My friend, John, sat on the patio, complaining loudly. His company had just adopted the forced ranking system that General Electric (GE) uses for personnel evaluations.
"It's wrong for us," John grumbled, "We work in project teams. We shouldn't be competing with each other to see who stays and who goes."
No less an authority than Business Week has run stories implying that when Jim McNerny went from GE to 3M, he applied the "GE toolkit" in the form of Six Sigma. The results were mixed. Profits and share price went up. The company's reputation for innovation went down.
There was a time, not that long ago, when anything GE did was slavishly copied by companies everywhere. That time is gone. But you can still learn a lot from GE.
Whether you measure success by stock price, profits, innovation, flexibility or simply impact on society and business, General Electric is one of the world's great companies. So forget about Six Sigma, boundaryless organization, forced ranking, and even the vaunted GE toolkit. Pay attention instead to the things that have made GE a great company for so long.
GE History
In 1890, Thomas Edison brought all his companies into a single organization. He called it the Edison General Electric Company. In some ways he would recognize today's GE because many product lines are the same. GE has been doing business in lighting, transportation, industrial products, power transmission, and medical equipment since the beginning.
General Electric has always been seen as an important company. GE was one of the companies in the first Dow Jones Industrial Average in 1896. When the first Standard and Poor's 500 list was published in 1959, GE was in the top 100. It's the only company still there today.
GE has always been known for innovation. Product innovation has been important. GE established the first industrial research and development laboratory in Charles Steinmetz' barn in 1896.
And GE's innovation hasn't been limited to products. Throughout its history, the company has also been a pacesetter in corporate structure, strategy and management practice. That's one key reason why it's a different company today than it was a hundred or fifty or even ten years ago.
A Company is Like a River
Heraclitus said, "You can't step into the same river twice." Companies are like that, too. GE today is different from GE fifty, or even ten, years ago. That's illustrated by the last three CEOs.
When Reg Jones took over the top spot at GE in 1972, just about everyone outside the company thought things were great. Jones knew otherwise.
Working capital was anemic. He inherited an organizational structure where he had to work with three vice chairmen. There was no coherent strategy and there were threats on all sides.
He stopped the bleeding, solving the cash crisis within six months. Then he re-organized top management and created a coherent strategy. He left a record of 26 consecutive quarters of improved earnings and 14 percent compound growth in profits. He retired as "The Most Admired Businessman in America" and handed GE over to the youngest chairman in GE's history.
Jack Welch inherited a company that was doing well but needed to change. To start with, Welch thought it had to get leaner. Within five years he removed one in four people from the GE payroll, earning the nickname, "Neutron Jack," because he eliminated the people but left the buildings.
Thirty-seven thousand of those people left right along with their business unit. Jack said that a GE business should be number one or two in its industry or it should be sold. Lots of businesses got sold.
But Welch didn't just take things away. He moved aggressively to change things. Processes like Work-Out opened up the system. The upgrades to training and the Crotonville facility gave GE a place to bring things together. And initiatives like globalization, move to services, e-business and Six Sigma changed the nature of GE as a company.
During Welch's tenure as CEO, revenues went from $26.8 billion to $130 billion. Capitalization went from a market value of $14 billion to one of more than $410 billion. And Fortune magazine named him "The Executive of the Century."
Now, it's Jeff Immelt's turn. And he's been in the job long enough that we can begin to see just how his idea of what GE should become differs from what GE has been.
Without much fanfare, he has softened the hard-line Welch dictum to fire the bottom ten percent, even though ranking is still in place. It's still taking shape, but one thing that looks certain is that Jeff Immelt's GE will be a bit more human and much more team oriented than the GE he inherited.
Besides being great CEOs, these three men seem to have very little in common. Jones was controlled and statesmanlike. Welch was the hard-charging hockey player. Immelt is the Ivy League athlete and fraternity president.
They do have one important thing in common, though. All three were shaped by GE's leadership development process.
Train and Develop
In over 100 years, every CEO but the first one, Thomas Edison, has come from inside the company. Eighty percent of senior managers are GE careerists. You've got to be good at development and make it a priority for that to happen.
At GE, it's a boss's job to develop subordinates and to identify high potential performers. That extends all the way to the top of the company where the CEO is involved in reviewing the performance and progress of GE's top potential executives.
The GE helps with lifetime career development for people that want it. Development includes permanent and temporary assignments that build both skills and visibility. It also includes training.
General Electric spends more than a billion dollars a year on training for people at all levels. Training is a reward for good performance. But it's much more than that.
GE understands that training is important for skill-building, but that it provides opportunity for other important things. At GE, training is a place to build relationships, to share ideas and to gain perspective.
Training is also the carrier of culture. It's where the company can present the important initiative of the moment and where senior executives can share values directly with newer managers.
At GE, training is very much a gathering and scattering phenomenon. Managers come together to learn, share and meet others. They scatter to put their learning and connections to work.
Then they gather again in a continuing cycle. It seems to work.
Think of it this way. A company can get lucky and wind up with a great CEO. But only a company where training and leadership development are a priority can come up with them one after another.
Leaders that come up through a program like GE's know the company and its strengths and weaknesses because they've been there are awhile. They can also take unpopular positions, or survive a period with a stagnant stock price because everyone expects them to be around for a long time to come.
Leadership for the Long Term
Jeff Immelt expects to be on the job for twenty years. The board has similar expectations. That creates a situation that's almost unique in publicly traded American companies.
Immelt doesn't have to do short term things to look good. He can concentrate on creating the kind of company GE should be to compete profitably in the decades to come.
If you're going to be around a long time, you can afford to resist the winds of fad. You don't have to make your mark quickly. You can take the time to do things right.
Take the Time to Do it Right
Companies today suffer from a kind of attention deficit hyperactivity disorder when it comes to initiatives. They run from finding their lost cheese to running their business like a fish market to discovering their strengths to learning the carrot principle, searching for the magic potion that will make all things profitable. But most don't stop long enough for anything to work. GE does.
Jack Welch was CEO of General Electric for twenty years. In that time, according to the man himself, he had four key initiatives. They were globalization, movement to services, e-business and Six Sigma.
The idea is to take the time to make sure the initiative is absorbed into the company and the culture. The values and skills that go with each initiative become part of training and performance evaluation and career development. Eventually they become part of the culture.
The Important Lessons
There are lots of lessons you can learn from GE about techniques and practices, but they're not the most important lessons. The most important lessons are the things that have made GE consistently competitive and profitable for more than a century.
What was great before won't be tomorrow. You have to keep constantly moving forward, changing and adapting to the world as it changes.
Growing your people is a key to long term competitive advantage. So training and development are both crucial, but training is more than skill development. It's where you develop the company of the future by developing relationships, inculcating culture and making your initiatives into realities.
Take the long view. That means a long term look at strategy. It means limiting your major change initiatives and giving them energy and the time to become part of the culture.
It sounds simple, and it is. It's just not easy. But GE is one good example of what it really takes to be a great company.
Wally Bock helps organizations improve productivity and morale, as well as deal with the challenges of massive Boomer retirements. Wally coaches individual managers, and is a popular speaker at meetings and conferences in the US and elsewhere. You can find out more about Wally and his work at his Three Star Leadership web site (http://www.threestarleadership.com/). This article first appeared in the Three Star Leadership Blog (http://blog.threestarleadership.com/)
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