Jack Welch, who has been General Electric Chairman and CEO during twenty years, from 1981 to 2001, has passed away yesterday, March 2nd. He was 84 years old. He had transformed the company to make it the highest Wall Street market capitalization, reaching 400 billion dollars when he retired, and especially, both regarding large company management and strategic issues he acquired at the dawn of globalization and he remains a benchmark. He was also a friend of France. The company current difficulties, whose value fell and which has been excluded from the Dow Jones where it was included since its creation, must not conceal the far-reaching and the actuality of his action.
GE was already a largely diversified group when he took the chairmanship. But he immediately understood the risks and he instituted a principle according to which, on a market, when you were not able to be N°1 or N°2, you had to sale or to close the activity. And it is this point which granted him a reputation of firmness or even of violence in his way to manage the company. But, above the point that it was good sense, it was just one among the many rules he implemented. He has first de-bureaucratized GE in reducing the number of hierarchic levels, which allowed to him to have a direct look on the activities and to have a judgment on the pertinence of the group strategy and on the action of its teams. He also de-clustered it. It is not because you have different businesses that they have to be isolated the ones from the others. The success of a business unit in a country could facilitate the introduction of a new activity. But that could also include innovation.
GE had a strong position on aircraft engines but couldn’t dominate the gas turbines new market. But the technologies were close to each other. He asked for and obtained that was transferred a dozen of high-qualified engineers from aircraft engines division to GE Power to remedy to these failures. And so, some years, later the company became an indisputable leader in that market.
He also had a very personal vision of the human resources management. During his travels to local branches, instead of the traditional plants visits and the cocktails, he asked “business reviews” were presented to him during which the manager was exposing the current actions and his results. So he created a direct contact. He had instituted a method of result assessments and determination of remunerations called “stretch”: if you had over passed your objectives, you didn’t get automatically a reward because that could mean that you had not been ambitious enough and the person could be sanctioned if that occurred again. To the opposite, when the objectives were not reached, but, obviously, efforts were real, that didn’t involve consequences on the carrier or the payroll of the related person and sometimes he could even receive a promotion.
At the beginning of each year was organized in Florida a meeting were the top management was invited and he delivered to them a speech were he exposed the road map for the coming year. That practice has become usual in France but thirty years ago, it was not frequent. Every year, GE hired hundred of young graduates. Jack Welch had created for these who had been selected the Financial Management Program which consisted in sending them for a six months training period in four different countries and in four different branches. So they had discovered the company. A ranking was established at the end of the program and the best elements were recruited in the Audit Staff which guaranteed them to be included in the future among the high potential category and to very quickly access to top jobs. He then invented the equivalent of the French” Inspection des finances”, but for the company use.
The implementation of his strategic vision was quite also innovating. He was one of the first CEOs to understand the prospects of the Chinese market. As soon as at the beginning of the Nineties, he informed GE shareholders that the development of the company in China will constitute in the future one of his priorities. Before that, he had created an International Advisory Board where were appointed high-ranking personalities from the countries where GE was implanted and whose role was to inform both local team and headquarter about the economic and political situation of the country and the risks and the opportunities for GE there.
Regarding management, GE was in permanence looking for the optimization of its businesses portfolio. The healthcare equipment market was in full expansion thanks to the new possibilities offered by digital technologies. In France, the Thomson subsidiary, the general company of Radiology had not reached the critical size and GE was interested in its acquisition. But being a state-owned company, it was difficult for the government to accept to leave it being sold to a foreigner. GE had just acquired RCA which included major consumer electronics businesses and precious patents in color TV, which were able to attract interest from Thomson. Jack Welch then proposed to make a swap where everybody will be a winner, Thomson health care against RCA color TV. He was discarding from a losing activity in exchange of another one he thought it was a winning one. Alain Gomez, who was Thomson CEO, had made the symmetric reasoning and the State was convinced and authorized the deal.
The most spectacular success, the one which allows to still be today a world leader and which was about aircraft engines, was the alliance with a French State-owned company, SNECMA who became today SAFRAN. The joint-venture had been concluded during the Seventies. The election of the left and the presence inside the government of communist ministers did not dissuade Jack Welch to go on with this so profitable partnership, which testifies about his pragmatism. In industrial battles, as in military ones, what is important is to have the good ally. The clients were on the two sides of the Atlantic, Boeing and Mac Donnell Douglas, on one side and the one which soon will be Airbus, in France, on the other side. The Franco-American partnership allowed to have privileged relations with each of the three ones and that vision was of course shared by SNECMA.
GE financial rise which allowed to it to become the highest market capitalization laid on a simple idea which was suggested to him by Gary Wendt, in charge of these business units, who had his trust but about whom he was also a little suspicious. GE results as its financial situation allowed to it to have AAA notation. The company took advantage of that to propose to its clients to provide them with financing and that activity became year after year the main profit source of the company. In a certain way, GE rented its balance sheet to its clients in the aircraft engines, railways machines or healthcare equipments businesses. But, a long time after Jack Welch went into retirement, the sub-prime crisis broked out and forced regulators to take prudential measures. The size of GE commitments made it a systemic establishment, as the major American banks, which forced it to submit itself to financial constraints which will take off any interest in that business. So the superb construction built by Gary Wendt was going to crash along with GE market value which, atop of that, was confronted in its traditional businesses with the pressure of Chinese and Korean competitors.
Jack Welch loved France. He used to come twice a year, in January to meet his teams and French CEOs who were or could become one day partners, and in June to attend to Roland Garros finals which were broadcasted by NBC, a GE subsidiary since the RCA acquisition. François Mitterrand, in 1987, granted him with the distinction of Officer of the Legion of Honor to pay a tribute to his action in favor of employment in France and to his contribution to Franco-American relationship. Don’t forget him.