Jack Welch, chief executive officer (CEO) of General Electric (GE) and one of the most influential businesspersons in the last several decades, is a perfect example. Jack Welch, chief executive officer (CEO) of General Electric (GE) and one of the most influential businesspersons in the last several decades, is a perfect example. Some people think he is a great business leader, while others question his methods and outcomes. Welch took a good company and made it great?GE is admired by all companies in terms of growth and profit. In 1980, the year before he became CEO, GE?s revenues were $26.8 billion. In 2000, twenty years after he took over, the revenue had increased to $130 billion. The company went from a market value of $14 billion to one of more than $410 billion at the time of his retirement. For this growth to happen, he had to do a transformation of management (seehttp://www.ge.com/company/history/bios/john_welch.html).
In the 1980s, Welch worked to streamline GE. He pushed managers to handle more responsibility and be productive. If inefficiencies were found within the organization, he either removed or changed them. If a GE division was doing badly, it was sold off. If a certain management area was doing badly, then management was replaced in that area. His point of view was that a company needs to plan on being #1 or #2 in their line of business.
From observation, 20% of the people are?performers,?60% are?fence sitters,?and 20% are?cave dwellers. Those percentages are based around the 80?20 rule. Out of 100 managers, 20 are performers, and out of those same 100, 20 are cave dwellers, leaving 60 in the middle. Welch used the same concept, only different percentages. He still had 20% as top performers, but the middle group consisted of 70%,?with the last group which was classified as poor performers was 10%. Jack answer to how he learned about percentages was on the playground as a kid when baseball teams were formed. The best players were picked first and put in key positions. The middle group of players that had average skills filled out the easy positions that few balls got hit to like second base or right field. The kids with poor skills end up on the bench. Based on this early childhood observation he came up with 20?70?10 ratio. One last observation Jack had was that the kids on the bench never really took the time to get better and, usually in a short time, found other pursuits that they could enjoy and excel at. Out of this concept was borne the concept that the bottom 10% of managers should be fired from the company each year. This gets rid of the worst managers and at the same time brings in new managers with new ideas. I agree with the concept of getting rid of weak managers but not with percentage methodology. The flaw is that if a team of managers are all very good, the lower 10% still need to be fired. An example is a couple of years ago, I came across a company that had implemented this plan at several layers of management. In one department, all the managers were top performers, but because of the company?s directive each manager had to be ?ranked? and then the lower 10% removed if possible without being sued. Normally, this was attempted by creating a bad review that was mostly untrue and then giving the person a below average performance rating. The company guidelines stipulated that only 20% could be ranked as high performers; 60% were ranked as average and 20% as below average. Thus, the performance review had nothing to do with performance but was all about ranking the people and then creating a review to match the ranking.
If a manager left and was replaced with a new person, it opened up an issue at the next ranking and review time. Since all the existing management team members were top performers, where would the new person be ranked? If the ranking was truthful, the new person should be ranked as the lowest because she could not outperform the existing management and did not even come close to the knowledge all the other managers had. To avoid new management being ranked the lowest, an existing manager was picked and ranked the lowest. To validate the ranking again, an untrue review was created.
The director had no flexibility in or control over the process because at that level the 10% directive was also in place. If the director, who had spent the time to train and build a high-performance team of managers, did not meet the company?s directive of trying to get rid of the bottom 10% of his managers, then he could be put into the bottom 10% at his level and couldpossibly lose his job. The company?s management started to self-destruct because instead of the emphasis being on working toward making the company better, it was around ranking. The management team members no longer worked together because they were afraid someone they helped might end up being ranked ahead of them.
Welch is known for removing many of General Electric?s management layers. He shifted empowerment to the lower management levels, which in turn allowed a reduction in the number of management levels needed in a company. Welch?s 25 viewpoints on management leadership are outlined as follows to help us better understand Welch.
Jack Welch?s 25 Lessons in Leadership
?Lead?:??Managers muddle; leaders inspire. Leaders are people who inspire with clear vision of how things can be done better.? Leaders at every level need to energize, excite, and inspire rather than exhaust, depress, and control.
?Manage less?:?It is amazing how much people will do when they are not told what to do by management. In the new knowledge-driven economy, people should make their own decisions. Managing less is managing better. Close supervision, control, and bureaucracy kills the competitive spirit of an individual or a company if done on a larger scale.
?Articulate your vision?:?Leaders inspire people with clear visions of how things can be done better. The best ?leaders do not provide a step-by-step instruction manual for their teams? but instead come up with new idea and articulate a vision that inspires others to act.
?Simplify?:?Keeping things simple is one of the keys to business. ?Simple messages travel faster, simpler designs reach the market faster, and eliminating clutter allows for faster decision making.???Get less formal?:?It is ?so important to maintain the kind of corporate informality that encourages a training class to comfortably challenge the boss?s pet ideas.? Nobody knows everything, even management. Only by being able to be openly challenge ideas can there be validation that the idea will add value to the company.?Energize others?:??Genuine leadership comes from the quality of the vision and the ability to spark others to extraordinary performance. Getting employees excited about their work is the key to being a great business leader.? Managers can accomplish this?with challenging, empowering, exciting, and rewarding their employees.
?Face reality?:??Face reality, and then act decisively. Most mistakes leaders make arise from not being willing to face reality and then to acting on it.? Most of the time the reality is not a pretty picture and facing it often means saying and doing things that are not popular to get things on the right track.
?See change as an opportunity?:??Change is a big part of the reality in business.? The willingness to change and adapting are strengths. Wanting to cling to the status quo and being complacent are weaknesses.
?Get good ideas from everywhere?:?New ideas are the lifeblood of business. ?The operative assumption today is that someone, somewhere, has a better idea; the operative compulsion is to find out who has that better idea, learn it, and put it into action??fast.
?Follow up?:??Follow up on everything. Follow-up is one key measure of success for a business.? If follow-up does not happen, then an assumption is made, which could be right or wrong. Doing this validates that things are progressing correctly as well as showing a continuous interest.
?Get rid of bureaucracy?:?The way to harness the power of your people is ?to turn them loose and get the management layers off their backs, the bureaucratic shackles off their feet, and the functional barriers out of their way.?
?Eliminate boundaries?:??To make sure that people are free to reach for the impossible, you must remove anything that gets in their way.? Boundaries prevent the flow of ideas and add handoffs across the company. With boundaries also comes territory. All these items get in the way of people trying to reach for the impossible.
?Put values first?:??Don?t focus too much on the numbers. Numbers aren?t the vision; they are the products.? Numbers come from the outcome of something. If the primary effort is put toward team building, sharing ideas, and improvement, the numbers will end up correct without much attention.
?Cultivate leaders?:?Cultivate leaders who have the four Es of lead-ership??energy, energize, edge, and execution.? Great leaders tend to grow other great leaders within the company.
?Create a learning culture?:??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.? Leaders turn their companies into a learning organization that is increasing their knowledge.
?Involve everyone?:??Business is all about capturing intellect from every person. The way to engender enthusiasm is to allow employees far more freedom and far more responsibility.?
?Make everybody a team player?:??Managers should learn to become team players,? and take action against those who won?t comply. Managers who are not team players tend to be complacent.
?Stretch?:??Stretch targets energize. 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.?
?Instill confidence?:??Self-confident people are open to good ideas regardless of their source and are willing to share them.? Confidence is equated with speed and quality in a team.
?Have fun?:??Fun must be a big element in your business strategy.? The actual work that needs to be done is very boring most of the time. Leaders can add fun things around the work, which will help people wake up each day energized and excited about tack-ling a new set of challenges.
?Be number 1 or number 2?:??When you?re number 4 or 5 in a market, when number 1 sneezes, you get pneumonia. When you?re number 1, you control your destiny.? Companies that are not number 1 or 2 need to strive toward that goal. Accepting being number 4 or lower means that leadership is not aspiring to be the best.
?Live quality?:?Companies should aspire to ?change the competitive landscape not just by being better than their competitors but also by taking quality to a whole new level.? Not only will this will greatly reduce the waste that goes with low quality, but excellent quality also sets companies apart from the competition.
?Constantly focus on innovation?:?There must be constant focus on innovation. ?You?ve got to constantly produce more for less through intellectual capital. Shun the incremental, and look for the quantum leap.?
?Live speed?:??Speed is everything. It is the indispensable ingredient of competitiveness.? The slower a company reacts to market changes, the better chance the competition has to take the company?s market share.
?Behave like a small company?:?Small companies have huge competitive advantages. They ?are uncluttered, simple, informal. They thrive on passion and ridicule bureaucracy. Small companies grow on good ideas?regardless of their source. They need everyone, involve everyone, and reward or remove people based on their contribution to winning. Small companies dream big dreams and set the bar high; increments and fractions don?t interest them.?
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