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Book Summary/Review: Control Your Destiny or Someone Else Will

Printed with permission from:

The following is a highlighted summary of the book, A Stake in the Outcome, published by Doubleday & Company. The statements below are key points of the book as determined by James Altfeld and have been made available at no charge to the user.

Control Your Destiny or Someone Else Will
How Jack Welch Is Turning GE Into The World's Most Competitive Corporation
by Noel M. Tichy and Stratford Sherman

(p.4)
Workers who share their employer's goals don't need much supervision.

"facing reality is crucial in life, not just in business. You have to see the world in the purest,
clearest way possible, or you can't make decisions on a rotational basis.

"If you weren't already in business, would you enter it today?

The need to boost innovation and productivity is the imperative behind the GE revolution and the main challenge confronting any business that competes in world markets.

Efforts to improve productivity such as "just-in-time" inventory controls are pushing
corporations into an unprecedented dependence on their suppliers.

Until employees accept personal responsibility for their work, they need supervision, which
Welch regards as a waste of time. GE tries to eliminate supervisory positions, giving more
people to control their own work.

I see the process of corporate transformation as a three-act drama. These three acts
usually overlap, but each depends on the one before.

In Act I, the organization awakens to the need for change; this is a time when tyrannical
behavior can serve a useful purpose, since the awakening requires a frontal assault on the status quo. The goal of the attack is not to frighten employees, but to arouse the emotional energy of an entire organization. That energy, which manifests itself as fear and later as personal commitment to a plan of action, is the only fuel that can sustain a revolution.

Act I usually leaves workers and junior managers in confusion and despair, because the
process destroys what's familiar and comfortable without providing a new basis for emotional security.

In Act II, the organization creates a blueprint for the future. As the old ways are swept
away, even people who have resisted change begin to recognize the need for something new.

The leader responds by articulating a new vision. But a vision can't be acted upon until it is
shared, so effective communication becomes critical.

(p.25)
Act II concerns the creation of structures to institutionalize the organization's vision. New
practices are created to embody the new ideas; over time, these practices influence the way
employees think.

(p.38)
Back to the late 1800s, when the "modern" business bureaucracy was just emerging. That is when the German theorists Max Weber extolled the benefits of systematic organizational
controls such as clear chains of command and advancement based on merit. Corporations built on the Weberian model have relied ever since on bureaucratic schemes to reduce the inherent uncertainties of business.

The ideal was a system of such clear and enforceable rules that an organization could
function with machinelike predictability. People were not expected to have ideas; the ideas were built into the system itself, as in Ford's famous assembly…

The larger and more complex the company, the more obvious the benefit of this so-called
scientific management.

GEers fawned on their bosses and did what they were told, even when their orders made no
sense. When criticized by superiors, they turned around and "kicked the dog" -- company argot for passing the pain onto subordinates. Ambitious GE managers kept their ties knotted and their mouths shut.

The mounting expense of this bureaucracy was a major reason GE became a high-cost
producer, vulnerable to foreign competition.

The complex interaction of GE's culture, organization, and bureaucracy created a
symphony of not-so-subtle signals that taught GEers how to behave. But as Jones realized,
behavior that has been appropriate in 1878--or even 1978--might prove disastrous in the 1980s. In an attempt to ensure fair treatment of its workers, GE had assigned all employees to one of twenty-nine civil service style levels of rank.

By counting Jim's ceiling squares, visitors could calculate the footage of his office, and
thus his status in the hierarchy, that told the executives whether to grovel before Jim or boss him
around.

(p.41)
The money helped, but ultimately Edison lost his job. The investors forced Edison out, replacing him with a former show salesman named Charles Coffin. In 1892, Coffin reorganized the burgeoning portfolio of business under his command into the General Electric Company.

Coffin.
Coffin became known as the father of professional management.

(p.44)
He also ordered a massive reorganization of GE, based on decentralization. Cordiner broke up the company's operations into departments, each small enough, in the CEO's phrase… By 1968 the company had 190 departments, ranging in size from $1.7 million in sales to $391 million. These departments resorted to forty-six divisions; the divisions reported to ten groups; and the groups reported to the CEO. Accustomed to military hierarchy from service in World War II, most GEers adapted easily to the strict new lines of authority.

Two years later, they emerged with the Blue Books, a five-volume, 3,463-page management
bible. Buried in endless pages of stultifyingly elaborate prescriptions are such powerful concepts as management by objective-- as well as some of the most revolutionary ideas Welch would later espouse.

Decentralization… "A minimum of supervision, a minimum of time delays in decision making, a maximum of competitive agility, and thus maximum service to customers and profits to the company."

Cordiner described human motivation as a "baffling area." He also regarded people as fungible:
"A manager is a manager is a manager."

GE's bureaucracy responded to Cordiner's innovations as if to a growth hormone.

Decentralization added layers of supervisory management, and the rules in the Blue Books meant nothing without people to enforce them. Cordiner's formal job classifications, for instance, gave rise to a huge human resources staff that evaluated job descriptions, measured individuals' performance, and monitored salaries and promotions. Those staffers helped spread bureaucratic mind-set throughout the entire company: They ensured that salaries and bonuses mainly rewarded seniority, not performance.

Fred Borch… Among his most lasting contributions was the first large-scale implementation of strategic planning.

The consultants argued that GE was incapable of formulating sensible business plans, since it didn't even know what its businesses were.

(p.49)
That as mastery of the facts became impossible, illusion sufficed.

(p.55)
Every company has its Jack Welch, most likely several of them. If no forceful changemaker has made his or her way into the high echelons of management, that can only be because corporate politics have blocked the way.

(p.63)
Von Moltke argued that detailed plans usually fail, because circumstances inevitably change. A successful strategist, he wrote, always must be willing to adapt even broad goals must be flexible enough to respond to new events.

"The people with whom I have been associated have worked harder, enjoyed it more, although not always initially, and in the end, gained increased self-respect from accomplishing more than they previously thought possible."

(p.73)
Businesses organized on the old scientific model still build their best ideas into systems instead of encouraging employees to think for themselves.

Managers at the top of these old-fashioned organizations issue instructions, and then wait
while their orders shuttle from desk to desk down the chain of command. When underlings
misunderstand, or find ways to disobey, nothing gets done. It happens all the time.

…Integrated diversity, the principle that GE's varied businesses can maintain their operating
independence while working closely together as a team, sharing everything from financial data to people to best practices.

…Boundarylessness now. The ability to face reality and communicate candidly is prerequisites of boundarylessness.

Welch's focus is on the larger mission: creating a team of like-minded people who believe in
what they do and work better as a result.

(p.78)
Simplicity, consistency, and repetition-- that's how you get
through. It's a steady continuum that finally reaches a
critical mass.

(p.88)
Welch was trying to avoid the boiled frog syndrome. If you put a frog in a pan of cool water and gradually turn up the heat, the frog will just stay put until it dies. But if you drop a frog into boiling water, it will jump right out-- and survive.

(p.93)

GE has its leaders the freedom-- and responsibility-- to decide for themselves how to reach the earnings targets.

Welch immediately seized the revolutionary's three main levels of control: the police, the media, and the schools.

Corporations have their equivalents of police, media and schools. At GE, "schools" were Jim Baughman's bailiwick, and later mine: Crotonville. The "media" included executives' speeches and publications from employee magazines to their corporate annual report.

Aware…

GE's "police" were the cadres of professional nit-pickers and second-guessers on the strategic planning and finance staffs, who reviewed every operating decision and supervised the allocation of capital. … Once he got the planning and finance staffers under his thumb, every one of those reviews became an opportunity to influence the behavior of the people who actually ran GE.

A chief executive, unlike less senior managers, has limited opportunity to run a business directly.

All he or she can do is set strategy, select a team of executives, and supervise the allocation of capital.

(p.103)
"You're either the best at what you do or you don't do it for very long."

(p.108)
A statement of the four main goals behind the portfolio changes appeared in 1985, as part of a draft of GE's corporate values:

"I don't mind being wrong," he says. "The key is to win a lot more than you lose."

(p.112)
The ultimate goal of the GE revolution is for all employees to act for the good of the company without having to wait for orders. That means getting people to face facts and take
responsibility-- an astoundingly difficult thing to achieve, especially in large organizations.

(p.118)
The Schlemmer team set a pattern that has since become… They eliminated whole layers of management, consolidating overlapping jobs and business units, and forced employees at every level to take far more responsibility for their own work. If something wasn't absolutely necessary, they eliminated it.

"We learned to do only what is necessary, not what's nice."

Another of Paynter's ideas was the "customer awareness trip." He'd gather a group of 150
employees-- a mix of hourly workers and supervisors, plus a few managers-- charter a plane, and take them on an overnight visit to one of the railroads that bought GE's locomotives.

"I'm responsible for those projections, I know they're wrong. Now I want to stay and clean up
the mess.

(p.127)
It also gave Welch an opportunity to clarify his message to employees: He expects them to win with their integrity intact. The CEO urged every GEer to take what he calls the "mirror test," critically examining their own actions for integrity.

Self-respecting executives commonly take home office supplies, or ask their secretaries to type their kids' résumés. Strictly speaking, that's theft. Most people who take the mirror test seriously find something in their own behavior to change.

Let's face it: People are susceptible to ethical lapses. In the real world, competitors may
cheat, suppliers or customers may demand bribes, and regulators may tacitly or even explicitly allow rules to be broken.

Studies show that well over half of all major U.S. companies have experienced corporate
crime.

(p.158)
James MacGregor Burns, who defined the term, "transformational leadership." This is
leadership that transcends the mere management of what already exists, to create something fundamentally new.

"The Pit"
(p.164)

Welch loves being in the Pit, bashing ideas back and forth with GEers.

A systematic new approach to gathering feedback, requiring every participant to fill in a one page appraisal sheet that asks three questions:
- What did you find about the presentation that was constructive and clarifying?
- What did you find confusing or troublesome?
- What do you regard as you most important takeaway from this session?

(p.171)
"There are no textbook answers to the problems we face. We have to write our own textbooks every day."

By listening to people, you encourage them to think; and by encouraging them to think, you can win their involvement and commitment.

A statement of values should never be considered done.
- Only satisfied customers can provide job security.
- Change is continual, thus nothing is sacred. Change is accepted as the rule rather
than the exception.
- Leaders share knowledge rather than withholding it as an element of power.

Everyone benefits when they know what the leader knows-- nothing is "secret."
- Paradox is a way of life. You must function collectively as one company and
individually as many businesses at the same time. For us, leadership means leading
while being led, producing more output with less input.
- We encourage the sharing of these values because we believe they are both fair and
effective, but we realize they are not for everyone… Individuals whose values do not
coincide with these expressed preferences will more likely flourish outside the

General Electric Company.
(p.177)
For the first time since Welch took office, the CEO had the luxury of deciding which person
belonged in which job.

…This was the great opportunity that defined the second act if the revolutionary process. To
seize it, he had to help his organization define a new guiding purpose; a new set of rules-- a new vision. This is not something a leader can impose by fiat.

GE greatly increased their authority over capital allocation, one of the most important functions
of management. In the old days, no executive below sector level could approve a major capital
investment without going to the CEO. Now business chiefs have the same authority to approve
investment as the CEO. When they spend more than they can approve themselves, they present
their cases directly to GE's board.

…To create organizational structures driven by the needs of the market rather than the
bureaucracy.

…The people who controlled the company-- not just the CEO, but the executives who actually ran businesses-- largely agreed about what they were doing and why, its amazing how much easier it is to run a company that way.

(p.188)
GE's old wedding cake structure achieved control by brute force.

This sort of hierarchy isn't much more complicated than "me Tarzan, you Jane"; simplicity is one if it's main virtues.

…Formal structure created an ambiguous chain of command that reliably kept the enterprise under control

…It also shaped the attitudes and behaviors of employees, often in destructive ways. People learned to do what they were told and not much more.

…Open communication was almost unthinkable.

**
Welch's solution in 1986 was to create the Corporate Executive Council, or CEC… It meets
quarterly to discuss the most important issues facing GE, whatever those might happen to be at the time.

The council's formal mandate is to share information, swap ideas, and help guide GE toward its goals.

**
The CEC is a high-level think tank, where the company's best informed (and presumably most talented) people work together on issues of common concern. If the definition sounds fuzzy, that's partly intentional: A main purpose of the CEC is to build trust and kinship among executives who might otherwise be slitting each other's throats.

CEC meetings are not meant to be combative, but nervous executives and newcomers sometimes have found them so, particularly during the CEC's early years.

"We tee up a subject and they take each other on… We end up with a consensus."
A typical session begins with a scene-setting talk from the CEO: an overview of GE's current status and prospects, and a sounding of the big themes Welch wants to cover. Each member presents a very brief oral report-- rarely longer than ten minutes-- on his or her business situation. From then on, loosely guided by a prepared agenda, the meeting is given over to wideranging discussions marked by profanity, jokes, and frequent interruptions.

The main agenda items usually concern problem solving or sharing of good ideas.
One of the CEC's functions is to serve as GE's main nerve center, ensuring that good ideas -- what GEers call "best practices"-- get communicated throughout the company at lightning speed.

If Plastics has come up with a great way to cut insurance costs, or if Aircraft Engines has
developed an effective employee-involvement program, the CEC is where they spread the word.

Welch wants a company characterized by "integral diversity."
Coercive control -- where you point a gun at someone
Utilitarian control-- paying people to do what you want
Normative control-- is what induces people to devote themselves to a cause

**
As speed, quality, and productivity become ever more important, corporations need people who can instinctively act the right way, without instructions, and who feel inspired to share their best ideas with their employers.

That calls for emotional commitment… You've got to earn it, by standing for values that
other people want to believe in, and by consistently acting on those values, day in and day out.

(p.197)
Sharing information of all kinds is an important aspect of boundarylessness… "Managers
traditionally haven't shared information. Information was power, so that held it back. They saw their job as control…"

Sharing information creates peer pressure that goads people to even higher standards of
performance. In the old days, GE executives were masters of obfuscation, using splendidly
packaged reports and 35-mm slides to avoid the tough issues and snow their masters in Fairfield.

But when you're stuck in a room where everyone knows everything, with no props at your
disposal, you have to face reality. If your performance stinks, if you're avoiding a major
strategic challenge, you won't be able to hide it. The result is openness, candor, and an incentive to produce real results.

(p.215)
The final element of productivity drive was Opie's call for "continual change productivity"-- in
other words, revolution as a way of life.

The best way to protect jobs is by beating the competition. That was the point of the rule of No. 1 or No. 2.

Fortress America had become a trap.

The huge size of the domestic market, the government protection of certain industries, and the lack of meaningful foreign competition had "delayed the onset of the need as well as the
development of the skills needed to hunt in the global wild."

As CEO, Welch did not immediately impose globalization on the rest of GE. Until as late as
1984 or 1985, the corporate revolution and GE's domestic problems preoccupied him, so he gave second priority to international efforts. Besides, he was convinced that the only way to make the strategy work was for each business to take responsibility for its own globalization, creating and implementing a plan appropriate to its particular needs. Having witnessed the failure of many corporate-wide policies, he believed than any cookie-cutter approach would be doomed.

To give ownership a chance to work, Welch had to grant the operating businesses a large
measure of freedom.

For any organization accustomed to domestic success, the introduction of global standards of performance can be deeply threatening. It's a classic example of what Welch calls "raising the bar": demanding a higher level of performance than was ever expected before.
In addition to the complex issues of language and culture, going global requires massive
transformations in the way a company does business and measures success. As in domestic competition, only a few top-ranked players can expect to prevail in a global marketplace.

Winners must achieve best-of-class status in four areas:

(p.238)
The boundaryless organization he envisioned couldn't work without the active participation of
the whole work force-- but he couldn't expect people to participate in something they didn't
understand, How to reach them?

Baughman designed Work-Out to Welch's specifications: an ambitious, ten-year program
that Harvard Business School professor and GE consultant Len Schlesinger has called "one of the biggest planned efforts to alter people's behavior since Mao's cultural revolution."
"Without productivity growth, it is possible to lose in twenty-four months businesses than
took a half-century, or a century, to build. Productivity growth is essential to industrial
survival."

By 1988, GE's top-level executives understood Welch's ideas and embraced them. The
Corporate Executive Council had become an effective mechanism for pushing shared values;

CEC members were accustomed to mining good ideas in one part of GE, and moving them
quickly to the rest of the company. The CEC, in turn, had spawned similar councils at all of
GE's thirteen major businesses, engaging another layer of executives in the new style of
management.

But as the complaints at Crotonville indicated, managers further down in the organization
were far less likely to share the new GE values. Middle- and lower-level managers still did not see any urgent need to change. Despite delayering, GE still had a substantial hierarchy… junior managers were still filling out unneeded reports, taking superfluous measurements, and coping with draconian goals.

(p.241)
Assuming you want this transcribed? If not, erase italics.
1. Buy into Corporate message. If cannot: Come and talk to any of us [Welch or the vice
chairmen] about what bothers you and what would you like to change/modify, We
can/will react to what is troublesome.
2. After buying in, sit with all direct reports and dialogue about Corporate message. Invite
us to participate, as you see fit, in sharing the Corporate message with your direct
reports.
3. Ask you direct reports what they can buy into-- and what they can't. Dialogue to achieve
consensus on Corporate message. Use examples and illustrations pertinent to your
business.
4. Have each of them meet with their direct reports-- and you participate. Then bring it to
the next level until every manager in the Company has met with his/her leader-- and if
they are troubled, see you.
5. Devote some time-- at each staff meeting, at each level-- to discussing progress in
support of the Corporate message, One-time announcement/discussion will not achieve
intended result.

THE OBJECTIVE IS TO HAVE EVERY PERSON IN THIS COMPANY BE EXPOSED TO
AND HAVE A DIALOGUE ON THIS CORPORATE OPERATING OBJECTIVE AND ITS
SUPPORTING MESSAGES BY JULY 1, 1988.

"One of the things we can't do as top management is solve local problems."
To illustrate what he was up against, Welch tells the story of a typical question-and-answer
session that took place at GE Plastics' factory in Holland:

Work-Out began with four major goals:

To ensure that people could speak candidly without fearing retribution, bosses were locked out during discussion times. Welch made it clear to managers that he would treat any obstruction of Work-Out as "a career-limiting move." Facilitators, all outside consultants at first, ran the workshops.

Meeting in small groups, the employees would define problems and develop concrete proposals.

On the final day, the bosses would return. According to Work-Out's rules, they had to make
instant, on-the-spot decisions about each proposal, right in front of everyone. Some 80% of
proposals got immediate yes-or-no decisions; the remainder that needed study had to get
decisions within a month. As Welch had hoped, the process quickly exposed those GE managers who didn't "walk the talk."

A middle manager at Appliances tells how the Work-Out process worked at one plant there:

The boundaryless Company we envision will remove the barriers among engineering,
manufacturing, marketing, sales and customer service; it will recognize no distinctions between "domestic" and "foreign" operations-- we'll be as comfortable doing business in Budapest and Seoul as we are in Louisville and Schenectady. A boundaryless organization will ignore or erase group labels such as "management," "salaried," or "hourly," which get in the way of people working together. A boundaryless Company will level its external walls as well, reaching out to key suppliers to make them part of a single process in which they and we join hands and intellects in a common purpose-- satisfying customers.

He envisioned the replacement of hierarchy with cross-functional teams, the transformation of managers into leaders, and a radical empowerment of all the workers who were still getting bossed around.

(p.249)
Figuring that no company could corner the market for good ideas, Welch forced the organization to look outside.

During the summer of 1988, Welch assigned Michael Frazier of GE's Business Development staff to develop a list of companies worth emulating, and then to study their achievements. Frazier and his team selected nine companies to study including Ford, Hewlett Packard, Chapperell Steel, and two of Japan's best-known multinationals, both of which participated on condition their names be kept confidential. The team's ten members fanned out around the world, and spent a full year collecting on-site data of all these companies… They were seeking answers to the question, "What is the secret to your success?" Their report argued that the accomplishments of the world's productivity champs depended on common traits:

"Best Practices has legitimized plagiarism."

Work-Out now depended heavily on tools acquired from the Best Practices study, process
mapping in particular. In business after business, GEers would gain control over processes by identifying every step in them. Some process maps were so complex that they covered whole walls and resembled diagrams of wiring in computer chips. The maps noted even such seemingly minor matters, as the signatures required to approve purchases or shipments. Since a document tends to sit on a desk for a day before it's signed, cutting out a few unnecessary approvals can significantly speed up a process.

To forge a shared commitment to speed and customer satisfaction, GE invited customers and suppliers such as 3M and Sears to join in the sessions. These gatherings were very effective at building trust, but not always pleasant.

(p.254)
Phase three of Work-Out began in 1992. Called the Change Acceleration Program, or CAP, it is a systematic attempt to use Work-Out to breed a new type of GE manager. Welch wants all GE's leaders to be professional change agents rather than mere managers. The idea behind CAP is to disseminate to top management all GE's accumulated knowledge and wisdom about the change process itself; how to initiate change, how to accelerate it, and how to make it stick.

If the CAP training works, outside facilitators won't be needed.

"People who are comfortable as coaches and facilitators will be the norm at GE. And the other people won't get promoted. We can't afford to promote people who don't have the right values."

Once you get the ideas, you keep refining and improving them; the more simply your idea is
defined, the better it is. You communicate, you communicate and then you communicate some more. Consistency, simplicity, and repetition are what it's all about.

(p.260)
Welch defines an effective corporate executive as "someone who can change the tires while the car's still rolling."

In GE-speak, keeping the car rolling means producing terrific financial results.

(p.267)
Under what we called the Global Leadership Program, seven small teams, each with executives from the United States, Europe, and Japan, were assigned major projects that took nine months to complete. Sample assignments: devise a system to quickly transfer new technologies across the business; globalizing new-product planning; and creating a strategy to compete with Siemens, the world's No. 2 producers of diagnostic-imaging equipment, in its home market of Germany.

Trani regarded the program's goals of long-term executive development and short-term
problem-solving as equally important. In the early years, the Global Leadership Program also served to build the human network that helped tie GEMS together, while Trani's team
experimented with more formal mechanisms.

One of our rules is that the coaches all work outside their areas of expertise: The head of the technology staff, for instance, coached the team working on a marketing project. That helped the coaches leave the hard business issues to the team, which were qualified to handle them, while helping out with subtler human problems.

The teams' work on their projects continued long after the Faro workshop ended. Knowing they would have to report real results to a real boss, participants had to teach themselves how to communicate with their teammates across two oceans via fax, electronic mail, two-way video systems, and in-person meetings. People who'd never left the United States became accustomed to flying to Tokyo one week, and Paris the next. As team members quickly discovered, globalization is a pain in the ass. The discomforts range from lost sleep to the resentment of the stay-at-home managers stuck with the work that globetrotters leave behind.

The only reason to put up with so much complication and disruption is that globalization
so clearly seems to be the winning strategy. Market forces are compelling businesses to transfer technology and expertise throughout their organizations regardless of geography. And the economies of scale that come with globalization are impressive; if you can't figure out how to exploit them, your competitors will.

When we asked the participants to tell us what they'd learned, several key themes emerged.

One of the participants summarized it will when he wrote:

In the distant future, no doubt, the skills required for international communication will become more widespread. For now, though, it makes no sense to waste resources teaching language and other complex skills to the adults who are already established in business organizations. Welch, one of the best global managers around, speaks no language but English. Trani, though widely traveled, is not the sort of guy who visits temples while in Japan. You don't need to know how to bow correctly, or enjoy eating brains, to succeed as a global manager.

If you're good at what you do, and know how to get along with people, you're 90% of the
way there.

The formal networks laid out in organization charts rarely work as well as the informal ones that people create ad hoc. Anyone who has served in the military knows that the best way to get supplies is not through the cumbersome official requisition process, but through back channels, as Milo Minderbinder did so memorably in the book Catch-22. Individuals' ability to outsmart the organization becomes more crucial as corporate structures become more complex. At GEMS, one person may simultaneously be working on several project teams, reporting to different people in widely scattered parts of the business, and working closely with multiple sets of colleagues, some of whom may be located thousands of miles away. A few months later, the same person may be working on entirely different projects and dealing with a new cast of characters. Organizations simply aren't smart enough to cope with so much complexity; only people are.

Trani moved to the third phase of the organization's development: the creation of a new
social architecture. His team designed an organization built on six basic processes:

One of Trani's goals is to force employees into an awareness that, no matter how it is divided, GEMS remains a single organization with the shared goal of servicing customers. That idea got lost in the tangle of functional, product, and national rivalries.

(p.277)
Management is fine as far as it goes, but leadership is the way to win. GE has created an
organization designed to demand leadership from every one of its members. As an employee at Appliances wryly notes, "We hired the arms and backs and legs of people for years, and we never knew the brains came free."

The urge to unlock the latent power of ideas explains almost everything Welch has done since he became GE's chief executive in 1981. From the first, his goal has been to get GE's employees to see the world as it really is, and then to act on that understanding. That's what he means by "facing reality." The idea sounds simple, but the turbulent history of the GE revolution demonstrates the difficulty of putting it into practice. It also shows that the payoff can be enormous.

The CEO recently said that for the first time since he took office, he is satisfied with every
member of the CEC. The council's lineup has continued to change as other companies lured away such prized executives as Larry Bossidy and former Plastics chief Glen Hiner, who became chief executive of Owens-Corning Fiberglass. But Welch also quietly removed a few people who didn't belong.

(p.282)
The new compact gives employees more freedom than ever before, and potentially, greater
rewards for performance. But their jobs remain at risk every day. Over time, the idea of
exposing every member of the organization to the common risk has become one of GE'' most fundamental values and an essential part of the corporate culture.

This is not for the weak of squeamish. As a GE dealmaker puts it: "The company gives
me all the resources and independence I need. If I perform well, I can make more money here than anyplace. If I don't, I'm out. That's the way it works at GE, and I knew it when I came.

We all know it." About 45% of the corporation's current employees arrived after Welch became CEO: They knew what they were getting into when they signed on. The old-timers who can't stand the risk have mostly bailed out.

GE's toughness and its emphasis on shared values are not contradictory. Both spring
from the same source: The insistence that the company control its own destiny. They are
different manifestations of a single idea, that the competitive realities of the late twentieth
century and beyond require a new relationship between employer and employee. In the years ahead, even a well-tuned business engine won't be enough. The winning corporations will be those that can create human engines, powered by tuned-on, committed, responsible employees.

Companies with old-fashioned, control-based organizations will disappear in the dust.
Given the right kind of people and clearly understood goals, intricate webs of informal networksamong employees can accomplish much more than any rigid, traditional organization, producing tangible competitive advantages.

Not everyone is suited for this style of work. Welch makes the cut on the basis of what
he calls "head, heart, and guts." By "head" he means intelligence and technical expertise.
"Guts" is just another word for self-confidence, one of the qualities he values most in people.

As for the elusive quality of heart," it is a mixture of human understanding, consideration,
willingness to share-- and the ability to keep one's ego in check. Not many executives embody all three attributes. People with "head" aren't hard to find, but the business world attracts fewer people with "heart: than it needs. As for "guts"-- many of those who appear to have it actually don't; genuinely self-confident people are surprisingly rare.

(p.294)