How Jack Welch Could Save General Motors
Jack Welch ─ the so labeled “Manager of the Century” ─ may be the only manager capable of saving General Motors. Welch, who ran General Electric from 1981 to 2001, turned a company worth some $12 billion when he took over into a company worth more than $400 billion when he left. For much of his second decade at the helm of GE, latter years, GE was the most valuable company in the world.
In order to save GM, Welch could simply pull out his GE playbook and call many of the same plays. He would have to do many of the same things but do them in record time. But he is prepared for that. He had said that one of his greatest regrets at GE was that he did not move faster. In light of that experience he now has the mental preparation required to move boldly and quickly enough.
One of the greatest problems with GM is a credibility gap. No one believes in the company, its products, or its management. That’s why the appointment of a Jack Welch would do so much for the company, even before he picked up the reigns. The announcement of Welch as the company’s new CEO would increase the market capitalization of the company (which isn’t much these days) by some fifty to one hundred percent overnight.
The “Welch premium” at GE was enormous. For his last years in office, GE’s stock was valued at more than fifty times earnings-and more than sixty times at its zenith. That’s how much confidence Wall Street had in Jack Welch’s abilities to run a large and complex conglomerate.
Welch has gone on record as saying that nothing short of a declaration of bankruptcy could save GM. Once in bankruptcy, he recommends that Chrysler and GM merge.
I do not believe that bankruptcy is the answer. That word conjures up awful images that would steer car buyers to Toyota and Honda and away from GM. Welch says that people fly on bankrupt airlines but I believe that comparison is a poor one. This nation has a long history of flying on bankrupt airlines. We know they still fly. But a bankrupt car company is a different story altogether. People would not want to gamble their $30,000, even if the U.S. government stepped in to guarantee the car’s future service.
However, a merger with Chrysler does make sense and plays right into Welch’s strengths. As CEO of GE, Welch turned the culture upside down by making acquisitions a perfectly good way to grow the company. Under him, General Electric did more than 1,000 acquisitions of every size, and merging the two companies would give him more room to maneuver and make changes that would save the firm.
While we of course live in different times, I believe that the confidence of a Welch running GM would be enormous, and even spill over to other automobile companies as well. Simply naming him as the new CEO of the beleaguered car company would attract millions of new investors while giving customers enough confidence that the company will be there for the long haul.
Today we have a crisis in confidence on so many levels, but the one that is discussed the least is a crisis in leadership in the nation’s most prominent corporations. If asked to name an active CEO who should be emulated or named in our business textbooks as a model, one has a difficult if not impossible time doing so. We know that there are none in our financial companies, given the stunning failure of so many of the names that were once associated with the bluest of blue chips. Even a few short years ago, a complete collapse of Bear Stearns or Lehman Brothers would have been unthinkable. Today, there isn’t a financial company around that inspires the confidence of anyone.
Why else would Jack Welch be the ideal candidate? Consider the following. GM of 2008 is reminiscent of IBM of 1993. By that year, IBM had lost more than $8 billion (and that’s when a billion was a billion). Enter Lou Gerstner, the Snack Food King, CEO of RJR Nabisco. Critics scoffed at the choice, the first outsider to run IBM in its history. Gerstner was not only an outsider to IBM, but was an outsider to the technology space. But when Gerstner arrived he said there was a customer running IBM, which was exactly what was needed. GM also needs an outsider, someone not afraid to make the really hard decisions, and serve as a leader to be emulated rather than criticized.
As CEO of GM, Welch would take a firm hold of the company by implementing the following in his first one hundred days:
- FACE REALITY: THAT IS A WELCH IMPERATIVE, AND THE FIRST THING HE WOULD DO IS ASSESS THE BUSINESS REALISTICALLY, SOMETHING CURRENT MANAGEMENT APPEARS INCAPABLE OF DOING. THIS WOULD ALLOW HIM TO SEE THE COMPANY WITH A FRESH PERSPECTIVE, SOMETHING SORELY NEEDED TODAY.
- MERGE WITH CHRYSLER: THIS WOULD BE A PIVOTAL PART OF THE WELCH PLAN. THE CEO OF CHRYSLER ─ ROBERT NARDELLI ─ IS SOMEONE WHO WORKED DIRECTLY UNDER WELCH FOR YEARS AT GE AND HAD SOME OF THE BEST RESULTS WELCH HAD EVER SEEN. THE TWO WOULD WORK WELL TOGETHER AND BE ABLE TO MOVE MUCH FASTER THAN IF WELCH WAS FORCED TO WORK WITH A STRANGER.
- REPLACE THE MANAGEMENT TEAM: GM IS IN DESPERATE NEED OF A NEW MANAGEMENT TEAM, ONE NOT ASSSOCIATED WITH THE INEPT DECISIONS THAT GOT THEM IN SO MUCH TROUBLE. HE WOULD TAP FORMER GE PEOPLE THAT HE CULTIVATED FOR YEARS TO FILL IN THE CURRENT “MANAGEMENT GAP.”
- ELIMINATE ALL UNPROFITABLE PRODUCT LINES, AND ANY INCAPABLE OF BECOMING MARKET LEADERS DOWN THE LINE. WELCH WAS ONLY INTERESTED IN OFFERINGS/PRODUCTS THAT COULD BECOME TOPS IN ITS MARKET. THIS WOULD MEAN A MUCH SMALLER COMPANY, BUT ONE THAT COULD RETURN TO PROFITABILITY BY 2010.
- CUT THE RIGHT NUMBER OF PEOPLE IN A NEWLY MERGED GM/CHRYSLER, BASED ON HIS VISION FOR A NEW, COMBINED COMPANY. RATHER THAN DOING THIS ON AN INCREMENTAL BASIS, WELCH WOULD HAVE A PLAN THAT WOULD ALLOW HIM TO DO THIS QUICKLY (BASED ON THE NUMBER OF PRODUCT LINES THAT HE OPTS TO SHUT DOWN). HE WOULD ALSO INCLUDE A PROVISION FOR CUTTING THE BOTTOM 10 PERCENT OF THE WORKFORCE EVERY YEAR, SOMETHING HE DID AT GE FOR YEARS.
- BRING INNOVATION BACK TO DETROIT BY HARNESSING THE COLLECTIVE INTELLECT OF THE COMPANY. AT GE WELCH FOUND THAT THE PEOPLE WHO ACTUALLY DID THE WORK HAD SOME REMARKABLE IDEAS ON HOW TO MAKE THINGS BETTER, BUT NO ONE HAD EVER ASKED THEM. HE WOULD CHANGE THE CALCULUS AT GM, BRINGING THAT SAME LEVEL OF OPEN MINDEDNESS TO GM. HIS PLAN WOULD NO DOUBT FOCUS ON HYBRIDS AND MORE GREEN SOLUTIONS.
Welch would also change the culture by doing what he did at GE ─ he would create a “boundaryless” culture by tearing down any and all walls that exist within the company and between the company and its customers and suppliers. That is a long-term goal, but one that must be a vital part of any turnaround story at the falling giant.