Jack Welch and Strategy

Everyone, it seems, is in need of a strategy these days.  Luckily, everyone is a strategist. The word is used promiscuously as a value-enhancing modifier: a strategy for tax preparation, a strategy for losing weight, a strategy for coping with stress and the beat goes on.

Overuse has left the word “strategy” devoid of meaning.

As a practical matter, it is about using your limited resources to achieve the best outcome in situations that are both uncertain and contested. In the business world, books about strategy are legion and usually voluminous. These days, no company would dare to admit it lacks one.

One can argue that references to strategy in a business context started in the 1970s, as American companies became subject to increasing global competition and no longer enjoyed benign market conditions.  In 1964, when Peter Drucker sent his publisher the draft of a new book called Business Strategies, the publisher changed the title to Managing for Results, believing that the word “strategy” was associated with politics and the military, not business.

The post-World War II boom in the United States was produced by the massive, global, industrial-scale war that was not fought on American soil and radically depleted the industrial capacity of America’s most important competitors and potential competitors; including but not limited to Germany, Japan and Great Britain.

The American economy benefitted from the Marshall Plan and other spending to help rebuild these nations.  They used much of the money to purchase American goods, and for several decades the United States had very few major global competitors.

For instance, post-World War II Japan relied on close ties with the United States to protect its territorial integrity and regional interests.  This enabled Japan to focus its resources on education, economic development, and nondefense production that created competition for the United States.

America provided assistance to rebuild shattered economies in Western Europe and East Asia and opened up its market to their products.  However, by the 1970s, these countries were competing against American corporations.  By then, thanks to negative trade balances, higher oil prices, the combination of high interest rates, unemployment and inflation, and a crushing defeat in Vietnam, American corporations and households were experiencing real distress.

In response, academics, management consultants, armchair strategists, and corporate executives such as Jack Welch, the CEO of General Electric, the Apple of its time, began to transform their business strategies to acknowledge that international competition was a serious threat.  By then writing and consulting about business strategy had itself become a big business, offering magic bullet solutions such as “attack the competitor’s strongest point,” “swim in blue oceans away from the competition,” as universally valid nostrums.

Jack Welch understood that large firms could use their scale and scope to deal with increasing foreign competition, leverage international opportunities, and exploit the shift from manufacturing to services in the emerging knowledge-based economy, all while managing to stay cool.

Fortunately for Welch, he came to understand that the strategic resource in the new economy was human capital.  He realized that how strategy plays out depends on the operational effectiveness deployed by the Dilberts in the firm.  This is one reason why he was so insistent on learning and sharing knowledge and expertise throughout the organization.  In sum, he got the strategy right in the context of time and place, communicated it relentlessly, and monitored the strategy’s execution.

He understood that it is easier to grasp strategy in theory than to put it in practice, not least because strategy is difficult to develop and implement.  He likely subscribed to Yogi Berra’s perspective: “In theory there is no difference between theory and practice. In practice there is.”

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