Jack Welch, the charismatic, legendary former CEO of General Electric, was the second keynote speaker for the JCK NYC Invitational Show.
Speaking before a packed room at the New York Hilton Monday, Welch offered some of his classic strategies for successful management and took a variety of questions from the audience.
The session was moderated by JCK editor-in-chief Hedda T. Schupak, who opened the session by asking Welch to identify the single most important thing a leader can focus on.
“People,” he said. “Build a great team and then energize them.”
Schupak asked if leadership is an inherent personality trait or a learned skill.
“A leader has four qualities of ‘e’s,” responded Welch. “A leader has to have energy, which is inherent. Either you have it or you don’t. A leader has to be able to energize his or her people, which is a learned skill. A leader has to have an edge and be decisive, and a leader has to be able to execute and get things done. These are all learned skills.
“But a leader also has to wrap it all in P—passion—and I think that’s something that’s inherent and comes from the womb.”
Schupak next asked Welch how his famous 20-70-10 strategy for differentiating employees would work in a family business. In his strategy, managers identify the top 20 percent of their team who are the stars, and the “vital 70%” who are the engine that drive the business. Those who rank in the bottom 10% have to go.
“But say you and your brother are running the business your grandfather founded, and your brother’s son falls in that 10%. What do you do?” she asked.
“Peter Drucker said the best and cheapest thing to do is pay the son or nephew 10 million dollars and get them out,” Welch quipped. “Seriously, while I can’t speak from personal experience, you do have to take care of the situation so that it doesn’t mess up your business. You have to deal with it, family or not.” There’s nothing worse or more demoralizing, he said, than having the rest of the staff seeing a ne’er-do-well loafing in the office. It’s a surefire way to lose good talent and find it hard to recruit good talent.
When asked to define an ideal proportion of using numbers vs. gut instincts to make business decisions, Welch explained that “gut” is really only pattern recognition, which can be learned over time.
“I did 200-250 deals [mergers] average a year, and I usually used my gut. Of course, the business had to have at least a 15 to 20 percent rate of return, but a lot of it was a gut feeling. On the other hand, when hiring people, using your gut can be wrong.
“That seems counterintuitive, but hiring is an emotional reaction and you can fall in love with the person—with their experience, the school they went to, the lines they give you. It’s better to really dig for references and really listen to why they left their previous job.” A lot of bad hiring decisions have happened because of the manager using his or her gut, he said.
In terms of managing change, Welch said it didn’t really matter whether someone embraced change or merely adapted to it—as long as they didn’t resist it.
“Resistors have to go.” If all someone can do is pine for the good old days or talk about how things used to be, you have to shoot them, he quipped.
The next group of questions addressed global competition, offshore sourcing, and the perceived threat from China.
“China has a $1.7 trillion gross GDP and 9 percent growth. That’s equal to $160 billion in [annual] growth. The United States has a $13 trillion gross GDP, and 4 percent growth. That’s $520 billion in growth—and we have one-fourth the people.” A healthy dose of paranoia is good, but the threat from China is not nearly what people think it is, he said.
“Don’t be a commodity. Don’t make anything anyone else makes. You have to move up the food chain and focus on innovation,” he said. “Commoditization is hell. All your margins will collapse.
Schupak asked Welch how the jewelry industry, which has already fallen victim to a lot of commoditization, can break the cycle.
“Innovation,” he replied again. “You have to offer a unique value, and there’s a lot of uniqueness and emotion in diamond jewelry.” He described his own relationship with a jeweler, who can sell him easily just with a phone call. It’s all about the relationship, he said. If the product is a commodity, the consumer is trained to expect a sale or a deal.
She then asked if synthetic diamonds—an area in which GE was an early leader—would ever become commercially viable.
“Not while you have guys like Shmuel [Pluczenik, of Universal Pacific, the firm sponsoring the event] who can sell the emotional value of a [natural] diamond. He’s done a great job. In fact, you’ve all done a great job of marketing the value [of natural diamonds].”
Wrapping up the session, Schupak asked Welch for advice on choosing a successor, whether in a corporate or a family business environment. Either way, he said, make sure the person has experience in all areas of the business. If they’ve been in marketing, move them to operations for a while. If they’re engineers, put them on the front service line.
At GE, he chose the three candidates to succeed him, and told each of them to choose their own successor. One, he said, would succeed him—and the other two would be CEO’s of other major corporations. He said once a successor is chosen, the others who were vying for the position should leave the company so as not to create pockets of resistance and resentment, even unwittingly. But it’s also important for the employees to know what the succession plan is. Most employees don’t care who the CEO is, but they do care who their boss is going to be. And they want to know how the company is doing.
“Transparency is key. Most bosses who think knowledge is power and want to hoard that power by not being transparent are really just insecure.”