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How Jack Welch Transformed GE With Employee Engagement

Posted on December 25, 2014

It might not seem a good idea to take work-out tips from a 79 year old man, no matter how fit he might be. Unless of course you are talking about Jack Welch, the legendary former CEO of GE and the “work-out” system was the cultural initiative he implemented during his time there. This work-out system of Welch’s helped drive GE to double digit growth during his two decades at the helm. In the spring of 2001, as Welch was nearing retirement, GE was the most valuable company in the world with a market cap of $597 billion. The question is - what was the secret work-out formula and can it be applied to your company?

The Background

First a little history, because things were not always so rosy at GE. Before Welch took the reigns in 1981, GE was a “GNP company”, an aging manufacturing giant whose profits grew at the same rate as the American economy. It was also, by Welch’s account, a bloated bureaucracy with over 25,000 managers (including over 130 vice presidents) and hamstrung by red tape. Further, managers had no insight into employee morale and no ideas on how to improve things. Something had to change.

A Solution Appears

Welch sought to change all that by transforming GE from a hierarchical, command-and-control company to a learning organization. In this system, employees were encouraged to find creative solutions to problems. In this, three points were to be followed:

  1. Import the best ideas into the organization
  2. Reward employees who bring in the best ideas
  3. Celebrate new ideas

This new approach was a complete break from the popular scientific management stystem created by Frederick Winslow Taylor. Scientific management was the basis of the assembly line - a hierarchical system where employees performed routine specific tasks over and over and over. While Taylor’s system was a perfect fit for physical labor, Welch knew the work world had shifted to a knowledge economy, where value was created more by more mental, and less physical, exertion. In this new system employees were no longer regarded as replaceable cogs but rather valuable resources who could provide valuable feedback for organizational improvement. With this in mind, in 1989 Welch launched a bold cultural initiative called “Work-Out.”

The Work-Out

As created by Welch, all employees were required to attend their respective Work-Out session. A typical session would last three days and consist of workers giving suggestions to managers for improving processes. Managers were required to say “Yes”, “No”, or “I’ll get back to you at a specific date.” Amazing to those who may have worked in a bureaucratic system before, managers in these Work-Out sessions said “Yes” 80 percent of the time.

Over the course of years, looking to employees for suggestions in improvement delivered big results. Among them:

  • In just three years after the Work-Out program was launched, company earnings attained double-digit increases in 1992 and continued for every year after that. Previously single-digit increases were the norm throughout the 1980s.
  • Inventory turnover, a good measure of how efficiently products are being managed, was over eight in 1999 where it had been in the three to four range for GE’s last 100 years.
  • Operating margins rose to 17.3 percent in 1999 where they had been under 10 percent for GE’s previous century.

By including all employees in the program, Welch managed to unleash the value of GE’s 300,000 person work force. GE’s receptivity to new ideas also enabled the company to rapidly adopt and popularize the system of production, originally created and used to great results at Motorola.

Applying These Lessons to Your Organization

Welch’s Work-Outs have a number of takeaways that can be useful to your business. First, they functioned as a good alternative to the traditional “box on a wall” approach to handling employee suggestions. Often the “box on a wall” approach comes across as alienating, ideas are put into the box (or submitted with a simple electronic form) and never heard from again. By formalizing an employee suggestion handling process and encouraging managers to give meaningful feedback, Welch showed employees that GE was interested in hearing their ideas and, if they were good ideas, putting them in place and rewarding the idea person. So the question is - what are you doing to make sure your employee suggestions are being heard by their managers?

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