THE NEW ERA REVOLUTIONIZE YOUR COMPANY A key consultant to General Electric tells how CEO Jack Welch dramatically changed GE's approach to business -- and how your company can too.
By Noel M. Tichy

(FORTUNE Magazine) – JACK WELCH has led General Electric through one of the most far-reaching programs of innovation in business history, and consultant Noel Tichy, a professor at the University of Michigan business school, has participated in much of it. Welch hired Tichy in 1985 to come to GE and turn Crotonville, the company's management training center in Ossining, New York, into a major engine for change. Since returning from GE, Tichy has continued to refine the concepts developed at Crotonville and apply them to other organizations. The course of a revolution is predictable, he says, and its different phases can be understood and mastered. These ideas are the basis of an appendix he wrote -- from which the following is excerpted -- to Control Your Destiny or Someone Else Will (Doubleday/Currency). The appendix, called ''A Handbook for Revolutionaries,'' is a mini-manual designed to help a company's leaders plan and guide a corporate revolution.

A Handbook for Revolutionaries A corporate revolution is a particular type of drama with protagonists, antagonists, dramatic themes, and a gripping and deep plot played out over three acts: the Awakening, when the need for change is realized; the Envisioning, when a vision is created and workers are mobilized; and the ''Re- architecting,'' which entails the design and construction of a wholly new organization. The protagonists of this drama are the people who seek change and set the revolutionary plot in motion. In GE's case, several dozen leaders sought to radically transform the culture. Jack Welch gathered them and came to symbolize their ideas. Inevitably, there are antagonists, people who hold tightly to the company's old ways. They must all deal with grief and deep feelings of loss as the old ways they know disappear. The end of the transformation is exhilarating and leads to a feeling of rebirth. Then the process begins anew. To discern the need for change, first ask yourself the following questions about your company. The answers given below reflect the circumstances inherited by Jack Welch when he became CEO of GE in 1981.

Question 1: What is the hand you have been dealt? The hand Welch was dealt at GE in 1981 consisted of -- A strong balance sheet -- A slow-moving bureaucracy -- A nonglobal business -- Modest technology

Question 2: What are the company's core problems? These will break down into hard and soft problems. GE's hard problems: -- Earnings growth was average. -- Cash flow was a persistent problem because of high cap ital expenditures and working-capital expansion. -- The slow-growing electrical equipment core business still dominated the company. -- Productivity growth was only 1% to 2% a year. Operating margins, 7% to 9%, were inadequate.

GE's soft problems: -- Slow decision-making -- Turf struggles -- Inward focus -- Lack of innovation

Next, identify your transformational leaders, the varsity team that will lead the company through the revolution. Assess each potential leader using 360-degree feedback, in which the individual's peers, subordinates, and boss all rate him or her on leadership skills. Here are some considerations: -- Is this person among the first to identify changes in the environment that will affect the business? -- Is this person able to lead others to overcome fear and uncertainty in making change? -- Can this person visualize the business through the eyes of the customer? -- Does he or she have a clear vision about the future of the business? -- Does this person assume responsibility for his or her own mistakes? -- Does this person build coalitions and networks across organizational lines to achieve important goals? Once you have selected your team, you are ready to launch the revolution. It plays out as predictably as a three-act drama.

Act I: Awakening Waking up the organization to the need for change is the most emotionally wrenching and terrifying aspect of a revolution. The protagonists have to shake up the status quo enough to release the emotional energy for the revolution. It is a two-step process. Step one is to kick-start the revolution. Begin by carefully articulating why change is necessary, and make certain that the top leadership team is in agreement. At GE, the key challenges that necessitated change were -- The increasing global character of markets and competi tion -- Slow top-line growth of the business -- New growth opportunities emerging -- The need to be a nimble organization -- The competition's improved product-development cycle times and overall responsiveness to customers.

Step two is to deal with resistance. Expect to meet it in all key areas. At GE, Welch encountered three types:

1: TECHNICAL RESISTANCE. Habit and inertia: GE managers had mastered a set of bureaucratic traditions. Welch's goal required doing things in a different way. Fear of the unknown: GE managers were frightened by Welsh's demand to go global. For many managers of traditionally domestic businesses, this caused anxiety and fear. Prior investment: A tremendous amount was invested in training people to do things the ''GE way.'' This investment would allegedly be wasted if everyone changed.

2: POLITICAL RESISTANCE. Resource allocation: This tends to be a zero-sum game in the best of times. Welch told employees to get higher productivity and more innovation with less overhead and less head count. Doing more with less makes the normal politics of resource allocation even tougher. Threats to powerful coalitions: Core businesses, such as Power Systems and Lighting, had dominated GE since they were founded. In 1980, these businesses contributed 50% of earnings. But by 1985 this number had shrunk to 25%. Even so, their leaders resisted Welch as their power was threatened.

3: CULTURAL RESISTANCE. Old cultural mindsets: A history of market dominance precluded the Lighting division's managers from perceiving a competitive threat, for example. The chain of command is where much resistance resides because people's vested interests are at stake. You must stir up all the populace and begin developing new leaders for the new regime. You must also create a new set of values and templates. Revolutionaries overturn the current system and replace it with one of their own devising. They do not rely on the chain of command to bring about quantum change -- they grab the police, media, and education system, as Welch did. The Police: GE's internal auditing staff, considered by many inside the company as the Gestapo and headed by the top finance executive. Welch eliminated many financial measures and forced people to look at comparisons with competitors, not just budgets. He redirected the auditors' focus to serving GE's businesses rather than controlling them. The Media: Welch took control of all his forms of communication, from board communications to security analyst presentations, using his own words and ideas when writing speeches for internal audiences.

The Schools: The GE Blue Books (management training guides), although not used for 15 years, had still left their cultural imprint. They were symbolically burned. Welch said that there were no more ''textbook'' answers. Leaders must write their own. He took direct control of Crotonville, the GE training facility. He continues to appear personally every two weeks at / Crotonville to interact in classes and direct the overall curriculum for everyone from new hires to senior executives.

Act II: Envisioning This is the act of the drama where emotion becomes more positive, where the frustrations and fears get channeled in new and exciting directions. The purpose of the revolution comes into focus. The visioning process is creative and often chaotic. A vision is a group effort. It is what the group believes to be important. It is also a work in progress, an architectural rendering that constantly gets modified. As many people as possible should be involved, thinking ''out loud'' and getting feedback from many different stakeholders. The vision must address three fundamental building blocks of all organizations: the technical system -- organizing people, capital, information, and technology to produce services or goods; the political system -- allocating power, rewards, and career opportunities; and the cultural system -- the set of shared norms, beliefs, and values of the organization (see matrix on page 00).

Act III: Re-architecting Why ''re-architecting'' when we know this is not a word? Because it captures the core challenge of Act III, the art and practice of redesigning and rebuilding the organization. Architecture is creative: It involves concepts and design as well as the practicality of the structure. Revolutions require you to creatively destroy, design, and then build the new organization. Thus, re-architecting. Act III was well under way at GE by the end of the Eighties. Welch's vision began to emerge from his understanding of the 21st-century organization, which he characterized with the word ''boundarylessness.'' ''Old Way'' organizations were all about boundaries and compartmentalization and chains of command. The new organization would be free of these increasingly nonproductive strictures. Information would flow freely across functional and business boundaries, from where it was developed to where it was needed. The boundaryless corporation would resolve the conflict between organizational size and speed: It would have the might of a large organization and the speed, flexibility, and self- confidence of a small one. Most important, it was the only way GE could get the productivity improvements required to win in all businesses. To achieve boundarylessness, you must first discover where your boundaries are, then figure out how you can take them down. Here are the different boundaries Welch encountered at GE and what he did to remove them:

Vertical boundaries. The ceilings of a hierarchy. To rid the organization of these boundaries, Welch took three big steps: -- Delayering the hierarchy -- Reducing perks for executives -- Broadening gain-sharing incentive systems

Horizontal boundaries. Internal walls. These are the walls between groups within a business, such as functional groups, geographic groups, and product groups. To get rid of these walls, Welch introduced -- Cross-functional teams -- Project teams -- Partnerships

External boundaries. These are the barriers between a business and its suppliers, customers, competitors, and other external stakeholders. GE's response: -- Create alliances -- Measure customer satisfaction -- Build teams with GE customers and suppliers

NOW YOU MUST CHANGE the company's social architecture. This means a fundamental redesign of how people work together to get things done, who relates to whom for what, and how decisions are made. Early in Act III, it is critical to start radically changing the way the top of the organization functions. Without this key building block none of the rest of the revolution will succeed. There are two fundamental reasons for this: (1) The top people must ''walk the talk'' and become role-models for the new values and vision; and (2) The company's leadership is usually where a lot of the ''Old Way'' behavioral patterns are most deeply embedded. The key conceptual building blocks of social architecture are: people (making sure that the right players are selected and put in the right roles), time (what goes on the corporate agenda and deciding on the appropriate cycle times, e.g., should strategic reviews be held every year or on an as-needed basis?), and space (where people and activities are physically located, and then more social concerns, like what people and activities should be networked). Now you are ready to put in place a continuous revolution. In order to institutionalize your revolutionary vision and ensure continuous change, it is necessary to make as many people as possible agents of change. At first, you will send people to what at GE are called workout sessions; there people will learn to redefine their jobs to meet the challenges of the changing business environment, eliminating unnecessary work along the way. But change is never finished. You must train thousands of leaders to lead their own workout sessions. Once you have completed the three-act process, it is time to start all over again.


CHART: NOT AVAILABLE CREDIT: NO CREDIT THE MATRIX above reflects the analytical framework used by Welch to realize his vision. The technical, political, and cultural systems are like three strands of a rope, which must be changed and realigned. WELCH'S 1990s VISION FOR GE STRANDS OF THE STRATEGIC ROPE