Electric view of business

July 21, 2006

Jack Welch, the former chairman and chief executive officer of General Electric, is a passionate proponent of 20/70/10 management. This means that the employees in a company are split into three categories: the top 20 per cent, the middle 70 per cent and the bottom 10 per cent. The top group are the stars and must be specially rewarded, Welch says, "with bonuses, stock options, praise, love, training and a variety of rewards to their pocketbooks and their souls". The middle group are the reliable sloggers: as they constitute the majority of the company's staff they are central to its performance, but as they lack star status they miss out on the special rewards (both to their pocketbooks and their souls, presumably). The bottom group are the duds and have to be fired - or rather "let go" in the standard American euphemism. This is good for them, Welch insists (as do most American business honchos), because it is cruel to keep them hanging around in an organisation where they are not wanted.

The 20/70/10 formula has clearly percolated deep into Welch's psyche, because his new book Winning is divided in the same ratio 20/70/10: 20 per cent of it is stellar, 70 per cent is reliable but not particularly original, 10 per cent of it is dud. "What a shame!", as Welch likes to say when he comes across a business practice he deplores.

His own management credentials are unimpeachable. He joined General Electric in 1960 and rose to become CEO in 1981. During the next 20 years, until his retirement in 2001, GE's market capitalisation increased by $400 billion (£220 billion), making it the most highly valued company in the world. Today he is employed as a personal consultant by the CEOs of some of the world's largest corporations and has addressed eager audiences totalling more than 250,000 people in the past five years.

Which aspects of Winning deserve to be included in the top 20 per cent? First, unlike most business books, Winning is a damn good read: clear, pacy, almost jargon free. This may be due, at least in part, to the co-authorship of his wife, Suzy - she is a writer and a former editor of Harvard Business Review . Again, unusually, the book contains a fair amount of unalloyed self-criticism. Time and again Welch comes clean about things he botched up. Admittedly, when you have been as successful as he has you can afford to acknowledge your bloomers. But few do.

This doubtless derives from another ingredient in Winning 's top 20 per cent -Welch's emphasis on candour. He admits that, despite their reputation for being brutally frank, most Americans find it remarkably hard to be candid.

They want to be liked and they do not know how to phrase criticisms without being too harsh. So they prevaricate and euphemise - disastrous habits in business. On the basis of his recent lecture tours, Welch estimates that 80 to 90 per cent of all personnel appraisals, now so in vogue, are virtually worthless because the appraiser is insufficiently candid.

Other aspects of the book worthy of being included in its top 20 per cent - in any top 20 per cent - are its demystifying of business strategy ("It's very straightforward. You pick a general direction and implement like hell"); its chapter on crisis management (always assume the problem is worse than it first appears - most people do the opposite); and its fresh approach to budgeting ("budgeting in most companies has to be the most ineffective process in management"). All those and more are indeed stellar.

It is not worth dwelling on the middle 70 per cent - sound stuff, but stuff that has appeared in many other management books over the years, albeit often more turgidly. But the real blunders in the 10 per cent deserve to be spotlit. Welch is zealously enthusiastic about business and hates to admit it has any failings at all. This leads him to opine, for example, that Enron went sour because its mission statement was confused.

No. Enron went sour because it was run by crooks. He refuses to accept that corporations have any responsibility for helping their employees achieve at least a tolerable work/life balance. Being a workaholic himself, he naturally believes this to be an issue people must sort out for themselves: it is not the company's problem. This is ostrich like. And then there is "letting people go". Employees do, of course, sometimes need to be fired, and Welch is far better than most at understanding the pain this causes.

But his self-justificatory insistence that it is always for their own good, so they ought really to be grateful is, well, puke-making.

Still, Winning 's 20/70/10 performance puts it streets ahead of most business books. I do not accept that in any organisation 10 per cent of employees ought to be fired - but it is true that 10 per cent of Welch's book would have been better omitted. As Welch would say, what a shame!

Winston Fletcher is chairman, the Royal Institution.

Winning: The Ultimate Business How-to Book

Author - Jack Welch with Suzy Welch
Publisher - HarperCollins
Pages - 372
Price - £20.00 and £12.99
ISBN - 0 00 719769 1 and 719767 5

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