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Last Updated: Monday, 26 September 2005, 08:59 GMT 09:59 UK
Running a business the Welch way
By Tim Weber
Business editor, BBC News website

Jack Welch
Behind the laughter there is an edge of steel
Jack Welch, once one of the most vilified and now one of the world's most admired corporate leaders, likes to have the laughs on his side.

When the professor introducing Mr Welch's lecture talks about stereotypes and what a successful business leader is supposed to look like, Mr Welch interrupts and says "I don't like where this is going ... is it about me being a short bald guy?"

The audience at the London School of Economics (LSE) chortles, and from here on in it's plain sailing for Mr Welch's "winning" ways, his hints on how to run a successful company put forward in the book of the same name.

Move faster, ponder less, act ... and know more about the world
Jack Welch

Once he was known as Neutron Jack, the General Electric boss who walked into factories like a neutron bomb emptying them of staff and turning what was left over into lean, mean and profit-making businesses.

Under his leadership the technology-to-services conglomerate became one of the largest companies in the world, at least by stock market value.

These days Mr Welch tries to be cuddlier, but behind every laugh there is an edge of steel.

Three easy steps

Mr Welch's winning philosophy is simple.

Watch out for three things, he says, and success will follow:

  • Employee satisfaction - at GE every six months the firm's staff filled in a survey to check for signs of discontent
  • Customer satisfaction - every half year the conglomerate's customers were asked to give feedback as well
  • Cash flow - ignore the net income, as long as cash flows you are doing fine.
He wants to see managers create something, grow the enterprise, take care of their staff, train up new leaders, and make customers happy.

So how does one do it? Go to business school? Read the latest books on good management?

Running a business is not different to running a sports team ... the team with the best players wins
Jack Welch

"Go with your gut, you got to act on your gut," Mr Welch says.

Yes, some management theory can provide useful tools, but "gut feeling" and the ability to recognise patterns in your business are the best assets a manager can have.

"You must be bold," he tells the LSE students. "Why the hell would you be cautious? Go for it, challenge the status quo."

That has not stopped him from using big business theories himself, like six sigma quality management - a method of improving the quality and cutting the costs of a business.

But he prides himself on launching just four big initiatives during his 20 years at the helm of GE.

"Other firms go with the management flavour of the month," he scoffs.

Performance management

When Mr Welch was GE boss, he was notorious for his brutal candour in meetings with executives.

He still prefers to tell it straight, but also warns young managers: "don't be stupid". As Mr Welch mellows, he allows for a bit of diplomacy.

The bottom 10% need to know that they are the bottom 10%

The broad principles, however, still apply.

When he was running GE, every year the top 20% of his managers were amply rewarded with bonuses and stock options, the middle 70% benefited from the growth of the firm, and the bottom 10% were axed.

"Running a business is not different to running a sports team," he says. "The team with the best players wins."

Know the best

But two key conditions need to be in place to make this radical approach viable.

"It only works in a meritocracy," he says. Governments with their civil servants - loyal but unsackable - will not be able to apply his business advice.

And in the commercial sector bosses must give their staff clear transparent appraisals. "The bottom 10% need to know that they are the bottom 10%."

Worldcom CEO Bernie Ebbers
Jail is just for people like Bernie Ebbers of Worldcom, Mr Welch says

If the corporate going gets tough, "you can't walk up to a guy and say 'Harry, we've got to let you go, because you're not that good', because he'll just say 'But I've been here 31 years and you never told me'. That's the cruellest way of management."

Managers need to recognise their best workers and he challenges the students: "Do you know who the best 10 or 12 people are in your class?"

Just a couple of hands are raised.

Mr Welch pretends to be shocked. "That's not good enough, if you can't identify the best in your class, you won't have a career ahead of you."

Don't have a mentor

As the students quiz Mr Welch, he dispenses more down-to-earth advice.

"Whatever you do in your career, never get a mentor, because your mentor can be a turkey."

And stay straight. "Don't pitch for business where you have to bribe to get the deal."

Over time, he says, "people will come to you because they know you are dealing straight and they won't get into trouble if they deal with you".

In cases like Enron and Worldcom with "manipulation at the highest level", Mr Welch sees prison sentences for top managers as a just reward.

And he urges students to learn as much as they can about China and India.

Both countries have "smart and energetic people", and Western firms have the choice of moving "up the food chain or we will get killed".

Winning companies

Western nations can't do without companies that win.

"Winning companies give back to society," says Mr Welch - they pay taxes, and their workers have secure jobs and spend money.

"If you win, everything flows from there," he says, pointing to US firms like Wal-Mart and GE who helped out with money and more after the Asian Tsunami and hurricane Katrina.

So looking back and knowing what he knows now, what would Mr Welch have done differently as a young man?

"Move faster, ponder less, act ... and know more about the world."

Winning, by Jack and Suzy Welch, published by Collins. Mr Welch and his wife are donating their royalties to scholarship programmes for children in inner cities.

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