(FORTUNE Magazine) – CALLING General Electric just a company is like calling California just a state. GE has 298,000 employees, more people than live in Tampa, St. Paul, or Newark, New Jersey. Last year they were paid $13 billion, a sum greater than the personal income of all the residents of Alaska, Montana, North Dakota, South Dakota, Vermont, or Wyoming. GE grossed $58.4 billion; its sales growth -- $3.8 billion -- exceeded the total sales of all but 126 FORTUNE 500 industrial companies. Few corporations are bigger; none is as complex. GE makes 65-cent light bulbs, 400,000-pound locomotives, and billion-dollar power plants. It manages more credit cards than American Express and owns more commercial aircraft than American Airlines. Of the seven billion pounds of hamburger Americans tote home each year, 36% keeps fresh in GE refrigerators, and after dinner, one out of five couch potatoes tunes in GE's network, NBC. This is the outfit that Chairman John F. Welch Jr., 55, wants to run like a small business. In the Nineties, Welch believes, a corporate Gulliver is doomed without the Lilliputian virtues he calls ''speed, simplicity, and self- confidence.'' To get them, the scrappy CEO has mounted a radical assault on the canons of modern management -- which GE largely wrote. ''We've got to take out the boss element,'' Welch says. By his lights, 21st- century managers will forgo their old powers -- to plan, organize, implement, and measure -- for new duties: counseling groups, providing resources for them, helping them think for themselves. ''We're going to win on our ideas,'' he says, ''not by whips and chains.'' A brave notion, even radical, verging on the touchy-feely. But at GE? Don't get us wrong. Welch is not about to sacrifice profit on the altar of lofty sentiments. As Stephen Joyce, a vice president at GE Capital, puts it, ''Hey, % this is GE.'' But Welch maintains there is no contradiction between his hard- nosed reputation for demanding superior performance and soft concepts like employee involvement. Explaining the point of the exercise, he says, ''The only ideas that count are the A ideas. There is no second place. That means we have to get everybody in the organization involved. If you do that right, the best ideas will rise to the top.'' To get those ideas percolating, GE is dismantling executive power and handing pieces of it over to ''process champions,'' who might be veeps in TV programming or janitors on a cleaning crew. Says Harvard business school professor Len Schlesinger, one of about two dozen academics and consultants GE has hired to coach employees through the change: ''This is one of the biggest planned efforts to alter people's behavior since the Cultural Revolution.'' Welch and his lieutenants have selected three weapons, management techniques called Work-Out, Best Practices, and Process Mapping. The first jimmies the locks that keep employees out of the decision-making process; the second seeks to smash the ''not invented here'' syndrome and to spread good ideas quickly from one part of GE to another; the third is the tool the others most depend on. All foster lots of employee involvement. Combined, they are designed to sustain the rapid growth in productivity that, Welch says, is the key to any corporation's survival in the competitive environment of the Nineties. That strategy has risks. No big old U.S. company has ever proved that ''soft techniques'' can deliver the goods over the long haul. But Welch is willing to bet his sterling reputation on the new initiatives. Rather than try them in pilot programs, he has, in effect, hurled them at the entire organization and yelled, ''Catch!'' With the game well under way, FORTUNE has become the first outsider allowed to range widely through the company to see how it is being played. When the revolution hits GE, it's time to sit up and take notice. Concepts such as strategic planning, decentralization, and market research -- indeed, the very notion that management is a discipline that can be taught and applied across a wide spectrum of businesses -- were all either invented at GE or first used systematically there. Those ideas formed the core curriculum at Crotonville, GE's Management Development Institute in Ossining, New York (see box). What's happening at GE now, says Schlesinger, ''is an explicit rejection of many of the old principles.'' Work-Out was conceived on a helicopter in September 1988. Welch was flying from Crotonville with its director, James Baughman, to headquarters in Fairfield, Connecticut. They had just left the Pit, the classroom where GE executives are encouraged to put aside decorum and engage Welch in the rough- and-tumble debate he relishes. Pumped up, Welch told Baughman, ''We've got to find a way to take this thing and transfer it out into the businesses.'' GE was a different company from the one Welch had taken over in 1981. By 1989 he had squeezed 350 product lines and business units into 13 big businesses, each first or second in its industry. He had shed $9 billion of assets and spent $18 billion on acquisitions. He collapsed GE's management structure, a wedding cake that had towered up to nine layers high, and scraped off its ornate frosting of corporate staff; 29 pay levels became five broad bands. Victims dubbed Welch ''Neutron Jack'' after the neutron bomb, a Pentagon idea for a weapon that would kill people but leave buildings standing. That was a misnomer: Welch eliminated 100,000 jobs and flattened buildings too. Those tough actions beefed up GE's total stock market value from $12 billion in 1980 (11th among U.S. corporations) to $65 billion today (second only to Exxon). ''The hardware was basically in place by mid-1988,'' Welch says. ''We liked our businesses.'' But colleagues remember his frustration. Every time he visited the Pit, he told people, ''I hope you're as brave when you're back home as you are here.'' They weren't. Former vice chairman Lawrence Bossidy (now CEO of Allied-Signal) recalls, ''People were telling us, 'You say you want openness and candor, but that's not happening at our place.' '' Further structural change wasn't the answer. Welch was asking for something much harder: cultural change. Within a week of the helicopter conversation, Baughman had a plan. In January 1989, Welch announced it to 500 top operating managers at their annual confab in Boca Raton, Florida. They heard that Fairfield had a new program, that corporate was hiring top-flight consultants and B-school professors to facilitate it, and that it wasn't optional. It was called Work-Out. WORK-OUT is, essentially, a place. It's a forum where three things can happen: Participants can get a mental workout; they can take unnecessary work out of their jobs; they can work out problems together. Work-Outs started in March 1989. Like kernels of corn in a hot pan, they began popping one at a time -- in GE Plastics' silicones unit in Waterford, New York; at NBC; in the lighting business -- then in a great, noisy rush. No one keeps count, but Baughman guesses that 40,000 employees -- better than one in eight -- will take part in at least one Work-Out in 1991. Initially, all followed the same format, which Welch likens to a New England town meeting. A group of 40 to 100 people, picked by management from all ranks and several functions, goes to a conference center or hotel. It's a gaffe to wear a tie. The three-day sessions begin with a talk by the boss, who roughs out an agenda -- typically, to eliminate unnecessary meetings, forms, approvals, and other scutwork. Then the boss leaves. Aided by the outside facilitator, the group breaks into five or six teams, each to tackle part of the agenda. For a day and a half they go at it, listing complaints, debating solutions, and preparing presentations for the final day. It's the third day that gives Work-Out its special power. The boss, ignorant of what has been going on, comes back and takes a place at the front of the room. Often senior executives come to watch. One by one, team spokesmen rise to make their proposals. By the rules of the game, the boss can make only three responses: He can agree on the spot; he can say no; or he can ask for more information -- in which case he must charter a team to get it by an agreed-upon date. ''I was wringing wet within half an hour,'' says Armand Lauzon, the burly, blunt-spoken head of plant services at the GE Aircraft Engines factory in Lynn, Massachusetts. His employees had set up the room so that Lauzon had his back to his boss. ''They had 108 proposals, I had about a minute to say yes or no to each one, and I couldn't make eye contact with my boss without turning around, which would show everyone in the room that I was chickenshit.'' Ideas ranged from designing a plant-services insignia as a morale booster to building a new tinsmith shop, and Lauzon said yes to all but eight. ELECTRICIAN Vic Slepoy makes no apology for the ordeal Lauzon suffered: ''When you've been told to shut up for 20 years, and someone tells you to speak up -- you're going to let them have it.'' Lauzon is not complaining. Work-Out proposals will save plant services more than $200,000 in 1991. The biggest hit: a yes to letting Lynn's tin knockers bid against an outside vendor to build new protective shields for grinding machines, based on a design an hourly worker sketched on a brown paper bag. They brought in the job for $16,000 vs. the vendor's quoted $96,000. That was an ideal Work-Out result: It not only saved GE money but it also brought work to a labor force that had plenty of reason to mistrust the company. Lynn employs 8,000 people, down from 14,000 in 1986. The angry local of the International Union of Electronic Workers had voted down the previous two national contracts. Welch, who grew up in nearby Salem, asked a gathering of union members last year, ''Why do you guys poke your finger in my eye every three years?'' Simple, explains Slepoy, his Massachusetts accent a lot like Welch's: ''We had the feeling they were trying to phase us out. Now at least we have an avenue to make a pitch for our jobs.'' They're more courtly in Louisville, Kentucky, where GE makes appliances, but no less theatrical. At a Work-Out held at the Ramada Inn in nearby Bardstown one team's job was to find ways to improve the environment in Building One, which makes clothes washers and dryers. The place got so steamy in summer you'd think the machines on the assembly line were already hooked up and running. The fixes were simple: Open some vents that had been shut years ago for no remembered reason, and buy a few fans and blowers. To make their point, the team led boss Jeff Svoboda out to the parking lot. The temperature was in the 90s and team members took their sweet time setting up an easel and flip charts while Svoboda stood in the sun. They got one of the quicker okays in the annals of Work-Out. ARTIFICIAL? You bet. Steve Kerr, a USC business professor and Work-Out facilitator, says Work-Outs start as ''unnatural acts in unnatural places.'' The stagecraft gives workers a safe way to taste empowerment. The same goes for the boss: Even if his boss is in the room, he is forced to make his own decisions. His boss can't overrule him later without jeopardizing the whole process. Kerr says Welch has made it plain that it's ''a career-limiting move'' to obstruct the efforts of a Work-Out team. By using early Work-Outs to go after irksome minor issues like excess paperwork -- ''low-hanging fruit'' in company parlance -- GE gets quick victories on the board. The easy pickings often have big benefits. At NBC, Michael Sherlock's operations and technical services department used Work-Outs to scotch forms that totaled more than two million pieces of paper a year. These first sessions are really about building trust. Says Welch: ''You have to go through the administrivia part of it. If you jump right into complicated issues, no one speaks up, because those ideas are more dangerous.'' That's because they cross functional boundaries, where people feel their turf is being encroached upon. To make that step, the Work-Out process changes. Later Work-Outs are still ''unnatural acts,'' but now they're ''in natural places,'' in Kerr's words -- meaning that teams are made up of people who work together day to day or who are involved in different steps of the same process, like packers and shippers or purchasing agents and parts managers. Often they are commissioned at town meetings to gather data on a knotty problem. Technician Al Thomas led one such team at GE Plastics' Burkville, Alabama, plant, which makes Lexan, a polycarbonate used in auto bumpers and milk bottles. Its mission: to increase the ''first-pass yield'' -- the percentage of resin that ends up as salable pellets without having to be melted and run again through the factory's extruders. ''There were no home runs,'' Thomas says, but the team hit 26 singles. They installed a computer terminal on the extrusion floor to give workers early warning of problems upstream where resins are made. They realigned pipes that pour pellets into cartons to reduce spillage. They vetted the procedures manual; a Post-it note on one page reads, ''This procedure is totally unnecessary and useless.'' Hourly workers, not engineers, are writing a new version. The team met daily for three months and spent about $10,000. When they were done, 37% of the waste was gone. And, says Thomas, it was fun: ''We learned a lot without bosses looking over our shoulders.'' NOW WORK-OUTS are enrolling customers and suppliers as well as colleagues. A team in the locomotive paint shop in Erie, Pennsylvania, found that a major cause of delays and rework was inconsistency in the paint because GE was buying it from two suppliers. Team members persuaded their boss, Ralph Schumacher, to use just one, Glyptal Corp., and asked its chemist to join up. Together they wrote standards for color and consistency, eliminating the need for dual inspections, and hooked up a direct phone line between the two shops. A paint job now takes ten shifts, down from 11 or 12 before. GE's Monogram Retailer Credit Services, which manages Montgomery Ward's charge card business, teamed with Ward to tie its cash registers directly to GE's mainframes, cutting the time for opening a new customer account from 30 minutes to 90 seconds. As Work-Out began to spread through GE, headquarters was laying in ammo for another assault on business-as-usual. Again the impetus was Welch's pursuit of ideas to increase productivity. It was Welch himself who first voiced what later seemed obvious. Other companies get higher productivity growth than GE. Why not kick their tires? The assignment went to the business development staff in Fairfield, which scrutinizes acquisition candidates and thus has wide knowledge of other companies. In the summer of 1988, the group, then headed by Michael Fraizer, began scouring the business press and canvassing GE executives, looking for companies worth emulating. From an initial list of about 200, they found two dozen that had achieved faster productivity growth than GE and sustained it for at least ten years. Also screened out: direct competitors and companies that would not be credible to GE people. (Folks who make turbines have a hard time believing that a hot little cookiemaker can teach them much.) Half of the survivors agreed to the proposition GE made: Let us send some people to your shop to learn about your best management ideas; in return, we'll share the study with you and let you ask about our methods. Participants included electronic-components maker AMP, Chaparral Steel, Ford, Hewlett-Packard, Xerox, and three Japanese companies. THE PROJECT, which GE called Best Practices, took more than a year. There's a crucial difference between Best Practices and the benchmarking lots of companies do. Benchmarkers usually study nonpareils in particular functions -- ''What can our shipping department learn from L.L. Bean's?'' GE was looking less for nuts and bolts than for attitudes and management practices. Basically, says Baughman, GE's question was, ''What's the secret of your success?'' Surprise: The answers were remarkably similar. Almost every company emphasized managing processes, not functions; that is, they focused less on the performance of individual departments than on how they work together as products move from one to another. They also outhustled their competitors in introducing new products and treated their suppliers as partners. And they managed inventory so well that they tied up less working capital per dollar of sales than GE. The implications of the Best Practices study were earthshaking. GE realized it was managing and measuring the wrong things. The company was setting goals and keeping score; instead, says business development manager George Zippel, ''we should have focused more on how things got done than on what got done.'' Best Practices provided an empirical basis for changing what GE manages. The corporate audit staff -- GE's fearsome cadre of traveling checkers -- altered its methods. Auditors, youngsters picked for their high potential, used to come from finance backgrounds; now half are operations or information systems experts. Says audit staff head Teresa LeGrand: ''When I started ten years ago, the first thing I did was count the $5,000 in the petty cash box. Today we look at the $5 million in inventory on the floor, searching for process improvements that will bring it down.'' Crotonville turned the Best Practices findings into a course, which it gives to a dozen people a month from each of GE's ten manufacturing businesses. The service businesses, which need to pay special attention to issues like managing information technology, have their own course, based on research at nonmanufacturing companies like American Express. The class teaches three essential lessons. The first is that other companies have much to teach GE -- something easy to forget in a century-old giant that hasn't had a down quarter in a decade. Second is the value of continuously improving processes, even in small ways, rather than taking big jumps. To develop a new product, for example, GE learned to make a multigenerational plan -- aiming to introduce a first version that uses only tried-and-true technologies, then gradually introducing new ones as they are perfected. That gets the product to market faster and eliminates costly mishaps when an unproven technology turns out to be full of bugs. GE also learned that rotating executives quickly through new jobs, long a proud practice at the company, created problems in new-product introductions, which go more smoothly when managers have long tenure.

The third lesson is that processes need owners -- people whose responsibility and authority reach through the walls between departments. That's how Best Practices folds back into Work-Out and explains why, more and more, the people who go to Crotonville for the course are not senior management but Work-Out teams that are wrestling with, say, a supplier- relations issue. Many ties established in the Best Practices study are still strong. GE and AMP visit one another several times a year, for example. Recently GE has been studying how AMP purchases, while AMP executives have been boning up on GE's executive development programs. And GE businesses have begun to copy the technique on their own -- making a best practice of Best Practices. For example, NBC visited the United Nations, Citicorp, and others to learn how they cope with the frustrations of moving supplies and equipment in congested Manhattan. ''Demand for change creates demand for tools,'' says Baughman. GE meets it with Process Mapping, an old technique that the company has put on the dais along with Work-Out and Best Practices. A process map is a flow chart showing every step, no matter how small, that goes into making or doing something. Elaborate process maps use diamonds, circles, and squares to distinguish work that adds value from work that doesn't, like inspection. These are furbelows, not really necessary. What's essential is that every step be mapped, from the order clerk picking up the phone to the deliveryman getting a signed receipt. PROCESS MAPPING sounds simple, but it's not. To do it right, managers, employees, suppliers, and customers must work on the map together to make sure that what the company thinks happens really does. When a team from GE's Evendale, Ohio, plant mapped the process of making turbine shafts for jet engines, the job took more than a month, and the map went all around a conference room. When a process is mapped, GE has -- often for the first time -- the ability to manage an operation in a coherent way from start to finish. Before, says John Chesson, general manager of component manufacturing at Evendale, ''we strove for worker efficiency and machine efficiency. Now what drives us is the efficiency of total asset management.'' For example, in pursuit of 100% machine utilization, all rotating parts used to go to a central steam-cleaning facility between operations; now the shaftmakers have their own cleaning booths because the process map revealed that the time saved more than paid for the additional equipment. The map also helped the shaft team pinpoint sources of imperfect parts and rearrange equipment to achieve a more continuous flow through the factory. The result was a 50% time saving in 1991, a $4 million drop in inventory, and a good shot at getting seven inventory turns a year vs. 2.6 before. Nowhere have GE's new management techniques come together more impressively than in the appliance business. A year ago senior vice president Gary Rogers toured the Montreal plant of GE Appliances' Canadian subsidiary, Camco, to see how it had adapted the ideas of a small New Zealand appliance maker, Fisher & Paykel. Camco's manufacturing head, Serge Huot, had found a way to transfer Fisher & Paykel's job-shop techniques to the high-volume Canadian factory, dramatically speeding operations. The change hadn't been trouble free -- Camco had problems making all models available at all times -- but the normally taciturn Rogers was excited. What happened next shows how GE's new management techniques work. Rogers called a town-meeting Work-Out to introduce the ideas and the vision -- which amounts to a build-to-order manufacturing style. For example, building a dishwasher takes just hours, but it takes about 16 weeks for a change in the pattern of consumer demand to affect the product mix at the end of the assembly line in Louisville. The goal: reduce that cycle by 90% while actually increasing availability -- the odds that a given model is on hand when a customer orders it. Finance manager David Cote assembled a cross-functional team to install Camco's system, now called Quick Response. Work-Out teams began sticking process maps on the walls -- more than 500 in all. One result among many: Workers in the distribution center now get production schedules in a new way that allows them to tell truckers well in advance when their loads will be ready -- a simple change that will save almost a day's time and will cut $3 million in inventory. More than 200 Louisville managers and employees toured the Montreal operation. Others took a GE jet to Crotonville to take the Best Practices course, including a group with two shop stewards from the refrigerator plant. The trip was meant to show union and management leaders the potential payoff from process-oriented, nonhierarchical cooperation and to help soften a relationship that had become a rigid that's-not-my-job-description face-off. Another purpose was to study companies, one of them a textile manufacturer, that had mastered high-volume build-to-order manufacturing. TWO INSIGHTS underlie Quick Response. First, no forecast, however accurate in the aggregate, can tell you precisely how many brown side-by-side refrigerators should be built with the freezer on the left. Conclusion: Forget about trying to do pinpoint forecasting -- if you can make to order, who needs it? -- and drop that part of the cycle from six weeks to one. Second, although just 20% to 30% of the parts in any appliance are unique to that model, less than 5% are also complex and costly. If those come just-in-time from suppliers, you can carry buffer stock of the rest and still cut inventory costs. Manufacturing can be much more flexible if a company can design models to share more components, stock parts on the line rather than in storerooms, and speed up changeovers. A worker team in GE's factory in Decatur, Alabama, cut changeover time on a punch press from four hours to 15 minutes. Since implementing Quick Response in January, GE Appliances has cut its 16- week cycle by more than half while increasing product availability 6%. Inventory costs have plunged more than 20% -- a major reason the group has weathered the recession with steady profits despite a 5% decrease in volume. The program has cost less than $3 million, Rogers says, and has already returned a hundred times that. That's not counting the benefits to other GE businesses. Quick Response, the result of a Best Practice from an outside company, has made Appliance Park the hottest destination on GE's internal Best Practices circuit. Two years ago the business's combination of low margins, tough unions, and brutal competition made Louisville the last place an ambitious GE manager wanted to be -- ''an isolation ward,'' says one. Now groups from every other GE business have taken up residence there to learn how to adapt the process to their needs.

The revolution at General Electric is still fragile, and middle management is one of the weaker points. David Genever-Watling, senior vice president of industrial and power systems, says, ''You need unselfish, openminded executives to run the process,'' and they are still a rare breed at GE or anywhere else. Many managers may have the courage of Welch's convictions: It's hard to know whether they fully understand their changed role or are simply responding to the fact that support for Work-Out has become one of the criteria in their annual review. The same goes for workers. In Schenectady, New York, union business agent Lou Valenti says, ''I'm behind the process 200%,'' and was reelected without opposition last year; at Lynn, workers who went through Work-Out were told by colleagues that it's a ploy to win votes for the new contract -- but in July the Lynn local approved a three-year national pact for the first time since 1982. At NBC, excited network and affiliated station executives have decided to hold a Work-Out at the 1992 affiliates meeting -- usually a gathering more memorable for sizzle than for steak. But Steve O'Donnell, head writer for the David Letterman show, says, ''I've seen more boneheaded cost cutting than innovative management.'' Change is catching on fast, however. So many Work-Outs are happening at GE that outside facilitators like Schlesinger and Kerr are training GE employees to take their place. Some are hourly workers. It's a tough job: Sessions can get frighteningly heated, and facilitators need to know when to step in, when to keep out, and how to get help from engineers and other experts if teams need it. Bob Huff, a machinist at Evendale, finds the job draws on his experience leading church groups and riding Brahman bulls in rodeos, as well as his study of consultant Marvin Weisbord's six-point model of organizational development. OCCASIONALLY now, Work-Out teams form themselves, springing up in response to a problem or opportunity rather than to a formal charter. Gary Rogers says he and his managers sometimes don't hear about a Work-Out till someone shows up to present its findings or ask for technical help. And Welch can point to results where they will always matter most at GE, in the numbers. Productivity -- which GE measures by dividing real revenues (with price increases factored out) by real costs (after discounting for inflation) -- will rise 5% in 1991, according to Welch, ''with almost no layoffs and, due to the recession, no increase in volume.'' GE expects to get five dollars in sales for every dollar of working capital invested -- 16.3% more than in 1988, the year before Work-Out and Best Practices began. Welch admits that it will take a decade before GE's new culture becomes as hard to change as the one it is supplanting. By then, he says, GE's hierarchies could actually wither away: ''Even in a horizontal structure you'll still have product managers, still need accountability,'' he says, ''but the lines will blur. The functions will go away, if you will. There will be core technologies at the center of each business. Aircraft engines will always need real experts in combustion. They'll reside in the core. But teams will move together from left to right, from product idea to product delivery, reaching into the core as they need to in order to get the job done.'' Ten years from now Welch will be 65. It is conceivable that he will have run GE for 20 years, longer than anyone since Charles Coffin, who retired in 1922 after 33 years at the helm. Looking ahead, he hopes to leave behind ''a company that's able to change at least as fast as the world is changing, and people whose real income is secure because they're winning and whose psychic income is rising because every person is participating.'' And managers? ''They will be people who are comfortable facilitating, greasing, finding ways to make it all seamless, not controllers and directors. Work-Out is the fundamental underpinning of the training of the next generation of managers.'' In some evolved form, Work-Outs will be natural acts in natural places: No longer a means to change GE's culture, they will be the culture. Unrealistic? Perhaps. But, says Rodger Bricknell, who leads the effort in power systems, based in GE's ancient Schenectady works, there comes a point where employee involvement is impossible to turn off. As he says, ''If you teach a bear to dance, you'd better be prepared to keep dancing till the bear wants to stop.''

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