The Legacy of the Welch Revolution
Published in Nihon Keizai Shimbun (Nikkei)
(Japan) on 4 March 2020
by (link to original)
Jack Welch, CEO of the American company General Electric for 20 years beginning in 1981, has died. He promoted business “rank and yank” as his management slogan, and the values of the Welch revolution, which had great influence even in Japan, are undiminished even now.
Like many charismatic managers, Welch attracted both praise and criticism.
He was called “Neutron Jack” right after his appointment. The insult was meant to compare his cruelty in restructuring the company through layoffs to a neutron bomb that didn’t destroy buildings, but killed the people inside.
Welch was also accused of greed when after he resigned, it was discovered that he had charged his living expenses to GE.
His most negative legacy was his unreasonable approach to the company’s finances. His company model of raising cheap short-term funding, then operating in the long term and taking a commission proved unsustainable in the 2008 global financial crisis, which pushed GE to the verge of collapse.
But that’s not to say the luster of the Welch revolution has faded. Welch left behind his famous “rank and yank” motto (withdraw from any businesses where you cannot become first or second in the world). Specializing in strong sectors is still effective for companies with management issues.
The achievement gap between Hitachi, which smoothly withdrew from semiconductors and LCDs, and Panasonic, which drags its floundering TV business along, is an example of this.
There are many management techniques that GE pioneered, like manufacturing firms branching into services, or businesses expanding globally through acquisitions. Another feature of Welch’s management was sparing no expense for executive training.
According to the American management consultant Gary Hamel, “Welch started the efficiency revolution in American companies.”* There was such a prolonged slump in the American stock market in the 1970s that stocks were declared dead, but Welch demonstrated that through leadership in management, even a mature big firm could grow quickly, contributing to a revival of the stock market.
We believe Japanese companies whose accomplishments have stalled should get this message as well.
*Editor’s note: This quote, though accurately translated, could not be independently verified.
Like many charismatic managers, Welch attracted both praise and criticism.
He was called “Neutron Jack” right after his appointment. The insult was meant to compare his cruelty in restructuring the company through layoffs to a neutron bomb that didn’t destroy buildings, but killed the people inside.
Welch was also accused of greed when after he resigned, it was discovered that he had charged his living expenses to GE.
His most negative legacy was his unreasonable approach to the company’s finances. His company model of raising cheap short-term funding, then operating in the long term and taking a commission proved unsustainable in the 2008 global financial crisis, which pushed GE to the verge of collapse.
But that’s not to say the luster of the Welch revolution has faded. Welch left behind his famous “rank and yank” motto (withdraw from any businesses where you cannot become first or second in the world). Specializing in strong sectors is still effective for companies with management issues.
The achievement gap between Hitachi, which smoothly withdrew from semiconductors and LCDs, and Panasonic, which drags its floundering TV business along, is an example of this.
There are many management techniques that GE pioneered, like manufacturing firms branching into services, or businesses expanding globally through acquisitions. Another feature of Welch’s management was sparing no expense for executive training.
According to the American management consultant Gary Hamel, “Welch started the efficiency revolution in American companies.”* There was such a prolonged slump in the American stock market in the 1970s that stocks were declared dead, but Welch demonstrated that through leadership in management, even a mature big firm could grow quickly, contributing to a revival of the stock market.
We believe Japanese companies whose accomplishments have stalled should get this message as well.
*Editor’s note: This quote, though accurately translated, could not be independently verified.
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