Futurist Kings: Welch and Drucker
Jack Welch took over the reins of G.E. And steer it to more than 1000% increased profit. He became a guru of management and his highly successful methods were adopted right and left. However, Fortune recently published an article stating that these rules have run their course and new ones are needed. Fortune discusses the old rules and proposes new ones, but it does not look very closely at the possible outcomes of these new rules, though it does offer some support and justification. However, the article raises more questions than it answers.
Jack Welch was an anachronism from the start: an outgoing talkative boy who stuttered, something which usually promotes shyness. He was born to a middle class family in Salem, Massachusetts. He won fellowships after graduating from University of Massachusetts all the way through a Ph.D. In chemistry. Perhaps Jack Welch would have become a leader anywhere, but in the stodgy G.E., which had been fading into the woodwork for some time, he managed to land in the new plastics division. With no previous history, he had a free hand and turned the plastics division into the golden child of G.E. At 45 in 1981, he became the youngest CEO ever at General Electric.
Welch had the unusual knack to be simultaneously a maverick and a company man.” (Lowe 33) As a result of his ability to get the best from his people, Welch was at the helm of G.E. For twenty years. His company was one of the original 12 stocks with the Dow Jones. The company’s “often articulated values include: Improving the quality of life through technology and innovation Interdependent balance between responsibility to customers, employees, society, and shareholders, with no clear hierarchy Individual responsibility and opportunity Honesty and integrity” (Lowe 35) Jack Welch was not known for keeping always to these values, but rather for instigating dramatic change which brought his, and many other companies, out of their near comatose state when the national economy was rocking between two recessions.
Welch made his company the most valuable company in the world, worth now over 600 billion dollars. He was exactly the right person to lead the company at the time. He was not afraid to take calculated risks and try new ideas. New strategy was needed to take on globalization, the move away from manufacturing to a knowledge and service economy and the quantum technological shift to the Internet.
The rapid globalization of the last twenty years needed new strategies for companies to remain competitive in the face of increased foreign competition. In addition, labor was cheaper in countries like India and China than in North America, even counting the cost of shipping the materials both ways. Unions had pushed the cost of production line workers to a prohibitive level, so companies were outsourcing or opening factories overseas. Otherwise, they could hardly compete with foreign imports unless the government levied extreme tariffs on imports. The last problem G.E. And other corporation had to tackle was the move to Internet commerce. Businesses did not just advertise on the Net, but they started doing business there: business to business and business to customer. The logistics of this move required rethinking marketing and distribution. Dell showed the world how the supply chain could be managed with instant communication and interactive book-keeping and inventory control.
Jack Welch was the right man for the job. He made things move. He was not always a pleasant man, but he got things done. Wall Street watched in awe as he drove the company forward through a time of immense change, and people began to study his methods. However, those methods fit the situations of the time, and we can see logically that they cannot be carved in stone. This article in Fortune shows how staying with the same game plan may not work forever. Still, that his techniques worked well for the twenty years of his tenure makes them worth examining.
Welch’s rules Examined:
Old rule: big dogs own the street: new rule: agile is best; being big can bite you. The eighties were tough times. The size of G.E. contributed greatly to its success. It never hurts to have plenty of money behind you. Fortune cites Dell as an example of successful agility, and rightly so. Other companies have followed suit since: Best Buy and Wal-Mart adopted a new decentralized business model which changes the power dynamics so that local managers have more flexibility. However, big is not inherently bad. It is just difficult to maintain flexibility if the company is very large, unless, of course, the company decentralizes the power and creates more streamlines processes.
Old rule: be no. 1 or no. 2 in your market: new rule: find a niche, create something new. Fortune cites examples like the soft drink industry and new healthy energy drinks. This is fine, but Fortune did not prove it was bad to be number one or two, only that it was not necessary. The old rule and the new rule are also not mutually exclusive. Innovation is stressed in today’s market, and if a corporation stays ahead of the curve, it can be innovative enough to easily land number one or two in the industry. All Fortune is saying is that companies cannot count on much ROI simply for being number one or two, while new innovative products, capital saving and marketing ideas and innovation in operations will keep a company competitive.
Old rule: shareholders rule.: new rule: the customer is king. This rule is absolutely outmoded. It was apparent over the past few years that the customer has been forgotten in many places, but the statistic mentioned by Fortune that businesses lose half their customers annually is more than expected and more than any business should tolerate. Fifty years ago one unhappy customer would tell several others, but now they can tell several thousand with a BLOG. Mass communication has changed the entire dynamic of customer service. The Internet and email have made it much easier to communicate with customers and take care of them, but it is just as easy for the customer to communicate with the world. In the end it is the customer which keeps the business alive, not the stockholders.
Old rule: be lean and mean: new rule: look out, not in. The by Motorola was adopted by Welch for G.E. And 200 other companies followed suit, but more than half of them have not seen any benefits. It is probable that, as Fortune states, the Six Sigma process focuses on fixing one thing, and does not look forward to new ideas. Vishva Dixit, vice president for research of Genentech says that innovation cannot be so tightly controlled. The quote from Fortune is possibly the most telling in the article: “No business can afford to focus its energies on its own navel in that environment…If you’re not externally focused in this world, you can really lose your edge.” (Fortune 2006)
Old rule: rank your players; go with the a’s: new rule: hire passionate people. If Rule 4 is the most telling, this is possibly the most important. It is at least as important as taking care of customers. In today’s business environment it is all about team building. Even more important it is about building teams which are passionate about the company and its products and customers. If a company builds good ethical working teams of people who believe in the product and are passionate about serving the company and its customers, then all the rest will follow. It is a new electronically connected world where everyone knows your business, so good P.R. is simply not enough. The company’s strength is in its people.
Old rule: hire a charismatic CEO: new rule: hire a courageous CEO. Fortune has it exactly right here, and we should add ethical. Yes, business executives must become more ethical, at least where their own companies are concerned. Even Martha Stewart was caught out when she stepped out of line with publicly approved and legislated ethics. The public is tired of hearing about things like Enron, and they will not support a business they do not trust. So CEOs need to be even more courageous than the Fortune article exhorts, because they need to do more than what is good for immediate business. They must be both forward looking and loyal to the company, its employees, partners and customers. The tough leader now has to look a lot more like Honest Abe or the support will fade quickly. Charisma, as Fortune says, is wonderfully useful, but courage and conviction are necessary.
Old rule: admire my might: new rule: admire my soul. This is actually an expansion upon the idea that a CEO must have ethics. The company must also have more than just money in mind. Companies which are not good citizens will fade, as they will not maintain the support of their customers. This is another outgrowth of communication technology. We have come full circle to the days of local businesses, but geography has been eliminated as a barrier to communication. Companies are now expected to contribute to their local economy and culture. Whatever a company does at home will be broadcast to the world, positive or negative. Wal-Mart is highly criticized for its low wages, even though the company admits it does not expect to retain entry level employees. However, the company’s support in its local communities wherever the stores are found counter the bad publicity about wages. In fact, Wal-Mart is a good example of several of the tenets listed here, especially that of agility. It has changed its management architecture, so that local managers have the local power to make the individual outlets good citizens of their communities.
So Jack Welch’s simple rules for management need to be modified. Even the CEO who followed him has done this. Jack began his role as leader of G.E. In tough economic times, when businesses were struggling to survive in a time of recession and inflation. This required a tough CEO who could do what was necessary to streamline the company and optimize its profit line. However, the global climate is changing from international “dog eat dog” to one of global mutual exploitation. We really are a global village and the changes predicted by Functionalists, in sociology and international relations, are very real. Capitalism has some very good things going for it, but isolated capitalism which takes and gives nothing back is passe. With the advent of globalization, companies not only have to be good local citizens, but they have to be good global citizens.
Following the functionalist view, international governments and businesses have combined to create a global economy which is changing the way business is done. Populations with large pools of labor are courting hard currency and willing to be exploited in exchange. Business, as a result, has more power than ever before, but also more responsibility. Where a company builds a factory, say in India, China or the Philippines, it is expected to provide more than just wages to the foreign workers. The company is not just there to make money, but it also represents the homeland, and with Internet technology, the people at home can see how they are represented.
The Fortune article made many excellent points, and they are stimulating echoes from business academics and theorists around the globe. The article mentions Peter Drucker, who has even a longer tenure than Welch as a business guru. Welch steered G.E. For twenty years, but Drucker has steered international business for more than forty years. He is often called the “father of modern management,” a title which accrues from his many publications on management. The precepts he iterates are so timeless that they are reprinted. Drucker was one of the early social commentators who took a functionalist view. He foresaw that neither capitalism nor socialism had it all right, but that business had to strike a balance between to two within their organizations. Making money is important, but taking care on the way is just as important.
Drucker focused on how national states failed to blend the factors of continuity and change, a theme he would later apply to the business institution. In The Future of Industrial Man his focus was on what he found to be the two essential requirements for a functioning society: (1) recognition of the large autonomous corporation as society’s representative social institution and (2) the need for corporate management to justify its legitimacy as an organ of government. In close connection with this requirement for establishing legitimacy, he addressed the theme of corporate responsibility for providing the status and function of the worker.” (Flaherty, John E. 1999)
Drucker’s work has always been based in reality, as functionalists tend to be. He also writes in a very accessible style, making him widely read. He grounded his theories in the functionalist approach of “use what works,” and based his writing on what he observed in the real world. He was one of the first to recognize the organic connection among the various elements of business: workers, managers, suppliers, government and customers. All of these elements have strong influence on the others, and all must be considered in every business decision. It is probable that Drucker’s career developed naturally as he moved through his own development and self education. This gives his work an extra quality of veracity, since it was not written for support of tenure, nor support of a management career, but in response to what he learned as an objective researcher.
Peter Ferdinand Drucker was born in 1909 in Vienna and graduated from University of Frankfurt where he obtained a Doctorate in Public and International Law in 1931. After the Nazis took over he emigrated in 1933 to England, where he worked until emigrating to the U.S. In 1939. Since then he has taught, researched and written, building a substantial body of respected work in the field of management. “Throughout his long career he has shown interests as diverse as journalism, art appreciation, mountaineering, reading — and drawing inspiration from — the works of Jane Austen, and, of course, management teaching, writing and consultancy. With more than 33 books published over seven decades (and translated into at least 30 languages) Drucker is, by common consent, the founding father of modern management studies.” (Thompson, Phillip M. 2004) His work covers the whole range of subjects effecting business and management and even his early work is still relevant, because he grounds his work in the basics, and not on anything faddish or attached to any one personality or corporation. His works include:
The future of industrial man: a conservative approach
London: Heinemann, 1943
The practice of management
London: Heinemann, 1955
The concept of the corporation
New York: New American Library, 1964
Technology, management and society
London: Heinemann, 1970
Management: tasks, responsibilities, practices
New York: Harper and Row, 1973
Managing in turbulent times
London: Heinemann, 1980
The changing world of the executive
London: Heinemann, 1982
Innovation and entrepreneurship: practice and principles
London: Heinemann, 1985
Managing for results: economic tasks and risk taking decisions
London: Heinemann, 1964
The effective executive
London: Heinemann, 1967
The end of economic man
New York: Haprer and Row, 1969
Managing the non-profit organization: practices and principles
Oxford: Butterworth Heinemann, 1990
Managing for the future: the 1990s and beyond Oxford: Butterworth Heinemann, 1992
Managing in a time of great change
Oxford: Butterworth Heinemann, 1995
The frontiers of management: where tomorrow’s decisions are being made today
London: Heinemann, 1986
Burkhardt, John C. And Overton, Betty J. 1999.; Applied Developmental Science, Vol. 3,
Business Mexico; 7/1/2005.Want to win? Some practical advice from Jack Welch.(Biography)
Flaherty, John E.. 1999. Peter Drucker: Shaping the Managerial Mind Jossey-Bass 1999
Lowe, Janet. Welch: An American Icon. New York: Wiley, 2001. Questia. 14 Nov. 2006 http://www.questia.com/PM.qst?a=o&d=108678596
Thompson, Phillip M.. “The stunted vocation: an analysis of Jack Welch’s vision of business leadership.,” Review of Business, January 1, 2004.St. John’s University, College of Business Administration