Winning

by Jack Welch

In brief, the four principles are about the importance of a strong mission and concrete values; the absolute necessity of candor in every aspect of management; the power of differentiation, meaning a system based on meritocracy; and the value of each individual receiving voice and dignity.

Companies win when their managers make a clear and meaningful distinction between top- and bottom-performing businesses and people, when they cultivate the strong and cull the weak.

One of the main misunderstandings about differentiation is that it is only about people. That’s to miss half of it. Differentiation is a way to manage people and businesses.

They put their money and time only into businesses or product lines that promise double-digit sales growth, for instance.

At GE, the No. 1 or No. 2 framework stopped the decades-long practice of sprinkling money everywhere.

Running your company without differentiation among your businesses or product lines may have been possible when the world was less competitive. But with globalization and digitization, forget it. Managers at every level have to make hard choices and live by them.

When people differentiation is real, the top 20 percent of employees are showered with bonuses, stock options, praise, love, training, and a variety of rewards to their pocketbooks and souls.

As for the bottom 10 percent in differentiation, there is no sugarcoating this—they have to go.

Then a downturn occurs, and layoffs are necessary. The “nice” underperformers are almost always the first to go, and always the most surprised, because no one has ever told them the truth about their results, or lack thereof.

“Know what you believe.”

In frustration, after several such questions, I’d invariably stop the class to ask, “Why aren’t you asking those questions to your own bosses?” The answer would come back, “I can’t bring that up. I’d get killed.”

He or she would also commit to two things: to give an on-the-spot yes or no to 75 percent of the recommendations that came out of the session, and to resolve the remaining 25 percent within thirty days.

A big bureaucracy like GE needed something as systematized as Work-Out to break the ice and get people to open up.

Leaders celebrate.

The granddaddy of them all is the short-long paradox, as in the question I often get: “How can I manage quarterly results and still do what’s right for my business five years out?”

You have to evaluate—making sure the right people are in the right jobs, supporting and advancing those who are, and moving out those who are not.

And finally, you have to build self-confidence—pouring out encouragement, caring, and recognition. Self-confidence energizes, and it gives your people the courage to stretch, take risks, and achieve beyond their dreams. It is the fuel of winning teams.

And remember in all these encounters, evaluating and coaching are great, but building self-confidence is, in the end, probably the most important thing you can do. Take every opportunity to inject self-confidence into those who have earned it. Use ample praise, the more specific the better.

“Where are we going?” he could still answer in a half-asleep stupor, “We’re going to keep improving our service to individual contractors and expand our market by aggressively reaching out to small wholesalers.”

For that, your people need to trust you. And they will, as long as you demonstrate candor, give credit, and stay real.*

Obviously, tough calls spawn complaints and resistance. Your job is to listen and explain yourself clearly but move forward. Do not dwell or cajole.

and borders. The first E is positive energy.

They also love to play. People with positive energy just love life.

The second E is the ability to energize others.

Some of the smartest people that I’ve hired over the years—many of them from consulting—had real difficulty with edge, especially when they were put into operations. In every situation, they always saw too many options, which inhibited them from taking action. That indecisiveness kept their organizations in limbo.

Finally, we figured out that these executives always had a certain phoniness to them.

“How many of you have received an honest, straight-between-the-eyes feedback session in the past year, where you came out knowing exactly what you have to do to improve and where you stand in the organization?”

You can’t. Sliders need to be reenergized, either with new jobs or training. Otherwise, they fossilize in their jobs, and they often grow bitter, slowly but surely infecting their groups with disaffection.

Make your company flatter. Managers should have ten direct reports at the minimum and 30 to 50 percent more if they are experienced.

For others, the reasoning is even worse. Layers are a way to give people the feeling of growth when there is none. Layers allow you to give employees promotions instead of raises. That’s better than doing nothing, right? Wrong!

trusted the boss or the organization. In the fraught weeks that followed, productivity dropped by an order of magnitude as people spent inordinate amounts of time gathering behind closed doors to talk about Richard’s departure, how it was handled, and who might be next.

People love familiarity and patterns. They cling to them. The phenomenon is so entrenched it can only be chalked up to human nature.

fact, Denis always saw the status quo as something to be upended.

Managers often hold on to resisters because of a specific skill set or because they’ve been around for a long time. Don’t!

First, assume the problem is worse than it appears. Managers can waste a lot of time at the outset of a crisis denying that something went wrong. Don’t let that happen to you. Skip the denial step, and get into the mind-set that the problem will get bigger, messier, and more awful than you can possibly imagine.

Second, assume there are no secrets in the world and that everyone will eventually find out everything.

Cases of full disclosure in business abound, but Johnson & Johnson probably set the gold standard with its handling of the Tylenol crisis in the 1980s. It held press conferences every day, and sometimes more than once, to describe the situation and its scope. It opened its packaging factories up for scrutiny, and kept the public posted on a frequent basis on its investigation of the problem and its recall efforts.

In journalism, they keep score by toppled empires and naked emperors. The profession’s calling, as it were, is to question authority in its every form.

From Kidder Peabody, we learned to never buy a company with a culture that didn’t match ours. From the bribery case, we learned that policies age and even die unless managers work constantly to keep them alive. After a crisis is over, there is always the tendency to want to put it away in a drawer. Don’t. Use a crisis for all it’s worth. Teach its lessons every chance you get. In doing so, you’ll spread the immunity.

In real life, strategy is actually very straightforward. You pick a general direction and implement like hell.

First, come up with a big aha for your business—a smart, realistic, relatively fast way to gain sustainable competitive advantage. I don’t know any better way to come up with this big aha than by answering a set of questions I have long called the Five Slides, because each set fits roughly onto one page.

Second, put the right people in the right jobs to drive the big aha forward.

Strategy is unleashed when you have a learning organization where people thirst to do everything better every day.

“Be No. 1 or No. 2 in every market, and fix, sell, or close to get there.” This

I remember the excitement in that period, seeing our people develop new private-label credit card programs and find niche after niche in middle-market industrial financing. Fat margins weren’t exactly low-hanging fruit, but close.

While others may disagree, I know that strategy is the job of the CEO or the unit leader,

We fixed that by saying that businesses had to define their market in such a way that their share of any market they were in could not be more than 10 percent.

That said, I would still make the case that due to their skills and personalities, some people work more effectively in commodities and others are better in highly differentiated products or services.

I’ve heard it said that best practices aren’t a sustainable competitive advantage because they are so easy to copy. That’s nonsense.

Compensation for individuals and businesses is not linked to performance against budget. It is linked primarily to performance against the prior year and against the competition, and takes real strategic opportunities and obstacles into account.