Just as the word implies,
leaders accomplish things by leading, that is, by guiding and motivating other
people. Dictators issue orders, using fear and punishment to command
compliance. Leaders shape people’s opinions and win their enthusiasm, using
every available opportunity to send out their message and win supporters. For
many of the best leaders, the full-court press is instinctive. Others take a
more systematic approach, but whether consciously or instinctively, leaders
always operate on three distinct levels on the organizations technical,
political, and cultural systems. At first this may sound academic, but if you
think about it for a minute, you’ll see that it is true. Every group that
exists for a purpose has a technical system that organizes its resources to accomplish
the purpose; a political system that determines how power, influence, and
rewards are used to motivate people; and a cultural system consisting of norms
and values that bind people together. All of them affect how people think and
behave.
China, for example, is
struggling with a technical (economic) system that is rapidly moving toward
market-driven capitalism, while its political system is clinging to
old-fashioned totalitarian communism, and its cultural system is torn between
the two. In the U.S., on the other hand, the three systems are more aligned. The
technical system is firmly rooted in capitalism, the political system is
democratic, and the cultural environment values the supremacy of personal freedom,
as embodied in the Bill of Rights. Sometimes it’s hard to differentiate among
the systems because they are so intertwined, but all three are always at work, and
the leader who wants to make a lasting difference has to work on all three. At
General Electric, Jack Welch tackled the technical system by designing a “GE
business engine.” This engine would consist of stable, highly profitable units
that generate cash, and fast-growing businesses that would use the cash to
produce even greater returns. Welch’s shorthand slogan for this was that the company
must be “No. 1 or No. 2 in every business that GE is in, or we fix, close, or
sell it.” In fact, being No. 1 or No. 2 was not enough. To remain in the GE portfolio,
he declared, a business also must have well above average real returns and a distinct
competitive advantage. In 1981, when Welch became CEO, one-half of GE’s $27.2
billion in revenue came from aging slow-growth businesses. Welch decided that
the company was wasting capital by staying in businesses that weren’t going to
be champions. So over his tenure, he has divested $16.2 billion of marginal
businesses, including such old standbys as small appliances and aerospace, and
spent $53 billion on acquisitions such as RCA and Borg Warner Chemicals. These massive changes shook
up the old order about how GE was going to use its resources to earn profits and
clearly sent the message that GE was now playing a new game. In the political
arena, Welch took on GE’s massive bureaucracy. For decades, GE’s “scientific
management” system had been considered one of the company’s greatest strengths.
It allowed the company to discipline and control its far-flung and diverse
businesses. But by the early 1980s, the bureaucracy had taken control, and the
company was choking on its nitpicking system of formal reviews and approvals.
People were judged and paid according to how well they responded to the
bureaucratic rules, even though the procedures delayed decisions and often
thwarted common sense. Mastering the system had become a stylized art form and
a requisite for advancement. The result was that many of GE’s best managers
devoted far more energy to internal matters than to their customers. As GEers
sometimes expressed it, the company was operating “with its face to the CEO and
its ass to the customers.” Jack Welch knew this well because, as head of GE
Plastics, he had spent many years hassling, and being hassled by, the enforcers
at GE headquarters in Fairfield, Connecticut. He believed in risks and fast
action, and grew the Plastics business rapidly by doing what he thought needed
to be done and apologizing later if he got called down by the corporate staff.
Welch made it to the CEO’s job by outwitting the bureaucrats. He understood
that they liked documentation and reports, so he became a master of the game.
He became famous throughout GE for his beautifully packaged multivolume
presentations that were filled with charts, graphs, timelines, and whatever
other eye-catching gimmicks he could think of. The fact that he didn’t get
kicked off the ladder and now sits in the chairman’s office is evidence that
the strategy worked. But as soon as he took over, he called off the game. “One
of the first things Jack eliminated when he became CEO,” recalls Larry Buckley,
a member of Welch’s Executive Management Staff, “was fancy reports, because he
knew how much money he had spent making them.” Welch has replaced the
bureaucracy at GE with a new political system based on “integrated diversity.”
The headquarters staff has been slashed to several hundred from thousands, and
control over planning and much of the capital spending has been pushed out into
the operating units. The headquarters in Fairfield still does allocate key
resources, especially people, and teaches best practices on leadership, but the
units now have the freedom, and responsibility, to play the smartest game
possible in their industries.
As Welch described it in a
letter to shareholders: “We cleared out stifling bureaucracy, along with the
strategic planning apparatus, corporate staff empires, rituals, endless studies
and briefings, and all the classic machinery that makes big-company operations
smooth and predictable but often glacially slow. As the underbrush of bureaucracy
was cleared away, we began to see and talk to each other more clearly and more directly.
. . . Freed from bureaucratic tentacles, and charged to act independently [the
businesses have done] so, with great success. Corporate management got off
their backs, and instead lined up behind them with resources and support.” Welch’s
letter paints a glowing picture of success, but his upbeat tone belies the
months of anguish he experienced as he watched tradition-bound managers and
workers thwart his dreams of a speedy, responsive, and cooperative GE. The
problem, he finally decided, was that its corporate culture continued to value
hierarchy and me-firstism. If GE was going to enjoy the benefits of the new growth
engine it had so painfully built, and if its workers were going to use their
new freedom from bureaucratic meddling to work faster and smarter, the
corporate culture had to change as well. In the United States, you could
mandate communism and start allocating power and rewards through a totalitarian
government, but unless you got rid of the populace’s cultural notions of
personal freedom and inalienable rights, compliance wouldn’t last long. At GE,
there were hundreds of thousands of workers and managers who had grown up in a
business that was full of little fiefs, where control of knowledge was control
of power, where nobody felt any stake in the success of other fiefs, and where very
few people ever got fired. For several years, Welch worried and preached, but
nothing changed. He wondered whether he wasn’t being clear enough, or if people
were just tuning him out. Finally, he came up with the term “boundarylessness”
to describe the cultural environment that he wanted.
In a hallmark speech to
several hundred GE managers in 1994, Welch explained the concept of
boundarylessness using a simple analogy. “In this company, if you can picture
the house, the house got taller and taller and taller. As we grew in size, we added
floors. The house got wider and wider and wider. As we got more complex, we
built walls functionally. The objective of all of us in this place is to blow up
the internal walls the floors vertically and the horizontal ones. That’s the
game we’re at, that’s what we are fundamentally after.” He went on, changing metaphors,
to explain that the “layers are insulators. They’re like sweaters. When you go
outside and you wear four sweaters, you don’t know that it’s cold out. You
haven’t faced reality.
You’re not getting the
straight scoop on the temperature. You’re all covered up. As you peel each
sweater off, you learn more about the temperature. That’s the same thing about
layers.” The boundaryless culture Welch wanted instead was one in which
information would flow freely, in which people could honestly assess reality
without fear, and in which the company would capture “the speed of a small
company in the body of a big one.” At the core of a boundaryless company, he
told them, are people who act without regard for status or functional loyalty and
who look for ideas from anywhere—including from inside the company, from
customers, or from suppliers. Welch used every technique he could think of to
teach this message and help people live it. He preached it over and over. He
provided mechanisms for people to begin to live the new way. GE’s vaunted
Work-Out effort involved hundreds of thousands of GE employees, suppliers, and
customers in “town hall” problem-solving meetings. Work-Out was not an
elective, Welch mandated that every business conduct the sessions. And he
prescribed their format people from across functions at different levels would
come together to work on specific issues. Hierarchy and functional boundaries
had to be left at the door, and everyone was asked for their ideas. The
meetings were designed to produce results, and leaders were expected to implement
the recommendations from workers. He followed Work-Out with other, more sophisticated
tools to help people come together in teams or solve problems, such as the
Change Acceleration Program and an aggressive Quality program. He rewarded people for
benchmarking and operating ideas from other parts of GE or other companies.
In addition to all of these
programs, tools, and exhortations, he confronted those who did not believe in
the cultural values. In the old days, GE may have fired a few unpleasant people
who didn’t meet their performance goals, but nice guys who didn’t deliver and
complete jerks who did deliver were welcome to stay. In the new GE, Welch
declared, performance and behavior would both count. People who embraced
boundarylessness but couldn’t quite deliver would be helped along and given
second, maybe even third chances, but stellar performers who insisted on
keeping up the old walls and floors would be dismissed. And he backed up his statement
by personally getting rid of some boundaryful people at the top of the company.
Finally, he held others responsible for doing the same thing in their parts of
the company. He once sternly told a conference of GE’s several hundred managers,
“People throughout this company hear us talk about boundarylessness and taking
out layers, and they look at what we’ve done. Where we have multiple layers
still left, they rightly question our integrity. . . . The only way I am going
to get at this thing is to ask you to do it, to simply treat it as an integrity
issue. We have no room for boundaryful people at GE, and we must become
boundaryless if we are going to get the speed we need to survive.” The
magnitude of this GE transformation may or may not make it an extreme example
of change. However, the point isn’t the change, but the importance of having
technical, political, and cultural systems that support and reinforce one
another. Winning companies do a lot better job than losers of keeping the three
working together, because their leaders are ever mindful of the need for
alignment and to keep them in step with the changing demands of the
marketplace. When you look at winning organizations and compare them with the
losers, the first things you notice may be good market strategies, efficient
operations, and agile response times. Winning companies are exceptionally good
at listening to their customers and giving them what they want. But these important
qualities are really just intermediate products. From the outset, and in the
end, winning is really about leadership. Winning individuals are leaders,
people with ideas and values and the energy and edge to do what needs to be
done. And organizations are winners because they have good leaders, people who
understand the importance of selecting the right things to do and who are able
to manage the complex forces required to get them done. Because of this,
winning organizations are leader-driven. They value leaders, they have cultures
that expect and reward leadership, and everyone in the organization actively puts
time and resources into developing leaders. Finally, winners win because of
their ability to continually and consistently create more leaders at all levels
of their organizations.
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