A Road Map for Creating a Learning Organization

Nearly every move that Welch made in his far-reaching effort to reinvent GE had both intended and unintended consequences. For instance, his restructuring/downsizing phase strengthened the organization's financials, but had a negative impact on morale. This had two important implications for the learning-organization initiatives. First, the organization had to keep a watchful eye out for unintended consequences. And second, the organization had to be willing to accept risk and learn from its mistakes—including mistakes in the way it learned and the way it acted on the knowledge that it acquired. For most large companies, in other words, there is simply no fast track to embedding a learning culture into the fabric of the organization. In the case of GE, Welch had to perform a myriad of different tasks and initiatives, learning as he went, before he could call his creation a genuine learning culture.

Welch's long path to building a high-octane, performance-based learning culture provides clues for others who are attempting to create a similar culture within their own organization. However, as noted earlier, no two enterprises are alike. While these steps made sense for GE, many other factors—such as existing norms and culture, company history, management beliefs, and so on—could make these steps less applicable in other situations.

The following steps are presented in summary form. They represent what Welch did in his "business laboratory" (a favorite Welch term) at GE over a 20-year period, from 1981 to 2001. They are less a comprehensive blueprint than a general framework.

1. MAKE SURE THE COMPANY IS FINANCIALLY SOUND BEFORE EMBARKING ON SOMETHING AS SWEEPING AS DEVELOPING A LEARNING CULTURE. As discussed earlier, Welch's first priority was to put the company on a sound financial footing. He knew he could not start by creating a learning culture. Lagging businesses and a bloated bureaucracy were weighing down the company and preventing it from moving forward. While the company was widely perceived as doing well, he felt that there were too many layers, too many managers, and so on. This is why he implemented massive cost cutting and restructuring during his self-proclaimed "hardware phase."

   Most companies today are far leaner than the GE of 1981, with its 25,000 managers and dozens of layers of management. But the principle remains the same: Unless a company is on firm financial footing (i.e., a strong balance sheet, income statement, etc.), establishing a learning culture may be difficult, or even counterproductive. It's important to get one's house in order first.

2. SET A DEFINITIVE STRATEGIC DIRECTION, AND MAKE SURE THAT THE VISION IS ARTICULATED THROUGHOUT THE ORGANIZATION. In the mid-1980s, Welch made sure that the company had a sound vision and a sound growth strategy. For example, he decided that all of GE's businesses should fit into his "three circles" vision (core, technology, or service), and he made acquisition and divestment decisions based on this strategy.

   In 1986, Welch bought RCA for $6 billion, thereby acquiring NBC for the company and making GE one of the nation's top service companies. This was a pivotal move in transforming GE from an aging industrial manufacturer into an agile service provider with significant growth potential. (GE Capital, the company's financial services arm, delivered about half of the profits of the entire company in 2002.)

   One important point: Welch made all of his restructuring moves in full view. Many insiders were not happy about his drastic changes. But they understood his vision and, despite their discomfort with many of his innovations, were able to make sense of the larger picture that was coming together.

   Welch made other strategic decisions as well. One of the most important was his "number one, number two" strategy, which raised the bar for all of GE's businesses. He also let it be known that he was aiming for nothing less than the world's most competitive organization—a declaration that said a great deal about Welch's seriousness and determination.

3. MAKE SURE THAT THERE IS A STATED SET OF VALUES TO GUIDE THE COMPANY. This was a key management tool that Welch used to make sure that all managers and employees were on the same page in terms of company priorities and goals. Developing a learning culture is difficult without a common set of values and principles to guide the company. Also make sure that there is a mechanism to communicate these values, and a culture in place that reinforces them.

   The value set served as a sort of "constitution" at GE, helping to guide the company through the many changes that it experienced under Welch. It was amended from time to time to reflect the latest GE priority or companywide initiative. In 1985, for example, GE's values included statements like "change is continual" and "paradox is a way of life." In 2002, by contrast, GE's stated values included having "passion for customers" (which was number one), "every person, every idea counts," and "playing offense." Welch viewed these values as such a key part of his cultural vision that he said that managers who could not live up to them should be fired, even if they made their financial goals.

4. ESTABLISH AN ENVIRONMENT OF TRUST AND OPENNESS. In his self-proclaimed "software phase," Welch strove to establish an atmosphere of trust—something that was sorely lacking in the wake of all the bloodletting associated with the hardware phase. At that point, many GE-ers feared for their futures and had little trust in management. At the same time, Welch concluded that managers were not listening to workers in any meaningful way. He knew that without a meaningful dialogue between managers and workers, things had little chance to get much better.

   The situation was, in other words, a powder keg. With so many fewer workers now on the payroll, Welch knew that he needed more from the "survivors" than ever before. As a result of management's actions (including Welch's own), however, these workers lacked confidence and felt that their ideas didn't matter. Welch knew that confidence was key, which is why he set out to completely overhaul the company's hidebound, antiquated culture. This is when Welch's signature concept—Work-Out, described next—was born.

5. CREATE A "BOUNDARYLESS ORGANIZATION." By 1989, having concluded that managers were not talking with employees, Welch knew he needed a program or initiative that would put an end to this state of affairs. Those who did the work, Welch argued, had some striking ideas on how to make things better. This was the impetus for Welch's cultural initiative, Work-Out, which turned hierarchy on its head by compelling managers to listen to employees and to their ideas about how to improve things. In a WorkOut session, typically lasting 3 days, workers made suggestions to the bosses on how to improve processes and other important work flow issues, and managers had to say "yes," "no," or "I'll get back to you within this specific period of time." The result? At the typical session, managers said "yes," on the spot, 80 percent of the time.

   Work-Out was instrumental in moving the organization closer to Welch's organizational ideal, which he dubbed "boundaryless" (he admitted that it was a strange word). Boundaryless enterprises eliminate the walls that traditionally separate managers from employees, marketing from manufacturing, and employees from customers. "Every wall is a bad one," proclaimed Welch, who set his sights on creating an organization characterized by its trust, openness and candor. Work-Out was the key to jump-starting this movement, which played out during the late 1980s and early to mid-1990s. During this period, the vast majority of GE employees and managers attended multiple Work-Out sessions.

6. MAKE SPEED, FLEXIBILITY, AND INNOVATION A REFLEX. Three characteristics of the boundaryless organization are speed, flexibility, and innovation. If the members of your management team don't use these words to describe your company, then it is likely that you have some distance to go on the path to boundarylessness.

   Speed: In an organization with speed, the workers closest to the work get things done quickly. Customer needs are addressed on the spot, and information and ideas flow easily between units—whether they are across the hall or around the globe.

   Flexibility: In a boundaryless organization, managers routinely exhibit flexibility in order to get the job done. For example, after Welch launched his Six Sigma initiative in 1986, hundreds of managers switched jobs to become full-time quality professionals. This would not have been possible in an inflexible organization.

   Innovation: In an enterprise that lives innovation, new ideas are valued and acted on quickly. Managers and employees at all levels are expected to be innovative. New ideas for products or processes do not require multiple levels of approval.

   The key is to have workers feel empowered to move quickly and to make important decisions without having to obtain multiple approvals. It is also crucial that workers not fear retribution for making a wrong call. Smaller organizations and start-ups act quickly, and for years, Welch said that he wanted to instill a small-company spirit into the big body of GE. Small firms know the penalty for hesitating in the marketplace, exclaimed Welch; GE should behave in exactly the same way.

7. MAKE SURE THAT EVERYONE IN YOUR ORGANIZATION IS ENCOURAGED TO SEEK OUT THE BEST IDEAS FROM ANYWHERE. As Welch has said many times, it is a badge of honor to get good ideas from someone else. For example, he is the first to admit that Six Sigma, the statistically based quality program that he made wildly popular, was pioneered not by him or by GE, but by the electronics manufacturer Motorola. The key is to make sure that people in your organization search out new ideas from everywhere, especially from competitors. In a learning organization, it is the responsibility of every employee to learn and to constantly monitor the environment for new ideas.

8. IMPLEMENT A BEST PRACTICES PROGRAM—IMPORTING THE BEST IDEAS SHOULD BE A PROCESS, NOT SIMPLY A MIND-SET. Best Practices is the most efficient way to do something and a vital piece of a learning organization. Under Welch's guidance, GE began to systematically roam the world, learning "better ways of doing things from the world's best companies." In late 1989, Welch launched a comprehensive Best Practices movement that featured 3-day workshops.

   To make sure that GE learned from the right companies, he assigned the task of finding world-class companies to emulate to one of his top business-development managers. (Ford and Hewlett-Packard were among the first companies studied.) Welch described GE as "a high spirited, endlessly curious enterprise," one that was dedicated to finding the best people and "cultivating in them an insatiable appetite to learn, to stretch, and to find that better idea, that better way, every day."

9. REWARD BEHAVIORS AND ACTIONS THAT PROMOTE A LEARNING CULTURE. Welch decided that it was vital for the company's compensation and reward systems to be in alignment with the company's goals. Accordingly, he urged his business leaders to align rewards with outcomes—and he led by example. When he became CEO, stock options were restricted to a few hundred top executives of the company. By the time he left, more than 30,000 GE managers were participating in GE's lucrative stock option program.

10. ESTABLISH PROCESSES AND AN INFRASTRUCTURE FOR CONVERTING LEARNING INTO RESULTS. In order to make sure that learning and intellect are shared throughout the organization, management needs to hold regularly scheduled meetings, reviews, training sessions, courses, and so on. This was one of the chief purposes of Crotonville, which provides training to more than 7000 GE managers annually. Again, Welch led by example: Not only was he a frequent visitor to GE's learning institute, but he also taught there. (Welch holds a Ph.D. in chemical engineering.)

    Welch called GE's learning infrastructure its "operating system," and he described the operating system as "GE's learning culture in action." The operating system refers to a system of intense learning sessions in which the key unit leaders and "initiative champions" from both inside and outside GE get together to share ideas and discuss the company's key initiatives.

11. USE COMPANYWIDE INITIATIVES TO SPREAD THE GOSPEL. During his tenure, Welch launched five sweeping companywide initiatives that forever changed what Welch referred to as the DNA of the corporation: globalization, Work-Out (the company's only cultural initiative), services, Six Sigma (a quality program), and digitization (e-business). In order to launch these comprehensive programs, Welch created a far-reaching apparatus to help spread the message about—and train managers in—the latest initiative.

    These initiatives helped to make GE a cohesive organization, rather than simply a collection of disparate companies. Welch called GE's high-involvement learning culture its "social architecture," and was proud of the fact that he was able to "involve everyone in the game." Welch said that involving everyone was one of the real keys to productivity, and that a company could get better as it got bigger simply because more people meant more ideas. This was Welch's thinking in his final year as CEO.

    Despite the diversity of GE's businesses (which included everything from credit cards to gas turbines to NBC), Welch was able to get more than 300,000 employees marching to the same tune at the same time. GE's growth initiatives are credited with making the company more productive and more profitable. Under Welch, operating margins almost doubled, inventory turns increased dramatically, and GE achieved double-digit growth for two consecutive decades.

    Welch's growth initiatives are given credit for being the keys to GE's transformation. Welch implemented these programs by driving them through the GE operating system. These initiatives, when combined with other Welch concepts and strategies, helped him to create more shareholder wealth than virtually any other CEO in history. When he took over, GE's total market capitalization was $13 billion. In the spring of 2000, GE became the most valuable company in the world, worth an astounding $596 billion (before sliding substantially in the market downturn of 2001 and 2002). There is little doubt that Welch's learning culture played a prominent role in GE's transformation from aging manufacturing bureaucracy to one of the world's largest, most valuable global multinationals.