His Empire Complete, Welch Eyes Retirement

He's landed a $7.1 million book deal with Time Warner that only the Pope and Hillary Clinton can top.

His company has had superlative after superlative heaped upon it--from "Global Most Admired Company" by Fortune to first in Forbes' ranking of the top businesses in America.

His business strategy has been dissected for mass consumption in dozens of how-to books, and he recently broke 70 in his golf game.

So who's sitting so pretty?

It's manager extraordinaire Jack Welch, chair and CEO of General Electric (GE) and Harvard Business School's Class Day speaker this year.

Set to retire in December after 20 years at the helm of the world's largest and most valuable company, the 65-year-old Welch has been hailed as the preeminent businessperson of America, and perhaps the world.

"In 1993 people laughed at me when I said, 'There are two great leaders in the 20th century. One is Alfred Sloane [of General Motors] and the one that will really be remembered is Jack Welch,'" says Noel M. Tichy, a GE observer and University of Michigan management professor.

"But that was in 1993 when Welch was still not seen as the best of the best," Tichy says.

People First, Strategy Second

Born John F. Welch Jr. to working-class parents in Salem, Mass., Welch grew up with a stutter that Tichy says helped to develop Welch's self-confidence.

"Can you imagine, a working-class kid with a stutter? He was constantly having to prove himself," Tichy says.

Welch, who was the first in his family to earn a college degree, graduated from the University of Massachusetts in 1957 with a B.S. in chemical engineering. He received his M.S. and Ph.D. degrees in chemical engineering from the University of Illinois.

Welch joined GE as a junior engineer in 1960 but quit after a year, tired of GE's bureaucracy, to head to International Minerals & Chemicals in Skokie, Ill. If not for the intervention of a superior who was impressed with the young Welch, the futures of GE and Welch might have looked very different.

As it was, the superior persuaded Welch to stay. And under the direction of Welch, GE has broken one earnings record after another as other businesses have come tumbling down under the pressures of global competition. With $437 billion in assets and $130 billion in sales, GE has grown to include NBC in its empire as well as several high-technology manufacturing divisions and 24 financial services divisions.

Shareholders have reason to toast Welch's leadership. Business Week in 1998 reported that nobody has returned larger profits to shareholders than Welch.

"No one, not Microsoft's William H. Gates III or Intel's Andrew S. Grove, not Walt Disney's Michael D. Eisner or Berkshire Hathaway's Warren E. Buffett, not even the late Coca-Cola chieftain Roberto C. Goizueta or the late Wal-Mart founder Sam Walton has created more shareholder value than Jack Welch," business writer John A. Byrne wrote.

GE observers agree that a large part of the company's success stems from the strength of the leadership beneath Welch. While GE had a strong field of seven managers to choose from in its search for Welch's successor, other businesses such as IBM, Hewlett-Packard and 3M have had to turn outward in their searches.

Indeed, many have turned to GE. W. James McNerny Jr., one of GE's top three contenders for CEO, was snatched up by 3M when GE handed the torch to Jeffrey R. Immelt, former president and CEO of GE Medical Systems.

Similarly, Stanley Works picked up as its chair and CEO John M. Trani, head of GE Medical Systems before McNerny.

"GE is the number one developer of other companies' key executive officers," says James W. Buckman, a GE observer and co-director of the Juran Center for Leadership in Quality at the University of Minnesota's Carlson School of Management. He estimates that about 25 to 35 of the Fortune 500 CEOs have come from GE.

Tichy attributes GE's success in developing leaders to Welch's priorities.

"Leaders build culture, cultures don't build leaders," Tichy says. "He has the understanding that you win the game of business by developing leaders at all levels of your organization."

"GE, if you consider the training and development of leaders, is the bigger business school than the Harvard Business School," he says.

Apart from its annual $500 million investment on training and education programs worldwide, GE's strong reservoir of talent is largely due to Welch's focus on his employees.

His handwritten notes to workers keep the faxes humming, and he knows by sight the names and duties of at least the top 1,000 people in GE.

NBC Nightly News anchor Tom Brokaw says it is this attention to detail and to people that is the secret to Welch's success.

"He is familiar with his vast enterprise--he knows about every widget and every dime," Brokaw says.

Part of the premium Welch places on people can be seen in his development of Crotonville, where he is a familiar figure. The 52-acre New York GE campus is the first major corporate business school in the world where everyone from newly-hired college graduates to division heads gather to learn from each other and, frequently, the big man himself.

"Our technology, our great businesses, our reach, our resources aren't enough to make us the global best unless we always have the best people--people who are always stretching to become better," Welch said in his annual April address to shareowners this year.

The Welch Revolution

While Crotonville "students" and industry watchers rave about Welch today, he has not always been regarded with such warmth.

Welch earned the nickname "Neutron Jack" in the early 1980s for the massive layoffs he initiated at GE--he eliminated nearly two-fifths of the company's total workforce in his drive to get the conglomerate out of businesses it could not dominate.

"I went [to Crotonville] when 60 percent of the audience would sneer at me," Welch said in a 1998 interview with Business Week. "Most of them wondered, 'Is this guy a nut? Should he be arrested?' It was difficult."

Buckman, who says the layoffs are ancient history, criticizes those who use the moniker in reference to past or present layoffs.

"The early '80s was a horrific time for all of us in the industry. All kinds of businesses just went in the toilet and GE was in some of those businesses," Buckman says.

"Even now they're in so many businesses competing in so many markets around the world that it would be astonishing if there were no lay-offs," he adds.

Welch has also come under fire recently for shirking GE's obligation to clean the upper Hudson River, the biggest toxic site on the Superfund list of the Environmental Protection Agency.

A spokesperson for Welch did not comment on the situation.

While the first "revolution" of GE under Welch's watch was characterized by a slice-and-dice philosophy, subsequent phases have focused on growth of both informality and of quality control.

One of Welch's most significant contributions to GE's culture is his concept of "boundarylessness." After the layoffs, Welch cleared out the underbrush in his remaining businesses by streamlining and de-bureaucratizing them. He reduced to five the layers of management that exist between the factory floor and his office at 30 Rockefeller Plaza in New York.

"He's always been absolutely a nut about getting rid of bureaucracy," Tichy says. "He wants to be remembered for creating a nimble, fast moving, non-bureaucratic company--boundarylessness was a way for him to capture the concept of speeding up an organization by taking hierarchical layers out."

Welch has also transformed GE into a higher quality organization through his thorough implementation of Six Sigma. An overarching business improvement strategy that originated at Motorola in the 1980s, Six Sigma is a quality control initiative that aims to increase product quality. To achieve a six sigma level of quality, a process must produce no more than 3.4 defects per million parts.

To date, Six Sigma has delivered billions of dollars in savings to GE's bottom line, with $3 billion worth of returns last year alone.

But Welch has moved Six Sigma beyond internally focused quality control in manufacturing to customer service.

"He's done the typical Welch thing [with Six Sigma] where nothing is done half-heartedly," Tichy says. "Everything is done 150 percent."

Six Sigma has become such an integral part of the GE way that Welch calls it the "language of leadership" at GE.

"I'm confident when the Board picks the next CEO 20 years from now, the man or woman chosen will be someone with Six Sigma blood in his or her veins," Welch said at the shareowners' meeting.

Six Sigma will continue to play a role in GE's future success, but company watchers say GE's digitization efforts, started under Welch, will become increasingly important in the maintenance of its global leadership.

Welch's greatest legacy, Brokaw says, is his development of GE into a global competitor ready to compete in the new market.

"He took GE perfectly positioned into the 21st century," Brokaw says. "My heart kind of sank when I heard GE was buying NBC and I always thought of it as a home appliance manufacturer, a buyer of big products and turbines. It's now this company that does everything from capital [to] entertainment."

Working On His Swing

Looking ahead to his retirement, Welch said in the 1998 Business Week interview that while he may consider teaching an occasional business course, he will spend most of his time golfing with his second wife, Jane.

And while he says he will miss the action and energy of his job, Welch said his retirement is part of the natural order of things.

"Succession is part of the rebirth of an organization," Welch told Business Week. "I'm not going to be around. I am not going to be near the board. It's a free swing for a new team."

The working-class kid from Salem, Mass. has come pretty far. And Tichy says Welch has had some fun along the way.

"This guy is in your face. You say 'Good morning' to Jack and you better be ready for a debate," Tichy says. "It can be stressful if you can't stand up to him, but for those who play it's fun."

--Staff writer Juliet J. Chung can be reached at jchung@fas.harvard.edu.