Winning

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Winning Page 28

by Jack Welch


  The list of the developed world’s competitive advantages could go on and on.

  So think positively. At the very least, a can-do attitude is a place to start.

  Remember my description of the Japanese threat in the early ’80s? At times it felt like we were dying, and everyone seemed to agree. Journalists and political pundits predicted the imminent demise of industrial companies like GE, and you couldn’t blame them, given the circumstances. Inflation was double digit, and the prime rate peaked at more than 20 percent. In Syracuse, we were making TV sets that cost more coming out of the factory than the Japanese were selling them for in a mall less than two miles away.

  It sure felt like the worst of times.

  But that’s the point, really. In the heat of battle, it always feels like the worst of times. Low-cost competitors are not new. Hong Kong and Taiwan have been in the game for over forty years, and Mexico, the Philippines, India, and Eastern Europe have been a factor for some time. Even in the late ’90s, when the wind was at everyone’s back and making money was easier than it had been in decades, work felt really hard. Big companies were labeled dinosaurs, and it became conventional wisdom that technology start-ups would soon rule the world. In fact, it was said whole industries were going to be obliterated by the Internet.

  Then the bubble burst. Many of those little companies that were going to rule the world disappeared. Others, like eBay and Amazon, not only survived, they thrived. But so did the so-called dinosaurs—because they changed. They grabbed the new technology and transformed themselves, emerging stronger than ever.

  And change is what China demands of us now.

  How?

  First and most obvious, bring out the three old warhorses of competition—cost, quality, and service—and drive them to new levels, making every person in the organization see them for what they are, a matter of survival.

  Take costs. Everyone needs to be searching everywhere, inside the company and out, for best practices. Hard calls need to be made about where and how every single process should be performed to ratchet up productivity. Don’t think about reducing costs by 5 to 10 percent. You have to find the ways to take out 30 to 40 percent. In most cases, that’s what it will take to be competitive in the China world.*

  On quality, you just can’t have a ship-and-fix mentality. Getting it right 95 percent of the time is not good enough. Use Six Sigma or any methodology you like. But get rid of defects.

  Service is the easiest advantage to exploit. China is thousands of miles away from most developed markets. Remember Gary Drug, the tiny pharmacy in our neighborhood where not only do they know your name, they deliver to your house within an hour? It’s standing strong against its China—the big, shiny chain-store pharmacy three blocks away. And think about the Mexican CEO who asked this question to start with. His country’s proximity to the United States gives it a huge advantage in response time.

  Again, your challenge is not just to improve. It is to break the service paradigm in your industry or market so that customers aren’t just satisfied, they’re so shocked that they tell strangers on the street how good you are. FedEx and Dell come to mind as examples of this.

  While you have to innovate to improve cost, quality, and service, go beyond that. Take a new, hard look at your market. Search out untapped opportunities; find new niches. Just don’t keep pounding out the same stuff.

  That market you’re serving may seem saturated, but it is filled with plenty of demand for exciting new products, services, or technologies. That’s what Procter & Gamble discovered recently. There was no company more set in its ways than P&G. But in less than five years, the company instilled a whole new vigor into its innovation efforts. It broke its NIH syndrome and scoured every corner of the world for “garage” inventors with cutting-edge ideas. And they didn’t stop there. Their search for new ideas led them to create networks into other companies, suppliers, universities, research labs, and venture capitalists. They took some of the ideas they found and fine-tuned them, and used still others to reinvent their existing products. For instance, P&G took the tried-and-true electrostatic technology used to paint cars and applied it to its cosmetics business—transforming the way its makeup products go on the skin. With a new can-do attitude, the company also revitalized in-house R & D. The result was products like Crest Whitestrips and the Swiffer cleaning products, which literally invented whole new mass-market categories.*

  And finally, while you are innovating and searching for new products, markets, and niches, come to terms with the fact that China can be much more than just a competitor.

  Think of China as a market, an outsourcing option, and a potential partner.

  Unlike Japan in its early development, China’s huge market is relatively open to direct investment. Many can go it alone there, ideally selling their product in the Chinese market while sourcing product for their home market.

  Alternatively, you can join forces with a local business. Needless to say, Chinese joint ventures aren’t easy. In my experience, to make them happen you have to make sure the Chinese partner feels as if it has gained a lot, perhaps more than you. But there are ways to craft win-win deals. When GE Medical formed a joint venture in 1991, its Chinese partner brought great local market know-how. That was a big factor in the new company’s achieving the No. 1 market share in imported GE high-end imaging products. At the same time, the joint venture’s Chinese engineers designed and built low-cost, high-quality products that were exported through GE’s global distribution network.

  Now, I don’t want to sound like a Pollyanna about China. Its presence is a real game-changer in business today. And even if trade restrictions get enacted, its currency is allowed to fluctuate, and intellectual property laws are passed, no political solution in the world is going to make it go away.

  But China is a classic case of the glass half empty or half full, isn’t it?

  You can look at the situation and feel victimized. Or you can look at it and be excited about conquering the challenges and opportunities it presents.

  Pick the latter. You can’t win wringing your hands.

  This question was posed by an audience member in London, at a conference attended by about three thousand middle and senior managers:

  Norway just passed a law mandating that half of every corporate board be comprised of women. What is your opinion of that?

  It’s ridiculous.

  Obviously, I’m not against women directors. They’ve made major contributions to thousands of boards around the world. In fact, one of the best directors I’ve ever known is a woman who served on the GE board, G.G. Michelson, the former director of human resources at R.H. Macy & Co. and past head of Columbia University’s board of trustees, whose people insights and general wisdom guided me for two decades.

  Nevertheless, I just don’t like quotas in the boardroom or in the office. Winning companies are meritocracies. They practice differentiation, making a clear distinction between top, middle, and bottom performers. This system is candid and fair, and it’s the most effective way for an organization to field the best team.

  Quotas undermine meritocracies. They artificially push some people ahead, independent of qualifications. That can be demotivating to the top performers who are passed over, and it doesn’t do much for results, either, when unprepared people are thrust into important jobs.

  So what does work?

  Return for a minute to the “Getting Promoted” chapter; its advice is color-and gender-blind. If you want to get promoted, your best bet is to overdeliver on your results, manage your subordinates as carefully as you manage your boss, get on the radar screen by supporting major initiatives early, relish the input of lots of mentors, and always, always have a positive, high-energy approach to life and work. At the same time, don’t make your boss use his or her political capital to champion you. And when setbacks occur, and they will, don’t let them break your stride.

  I’m not saying women and minorities haven’t had a toug
h go of it in the business world. They have, and they do need mechanisms to give them a higher profile in the system.

  One such mechanism is diversity groups, like GE’s Women’s Network or its African American Forum. These groups have created an opportunity for successful women and minority executives to serve as role models. Just as important, they provide a setting to talk about the ways women and minorities can increase their experience and skills, and thus their visibility in an organization. They promote the concept that success is a function of talent, energy, and drive—just as meritocracies are.*

  But the whole subject of diversity is more nuanced and complicated than I am making it out to be.

  At GE, the African American Forum was a grassroots effort that started in 1990. It was bumping along without a lot of momentum until a senior vice president, Lloyd Trotter, grabbed it by the neck and gave it a whole new energy with seminars, conferences, and mentoring programs. With Lloyd in charge, every African American in the company wanted to get on board, and all of Lloyd’s peers wanted to jump in to help. The group really took off, and in time so did promotions for African Americans.

  On the other hand, in the mid-1990s I would have dinners twice a year with high-potential women where we would discuss the work-life issues they were facing. In 1997, after a long give-and-take, I challenged the group to create their own version of the African American Forum. They seemed enthusiastic, but much to my surprise, over the next few weeks, I found that some of our top women were balking at the idea. They felt they had made it without any label. They didn’t want to be thought of as successful women, they wanted to be thought of as successful executives. After a couple of years, much of that faded, as even the most reluctant grew to enjoy their mentoring and its positive impact on the progress of women in the company.

  Back to the quota question about Norway.

  The only quota that I ever thought worked was the exposure quota we used at GE—that is, we made sure there was a woman or minority candidate on every slate for the top two thousand jobs. That guaranteed every manager saw the diverse candidates out there and that diverse candidates had a shot.

  I spent the first half of my tenure as CEO focused on changing the portfolio and competitiveness. Diversity for me didn’t come into play until the ’90s.

  But today, if you want to field the best team, you simply can’t afford a delay.

  I’ve received this question numerous times, from audiences from New York to Sydney:

  How did you pick your successor, Jeff Immelt, and how do you think he is doing so far?

  I am always thrilled to answer the second part of this question—it’s such a layup. Jeff is doing amazingly well, even exceeding my expectations for his leadership. I couldn’t be more proud of where he has taken GE and where it is going.

  Jeff became chairman and CEO of GE on September 10,2001, so it was technically his second day on the job when the terrorist attacks changed the game for everyone. Jeff handled the new uncertainty of the business environment with characteristic thoughtfulness and determination. Despite the resulting downturns in the airline, power, and reinsurance industries, he masterfully navigated the company to modest annual earnings growth from 2001 until 2004.

  At the same time, Jeff has made significant changes to the portfolio that positioned GE for future growth. He made major media, medical, financial services, and infrastructure acquisitions, while disposing of slower-growth industrial and insurance assets. He reinvigorated GE’s research and development activities with large facility investments in Munich, Shanghai, and Schenectady, New York. And Jeff has put enormous emphasis on diversity at GE, with immediate and positive results.

  Several times in this book, I’ve said that change is good. Jeff sure proves that point.

  As for how and why I picked Jeff, I just don’t ever talk about that. There were three terrific people to choose from—Jeff, Bob Nardelli, and Jim McNerney. There is no reason to conduct a public autopsy on the process—it’s past. Both Bob and Jim have gone on to have spectacular runs in their new roles—Bob as CEO of The Home Depot and Jim at 3M.

  What I will say is that at the end of the day, the board and I picked whom we believed to be the best leader for GE, and Jeff is making us all look very good.

  This question was posed at a management conference in Reykjavik, Iceland, and during a twelve-person business dinner in London:

  What’s the future of the European Union?

  Long-term, it’s very good.

  With all the sound and fury about China, some people see the EU as a huge, lumbering bureaucracy that will never get its collective act together fast enough to reach its full potential in the global economy. Maybe that’s true in the short run, but in time, the EU will prove naysayers wrong.

  Remember, the economic EU is less than fifteen years old. It’s already come a long way. Imagine trying to put together the fifty states of the United States today. Now imagine doing that if each state had operated for centuries with a separate government, set of laws, language, currency, and culture, as the members of the EU have. That the EU has done so well in so short a time is actually sort of amazing.*

  Without question, the EU still has a way to go before it realizes the economic hopes and dreams of its supporters. But its current statistics are enough to give you a sense of the potential to be unleashed. With twenty-five countries, the EU has 450 million people, 50 percent more than the United States, and a GDP of $11 trillion, about the same as the United States, two and a half times Japan, and about seven times China.

  These numbers are impressive, but they’ll only get better as the EU feels the impact of its newest members, Poland, Hungary, Slovakia, the Czech Republic, and the other nations of “New Europe.” In the past decade, from Budapest to Bratislava, from Prague to Warsaw, I’ve seen the excitement, optimism—and the remarkable achievements—in these countries. A new generation of entrepreneurs and small-business people are thirsting for opportunity and success. Their governments have responded in kind, reducing taxes and providing other probusiness incentives. The result has been significant economic growth, especially in comparison to what’s going on in Old Europe.

  Yes, Old Europe has problems and a long history. Brussels is filled with bureaucrats, and the individual governments of many countries are fighting tooth and nail to hang on to their hard-earned sovereignty. With their entrenched cultural traditions, France and Germany in particular are lukewarm about the EU, and often act with blatant self-interest.

  But these problems are not insurmountable. Washington, Tokyo, and Beijing have plenty of bureaucrats too. And as new generations of political leaders emerge across Europe, and the leadership of the EU itself gains increasing stature with every passing year, the pull of parochial, old-economic-order governments will give way. For example, the French government recently began to ease its rigid support of the thirty-five-hour week and is now proposing that companies be allowed to negotiate directly with employees about work schedules.

  In time—and perhaps sooner than many expect—global competitive pressures and the energy of New Europe will have a powerful combined effect. The paralyzing weight of socialism will gradually give way, and the EU will move steadily forward, fueled by an ever-increasing acceptance of capitalism.

  This question came at a technology and innovation conference in Las Vegas that spanned three days and featured about twenty speakers. I was one of them.

  How do you think corporate boards will change because of the Sarbanes-Oxley Act?

  This question, which I heard in various forms and in many locations, including Australia and Europe, reflects a growing attention on governance, a topic for discussion that used to be reserved for shareholder meetings and business school classrooms.

  Then, of course, came the postbubble corporate scandals, and people began to ask, “Where the heck were the boards in all these messes? Why didn’t they see the funny business?”

  Very quickly, laws and regulations were passed to make b
oards and senior executives more accountable for any corruption that might occur on their watch. In general these rules, such as the Sarbanes-Oxley Act, are a good thing, necessary to restore economic confidence.

  But laws will never guarantee good corporate governance. There is no way that a board’s finance committee, comprised of a finance professor, an accountant, and several busy CEOs, all from far-flung locations, can spend a couple of days every month studying a company’s books and verify that everything is on the up-and-up. Imagine being a board member of a multinational bank. You have people trading everything, swapping Japanese yen for euros in London, and others betting on U.S. commodity futures down the hall. But even most small companies have too much complexity for a committee to track, with hundreds of transactions every day, near and far.

  While boards cannot be police, they must assure themselves that companies have auditors, rigorous internal processes, tight controls, and the right culture for that purpose.

  Boards play other roles as well. They pick the CEO and approve the top management. In fact, they should know members of the top team as well as they know their own colleagues. Boards also monitor the mission of the company. Is it real? Do people understand it? Is it being executed? Can it win?

  Boards also gauge the integrity of the company. That’s huge. They must visit the field operations and conduct meaningful conversations with people at every level, eyeball to eyeball. It is in this subtle, nuanced integrity watchdog role that boards can make a real contribution.

  For some boards, Sarbanes-Oxley will require a real change in behavior. They will need to stop thinking about their jobs as eight, ten, or twelve closed-door meetings a year with lovely catered lunches.

  For others, it will only reinforce their existing approach.

  Now, in the rush to deal with the scandals, perhaps some aspects of Sarbanes-Oxley went too far, for example, the rules that imply the superiority of independent directors over directors who have some sort of stake in the company, either as investors, suppliers, or any other form of business partner.*

 

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