Welch's excellence lies in his leadership of GE to create a growth legend; Welch's greatness lies in his practice of summarizing the concept of strategy and the concept of talent, and has always led the management practices of global enterprises.
As a fan of Jack Welch, I have written three times in a row to remember this great entrepreneur and honor his outstanding contributions to strategic management and talent management.
Counting the Numbers
Not Being a Big Fish in a Small Pond
On December 8, 1982, Jack Welch, who was already a bit of a stutterer, seemed particularly nervous; it was just eight months since he had taken over as CEO of General Electric, and tonight he needed to face a lot of Wall Street financial analysts to tell them where he was taking GE. This time Welch's speech was not a success, very messy, and what he said was not what Wall Streeters who favor financial data want to hear.
But it was during this unsuccessful speech that Jack Welch first publicly introduced his famous "counting by one":
"? Do not want GE to be a mediocre big business, GE to be able to see those really promising industries and join them, at the same time insisting on every industry they enter to be one of the best ...... GE to become a locomotive pulling the gross national product, rather than passive other cars ...... Becoming one of the best is never just a goal, it's a real requirement."
In Welch's view, it is difficult for companies in the fourth or fifth or even third position to control their own destiny, but if you are number one, you can control your own destiny. In the fierce competition for products and services, there is no room for mediocrity. If you can't do that, Welch is to "consolidate, close or sell" these businesses.
In his autobiography, Welch talks about Drucker as a proponent of the "count one, count two" concept, and he writes: "It was inspired by a series of tough questions posed by Drucker that the 'count one, count two' concept was was made explicit." At the time, Drucker asked the question, "If you hadn't been in this company in the first place, would you still want to be in it today?" If the answer was no, "What would you do with the company?" This question led directly to the concept of "counting one" and the strategy of "consolidate, close, or sell".
If a business segment, after years of hard work, finally becomes one of the best in the industry, Jack Welch congratulates and rewards the segment. Rewarded by surprise. Next, he will ask: "you are the first in this market, market share is 15%, then the tenth place market share is how much?" The head of the business segment would be very surprised because they never cared about the tenth place, they just focused on the top three. After some research, they realize that the market share of the tenth place is 5%.
At this point, Jack Welch would ask the odd question, "So please figure out how to make your market share 5%." This is simply too strange a question!
How do you do it? Obviously, the numerator can't change, only the denominator. The only way to do that is to expand the market and discover a wider range of needs and markets.
For example, GE engine business, the original customer only Airbus, Boeing, such as aircraft manufacturers, and now also serve airlines, to get involved in the maintenance and recovery of the engine, this time the competitors are no longer just Rolls-Royce, there is also AMECO such as aircraft maintenance companies.
So the business segment was redefined as a "full lifecycle service provider for aircraft engines" rather than just manufacturing and selling aircraft engines.
This growth trajectory is what Jack Welch calls the "Three Rings Strategy.
The Three Rings Strategy
The "Three Rings Strategy" was drawn by Welch on a cocktail napkin in January 1983, when he drew three circles representing GE's three main types of business: core manufacturing, technology, and services, and he would consolidate, sell, or close businesses that weren't included in the three circles; at the same time, he would consolidate, sell, or close businesses that weren't included in the three circles; and at the same time, he would consolidate, sell, or close businesses that weren't included in the three circles. He will consolidate, sell or close businesses not included in these three circles; at the same time, he will also promote the rapid movement of business to the three circles.
So the denominator gets bigger, not only for core production and technology, but also for services, and the numerator stays the same, with a smaller market share. The next more challenging question is how long it will take to be number one in this new market. Jack Welch is such a vivid description of the "number one and two" strategic intent: can not be satisfied to do the big fish in a small pond, to jump out of the small pond, to the big pond to do a small fish, and then in the growth of the big pond in the big fish .
GE Matrix
Dynamic optimization of the business portfolio
Warren Buffett In a letter to shareholders in 1980 on the importance of industrial choice, he wrote:
Which boat you get on is far more important than how efficiently you row the boat ....... In the case of a reputable operating team taking over a company whose industry fundamentals are known to be weak, it's often that weak industry that turns out to have an unchanged reputation ...... So far my view hasn't changed at all, if you find yourself in a boat that keeps leaking, figuring out how to change boats is usually much more beneficial than struggling to patch up the holes.
Jack Welch is a superb learner and action-oriented, and his advice to Warren Buffett and Drucker was quickly put into practice at GE. He started by selling off more than 200 business units worth $11 billion. Why did he do this? Because he wanted to get out of industries that were bad, he said:
"I don't like the semiconductor industry because the cyclical cycle is too pronounced in this industry, it's too fast to update, it requires too much capital, and there are a number of very strong companies in the industry, but there are only so many one or two companies that make money. Getting out of the industry allows us to put our money into industries such as medical devices and energy systems."
Many people didn't understand and nicknamed him " Neutron Bomb Jack." There were many employees who told him with tears in their eyes "If GM doesn't make washing machines or telephones, can our business still be called General Electric?"
Welch unswervingly promote the dynamic optimization of the business portfolio, the closure and transfer of 153 areas, he left only 13 areas when he left office. Jack Welch carried forward the GE Matrix, which became the world's first classic model of corporate strategic planning, replacing the once-prominent BCG Matrix. A century-old company was thus revitalized, which made GE the only constituent index company that has not disappeared from the Dow Jones Index since 1895. But that statement was only able to stay in 2018.
Historically GE had as many as 43 divisions, ranging from an airplane engine division to a washing machine division to a coffee cup division, ranging from $1.5 billion for the big ones to just $50 million for the small ones. GE decided to use the BCG matrix to carry out business portfolio optimization and established a strategic planning department at group headquarters in 1970. When the strategic planning department put GE's many businesses into the BCG matrix, many business unit bosses began to strongly oppose: everyone does not want to be a skinny dog, they want to be the star, because the star can be to the headquarters to ask for more resources; everyone also do not want to be a cash cow, because the cash cow to be milked to the other business units.
The BCG matrix is based on just two variables: market growth rate and relative market share, which seems a bit too thin and limited, and can lead to poor judgment and decision-making. GE decided to start revamping the BCG matrix by introducing its own strategic tool for optimizing business portfolios, the GE Matrix. The GE Matrix no longer focuses on only one indicator, but rather to integrate many indicators together to make judgments, no longer using the market growth rate dimension, but instead of "industry attractiveness"; no longer using the relative market share dimension, but instead of "business competitiveness".
● ? Industry Attractiveness: Measured by overall industry capacity, market growth rate, industry 5F structure, industry profit, technology level, and socio-politics;
●? Business Competitiveness: Measured by relative market share, product quality, technical strength, product chain control capability, brand awareness, distribution capability and so on.
Soon General Electric extended the GE Matrix to govern 43 business units company-wide.The successful application of the GE Matrix allowed GE's strategic planning department to reach new heights of influence and size, reaching more than 200 people.
But what goes around comes around. Shortly after Jack Welch became chairman of GE, he laid off the once-staffed strategic planning department in 1983. And why was that?
Core Competencies
A business is not just a portfolio of businesses, it is a portfolio of competencies
In September 1984, a BusinessWeek cover story described the thinking behind the layoffs of GE's strategic planning department: "For more than a decade, strategic planning has pretty much defined the future of American business, but now strategic planning staff's dominance may be coming to an end ....... Perfect strategies mapped out by planners in their imaginations are rarely successfully executed." Business Week points to this dramatic change as a "bloodbath between strategic planners and managers."
What was the reason behind this? Did GE cut its strategic planning department so that it didn't need strategy? Like the GE Matrix, what kind of innovations will GE introduce in strategic management?
Jack Welch loudly called for the layoff of the strategic planning department, not because Welch does not need strategic thinking, but rather because there is a greater need for strategic thinking. The reason for Welch's initiative is that we still need to turn to the history of globalization, and by going deeper into it, we can always find the context in which the events took place.
In the early 1980s, what made Jack Welch anxious, in addition to the optimization of internal business structure, was the surging competition from Japanese companies. At that time, Japanese companies in a frenzy of globalization, in all corners of the world and U.S. companies to compete, unfortunately the winner is always Japanese companies. From 1980 to 1988, Japan's Canon grew 264%, Honda grew 200%; in contrast, the U.S. Xerox and Chrysler had to be willing to pay the price.
What is more worrying is that Japanese companies do not rely on cheap goods to win, Japan has become an outstanding representative of the creation of new markets and invent new products:
Canon launched a personal copier
Komatsu developed the excavator's core components of the hydraulic parts
Honda was the first to try a four-wheel drive, four-valve-per-cylinder engine
Sony was the first to try a four-wheel drive, four-valve-per-cylinder engine. /p>
Sony developed an 8-millimeter camera
In 1987, the Rockefeller Empire State Building in the U.S. was bought by Japan's Mitsubishi consortium, which seemed to symbolize Japan's rise and America's decline. Japanese companies in the global surge, all the way to GE's Jack Welch is very worried: Japan's NEC (Nippon Electric Company) later came to the forefront, has surpassed the U.S. GTE (U.S. General Telephone and Electric Company), the next to go beyond will not be General Electric?
And Jack Welch, the same as these phenomena are very worried, and struggling to find the cause of the rise of Japanese companies, as well as thinking about how to deal with a master strategist C.K Prahalad (C.K Prahalad), who in-depth study of the success of many Japanese companies after the strategy, put forward the famous "Core Competitiveness Core Competence" (核心竞争力). He suggested that a diversified company should think of the company as a big tree: the leaves, flowers and fruits are the end products, and the root system that provides nutrients and supports the stability of the tree is the core competence.
Prof. Prahalad studied the strategic paths and strategic structures of NEC, GTE, and GE, and found the biggest difference between them: NEC viewed the company as a "portfolio of competencies", while GTE viewed the company as a "portfolio of businesses". The Japanese Electric Company viewed the enterprise as a "portfolio of competencies", while the American Electric Company viewed the enterprise as a "portfolio of businesses". Prahalad even strongly criticized GE's SBU (Strategic Business Unit) organizational structure, he pointed out that the SBU organizational structure so that the entire company does not have a department willing to cultivate the company's overall core competencies.
Inspired by these thoughts, Jack Welch decided to start building "6sigma" and "no boundaries" into GE's core competencies. When he found that the medical sector of the CT machine sales are poor, he will do their own research, to carry out "deep dive" strategy, to find out the crux of the problem: General Electric's CT machine, although the level of first-class, but its tube can only be used 25,000 times, while Japanese competitors' products can be used at least 50,000 times.
In response, he personally assembled a team and ordered it to raise that number to 100,000. He discusses these solid core competencies with great pride in his autobiography: "Over a five-year period, the CT Medical Division team increased the life of the ray tube from 25,000 cycles to nearly 200,000 cycles. By 2000, using 6sigma, they had developed a new type of ray tube with an average life of 500,000 cycles, which was set as the industry standard. This key component breakthrough led to the introduction of the fastest selling GE Lightspeed brand CT scanner to date."
Under a "business portfolio" orientation, no single business unit or business entity will be able to take on the responsibility of building a strong core competency on its own, nor will it be able to justify the investment necessary to build a world-leading core competency. Therefore, the senior management should step out of the framework of "business portfolio" and go beyond the independent business entities to a higher and broader level, and determine the goal of building core competencies in the framework of "competency portfolio", and clarify which core competencies need to be cultivated and by which core competencies they should be cultivated. The company's core competencies are composed of a number of related technologies.
Once these are identified, the group headquarters will need the business units to identify the projects and personnel that are closely related to these core competencies. Core competencies are the resources of the company as a whole, should be re-deployed by the management of the company's headquarters, any employee is not for a business sector alone, to avoid the "privatization of talent", the headquarters can take a number of measures to eliminate the backbone of the staff in the mind of the "I will always be part of the business sector" understanding.
These measures can be taken by the headquarters to eliminate the "I always belong to a business department" in the minds of key employees.
Inspired and guided by these ideas, Welch immediately carried out a vigorous "no boundaries" movement within GE, Jack Welch firmly believe that the "no boundaries" concept of GE and the 1990s other large companies around the world. The company's "no boundaries" philosophy differentiated GE from other large, global companies of the 1990s!
What Welch is determined to do is to break down the boundaries between each division and each function. He had a metaphor: "A building has walls and floors; the walls separate jobs, the floors separate hierarchies, and I want to get all the people together in one big room that opens up."
In order to be able to put the concept of "no boundaries" in place, GE, under the impetus of Jack Welch, began to develop and promote the talent inventory and the Clarendon Institute! We'll expand on this below .......