(FORTUNE Magazine) – TO THE CASUAL eye, much of what General Electric has been up to lately seems to epitomize the humbled circumstances of American business. For more than a century GE brought the world wondrous inventions, from light bulbs to electric dishwashers to CAT scanners, enhancing people's lives and creating jobs. By contrast GE's most visible moves in this decade appear grim and unimaginative. In a cost-cutting campaign that has shaken his organization to its roots, Chairman John F. Welch Jr. has eliminated 100,000 employees, more than one- quarter of the work force. In June, Welch closed a deal to acquire RCA, % another graying corporate legend, in the biggest financial agglomeration ever outside the oil industry. Has this great enterprise been reduced to boosting profits by firing people and buying other businesses? Not on your life, says Welch. He believes, as do many who know the company well, that he has transformed GE into a lean and agile competitor capable of making the most of what the future holds. In 1981, when he became GE's eighth and, at 45, youngest chairman, the company was ranked as the best-managed industrial company in the nation in a poll of FORTUNE 500 chief executives. But GE also was regarded as a ''GNP company,'' whose growth and prosperity could never do much better than the overall economy. Welch set out to create a company that could outpace the economy and thrive even in the toughest times. He utterly transformed GE, reshaping the corporate culture to reflect his relentless energy and informal but rigorous style. Little wonder that he came to be called Neutron Jack: He stripped entire echelons out of the GE hierarchy. Welch fundamentally changed the business. He sold $5.6 billion of dogs, including Utah International, a mining company, and shifted resources from stodgy manufacturing businesses to fast-growing services and high technology. In just four years, he poured billions into an automation campaign that has produced some of America's best factories. Welch sorted operations according to a simple criterion: To keep from being sold or shuttered, each had to be No. 1 or No. 2 in its market. He grouped the 15 businesses that he says met the test into three ''circles.'' They include services like GE Credit Corp. and a unit that maintains nuclear power plants; technology products in high-growth markets like jet engines and plastics; and what Welch calls the core businesses. These are the classic big players in such mature industries as light bulbs and electric motors. The financial results -- ''the current numerical expressions'' of his management, as Welch, a chemist by training, calls them -- have been impressive. Return on equity has hovered around a rewarding 19%, the overall profit margin has widened by almost two percentage points to 10.4%, and earnings have grown at a compound rate of 10%. The only poor year was 1985, when profits flattened. Wall Street has applauded. Since 1981 GE stock has risen more than twice as fast as Standard & Poor's index of 400 industrial stocks. Adjusted for a 2-for-1 split in 1983, GE has gone from $30 a share to over $80. The weak spot in the numerical expressions has been revenues, which barely budged. That raises the question of whether, once the cost cutting is complete, GE can build profits and grow without acquisition. Welch argues that the weakness is more apparent than real. In briefing a director recently named to the board, he pointed out that the slow-growth impression comes largely from his having sold off the losers. Sales of continuing operations have risen 5% a year, above average for the S&P 400. With the RCA acquisition, GE's annual revenues leap from $28 billion to more than $40 billion at a single bound. Welch can get profit growth by working over RCA as he has GE. But streamlining is only part of a multifaceted strategy for keeping profits on the rise. Indeed, significantly less than half GE's profit gains since 1981 came from rooting out waste and dropping unneeded workers. The balance flowed from nurturing the fast-growing, high-margin businesses. The hottest have been jet engines, aerospace, plastics, and major appliances. They account for 40% of GE's revenues and profits. In Welch's tenure, those four plus financial services all have shown annual earnings growth of 20% or more. If his strategy continues to work, GE will surf along the current wave of economic activity and be ready to catch any kind of wave that comes next. Executing that strategy can be wrenching, even for survivors. Says an executive who works with the mature businesses known in-house as the old GE: ''Morale stinks. People are looking for jobs or waiting for a nice severance package. They talk openly about it.'' He is skeptical of Welch's ability to do more than cut costs. ''I don't see the greatness that everybody says is here,'' he says. ''I could understand if out of this devastation came something we could all look to as the wave of the future. But I see a void.'' Yet GE can be enormously exciting for those in the right place or attuned to the Welch mentality. By all accounts, the degree to which Welch has transformed the company's bureaucratic culture is astonishing. From the start he made plain that GE managers had to achieve unsurpassed quality at Scrooge- like cost and capture the required market share. If they fail, they go. In eliminating managerial layers, Welch moved authority for most decisions down to 20 operating divisions. He promotes a feeling of what he calls ownership, urging managers to act like entrepreneurs instead of hired help. ! Welch says he also promotes free communication: ''We are out to get a feeling and a spirit of total openness. That's alien to a manager of 25 or 30 years who got ahead by knowing a little bit more than the employee who works for him.'' Welch's emphasis on communications and camaraderie sometimes becomes extreme. Lately, GE's 112 corporate officers have devoted long hours commenting on drafts of a statement of corporate values that Welch has titled ''What We Want to Be.'' In the same vein, Welch says he wants to instill in managers ''the confidence to lead and the confidence to share.'' HIS THIRST for information is voracious, and Welch breaks the bonds of hierarchy in quest of it, cultivating sources high and low. ''If you're a manager who gets upset if the boss goes around you, you'll spend a lot of time being upset,'' says Thomas Thorsen, chief financial officer of Travelers Corp. and until 1984 GE's chief financial officer. Welch thrives on rough-and-tumble debate. After the RCA acquisition, the question of how to make GE grow became much discussed. Consider a workshop for 17 corporate officers in January at GE's lavish training center in Crotonville, New York. When Welch joined the workshop on the second day, the executives barraged him with questions about growth. They argued that the company wasn't generating enough growth internally and that they ought to have a hand in selecting future acquisitions and deciding how GE allocates capital. Confronted with such challenges from below, many a C.E.O. would start taking names, at least mentally. Welch, according to several at the meeting, was in his element. He told his underlings he had no intention of sharing power, but then spent two hours debating capital budgeting policies and putting wish lists of acquisitions on the blackboard. All this is new to RCA. Its wholly owned network, NBC, has just begun reporting directly to Welch, who calls it GE's 16th business. He says he won't meddle, but he is already talking about someday strengthening NBC by acquiring more stations, movie studios, ''whatever the changing laws permit.'' RCA's consumer electronics business poses a tough issue for Welch. RCA is the biggest U.S. television manufacturer and GE, also a TV set maker, had announced plans to stop making them. ''We came to the party with different suits on,'' says Welch. ''One came for a hockey game and one came for a football game. RCA would like the television set to dance, jump, sing, do all - kinds of things, because it is the core of their company. So they came with a lot of plans to win in that game, good plans. The two teams couldn't have been further apart.'' Welch says he has no love for the fast moves and cutthroat pricing of consumer electronics. But rather than quash RCA's ambition, he reopened the TV issue at GE, hiring three consulting firms to study TV technology, marketing, and manufacturing. ''We don't want to impose the GE losing view on the RCA winning view,'' he says. ''Let's let the facts lay it out.'' Part of Welch's strategy for building profits is using technology to leapfrog competitors. Take major appliances, or majors, as the division is known within GE. In the late 1970s majors was stumbling, disorganized, and laying off thousands of workers in a painful industry slump. Today the $3.5- billion-a-year operation is hot, and not just because demand is booming. Welch chose senior vice president Roger Schipke, a dishwasher marketing man, to turn majors around in 1982. Schipke cleaned house and automated. Twelve vice presidents became five, and a five-year, $1-billion automation program began. He won union support partly by agreeing to retrain displaced workers. The first automated plant to go on line was the dishwasher factory in Louisville in 1983. GE caught competitors napping. It picked up 12 percentage points of market share with new designs that gave it advantages in both cost and quality. GE now controls nearly half the dishwasher market. The next leap will be in refrigerators. GE, already No. 1 in that market, is about to chill competitors with a new line. The machines will incorporate unique rotary compressors that Schipke says will give GE a decisive competitive edge for at least three years. Besides being cheaper than the reciprocating compressors competitors use, the rotary versions are smaller, allowing consumers extra storage space. Most appliance men thought rotary compressors were impractical for refrigerators because they must be made to tolerances unheard of in mass manufacturing outside the electronics industry. GE pulled aircraft-engine and automation experts from elsewhere in the company to help design the $100-million Tennessee plant where the compressors are built. Just 90 workers will oversee machines that will produce three million compressors annually. The plant probably is the most automated in the world. Says Gail Landis, a security analyst at Sanford C. Bernstein & Co., ''If this strategy doesn't work, then every industrial company in America is a short.'' WELCH HAS A PLOY he calls bridging to ensure eventual growth in businesses that are in recession today. The idea is to modernize the factories and then keep them operating, at breakeven or even a loss, to refine technological and design advances. If all goes as planned, by the time demand rebounds GE will be so far ahead of the competition that it can gobble market share. A bridge is supposed to bear GE to eventual profits on $300 million it sank into a showcase locomotive plant in Erie, Pennsylvania. The plant, chosen by FORTUNE in 1984 as one of the America's best, works just fine. But the market for locomotives has been awful. Undeterred, GE landed a half-billion dollars in orders to supply 425 locomotives to China virtually at cost. Welch is betting that the experience GE gains will put it miles ahead when the U.S. market recovers. Creating totally new businesses has been a harrowing challenge. The most ambitious GE has attempted is factory automation. In 1980, while he was GE's vice chairman, Welch began to group together the diverse products that other companies would need to automate factories the way GE was doing. He wanted to turn GE into America's factory-of-the-future hardware store. On April 2, 1981, the day after Welch's accession to the top, GE kicked off its automation marketing drive. Its slogan warned prospective customers that they had three options: ''Automate, emigrate, or evaporate.'' To GE's chagrin, other manufacturers have been slow to get the message. By last year, factory automation was supposed to have generated $1 billion in sales, on its way to $5 billion in 1990. Instead, revenues were $550 million last year. GE has reorganized the unit, replaced the bosses, and squelched the bombast. The company now markets automation products individually rather than as complete factory packages and takes on only a few consulting projects at a time. It recently won a contract to supply computerized assembly-line controls for General Motors' Saturn factory. Welch also hopes that a slew of prospective international joint ventures will give GE entree to some otherwise hard-to-crack foreign markets. He argues that industrialized nations are moving inexorably toward policies of reciprocity designed to prevent big trade imbalances. In the resulting ''level world,'' as he calls it, manufacturers will have trouble getting goods into other countries without local partners. GE's medical systems group has already ; used a joint venture to win the No. 2 spot in the Japanese market for scanners. The brightest light at GE has been General Electric Financial Services. In 1985 it contributed $391 million, nearly one-sixth of the company's profit. An empire within the GE empire, it consists of Employers Reinsurance Corp., the nation's No. 2 reinsurance company, which GE picked up for $1.1 billion last year, and the huge GE Credit Corp. Savvy and fast-moving, GE Credit has scored again and again by pouncing into developing financial markets like tax- sheltered equipment leasing, exploiting them fast, and moving on as competition heats up or laws change (FORTUNE, August 5, 1985). By picking up an 80% stake in Kidder Peabody for $600 million in June, GE Credit has joined the ranks of top investment banks. Vice Chairman Lawrence Bossidy, who oversees financial services, says the Credit Corp. will call on Kidder to syndicate shares of large leveraged buyouts and for help in corporate refinancings. If GE Credit were independent, its $22 billion in assets would have made it No. 9 on FORTUNE's 1986 list of the largest U.S. diversified financial companies. GE will keep acquiring. Welch is an uncommonly patient suitor. Before RCA, he was on the acquisition trail four years and made just one big buy, Employers Reinsurance. The board of directors was starting to get restive. ''If there was anything that gave me pause,'' says board member Lewis Preston, chairman of J.P. Morgan, ''it was that we had gotten out of so many businesses, but were we getting into the ones to meet future goals? But Jack very wisely had the sense to wait until the right one came along.'' Welch believes more deals will come his way. Even after this year's purchases of RCA, Kidder, and a medical-equipment service and manufacturing operation from Johnson & Johnson, GE has $2.2 billion in cash. How many pitches has Welch made to prospective acquirees? ''I do that all the time,'' he says. ''I live in that world. People know they can talk to me about their succession plans, about whether they would rather come with us. They know I'm never going to make a hostile move on them. And I'm patient. I've got lots of time.'' Welch says his strategy will enable GE to consistently outpace the GNP and ''any group you can compare us with.'' But he isn't promising specific growth rates. ''I can't stand predictions,'' he says. ''What I have to do is try to visualize the world, and I have to be agile enough to live with it and win in it. It doesn't mean a thing to say I'm going to do it. It only means something to do it.'' So far, he has done a lot.

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CHART: INVESTOR'S SNAPSHOT GENERAL ELECTRIC SALES (LATEST FOUR QUARTERS) $28.0 BILLION CHANGE FROM YEAR EARLIER UP 1% NET PROFIT $2.4 BILLION CHANGE UP 2% RETURN ON COMMON STOCKHOLDER'S EQUITY 17% FIVE-YEAR AVERAGE 18% RECENT SHARE PRICE $81.75 PRICE/EARNINGS MULTIPLE 16 TOTAL RETURN TO INVESTORS (12 MONTHS TO 6/6) 36% PRINCIPAL MARKET NYSE