Winning - Jack Welch [69]
Yes, I said, Appliances’ earnings were below plan and showed no rise over the previous year. But the business’s performance—in a brutal environment—was really impressive compared to its closest competitors, Whirlpool and Maytag, who had done worse than we had.
As for Plastics, yes, their earnings had beaten the plan, but it had been a layup. We cared more that one of their competitors had earnings growth of 30 percent and another had a 35 percent rise. We could have done better and we didn’t. In fact, we hadn’t been aggressive enough on price—a mistake, pure and simple.
You might expect that people in Plastics resented the bonuses paid out to Appliances, or that they wanted and expected more from headquarters for their results. But by that time, the reinvented approach to budgeting had permeated the organization. People understood how it worked, and how it made all of us better by looking outside the company to judge our performance. After all, what good is beating targets you set in a windowless room? The real world has its own numbers, and they’re all that matters.
GETTING IT GOING
As I said, it took years for this approach to financial planning to take hold at GE, but I know a case where it was up and running within two—and in China to boot, where modern management techniques in general are just taking hold.
It happened at 3M, the industrial conglomerate, which has been doing business in China for some twenty years.
To an outside observer, 3M’s track record in China has always been solid. In fact, when Jim McNerney became CEO in January 2001, the company’s Chinese businesses were posting 15 percent annual growth, about three times the company’s average. For years at budget time, the Chinese team had been congratulated for this level of performance and sent on its way.
But after his years of experience with the impact of stretch goals and operating plans at GE—where his last job was CEO of Aircraft Engines—Jim decided to transform budgeting at 3M, including its foreign operations.*
His first step, however, was not to install the stretch approach. “You can’t go to stretch directly,” he told me recently. “You have to get a culture of accountability first.” In other words, people have to mean what they say, deliver their operational and strategic commitments, and take responsibility if that doesn’t happen.
In the past, 3M had something of the Negotiated Settlement approach to budgeting, but with an added twist of benign neglect. The company called budgets “improvement plans,” which, as Jim notes, “had little commitment attached to them.” Headquarters and each business unit would come up with agreed-upon numbers during the budgeting ritual, and then amicably part ways until the same event the next year. In the meantime, goals would routinely be missed, and people at headquarters might have gotten angry, but nothing happened.
Over the past four years, as Jim and his team have changed the 3M culture, the “improvement plan” approach to budgeting has all but ended. There is new candor and trust—and accountability—throughout the organization. Enough, in fact, that Jim felt it was possible to introduce the stretch approach.
One of its earliest believers was Kenneth Yu, managing director of 3M China and a 3M employee for more than thirty years, first in Hong Kong, then in Taiwan, and now in Shanghai. In his early fifties and a veteran of good results under the old budgeting system, Kenneth was an unlikely candidate to embrace such a major change. But he had, as Jim describes it, “a total reawakening” as to how business could be done.
“Once Kenneth realized that the stretch approach had a safety net, he really bought into the idea that stretching, even without getting there, could be a whole lot better than the old game,” Jim recalls.
Rather than come to Jim with the usual conservative growth plan and then beating it, Kenneth presented an operating plan to catapult