Create Candor in the Workplace, Says Jack Welch
STANFORD GRADUATE SCHOOL OF BUSINESS—According to Jack Welch, companies that develop extraordinary products and services do more than gain market share—they represent the very foundation of society. "Winning companies are the only things that matter—without them, nothing else would work," the former chairman and chief executive officer of General Electric told Dean Robert Joss on April 27.
Welch and Joss chatted before a packed house in Memorial Auditorium about a few of the management insights described in Welch's most recent book, Winning. "My first book was all about me," Welch said, referring to his 2001 New York Times bestseller Straight from the Gut. By contrast, Winning, co-authored with his wife, Suzy, codifies the expertise that Welch has developed and refined over the course of his career—namely, the management philosophies that helped him turn a $13 billion company into a $500 billion enterprise over the course of a 20-year tenure at the helm of General Electric.
A remarkable absence of candor in the workplace represents one of the most significant obstacles to companies' success, he said. "In a bureaucracy, people are afraid to speak out. This type of environment slows you down, and it doesn't improve the workplace." Instead, Welch called for developing a corporate culture that encourages and rewards honest feedback. "You reinforce the behaviors that you reward," he explained. "If you reward candor, you'll get it."
An effective performance appraisal system, he said, relies not only on honest feedback but also on meaningful differentiation among employees. At GE, he put these principles into action by implementing a forced ranking system that divided employees into three distinct segments: the top 20 percent of performers, the middle 70 percent, and the bottom 10 percent. Even though GE's "20-70-10" system—which methodically manages out the bottom 10 percent of employees each year—has always been controversial, Welch emphatically defended it.
"Why are grades OK from the time that you're in fourth grade to the time you're getting your MBA, but not OK once you're an adult?" Welch asked. "You need to use the same rigor to evaluate your people that you use to evaluate your financial statements." Using a forced ranking system requires this type of discipline.
"You should take the top 20 percent of your employees and make them feel loved," Welch advised. "Take the middle 70 percent and tell them what they need to do to get into the top 20 percent." Managing out the bottom 10 percent of performers is necessary not only for the organization's continued success but also for the sake of employees affected by the rigorous appraisal system. "People need to know where they stand," Welch said. "Failing to differentiate among employees—and holding on to bottom-tier performers—is actually the cruelest form of management there is."
An effective performance management system isn't the only HR mechanism driving a company's success. The strategies most critical to an organization's performance relate to its people—how they're selected, rewarded, and developed so that highly capable leaders and managers are in the right roles at the right times. Nonetheless, Welch said it's not the company's responsibility to ensure that its employees achieve an appropriate balance between their personal and professional lives. "The organization's job is winning," he said. "Winning companies create value in the products and services that they deliver. They should strive to provide opportunities and job security for their employees, but it shouldn't be the company's job to figure out your work-life balance."
Employees aren't guaranteed an entitlement to the type of flexibility needed to balance professional and personal demands. "Flexibility is something that's earned-it's not something that's handed to you," he said. "If you deliver, you'll earn the flexibility to manage competing priorities."
For a company's top performers, Welch said that the right combination of rewards and recognition (or—as he put it—the appropriate mix of "cash and plaques") fosters a high-performance work environment. Good managers know exactly how to motivate each of their employees, but Welch suggested a few specific strategies for rewarding excellence in the workplace. "Have small celebrations for every little victory on the way to reaching your goal," he advised. "Excite people. Send them to training. The day you become a leader, your job is to take people who are already great and make them unbelievable."