Management strategies from a top CEO

The CEO’s job is as difficult as it is important. Here is a guide to how the best CEOs think and act.

A company has only one peerless role: chief executive officer. It’s the most powerful and sought-after title in business, more exciting, rewarding, and influential than any other. What the CEO controls—the company’s biggest moves—accounts for 45 percent of a company’s performance.

1 Despite the luster of the role, serving as a CEO can be all-consuming, lonely, and stressful. Just three in five newly appointed CEOs live up to performance expectations in their first 18 months on the job.

2 The high standards and broad expectations of directors, shareholders, customers, and employees create an environment of relentless scrutiny in which one move can dramatically make or derail an accomplished career.

Nor has academic and other research on the CEO’s role done much to illuminate how CEOs think and what they do to excel. For example, recent studies that detail how CEOs spend their time don’t show the difference between a good use of time and a bad one. Academic research also demonstrates that traits such as drive, resilience, and risk tolerance make CEOs more successful. This insight is helpful during a search for a new CEO, but it’s hardly one that sitting CEOs can use to improve their performance. Other research has tended to produce such findings as the observation that leaders are effective in some situations and ineffective in others—interesting, but less than instructive.

A model for CEO excellence

To answer the question, “What are the mindsets and practices of excellent CEOs?,” we started with the six main elements of the CEO’s job—elements touched on in virtually all literature about the role: setting the strategy, aligning the organization, leading the top team, working with the board, being the face of the company to external stakeholders, and managing one’s own time and energy. We then broke those down into 18 specific responsibilities that fall exclusively to the CEO. For example, setting a corporate strategy requires that the CEO make the final call on an overall vision, a set of strategic moves, and the allocation of capital.

Organizational alignment: Manage performance and health with equal rigor

Ask successful investors what they look for in portfolio companies, and many will tell you they’d rather put money on an average strategy in the hands of great talent than on a great strategy in the hands of average talent.

Jack Welch has attained legendary status in the business world and is considered by many of his peers and colleagues to be one of the greatest chief executive officers (CEOs) of all time.

During his 20 years (1981-2001) of managing General Electric, as CEO and later as chair, Welch's most notable achievement was increasing the market value of the firm. Welch increased it from approximately $14 billion when he took over, to a colossal $410 billion at the time of his retirement announcement in 1999, making GE the world's second largest company by market capitalization, exceeded only by Microsoft.1

Along with Welch's unique, effective and sometimes brutal management style, a number of profitable strategic acquisitions under his leadership helped GE climb to the summit of the business world, with 10% or more earnings growth for many consecutive quarters. The most lucrative of Welch's acquisitions was the $6.28 billion paid for Radio Corporation of America (RCA), which owned NBC television.2

Manage Like Jack

The success story of GE under the energetic and visionary leadership of Jack Welch, however, is a complex narrative of managerial innovation and prescient strategic moves, which not only included the acquisition of companies, but also the selling of troubled firms owned by the enormous conglomerate, and the ruthless termination of managers who did not produce.

In business, as in life, there are no guarantees. But for businesses of any size, the management philosophy of Jack Welch may be applied equally, and the results will be positive.

The following analysis will describe the basic principles of the Welch management system. Within each principle are specifics, subtleties and case histories to which entire books have been devoted. These five points will address the larger picture.

1. Change is good; don't be afraid of it. Welch insists that his managers, from senior level on down, "embrace change." Everything is constantly changing, says Welch – market conditions, the business environment, consumer spending habits, advances in technology, new products and even your competitors. CEOs, the senior management team, middle and junior managers, and individual employees must be open to reinventing themselves and everything they do. This is the only way to keep up with all of the many factors constantly in flux that impact a business, the way it operates and its bottom line.
2. Lead a company, don't over-manage it. At one time, most senior managers performed only limited functions. They watched, supervised and dictated orders to their underlings. Isolated from their subordinates and employees, these top managers could neither inspire them nor grant them permission to take initiatives not mandated from the top down. Welch abhors this approach. He often said that he wants his top people to lead not manage. Managers control, they don't facilitate, says Welch. Managers complicate things, they don't simplify them. Managers keep their feet on the brakes, in a manner of speaking, rather than on the gas, Welch has implied. Successful managers can only understand the entire work process if they integrate their duties to comprehend the multiple aspects of their business.
3. Hire and develop managers who can energize, excite and control. The ideal manager, according to Welch, is one who shares his vision, has boundless energy, and possesses the ability to radiate enthusiasm and ignite that flame in other employees. Along with those highly desirable skills, the best managers also have the indispensable gift of creating, developing and refining a vision and putting it to work in a practical way. To inspire enthusiasm and excitement in employees, no matter at what level in the corporate hierarchy, is to assign them more responsibility and grant them the permission, liberty and encouragement to act on their own initiative.
4. Acknowledge the facts and exploit them for advantage or eliminate their negative impact. CEOs and all managers who deliberately ignore the facts of their business, the business environment, and general market and economic conditions are doomed to fail, according to Welch. Changing market conditions and evolving strengths in technology and financial resources in GE under Welch's leadership prompted the CEO to sell off certain assets, despite their profitability. Understanding the macroeconomic factors affecting your business ensures long-term prosperity in a dynamic corporate environment. Assets that generate income today may not conform to the ongoing company business model. In 1986, as market facts indicated the potential for increased profitability in mass media, GE acquired RCA, which owned NBC television, a move that eventually provided huge and consistent revenues for GE.
5. Be focused, be consistent and follow up on every detail. Focus, consistency and follow-up may be described as Jack Welch's mantra. His invariable focus on changing when necessary, openness to new ideas, customer service, quality, simplicity, the empowerment of managers and employees, and the quest for competitive advantage are the hallmarks of Welch's great leadership. Following up to make sure these values are pursued at every level all but assure that, in a very unpredictable world, a company has at least the potential to succeed.

The Bottom Line

The management principles described above are only a small sampling of Welch's comprehensive managerial style. Managers across the spectrum, from CEOs of large firms to owner-operators of small businesses may profit from implementing these ideas.

Welch's techniques for managing strategic and tactical moves, recruitment, compensation issues, research and development, financing, accounting, marketing and advertising, legal issues, employee relations and other human resources issues, among numerous other aspects of running of a business are beyond the scope of this article.