How to be a leader? Lessons from Jack Welch

Back in the early 1980s, soon after Jack Welch was named chief executive officer of General Electric, he unleashed such a torrent of layoffs that the media dubbed him 'Neutron Jack'. The moniker was derived from the neutron bomb, which leaves buildings unscathed but kills the people inside them.

Today, however, Welch views people as flowers to be cultivated rather than as objects to be destroyed. "Managers must walk around with a can of fertiliser in one hand and a watering can in the other," he says.

Speaking to a standing-room only crowd at Wharton as part of the Zweig lecture series, Welch said that each employee is like a flower.

"As a manager, you've got to be nurturing flowers all the time," he said. If this is done right, companies will end up with magnificent gardens. But with a hint of the old neutron touch, Welch added, "If the flowers don't grow, you've got to cut them out."

Welch's philosophy has certainly paid off handsomely for GE. During his tenure Welch has generated more than $200 billion in new wealth for GE's shareholders. As Fortune once wrote, "Ten thousand dollars put into GE at the start of Welch's term in 1980 would be worth $367,479, two-and-a-half times the value of an identical investment in the S&P 500."

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In his speech, Welch shared some principles and philosophies he espoused to drive GE towards success. Among them:

Involve everyone. The most important principle for managing a large organisation is that everyone must be involved in the game. GE took five years to break through its lumbering bureaucracy and convince hundreds of thousands of employees that their ideas mattered.

"An organisation is like a building," Welch said. "Every floor is a layer, and every layer is a nuisance. Every wall is a functional wall. Think about detonating that building."

Create a learning organisation. A company's competitive advantage depends on its ability to learn, share that learning, and act upon it. GE, according to Welch, has learned from countless companies. The goal, he said, should be to create a "boundariless organisation with speed and stretch."

Boundariless organisations are those that go inside, outside, up and down the organisational chain to seek new ideas. Speed means a bias for action.

Example: GE bought 21 companies in four months in Mexico. By stretch, Welch meant setting "limits based on your dreams," in contrast to the budgetsetting sessions at most companies, which are essentially "exercises in how little you can do."

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Be agile. The need for agility stems from the unpredictability of the business world. "When I got this job in December 1980, America was in a malaise," Welch said.

"Japan was going to take over the world. Oil was $35 a barrel and was likely to go to $100. Inflation was forever. Now, Japan is on its back, we are awash in oil, and inflation has disappeared."

Being agile allows companies to respond to such shifts in the marketplace. Citing another example, Welch said that until recently Asia was widely seen as the land of the future.

No one expected it to implode -- but it did. Today, that region abounds in opportunities. "Be agile enough to take a chance where no one wants to be," he said. "That's where the values are."

Exercise leadership. The most important thing a business school can teach, according to Welch, is leadership and how to deal with people.

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Welch's notion of leadership involves learning what he calls the four Es.

Energy: Be everywhere as fast as you can be.

Energise others: "You have no right to be a leader if you don't have it in your soul to build others," Welch said. "Nothing is worse than a whirling dervish who bores everyone. You need fertiliser and water."

Edge: Managers must make tough calls when they have to. They must say yes or no. If the flowers don't grow, they must cut them out.

Execute: Welch believes this is the biggest mistakes that most CEOs make. They make plans but fail to execute them.

Welch believes that companies don't celebrate enough when their people win. They get so caught up in the daily grind of work that they don't stop to enjoy what they have achieved.

"Do things that build people's self confidence," he said. "It's all about praising others and getting excited about their victories."