Opinion | The house that Jack Welch (1935-2020) built is no more
4 min read 03 Mar 2020, 09:51 PM ISTWhat he did at GE was once the go-to business model but his management ideas have long run their course
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Jack Welch died on Monday. However, the Jack Welch way of doing business had died long before that. In the brutally competitive world of business today, nothing lasts forever. Not even a company that for most of its 128 years in business was considered the gold standard in corporate excellence. Then, just like that, one of the original 12 members of the Dow Jones Industrial Average was unceremoniously dropped from the index in June 2018.
Almost 40 years ago, when Welch, armed with a doctorate in chemical engineering, took over as chief executive officer (CEO) of General Electric, it was valued at $14 billion. He proceeded to yank it out of the mediocrity it had slipped into despite its history of innovation and research. By 1999, GE was worth $400 billion and Welch was hailed as a masterclass at work, an alpha CEO who inspired management tomes. His corporate philosophy was based on the principles of optimizing operational efficiencies at all costs, and in its execution, he was ruthless. Even though he did say that it was his effort to “create the informality of a corner neighbourhood grocery store in the soul of a big company", GE under him never did become that genial, benevolent employer. For most employees, it was a company where the pressure to perform or perish was the norm. The result was that GE became the most influential company in the world admired and feared by friends and foes alike.
In the seeds of its success, though, lurked the weeds of future turmoil. In 2001, Welch stepped down as chairman, Al Qaeda wreaked havoc on New York, and the world changed forever. The powerful industrial juggernauts of the 1980s looked wobbly as a whole new generation of businessmen and -women started writing a different textbook of strategy and management. That today’s trillion-dollar market cap companies, such as Apple, Amazon, and Microsoft, bear little resemblance to the ideal Welch corporation tells the story of changing times.
GE’s decline, first a slip, then a slide and in recent years an avalanche, began with its ill-fated and ill-timed rush into financial services. The crisis of 2008 may have precipitated its woes, but in truth, the very structure of the modern American corporation that Welch had so assiduously laid was now found to be suspect. That year, the company’s stock crashed 42% as the folly of its unbridled expansion played out. While the horror show came under the watch of his successor Jeffrey Immelt, its roots lay in acquisitions under Welch as he sought to build a super-conglomerate. GE Capital for instance, a trademark no-holds-barred Welch diversification, became so big under his successors that its woes in 2008 almost brought the entire company to its knees. Welch’s big plan to extend the company into any area where it could be among the top two in terms of market share created a sprawling empire. As a 2018 piece in Bloomberg Businessweek put it, “It manufactured consumer products and industrial machinery, powered commercial airliners and nuclear submarines, produced radar altimeters and romantic comedies." (bloom.bg/3ar4KXV)
It was altogether too good to last, and it was Welch who would have to cop much of the blame. Eventually, his method of maximizing profits by minimizing costs and choosing physical assets over people collapsed. Welch, the darling of Wall Street, manager of managers, found that corporate Darwinism could take you only so far.
For all of GE’s present woes, we must remain mindful of Welch’s legacy. At its peak, his influence extended far and wide. Indian business, in particular, owes a huge debt to the man, for it was he who first identified the potential of India’s IT industry. In the 1980s, this was no more than a small enclave of budding entrepreneurs with no inkling of the vast, globally dominant multibillion-dollar industry that it is today. Displaying vision and foresight, Welch put his money where his mouth was, and as GE started outsourcing its IT back-end needs to firms such as Wipro, Infosys, and TCS, a country hitherto considered the backwaters of technology took its first ambitious steps on the world stage. Today, GE is believed to outsource nearly $10 billion of IT services to companies in India.
Welch made friends too. Azim Premji, entrepreneur and philanthropist par excellence, was one of them. GE’s emphasis on quality and corporate governance resonated with him, and the two did business together with GE becoming Wipro’s joint venture partner in medical devices and one of its earliest clients for IT services. He wasn’t the only one. Sam Pitroda was the man who advised Welch to look at Indian software in the first place. To his credit, Welch did more than just look at it. Business followed, but more than that, Welch’s single-minded focus on the bottomline served as an important lesson for Indian business leaders such as N.R. Narayana Murthy.
Through the 1990s, as Indian business searched for its metier in a newly liberalized economic environment, GE became the go-to model for many companies. Middle management, that bane of corporations in the US through the 1970s, had felt the power of Welch’s wrath. In India, as family businesses turned inwards, they found similar sloth impeding progress. Bloated corporate bureaucracies were dismantled and what emerged were leaner and meaner companies that could compete globally.
Jack Welch will be missed, but his management philosophy had long run its course.
Sundeep Khanna is former executive editor of Mint
