By 1988, seven years after Welch took the helm at GE, the hardware, or structural, changes were mostly in place. On a helicopter ride home after a session at Crotonville, Welch expressed his frustration and anger to James Baughman, then director of Crotonville. The company was not as innovative, open, changeable, adaptable, or creative as he wanted it to be. Soon, the second phase of the GE revolution was underway:
"In the first half of the 1980s, we restructured this company and changed its physical makeup. That was the easy part. In the last several years, our challenge has been to change ourselves, an infinitely more difficult task that, frankly, not all of us in leadership positions are capable of."[319]
Though Welch had first started talking about "soft values" in 1981, five years later, GE still wasn't operating under those principles. Philip Krantz, a former GE employee who by then worked for Intel, wrote in a letter to Fortune magazine: "What I found was everything that Jack abhors. Instead of decisions being made by a liberated and empowered middle management, all decisions—save an individual's preference for lunch—were made by the unit's CEO. The spirited repartee in which Welch engages his executives to advantage by pushing the boundaries of their knowledge of, and commitment to, a project were instead viewed as personal affronts to authority.
"In my own business unit, attempts to ignite productivity by clearing the decks of mediocre (long-tenured) performers were met with resistance at the top. Despite what was happening at corporate, at GECC, change was not really viewed as either necessary or positive."[320]
Welch explained what he meant by soft values:
"I expect General Electric to significantly outpace the growth of the GNP. But I don't expect us to get there by setting a numerical target. I expect we will get there through soft values, like quality, like personal excellence, like commitment, like a creative ambience. All these things will meld together to give us a company that provides people with valued products and services that will permit us to grow faster than the GNP. Setting a numerical target won't make it happen."[321]
"Silicon Valley and Route 128 were not only technological phenomena, they were people phenomena, and uniquely American. How well we approximate that type of creativity and fire in American companies will determine whether or not this nation wins in the '90s."[322]
Len Schlesinger, a consultant hired to coach employees through "software" changes at GE, said, "This is one of the biggest planned efforts to alter people's behavior since the Cultural Revolution [in China]."[323]
It had to be big, Welch said:
"Without everybody embracing what we want to do, we haven't got a prayer."[324]
One of the goals of Welch's cultural revolution was to reduce workloads by eliminating all unnecessary tasks:
"If we end up with key people browbeaten, working 16 hours a day trying to get the same amount of data as before, then we haven't done it right."[325]
Another goal was to change the interaction between labor and management:
"You know, all of a sudden 'manager' isn't the status word it has been for a century at GE. It has overtones of rear echelon—with the front lines consisting of people who run the machines, test the products, speak with the customers. We're learning a new reverence for what those people know."[326]
"We are betting everything on our people—empowering them, giving them resources, and getting out of their way."[327]
"Today, with advanced information systems and flat organizational structures, everyone has simultaneous access to the same information; everyone can be part of the game."[328]
"If we are to get the reflexes and speed we need, we've got to simplify and delegate more—simply, trust more. We need to drive self-confidence deep into the organization. A company can't distribute self-confidence, but it can foster it by removing layers and giving people a chance to win. We have to undo a 100-year-old concept and convince managers that their role is not to control people and stay 'on top' of things, but rather to guide, energize, and excite."[329]
Not only was GE ready for softer values, so was the whole country:
"You've got to be hard to be soft. You have to demonstrate the ability to make the hard, tough decisions—closing plants, divesting, delayering—if you want to have any credibility when you try to promote soft values. We reduced employment and cut the bureaucracy and picked up some unpleasant nicknames; but when we spoke of soft values—things like candor, fairness, facing reality—people listened."[330]
Central to the cultural revolution at GE was a process called "workout." In 1988, a team of consultants was assembled to figure out a process. The first GE workout session took place in March 1989.
The idea was to hold a three-day, informal town meeting with 40 to 100 employees from all ranks of GE. The boss kicked things off by reviewing the business and laying out the agenda, then he or she left. The employees broke into groups and, aided by a facilitator, attacked separate parts of the problem. At the end, the boss returned to hear the proposed solutions. The boss had only three options: The idea could be accepted on the spot, rejected on the spot, or more information could be requested. If the boss asked for more information, he had to name a team and set a deadline for making a decision.
At first, GE employees hesitated to speak out, and some managers were reluctant to let them solve problems. But it caught on, and workout sessions became freewheeling and intense. Eventually, the workout process became less formal and spread throughout the company.
"Workout was nothing more complicated than bringing people of all ranks and functions—managers, secretaries, engineers, line workers, and sometimes customers and suppliers—together into a room to focus on a problem or an opportunity, and then acting rapidly and decisively on the best ideas developed, regardless of their source."[331]
"At these workout sessions, all the things that people used to mutter about around the water cooler [and] on the weekends were finally brought up openly and, in many cases, resolved on the spot. These meetings are predicated on a belief that the people closest to the work know it best and are best qualified to make it better."[332]
Workout had four primary goals:
To build trust.
To empower employees.
To eliminate unnecessary work.
To create a new paradigm for GE, that of a bound-aryless organization.
Workout had five steps:
| Step 1. Link weak performance to unproductive work practices. |
| Step 2. Engage coworkers in the workout process. |
| Step 3. Review inefficient procedures and practices. |
| Step 4. Assign functional groups to reach consensus on suggested changes. |
| Step 5. Present recommendations to boss and get the boss to either agree, reject, or assign responsibility for further study. |
Dr. Steve Kerr was on the team that developed workout. He said that when a boss agreed to implement a suggestion: "Every recommendation has to have a champion, someone in the room, even if it's the newest hire or lowest clerk. It is his job to get it done. Every recommendation also has to have a roadblock buster, a high-level person who will remove roadblocks."
The roadblock buster gives the champion his or her telephone number, pager number, or some way to get in touch directly, at any time. If a roadblock is thrown up in the workplace, the executive must arrange to have it removed.[333]
Workout evolved its own language. Low-hanging fruit are problems that are easily solved. Rattlers are problems that are easy to recognize because they make a lot of noise. Pythons represent problems that are hidden and entwined in bureaucracy; pythons can put up a good fight.
Bill DiMaio, a team leader for the combuster shops at GE's aircraft manufacturing unit in Lynn, Massachusetts, described the workout experience this way: "Sometimes, as a manager at a workout, you feel foolish, like, 'Why didn't I listen to this before?' Some people have this perception, 'Gee, if I sit on the hot seat and if I'm insecure about taking someone else's idea, instead of coming from me, it's going to look like I don't know what I'm doing.' You have to get over this mind-set. I never felt intimidated; I always felt invigorated." While there are some "dog" ideas, DiMaio said that 95 percent of the recommendations are good ones.[334]
Welch described workout as:
"A relentless, endless companywide search for a better way to do everything we do."[335]
"[W]e like to say, 'Workout blew up the building.' Consider a building: It has walls and floors; the walls divide the functions, the floors separate the levels. Workout took out the walls and floors, leaving all the bodies in one big room."[336]
The payoff, if workout succeeded, Welch said, would be enormous:
"We'll have a company that is fueled by, that runs on, the unique attributes that we know exist in the American spirit—irreverence, curiosity, individualism, intellectual ferment; a company where jargon and double-talk and bureaucracy are ridiculed and candor is demanded. We're not going to get a company like that by reading how-to books and trying to imitate other cultures."[337]
At his first workout session, one middle-aged employee confirmed that GE was on the right path: "For 25 years," the employee said, "you've paid for my hands when you could have had my brains as well—for nothing."[338]
"I see workout as a vehicle that, if totally and passionately implemented, will get us eventually to the speed, simplicity, and self-confidence we need to have to win against what's ahead in the '90s and beyond."[339]
Welch focused on three concepts that gave GE enormous energy:
"Speed, simplicity, and self-confidence. We've been characterized over the years as the 'best-managed' company, the 'financial wizards,' or other labels. If we are to be the clear winners we must be in the '90s, we will need to become the fastest, simplest, and most self-confident company on Earth."[340]
"Simplicity is a quality sneered at today in cultures that like their business concepts the way they like their wine: full of nuance, subtlety, complexity, hints of this and that. In the '90s, cultures like that will produce sophisticated decisions loaded with nuance and complexity that arrive at the station long after the train has gone."[341]
"You can't believe how hard it is for people to be simple, how much they fear being simple. They worry that if they're simple, people will think they're simpleminded. In reality, of course, it's just the reverse. Clear, tough-minded people are the most simple."[342]
"At GE, we're driving to be lean and agile, to move faster, to pare away bureaucracy. We're subjecting every activity, every function, to the most rigorous review, distinguishing between those things which we absolutely need to do and know versus those which would be merely nice to know."[343]
To simplify the business environment and focus his managers' thinking, Welch asked them to prepare one-page answers to five strategic questions:
What does your global competition look like over the next several years?
What have your competitors done in the last three years to upset those global dynamics?
What have you done to them in the last three years to affect those dynamics?
How might your competitor attack you in the future?
What are your plans to leapfrog the competition?[344]
"In our major appliance business in Louisville a few years ago, people on the assembly line suddenly found two levers in front of them. One lever stopped the line. The other sent a part on its way only after an individual was satisfied that it was perfect. The line workers suddenly became the final authority on the quality of their work. The cynics scoffed when this system was proposed, predicting chaos or production at a snail's pace. What happened? Quality increased enormously, and the line ran faster and smoother than ever."[345]
Simplicity, as Welch pointed out, isn't always so simple to accomplish. Take process mapping, for example. GE employees work with complex and sophisticated technologies. Management soon learned that to simplify, they had to have an exact picture of the process.
A process map is a manufacturing flowchart that shows every step, no matter how small, in making an item. Managers, workers, suppliers, and customers work on the map together, putting diamonds here, circles or squares there, to indicate the type of action that has occurred. The process map for GE's turbine engine took more than a month to complete and stretched completely around a large conference room. But when the map was done, employees knew precisely what was happening and could more easily see where steps could be eliminated, combined, or moved elsewhere for greater speed and efficiency.
" Simplicity is absolutely essential to getting the environment, the vision, the plan across to large groups of people at all levels, both inside and outside the company."[346]
"Complexity slows and saps everything it touches—except the bureaucracy. Bureaucracies crave it. Frightened bureaucrats love it. I hate bureaucracy. I see what it does to people."[347]
Welch insisted that only speedy companies would survive:
"The '90s will make the '80s look like a walk in the park. We face a decade that is orders of magnitude greater in difficulty than anything we've seen before. The Japanese are more competitive at home; they are buying American companies outright and building plants in Europe. Europeans are facing us with new vigor in every business. Practically every power systems order in the United States is in a struggle against three or four European and Japanese players, when only a few years ago, it would have been GE versus Westinghouse. Korea and Taiwan were pretty much sourcing centers just a few years ago. Now they are world-class international players. The bottom line is that change will be more rapid than we've seen in the past—and we must become faster."[348]
"We have to get faster if we are to win in a world where nothing is predictable except the increasingly rapid pace of change.
"When we met with our shareowners last April [1990], we were marveling at the convulsions in Eastern Europe, the fall of the Berlin Wall, and the turmoil in the Soviet Union. But Saddam Hussein's name never came up in the conversation. Less than six months later, the events in Europe, which people had been describing as the most significant in half a century, were shoved off the screen as the invasion of Kuwait, the war, and the victory took center stage.
"So while we cannot possibly know what events will transform our world by April of next year, we do know that we have to become faster in anticipating and reacting to them."[349]
"Today's global environment, with its virtually real-time information exchanges, demands that an institution embrace speed. Faster, in almost every case, is better."[350]
"Speed is everything. It is the indispensable ingredient in competitiveness. Speed keeps businesses—and people—young. It's addictive, and it's a profoundly American taste we need to cultivate."[351]
Speed and simplicity go together, said Welch:
"Simple messages travel faster, simpler designs reach the market faster, and the elimination of clutter allows faster decision making."[352]
Speed is critical to new product introduction, according to Welch.
"Market windows open and shut faster than ever. Product life cycles that were once measured in years now typically last for months—even weeks."[353]
In order to move products rapidly from the laboratory to markets, Welch said:
"I want to see high-level managers in the labs, shaking chemists by the shirt."[354]
When asked by a Business Week reporter how he felt about complaints that GE put pressure on suppliers to make things quicker, deliver them faster, and with fewer defects, Welch replied:
"I'm not embarrassed to say, 'Put pressure on them.' I'm not timid about that. All these small companies that serve us, the machine shops around all of our plants, are gone if we lose the competitive business. If we got out of the turbine business in Schenectady, [it's] lights out for all the entrepreneurs that have done so wonderfully serving us."[355]
Welch said that he needed to be as quick to change as anyone else.
"I remember when the Wall Street Journal went from two sections to three. I was so traumatized for 48 hours. Where to find things! When you think about it, these things do change us. And we've got to just keep talking about it. When I'm at Crotonville, that's all I talk about—change, change, change. Be ready for it, see it, anticipate it, be ahead of it, create it. Don't sit still. Anybody sitting still, you can guarantee they're going to get their legs knocked out from under them."[356]
Indeed, Welch and his team became champions at clinching the quick deal. It took just three days in 1989 to seal an alliance with the British company GEC. NBC took one weekend to win the exclusive rights to broadcast the Olympics until 2008, at a cost of $4 billion.
GE must build self-confidence in its employees, Welch said:
"[J]ust as surely as speed flows from simplicity, simplicity is grounded in self-confidence. Self-confidence does not grow in someone who is just another appendage on the bureaucracy . . . whose authority rests on the bureaucracy . . . whose authority rests on little more than a title . . . people who are freed from the confines of their box on the organization chart, whose status rests on real-world achievement . . . those are the people who develop self-confidence to be simple, to share every bit of information available to them, to listen to those above, below, and around them, and then move boldly."[357]
Welch insisted that he wanted GE management to have "the confidence to lead and the confidence to share."[358]
"The horizontal barriers between corporate functions grow because a worker's sense of security is built on knowing and protecting his place in the bureaucracy. Workers lose sight of the overall goals of the company.
"How do you change a mind-set that is more than a century old?
"We know the answer—the antidote—because we saw it at work, at least in pockets, during the '80s. It's self-confidence. Give people the chance to make a contribution to winning; let them gain the self-confidence that comes from knowing their role in it; and, before long, they abandon the paraphernalia of status and bureaucracy. They simply don't need it anymore.
"Self-confidence is the fuel of productivity and creativity, decisiveness, and speed."[359]
Self-confidence, Welch figured, accounted for the way GE's Transportation Systems (mainly locomotives) and Industrial Power Systems (turbines) pulled back from a precipice when management discovered it timed markets inaccurately. Transportation Systems had introduced a low-cost, higher-technology new locomotive just as the railroad market took a dive. Welch said both divisions saw the error of their ways early and had the self-confidence to change by themselves:
"Both went through purgatory in the 1980s, in the bottom of market troughs of several years' duration that saw few orders in locomotives and none in large steam turbines."[360]
"Instead of closing or selling these businesses, we reduced their costs consistent with the market, invested to make them more competitive ($300 million in locomotives alone), and stuck with them through the lean years—not out of sentimentality or inertia but because they are large, world-leading businesses with big potential and because doing so fits our strategy. And, in 1988, we saw a significant market revival under way in locomotives and the approaching dawn of a revival in areas of the turbine business."[361]
With self-confidence comes ownership, Welch noted:
"[O]wnership means having the freedom to take advantage of an opportunity, to move quickly before being told what to do. When people take ownership at any level in the organization, the freedom to act brings with it the responsibility to manage the impact of their actions—on corporate earnings, on corporate reputation, on quality, and [on] the long-term health of the company. I hope ownership creates an environment where self-initiative is expected, where individuals are willing to bring up ideas, to challenge the status quo.
"If this ownership concept means people reaching, speaking out, then managers at every level will be forced to deal with adjusting the pace. We'll be able to work with the accelerator and the brake, rather than worry whether there's enough gas in the tank."[362]
There is a time when it's dangerous to be overly self-confident, Welch warned. That time is when a business is doing extremely well:
"Managing success is a tough job. There's a very fine line between self-confidence and arrogance. Success often breeds both, along with a reluctance to change."[363]
"Managing in a difficult environment trains you a hell of a lot better than riding the wave of success. When the ship is going down, everyone knows to get out the lifeboats."[364]
It wasn't enough that General Electric moved with ease across national borders; Welch wanted to eliminate all boundaries that limit the ability of workers to do their jobs:
"Our dream for the 1990s is a boundaryless company, a company where we knock down the walls that separate us from each other on the inside and from our key constituencies on the outside. The boundaryless company we envision will remove the barriers among engineering, manufacturing, marketing, sales, and customer service; it will recognize no distinction between domestic and foreign operations—we'll be as comfortable doing business in Budapest and Seoul as we are in Louisville and Schenectady. A boundaryless organization will ignore or erase group labels such as 'management,' 'salaried,' or 'hourly,' which get in the way of people working together. A boundaryless company will level its external walls as well, reaching out to key suppliers to make them part of a single process in which they and we join hands and intellects in a common purpose—satisfying customers."[371]
Welch knew that "boundaryless" was not a graceful word. Yet it conveyed the message:
"In designing a high-performance airplane, engineers work incessantly at eliminating or flattening any protruding surfaces that produce drag. The result is a clean design that moves quickly and smoothly through the air. In a company, the drag comes from boundaries, the walls that grow between functions such as finance and marketing and manufacturing, boundaries between suppliers and the company, between the company and customers. Each of these boundaries is a speed bump that slows the enterprises. Each piece of turf within these boundary walls is defended by the watchdogs of bureaucracy. The process of getting through function after function can be so time-consuming and complex that it can force the organization to focus on itself, on its own inner workings, and distract it from its real mission: serving customers."[372]
"Picture a building. Companies all added floors as they got bigger. Size adds floors. Complexity adds walls. We all build departments—transportation departments, research departments. That's complexity. That's walls. The job all of us have in business is to flatten the building and break down the walls. If we do that, we will be getting more people coming up with more ideas for the action items that a business needs to work with."[373]
"Boundaryless behavior laughs at the concept of little kingdoms called finance, engineering, manufacturing, and marketing, sending each other specs and memos, and instead gets them all together in a room to wrestle with issues as a team."[374]
"Boundaryless behavior evaluates ideas based on their merit, not on the rank of the person who came up with them. It assumes that there isn't a customer in the world who doesn't have something valuable to share with you. So why not hand them a coffee mug and bring them into the room when you sit down to design a new product?"[375]
The old GE prejudice against anything NIH (not invented here) had to go:
"This boundaryless learning culture killed any view that assumed the 'GE way' was the only way or even the best way. The operative assumption today is that someone, somewhere, has a better idea; and the operative compulsion is to find out who has that better idea, learn it, and put it into action—fast."[376]
An example of how a boundaryless GE works:
"Our medical systems business, for instance, is a world leader in remote diagnostics, which means an installed GE CT scanner can be remotely monitored by our service people as it operates in a hospital. They can detect and repair an impending malfunction, sometimes online, sometimes before the customer even perceives there is a problem. Medical systems has shared this technology with our jet engine business, with locomotives, with motors and industrial systems, and with power systems, enabling them to monitor the performance of jet engines in flight, of locomotives pulling freight, of running paper mills, and of turbines in operation in customer power plants."[377]
The GE medical systems maintenance center in Buc, near Versailles, France, monitors equipment worldwide by satellite and often is able to make repairs by remote control. A computer center in Florence, Italy, checks 11,000 GE turbines operating everywhere from Siberia to Chile and tries to service the equipment before a breakdown occurs. Some experts say Welch has taken GE through three phases: restructuring, globalization, and, now, a move to become a service-oriented company. Welch insisted that GE would stay in manufacturing, since all of its services were either linked to or supported GE's own products.
"Our job is to sell more than just the box."[378]
Welch explained that people everywhere prefer a boundaryless environment:
"People want to be boundaryless in any culture. In Hungary, at our Tungsram facility, we've got 11 plants sharing 'best practices.' The energy is enormous. We're bringing the team from there to our lighting plants in the United States to show them some of the 'workout' techniques they've used there to improve cycle time and processes. So, in every plant we have in every country, people are the same. They want to be more involved. No one wants to be in a box, to be locked in."[379]
Peggy Quinn Neimer, a GE attorney, said the philosophy of boundarylessness would benefit women employees: "I feel that GE's attempt to become boundaryless represents a great opportunity for women, because boundaries have traditionally functioned to keep women out."[380]
Boundaryless is the language, the behavior definer, the culture, the soul of a true global enterprise. It ignores geography, borders, accents, currencies, and unites people of all cultures."[381]
GE has, since Edison, been a fountainhead for bright ideas. Why look anywhere else for a better way? GE-ers believed that if it was NIH (not invented here), a product or procedure had little merit. Once GE started examining everything it did, it became clear that no one individual or single company owned all the good ideas. A worldwide search began for "best practices," Welch said:
GE began to systematically roam the world, learning better ways of doing things from the world's best companies."[382]
"Our behavior is driven by a fundamental core belief: the desire, and the ability, of an organization to continuously learn from any source, anywhere; and to rapidly convert this learning into action is its ultimate competitive advantage."[383]
"In Louisville recently, we needed a new transmission for a washing machine—a part we have traditionally designed ourselves and sourced from an outside supplier. This time, rather than start a GE engineering team wrestling with the design of the transmission, we went instead to four qualified suppliers whose businesses are focused on components like this and asked them to give us their best shot on a new design; and they did. The result is, we are getting a better transmission than we could have designed ourselves; and we're getting it faster and at lower cost because we had four times more brains focused on the problem than we would have had if we had done it the traditional way and stayed behind the horizontal boundary we had created between us and the outside."[384]
Some "best practices" came from Wal-Mart, a company that Welch admires:
"Wal-Mart, in my opinion, clearly made a connection between the customer and every employee in Wal-Mart. And they work on that every single day. They just can't stand not filling a customer need. If they're out of blankets in Minneapolis, they've got a computer system that will move the blankets instantaneously to Minneapolis. Or if their antifreeze is low in Chicago and high in Kalamazoo, they'll move it. [They have] an insatiable desire to make customers love 'em. And tying their personal rewards over the years to doing that, they've seen enormous wealth created at all levels of the store."[385]
When he said "best practice," Welch meant the best:
"[T]he only ideas that count are the A ideas. There is no second place. That means we have to get everyone in the organization involved. If you do that right, the best ideas will rise to the top."[386]
"We don't claim to be the global fountainhead of management thought, but we may be the world's thirstiest pursuer of big ideas—from whatever their source—and we're not shy about adopting and adapting them."[387]
"[W]e never shut up about the great things that lie ahead for a company whose people get up every morning and come to work knowing—convinced—that there is a better way of doing everything they do and [are] determined to find out who knows that way and how they can learn it."[388]
Teamwork became easier after GE's software revolution:
"The quest to make GE the most exciting and successful enterprise on Earth in this decade will be won on the factory floor, in the office, in the field, face-to-face with customers, with everyone understanding and focused on the essential mission of a corporation: serving customers."[389]
Welch drew on his own experience when trying to build team spirit:
"I remember getting a phone call from some financial guy in Fairfield [Connecticut] when I was running plastics. He told me I had to give up $60 million of capital spending that was already approved. Why, why? The answer was that the XYZ division needed the money more than I did. So you wound up hating the other businesses and competing against them instead of working with them."[390]
Today, that is different:
"When appliances had their [refrigerator] compressor problem, guys from the other businesses saw that Roger Schipke was a victim of bad luck and began volunteering help—chipping in $20 million here, $10 million there, and so on."[391]
One of the strengths of GE's quality improvement program was that it built teams that encompassed both customers and suppliers:
"I was in London at the beginning of June [1997]. The president of the GE mortgage company came in with his team and two customers. He was a black belt in Six Sigma quality. He talked about process, about cutting the time from this to this. His customer talked about how the customer had gained share through his efforts. He also showed his profitability in front of the customer. The relationship . . . it was a snapshot into GE of the next century."[392]
To Welch, there is a big difference between pushing employees too hard and letting them set high goals for themselves that require extra imagination, brains, and skill to achieve:
"What we call 'stretch' simply means figuring out performance targets, from profitability to new product introductions, that are doable, reasonable, and within our capabilities, and then raising our sights higher—much higher—toward goals that at the outset seem to require superhuman effort to achieve. We have found that by reaching for what appears to be the impossible, we often actually do the impossible; and even when we don't quite make it, we inevitably wind up doing much better than we would have done."[393]
"A stretch atmosphere replaces a grim, heads-down determination to be as good as you have to be, and asks instead, how good can you be?"[394]
"Stretch means that we all try for huge gains while having no idea how to get there, but our people figure out ways to get there. I was in Japan in the fall, and I saw Toshiba's new VCR. They had a stretch goal: Produce it with half the parts, in half the time, at half the cost. They sent a team away to design the new model and ended up reducing the number of parts by 60 percent and producing it in one year instead of the usual two."[395]
Though workers at GE often hit stretch targets, they also sometimes fell short. GE set two stretch goals for 1995: to achieve 10 inventory turns in the year, and to achieve a 15 percent operating margin. Those were ambitious goals, since the company had never reached five turns and barely achieved an 11 percent operating margin. That year, the company made only nine turns, one short of the target, but it did hit a 15 percent operating margin. Even the failed goal represented a big improvement over past performance.
"In GE today, this is not a 'miss,' or a 'broken commitment,' or a 'black eye,' but a triumph to be celebrated, an achievement that is providing the cash to finance the acquisitions we want and a stock buy-back."[396]
"Because this [GE] management team has been together for a long time, trust has grown; and trust is an indispensable ingredient that allows a business to set big stretch targets. GE business leaders do not walk around all year regretting the albatross of an impossible number they hung around their own necks. At the end of the year, the business is measured, not on whether it hit the stretch target, but on how well it did against the prior year, given the circumstances.
"An exciting by-product of stretch behavior is the enormous surge of self-confidence that has grown across our company as people see themselves achieving things they once suspected were beyond them."[397]
Welch believes people stretch better when they are reaching for something they want. GE expanded its stock option bonus program from about 400 people in the 1980s to 22,000 by 1996.
"I've rewarded failures by giving out awards to people when they've failed, because they took a swing. Keep taking swings. I teach a course at Crotonville for six hours—four to six hours—on leadership. I always say, if the chairman can buy Kidder Peabody and mess it up, you can do about anything. It was on the front page of the Wall Street Journal 19 times. Now, if the chairman can do that and still survive, you ought to be able to take swings everywhere. You can hardly do worse."[398]
"Punishing failure assures that no one dares."[399]
"Stretch can only occur in an environment where everyone is totally committed to a rigid set of core values—integrity, trust, quality, boundaryless behavior—and to outperforming every one of our global competitors in every market environment."[400]
Think big, Welch says:
"Quality means literally providing something that's better than the best, not just better than most."[403]
During the early 1980s, when GE restructured its hardware to compete against foreign competitors, Welch said that companies such as Motorola, Texas Instruments, Hewlett-Packard, and Xerox did not have the same luxury. The only competitive edge they had was the quality of their products. Consequently, these companies became experts on quality control and improvement. In a survey of employees, GE learned that most workers wanted to improve their own quality and believed it could be done. With the help of consultant Mikel Harry of the Six Sigma Academy in Scottsdale, Arizona, GE turned its attention to quality control. Six Sigma became Welch's passion for the late 1990s.
Note
"Sigma" is the term statisticians use when measuring standard deviation.
"We have a massive scientifically based quality undertaking in progress at GE, which will take us, within four years, to a level of process excellence that will produce fewer than four defects per million operations performed in every manufacturing and service process across the company. It is the most challenging and potentially rewarding initiative we have ever undertaken at General Electric."[404]
At GE's 1996 annual meeting in Charlottesville, Virginia, Welch explained what Six Sigma means:
"A typical process at GE generates about 35,000 defects per million, which sounds like a lot, and is a lot; but it is consistent with the defect levels of most successful companies. That number of defects per million is referred to in the very precise jargon of statistics as about three and one-half sigma. For those of you who flew to Charlottesville, you are sitting here in your seats today because the airlines' record in getting passengers safely from one place to another is even better than six sigma, with less than one-half failure per million.
"If you think about airlines, they run two operations. They get you from point A to point B from seven to eight sigma. Your bags get there at three sigma."[405]
Only a handful of companies in the world, several in Japan and Motorola in the United States, have achieved a Six Sigma level of quality.
GE had quality control programs previously, but they did not permeate the company the way Six Sigma did.
"We blew up the old quality organization, because they were off to the side. Now, it's the job of the leader, the job of the manager, the job of the employee—everyone's job is quality."[406]
"It has been remarked that we are just a bit 'unbalanced' on the subject [of Six Sigma]. That's a fair comment. We are."[407]
Welch knew the high cost of low-quality products. In 1981, GE's dishwasher line lost 18 percent of its market share from the previous year, and washing machines lost 16 percent of their market share because GE's products were not of competitive quality. Welch acknowledged that consumer confidence, once gone, is not easily regained:
"A consumer punch in the eye does not go away for maybe a decade."[408]
"We want to change the competitive landscape by being not just better than our competitors, but by taking quality to a whole new level. We want to make our quality so special, so valuable to our customers, so important to their success, that our products become their only real value choice."[409]
Six Sigma was launched in late 1995 with 200 projects. By 1997, it involved more than 6,000 projects.
"Forty percent of every manager's bonus is tied to his or her progress on quality results. Quality is the top item on every agenda in every business in this company. For leaders who do not see how critical quality is to our future—like leaders who could not become boundaryless during the 1980s—GE is simply not the place to be."[410]
The Six Sigma quality improvement effort was led by GE employees who had been trained and designated "champions, master black belts, black belts, and green belts."
"By January 1998, there will be no one on any slate for consideration for any management job in GE, no matter how junior, without some green belt training."[411]
When asked how suppliers were responding to demands for higher quality, Welch leapt to his feet and ran to his office and back with the latest studies:
"The improvements are already picking up. Many suppliers want to adopt it and spread it across their businesses. Others come as reluctant brides. They do it, or they don't supply for us. Suppliers are coming and taking the [Crotonville] course. What we do is, we charge suppliers. What they used to do—when it was free—they'd send along a cluck. Now that we charge them, the quality [of the supplier representative] gets much better; we don't get rich off of it. We just charge them a little."[412]
By the 1997 shareholders meeting, Welch was talking up Six Sigma successes:
"We had a billing system at GE Lighting that worked just fine from our perspective. The problem was it didn't mesh very well electronically with the purchasing system at Wal-Mart—one of our best customers. Our system didn't work for them and was causing disputes, delayed payments, and was wasting Wal-Mart's time. A black belt team using Six Sigma methodology, information technology, and $30,000 in investment tackled the problem from Wal-Mart's perspective and, in four months, reduced defects in the system by 98 percent. The result for Wal-Mart was higher productivity and competitiveness and fewer disputes and delays—real dollar savings. The result for GE was a return many times that of our investment."[413]
"Just as workout got us to a culture of learning and openness that defined the way we behave, quality improvement, under the disciplined rubric of Six Sigma methodology, will define the way we work."[414]
Welch explained that superior quality in products and performance is essential because societies the world over have become "value oriented":
"In this environment, a company must be a lean, low-cost producer of quality goods and services in order to survive, let alone prosper."[415]
While technology is still critical, Welch claimed that the market was shifting away from the technology leader to the manufacturer that offers basic, good-quality products at the lowest cost. The kind of changes that took place in the medical diagnostic imaging business in the early 1980s are now occurring in many industries:
"In the '60s, medical systems was primarily an X ray business. Product life cycles were measured in years, and significant share changes rarely took place. In the mid-'70s, computerized tomography came along, and an industry that hadn't changed in decades was revolutionized in 36 to 48 months. A big, new market was created with brand-new competitors. Share changes were dramatic, and we managed to be winners.
"Today, however [in 1984], medical systems is facing two significant challenges. One is competitive, the need to win in another large new technology—magnetic resonance. The shape of the industry will be redefined over the next year. The second challenge is market change. Medical's customers—hospitals—are under severe pressure to contain costs. Their capital budgets have been cut. Medical, fresh off its CT success, cannot rest."[416]
"[W]e must be the best at what we do."[417]
"You're either the best at what you do or you don't do it for very long."[418]
Critics said that GE had been slow in embracing the quality movement, and Joseph A. DeFeo of the Juran Institute agreed: "GE in the last decade has done a superb job of driving out cost in their systems. And they got good at that. Through that entire process, to my knowledge, I never met anyone who mentioned the word customer in the context of GE. Rarely was the word customer mentioned. The criticism of GE was that they were becoming very successful in spite of not having quality. They were becoming successful on the cost side. You can only go so far with that."
But, DeFeo added: "I'll tell you this: Based on Juran himself (Dr. Joseph Juran was a pioneer in the quality movement), all companies will strive for quality when they have proof of the need. If that were true, then some proof of the need is driving GE. I don't think it's Jack Welch's ego. It would have to be that profitability is suspect, or they're losing market share in certain areas."[419]
The cost of low-quality manufacturing and services, DeFeo explained, can be as high as 20 to 30 percent of a company's revenues.