Jack Welch theories on leadership style

Jack Welch was CEO and chairman of one of the world successful companies, General Electric. He began his career with General Electric Company in 1960 and became the Company’s 8th Chairman and CEO in 1981. During his 20-year reign at GE, the market capitalization of company increased from $13 billion to $400 billion, while revenues grew from $27 billion to $125 billion and earnings grew tenfold to almost $14 billion. According to Fortune magazine, he was named “Manager of the Century” in 2000 (Welch, J & Welch, S 2008). Welch had not only brought to company the increasing in profits and financial gains but also brought to GE the creative and innovative theories in the way of operating an organization. Welch’s theories on leadership and management were evaluated as perfect principles in organizational effectiveness. One of leadership’s theories that Jack Welch successfully applied to General Electric was his own theory of leader’s 4E.

His theory, which is now called “E to the fourth power”, is for leaders who have huge personal energy, the capability to inspire and energize others, the edge for being competitive and the ability to execute on these attributes (Byrne, 1998).

Firstly, 4E leader has energy. Welch notes that the intelligence and decision making ability are not enough for the leaders, they must have source of energy to convert good ideas into measurable performance. This intellectual energy also called ‘emotional energy’ that helps leaders build the spirit or morale of an organization. Welch believes that passion is more important for 4E leaders than charisma. Having passion, it is something that comes from deep inside said by Welch. Organization needs people that not only want to feel passionate about their job but also willing to sacrifice their personal goal to achieve company goals. The next important task was to switch energy into results. He had a well-known Work-OutTM that focus on the three key goals: bring more productive, self-confidence to the organization and eliminated bureaucracy (Krames 2005, p. 25-28). Welch recognized that bureaucracy was waste, redundant approvals and eliminated competitive spirit of the company so he cut down the organizational structure by removing management layers, dropped unimportant work and made the workplace more relaxed (Krames 2002, p. 5). He believed that people could work more effectively and positively in a cleaner and filter organization where they were given room to grow and expand their abilities.

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According to Welch, everything could be changed such as the market share, customers of GE, competitive environment and so on. He convinced people to see change as an opportunity rather than a threat. This could be seen as a source of energy that brought effectiveness and productivity to the organization (Krames 2005, p. 32). Moreover, the way to add energy is through encourage and engage people to donate their new ideas. The Welch’s Work-Out initiative demonstrated that he tried to build up a forum for employees to speak out their own ideas and present what need to be done directly to the boss in order to make the organization better (Krames 2005, p. 35-37). Welch had turned the hierarchy down to make leaders and followers more close to each other in exchanging work and sharing ideas. Welch had applied successfully transformational leadership theory in his company. He narrowed the distance between leaders and followers and brought motivation and innovation to the workplace environment in order to make organization better.

Secondly, 4E leader has to know how to energize people to act and inspire them to perform well in order to achieve organization’s goals. Leader requires having confidence and has to instill their confidence into the spirit of organization. One of important keys to energize people to carry out their jobs is to make sure that followers are engaged in jobs (Krames 2005, p. 49-50). Furthermore, leader must know that the key to inspiring is not to micro-manage, but to sketch a few general goals and let people work with them (Krames 2005, p. 53). Welch felt that managers should not try to micro-manage in details. Workers are anxious to make decision when they work in organization with full of micro-managers. By energize people to think and contribute their own ideas, organizations are well-equipped to battle in global business arena (Krames 2002, p. 23). According to Welch, the 4E leader made sure that there is a place for people to present new ideas and grant credit to those who come up with best ideas (Krames 2005, p. 57). The last part of energizing puzzle was GE’s reward system. Welch introduced reward system called one-currency: GE stock that managers receive its options every year. He confirmed the different amount of stocks based on the different levels of performance. This system helped Welch to tie every managers and employees at GE on the same boat. People have more responsibility when they get their lives involved in the organization. By establishing this system, Welch had increased the productivity across all GE businesses (Krames 2005, p. 62-63).

The third E of 4E leader is Edge. Welch noted that leaders with edge had a competitive spirit and recognized the worth of speed. They were confident so that they know the right time to green light or red light project and when to take an acquisition (Krames 2005, p. 75). The great example for leader with edge was when Welch reinvented GE requiring many actions that gone in paradoxical direction. He cut costs heartlessly and deeply on the GE payroll by firing 118,000 people while spending millions on nonproductive things. In a contradiction of business, Welch said that we have to shrink in order to grow; we have to give things up in order to gain things. By reducing jobs and shutting down unproductive factories, the GE’s profit margins and inventory turns increased dramatically. Welch proved that he was a leader with edge who doesn’t fear to give hard decision (Krames 2005, p. 77-78). The second and third theory of Welch’s 4E leader shows that he is a truly transformational leader who encouraged spirit to reach organization goals and increased market growth for the organization.

Reference

• Byrne, J 1998, How Jack Welch runs GE, Business Week cover story, viewed 4 December 2009, .
• Krames, JA 2002, The Welch Way, McGraw-Hill, New York.
• Krames, JA 2005, Jack Welch and the 4E’s of leadership, McGraw-Hill, New York.
• Welch, J & Welch, S 2008, Jack Welch Biography, The Welch Way, viewed 2, December, 2009, < http://www.welchway.com/About-Us/Jack-Welch/Biography.aspx >.