The Big Change Blog

Subscribe by email

Subscribe by rss

The Big Change Feed What is a RSS feed?

The world's most dangerous man

By Arthur Goldstuck

Forget about Osama Bin Laden. The world’s most dangerous man isn’t hiding in caves or sneaking about on camels. There is a far more dangerous man operating in plain sight in the economic capitals of the world and the corridors of power in the United States.

TV channels report his every utterance with reverence, and the business press bows at his metaphorical feet every day of the investment week.

His name is Jack Welch, and you may have heard of him through a company called General Electric, which he ran for 20 years and is now the single biggest corporation in the world, and an autobiography called “Straight from the Gut”, which is required reading in any management course. CNN summed him up in the headline of a biography simply as “Jack Welch, the Legend”.

He retired on September 7 last year in what has been called a “blaze of glory”. The similarity to Bin Laden’s perception of a “blaze of glory” a few days later is purely coincidental.

What makes Jack Welch the most dangerous man on earth is that he believes that one out of every ten people in any company should be fired on a regular and ongoing basis. He didn’t put it in those exact words, but it is the basis of his philosophy that workers’ performance should be measured regularly – no problem with that – and then the bottom 10% of those workers should be summarily fired.

Considering that, mathematically, there always has to be a bottom 10%, no matter how close they are to the top 10%, or how well they fare within their own parameters, I believe that Welch’s philosophy is disastrous on the human level, and incredibly wasteful in terms of training and human resource management.

Of course, he is The Jack Welch, so it is hard to argue that case to anyone who believes GE has been the paragon of corporate success. Sooner or later, though, I imagine a little boy (or many young men) will realise that the emperor wears no clothes, and more and more people will refuse to buy into this survival-of-only-the-fittest philosophy.

GE was lauded by the business press for achieving quarterly earnings of $3.9 billion in the last quarter of 2001. Revenue, however, decreased 3 percent to $33.98 billion. That profit targets were met in a dismal time for the US economy and a fall in turnover for the company is testimony to the rigorous cost-cutting that Jack Welch made a hallmark of his reign at GE.

Indeed, operating margin improved to 19.6% of sales from 18.9% the previous year, largely thanks to converting the supply chain to digital technology. This move alone is claimed to have saved $1.6 billion.

But then there was the human cost of Welch’s philosophy: in 2001, GE cut 22 000 jobs. It employed almost the same number of people again, so cost-cutting in the interests of corporate health was not the excuse.

You can blame it on the “vitality curve”, the Welch policy that required all staff to be evaluated regularly. The policy rewarded the top 10%, while seeing the next 80% as the solid core of the organisation to be allowed to get on with the job, and the bottom 10% as non-performers who had to go.

Some would say that the Welch philosphy makes perfect sense: you only want performers on your team, right? But what if everyone is performing at a level commensurate with their salaries, positions and prospects?

Or perhaps beyond the call of duty? This is often the case in companies where staff see themselves as part of a team with a common goal.

As with a soccer team, for example, they understand that everyone has different skills and levels of skills, but that everyone has a contribution to make to the final outcome. If everyone is pulling their weight, the most disastrous policy that management could introduce is to fire those who may well be performing, but not performing as well as the top performers. Staff perception of working towards a common goal is shattered by the weight of the need to compete with colleagues on this basis. Corporate politics then become as important as corporate goals.

Sure, fire people who don’t perform, but do so on the basis of non-performance, not on the basis of not performing as well as the best performers.

And, while there is nothing wrong with incentives to perform, such incentives should also contribute to the building of teamwork.

Wlech, however, saw the “vitality curve” as a model for building a “people factory” with the greatest talent in any corporation.

The Romans had a word for Welch’s thinking. It was called “decimation” and it required the execution of one tenth of the members of units that performed poorly or retreated from battle.

It was extremely effective in maintaining discipline in the Roman army, and could have served as inspiration for Welch’s model.

Welch justified his policy largely on the basis that if staff fell within the bottom 10 percent of performers, it indicated that they were in dead-end jobs, and should be fired for their own good!

He even told a reporter from the Detroit Press that his policy was “humane”, because “it allows people to adjust to a less demanding climate in some other job while they are still able to do so”.

Naturally, Welch spends far less time explaining where these people will find “some other job” than why they should.

The bottom line is that an organisation the size of GE is not just a business, it is a community. While the principles originally expounded by Roman generals and Charles Darwin may work and even be beneficial in the wild, in a community setting they are nothing but destructive.

The danger Welch represents is not that his policies will live on to revisit continual decimation on GE as a community, but that the rest of the business world will embrace his philosophy. If it worked for GE, it must work for everyone, right?

Go tell that to the Romans.

No comments yet. Why not say something?

Comments are closed for this posting. Feel free to contact me via the contact form.


The Big Change is a business strategy blog and newsletter published by Arthur Goldstuck, managing director of World Wide Worx, a leading technology research organisation based in Johannesburg, South Africa.

Read more ...