Does the Jack Welch Management Style Work?

In the 1980s, ’90s, and into the new millennium, Jack Welch was the CEO.

Often referred to as the original celebrity CEO, he headed the General Electric Company for 20 years. Welch impressed investors and hung out with celebrities. This set the precedent for the likes of Bill Gates, Jeff Bezos, and Elon Musk to do the same. At the peak of his influence, Fortune magazine named Welch the "Manager of the Century."

But today, his name isn’t mentioned with the same gusto. Many young workers and everyday people don’t even know who he is. That’s because time tarnished his legacy. In the years since he retired in 2001, the world has seen his policies and practices have a negative effect on GE and the wider world of business. 

So what was Jack Welch’s management style? Why are his methods looked down upon today? Is there anything positive managers and HR can learn from his legacy?

Here's everything you need to know about the Jack Welch management style when running your own business.

What is the Jack Welch's Management Style?

You can’t distill Jack Welch’s management style down to a single strategy. That said, he’s best known for his method of rank and yank. More on that in a minute.

Jack Welch’s 4 E’s of Leadership is one of the books he has published on his management style. It explains how managers can bring positive energy to their teams and how to energize employees in a way that makes them want to work for you. He was equal parts cut-throat and supportive. Welch always sought higher revenues and more influence while supporting top talent along the way.

Known for his temper and his all-or-nothing approach to management, Welch helped GE experience great gains during his years as CEO. These gains disappeared after his departure. Some say GE struggled later on as a direct result of Welch’s management practices.

Some aspects of Jack Welch’s management style are relevant in the 21st century. First, we’re going to tackle strategies best left in the past.

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Jack Welch Management Styles to Leave in the Past

The 1980s was a time of excess. It was all about padded business suits, brick cell phones, and profit at all costs. It was the perfect time for a celebrity CEO to be born.

Jack Welch’s no-nonsense approach to business and his unrelenting pursuit to be the best allowed him to boost increase profits and help GE grow. He built the most valuable company on the stock market in 1993.

But, it was at the expense of workers. Prioritizing short-term gains led to GE's demise, as it fell off the Dow and announced it would be splitting into three separate companies in 2022.

GE’s fall was in part due to management techniques best left in the past:

• Forced ranking of managers
• Prioritizing growth over sustainability
• Losing sight of the importance of loyalty

Forced ranking of managers

Jack Welch's leadership quotes highlight his approach to leadership the best.

“What could be more important than who gets hired, which ones need employee development, who promoted, or moved out the door? Business is a game, and as with all games, the team that puts the best people on the field and gets them playing together wins," said Welch.

That sounds good on the surface, but executing this belief involved stack rankings.

More commonly known as rank and yank, his method included ranking managers and employees against each other on a bell curve. Welch called this the "vitality curve." Those at the bottom — and for Welch, the bottom was a whopping 10% — got fired.

But, what if those employees are doing their job just fine? Someone has to land at the bottom of a bell curve, even if there are only a few points between them and the top. 

It also assumes those employees are to blame for their lackluster performance, when in fact, it could be a lack of training or support.

Replacing an individual employee can cost as much as two times their annual salary. Companies are better off supporting all employees—not just the ones at the top.

Prioritizing growth over sustainability

Jack Welch said, "Any jerk can have short-term earnings. You squeeze, squeeze, squeeze, and the company sinks five years later," which is ironic when you consider the fact that that’s exactly what he did to GE.

GE took more than five years to “sink”, but it did lose its standing as America’s most influential company. Welch prioritized short-term share price spikes over building a sustainable business. GE suffered as a result.

He reduced the cost of labor through his firings, which in turn increased earnings per share on Wall Street. That made the company look healthy and profitable, and it made shareholders happy. Jobs were sent overseas or outsourced, and departments shrank.

You can only do that for so long before your business is no longer sustainable and something has to give. In 2022, GE split into GE HealthCare, GE Aerospace, and GE Vernova, three independent companies. This reorganization is a far cry from the influential behemoth the company was at the turn of the century.

Sustainability should always come first. This holds true even if it means forgoing profits and making shareholders unhappy in the short term.

Losing sight of the importance of loyalty

If you weren’t useful in Jack Welch’s eyes, you were expendable. It makes a kind of dark sense in business, where employees are hired to do a job. If they can’t do the job, they shouldn’t be in that role.

However, today’s tight labor market complicates matters. Companies no longer employ workers who are happy to have a job and will do whatever they can to keep it. Employees have their choice of which company to work for. Great talent may simply decide to pack up and leave for a better job.

Jack Welch didn’t feel loyalty toward his workforce because he didn’t have to. Today, managers do.

It’s important to show a sense of loyalty to your employees and they will show you loyalty in return. Not to mention, having a workforce that is loyal to each other makes it more appealing for recruits to join the team.

Jack Welch Management Styles That Work Today

Jack Welch has indeed provided managers with plenty of examples of what not to do. That said, some aspects of Welch’s management style can serve as inspiration.

After all, GE was wildly successful for 20 years under his reign, and he continues to be talked about over 20 years after that reign ended.

Here are a few Jack Welch management styles to take inspiration from today:

• Boundaryless behavior
• Focusing on organizational values
• Celebrating wins

Boundaryless behavior

One concept Jack Welch pioneered is the boundaryless company. He wrote the following in the GE annual report in 1990.

"Our dream for the 1990s is a boundaryless company… where we knock down the walls that separate us from each other on the inside and from our key constituencies on the outside."

Welch’s vision eliminated barriers and distinctions between domestic and foreign operations. He did away with group labels that support a hierarchy. These labels included terms like "management," "salaried," and "hourly." Welch wanted everyone to work together as equals.

This approach is even more relevant today in an economy that is hyper-focused on innovation and change. Let’s say your organizational design supports horizontal networks of equal individuals instead of a vertical hierarchy of individuals with different statuses within the organization. If that’s the case, you can build teams that aren’t separated by hierarchical structures. 

Encouraging boundaryless behavior among your workforce means more than changing your company handbook. You might have to redefine your company's mission. It might require hosting town hall meetings that welcome feedback. You can lead by example by building teams and seeking advice from people who have all types of roles in the organization.

Focusing on organizational values

Jack Welch was a ruthless firer. He got rid of 112,000 employees between 1980 and 1985 alone. Welch didn’t just get rid of people who weren’t hitting their numbers. He got rid of those who weren’t living up to company values either.

Welch said, “No company, small or large, can win over the long run without energized employees who believe in the mission and understand how to achieve it.”

He believed in putting values first without focusing too much on the numbers. Welch may have gone about it the wrong way by firing those who didn’t comply, but he was onto something.

Employees who are aligned with company values are more likely to recommend their employer as a great place to work. They are more likely to report that their work makes them feel a sense of personal accomplishment. These employees are less likely to leave the company they work for.

Plus, company values support a more comfortable, happier workplace. Aligning employees with the company’s mission is well worth your time.

Celebrating wins

Welch had a reputation for ruthlessness, but he spent plenty of time celebrating wins.

He believed that leaders should make a big deal out of small wins. He said, "Celebrating makes people feel like winners and creates an atmosphere of recognition and positive energy."

Celebrate wins of all sizes in your organization. Whether it’s landing a big-name client or making it through a hectic week, you can boost morale and make employees feel appreciated when you celebrate their wins with them.

Jack Welch’s 8 Rules of Leadership

Welch was a complicated figure. It can be difficult to parse through his legacy and figure out what will work in modern workplaces and what won’t. 

Although many of his theories wreaked havoc on GE, and big business in general, many of them can still be useful today when they are implemented sustainably.

Jack Welch’s 8 rules of leadership represent a sustainable management method.

1. Every encounter is an opportunity to evaluate, coach, and build self-confidence for your team

Leaders engage in meaningful conversations with their team members. They help employees reach their potential.

2. Employees should be guided to live and breathe the company's vision—not just see it

Leaders share their vision, and they share it often. Incentives like a salary increase, bonus, or recognition can motivate team members to accomplish difficult goals in the name of upholding that vision.

3. Positivity and optimism are encouraged by leaders who show positive energy and optimism themselves

Leaders regularly fight against negativity and instead infuse interactions with positive energy. Leaders must act as cheerleaders by boosting morale and keeping every team member engaged.

4. Trust is established between leaders and employees because leaders embody candor and transparency

Leaders should never hoard information. Instead, they should offer it freely in the spirit of transparency. They also give credit where credit is due instead of taking credit themselves.

5. Gut decisions and hard calls are made, even if the decision is unpopular

Leaders must listen to their gut and make hard calls. When you lead with transparency and trust, others will stand behind the decision, no matter what the decision is.

6. Healthy debates are encouraged by curious leaders who ask questions that probe deep

Leaders aren't afraid to challenge their employees by asking deep questions or playing devil's advocate. They also know how to use different techniques, depending on the disposition of each worker.

7. Others feel safe taking risks because leaders set the example and inspire them to do so

Leaders aren't afraid to take risks. When leaders take risks, other team members feel emboldened. This creates an atmosphere of experimentation and growth.

8. All wins—even small ones—deserve to be celebrated

Leaders celebrate wins that are meaningful to the company, the team, and each individual.

So, What Can HR Pros Learn From Jack Welch?

With Jack Welch and his management style, you have to take the good with the bad. 

That means dumping his infamous rank and yank strategy but taking his leadership tips to heart. It means prioritizing sustainability over short-term growth and focusing on your most important values.

FAQs

How did Jack Welch motivate his employees?

Jack Welch motivated his employees by focusing on building confidence, leading by example, and celebrating wins. However, his rank and yank system also encouraged employees to work hard, lest they be fired.

Was Jack Welch a transformational leader?

Jack Welch was a transformational leader, but not necessarily in a good way. David Gelles, the author of The Man Who Broke Capitalism, makes the case that Welch’s ruthless cost-cutting and focus on quarterly earnings hurt GE and American capitalism as a whole.

Although Welch was often cited as one of the top CEOs during and shortly after his reign, the current consensus is that his style of transformational leadership did more harm than good.

What are the three major focus areas of Jack Welch’s leadership?

When boiled down to its simplest parts, Jack Welch’s leadership style focuses on speed, simplicity, and self-confidence. These three concepts drove his laser focus on turning quick profits and streamlining operations by cutting employees even though the approaches were unpopular with workers.