Jack Welch Winning Book Review

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Broadly summarizes Jack Welch's Winning and critically appraises it.

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Jack Welch Winning Book Review

  1. 1. SHANTANU BASU PA 514 BOOK REVIEW 10/23/2006 Welch, Jack and Suzy: Winning. Harper Business. HarperCollins Publishers. New York. 2002 Jack Welch began his career with the General Electric Company in 1960, and in 1981 became the company's eighth Chairman and CEO. During his tenure, GE's market capitalization increased by $400 billion, making it the world's most valuable corporation. In 1999, Fortune named him the "manager of the century," and the Financial Times recently named him one of the three most admired business leaders in the world today. Winning is co-authored with Welch‟s wife, Suzy, a former editor at Harvard Business Review. Welch divides the book into four parts: the underlying company attitude, managing people, managing organizations, and managing oneself (in the rise to leadership). Welch first expostulates on the basic building blocks of a large company and then goes on to the role of its chief steward (CEO) and his managers. The twin themes, nonetheless, remain that of human resources and company stewardship and its role in shaping an organization and its future. In doing so, Welch enunciates several principles mainly culled from his vast experience and also from some external sources in establishing his points. Welch enumerates the vision and mission statements, human resources and leadership as the basic building blocks of a company. GE‟s mission of going to be “the most competitive enterprise in the world” is cited as an example. While the statements lay down the development plan and objectives of the organization it is the duty of the company‟s managers and employees to carry them out in a profitable manner. For this Welch quotes ten or twelve list of behaviors of managers from Bank One and JPMorgan Chase. Therefore only the best employees possessing integrity, resilience intelligence, maturity, passion and the drive and passion to deliver should be recruited. For organizational structure, Welch suggests a flat seamless structure in which upward and downward communication would flow freely. Differentiation of employees would clearly establish the lines of command, control and coordination and also prepare competent workers for future higher responsibilities as part of a normal succession plan. At another level Welch argues for differentiation between product lines and cites the example of GE‟s hiving off its losing airconditioning business. Employee should also be subject to non-bureaucratic evaluation systems at least once a year including a developmental component that would ensure an acceptably high level of commitment and passion to deliver in a competitive environment. HR should be elevated to a position of power and primacy in the organization since ultimately, strategy, coupled with the right HR would make a large positive difference in a firm‟s growth. The example of Lloyd Trotter at GE‟s ED&C and Brian Rowe at GE aero engines are cited as examples of perfect fits between a leader, personnel and business strategy. Having expostulated on the HR building block, Welch arrives at the most critical of all the blocks – leadership. He aptly sums up the role of the leader thus – “Prior to your leadership position, your success is all about growing yourself. Now that you're a leader, success is all about growing others”. For him leaders should possess vision, self-confidence, positive energy, constant evaluation, communication, be honest and transparent, have the passion to deliver and encourage employees to excel. Welch‟s obsession with the HR element becomes apparent when he states that “There are different types of leaders, but what's common among the best of them is an abiding love for their people and a desire to see them grow and succeed”. He goes on to say that targets and objectives alone do not determine the quality of service of an organization. He cites the example of Northwestern Memorial Health Centre whose CEO‟s commitment to customer care went hand-in-hand with the vision statement of the company. The example of GE‟s delayed launching of a new MRI machine and the loss of initial market share to rival Hitachi is cited by Welch as a failure of his own leadership and initiative. Duly equipped with appropriate HR an organization must naturally change in the interest of its survival. The example of the changeover of the London Times to a tabloid format to compete with the Daily Mirror and Telegraph is cited here is an example. In the 1
  2. 2. SHANTANU BASU PA 514 BOOK REVIEW 10/23/2006 process of change management, tight controls, good internal processes and a culture of integrity are important in preventing crises from happening as happened with The Home Depot upon the arrival of Bob Nardelli. It is equally important for the CEO to reckon with competition by offering more unique and focused goods and services for his enterprise. Other allied processes such as operational budgets replacing traditional budgets would become necessary. The manifold example of 3M‟s China operations being fuelled by a dynamic budget and large investments in R&D is cited as an example. All such reforms and change would have their logical corollary in mergers and acquisitions for an organization to consolidate and expand. It is therefore not surprising that Welch emerges a strong votary of M&A for they are “a faster way to profitable growth”. The success of the Daimler-Chrysler merger is cited as a case in point. Welch even goes to the extreme position and says that a company should also explore opportunities of prosperity in someone else‟s misery (“car wreck”). Welch presumes that the CEO of a company is appointed on the basis of his professional qualities and generally has security of tenure. The driving force of a company is profitability and vociferous stakeholders in the form of shareholders‟ demands must be fulfilled. In fact Welch‟s CEO emerges, in part, as an all-powerful Machiavellian Prince, who is to be feared, not hated. Such a CEO looms large over an organization and is vested with liberal powers of hiring and firing staff, devising HR policies single-handedly and as the sole decision-maker. Such a CEO may indeed be repugnant to the basic concept of corporate governance and business law that enshrines large elements of accountability particularly after the Enron scandal. Several externalities come into play during the selection of a new CEO as it does for managers and other employees. Even if a CEO or managers possessing even a third of Welch‟s suggested qualities are recruited, there is no assurance that it would be in the best financial interest of the organization. The not-too-distant failures of Barings Bank and Enron bear witness to top-level executive mismanagement In the public sector, recruitment is the subject of complex rules and pulls and pressures from a fragmented political authority and public. Recruitment is also affected by changes in government policies. The spoils of office system also ensure that the ruling political dispensation officially gets their share in the bureaucracy irrespective of competence or skills. This would not apply to the private sector which needs more professional manager to keep the profits rising rather than a non-profit public service agency. While advocating free communications and debate within the company (democratization) on the one hand, Welch also holds out stentorian employee evaluation methods and differentiation of staff by managers; these would actually militate against freedom of expression. Rather it may even be used as a ploy to keep unionization at bay. Discretionary typecasting of employees by managers in 20% or 70% or 10% categories may subvert the system if the managers are not men of impeccable integrity and mentors to the workers – indeed a rare combination. Simmering discontent is fertile ground for industrial espionage and leakage of selective information to the media that may eventually harm the business reputation not only of the company but of its stewards as well. As it is with the private sector, these issues apply, suo motu, to government too. Strong unions with political patronage often wreak havoc on government initiatives, often without adequate justification. Welch also appears to have a pronounced bias against employee unions whereas in many cases such unions cooperating with managements have been instrumental in raising production levels, reducing absenteeism, ensuring timeliness of attendance, etc. In exchange employers have granted liberal benefits to employees. An outstanding example is the TATA industrial group in India that has not witnessed even a single employee strike in the last 75 years. With workers, particularly in organized industries, worldwide becoming increasingly unionized, no CEO can wish away unions with the wave of a dictatorial hand. Similarly, stringent application of labor laws and the generally beneficent attitude of law courts to junior employees no longer empowers a CEO to have unlimited choice in dealing with employees. The institutionalized system for punishment of delinquency in government and the multiple layers of appeal often subverts the authority of the departmental secretary who then continues in office, per force, with a smaller-than-life role. 2
  3. 3. SHANTANU BASU PA 514 BOOK REVIEW 10/23/2006 Welch also leaves several questions unanswered. Prominent among them are the subordination of the CEO to the Board of Directors, labor laws, environmental externalities in the shape of legislation, tax policy, labor welfare regulations, etc. Recently, the Board of Directors removed the CEO of HP Inc. after reports of her involvement in a less than honorable activity came to light. Public outcries against industries generating industrial pollutants have given rise to major lawsuits where billions of dollars have been awarded as damages to citizens. These have also circumscribed the authority of a CEO. Government enforcement agencies have also followed the activities of several corporations for violating the law and taken stringent and exemplary action against them. Bribery amongst CEOs, embezzlement, fancy pay and perk packets, superannuation and severance benefits worth a king‟s ransom have not done much good either to CEOs. In fact, Welch himself was, at one time, guilty of using GE money for luxury holidays and housing. Therefore, pressures of several hues impact the actions of a CEO who can, by no stretch of imagination, ever have a free hand in running his company. Events of the past decade have proved that the private sector is not the paragon of virtue. Welch‟s negativism continues when he views employees through the narrow prism of a machine than a human being – almost an argument that preceded the rise of the trade union movement in Europe in the 19th century and the subsequent rise of socialism. He reposes all faith in his managers in determining differentiation of employees without consideration for their personal predilections and does not talk of an independent grievance redressing machinery for workers. In fact, Welch‟s line of argument is reminiscent of those of Mussolini and Hitler for whom prestige and power are an all-consuming passion (profit and ruthless expansion). Innovation often comes from the lower ranks. Any successful organization with a good upward and downward flow of communication would be able to take advantage of junior employees‟ feedback and not have to depend solely on the opinions of mangers. This is equally true of government. In fact the introduction of TQM in many government offices in India was done at the behest of junior employees as part of participative management and reduced friction between managers and their staff apart from dramatically improving the customer focus in these departments. If Welch intended Winnings to be a quick reference manual of how to successfully run a large organization, then he is fully justified in voicing his opinions in the most key areas of enterprise management. He raises many questions but leaves them unanswered, perhaps in preparation of a sequel to Winnings. His perspective is one of an engineer and businessman. The issues he raises are fundamental and affect all organizations, large or small, in private and public, government and nonprofit, across the board, though in varying measures. The biggest strength of this book lies in its easy readability, absence of jargon and its hands-on approach to problem-solving. Its weaknesses would seem to lie in it‟s often knave analysis of situations. GE has come up as a diverse conglomerate in 125 years and certainly had many traditions, and continues to have, that engenders employee pride. Surely Draconian solutions have not established such market goodwill and employee loyalty. Nor was it successive CEOs who accounted for GE‟s commercial reputation, global vision, operations and employment. Therefore Welch, in a bid to project his central role in GE‟s expansion overlooks history and economic and political externalities that propelled GE‟s meteoric rise under his stewardship. In this sense, Winnings is an implied selflaudatory exercise. Welch‟s highly-marketable brand equity and successful track record contribute in a large measure to the best-selling status of Winning. Most of the fundamental issue he raises and his curative/preventive suggestions thereon would, prima facie, appear to be applicable in equal measure to public institutions in an ideal world. However, numerous constraints militate against their operation in the public and nonprofit sectors. The importance that Welch attaches to vision and mission statements often unfortunately degenerates into political statements and become victims of political rhetoric in public institutions. In order to give effect to the vision statement that is generally coterminous with the tenure of the political leadership, mission statements are often couched in ambiguity and more often than not, lead to systemic goal displacement. Thus the mission of a city council bus service to provide more number of services to commuters may translate into buses not halting at bus stops in their drive to increase the number of 3
  4. 4. SHANTANU BASU PA 514 BOOK REVIEW 10/23/2006 trips. Since nearly all public services are community-oriented the profit motive is absent. It is enough to stay within the confines of the allocated budgetary resources. Where mission and vision statements are clear, these depend on the life of the political executive that normally does not go beyond five years. And even when the tenure does exceed five years, political priorities change, leading to a mid-term review or jettisoning of these statements. Lack of candor and relatively poor upward and downward communication also generates immense paper work that overwhelms a public institution that then tries to overcome it by initiating half-hearted paper crushing moves. The end result is that system-caused goal displacement takes place as shown by the bus example above or else ineffectiveness is sought to be covered by rampant misreporting. Thus in public institutions there are no incentives upon the political leadership to perform other than for selective electoral purposes and the ripple effect of this percolates all the way down. Poor flow of information and open debate among managers and employees in public institutions at any level is conventionally regarded as a „cognizable‟ offence and subject to official secrecy legislation. Given the limited flexibility enjoyed by public institutions by way of fragmentation of leadership and limited professionalism, lack of flexibility in hiring practices, etc, candor ceases to be a virtue and an essential tool of organization-building. Dated methods of recruitment and rampant nepotism in the process also ensure that quality of HR is not maintained. In fact it may not even approximate the 20% stars that Welch talks of nurturing for future leadership. Having due regard for the merit of Welch‟s argument, it must be remembered that staffing in public institutions is a matter of public debate and political ideologies and intervention in the process of recruitment. No chief executive of a public institution has a free hand in hiring and firing, rewarding or penalizing his staff. Unions with political party backing are also too strong to be ignored both by chief executives and the political head of the organization. Public institutions are also seen as model employers and have to abide by many restrictive and often counter-productive and dated rules and regulations, political compulsions and public policy that deny them the optimal level of flexibility. Experience would bear out the success of public institutions whenever such operational flexibility has been granted to them. These considerations would hold true for hiring at the chief executive level as also subordinate levels (least of all intelligence, integrity and maturity or knowledge as Welch says). Therefore it may not be possible to hire managers who possess commitment, clear and comprehensible vision, positive energy, transparency, freedom of operational reorganization, etc. since many extraneous considerations go into staffing in government for which reason it may not be reasonable to expect professional competence at par with private corporations. Nevertheless, Welch‟s advise to reward performance is something that is either already available in limited measure or may be easily introduced in public institutions. A reward scheme introduced by USPS had to be wound up on account of employee malpractices arising from extensive system-caused goal displacement compounded by misreporting to derive undue pecuniary advantage. The other extreme is the case of the Rajasthan (in India) State Transport Corporation that wiped out accumulated losses of a million dollars and replaced 4,000 of its 6,000 buses in two years and continues to earn healthy profits ever since an incremental profit-sharing formula was worked out between the management and its employees more than a decade back. Insofar as mergers and acquisitions are concerned, public sector companies in India have acquired assets in the shape of overseas companies controlling oil fields to coal and diamond mines, entered into joint ventures with the private sector even as minority shareholders, merged between themselves (such as the International Airports and National Airports Authorities of India and now the proposed merger of Air-India and Indian Airlines). Special Purpose Vehicles (SPVs) that are essentially joint ventures between public and private sector companies have been established in India for specific purposes with 50:50 shareholding and private management that have much more operational flexibility outside government processes and rules. Delhi Metro Railway Corporation (DMRC) is the latest offering in this line with 25% being publicly held, 50% by financial institutions and remaining 25% by government – the end result is a world-class underground railway system commissioned in a crowded New Delhi within 3 years of the company being established. That a partial divorce from government has done a world of good to these new organizations 4
  5. 5. SHANTANU BASU PA 514 BOOK REVIEW 10/23/2006 is evident from their timely and cost-effective execution of projects. The human resources of government departments have also been fruitfully utilized in privatized agencies by the new owners and are working successfully upon rewards and profit sharing schemes matched evenly by heavy penalties enforceable in law courts too. Public sector companies have also bid for foreign offshore oilfields with government support and have attracted huge public response in each of their IPOs. Some of these companies are also listed at the NYSE, London and Tokyo Stock Exchanges. Thus Welch‟s idea of exploiting opportunity has been given shape by public sector companies in India. Insofar as PM systems are concerned, Welch brings the system of individual performance evaluation forward as the major tool of monitoring the system. Unlike the private sector, the public sector has to reckon with fragmentation of political authority, public opinion, media, and relatively low levels of professionalism, public demands and scrutiny. Such negativism is occasioned by poor compensation structures, restrictive legal environment, colonial authority structures, a fragmented civil service, fragmented political structure, environmental externalities (mainly political), strong employee unionization with political affiliations, apart from the barriers of caste and religion and geographical area affiliations. Despite these failings Indian law courts have been less than forgiving to errant employees. New recruitment procedures in government, downsizing, outsourcing and privatization have served to make employee evaluation indeed a strong source of coercive power to ensure employee loyalty and accountability somewhat on the lines of Welch‟s arguments. The issues of strategic planning, performance management, targets and objectives, communication, responsive and dynamic accounting and budgeting, monitoring of system efficiency and effectiveness and staffing have been amply covered by Welch. While principally one cannot but agree with most of the issues raised and solutions suggested by Welch, the approach for public institutions and non-profits can nowhere be as ruthless and Draconian as the author sometimes makes it out to be. The laws and conventions of a democracy militate against the imposition of such strong normative standards in the formulation of public policy as it wrestles with popular opinion. Public institutions are far more accountable and prey to political pressures and work in the glare of media attention that often deprives them of the flexibility of operations in key areas such as staffing, budget and accounting systems, internal work policies, etc. Winning shows the application of nearly all the concepts discussed in PA 514 classes. At the same time these discussions have also showed us the uniqueness of government and non-profits and the resultant limitations on applying the Winning principles to government. __________________________________________________________________________________________ 5

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