The essence of leadership is risk- and opportunity-assessment and resource allocation. It follows that one of the persistent responsibilities of leadership is to mull over each individual and organizational endeavor and investigate, “Do we produce results that are meaningful and profitable enough for us to justify investing our resources to this purpose?”
Jack Welch’s Strategy for General Electric: #1 or #2 Businesses Only
When Jack Welch became CEO of General Electric (GE) in 1981, he set out to make GE “the world’s most competitive enterprise.” However, the company was a hodgepodge of many businesses—some unrelated or irrelevant, several unprofitable, and a few at the brink of failure.
Management pioneer Peter Drucker famously advised Welch to ask of each constituent of the GE business portfolio he now presided over, “If you weren’t already this business, would you enter it today? And, if the answer is no, what are you going to do about it?”
Welch’s responded with his legendary dictum that every GE division be—or become—the leading or the runner-up business in its respective industry, or plan to exit it completely.
Welch argued that in many markets, the number three, four, five, or six players suffered the most during cyclical downturns. On the contrary, number one or number two businesses could protect their market share by way of aggressive pricing approaches or by developing new products. Welch’s approach portended the emergence of oligopolies in many industries.
The resultant strategic focus eventually led to an immense restructuring of GE. Welch sold or discontinued dozens of divisions—including computers and time-shares. Over the next decade, he cut nearly one in four jobs at GE, warranting the nickname “Neutron Jack.”
By year 2000, GE had reached dominance or near dominance in most of its business markets across the globe.
Peter Drucker on Strategic Reprioritization
Explaining this method of strategic reprioritization, Drucker wrote in Post-Capitalist Society (1993,)
To turn around any institution—whether a business, a labor union, a university, a hospital, or a government—requires always the same three steps:
- Abandonment of the things that do not work, the things that have never worked; the things that have outlived their usefulness and their capacity to contribute;
- Concentration on the things that do work, the things that produce results, the things that improve the organization’s capacity to perform; and
- Analysis of the half successes, half failures. A turnaround requires abandoning whatever does not perform and doing more of whatever does perform.
Drucker further elaborated on abandonment as the keystone for strategic reprioritization in his Five Most Important Questions (2015,)
To abandon anything is always bitterly resisted. People in any organization are always attached to the obsolete—the things that should have worked but did not, the things that once were productive and no longer are. They are most attached to what in an earlier book I called “investments in managerial ego.” Yet abandonment comes first. Until that has been accomplished, little else gets done. The acrimonious and emotional debate over what to abandon holds everybody in its grip. Abandoning anything is thus difficult, but only for a fairly short spell. Rebirth can begin once the dead are buried; six months later, everybody wonders, “Why did it take us so long?”
Idea for Impact: Assess What Endeavors Must Be Intensified or Abandoned
Don’t do—or continue to do—something just because it’s been a tradition, custom, or habit. Strengthen, abandon, or stay on. Align your efforts with your mission, your values, and the results you want to achieve.
If you abandon something important mistakenly, you can quickly pick up where you left off.
Invest your precious resources where the returns are rich.
Figure out what’s vital and stay focused, even if you have to cut your losses (read about sunk costs.)