On Jack Welch: "Neutron Jack" Was He That Radioactive?

To paraphrase Shakespeare, I come neither to praise former GE CEO Jack Welch, who died on March 1, 2020, nor to bury him. Instead, I'd like to examine a few things Welch did in his career as a manager and leader that illustrate some important issues.

The Legacy of "Neutron Jack"

Newsweek gave Welch the nickname of"Neutron Jack" because of his willingness to take GE out of industries where it was not number one or number two, with concomitant job losses (believed to be about 100,00 people during his tenure as GE CEO). Welch also later moved to further streamline GE, terminating many employees. The metaphor was that he fired the people and left the buildings standing like the military's Neutron Bomb. (In fairness to Welch, he also had many buildings demolished that were unneeded, to reduce GE's property tax burden in places, like Schenectady, NY, where property taxes were high.)

All of this was based on Welch's belief that you must "Control your destiny or someone else will." Welch took these steps in right-sizing his company before many of his competitors did. However, business conditions forced many of his competitors in similar (and less expected or voluntary) directions, notably the pre-Lou Gerstner IBM.

Welch saw that the old idea of "lifetime employment" was no longer viable in a modern, global business environment. While he could not offer his employees "lifetime employment," he believed that "You can give lifetime employability by training people, by making them adaptable, making them mobile to go other places to do other things. But you can't guarantee lifetime employment."

Central to this was Welch's belief in "facing reality" rather than "superficial congeniality."

One of the ways Welch realized this view at GE was through "Differentiation." In Differentiation, managers were told to rank order their employees "into three categories in terms of top performance: top 20 percent, middle 70, and bottom 10. Then — and this is key — it requires managers to act on that distinction. The word “act” is emphasized because all managers naturally differentiate — in their heads. But very few make it real." The way Welch's GE "made it real" was to cull the bottom 10% each year. "However, if you have a candid organization with clear performance expectations and a performance evaluation process software, then people at the bottom 10 percent generally know who they are."

Welch valued candor in GE. "Failing to differentiate among employees — and holding on to bottom-tier performers — is actually the cruelest form of management there is."

He also believed that proper management of the "Vital 70" was key: "To be clear, managing the middle 70 is not about keeping people out of the bottom 10. It is not about saving poor performers. That would be a bad investment decision. Rather, differentiation is about managers looking at the middle 70, identifying people with potential to move up, and cultivating them.But everyone in the middle 70 needs to be motivated and made to feel as if they truly belong. You do not want to lose the vast majority of your middle 70—you want to improve them."

I think that, if this is properly executed, it is an uncommonly effective way to make personnel decisions. I will confess my bias: I served in the US Army when there was a similar system. Additionally, I am a combat veteran and know first hand that if you are a "good guy" and leave incapable people in a system, you potentially hand them (and those around them) a death sentence. As a very good officer once told me, "Laid back commanders produce laid-out troops."

The drawback to this is that executing this, in practice, is difficult.

Welch, rightfully, was concerned with leaders who can't make tough calls, who act with "superficial congeniality" and let weak performers slip through, making things more difficult for everyone. However, it does not seem that Welch was concerned by leaders who enjoy doing what has to be done. As a wise old legal NCO I used to work with used to say, with regards to Article 15s, Courtmartials and Chapter discharges, "We don't do these things because they make us glad or sad, we do them because they have to be done."

Few things are more destructive to organizational moral than petty tyrants or "little tin gods." At least from the 30 Rock episode Retreat to Move Forward, there appears to have been some perception of that at GE, at least in the view of outsiders. ("Each of them embodies a pillar of the Six Sigma business philosophy: Teamwork, Insight, Brutality, Male Enhancement, Hand-Shakefulness, and Play Hard.")

Anecdotally, having done my MBA in Schenectady, NY (a recovering GE town) with GE people. there seemed to have been (at least in the late 1990s) a popular perception that all the attention was paid to the "High Pots" ("High Potential" individuals, I assume the local nickname for the top 20%), in contrast with Welch's comments about the "Vital 70."

In the Army, there is a saying that, "You spend 90% of your time with 5% of your people." This is, in part, because the Army is government employment and there are certain specific steps that must be taken in disciplining or discharging people. (This did discourage some leaders from taking the necessary steps when I was in the Army, devolving into screaming and yelling, often at the wrong people, instead of effective action.)

However, as Welch said, that "Vital 70" is key in most organizations.

In the first instance, it is always valuable to raise the average standard. To get people generally to take more interest and pride. In addition, looking at your "average people" may disclose some of them are not so average. As a wise General I knew once said of Soldiers in general, "They didn't join to be screwed up."

All of us, even leaders, have prejudices. Some are rational, against people who have lied to us or otherwise cheated us in the past. Some, racial or ethnic or religious ones, are irrational. Others are more non-rational, based on how people present or our cursory impressions of them.

Welch generally believed "the world generally favors people who are energetic and extroverted." However, those traits are somewhat amorphous and not everyone agrees who possesses them. Actually spending more time with with the "Vital 70," might give you a better and sharper definition---when combined with the numbers.