(FORTUNE Magazine) – No. 5

Matt Espe couldn't understand. He would gather his managers for a simple operating review. But no one, it seemed, could give him a clear picture of the business. "I felt like I was trying to find the issue, and they were trying to hide it," he says. "I lost it in a few of those reviews--which would have been acceptable in the GE world."

Then Espe remembered: This wasn't General Electric, where managers are conditioned to put bad news on the table and have it out, and where he'd spent the past 22 years (finishing as chief of its lighting unit). This was IKON Office Solutions (No. 415), a $4.7 billion distributor and servicer of photocopiers and printers. And Espe was the new CEO. "You should have seen the faces around the table looking at me," he recalls. He thought to himself, "I can't do this anymore."

It was the type of thing that might play into fears --the sort that HR chief Beth Sexton had expressed to the board when she said, "I hope you don't hire some GE headbanger."

Sexton knows how things work. When a company needs a loan, it goes to a bank. When a company needs a CEO, it goes to General Electric, which mints business leaders the way West Point mints generals. Had you visited GE ten years ago, you'd have found Bob Nardelli running transportation, Jim McNerney running international, Larry Johnston in appliances, and a pair of VPs named David Cote and Jeff Immelt. Today they run companies like Home Depot, 3M, Albertsons, Honeywell, and GE--with combined revenues of $311 billion.Before Harry Stonecipher was ousted at Boeing last month, five of the Dow 30 were headed by GEers.

Anywhere else such an outflow of talent would be cause for alarm; at GE it's just a strong graduating class. One headhunter estimates the company harbors another dozen execs of FORTUNE 500 caliber. Immelt guesses the number is double that. "I'm disappointed" to lose talent, he says, "but we march on."

Yes, GE does seem to manage (see "Jack Welch: Doing Strategy Right"). But what happens to those who march out the door? Do they bring good things to life at companies that aren't GE?

Not always. When FORTUNE compared the performance of 34 current and former GE transplants against the S&P 500, the results were perfectly split: 17 beat the S&P 500, and 17 did not. But boards dream of landing the next Larry Bossidy, who oversaw a 700% rise in AlliedSignal stock from 1991 to 1999, or a Stanley Gault, who propelled Rubbermaid to the top of FORTUNE's Most Admired list before taking a final victory lap at Goodyear, where the stock price tripled. But not all stories are so happy: Glen Hiner's ten years at Owens Corning ended in a giant pile of asbestos. And between 2000 and 2002, longtime GE Capital chief Gary Wendt collected $53 million for not executing his turnaround plan at Conseco.

The experience of John Trani, whose seven years at toolmaker Stanley Works ended without the decisive turnaround investors wanted, may be more telling. While many saw a manager willing to make the tough calls in a toughening climate--like canceling construction of a factory in his first month on the job--others saw an imperious GE superstar. Says one former Stanley manager: "It was sort of, 'Get out of the way, boys. I know where we're going, and I'll take us there.'" (Trani's plan to reincorporate in Bermuda--abandoned after a public uproar--did little to help perceptions.) "At the end of the day," says Trani, "I think the company is in a better place."

And at the end of the day, the point holds: "Unless you get a culture that's warmly receptive to these kinds of tools," says GE human resources chief Bill Conaty, "they're not going to work."

For Matt Espe, leaving GE was something like leaving home. It's where he'd grown up and where his father, a 35-year GE veteran, had grown up before him. "I was kind of waiting for the [moment] when I would wake up at the foot of the bed sobbing, wondering, What the hell was I thinking leaving GE?" he says. It never happened. But before he stepped into IKON's corner office, he flew to Minnesota to spend a day with Jim McNerney. McNerney's transition to 3M in 2001 had set something of a standard for seamlessness. And Espe came away with two big messages: Take time to understand the business and the team around you, and respect the culture--don't try to eradicate it.

The advice was sound, but Espe's assignments at GE had often involved blowing things up and starting over. "I fought every fiber of my GE DNA to avoid pulling the trigger on moves I thought we needed to make in the first 60 to 90 days," he says. "I told myself to wait." He enrolled in IKON University (a companywide training program) as a student and traveled the country on a listening tour. He held 35 employee roundtables and four big town halls, and visited dozens of customers. When he did make his first big move--removing a layer of bureaucracy nine months into his tenure--e-mails flooded his in-box congratulating him. "Had I made that decision the month after I got here, it wouldn't have had nearly the effect," he says.

Holding his fire also let him observe. What he saw were competent, energized people harboring enormous frustrations. Sales employees were angry with the "customer-care center" and vice versa. Everybody was mad at headquarters. Nobody was placing the blame where it belonged: on screwed-up processes. "Our best people at IKON are every bit as good as the best people at GE," says Espe. So he went ahead and introduced Six Sigma, the complex statistical discipline that GE made famous. "Once they started training and saw results, there was a wow effect," says Andrew Twadelle, who was put in charge of the effort. "Now instead of listening to whoever is the best debater, it's about what the data tells us."

Espe also profited from something he didn't observe. Jim McNerney's office had betrayed no trace of an 18-year career at GE. Espe's Malvern, Pa., office contains an IKON business-card holder, statuettes to various IKON milestones ... and not a single GE tchotchke. "There's nothing more offensive than having someone come in and seeing a GE shrine."

But GE is always there--just less visibly. In striving to simplify IKON, which evolved out of a holding company of 450 businesses, from aerospace equipment to ice cream for dogs, Espe can't help but think of a 1996 presentation he made to Jack Welch. Espe had included a complex graph showing shifts in revenue mix. As he attempted to answer his boss's pointed questions, a look of disgust formed on Welch's face. "So what you're telling me is that it's just an awful chart," Welch said. "Maybe next time you can give us a revenue chart we can understand." Says Espe today: "Elegant sophisticated thinking doesn't have to be complex." He sees no reason, therefore, that IKON's 20-page sales order form can't be reduced to a single page. And why have 43 dispatch centers when you need only four?

His grillings can be Welch-like. At one point, Espe invited the chiefs of IKON's ten worst- performing territories to his office for questions. He had to prompt one of them who kept referring to his notes, "Let me help you. The answer I'm looking for is a number." But he's still working on softening his ways. "If all you do is come down, people shut down," he says.

To understand how GE is able to produce those armies of leaders, it's important to recognize that it isn't a jet engine company or an appliance company or even a financial services company. The real business of GE is manufacturing leaders--something it has been doing for almost as long as it's been making light bulbs. Its training center in Crotonville, N.Y., gets much of the attention (spawning imitations at the likes of Boeing and Home Depot). But at least as important was GE's early decision to create dozens of autonomous units and rotate managers among them. "If you were the old IBM or Ford or GM or Exxon, you didn't run a true profit and loss until you were way up in your career," says Noel Tichy, a professor at the University of Michigan and the former director of Crotonville. "At GE you have all these farm leagues where you can test people."

But GE isn't a business school. "Our whole system is to educate people for the GE system," says Immelt--not any other company's. When executives leave the GE bubble, it's up to them to figure out what travels and what doesn't.

Language can be a problem. When Barry Perry (Silicones, '89) used the term "boundarylessness" in a meeting at Engelhard Corp., he was told there was no such word. When he dared bring it up again, he reframed the notion as "seamlessly integrated decentralized."

Most tend to skirt the idea of ranking employees against their peers. "I have an allergic reaction to forced ranking," says Intuit's Steve Bennett (GE Capital, '00). "I don't think employees need to know whether they're 342 or 343. They just want to know, 'Am I okay or am I in trouble?'"

As for GE's practice of giving the weakest 10% the heave-ho, Vivek Paul (Medical Systems, '99) tried it at IT outsourcing firm Wipro in Bangalore, India. The experiment lasted a year. "It went from bottom 10%, to bottom 5%, to bottom 2.5%, to 'Let's not talk about it anymore,'" he says.

Then there's Six Sigma--mysterious and dizzyingly complex. Asking employees to wrap their minds around it instantly, says Pentair CEO Randy Hogan (Power Systems, '94), would be "like asking a couch potato to run a marathon." He waited five years before testing the waters.

Mentioning GE just makes things harder. "As soon as you say it, antibodies form," says Amgen's Kevin Sharer. Albertsons CEO Larry Johnston (Appliances, '01) invoked his alma mater once too often after joining the grocer in 2001. "I wasn't trying to do it," he says. But "it's really hard after you've been someplace for your whole life."

So what tools in the GE tool kit do work?

Tenneco Automotive CEO Mark Frissora may have left GE 18 years ago, but he still remembers Jack Welch drilling it into managers' heads that they had to increase revenues and cut costs at the same time. He's done both at the parts maker, finding some quick wins by simplifying process. To provide a quote on an exhaust system, paperwork had to stop in 57 mail trays, which took an average of six months. Today it's down to 12 trays and six weeks.

Layers of bureaucracy get the same treatment. When Dan Mudd became interim CEO of troubled Fannie Mae late last year, he increased his direct reports from three people to ten. Intuit's Bennett went from eight to 20.

If Welch had one key device, it was giving GE a simple roadmap and repeating it incessantly. When Tom Tiller arrived at Polaris in 1998 from GE Silicones, the company had no roadmap to speak of. The stock was stuck in the $15 range, and the company had missed internal targets five years in a row. When he became CEO the following year, he listed the company's goals on a single sheet of paper, then plastered it on conference room walls and distributed it to employees. Virtually anytime Tiller opened his mouth--to dealers, investors, board members, or employees--the same goals came out. Today the stock trades around $70, and the company has hit earnings 27 quarters in a row.

A tribute to Welch and the GE playbook? "I don't want you to call it a playbook," says Welch, and he's insistent on that point. Outsiders look at GE's practices--Six Sigma, Work-Out, whatever--and mistake them for philosophy. In fact, they're just tools--tools that may or may not work at a different company or a different time. If there is a GE playbook, it's this: "An absolute belief that great people build great companies," Welch says. "Getting great human resources people and making them a part of the game, not making them do the picnics and the plant newspaper, and making them flextime managers." As CEO, Welch spent more time with his human resources executive than he did with his CFO. It's a mindset that GE emigrés carry with them. When Bob Nardelli joined Home Depot in 2000, HR was "a function of last resort," he told FORTUNE in 2002, "not first resort, as it should be."

And that, ultimately, could be Espe's biggest legacy: not just to run a company but to build a house that builds people. When he first asked his marketing head for a list of people who could succeed her, she said the company would have to look outside. Two years later she could list three insiders who were on track.

Even Beth Sexton, who's occasionally teased about her "GE headbanger" comment, has come full circle on the whole GE thing. "We've been a huge beneficiary of having an executive come out of GE," she says today. Next time IKON needs a CEO, there may be plenty of homegrown headbangers to choose from. And hopefully, as one IKON exec puts it, "other companies will want to have IKON leaders come to them." ■

RESEARCH ASSOCIATE Doris Burke

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