Jack Welch is a business visionary who thinks like a scientist.
In his former laboratory – General Electric Co. – the tough-minded chief executive experimented with ways to build better leaders.
The end result?
Today, Welch’s protégés today head companies such as GE, Home Depot, Honeywell and 3M – four of the 30 blue-chip companies that make up the Dow Jones industrial average. Another understudy, Harry Stonecipher, led Boeing before resigning under pressure in March.
“No one else has anything like that,” Welch says of his legacy on American corporate leadership.
His new book, “Winning,” is a national best-seller that he co-authored with his third wife, Suzy Welch. In it, they lay out the elements of his success, including the controversial system of differentiation, one of the key tools he used to mold GE’s workforce.
During his 20-year reign at GE, based in Fairfield, Conn., Welch developed a ranking system that put employees in one of three categories. The top 20 percent were “stars,” the middle 70 percent were the crucial majority and the bottom 10 percent were weeded out.
The Denver Post recently spoke with Welch, 69, who is based in Boston. He talked about the secrets of hiring and developing leaders, his definition of heaven and what he plans to do in Denver on a book-signing visit this week.
Q: What does it mean to win in business?
A: It means you fulfill your aspirations. You set a vision for yourself, and you achieve it. If you have a team, your team achieves that vision. And you celebrate it. And you have a full life as a result of it. But you don’t dabble; you give everything you got.
Q: How did your engineering background help you as a manager?
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A: Without question, getting your Ph.D. sends you down a lot of blind alleys. You know there’s not a perfect answer; there are lots of shades of gray. In business, you have to make the call without complete data. I wasn’t the sharpest bulb in the ceiling, but I could make the calls.
Q: What would you have done differently if you were still CEO of General Electric?
A: The reason you change is to get fresh eyes. I didn’t retire because I was tired, I retired because it was time to re-pot the plant. And I’m as excited as can be about what (CEO Jeffrey Immelt) is doing., he’s added some high-technology medical businesses. He’s made some great moves.
Q: Nine of GE’s 11 businesses delivered at least double-digit earnings growth in the first quarter. Where has Immelt succeeded where Jack Welch couldn’t?
A: We were at about 13 businesses, and we were doing about 11 or 12 in double-digit growth, through 2001. And then we ran into a recession. Jeff had a couple of slower years, but GE did not go into negative earnings. As the economy comes back, he’s capitalizing on it nicely.
Q: Why does the concept of differentiation – ranking employees differently based on performance – create so much controversy?
A: It asks people to do what schoolteachers have always done with children: evaluate people. Why should people stop being evaluated at age 23 or 24? It makes no sense to me. It’s the best system I know to be fair to people. It’s not a perfect system. You can have politics and friendships, but it’s the best I know.
Q: Where did you first learn the concept?
A: I grew up (on) a playground in Salem, Mass. I was from working-class parents. And I played baseball. And when we went down to pick the teams, the best players won. The best players got the best positions, and the weakest players went to right field, as I say. Business is a lot like a sports team: The team with the best players wins, so you are always trying to build great teams.
Q: With that in mind, why were the Red Sox, your favorite baseball team, able to win the World Series?
A: They had an exciting team. They had great hitting, great pitching and adequate fielding. In the end, they had the best ballclub.
Q: How does differentiation improve employees?
A: You are having open, candid evaluations of performance. I’ve seen company after company that (doesn’t) give honest appraisals. Everyone deserves to be told what they are good at and what they need to improve. It makes us all better. I used to get that from my board of directors.
Q: Can it hurt employees?
A: It can only hurt employees if you don’t have an open system of trust. If all of a sudden you’ve got a system that hasn’t evaluated people, and somebody comes and says we are doing 20-70-10 tomorrow, you can’t do that. In my first book, I mention 20-70-10 too breezily. Candor is a fundamental underpinning of my philosophy. I think it’s the dirtiest little secret in business: People don’t tell people where they stand. It’s the only way people can improve.
Q: If you fire the 10 percent of workers who are underperforming, how do you make sure you don’t hire similar people again?
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A: You look for the characteristics you want. I always looked for energy, (the ability to) energize other people, people who can say “yes” or “no” and people who can execute. You don’t always get it right. God made some bad hires. There’s no perfect answers.
Q: Any tips?
A: When you are hiring from the outside, you absolutely want to ask them, “Why did you leave your last job?” And don’t just let it go with one question: push and probe. If they start complaining about their boss and the company, then you worry about what you are going to get. If they say the work was too hard, you don’t want that person. But if they say, “I could just do a lot more and I wasn’t given the chance; I got a great appraisal, but I wanted to do more.” Then you’ve found something.
Q: Are some workers doomed to underperform, or can the right leader improve anyone?
A: The right leader can improve anyone. People who are (underperformers), about 75 percent, move on and they like their situation better.
Q: How do you know the concept works?
A: Four of the CEOs at the Dow Jones 30 worked for me. The system builds great leaders. No one else has anything like that out there. If building great people is our product, we get pretty good grades. This is the best method I can think of. If you can give me a better system, I’d love to listen to it. This gives people a chance to improve because it forces people to look themselves right in the mirror after they get the appraisal. If you go to work and you don’t know where you stand, that’s a horrible feeling.
Q: For Jack Welch, what is heaven?
A: (Pause) It’s the afterlife, when you go, hopefully, and visit the Lord.
Q: What about on earth?
A: It’s the life I’m leading right now. Magnificent wife, four great stepchildren, nine grandchildren and four of my own kids. A busy life with consulting, Q&A sessions around the country and teaching principals in the New York school system about leadership.
Q: You were known as a tough-minded boss. Do you take that same approach with your children?
A: I think I probably did when they were young, but today they are in their 30s and 40s. They are happy, well-formed individuals, and they don’t need my evaluations. And I’m the last person they will listen to.
Q: Has Bill Gates ever called for business advice?
A: No. His team has done quite well without Jack Welch.
Q: Warren Buffett?
A: I talk to him a lot, but he is the guru and I’m the student. Warren is more a friend. We usually play golf once or twice a year, and he’s a great friend.
Q: What about John Malone?
A: He also has done quite well without Jack Welch. He’s a very smart fellow that I’ve known for years. I’ve done business with him when he was at
(Tele-Communications Inc., a onetime Colorado cable giant). He’s a fabulous executive.
Q: How often do you come to Denver?
A: I used to go there all the time to ski at Vail. I was there on my last book tour, but I haven’t been there for about three years. I’m going to talk to students at the University of Denver business school. But I get in in the morning and I go out at night.
Q: You gave up golf for Pilates?
A: I have an arthritic shoulder, and I’m debating whether to get a replacement or not. I used to play a lot of golf, but I can’t swing a club with my
shoulder.
Q: You were recently married for the third time. Any chance we’ll see Jack Welch changing diapers?
A: You know, I don’t think so. But I’d never rule it out.
Staff writer Will Shanley can be reached at 303-820-1473 or wshanley@denverpost.com .
