Winning - Jack Welch [58]
Corner stores have learned that survival depends on finding a strategic position where no one can beat them. Big companies have the same challenge.
When I became CEO in 1981, we launched a highly publicized initiative: “Be No. 1 or No. 2 in every market, and fix, sell, or close to get there.” This was not our strategy, although I’ve heard it described that way. It was a galvanizing mantra to describe how we were going to do business going forward. There would be no more hanging on to uncompetitive businesses for old times’ sake. More than anything else, the No. 1 or No. 2 initiative was a communication tool to clean up our portfolio, and it really worked.
Our strategy was much more directional. GE was going to move away from businesses that were being commoditized toward businesses that manufactured high-value technology products or sold services instead of things. As part of that move, we were going to massively upgrade our human resources—our people—with a relentless focus on training and development.
We chose that strategy after getting hammered by the Japanese in the 1970s. They had rapidly commoditized businesses where we had had reasonable margins, like TV sets and room air conditioners. We ended up playing defense in a losing game. Our quality, cost, and service—the weapons of a commodity business—weren’t good enough in the face of their innovation and declining prices. Every day at work was a kind of protracted agony. Despite our productivity improvements and increasing innovation, margins were eroding, as competitors like Toshiba, Hitachi, and Matsushita were relentless.
Meanwhile, overseeing GE Capital in the late ’70s, I was shocked (and delighted) to see how easy it was to make money in financial services, particularly with GE’s balance sheet. There were no union factories, no foreign competition, and plenty of interesting, creative ways to offer customers differentiated products and services. I remember the excitement in that period, seeing our people develop new private-label credit card programs and find niche after niche in middle-market industrial financing. Fat margins weren’t exactly low-hanging fruit, but close.
By the time I was made CEO, I knew that GE had to get as far away as it could from any business that smelled like a commodity and get as close as possible to the other end of the spectrum. That’s why we divested businesses like TV sets, small appliances, air conditioners, and a huge coal company, Utah International. It is also why we invested so heavily in GE Capital; bought RCA, which included NBC; and poured resources into developing high-technology products in our power, medical, aircraft engine, and locomotive businesses.
Now, in such changing times, how and why did GE stick with one strategy over twenty years? The answer is that strategies, if they’re headed in the right direction and are broad enough, don’t really need to change all that often, especially if they are supplemented with fresh initiatives. To that end, over the years, we launched four programs to bolster our strategy—globalization, service add-ons, Six Sigma, and e-business.*
More than anything, though, our strategy lasted because it was based on two powerful underlying principles: commoditization is evil and people are everything.
Virtually every resource allocation decision we made was based on those beliefs.
Yes, some companies can win in commodity situations—Dell and Wal-Mart are great examples of companies that have pulled the levers of cost, quality, and service to succeed in extremely competitive games. But that is really tough. You just can’t make any mistakes.
My advice, then, is when you think strategy, think about decommoditizing. Try desperately to make products and services distinctive and customers stick to you like glue. Think about innovation, technology, internal processes, service add-ons—whatever works to be unique. Doing that right means you can even make a few mistakes and still succeed.
That’s enough theory!
MAKING STRATEGY REAL
The first step of making strategy real is figuring