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Jack Welch and Complexity Leadership

29 Oct 2015 - {{hitsCtrl.values.hits}}

Jack Welch is considered as one of the greatest chief executive officers (CEO) of all time. During his 20 years of managing the company as the CEO and later as the Chairman of General Electric (GE), Welch’s most notable achievement was increasing the market value of the firm. Welch increased it from US $ 13 billion when he took over, to a colossal US $ 525 billion at the time of his retirement announcement, making GE the world’s second largest company with a market capitalization that was only exceeded by Microsoft. For his achievements Jack was named ‘Manager of the Century’ by the Fortune magazine.

Along with Welch’s unique, effective and sometimes brutal management style, a number of profitable strategic acquisitions under his leadership helped GE climb to the summit of the business world, with 10 percent or more earnings growth for many consecutive quarters. The success story of GE under the leadership of Welch is a complex narrative of managerial innovation and prescient strategic moves, which not only included the acquisition of companies but also the selling of troubled firms owned by the enormous conglomerate. For any business - gigantic, medium-sized, modest or small – the management philosophy of Welch may be applied equally, and the results will be positive.

As per UCLA Anderson Professor Bill McKelvey, “Complexity Leadership aims to foster emergent self-organisation and distributed intelligence rather than top-down vision and control.” Although Welch never refers to complexity science when talking about his 20 years as the Chairman and CEO of GE, McKelvey says that Welch exemplifies a long list of qualities from this field that are essential in leading an organisation as complex and geographically dispersed as GE. The following analysis will describe the basic principles of the Welch management system in relation to modern-day Complexity Leadership Theory (CLT).

1. Change is good; don’t be afraid of it.

Welch insists that his managers, from senior level down, “embrace change”. Everything is constantly changing, says Welch – market conditions, the business environment, consumer spending habits, advances in technology, new products, competitors, etc. CEOs, the senior management team, middle and junior managers and individual employees must be open to reinventing themselves, and everything they do. This is the only way to keep up with all of the many factors constantly in flux, which impact a business, the way it operates and its bottom line. In a business context, this is encouraging entrepreneurial spirit in an adaptive culture.

2. Lead a company, don’t over-manage it.
At the time Welch took over GE, most senior managers performed only limited, although all-important, functions – they watched, supervised and dictated orders to their underlings. Isolated from their subordinates and employees, these top managers could neither inspire them nor grant them permission to take initiatives not mandated from the top down. Welch rejected this approach. He often said that he wants his top executives to lead and not to manage. Managers control, they don’t facilitate, says Welch. Managers complicate things, they don’t simplify them. Managers keep their feet on the brakes, in a manner of speaking, rather than on the gas, Welch has implied. Successful managers can only understand the entire work process if they integrate their duties to comprehend the multiple aspects of their business. By this organisational cultural transformation Welch encouraged and facilitated enabling leadership.

3. Hire and develop managers who can energize, excite and control.
The ideal manager, according to Welch, is one who shares his vision, has boundless energy and possesses the ability to radiate enthusiasm and ignite that flame in other employees. Along with those highly desirable skills, the best managers also have the indispensable gift of creating, developing and refining a vision and putting it to work in a practical way. To inspire enthusiasm and excitement in employees, no matter at what level in the corporate hierarchy, is to assign them more responsibility and grant them permission, liberty and encouragement to act on their own initiative. This initiative is similar to creating complex adaptive system cells to take ownership for their own deliverables while having line of sight for overall business objectives.

4. Proceed to exploit businesses for advantage or eliminate their negative impact.
CEOs and all managers who deliberately ignore the facts of their business, the business environment and general market and economic conditions are doomed to fail. Changing market conditions and evolving strengths in technology and financial resources in GE under Welch’s leadership, prompted the CEO to sell off certain assets, despite their profitability. Welch demanded that each of GE’s divisions hold the number one or two positions in its industry space. Otherwise the unit was to be divested or the leaders replaced. McKelvey refers to this as a productive tension statement. Understanding the macroeconomic factors affecting the business ensures long-term prosperity in a dynamic corporate environment. Assets that generate income today may not conform to the ongoing company business model for the future. In 1986, as market facts indicated the potential for increased profitability in mass media, GE acquired RCA, which owned NBC television, a move which eventually provided huge and consistent revenues for GE.

5. Be focused, be consistent and follow up on every detail.
Focus, consistency and follow-up may be described as Welch’s mantra. His invariable focus on changing when necessary, openness to new ideas, customer service, quality, simplicity, empowerment of managers and employees and the quest for competitive advantage are the hallmarks of Welch’s great leadership. Following up to make sure these values are pursued at every level all but assure in a very unpredictable world, that a company has at least the potential to succeed. Further, Welch introduced a very stringent and transparent performance appraisal framework and monitored it consistently to ensure administrative mechanisms are in place.

The management principles described above are only a representative sample of Welch’s comprehensive managerial style. Managers across the spectrum, from CEOs of large firms, to owner-operators of small businesses may profit from implementing these ideas, all of which helped build GE into the giant it is today, and elevated Welch who led the way to the Olympian heights among the most successful CEO of all time.

(This is the 27th column of the leadership series by Eng. Gamini Nanda Gunawardana [BSc Eng (Hons), MBA, CEng, FIE (SL), MCS (SL), MIDPM (UK), FIAP (UK), MBCS (UK)], a Management, HR, OD and ICT Consultant, Corporate Trainer, Executive Coach, Consultant - HRD - Goodhope Asia Holdings Ltd. He can be contacted at [email protected])

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Jack Welch and Complexity Leadership

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