GE and the Internet -- April 26, 2000

An Executive Speech Reprint

GE and the Internet

John F. Welch

Chairman and

Chief Executive Officer

General Electric Company

"Reality in the Internet world means moving at a fanatical, maniacal pace everywhere in GE!”

Presented at the General Electric Company 2000 Annual Meeting, Richmond, Virginia, April 26, 2000.

Once again I would like to welcome all of you to our Annual Meeting. Thanks for coming, and thanks in particular to our Richmond share owners for their gracious hospitality to our Board of Directors.

We’ve always been warmly received in the different GE cities we visit every year for this annual meeting, and one of the reasons is because of the things GE employees do in their hometowns all year round.

GE Financial Assurance, or GEFA as we call it, located here in Richmond and led by CEO Mike Fraizer, is the eleventh largest net income business in the Company. It is only five years old, yet in those five years GEFA employees, many of them new to GE, have warmly embraced the GE tradition of volunteerism in the community and have worked to improve life for people here in the city of Richmond.

In the schools, GE mentors from the Elfun Society, a company-wide organization of GE volunteers, working with a five-year $1 million grant from the GE Fund, are aiming to double the college-bound rate of the students at John F. Kennedy High School. I visited the high school yesterday and met with its students and principal Frank Butts, a great guy and an education zealot who is with us here today. This mentoring program at JFK is a best practice learned from Elfun chapters in several other GE cities. Nationally, this program has enabled more than 5,500 kids who probably would never have gone to college to do so.

The Richmond chapter of Elfun works with younger students as well. GE employees run a hands-on after-school science program with its partners at the Science Museum of Virginia. And 350 GE employees from Richmond took busses to North Carolina last summer to do volunteer work at the Special Olympics World Summer Games in North Carolina.

Again, nationally, Elfuns in every GE town do more of the same, and each year deliver more than a million hours in volunteer service. They certainly are one reason why, just two months ago, Fortune Magazine named GE “America’s Most Admired Company” for the third year in a row.

A technology change, massive as it is, doesn’t mean abandoning traditional management concepts. What it does mean is adapting those business principles to the transformational world of the Internet.

Every year 340,000 GE employees around the world send me to this meeting armed with terrific numbers, and this year is no exception. In 1999 GE

·        Revenues were up 11% to $112 billion – a record.

·        Earnings increased 15% and broke the $10 billion level for the first time.

The total return on a share of GE in 1999 was 54%. Over the past 5 years, this return has averaged 46%, more than 60% better than the S&P 500 for the same period.

In the first quarter of 2000, results from operations were even better: Revenues were up 24% and earnings were up 20%.

Finally, on numbers, this is my twentieth annual meeting and the fifth time I will ask for a stock split, this time three for one.

We employees have always considered a split a celebration, and we hope you do as well.

I closed the annual meeting last year in Cleveland by saying to our share owners: “The next time we gather again in April of 2000, as GE begins operations in its third century, you can be certain that your Company will never have been newer, fresher or more energized.”

I had a lot of confidence then, but I didn’t know that this would turn out to be a massive understatement. I didn’t realize that in less than a year a phenomenon that was rumbling across the operations of our Company would erupt with a transformational energy that is changing the very kind of company GE is.

You have undoubtedly read about the ongoing debate about “new economy” companies versus “old economy” companies and the advantages, or penalties, for being one or the other.

The fact is the old economy – new economy scenarios are just trendy buzzwords. There is now and will be in the future only one global economy. Commerce hasn’t changed.

There is, however, a new Internet technology that is fundamentally changing how business operates. 

But a technology change, massive as it is, doesn’t mean abandoning traditional management concepts. What it does mean is adapting those business principles to the transformational world of the Internet.

This morning I want to explain what adapting these traditional management principles means to all of us in GE.

Let’s start with the decades-old GE principle of reality, seeing the world the way it is, not the way we hope it will be or wish it to be.

Seeing reality for GE in the ’80s meant a hard look at a century-old portfolio of business, insisting that every business in GE be #1 or #2 in their global markets or that they must be fixed, sold or closed. Taking action on this #1 or #2 reality brought us to where we are today: the owners of the most exciting and powerful array of global businesses in the world.

Seeing reality today means accepting the fact that e-Business is here. It’s not coming. It’s not the thing of the future. It’s here. Reality today means “go on offense.” One cannot be tentative about this. Excuses like channel conflict, or “marketing and sales aren’t ready,” or “the customers aren’t prepared” cannot be allowed to divert or paralyze the offensive. Moving aggressively raises some thorny issues with no clear and immediate solutions, but the challenge is to resolve these issues on the fly in the context of the new Internet reality. Tentativeness in action can mean being cut out of markets, perhaps not by traditional competitors but by companies never heard of 24 months ago.

Reality in the Internet world means moving at a fanatical, maniacal pace everywhere in GE!

The second management concept that has guided us for the better part of two decades is a belief that an organization’s ability to learn, to transfer that learning across its components, and to act on it quickly is its ultimate, sustainable competitive advantage. That belief drove us to create a boundaryless company by delayering and destroying organizational silos.  Selflessly sharing good ideas while endlessly searching for better ideas became a natural act. We purged NIH – not invented here – from our system, creating a company with an insatiable desire for information. All this was done the hard way, before the arrival of the Internet. Today, with the Internet, information is available everywhere to everyone, and a company that isn’t searching for the best idea, isn’t open to ideas from anywhere, will find itself left behind with its survival at stake.

Another management concept that served us very well over two decades was the belief that an organization that was not only comfortable with change but relished it – saw it always as opportunity, not as a threat – had a distinct advantage in a world where the pace of change was always accelerating.

We became such a Company, but we had the luxury of learning to become one when the pace of change was comparatively glacial and the windows of opportunity often hung wide open for years. 

·        In the late ’70s and early ’80s, we experienced the Japanese inroads on many of our traditional businesses, realized that our future was no longer in many of them, and moved into businesses that were immune to this assault while we restructured the Company. We did this, but we had almost a decade to get it done.

·        When Europe experienced doldrums and dislocations in the early ’90s, we moved quickly to partner with European firms whose future we believed in. The best opportunities this time were around for only two or three years.

·        Then Asia in the late ’90s – again economic dislocation  and again sudden opportunities to partner with great companies with great futures from Japan to Thailand. The very best of these opportunities were gone in a year.

You see the pattern.

Today, in the midst of this Internet revolution, the opportunities presented by change open and close on a weekly, even daily, basis, which brings us to another management tenet – speed.

Relishing change in itself is not enough if we aren’t institutionally fast enough to capitalize on it. The need for speed and more speed has been driving this management team for two decades, for the competitive advantage it always brings and for the sheer excitement and fun it imparts to every aspect of business. Our endless assault on bureaucracy, hierarchy, layers, boundaries and every other manifestation of corporate nonsense has made us much faster than we ever thought a big company could be, but that qualifier – a “big company” – was always there. The most daring true boast we could make about GE’s speed was that we had become “the fastest elephant at the dance.” Today, with the digitisation of every process, every operation, every customer touch of every GE business around the globe, we are in the process of taking this Company to levels of speed, agility and performance we could only dream of just a few years ago.  There is no time for lengthy evaluations of Internet opportunities. We have to pounce – every day.

We have the hard part, hundreds of factories and warehouses, world-leading products and technology. We have a century-old brand identity and a reputation known and admired around the globe, all attributes that new e-Business entrants are desperate to get.

And we have one other enormous advantage – Six Sigma Quality – the greatest fulfilment engine ever devised.

Six Sigma is a quality process methodology that more than 100,000 GE people have been trained in and have been working at  with great success for five years. Six Sigma fits like a glove with e-Business because it allows us to produce and deliver just what customers need when they want it. Six Sigma Quality defines the ultimate in customer fulfilment and satisfaction, just what e-Business requires.  

The final and most basic management tenet is measuring progress. GE has for years, like every other company and business school, measured revenues, net income, cash flow and the like and will continue to do so.

In the Internet world, we measure new things, in some cases things we never even heard of a couple of years ago and we measure most of them daily. We group these measures in what we call buckets ... 4 buckets: buy, make, sell and strategic.

On our “buy” side, we now measure the number of auctions on line, the percentage of the total buy on line and the dollars saved.

On the “make” portion, the Internet is all about getting information from its source to the user without intermediaries. The new measurement is how fast information gets from its origin to users and how much unproductive data gathering, expediting, tracking orders and the like can be eliminated. This tedious work in a typical big company is the last bastion – the Alamo – of functionalism and bureaucracy. Taking it out improves both productivity and employee morale.

 On the “sell” side, the new measurements are number of visitors, sales on line, percentage of sales on line, new customers, share, span and the like.

Strategically, the breadth of our business portfolio exposes us to a very wide range of emerging companies, many of them Internet based. This intimate knowledge has enabled us to make successful strategic investments in over 250 companies.

We are convinced that if we get these new buy, make, sell and strategic measurements going in the right direction, the traditional sales, net and cash flow measurements will follow, as will our relative stock market performance.

In the end, all of this going on at GE is about using this transformational new technology to better serve customers and to be so good and so fast we become the global supplier of choice.

So, to conclude, I’d like to remind you once more that there is very little, if anything, new in management today and that this “new economy” and “old economy” which we hear about incessantly are just labels invented by pundits.

There is, however, something new and something very real that is changing the pace and scope of business as it has never been changed before. Any company – old or new – that does not see this technology as literally as important as breathing could be on its last breath.

But for those of us, including GE, who are capturing it, are energized by it and see it as the greatest opportunity in our history, the excitement is like nothing we’ve ever experienced and the rewards promise to be greater than we can imagine.

The Internet truly makes the old young and the slow fast, and what could be a better tonic than that?

This is a wonderful time to be part of GE. I’ve never been more confident that our most exciting days lie ahead.

Thanks for listening.

A Company To Be Proud Of

John F. Welch

Chairman and

Chief Executive Officer

General Electric Company

...it’s important for you to know that you don’t have to make a choice between owning a company that puts up great numbers and a company that is socially responsible. You own both and you have every right to be proud of it on every count.

Good morning – and welcome once again to our annual meeting. Ohio is home to more active GE employees than any state in the Union and is headquarters for two of our world-leading businesses, GE Aircraft Engines in the Cincinnati area and GE Lighting here in Cleveland. Lighting has been here since 1913 at Nela Park, which will soon enter its tenth decade as the world leader in lighting technology, some of which, just a few months from now, will illuminate the first game of what we hope will be a successful season for the Cleveland Browns in their new lakefront stadium.

There are more than 10,000 of our shareowners in the Cleveland area who have cause to be proud of their Company and pleased with its performance in 1998, delivering yet another record year.

For the first time in our history we broke the $100 billion mark in revenues.

We grew earnings 13% to a record $9.3 billion and earnings per share 14%.

We had record operating margins of 16.7%, up from 15.7% in 1997, and a record return on total capital of 23.9%, up about 50% from 16.1% in 1990. This performance generated $10 billion in free cash, cash which allowed us to invest for growth and to increase shareowner value. We invested $21 billion in 108 acquisitions, raised the dividend by 17%, and repurchased an additional $3.6 billion in GE stock.

The bottom line: the total return on a share of GE stock in 1998 was 41%, following a return of 51% in 1997, 40% in 1996, and 45% in 1995.

This strong performance continued into 1999. Two weeks ago we reported first quarter earnings, up 14% to record levels. Operating margins, return on total capital, and cash also achieved new first quarter highs.

Those are great numbers and I’ll provide a few more a little later; but, for just a few minutes, I’d like to focus on something a bit softer than business numbers, on subjects that do not get the same level of attention as numbers, from either the business media or the financial analysts that follow GE.

I’m pleased to report today that the GE corporate audit staff finished its review a month ago and certified the numbers. We reached our goal of one million volunteer hours per year, and GE people delivered it a full year ahead of schedule.

We broke another big round number in 1998 in addition to the $100 billion in revenues. We broke the one million hours per year of GE volunteer service to youth.

At the President’s Summit held in Philadelphia in 1997, a very persuasive leader, General Colin Powell, challenged Lloyd Trotter, CEO of our Industrial Systems business and the GE representative to this summit, to raise the bar of GE volunteerism and commit to a pace of one million hours a year of volunteer service to America’s youth by April of 2000.

GE people like big round numbers like this and they love to take big swings at what we call “stretch” targets. They knocked this one out of the park. I’m pleased to report today that the GE corporate audit staff finished its review a month ago and certified the numbers. We reached our goal of one million volunteer hours per year, and GE people delivered it a full year ahead of schedule. We’re proud enough of this achievement that we’ve made it part of our corporate advertising, and I’ve brought the spot along for you to see.

The GE family in Cleveland was particularly active in this campaign, conducting an ongoing and highly successful mentoring and school partnership effort at Collinwood High School.

In 1990, 26% of Collinwood graduates went on to college. GE volunteers set a stretch target of doubling that percentage by 1995. After thousands of hours of working with the terrific Collinwood faculty and students, and a grant of $1 million from the GE Fund, over 67% of Collinwood seniors were college bound by 1995, and that number remains at about that level today.

GE volunteers and donors also participated in several facilities upgrades and construction projects in the schools of this area, including building a playground at the Louis Pasteur Elementary School, which feeds Collinwood, and at the high school itself, including renovating the John D. Opie auditorium, named after our Vice Chairman during his tenure as CEO of GE Lighting.

GE volunteerism on this massive national scale undoubtedly contributed to a great honor given our Company in 1999 – our selection for the second consecutive year in a poll by Fortune Magazine as the Most Admired Company in America, and by the Financial Times as the Most Respected Company in the World.

We are very proud of GE people for their efforts in the schools and zoos, museums and playgrounds of the towns we call home – just as proud as we are of them for yet another year of outstanding performance in the laboratories, plants, offices, and global markets where GE does business.

We are equally proud of our Company on another score as well: GE and the environment. This morning I would like to lay out, for those of you who are not familiar with this subject, a few facts and a little history that may serve to frame the discussions that will take place here at our meeting later this morning. The central fact, the most important fact, is that we are a Company of deeply held values and nothing is closer to the heart and core of those values than 100% compliance with the spirit and the letter of the law – with no shortcuts, no winks, just a total commitment to integrity.

Your Company has spent two billion dollars in the past decade, not only on remediating the environment and complying with evolving environmental regulations, but going beyond them voluntarily to improve the air, water, and soil in the communities in which we operate.

What did you get for that two billion?

  •    In the past ten years GE voluntarily reduced the emission of 600 EPA target chemicals by 64%.

  •    We achieved a voluntary 83% reduction in a related EPA target list of 17 very widely used chemicals.

  •    We totally eliminated the use of ozone-depleting CFCs.

  •    Injury rates in our plants are down by two-thirds.

  •    And more than 1,000 Six Sigma projects have directly focused on pollution prevention and health and safety compliance.

Now GE globalizes, both to expand markets and to obtain the intellectual capital that exists around the world. Some critics of globalization imply that companies might globalize to avoid strict U.S. environmental regulations. That’s not true of your Company. To the contrary, we build any new facility to world-class environmental standards, and when we have taken over existing facilities, GE has received award after award for upgrading their environmental, health, and safety performance, from China to Mexico to Hungary to Ireland. Wherever you go in the world you can be proud of GE’s treatment of the environment and of the health and safety record of our employees.

On a more specific issue related to the environment, PCBs (polychlorinated biphenyls), it is important that you understand that your Company has always been a leader in the responsible use, disposal, study, and cleanup of these compounds.

First, we were responsible environmental citizens when we used PCBs in capacitors and transformers. They were specified by many customers and insurance underwriter codes because their flame-retardant characteristics saved lives.

Second, we  were responsible citizens in the disposal of PCBs: we had permits whenever permits were required and we discharged or disposed of PCBs in ways considered proper and appropriate at the time.

Third, GE immediately stopped using PCBs in the 1970s when environmental regulations changed, and have worked since then with independent scientists and the government to study the effects, if any, of PCBs on people and the environment.

And finally, we have been and will continue to be a responsible citizen, continuing to develop the appropriate remedies for any PCB contamination resulting from our operations.

Recently, there has been wonderful and encouraging news on the PCB issue, great news for our employees in the plants that used PCBs and for our neighbors in the towns where those plants were located. The largest, most definitive independent study ever done on PCBs and cancer, which tracked over 7,000 GE employees who had been heavily exposed to PCBs over a 30- to 50-year portion of their lives, concluded there was absolutely no increase in deaths from cancer or any other illness, including heart attacks and strokes, among that group.

This study by Dr. Renate Kimbrough, who first raised the issue of possible PCB toxicity 30 years ago, was peer reviewed twice – including by the former head of the National Cancer Institute, Dr. Arthur Upton.

This was the fifth and the largest study of our workers in upstate New York and all have arrived at the same conclusion: that there is no evidence that PCBs cause cancer in people.

This was wonderful news and it was greeted as such by most in the political world and in editorial commentaries. Why would it not be? But, for reasons that puzzle me, it was not good news for some. Those are the people with years invested in one point of view on this subject, and for them “good news is no news.” For some, science should never be allowed to get in the way of inflammatory rhetoric.

I take this opportunity, in the middle of what normally would be a routine report on business matters, to address this issue of social responsibility, of GE and the environment, because it’s important for you to know that you don’t have to make a choice between owning a company that puts up great numbers and a company that is socially responsible. You own both and you have every right to be proud of it on every count.

...a big company must not only be  willing to use its size, it must be agile enough to bring that size to bear whenever opportunity presents itself.

We passed, as I mentioned, the $100 billion milestone in sales in 1998, an occasion one would expect to be marked by big celebrations or favorable comparisons of our revenues with the Gross Domestic Product of various countries and continents.

There was none of that at GE at the end of ’98 – none. It was because we instinctively sense that the pomposity and complacency that can result from passing a milestone like this can be the prelude to a stumble or a fall.

And there are some potential disadvantages, as well as advantages, to being as large as we are and as large as we plan to become. Some are obvious: big companies simply cannot communicate as rapidly or clearly as small ones, nor are they generally as quick to act as the smaller ones.

But the biggest potential drawback of size is the temptation it presents to manage it, to consolidate and control it, to try and get bureaucratic arms around it. Managing size in this over-controlled fashion has often spelled decline, or worse, for large companies, and we have no intention of doing it.

But there is one huge advantage in being a big company and that is in using size rather than trying to manage it – taking swings, lots of them, with the confidence that comes from knowing that, unlike many smaller companies, an occasional miss, even a big miss, does not mean the end of the game. We made 108 acquisitions in 1998, for $21 billion, and have averaged over 70 per year for the past five years. The vast majority have been successful, but naturally, a few have not turned out as planned. But it is the pace and intensity of the acquisitions that our size permits, and the knowledge that a “miss” won’t be fatal, that keeps GE growing and moving forward.

But a big company must not only be willing to use its size, it must be agile enough to bring that size to bear whenever opportunity presents itself. For us that meant going to Europe in the early 1990s, in the face of a troubled economic situation that was forecast to last indefinitely, a move that took us from under $6 billion in European revenue as we approached the decade to nearly $25 billion as we leave it.

It meant going to Mexico in ’95 in the face of economic uncertainty and a collapsed peso, buying 16 companies in six months and participating in the terrific recovery that has followed.

It means seeing the crisis in Asia as a huge opportunity and moving quickly to close $15 billion in Japanese acquisitions in the past six months, and to position ourselves to participate, in a big way, in the $4 trillion Japanese economy and the greatness of that country’s future. Japan will assuredly recover in the next few years, the way America’s economy rebounded in the 1980s and Europe’s and Mexico’s did in the 1990s.

Today we have a GE culture that truly understands the benefits of size and the need for agility, and these facets of our culture provide a foundation for our growth.

Positioning ourselves to service the global installed base of high-value products is another path toward sustained high growth for GE. Our service challenge, and the vast opportunity meeting that challenge will create, is to ensure that our customers from utilities to hospitals, from railroads and factories to airlines, win in their markets. We must bring these customers the information-based technology that makes our installed equipment more capable and efficient, making them, in turn, more profitable and competitive.

This is just one element of the total service strategy of your Company. In 1980 GE was 15% services and 85% products. We will leave this decade at 25% products and 75% services. A service focus changes how we go to market and what we do in the market. Today, instead of selling equipment to finite markets, we are selling ideas and solutions to a whole world that hungers for them. This creates a world in which we can envision literally unlimited growth.

...the Master Black Belts and Black Belts are now being promoted to key leadership positions in the Company – big jobs – and they have begun to irrevocably change the DNA of GE to one whose central strand is quality.

Finally, and perhaps most importantly, we have changed how we work. Three and a half years ago we made a decision to immerse this Company in the science and culture of Six Sigma quality, which is a disciplined method of eliminating virtually all defects from every one of the Company’s products, processes, and transactions. For those not familiar with Six Sigma, it means, very briefly, going from approximately 35,000 defects or mistakes per million operations – Three Sigma, which is average for most companies – to Six Sigma, fewer than 4 defects per million, in operations that range from manufacturing a locomotive part to servicing a credit card account, to processing a mortgage application, to answering a phone. It means fixing processes so they are nearly perfect and then controlling them so they stay fixed. The common objective in virtually all Six Sigma projects is the elimination of variance.

During the first two years of Six Sigma we invested about half a billion dollars in the training of our entire professional work force. But the commitment, the big bet, was much more than financial. It involved the diversion of the very best talent in the Company – thousands of our best people, high-potential men and women – to multi-year tours of full-time Six Sigma work.

The short version of our progress from a standing start three and a half years ago is this: virtually every professional in the Company is now what we call a “Green Belt,” with three full weeks of training and a completed Six Sigma project under his or her belt. Five thousand full-time Black Belts and Master Black Belts are now initiating and coaching projects across the globe. Most importantly, the Master Black Belts and Black Belts are now being promoted to key leadership positions in the Company – big jobs – and they have begun to irrevocably change the DNA of GE to one whose central strand is quality.

The size of our potential market is growing even faster than we are because our definition of the market we serve becomes bigger and broader every day.

The financial returns from Six Sigma have exceeded expectations. In 1998 we achieved three quarters of a billion dollars in Six Sigma-related savings over and above our investment, and this year that number will go to a billion and a half, with billions more to be captured from increased volume and market share as customers increasingly “feel” the benefits of GE Six Sigma in their own businesses.

We are now beginning to see the first major products designed for Six Sigma production, designed in effect by the customer, incorporating every feature he or she considers critical to quality.

The first major Six Sigma-designed product to reach the market – the LightSpeed, a multislice CT scanner – reached our customers in 1998. This lifesaving machine is revolutionizing medical diagnostics. A chest scan that takes a conventional scanner three minutes to perform takes 17 seconds with LightSpeed. A full body scan for a trauma patient, for whom speed can mean life or death, now takes 32 seconds when a conventional scanner could take ten minutes or longer. I brought the tape of the ceremony that marked its introduction.

We’ve shown that tape to every single senior manager in this Company because it represents the future, when every product in this company will be designed for Six Sigma and every customer will be as delighted as those doctors are.

Six Sigma has forever changed GE. Everyone – from the Six Sigma zealots emerging from their Black Belt tours, to the engineers, the auditors, and the scientists, to the senior leadership team that will take this Company into the new millennium – is a true believer in Six Sigma, the way this Company now works.

In nearly four decades with GE I have never seen a Company initiative move so willingly and so rapidly in pursuit of a big idea.

We service airlines rather than just engines, railroads rather than locomotives, hospitals rather than CT scanners. We sell solutions and answers rather than just products.

I’ve focused this morning on a few characteristics of GE that define the kind of Company you own. I’ve reported a few of the numbers that describe its impressive financial performance – not just last year – but year after year.

I focused as well on the depth and the seriousness of its social commitments, on both the good its employee volunteers do in their communities and on the Company’s adherence to the letter and the spirit of the law. I’ve described for you, I hope, a Company that does most things right and always tries to do the right thing.

I’ve outlined our view of the one decisive advantage a big global Company has: the ability to take big swings in the pursuit of growth.

But are there limits to that growth? GE in 1999 will be well over $100 billion in revenues, over $10 billion in net income, and people will ask, as they have asked for a decade or more, what are the limits to this growth? There might have been an answer to that question two decades ago when our served markets were a fraction of what they are today. We were then a $25 billion Company serving about a third of our available market. As we enter the millennium we’ll be a well over $100 billion Company serving a small fraction of our newly defined market opportunities. The size of our potential market is growing even faster than we are because our definition of the market we serve becomes bigger and broader every day.

Our global reach has expanded enormously. We are positioned at the center of every high-growth region on the globe.

Our services initiative has immensely expanded the market to be served. We service airlines rather than just engines, railroads rather than locomotives, hospitals rather than CT scanners. We sell solutions and answers rather than just products.

Our Six Sigma initiative is growing share and opening markets, even in its relative infancy, as customers see the solutions it brings to their lives and are drawn to a Company that knows how to help them win in their markets.

The next time we gather again, on this occasion in April of 2000, as GE begins operations in its third century, you can be certain that your Company will never have been newer, fresher, or more energized.

And you can be equally certain that this new GE will be looking forward with excitement to limitless opportunities of a number and size that would have been the stuff of dreams just a few years ago.

Thanks for your support – and for being with us today.

Presented at the General Electric Company 1999 Annual Meeting, Cleveland, Ohio, April 21, 1999.

“This Learning Culture that defines GE came into full bloom precisely at the time we embarked upon the most challenging and important learning-based initiative in the history of our Company — the quest for Six Sigma quality …”

I’d like to again welcome all of you to our annual meeting and thank those of you from this great city of Charlotte for the gracious welcome and hospitality you have extended to our Board of Directors during our brief stay.

We enjoy our annual meetings. They give our Directors an opportunity to visit different GE locations, learn from our employees, and hear the views and concerns of our share owners.

I particularly enjoy the meeting because since April of 1981 I have had the opportunity to sit here year after year and report on the terrific performances delivered by the people of General Electric.

This year is no exception because in 1996:

•           Revenues were up 13% to over $79 billion.

•           Earnings were up 11% to nearly $7.3 billion.

•           And earnings per share as a result of the stock buy-back were up 13%.

Total return on GE stock in 1996 was 40% — on top of the 45% return posted in 1995. The stock outperformed the S&P 500 by almost 50% over this two-year period.

The growth in our share price has led the Board to propose to you a two-for-one stock split which, with your approval today, will take place later this month. This is an accounting and legal event, but we’ve come to think of splitting the stock as something of a celebration — and it will be our fourth such celebration since I’ve been fortunate enough to have this job.

But so much for savoring past performance, including the double-digit revenues and earnings gains we announced two weeks ago for the first quarter of 1997. What I would like to do this morning is look into the future and give you a glimpse of our vision for this Company as it moves into the new century and beyond.

 “GE is unique in that it is … a very large, multi-business company with a Learning Culture that has transformed the diversity of its businesses and its size — from what is sometimes perceived as a handicap — into a tremendous competitive advantage.”

General Electric is a unique company. It is not unique in the diversity of its businesses. There are other large multi-business companies. It is not unique in its size. There are a handful of companies around the world as large or larger. It is not even unique in what we call its culture of learning. There are a few companies whose cultures thrive on learning.

GE is unique in that it is all three: a very large, multi-business company with a learning culture that has transformed the diversity of its businesses and its size — from what is sometimes perceived as a handicap — into a tremendous competitive advantage. GE is a widely diverse array of 250 business segments, 13 of them approximately Fortune 500 size. What sets it apart is a culture that uses this wide diversity as a limitless source of learning opportunities, a storehouse of ideas whose breadth and richness is unmatched in world business. At the heart of this culture is an understanding that an organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive business advantage.

This appetite for ideas, this lust for learning, was born in the ’80s in a simple ritual called “Work-Out.” Work-Out was nothing more complicated than bringing people of all ranks and functions — managers, secretaries, engineers, line workers, sometimes customers and suppliers — together into a room to focus on a problem or an opportunity, and then acting rapidly and decisively on the best ideas developed, regardless of their source.

This simple process, and the growing reverence for the better idea that it spawned, is now in the cultural bloodstream of the Company. It is reflected every day in the sharing and learning that goes on constantly among GE businesses and between our businesses and other companies. This Boundaryless Learning Culture killed any view that assumed the “GE way” was the only way or even the best way. The operative assumption today is that someone, somewhere, has a better idea; and the operative compulsion is to find who has that better idea, learn it, and put it into action — fast.

 “GE is a bubbling cauldron of ideas and learning — with tens of thousands of people playing alternate roles of teacher and student.”

A large company, a diverse company, a global company has, by its nature, access to an enormous amount of experiences, a world of good ideas; but this can only be turned into a decisive competitive advantage if there is a pervasive and insatiable thirst for those ideas, a compulsion to share them, and a powerful bias for speed in putting them into action.

We have that thirst — we have that compulsion — and we are getting faster — every day.

Let me share a small sample of how our businesses learn from each other and how they use that learning. Our Medical Systems business, for instance, is a world leader in remote diagnostics, which means an installed GE CT scanner can be remotely monitored by our service people as it operates in a hospital. They can detect and repair an impending malfunction, sometimes on-line, sometimes before the customer even perceives there is a problem. Medical Systems has shared this technology with our jet engine business, with locomotives, with Motors and Industrial Systems, and with Power Systems, enabling them to monitor the performance of jet engines in flight, of loco-motives pulling freight, of running paper mills, and of turbines in operation in customer power plants. This is one of the capabilities that give us the opportunity to create a multi-billion dollar service business by upgrading the installed GE equipment operating around the world.

This is just one example of the power of this Learning Culture that drives everything we do at every level of this Company — every day. GE is a bubbling cauldron of ideas and learning — with tens of thousands of people playing alternate roles of teacher and student.

“By January 1998 there will be no one on any slate for consideration for any management job in GE, no matter how junior, without some green belt training …”

This passion to learn, this obsession with finding a better way — every day — is more than just exciting, exhilarating, and fun to be a part of. It has led to a dramatic acceleration of the Company’s performance:

•           Operating margins, which for a century chugged along at under 10%, have accelerated to the 15% level in 5 years.

•           Inventory turns, a key measure of asset utilization, which for over a century ran in the 3 to 4 range, have nearly doubled, which freed up for share owners a record $6 billion in cash in 1996 — half paid out in dividends and half used in the stock buy-back program.

•           And Company revenues, which averaged single-digit increases in the ’80s, have been running at double-digit levels in the mid-’90s.

This Learning Culture that defines GE came into full bloom precisely at the time we embarked upon the most challenging and important learning-based initiative in the history of our Company — the quest for Six Sigma quality levels in every product, process and operation across GE by the year 2000.

“The best Six Sigma projects begin not inside the business but outside it, focused on answering the question — how can we make the customer more competitive? What is critical to the customer’s success?”

Six Sigma has gone in less than two years from being an alien concept, full of complex calculations and unfamiliar jargon, to a consuming passion sweeping across the Company. The Six Sigma quality initiative, very briefly, means going from approximately 35,000 defects per million operations — which is average for most companies, including GE — to fewer than 4 defects per million in every element of every process that this Company engages in every day: from manufacturing a locomotive part to servicing a credit card account to processing a mortgage application to answering a phone. The methodology involves measuring, analyzing, improving and then controlling — or locking in — processes once they have been brought within the narrow Six Sigma tolerances.

Six Sigma involves highly trained cadres of people called Champions, Master Black Belts, Black Belts and Green Belts who lead and teach teams that are focusing on an ever-growing number of quality projects. Barely 18 months ago we began work on the early projects, methodically building a rhythm of success. Today Six Sigma has exploded across GE with 30,000 employees trained in 1996 and another 100,000 to be trained in 1997. Six thousand quality projects are now under way.

B y January 1998 there will be no one on any slate for consideration for any management job in GE, no matter how junior, without some green belt training — entailing Six Sigma methodology and involvement with a successfully completed quality project. By December of 1998 there will be no one in any management job at GE who lacks that same qualification.

By the year 2000, as we approach Six Sigma quality levels, every man and woman in the General Electric Company will be quality trained, with over half of them holding some type of belt. There will be no one in any senior leadership position at GE as we enter the next century who has not been immersed in it.

In the ’80s this Boundaryless Learning Culture that was the most important product of Work-Out defined how we behave in this Company. Today we would never knowingly hire someone who would not or could not adopt that behavior.

As Boundaryless Learning has defined how we behave, Six Sigma quality will, in turn, define how we work. In the next century we will neither accept nor keep anyone without a quality mindset, a quality focus. The stakes are just too high. Six Sigma is much more than just a methodical science-based Company initiative: it is in our future — it is in our blood. It has been remarked that we are just a bit “unbalanced” on the subject. That’s fair comment. We are.

The best Six Sigma projects begin not inside the business but outside it, focused on answering the question — how can we make the customer more competitive? What is critical to the customer’s success? Learning the answer to that question and then learning how to provide the solution is the only focus we need. One thing we have discovered with certainty is that anything we do that makes that customer more successful inevitably results in a financial return for us.

So what are some typical projects? Take our lighting business. We had a billing system at GE Lighting that worked just fine from our perspective. The problem was it didn’t mesh very well electronically with the purchasing system of Wal-Mart — one of our best customers. Our system didn’t work for them and was causing disputes, delayed payments, and wasting Wal-Mart’s time. A Black Belt team using Six Sigma methodology, information technology and $30,000 in investment tackled the problem from Wal-Mart’s perspective — and in four months reduced defects in the system by 98%. The result for Wal-Mart was higher productivity and competitiveness with fewer disputes and delays — real dollar savings. The result for GE was a return many times that of our investment.

“Six Sigma quality has galvanized our people in a way I have never seen in nearly four decades with this Company.”

At GE Capital Mortgage Corporation our associates field 300,000 calls annually from customers and for years did so satisfactorily from our perspective, using voice-mail and call-backs when we were busy or not available. No big deal for us; we’d get back to them later. But a big deal for them — they were often talking to another company by the time we called back. A Master Black Belt-led team viewed this situation from the customer’s perspective and found there was something special about one of our 42 branches. That branch had a near-perfect percentage of answered calls. The team analyzed its system, process flows, equipment, physical layout and staffing — and then cloned it to the other 41. Customers who once found us inaccessible nearly 24% of the time now have a 99% chance of speaking to a GE person on the first try; and since 40% of their calls result in business, the return for us is already mounting into the millions.

At GE Plastics we had a situation where our polycarbonates met the very high purity standards we had set for them — internal standards that were satisfactory for a major share of the CD industry — but we couldn’t meet Sony’s performance requirements for its new higher-density CD-ROMs and music CDs. The result was that two Asian suppliers were getting all the Sony business and we were out in the cold. Our Black Belt team focused its learning not on our standards but on characteristics Sony considered critical to quality. Once they learned them, they devised a filtration method for our production process that allowed our polycarbonate to perform exactly as Sony wanted. The technical details are complex — the results are not: We got all their business, and Sony’s performance standards and our quality continue to escalate.

At Power Systems we always focused on delivering equipment on time, but the Six Sigma process forced us to learn more about what else was critical to quality in the view of our utility customers. Those customers made it clear that while we thought we were doing a pretty good job in producing documents to go along with the equipment — documents that are critical to their compliance with the agencies that regulate them — they were far from satisfied with our performance. It was creating a low-level source of irritation, not to mention cost. The Black Belt team focused on the process and fixed it, saving our utility customers well over a million dollars per year and ourselves a few hundred thousand in the process, while removing a lot of irritation from the system.

This short laundry list of projects has, by GE standards, small dollar numbers attached to it — a few hundred thousand here or a million there — but I’d like you to envision thousands of these processes made near-perfect, and then tens of thousands all across the Company and around the world inching GE ever closer to near-perfect quality. Six Sigma quality has galvanized our people in a way I have never seen in nearly four decades with this Company.

The investment is significant. In 1996 we spent about $200 million on projects and training — and got somewhere in the neighborhood of $150 million in returns.

In 1997 we’ll invest over $400 million, and we’ll get $550 million to $600 million back. The snowball is growing, and by 2000 the cumulative bottom-line impact of Six Sigma quality will be measured not in hundreds of thousands or millions but in billions.

“Six Sigma by 2000 is also the toughest challenge in the history of GE, but this Company will get there — it will deliver — because GE people always deliver.”

Six Sigma by the year 2000 — achieving this near-perfect quality level in five years — is what we like to call a “stretch” goal, a target so far beyond seeming capabilities as to appear at first impossible. But we’ve set these goals before, in things like inventory turns, margins, earnings and the like, and either reached them or came close; but even in missing them, we delivered performances greater than we ever thought were in us.

Achieving this level of quality is the biggest test of our Learning Culture. The edge it will add to the competitiveness of an already awesome array of world-leading businesses will change every game in which we play, and take us to a level of corporate performance that was for us only two decades ago just a wisp of a dream.

Six Sigma by 2000 is also the toughest challenge in the history of GE, but this Company will get there — it will deliver — because GE people always deliver. That’s in the blood as well.

Thanks for listening and for your continuing support.

Presented at the General Electric Company 1997 Annual Meeting,

Charlotte, North Carolina, April 23, 1997

Management -- Boss Talk: Raises and Praise or Out the Door

How GE's Chief  Rates and Spurs His Employees

By Carol Hymowitz and Matt Murray

Staff Reporters of The Wall Street Journal

The Wall Street Journal via Dow Jones

As chairman and chief executive of General Electric Co. for nearly two

decades, Jack Welch has reshaped the company through more than 600 acquisitions

and achieved one earnings record after another. Yet he says his most important

job -- the one he devotes more time to than any other -- is motivating and

assessing GE's employees.

To kick off an occasional series of Marketplace-page interviews with CEOs, Mr.

Welch recently sat down in his New York office for a long talk about motivation,

including his practice of grading GE's 85,000 managers and professionals

annually on a curve and firing the lowest scorers.

"You have to go along with a can of fertilizer in one hand and water in the

other and constantly throw both on the flowers," he says. "If they grow, you

have a beautiful garden. If they don't, you cut them out. That's what management

is all about."

WSJ: What did you learn about motivating people from your first management

job?

Welch: I had the luxury of starting as the first employee of a new plastics

operation at General Electric. When I hired my first person, we were a team of

two. I didn't see myself as a boss but as a peer. The two of us hired a third

employee and then more.

We had all of the things you have in a small start-up. We went to my house for

dinner. We met on the weekends. We socialized. We worked Saturdays. We didn't

have any pomp and circumstance, and we didn't have any memos. It was like the

family grocery store, which is what we always called [our business].

I think ideally that is how a company works. It becomes a place of ideas, not

a place of position.

WSJ: Is it still a grocery store?

Welch: As any business matures, it runs into problems of hierarchy. But there

is still spirit and a party atmosphere. When you win, you celebrate. We used to

have the 100-pound-order club. Whenever we got to 100 pounds, we would ring a

bell and stop [the assembly line] and everyone would go bonkers. I see elements

of that today in different businesses at GE.

WSJ: Did you have a particular boss who inspired you?

Welch: In my first 16 years at GE, I never worked in the same town as my boss,

so in some ways I never had a boss. But my first job was in Pittsfield, Mass.,

and I had a disaster once when a plant blew up. I had to go down to Connecticut

to see my bosses and explain what had happened, and they couldn't have been more

supportive and encouraging.

I clearly learned you have to make mistakes. Here I'd blown up a plant and I

wasn't fired. I wasn't yelled at or even criticized.

WSJ: How did the frustrations you felt as an up-and-comer shape your

management style?

Welch: Initially, I was part of a workplace where the reward system was

incredibly level. I was on a small project, like several other GE newcomers. At

the end of the year, we all got the exact same $1,000 raise. I said, "This isn't

for me, I have to get out of here." But my boss asked me to stay, and I never

had that problem again.

That experience made me aware of what the frustrations can be for others in a

large company like GE. You drive into the big parking lot, put your car among

rows and rows of other cars, go into the office, and some horse's ass tells you

what to do and how to do it. And this isn't what you expected out of life. If

you don't get recognized and you have the wrong boss, it can be awful.

WSJ: What do you advise employees to do?

Welch: I tell people to never allow themselves to become victims in an

institution. Because many people end up feeling like victims. They are in the

wrong job, or they have plateaued, or they don't want to rock the boat.

I encourage them to raise their hands, to be seen, to make a statement. I tell

them, "If GE can't be the place where you can get rid of that victim feeling, go

somewhere else." And we try to weed out the managers who make employees feel

like victims, the managers who lose staff all the time.

WSJ: How much time do you spend on people issues?

Welch: At least 50% of my time. I'll show you. (He pulls out a huge notebook

filled with charts that rate each professional in one unit.) Here would be the

vitality rating. Everyone knows where they are.

1's are the top 10%. These are the top people. 2's are the next-strongest 15%.

3's are the middle 50%. The ones in the middle have a real future. Then 4's are

the caution 15%. They can move to the left. 5's are the least effective 10%.

We've got to get rid of them. We don't want to see these people again.

On every performance appraisal they are being told you are at 1, 2, 3, 4 or 5.

So no one will ever come in with any chance to say, "I was always told I was

great. And now you are telling me I am not great.''

WSJ: And your rating affects your chance at stock options, right?

Welch: All the 1's will get options. About 90%-plus of the 2's will get

options. About half of the 3's will get options. And the 4's get no stock

options.

See, there's an option chart in here. Who got options? Who didn't? Here it

says what happens. . . . Are they out? How did you reward these people? Do you

want to love and hug these people? Kiss them? Nurture them? Give them

everything?

WSJ: What is that like for them? In a sense, they are all up against each

other then. Doesn't that put a lot of stress on them?

Welch: No. There is plenty of room. See, 3's are OK. This is not punishing

3's. This is not at all that. I don't know if this is more rigorous than other

companies. But I think it is our product.

WSJ: In this example, it's broken down evenly: 10% are 1, 15% are 2, 50% are

3, 15% are 4 and 10% are 5. Do you always grade on a curve?

Welch: We demand it of every group. Because every group will fight like hell

to say, I have all 1's. If I get 10 people, one is a 1 and one is a 5.

WSJ: How do you know when to cut somebody loose?

Welch: With the 5's it is clear as a bell. I think they know it. And you know

it. It isn't even a hard conversation.

It is better for everyone. They go on to a new place, a new life, a new start.

The decision is harder with the 4's. The difference between a 1 and a 3,

though, is not that little a jump. It is 10 people. It is 15 people. When you

get the top 10% performers, their output and energizing impact is overwhelming

compared to 4's.

WSJ: How do you motivate those average employees?

Welch: By telling them they can get to be 2's and 1's, and telling them they

are eligible for options. But only the best of them will get options.

WSJ: How many actually get options?

Welch: We have about 85,000 professionals. And we give options to 10,000 to

12,000 a year -- but not always to the same people. So about one-third of our

people, about 29,000, have gotten options, although not all in any one year.

WSJ: Do you give people goals to improve their performance?

Welch: I think goals are less helpful than knowing they are not at a dead end.

We want to grow this company as fast as we can. I think that is about as

specific a goal as I ought to be setting. Because I want to let them think up a

zillion ways to grow. If I know what to do, what do I need them for?

Some companies have contracts with their employees. I hate those. If you and I

are making a contract, and I am the boss, what are you likely to do for the week

before we meet? You are going to work out 50 charts to prove to me that you

can't do too much. And I am going to try to pull you higher. And in the end we

will compromise. On the other hand, if I turn to you and say I want every growth

idea you have in your body -- and I ask, "What do you need, do you need more

people, do you need more research and development?" -- you will come in with all

kinds of things that I have never thought about. Then I can say, "I don't like

that idea, I don't want to do that one, but I would like to do that one.'' The

dialogue between us is so much richer.

WSJ: How do you encourage risk-taking and mistakes when you also require

results?

Welch: I talked before about the disadvantage of working in a big company, the

numbing feeling you can have in the parking lot. But there's also an advantage

to being huge.

Last year we made 108 acquisitions for $21 billion. That's 108 swings. Every

one of those acquisitions had a perfect plan. But we know 20% or 30% will blow

up in our face.

A small company can only make one or two bets or they go out of business. But

we can afford to make lots more mistakes, and in fact we have to throw more

things at the wall. The big companies that get into trouble are those that try

to manage their size instead of experimenting with it.

WSJ: How do you get your message down through the ranks?

Welch: I would never want to run this company without Crotonville [GE's

management training center in Crotonville, N.Y.]. About 5,000 people go through

there each year. I will see about 1,000 myself for four hours, plus another two

hours at the bar.

WSJ: Aren't you also known for sending personal notes to managers:

Welch: I just became an e-mail person. And one executive I e-mailed wrote back

saying he couldn't stand my new skill. He said, "How will I know without that

big black scribble across the top of the page -- with the width of the scribble

determining the angst with which you are writing -- how you feel?"

WSJ: How involved do you get in GE's distinct businesses?

Welch: My job is not to know everything about each business. It is to pick the

people who will run the business and to decide how much money Business A vs.

Business B or C gets -- and how to transfer people, dollars and ideas across

those businesses. I don't get into the how. So I get into trouble when I get on

the golf course with someone from a particular industry who wants to know how

the widget is built. I am out of gas then.

WSJ: When it comes to recognizing employees, what counts more, financial

rewards or the personal touch?

Welch: I think showering rewards on people for excellence is an important part

of the management process. There's nothing I like more than giving big raises. I

don't want anyone with his nose against the glass, I want them to go right

through the glass -- maybe because I had my nose against the glass.

You have to get rewarded in the soul and the wallet.

The money isn't enough, but a plaque isn't enough either. Years ago I worked

for somebody who was giving out medals to employees who got patents. I wanted to

give them more cash. This guy was a fat cat who had a lot of money. He said

money is so crass, just give them the medal. I just thought that was wrong; you

have to give both.

WSJ: How do you evaluate your top executives? Do you rate them against each

other?

Welch: I compare them against their competition, and never against each other.

We have one plan where half the reward an executive gets is for the performance

of his business and half for the performance of the whole company. But if the

company doesn't make it and the business has a greater performance, the bonus is

zero -- because no boats get to the shore if the Titanic sinks.

WSJ: How important is it to feel attuned with the people you manage?

Welch: It doesn't matter if you don't want to hang around with them or

socialize with them. It doesn't matter if someone doesn't like baseball or

libraries or museums or opera or they dress differently than you. But if your

business values are different, if your treatment of people is different, if you

don't agree about the behavior you want to cultivate in your company, that is a

problem. You have to be on the same page there.

WSJ: How do you overcome employees' intimidation when in your presence?

Welch: This is a hard question, because I don't really know if they feel

intimidated. But we have a lot of humor in our company. We spend a lot of time

screwing around.

Our meetings are not always the most productive. Like, for example, the other

Monday: We spent the first half-hour talking about Saturday's golf tournament,

and everybody was screaming about the putts. And we had the most crazy packed

day.

WSJ: You've been identified with GE for so long. How will your successor

establish his own identity?

Welch: By being himself and doing it his way. It will take some time. It takes

everyone time. But we are so deep. We have so many people. This is so much less

of a one-man show than the world will ever give it credit for being. They are

all sitting there saying, "I would like to do this this way. I would like to do

that that way. And why is that jerk doing that?" That is the way life is.

---

5 Lessons on Motivation From Jack Welch

1. Tell people to never allow themselves to become victims. . ..They should go

somewhere else if that's how they feel.

2. Constantly refine your gene pool. . .by promoting your best performers and

weeding out your worst.

3. Grade on a curve. . ..If I get 10 people, one is a star and one won't cut

it.

4. Instead of giving people specific operating goals, challenge them to give

you every growth idea they've got.

5. You can't just reward people with trophies. Reward them in the wallet, too.

Copyright (c) 1999 Dow Jones and Company, Inc.

Received by NewsEDGE/LAN: 6/21/99 2:11 AM

The ability to harvest the enormous, limitless contribution that a challenged, involved, inspired group of people can give you is what distinguishes a hungry, growing, young-at-heart enterprise from just another company. It is the difference, as well, between the manager of yesterday and the leader of tomorrow.

This really is a great honor for me to be here today at this prestigious school, at this great University, to deliver the 12th in this series of Durland lectures.

I must confess that to someone like me, who is not from the academic world, the word “lecture” implies that I’ll be conveying dogma to you, lofty revelations.  That made me feel a little bit pompous when I was asked to deliver this one, but on reflection, Dean Swierenga added a nice balancing touch by selecting April Fool’s Day as the date of delivery.

In that vein of humility, I need to add that the lessons I will pass along to you this afternoon are not ones constructed out of whole cloth in my brain or in our GE management school, but instructive insights — often very simple, sometimes painfully acquired — that we have picked up in the long, tough effort to change GE, and to change ourselves, in the recent past.

The recent past, the era I will focus on at GE, will come to an end in December of the year 2000, when our Chairman, Jack Welch, will retire. His 17-year tenure has been one of singular achievement, the pace of which, if anything, seems to be accelerating. In the space of a single week in February, for example, our stock hit an all-time high; we were named the most admired company in America by a wide margin in a Fortune poll; and Jack, using an airplane which he probably didn’t even need, flew down to Florida to play a golf match with the Shark, Greg Norman. Norman shot 70; Jack shot 69. When you’re hot, as they say, you’re hot.

But a change in GE’s leadership will occur two and a half years from now. We think about succession quite a bit, but you might be surprised to hear that we discuss the subject very little. Pending transitions of this type — and the pomp and politics that accompany them — can be an enormous distraction to an organization that needs to be intensely focused on more important things, such as winning in a global marketplace that is marked by dazzling change and huge, but fleeting, opportunities.

We have, however, constructed what you might call a composite sketch of our leadership team for the next generation. These individuals, in addition to possessing the obvious non-optional qualifications of absolute integrity, high intelligence, global and diverse business experience, and the like, will have what we have come to call the three “E’s” — energy, meaning high energy, the ability to energize others, and something called “edge.”

These are not necessarily attributes traditionally associated with management. They are personality traits, sometimes acquired personality traits, rather than traditional business skills. How we have come, over two decades, to value them in leaders at GE, how we changed our company and changed ourselves, and what we learned from doing both is the subject of my conversation with you this afternoon.

When I began at GE in the late sixties, and throughout the decade of the seventies, a high energy level was not a particularly prized attribute. Neither was the ability to energize others. In some cases they were construed as mild negatives — one might be considered “abrasive.”

As managers in those days, we were reminded incessantly that we were “stewards” of whatever department, division, business, or product line we ran. We were entrusted with relics, sometimes Edisonian relics, on a velvet pillow. Growth and activity were fine, but stability and risk-avoidance were paramount. The ancient physician’s admonition applied: “Above all, do no harm.”

The operative analogy we applied to the Company as a whole was that of a giant supertanker that needed miles and miles of water to turn once the wheel was spun. We kind of liked that description. We must have; we repeated it enough. It implied a stately ponderousness and stability appropriate to the business climate of the time. The current plague of Titanic mania makes me wonder if we ever described ourselves as “unsinkable.” I don’t think so, but we undoubtedly believed that we were.

Welch and his team in the embryonic plastics business in the sixties and early seventies were regarded as wild-men and bomb-throwers. They felt no mandate to be “stewards” of anything, because they hadn’t been given anything to be stewards of.

This stewardship style of management maintained complex structural hardware and cultural software that perfectly suited it. We were heavily layered and hierarchical and enormously bureaucratic, although probably no more so than our peers. An individual business leader, a General Manager, reported to a Division Vice President; who reported to a Group Executive, a Senior Vice President; who in turn would report to a Sector Executive who was an Executive Vice President. He reported to a Vice Chairman who in turn reported to the CEO. This chain of command and the high-grade staffs that populated each of its levels produced stability, as close to fail-safe as a system can be, as well as some of the most gorgeous vinyl briefing books and charts ever seen in world business.

We produced exquisite, polished “free-standing decision memoranda” which took a long time to create and staff, and which you could pull out of a file cabinet today, blow the dust off, and have all you need to make an intelligent business decision.

But, God, was it slow. Energy, and the compulsion to speed things up, to push ahead in line, go out of channels, was looked at askance. Welch and his team in the embryonic plastics business in the sixties and early seventies were regarded as wild-men and bomb-throwers. They felt no mandate to be “stewards” of anything, because they hadn’t been given anything to be stewards of. They started from virtually nothing. I shouldn’t say nothing, because they did have equipment from the old chemicals department, including a laboratory that Jack managed to blow up in the sixties.

Someone walked into the local watering hole near corporate headquarters, called the Hi-Ho, in 1981 and overheard one of the old-timers sadly repeating, into martini number two,“I’ll give him two years — then it’s Bellevue.”

The end of the supertanker era came in the mid-seventies, although we didn’t really believe it until a bit later. The Japanese were suddenly on a tear and our private domestic market playpens were under assault. All the flywheels and baffles in our management structure made us much too slow, and our productivity — particularly in comparison with the Japanese— was terrible. The place needed energy, it needed excitement, and it needed speed.

At this point in 1980, an absolutely singular and risky leadership decision was made by Reg Jones, our Chairman at the time. Jones was himself the most respected businessman in America and a perfect symbol of everything venerable and wonderful about the traditional GE.

And despite the eager availability of half a dozen highly talented and respected conventional candidates for CEO, he saw clearly the need for a faster, more energized, more growth-oriented GE. And, in an act of truly remarkable courage and foresight, he bet the Company on a 45-year-old anarchist named Jack Welch.

Welch immediately delivered a subtle hint of a style change at GE by standing up at the first meeting of his 500 general managers and asking, “How do you like having a stuttering overachiever as a CEO?”

Well, some didn’t like it. They were uncomfortable with the frenetic energy level and they didn’t understand the vision that he repeated over and over: “We will become better than the best.” And GE will be “number one or number two in every one of its businesses” or we will close them or sell them. Someone walked into the local watering hole near corporate headquarters, called the Hi-Ho, in 1981 and overheard one of the old-timers sadly repeating, into martini number two, “I’ll give him two years — then it’s Bellevue.”

It took years. Years of repeating, over and over and over again, we will be number one or two in each business. It took years of actions — selling or trading things like the TV business, the small appliance business, and scores of other intermittently profitable barnacles that this “supertanker” had picked up since Mr. Edison’s time — years of actions before the vision became understood, shared, and, finally, real.

I had become CFO during this period, in 1984, and I can still remember the howls when some of these family heirlooms were unceremoniously disposed of: “How the

hell could he sell the electric potato peeler business?”

You must have a vision that — like “number one or number two in every business” — is so clean and so clear that everyone from a trainee on a drill press to a Vice Chairman can understand it, and repeat it until you wake up at night saying it, then say it again the next day.

But we kept at the business of change, and if there is a simple but profoundly important lesson we learned from those days it is this: you must have a vision that — like “number one or number two in every business” — is so clean and so clear that everyone from a trainee on a drill press to a Vice Chairman can understand it, and repeat it until you wake up at night saying it, then say it again the next day.

And even more important, you must reinforce that vision with every action you take and, by proxy, every action your management team takes, because culture change can be smothered in its cradle by a very small number of visible contradictory actions.

As an example, we wanted to abandon the “stewardship” paradigm and get people to take risks, to take what we called “big swings.” Prudent big swings, but big swings.

One of our early efforts was to develop a revolutionary new light bulb, a potential game changer called Halarc, and after a fair amount of time and resources invested, we failed. But rather than have the employees hear a series of muffled revolver shots in the basement of the lighting business as the Halarc team was executed, we celebrated a great effort. Management awards were distributed, promotions and new jobs were given to the Halarc veterans, and everyone in every business across the company was made aware that GE loved people who took big swings in pursuit of growth, even if they didn’t connect every time.

About this same time it became very clear to us that the mechanisms of our old “managed” Company — the layers, the filters, and the bureaucracy — were squarely in the way of a faster, hungrier GE. So we began to dismantle the organizational scaffolding developed carefully over decades. The “sectors” — the staffing superstructure used to control tens of billions of dollars’ worth of businesses — were dismantled, as were the next lower level, called “groups.” We blinked and gulped a few times as we did this. I remember even the endlessly confident Welch saying we would reinstall the sectors if things didn’t work out. But it did work out. We blew up all this structure and never looked back.

One could no longer be a colorless, impersonal autocrat, a technician who could manipulate the management structure to produce results. The structure was gone.

And, without all the baffles and layers, people communicated with each other more clearly and things moved faster. So we began to dig deeper into individual businesses and rip out the layers that slowed them down. We found there were sometimes as many as nine layers between someone on the factory floor and the leader of the business. We once found five layers of management supervising the boiler room of a single plant.

Eventually, the businesses began to get flatter and flatter, with some interesting phenomena as by-products.

For one, a whole new type of leader became necessary. One could no longer be a colorless, impersonal autocrat, a technician who could manipulate the management structure to produce results. The structure was gone. The leader now had to emerge from the corner office, and excite teams — energize them, lead them rather than manage them. Not everyone was capable of doing that. Many stumbled for a while and retired or otherwise departed. Some adapted amazingly well and became excited and younger in their new role.

The bureaucrats, many at significant pay levels, had a bad time of it. The kitchen light came on and suddenly there were no longer the pipes and cabinets of bureaucracy to hide under. They left by the battalions.

When an organization does what we did — flattens itself, tries to get people to move faster, to take risks, to grow, to work as teams — a few hundred thousand gimlet eyes are watching. Watching not just the CEO or the CFO or the Vice Chairman, but the individual business leaders and their teams. Send the wrong kind of leader to a business and the people are capable of nearly instant reversion to the keep-your-head-down-and-your-mouth-shut mentality of yesteryear. After a couple of years of change at GE, we found that there were four types of leaders. Type I was the man or woman everyone wants: a believer in teams and informality, a coach rather than a boss, who also produces the numbers. Superstar.

I can go out on a limb and say that today the leaders of our businesses are generally very well liked. Some are almost cult figures. And they are not so for being “pals” with everyone, or soft. Most are tough as nails.

Type II was pretty clearly defined as well: someone who didn’t believe in the team stuff or the other values, who sat on people and still didn’t produce results. We didn’t waste much time with that type — an easy call.

Type III was a believer in the values, but uneven in delivering. That type was typically given another chance, sometimes two, in another job.

Nothing remarkable about these three. Type IV is the problem. Type IV is typically an individual of high intelligence who produces the numbers consistently, but does so by intimidation, by terror, by squeezing people rather than drawing them out. What do you do with this individual, keeping in mind that we are very fond of our numbers at GE?

Our people, hundreds of thousands of GE employees, saw over the years that we truly did value their voice, their ideas, their energy, and they gave it. We poll them regularly, widely, anonymously, giving them every opportunity to tell us we’re full of it and, overwhelmingly, they have bought in.

That was the Rubicon we approached that separated us from a new leadership era at GE. And it wasn’t an easy crossing. We didn’t do it as quickly as we should have, and we let a few autocrats squeeze the juice out of life in a few businesses and at a few plants for far too long. These were people who smiled upward in the organization, mouthing the words of teamwork and involvement, and kicked downward and made things just plain miserable.

Asking these seasoned, talented people who always delivered to leave the Company was not easy. Typically they were snapped up by other companies, and typically they have become highly successful. But they can’t work at GE, because what they deliver is finite, as in juice squeezed from a lemon, or in some cases blood from a stone. What we are after is the virtually infinite energy, creativity, and passion for winning that must be freely given by the quarter million people who work at GE.

I can go out on a limb and say that today the leaders of our businesses are generally very well liked. Some are almost cult figures. And they are not so for being “pals” with everyone, or soft. Most are tough as nails. And they have that third “E” I alluded to – edge – which means the “yeses” and the “noes” are clear and unequivocal, and there is an opinion and relentless intensity brought to bear on every issue.

Our people, hundreds of thousands of GE employees, saw over the years that we truly did value their voice, their ideas, their energy, and they gave it. We poll them regularly, widely, anonymously, giving them every opportunity to tell us we’re full of it and, overwhelmingly, they have bought in.

So another lesson for us, and for your consideration: You’ve got to shoot some performers, some of what many others might consider your best people, if you are serious about long-term, permanent change.

And while changing leadership types is critical to mass behavioral change, so is changing reward systems. Many of us love what we do all day. I do, but I can’t say I would do it on a volunteer basis. Compensation is a big factor and motivator in our lives, and it must reinforce rather than conflict with the changes you want to make in behavior.

Taking the concept of “all for one and one for all,” which has some vaguely socialist overtones, and using it to drive performance in a zestfully capitalist institution like GE may seem strange, but it works.

At GE in the seventies and early eighties, if you were in a senior position in the Company, what we call “incentive compensation,” or annual bonus, was the biggest driver of your lifestyle. If you “stood out” favorably among your peers, you were rewarded commensurately. So if I ran the Aircraft Engines business, and you ran the Power Systems business, and you were having, say, a metallurgy problem with your turbine generators that was hurting your business, I would not (unless I was really twisted) rejoice in your misfortune. But deep within the recesses of my psyche, I might appreciate the fact that your looking bad did, admittedly, make me look better by comparison, and that contrast could be reflected at bonus time in February.

That system of bonus compensation, sort of zero sum, does not make for collegiality, collaboration, or the sharing of ideas, and in fact promotes secrecy, politics, insularity — in short, everything we were trying to get away from.

Here’s how we changed that. In the seventies few people really cared on a day-to-day basis about the price of the Company stock. Only the top 500 got stock options, and those who did didn’t make that much on them in the long bear market of the time.

We wanted to become what we call boundaryless, to incentivize rather than discourage sharing, learning, working together across functions and businesses and levels within the company. We kept the bonus, but made it volatile only to a range of about 20% on whether you, individually, had a good or bad year. But we overshadowed it with stock-price-based compensation — stock options. So now, if I personally had a good or not so good year, the bonus would bring me modest pain or elation. Ah, but if the stock price went up 25 or 30 points in a year, based on the market’s perception of our overall Company performance, you are now talking about what is sometimes referred to as “serious money.”

Pause, if you will, for a second, and replay the situation where I am the Aircraft Engines business leader and you are the Power Systems business leader with the metallurgy problem. In today’s GE, with this compensation system, I now care deeply about your problem because it could well affect the stock and my net worth. I want you to resolve this problem and, beyond that, I may very well have my engineers on a plane headed to your plants to help you fix it, regardless of the cost to me. Because when we all look good, and the Company performs, we all do well.

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