Term Paper on "New Rules vs. Old"

Term Paper 9 pages (2667 words) Sources: 3 Style: MLA

[EXCERPT] . . . .

Futurist Kings: Welch and Drucker

Jack Welch took over the reins of G.E. And steer it to more than 1000% increased profit. He became a guru of management and his highly successful methods were adopted right and left. However, Fortune recently published an article stating that these rules have run their course and new ones are needed. Fortune discusses the old rules and proposes new ones, but it does not look very closely at the possible outcomes of these new rules, though it does offer some support and justification. However, the article raises more questions than it answers.

Jack Welch was an anachronism from the start: an outgoing talkative boy who stuttered, something which usually promotes shyness. He was born to a middle class family in Salem, Massachusetts. He won fellowships after graduating from University of Massachusetts all the way through a Ph.D. In chemistry. Perhaps Jack Welch would have become a leader anywhere, but in the stodgy G.E., which had been fading into the woodwork for some time, he managed to land in the new plastics division. With no previous history, he had a free hand and turned the plastics division into the golden child of G.E. At 45 in 1981, he became the youngest CEO ever at General Electric.

Welch had the unusual knack to be simultaneously a maverick and a company man." (Lowe 33) As a result of his ability to get the best from his people, Welch was at the helm of G.E. For twenty years. His company was one of the original 12 stocks with the Dow Jones. The company's "often articulated values include:• Improving the quality of life through technology and innovation• Interdependent balance between responsibility to customers, employees, society, and shareholders, with no clear hierarchy• Individual responsibility and opportunity• Honesty and integrity" (Lowe 35) Jack Welch was not known for keeping always to these values, but rather for instigating dramatic change which brought his, and many other companies, out of their near comatose state when the national economy was rocking between two recessions.

Welch made his company the most valuable company in the world, worth now over 600 billion dollars. He was exactly the right person to lead the company at the time. He was not afraid to take calculated risks and try new ideas. New strategy was needed to take on globalization, the move away from manufacturing to a knowledge and service economy and the quantum technological shift to the Internet.

The rapid globalization of the last twenty years needed new strategies for companies to remain competitive in the face of increased foreign competition. In addition, labor was cheaper in countries like India and China than in North America, even counting the cost of shipping the materials both ways. Unions had pushed the cost of production line workers to a prohibitive level, so companies were outsourcing or opening factories overseas. Otherwise, they could hardly compete with foreign imports unless the government levied extreme tariffs on imports. The last problem G.E. And other corporation had to tackle was the move to Internet commerce. Businesses did not just advertise on the Net, but they started doing business there: business to business and business to customer. The logistics of this move required rethinking marketing and distribution. Dell showed the world how the supply chain could be managed with instant communication and interactive book-keeping and inventory control.

Jack Welch was the right man for the job. He made things move. He was not always a pleasant man, but he got things done. Wall Street watched in awe as he drove the company forward through a time of immense change, and people began to study his methods. However, those methods fit the situations of the time, and we can see logically that they cannot be carved in stone. This article in Fortune shows how staying with the same game plan may not work forever. Still, that his techniques worked well for the twenty years of his tenure makes them worth examining.

Welch's rules Examined:

Old rule: big dogs own the street: new rule: agile is best; being big can bite you. The eighties were tough times. The size of G.E. contributed greatly to its success. It never hurts to have plenty of money behind you. Fortune cites Dell as an example of successful agility, and rightly so. Other companies have followed suit since: Best Buy and Wal-Mart adopted a new decentralized business model which changes the power dynamics so that local managers have more flexibility. However, big is not inherently bad. It is just difficult to maintain flexibility if the company is very large, unless, of course, the company decentralizes the power and creates more streamlines processes.

Old rule: be no. 1 or no. 2 in your market: new rule: find a niche, create something new. Fortune cites examples like the soft drink industry and new healthy energy drinks. This is fine, but Fortune did not prove it was bad to be number one or two, only that it was not necessary. The old rule and the new rule are also not mutually exclusive. Innovation is stressed in today's market, and if a corporation stays ahead of the curve, it can be innovative enough to easily land number one or two in the industry. All Fortune is saying is that companies cannot count on much ROI simply for being number one or two, while new innovative products, capital saving and marketing ideas and innovation in operations will keep a company competitive.

Old rule: shareholders rule.: new rule: the customer is king. This rule is absolutely outmoded. It was apparent over the past few years that the customer has been forgotten in many places, but the statistic mentioned by Fortune that businesses lose half their customers annually is more than expected and more than any business should tolerate. Fifty years ago one unhappy customer would tell several others, but now they can tell several thousand with a BLOG. Mass communication has changed the entire dynamic of customer service. The Internet and email have made it much easier to communicate with customers and take care of them, but it is just as easy for the customer to communicate with the world. In the end it is the customer which keeps the business alive, not the stockholders.

Old rule: be lean and mean: new rule: look out, not in. The refining process developed by Motorola was adopted by Welch for G.E. And 200 other companies followed suit, but more than half of them have not seen any benefits. It is probable that, as Fortune states, the Six Sigma process focuses on fixing one thing, and does not look forward to new ideas. Vishva Dixit, vice president for research of Genentech says that innovation cannot be so tightly controlled. The quote from Fortune is possibly the most telling in the article: "No business can afford to focus its energies on its own navel in that environment...If you're not externally focused in this world, you can really lose your edge." (Fortune 2006)

Old rule: rank your players; go with the a's: new rule: hire passionate people. If Rule 4 is the most telling, this is possibly the most important. It is at least as important as taking care of customers. In today's business environment it is all about team building. Even more important it is about building teams which are passionate about the company and its products and customers. If a company builds good ethical working teams of people who believe in the product and are passionate about serving the company and its customers, then all the rest will follow. It is a new electronically connected world where everyone knows your business, so good P.R. is simply not enough. The company's strength is in its people.

Old rule: hire a charismatic CEO: new rule: hire a courageous CEO. Fortune has it exactly right here, and we should add ethical. Yes, business executives must become more ethical, at least where their own companies are concerned. Even Martha Stewart was caught out when she stepped out of line with publicly approved and legislated ethics. The public is tired of hearing about things like Enron, and they will not support a business they do not trust. So CEOs need to be even more courageous than the Fortune article exhorts, because they need to do more than what is good for immediate business. They must be both forward looking and loyal to the company, its employees, partners and customers. The tough leader now has to look a lot more like Honest Abe or the support will fade quickly. Charisma, as Fortune says, is wonderfully useful, but courage and conviction are necessary.

Old rule: admire my might: new rule: admire my soul. This is actually an expansion upon the idea that a CEO must have ethics. The company must also have more than just money in mind. Companies which are not good citizens will fade, as they will not maintain the support of their customers.… READ MORE

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