Jack Welch Fathers the Rebirth of OD

Rebirth Phase (1980s to Present)

In the 1980s, Jack Welch, chairman and CEO of General Electric, fathered the rebirth of OD. How could this statement be true? After all, at the time Welch was known in the press by some as “Neutron Jack,” after having laid off thousands of GE employees. He certainly had never read any OD books as a business leader and certainly not in the course of his PhD study in chemical engineering. Nonetheless, we argue that OD has finally found its place in the mainstream leadership of leading companies because of a series of steps Welch began in the 1980s, and that have since been emulated by other organizations around the world. Through a series of social innovations, Welch was able to expand upon the U.S. Army's model and demonstrate how to incorporate OD into the leadership repertoire of tens of thousands of GE workers.

Action Learning at GE's Crotonville Leadership Development Institute

In 1985, Welch was four years into his 20-year reign as GE's CEO. His transformation of the company's strategy and structure was well underway but Welch saw the threat of cultural inertia. Learning from history's great political revolutionaries, Welch knew that his transformation would fail if he could not use education as a platform for social change within the company. As a result, Welch identified Crotonville as his staging ground for cultural conversion and invited Noel to lead the overhaul of Crotonville's 50-acre campus and curriculum serving 10,000 GE professionals each year. The underpinning of Noel's efforts was a shift toward action learning that took GE's development efforts away from traditional study and case reviews. Instead, each course participant was forced to work on real business issues and undertake project work to drive technical and cultural change within his or her area. As Welch says,

Tichy, who became head of Crotonville from 1985 to 1987, brought great passion to the job and introduced “action learning.”…These classes became so action-oriented, they turned students into in-house consultants to top management. …In every case, there were real take-aways that led to action in a GE business. Not only did we get great consulting by our best insiders who really cared, but the classes built cross-business friendships that could last a lifetime.^[2]

This movement toward action learning was predicated on a belief, shared by Welch, that meaningful cultural change would occur when people brought new work approaches back to their daily jobs. The Tichy Development Matrix^[3] demonstrates the shift that Crotonville made (see Figure 10-1).

Ultimately, Crotonville became a blend of traditional management development and OD. Real projects and team building were coupled with traditional education. The teams engaged in action learning at GE used contemporary OD technologies, such as organizational diagnostic frameworks, Beckhard's large system change methodology, team building, and coaching. The challenge that quickly became evident was ramping up the dissemination of these skill sets to tens of thousands so that they could have a meaningful impact on the GE culture.

Work-Out and the Development of Large-Scale OD Skills

By the end of 1987, Welch grew frustrated that cultural change at GE was not occurring fast enough. He had seen the impact Crotonville could have and he concluded that each of GE's 300,000 employees needed a similar experience. He wanted to liberate people from bureaucracy and empower them to work in an open and collaborative style. He knew the energy that would be created if people saw that their ideas were taken seriously and that they had the ability to break down hierarchy. Working with Jim Baughman (who replaced Noel as head of Crotonville), Noel and a team of consultants and key internal players created Work-Out, which Welch described in his 1990 annual report letter.

Work-Out is a fluid and adaptable concept, not a “program.” It generally starts as a series of regularly scheduled “town meetings” that bring together large cross sections of a business—people from manufacturing, engineering, customer service, hourly, salaried, high and lower levels—people who in their normal routines work within the boxes on the organizational chart and have few dealings with one another.

The initial purpose of these meetings is simple—to remove the most egregious manifestations of bureaucracy: multiple approvals, unnecessary paperwork, excessive reports, routines, and rituals. Ideas and opinions are often, at first, voiced hesitantly by people who never before had a forum—other than the water cooler—to express them. We have found that after a short time, those ideas begin to come in a torrent—especially when people see action taken on the ones already advanced.

With the desk largely cleared of bureaucratic impediments and distractions, the Work-Out sessions then begin to focus on the more challenging tasks: examining the myriad processes that make up every business, identifying the crucial ones, discarding the rest, and then finding a faster, simpler, better way of doing things. Next, the teams raise the bar of excellence by testing their improved processes against the very best from around the company and from the best companies around the world.^[4]

There is no question that Work-Out was designed to improve productivity. The equally important intervention, however, was creating a positive, high-energy process that forced managers to work collaboratively with employees to constructively change work routines. The managers who could not work this way and did not have basic inclusive, OD skills ultimately chose to leave GE or were asked to move on.

Work-Out was run by a team of external consultants that Welch funded to work with each of his 13 major businesses. In the late 1980s, there were over 25 consultants working with GE leaders to develop OD skills. Although GE did not label its work as OD, it advocated the large-scale adoption of OD principles and methodology at a time when many corporations had already jettisoned their OD practitioners.

Change Acceleration Makes OD a Mandatory Leadership Skill

By 1990, Welch and his team realized that Work-Out processes should be led and owned by line managers, not by consultants. Removing the consultants would ensure that managers had the necessary skills to sustain Work-Out efforts on a daily basis. In short, Welch wanted an internal army of change agents. GE launched the Change Acceleration Program (CAP) to give thousands of GE leaders change-agent skills, organizational diagnostic capability, skill in designing workgroup interventions, and basic team-facilitation skills. The three-workshop CAP process is outlined in Figure 10-2.^[5]

CAP continues to run every year at GE, creating thousands of internal leaders equipped with change and OD skills.

Redefining Leaders as Teachers

By the mid 1990s the cultural transformation of GE was well established, but Welch was by no means done reinvigorating leadership and change skills. In 1995, he came across an article that we wrote for Fortune in which he described how Roger Enrico, former chairman and CEO of PepsiCo, was personally developing leadership talent.^[6] Without staff, Enrico ran an action-learning leadership program for PepsiCo vice presidents. He personally taught a five-day off-site program to launch the group, coached each participant through a 60-day change project, and led a three-day follow-up workshop. Enrico's approach wove together many of the best practices from the individual, team, and organizational approaches utilized in Crotonville and CAP: leadership feedback, group facilitation, organizational diagnostics, architecting systems intervention, and change processes. The important improvement was Enrico's personal involvement, which he described as a profound learning and development experience. It forced Enrico to translate his experiences into simplified models and teaching points that could be vigorously debated, refined, and improved with the group. Enrico's story had a profound impact on Welch's thinking about who should lead the development of GE's future leaders. As he wrote in his book,

I liked the Pepsi model and decided that every member of our leadership team should teach a session. Before, our senior staff and business leaders had done it only on a sporadic basis. The Pepsi model gave the classes a close look at our most successful role models, and it gave our leadership a broader pulse of the company. Today some 85% of the Crotonville faculty are GE leaders.^[7]

The incorporation of GE leaders as teachers at Crotonville brought GE's OD efforts full circle. The action-learning projects at GE had launched an awareness of the need for line managers to utilize OD skills. Work-Out and CAP had developed those skills in thousands of GE leaders, eventually driving the replacement of OD staff and consultants with experienced teachers from the field. Embedding leaders as teachers at Crotonville was a natural next step for ensuring that line leadership was truly able to develop the people capabilities required for GE to maintain its success.

The final phase of moving GE to be the world's preeminent teaching organization was the launch of six sigma, the quality program aimed at producing fewer than three defects per million that was originally created at Motorola. Welch took the six sigma process, teaching organizational members statistical tools, process mapping, and problem-solving tools, to a new level by building the world's largest team of teachers. There are 12,000 full-time leader/teachers, called black belts, at GE spending two years teaching and running six sigma projects. No one will ever be promoted to upper management at GE without having been a black belt. These black belt teachers are engaging and teaching six sigma to all 300,000-plus GE associates. Their teaching also includes the soft skills of OD, the team process, individual dynamics, and systems change. One could argue that GE now has over 12,000 full-time OD consultants on two-year assignments, although GE never uses the term “OD” to describe them in any way.

The Dissemination of GE's Model

When Welch retired in 2001, GE was the most valuable organization in the world, as measured by its market capitalization. Over the course of Welch's 20-year reign as chairman and CEO, GE has been benchmarked by countless business and nonprofit organizations looking for the secrets of its success. The near total absorption of OD into the line leadership's daily responsibilities is certainly a key element of that story for it drove culture change and built an internal army of change leaders.

OD's rebirth is in the mainstream of how good leaders develop other leaders and their organizations. In The Leadership Engine: How Wining Companies Build Leaders at Every Level, the argument was made that organizations win by having more leaders at more levels than their competition, and that operational leaders—not consultants, staff, or professors—must develop leaders.^[8] Leaders must teach. They must have a teachable point of view regarding how to develop a successful organization and how to energize its people.

We will demonstrate how to build a teaching organization that integrates OD into the mainstream by sharing the Royal/Dutch Shell case, one that we spent over three years helping to implement.