(FORTUNE Magazine) – MORE THAN any other executive, Jack Welch is known for breakthrough management ideas and the will to apply them. As General Electric's chief executive since 1981, Welch, 57, has led the revolution that is transforming GE from a stodgy industrial giant into one of the world's most valuable and competitive companies. His remarks here are from the new book about his tenure at GE: Control Your Destiny or Someone Else Will (Doubleday, $24), by Noel M. Tichy and Stratford Sherman. The authors spent over 100 hours interviewing Welch, and spoke with scores of other GEers, from heads of businesses to young management trainees. Tichy, a professor of organization at the University of Michigan, was a key participant in the GE revolution. A consultant there since 1982, he ran GE's Crotonville management-development school for two years. Sherman, a member of FORTUNE's board of editors, has been writing about GE for over a decade. Their book explains how companies and individuals can face accelerating change and intensifying competition, and win. Welch's managerial focus has shifted over the years from cost cutting and restructuring to the murky realm of human values. But the man FORTUNE once named America's toughest boss insists he has not gone soft after 12 years on the job. He also discusses the lessons he has learned, sharing personal < reflections on his own mistakes and offering new insights into the art of management.

''The Value Decade has already begun, with global price competition like you've never seen. It's going to be brutal. When I said the 1980s was going to be a white-knuckle decade and the 1990s would be even tougher, I may have understated how hard it's going to get. Everywhere you go, people are saying, 'Don't tell me about your technology, tell me your price.' To get a lower price, customers are willing to sacrifice the extras they used to demand. The fact is, many governments are broke, and people are hurting, so there's an enormous drive to get value, value, value. During the global expansion of the 1980s, companies responded to rising demand by building new factories and facilities in computers, airplanes, medical equipment -- almost every industry you can think of. Then, when the world economy stopped growing, everybody ended up with too much capacity. Globalization compounds the problem: It doesn't matter where you are anymore because distribution systems now give everybody access to everything. Capacity can come from anywhere on the planet, and there's too much in just about every industry in every developed country. No matter where you go, it's the same story. THIS WORLDWIDE capacity overhang, coming at a time when everybody feels poor, is forcing ferocious price competition. As it intensifies, the margin pressure on all corporations is going to be enormous. Only the most productive companies are going to win. If you can't sell a top-quality product at the world's lowest price, you're going to be out of the game. In that environment, 6% annual improvement in productivity may not be good enough anymore; you may need 8% or 9%. And while that bar keeps getting raised higher, higher, higher, we're all going to be experiencing slow revenue growth. It's brutal! In our aircraft engines business our customers aren't asking about the latest advances, the last 2% of fuel burn. They want to know, 'How much will it cost? Can you provide financing? Can we walk away from the lease?' Boeing and ourselves lost a billion-dollar-plus bid at United Airlines to Airbus. Simply put, we couldn't afford to sell them the planes. Technology is still absolutely critical, but in industry after industry it will be value driven. Who can make the most energy efficient light bulb or refrigerator? Whose medical imaging system is the most cost-effective? The % medical diagnostic imaging business is a perfect example of what's happening everywhere. The market is shifting away from the technology leader in the high-end niche to the guy with the basic, proven, low-priced systems that produce acceptable images. Governments have decided they don't want to pay more for health care, so if you're trying to pitch some new hot technology the customer's going to say, 'See you later.' ENVIRONMENTAL soundness is another form of value. We won an order from Swissair for jet engines because ours produced the lowest emissions. Multinational companies have to maintain worldclass environmental standards wherever they go -- even where local laws are lax -- in their plants as well as their products. In the end, there's going to be a global standard for the environment, and anyone who cuts corners today will wind up with enormous liabilities down the road. If we're going to be global citizens, we can't have one set of standards in some countries and different standards in others. Some of the biggest dangers I see ahead come from governments. You can do everything right as a manager, and then government deficits, or interest rates, or whatever, can cause a currency to change value by 30% or 40% and knock your business completely out of whack. About 65% of GE's manufacturing base is still located in the U.S. I have to worry about whether government policies here will allow us to deliver the productivity we need to win on a global basis. But it's not just the U.S.: Wherever you travel these days, you encounter increasing fear of government. Constituents want more. And to get more, they seem willing to accept enormous increases in government power. I worry about a return to overregulation and protectionism. I don't want to see governments meddling in industrial policy -- bureaucrats picking winners and losers. Governments set out to create Silicon Valley and wind up building the Motor Vehicle Department. In terms of jobs, government may become the world's main growth industry. When the European Community was formed, it created thousands of jobs for bureaucrats. Now they are telling the French which cheese is good and which isn't. It's frightening! I think the U.S. is in a great position competitively. We're looking better compared with Germany and Japan than we did five or ten years ago, and many of our companies are in a position to win. We've restructured our industries. Our businesses have better leaders than ever before. Our people have learned the value of their jobs and the principle that job security comes from winning. Some of the most passionate pleas for worker productivity I've ever read have been made by tough union leaders. They lecture our managers on the subject at Crotonville. That change in attitude is one of the most positive developments I've seen. The U.S. did have a gap in product quality before, but during the 1980s we made great strides in closing it. Our cars are better, and so are our computers and semiconductors. We thought they'd all be Japanese by now, but they're not. And if you look at the J.D. Power surveys of customer satisfaction -- U.S. vs. foreign auto companies -- we're pretty close. A few years ago few would have believed that could happen. WHAT WE have to do now is educate our people. Companies have to get involved in the school systems, with dollars and volunteers. Within GE, we've got to upgrade workers' skills through intense and continuous training. Companies can't promise lifetime employment, but by constant training and education we may be able to guarantee lifetime employability. We've got to invest totally in our people. For U.S. companies, at least, globalization is getting increasingly difficult. The expansion into Europe was comparatively easy from a cultural standpoint. As Japan developed, the cultural differences were larger, and U.S. business has had more difficulties there. As we look ahead, the cultural challenges will be larger still in the rest of Asia -- from China to Indonesia to Thailand to India -- where more than half the world lives. U.S. companies will have to adapt to those cultures if they are to succeed in the 21st century. Trying to define what will happen three to five years out, in specific, quantitative terms, is a futile exercise. The world is moving too fast for that. What should a company do instead? First of all, define its vision and its destiny in broad but clear terms. Second, maximize its own productivity. Finally, be organizationally and culturally flexible enough to meet massive change. The way to control your destiny in a global environment of change and uncertainty is simple: Be the highest-value supplier in your marketplace. WHEN I TRY to summarize what I've learned since 1981, one of the big lessons is that change has no constituency. People like the status quo. They like the way it was. When you start changing things, the good old days look better and better. You've got to be prepared for massive resistance. Incremental change doesn't work very well in the type of transformation GE has gone through. If your change isn't big enough, revolutionary enough, the bureaucracy can beat you. When you get leaders who confuse popularity with leadership, who just nibble away at things, nothing changes. I think that's true in countries and in companies. Another big lesson: You've got to be hard to be soft. You have to demonstrate the ability to make the hard, tough decisions -- closing plants, divesting, delayering -- if you want to have any credibility when you try to promote soft values. We reduced employment and cut the bureaucracy and picked up some unpleasant nicknames, but when we spoke of soft values -- things like candor, fairness, facing reality -- people listened. If you've got a fat organization, soft values won't get you very far. Pushing speed and simplicity, or a program like Work-Out ((in which GEers of all levels team up to find better ways of working)), is just plain not doable in a big bureaucracy. Before you can get into stuff like that, you've first got to do the hard structural work. Take out the layers. Pull up the weeds. Scrape off the rust. Every organization needs values, but a lean organization needs them even more. When you strip away the support systems of staffs and layers, people need to change their habits and expectations or else the stress will just overwhelm them. We're all working harder and faster. But unless we're also having more fun, the transformation doesn't work. Values are what enable people to guide themselves through that kind of change. To create change, direct, personal, two-way communication is what seems to make the difference: exposing people -- without the protection of title or position -- to ideas from everywhere, judging ideas on their merits. You've got to be out in front of crowds, repeating yourself over and over again, never changing your message no matter how much it bores you. You need an overarching message, something big but simple and understandable. Whatever it is, every idea you present must be something you could get across easily at a cocktail party with strangers. If only aficionados of your industry can understand what you're saying, you've blown it. ANOTHER take-away for me: Simplicity applies to measurements also. Too often we measure everything and understand nothing. The three most important things you need to measure in a business are customer satisfaction, employee - satisfaction, and cash flow. If you're growing customer satisfaction, your global market share is sure to grow too. Employee satisfaction gets you productivity, quality, pride, and creativity. And cash flow is the pulse -- the key vital sign of a company. Another thing I've learned is the value of stretching the organization, by setting the bar higher than people think they can go. The standard of performance we use is: Be as good as the best in the world. Invariably people find the way to get there, or most of the way. They dream and reach and search. The trick is not to punish those who fall short. If they improve, you reward them -- even if they haven't reached the goal. But unless you set the bar high enough, you'll never find out what people can do. I've made my share of mistakes -- plenty of them -- but my biggest mistake by far was not moving faster. Pulling off a Band-Aid one hair at a time hurts a lot more than a sudden yank. Of course you want to avoid breaking things or stretching the organization too far -- but generally human nature holds you back. You want to be liked, to be thought of as reasonable. So you don't move as fast as you should. Besides hurting more, it costs you competitiveness. EVERYTHING should have been done in half the time. When you're running an institution like this you're always scared at first. You're afraid you'll break it. People don't think about leaders this way, but it's true. Everyone who's running something goes home at night and wrestles with the same fear: Am I going to be the one who blows this place up? In retrospect, I was too cautious and too timid. I wanted too many constituencies on board. Timidity causes mistakes. We didn't buy a food company in the early 1980s because I didn't have the courage of my conviction. We thought about it, we discussed it at Crotonville, and it was the right idea. I was afraid GE wasn't ready for a move like that. Another thing we should have done is eliminate the sectors right away. ((GE eliminated the sectors -- a layer of top management between the CEO and the operating businesses -- in 1985.)) Then we could have given the sector heads -- who were our best people -- big jobs running businesses. We should have invented Work-Out five years earlier. I wish we'd understood boundarylessness better, sooner. ((Boundarylessness is Welch's term for the breaking down of barriers that divide employees -- such as hierarchy, job function, and geography -- and that distance companies from suppliers and customers.)) I wish we'd understood all along how much leverage you can get from the flow of ideas among all the business units. Now that we've got that leverage, I wonder how we ever lived without it. The enormous advantage we have today is that we can run GE as a laboratory for ideas. We've found mechanisms to share best practices in a way that's trusting and open. When our people go to Xerox, say, or their people come here, the exchange is good -- but in these ''flybys'' the take-aways are largely conceptual, and we both have difficulty getting too far below the surface. But when every GE business sends two people to Louisville for a year to study the Quick Response program in our own appliance business, the ideas take on intensity and depth. ((The Quick Response streamlining program enabled GE Appliances to cut the 80-day cycle time from receipt of an order to delivery of a finished product by over 75%. The business reduced inventory by $200 million and increased return on investment by 8.5 percentage points.)) The people who go to Louisville aren't tourists. When they go back to their businesses to talk about Quick Response they're zealots, because they're owners of that idea. They've been on the team that made it work. All those opportunities were out there, but we didn't see them until we got rid of the staffs, the layers, and the hierarchies. Then they became obvious. If I'd moved more quickly in the beginning, we'd have noticed those opportunities sooner, and we'd be further ahead than we are today. THE ONLY WAY I see to get more productivity is by getting people involved and excited about their jobs. You can't afford to have anyone walk through a gate of a factory, or into an office, who's not giving 120%. I don't mean running and sweating, but working smarter. It's a matter of understanding the customer's needs instead of just making something and putting it into a box. It's a matter of seeing the importance of your role in the total process. The point of Work-Out is to give people better jobs. When people see that their ideas count, their dignity is raised. Instead of feeling numb, like robots, they feel important. They are important. I WOULD ARGUE that a satisfied work force is a productive work force. Back when jobs were plentiful and there was no foreign competition, people were satisfied just to hang around. Now people come to work with a different agenda: They want to win against the competition, because they know that the $ competition is the enemy and that customers are their only source of job security. They don't like weak managers, because they know that the weak managers of the 1970s and 1980s cost millions of people their jobs. With Work-Out and boundarylessness, we're trying to differentiate GE competitively by raising as much intellectual and creative capital from our work force as we possibly can. That's a lot tougher than raising financial capital, which a strong company can find in any market in the world. Trust is enormously powerful in a corporation. People won't do their best unless they believe they'll be treated fairly -- that there's no cronyism and everybody has a real shot. The only way I know to create that kind of trust is by laying out your values and then walking the talk. You've got to do what you say you'll do, consistently, over time. It doesn't mean everybody has to agree. I have a great relationship with Bill Bywater, president of the International Union of Electronic Workers. I would trust him with my wallet, but he knows I'll fight him to the death in certain areas, and vice versa. He wants to recruit more members for the union. I'll say, 'No way! We can give people everything you can and more!' He knows where I stand. I know where he stands. We don't always agree -- but we trust each other. THAT'S WHAT boundarylessness is: an open, trusting, sharing of ideas. A willingness to listen, debate, and then take the best ideas and get on with it. If this company is to achieve its goals, we've all got to become boundaryless. Boundaries are crazy. The union is just another boundary, and you have to reach across, the same way you want to reach across the boundaries separating you from your customers and your suppliers and your colleagues overseas. We're not that far along with boundarylessness. It's a big, big idea, but I don't think it has enough fur on it yet. We've got to keep repeating it, reinforcing it, rewarding it, living it, letting everybody know all the time that when they're doing things right, it's because their behavior is boundaryless. It's going to take a couple more years to get people to the point where the idea of boundarylessness just becomes natural. WHO KNOWS exactly when I'll retire? You go when it's the right time to go. You pray to God you don't stay too long. I keep asking myself, 'Are you regenerating? Are you dealing with new things? When you find yourself in a new environment, do you come up with a & fundamentally different approach?' That's the test. When you flunk, you leave. Three or four times a year, I hop on a plane and visit something like seven countries in 15 days. People say to me, 'Are you nutty?' No, I'm not nutty. I'm trying to regenerate. The CEO succession here is still a long way off, but I think about it every day. Obviously, anybody who gets this job must have a vision for the company and be capable of rallying people behind it. He or she has got to be very comfortable in a global environment, dealing with world leaders. Be comfortable dealing with people at all levels of the company. Have a boundaryless attitude toward every constituency -- race, gender, everything. Have the very highest standards of integrity. Believe in the gut that people are the key to everything, and that change is not something you fear -- it's something you relish. Anyone who is too inwardly-focused, who doesn't relish customers, who isn't open to change, isn't going to make it. Finally, whoever gets the job will have to have what I call an edge -- an insatiable passion for winning and growing. In the end, I think it will be a combination of that edge and those values that will determine who gets this job. I THINK any company that's trying to play in the 1990s has got to find a way to engage the mind of every single employee. Whether we make our way successfully down this road is something only time will tell -- but I'm as sure as I've ever been about anything that this is the right road. If you're not thinking all the time about making every person more valuable, you don't have a chance. What's the alternative? Wasted minds? Uninvolved people? A labor force that's angry or bored? That doesn't make sense! If you've got a better way, show me. I'd love to know what it is.''