http://www.ge.com (March 1, 1999).