74 CREATIVITY AND INNOVATION MANAGEMENT

Case Study: Jack Welch’s Creative

Revolutionary Transformation of
General Electric and the Thermidorean
Reaction (1981–2004)
Pier A. Abetti

This case study draws a parallel between the French Revolution and the GE ‘revolution’,
according to three waves of transformation. We discuss the ‘hard’ effects on GE employees
(strategy, structure, employment, rewards) and the ‘soft’ effects (culture, work climate, indoc-
trination). In parallel with the French Revolution, the retirement of CEO Jack Welch was
followed by a ‘Thermidorean reaction’ characterized by the relaxation of Welch’s professional
and ethical standards, lassitude and indecision in the GE organization, and the fall of GE stock
price by 45 percent. Welch’s role as revolutionary leader and driving force is highlighted.

Introduction Thermidorean reaction after Welch’s

GE and Jack Welch’s Legacy
alued at $380 billion, General Electric
V (GE) is the world’s most valuable and
admired company. This status is still attrib-
uted to the 20-year leadership of CEO Jack
Welch (1981–2000). During that period, GE’s
market value increased 3213 percent at a
compounded annual growth rate (CAGR) of
20.4 percent, while the Standard and Poor 500
(S&P) Index increased 915 percent (CAGR =
13.1 percent). Two years after Welch’s retire-
ment, GE’s market value had fallen by 45 per-
cent, while the S&P index declined by 32
percent. These figures lead to the conclusion
that GE’s success was essentially due to the
leadership of Welch and that his successor, Jeff
Immelt, was unable to maintain the momen-
tum of his predecessor. However, two differ-
ing theories also need to be considered.
(1) GE was a company ‘built to last’ (Collins
and Porras, 1997). If GE had selected
another CEO in 1981, he or she would
have obtained similar results. The ques-
tion thus becomes: was Welch a product of
GE, as claimed by Collins and Porras, or
was GE after 1981 a product of Welch?
(2) The collapse of GE’s market value was
primarily due to what can be called a
retirement. (The French Thermidorean
reaction refers to the period after the Reign
of Terror, in 1794, when the tyrant Robe-
spierre was removed from power and an
economically and culturally liberal gov-
ernment came to power.) This reaction, in
turn, was due to Welch’s less creative,
more opportunistic and more intolerant
leadership during his last years of tenure
and the ensuing lassitude and indecision
among employees (Abetti, 2001). The
question thus becomes: was the sharp
decline of GE’s stock value due to the col-
lapse of the Internet bubble or to the Ther-
midorean reaction which, in turn, had its
root cause in Welch’s last years as CEO?
Objective, Methodology, Sources,
and Plan
The objective of this historical study is to
answer these questions by describing Welch’s
career and his creative revolutionary transfor-
mation of GE according to three waves of ‘cre-
ative destruction’ (Schumpeter, 1930) and their
effects on GE’s employees, organization, and
culture.
We have deliberately elected not to draw on
the extensive and sometimes contradictory

Volume 15 Number 1 2006 © 2006 The Author

doi:10.1111/j.1467-8691.2006.00370.x Journal compilation © 2006 Blackwell Publishing
CASE STUDY
theories of leadership in general and executive
or managerial leadership in particular. Rather,
since Welch was a revolutionary, always pro-
active, sometimes ruthless, we draw a parallel
between his actions and the French Revolution
(1789–1815) and other revolutions that had a
major impact on their countries and the world,
namely the Russian Revolution (1917–1993),
the Chinese Revolution (1921–1972), the Mex-
ican Revolution (1911–1940), the Fascist Revo-
lution in Italy (1919–1943) and the National-
Socialist Revolution in Germany (1923–1945)1.
In fact, GE’s value added in 1981 was of the
same order of magnitude as the GNP of France
in 1789: $30 billion in 2004 prices2 (Hohenberg,
2005). Today GE’s value added is approxi-
mately $100 billion, similar to the GNP of Ire-
land. We also draw a parallel between Welch’s
origins, motivation, leadership, personal and
managerial characteristics, and actions and
those of the leaders of these other revolutions3.
We hope this unorthodox approach will help
answer the two controversial questions above.
The sources for this study are the ample
business and popular literature on GE and
Welch, and the author’s personal experience
over 32 years (1948–1981) at GE, as well as his
conversations with other GE employees who
worked under Welch and his successor (1982–
2004).
The literature on GE and on Welch is
extensive but uneven. It can be divided into
five categories.
(1) Serious business studies, such as the sem-
inal study of GE by Collins and Porras
(1997), and Harvard Business School and
other cases, for instance, Aguilar et al.
(1981, 1985, 1991); Malwight and Aguilar
(1996); Elderkin and Bartlett (1993); Jack
Welch, GE’s Revolutionary (1994); Heskett
(1999); Bartlett and Wozny (2000); Bartlett
and Glinka (2002); Bartlett and McLean
(2004).
(2) Books and articles by Welch’s laudatory
semiofficial biographers (a better designa-
tion would be hagiographers4) such as Slater
(1994, 1996, 1998, 2000); Tichy and Sher-
man (1994); Tichy and Cohen (1997);
Heller (2001); Lowe (2001).
(3) A few critical studies, for instance, a well-
researched book (O’Boyle, 1998) based
mostly on interviews with disgruntled
employees and Welch’s critics.
(4) Countless interviews with Welch pub-
lished in a book (Lowe, 1998) and in busi-
ness magazines, (Tichy and Charon, 1989),
and in the popular press.
(5) Welch’s autobiography (2001) with an
afterword (2003) and a final interview in
the Harvard Business Review (Collingwood
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Journal compilation © 2006 Blackwell Publishing
75
and Coutu, 2002). It should be noted that
the last two sources must be treated with
caution. Welch’s autobiography was hast-
ily co-authored with a professional jour-
nalistic writer. My analysis of the styles
in the text show that only around one-
quarter of it was written by Welch. As will
be described later, the final interview is a
watered – down version of the original
interview that could not be published
because of a conflict of interest.
(6) Soon after his retirement, revelations about
Welch’s personal life stirred up many
scandalous stories in the popular press,
(Beam, 2004), and in a book (Byron, 2004).
The plan of this historical study follows the
evolution of Welch from his family back-
ground to his first job at GE; the event that
caused him to become a revolutionary; his rise
through the ranks by exploiting the GE sys-
tem; his selection as CEO; the coup d’état that
led to his assumption of full power; the three
creative revolutionary waves; their hard and
soft effects on GE’s employees, organizations
and culture; the hardening of his personality
and increasing intolerance of dissent; the
attempt to keep power beyond the mandatory
retirement age; the selection of three candi-
dates for succession; the decision to appoint
one and fire the other two; the grooming,
indeed attempted cloning, of his successor,
Immelt. We then describe the Thermidorean
reaction as it affected GE and its employees and
Welch personally, including business and mar-
ital scandals that have left a permanent mark
on Welch’s image.
We conclude by answering the two ques-
tions above and by revealing the driving force
underlying the rise and fall of American’s
most successful and admired executive.
Welch the Revolutionary
The Origins of the Revolutionary
Like many militant revolutionaries, Welch was
born in a humble family of Irish descent at the
margins of the ruling class. His father was a
conductor on a commuter railroad, the Boston
and Maine, who sold and punched tickets and
never advanced in rank. More importantly,
when Jack was born (1935), most members of
the ruling class in the Boston area and execu-
tives in leading U.S. companies were WASPs
(White Anglo Saxon Protestants). Welch was
white, but Irish and Catholic, and regarded the
ruling class with admiration, envy, and per-
haps some hostility. Ireland, which had been
repressed for centuries by England, had just
recently gained independence, in 1922.
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We can draw a parallel with Napoleon
Buonaparte, who came from an impoverished
Corsican family, despised by the French
nobility. Welch’s roots in a comparable poor,
despised minority could have given rise to a
comparable ambition to become the powerful
ruler of the majority.
Welch was smart enough to obtain a Ph.D.
in engineering in three years. With his strong
technical background, he was hired by a lead-
ing, technologically advanced, growing and
progressive company, GE, which was the ideal
vehicle for acquiring power.
The Making of the Revolutionary
Most potential entrepreneurs do not launch
their enterprises until they are either stimu-
lated or forced by a precipitating event, usu-
ally a negative one such as dismissal for unjust
reasons, lack of recognition, or boredom (Tim-
mons, 1999). Similarly, many potential revolu-
tionaries initially attempt to work within the
system, hoping they can modify it through
persuasive or pacific means, until a major
shock convinces them that revolution is the
only possible solution. At the beginning of the
French Revolution the oppressed Third Estate
(the 98 percent of the population who were
neither nobles nor clergy) addressed petitions
to the French king that went unanswered.
Only when the Third Estate was denied equal
representation did they rebel against the king
and storm the Bastille. In Mexico, Francisco
Madero sought power through a democratic
election and started a revolution only after the
vote was rigged by the incumbent dictator
Porfirio Diaz. In Russia, Lenin began by trying
to gain control of the democratically elected
Constituent Assembly. After he was forced
into hiding, he decided to overthrow the gov-
ernment by violent means.
Welch’s first job at GE was with the Plastics
Division, an innovative venture outside GE’s
conservative electrical core business. He was
given responsibility for developing a new
product and for the pilot plant. By working
extremely hard, he achieved outstanding
results his first year. He expected to be com-
pensated financially and with a promotion, as
he had been promised before he was hired.
Instead his supervisor, apparently a bureau-
crat who did not appreciate Welch’s zeal, gave
him a minimal raise. This was the precipitat-
ing event that pushed him over the line. He
decided to quit GE and look for more reward-
ing employment. Fortunately for GE, his
potential had been noticed by a vice president
who was able to convince Welch to stay thanks
to a substantial raise and promises of a bril-
liant career. Welch realized he had a unique
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opportunity to revolutionize the system and
make GE the world’s greatest company. To
achieve this end, however, he had to gain
power by becoming CEO.
The Rise of the Revolutionary
According to Machiavelli (1515) there were
three ways to become the ruler of an Italian
Renaissance state: (1) being chosen by the
incumbent prince; (2) a palace revolution (coup
d’état); (3) violence. Welch advanced by being
chosen by the incumbent president and then
implementing the coup d’état that allowed him
to revolutionize GE.
After the Reign of Terror, Napoleon, a pen-
niless general, was asked to subdue with a
‘whiff of grapeshot’ the mob that wanted to
restore the repressive regime of Robespierre.
Napoleon rose politically, was elected consul,
then first consul, then consul for life after a
coup d’état in 1798. Finally he crowned him-
self emperor.
In a similar progression, Welch had first
gained recognition by working within the sys-
tem before being selected as a candidate for
succession and then, as CEO, revolutionizing
GE. Although he hated GE’s highly politi-
cized, sanitized, ‘superficially congenial’
(Welch, 2001) headquarters, with its bureau-
cratic policies and procedures, he exploited
the system as he rose through the ranks. He
gained recognition through hard work,
detailed analyses, polished presentations, and
most of all outstanding business results.
Nonetheless, in 1975, he was not on the list of
ten possible successors to CEO Reginald Jones,
who was to retire in five years. The senior vice
president of human resources believed Welch
drove too hard for results and had too little
respect for the company’s rituals and tradition
(Welch, 2001).
But Jones was also frustrated with GE’s
slow-moving bureaucracy and wanted a
successor who would shake things up. He
insisted that Welch be the eleventh candidate.
In 1979, Jones interviewed all of them accord-
ing to the ‘airplane interview,’ whose format
was: ‘You and I are flying in a company plane.
The plane crashes and we both die. Who
should be the next CEO of GE?’ The purpose
was to determine each candidate’s opinion of
the other contenders and whether they would
be able to work together after Jones’ retire-
ment. But Welch had his own agenda: to prove
he was the best choice for CEO. He conve-
niently forgot he was supposed to be dead and
proposed himself as Jones’ successor!
As a final test, Jones named three of the
candidates, including Welch, vice-chairmen.
Welch proved his ability and was named CEO
© 2006 The Author
Journal compilation © 2006 Blackwell Publishing
CASE STUDY
on April 1, 1981. He had gained limited power
by climbing the traditional ladder. Over time
he built a small, dedicated group of young,
aggressive followers who shared his vision
of the new GE and were loyal to him. As
with Napoleon, these ‘dashing generals’ were
rewarded with promotions, recognition as
members of the elite team, and generous
financial packages, as long as they kept winning.
Welch’s Coup d’Etat
To assert himself and prove he was in charge,
Welch consolidated his power through a coup
d’état. His goal was to seize the few neural
centers where power was exercised and from
there to conquer the entire constituency
(Malaparte, 1931). Accordingly, he started at
headquarters and eliminated the complacent
bureaucrats who might offer passive resis-
tance, firing 167 out of 200 and adding 67
members of his own loyal team.
He also realized that the world was entering
a recession and that GE should reduce
expenses, becoming ‘mean and lean’ to face
the double challenge of a recession and
increased international competition. He laid
off 80,000 employees the first year and 42,000
over the next two years, targeting older, more
expensive employees who might be more
resistant to change. There was one problem:
GE’s long-standing policy that employees
with 25 or more years of service could not be
dismissed for lack of work. Welch realized that
canceling this policy would have negative
repercussions among stakeholders and the
press and therefore decided to add the words
‘when appropriate’ to the policy. As far as I
know, not one single case of ‘appropriateness’
was ever registered!
In parallel with dismantling the infrastruc-
ture of the GE bureaucracy, Welch wanted to
change the modus operandi at headquarters and
in the field. This was exemplified by the prep-
aration and review of the plans of GE’s 65 stra-
tegic business units (SBUs). From January to
May, every SBU prepared strategic plans of
100 or more pages with detailed forecasts for
the next five years. Staff headquarters checked
and even graded them. They then prepared
tough or irrelevant questions for the CEO and
top executives to ask during the formal review
in July. These reviews were elaborately pre-
pared and rehearsed to avoid unpleasant sur-
prises. Welch put an end to all this. He refused
to see the books before the presentation and
insisted on asking his own questions. The
formal presentations with over 40 people
in attendance became shirt-sleeve, informal,
open discussions of the business and its
challenges with fewer than 10 persons. Welch
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77
ended the dog-and-pony show. He wanted to
lead rather than ‘review and approve.’ He did
not want to see the books, but rather look into
the heads and hearts of the business leaders
and the passion they poured into their argu-
ments. With two powerful actions – the mas-
sive dismissal of people and the dismantling
of the bureaucracy – Welch showed that he
was fully in charge. Now he was ready to start
the revolution5.
Welch’s Creative Revolution
(1981–2000)
The Three Waves
By definition, the goal of a revolution is to
destroy a regime that is unsatisfactory to the
majority of the people (‘stakeholders’ in busi-
ness parlance) and replace it with a new order6
that, it is hoped, will meet their needs and
aspirations. Welch achieved this goal over 20
years by bringing about a revolution in waves.
The advantage of acting in separate waves
rather than one continuous revolution is that
revolutionary fervor cannot last forever. Peo-
ple become tired and want to relax and enjoy
the rewards of their work. To make progress,
they must be reenergized and pushed ahead in
periodic waves.
Welch’s 20-year revolution can be conceptu-
alized as three waves with the following start-
ing dates and major objectives:
1981, first wave (hard)
Create a new vision and strategy to drive
reorganization, mass dismissals, divest-
ments and acquisitions.
1985, second wave (soft)
Revolutionize GE to gain the strengths of a
big company with the leanness and agility
of a small company.
1996, third wave (soft and hard)
Develop an integrated, boundaryless,
stretched, total quality company with
A-players.
The characterization of the waves as hard or
soft refers to the means Welch employed. In
the hard waves, the lives of the employees
are physically disrupted by mass dismissals,
divestments, acquisitions and major organiza-
tional changes. In the soft waves, the minds
and habits of the employees are disturbed,
because they must absorb new ways of oper-
ation and new working practices. Physical dis-
ruption is minimal, except for those who
cannot cope with the new company environ-
ment and are forced to leave.
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The First Wave (1981–1984)
Now that Welch had conquered headquarters,
he had to conquer the field, including the
minds of managers, staff, and workers of all
ranks. To achieve this, Welch, for the first time
in GE’s history7, created a unified vision and
strategy for the entire company, the famous
three-circle concept. All GE businesses had to
fit within three categories:
1. Core business (such as Power Generation,
Appliances) with moderate returns, managed
as cash cows with selective investments.
2. High-tech businesses (such as Medical Sys-
tems, Plastics and Aircraft Engines) with
high growth, negative cash flow and high
investments.
3. Services (such as GE Capital, NBC and
Information Services) with high returns,
high growth, cash generation and low
investments.
Welch then evaluated each business. Those
that were first or second in their industry were
placed inside one of the three circles. The oth-
ers were given two years to become first or
second. If they could not, they were closed or
sold. Welch’s message to all employees was
crystal clear: Be first or second! If not, you’re out!
At the same time, Welch regrouped the 65
SBUs into 13 businesses, which he managed
directly. Welch carried his message to the
field and met formally and informally with
employees of all ranks. Because of his
working-class origins, Welch could relate eas-
ily to blue-collar workers and listen to their
suggestions for improving efficiency. He regu-
larly visited the GE executive training center
in Crotonville, N.Y., to give lectures and meet
informally with future general managers. He
listened to their complaints about the linger-
ing bureaucracy and delays in obtaining
approvals and decisions from superiors.
Welch’s ‘workout’ meetings (Ulrich et al.,
2000) may be compared to Chairman Mao’s
frequent meetings with Chinese workers and
soldiers, and his management meetings to
Mao’s open discussions with the younger
party leaders.
The Second Wave (1985–1995)
Having achieved, almost by force, impressive
financial results, Welch was concerned that
GE’s organization would not be able to main-
tain its growth rate. Therefore, he embarked
on a major reorganization that would ensure
the motivation and the capability to grow suc-
cessfully. He took the following actions:
1. Flattening of the corporate pyramid from
eight to four levels.
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CREATIVITY AND INNOVATION MANAGEMENT
2. Reducing staff and changing its role from
controlling and revising to assisting and
coaching.
3. Instituting a new reward system based
more on performance bonuses rather than
salaries, with more stock options.
4. Ending employment security. The company
could dismiss anybody, any time, regard-
less of length of service or merit. At the
same time, employees who found better
jobs outside the company were free to leave
and would not be considered disloyal.
The first wave had created a smoothly func-
tioning company that generated plenty of
cash. A portion of this cash was paid to the
stockholders, but the majority was reinvested
in R&D, capital investments, and acquisitions,
which, in turn, generated more cash, a concept
developed by Welch that was called the ‘GE
growth engine’ (Elderkin and Bartlett, 1993).
The second wave created a more efficient,
streamlined organization that reduced bure-
aucracy and motivated employees, through
tangible incentives, to achieve improved
financial results.
The Third Wave
Because GE’s success was identified with
Welch personally rather than the new GE sys-
tem, the challenge was to prevent a slackening
of efforts and a slowdown in growth and prof-
its after his retirement. In the third wave, he
had to create new GE values, a new GE cul-
ture, and an emotional climate that would
transcend his personality as well as his strate-
gic and organizational reforms.
The third wave was both soft and hard. On
the soft side, it included watchwords like
‘speed, simplicity and self-confidence,’ ‘can-
dor, openness, ownership,’ ‘integrated diver-
sity,’ and even ‘evangelizing.’ On the hard side
was the total quality (six sigma) initiative,
which produced significant results. To enforce
the six sigma culture, Welch made it clear that
nobody would be promoted unless he or
she was a certified ‘black-belt’ team leader
(Heckett, 1999). Welch then started a similar
campaign for digitization and e-commerce. All
managers had to find a mentor who would
teach them how to access the Internet (Bartlett
and Glinka, 2002).
Probably the most important aspect of the
third wave was the selection of a top team of
A-players, the future leaders of GE (Bartlett
and McLean, 2004). We know that Welch stud-
ied the German strategies of World War I and
admired the German general staff. He may
also have read Karl von Clausewitz’s famous
treatise Vom Kriege (On War) (1830). Welch’s
© 2006 The Author
Journal compilation © 2006 Blackwell Publishing
CASE STUDY
Imperial Germany
Smart Stupid
General
Eager Out!
Staff
Force
Lazy Troops
Them
Karl von Clausewitz, 1830
Figure 1. Welch’s third wave: selecting leaders.
Source: Abetti (2001)
criteria for selecting leaders are very similar to
the criteria for selecting the elite members of
the German general staff. As shown in the left
matrix of Figure 1, Clausewitz classified all
potential candidates as smart or stupid and as
eager or lazy. There are four possible combina-
tions:
1. The ‘smart and eager’ (top left quadrant)
are the obvious choice, but there are not
enough of them.
2. Therefore, the ‘smart and lazy’ will be
forced to move from the lower left to the
upper left quadrant.
3. If they do not respond, they will have to
join the ‘stupid and lazy’ troops in the
lower right quadrant.
4. ‘Stupid and eager’ is the worst combination
because these people cause all kinds of
trouble with their overzealousness. They
should be thrown out!
Welch’s Succession and Retirement
The Hardening of Welch
At the end of the third wave, faced with the
prospect of mandatory retirement, Welch’s
attitude hardened. He became more and more
demanding, setting unattainable stretch goals,
and more intolerant of dissent. For instance,
while most companies would be content with
a 10 percent annual increase in operating
margins, say from 10 to 11 percent, Welch
demanded a 50 percent increase, from 10 to 15
percent, and a doubling of inventory turns.
Attempting to achieve such goals can cause
exhaustion or ‘fixing the books;’ missing the
goals can cause fear of sanctions and loss of
morale. Welch also demanded more and more
conformity with his tenets. For several years,
GE managers were encouraged to carry in
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79
The New GE
Achievers Non-
Achievers
Teach Motivate
Believers and and
Stretch Train
Non- Do Not
Believers Out!
Hire
Jack Welch, 2000
their wallets a card listing the GE values, just
as Chinese party members, soldiers, and stu-
dents had to carry Chairman Mao’s Little Red
Book. Welch applied these same values as cri-
teria for selecting GE’s future leaders.
Welch characterized potential leaders in the
new GE as achievers and non-achievers,
believers and non-believers, as shown on the
right side of Figure 1. There are four possible
combinations:
1. ‘Achievers and believers’ are the obvious
choice, but there are not enough of them.
2. Therefore, the ‘believers and non-achievers’
are motivated and trained to move from the
top right to the top left quadrant.
3. ‘Non-achievers and non-believers’ should
not be hired.
4. The ‘achievers and non-believers’ repre-
sented a problem for Welch. His attitude
toward them changed over time. Initially he
recognized grudgingly their contributions
but also saw them as a management prob-
lem. Later, in his last letter to stockholders,
Welch launched a crusade to eliminate
type-IV managers:
‘. . . we have to remove these type IV’s
because they have the power, by them-
selves, to destroy the open, informed, trust-
based culture we need to win today and
tomorrow . . . There are undoubtedly a few
type IV’s remaining, and they must be
found. They must leave the company
because their behavior weakens the trust
that more than 300,000 people have in its
leadership.’ (GE Annual Report, 2000)
Here again, a parallel with major revolutions
is instructive. The French Revolution did away
with the moderates, the Russian Revolution
cast out the non-party specialists who had
contributed to the post-war reconstruction,
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and Mao’s Cultural Revolution purged intel-
lectuals. History shows that all these purges
caused economic disruptions.
To summarize, during the first wave, Welch
changed the physical infrastructure of GE and
what people did. During the second wave he
changed the organization and how people
operated. During the third wave, he changed
the culture and both what and how people
should think.
It should be noted that the psychological
pressure on employees and their resentment
and potential resistance increased as one wave
was followed by the next. During the first
wave, employees were told what to do. They
recognized that it was part of management’s
prerogatives, indeed of management’s duties,
to direct their effort where it would be most
valuable for the company. During the second
wave, employees were told how to do their
assignments. Thus, there was some concern
that experimentation and creativity may have
been curtailed during the second wave. Dur-
ing the third wave, employees were asked to
endorse without reservations the new GE values,
culture, and emotional climate. This new
approach is potentially dangerous, because:
1. Some employees may be rewarded for
being politically correct rather than for their
results;
2. Some high-performing employees may be
considered politically unreliable and forced
to leave;
3. Some employees may be afraid to speak
their minds for fear of retaliation.
Here again, a parallel with revolutions is
instructive. The situation above corresponds
to the beginning of the Terror during the
French Revolution (1793)8.
A fourth wave from Welch would not have
been viable because it would have demanded
more conformity than was good for the com-
pany and more submission than the employ-
ees were willing to accept. But in line with GE
policy, it was time for Welch to retire.
Welch’s Last Stand
Welch, however, was not ready to give up
power. He wanted to leave with a bang, some
major business coup that would satisfy his ego
and consolidate his fame as the world’s most
admired executive (Murray et al., 2000). Hav-
ing heard that Honeywell was being sold,
Welch made a last-minute offer at an inflated
price. Then he stated that he would not retire
until this acquisition was consummated and
Honeywell was successfully integrated within
GE. Fortunately for GE stakeholders, Welch
was unable to obtain approval from the anti-
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CREATIVITY AND INNOVATION MANAGEMENT
trust authority of the European Economic
Community. The deal fell through and
Welch finally retired, having lost glory and
credibility.
Welch’s Succession
Although he was in no hurry to retire, Welch
selected potential successors following GE’s
personnel policies and the example set by
Reginald Jones (Bartlett and McLean, 2004).
However, the way Welch treated his potential
successors, especially the two losing candi-
dates, was quite different.
Like Jones, Welch narrowed his search to
three candidates, but they were all working in
the field, not at headquarters. Welch chal-
lenged each one to outperform the others and
to develop a successor who would be able to
take over if that candidate was appointed
CEO. After heated competition, Welch
selected Jeff Immelt, whom he had mentored
for many years, and who was loyal to him.
Immelt had been in charge since 1997 of GE
Medical Systems, Welch’s most successful
business before he was named CEO (Khanna
and Weber, 2002).
The day before he announced his successor,
Welch took the company plane to Milwaukee
to give the good news to Immelt. Then he flew
to Cincinnati and Schenectady and fired the
two losing candidates. GE was known as the
company that trained future CEOs and, in fact,
some of the unsuccessful front runners for
Welch’s job had already left GE to head For-
tune 500 companies. Welch told the two losers
‘You are going to be offered a CEO position
sooner or later, so you should leave right now!’
As a ruthless politician he knew the losers
could do nothing more for him and thus fol-
lowed the maxim: ‘In politics there is no grat-
itude because nothing is ever given’ (Guzman,
1951).
On November 27, 2000, Welch and Immelt
appeared on television in identical blue shirts
open at the collar, navy sports coats, even
matching tasseled loafers–the non plus ultra of
conformity! No wonder Fortune called Immelt
‘The Man who would be Welch’ (Moore, 2000).
From then on, Immelt’s problem was being
considered Welch’s clone, and clones are never
as good as the original. Welch kept Immelt on
a leash for nine months as he gradually turned
over power. According to Sonnenfeld’s typol-
ogy of succession patterns (1988), Welch was a
general who was leaving reluctantly and try-
ing to stay in charge. Welch retired in Septem-
ber 2001, and it was only after three years that
Immelt began to shake his image as Welch’s
follower. In 2004 Fortune changed its tune and
the headlines were ‘Another boss, another
© 2006 The Author
Journal compilation © 2006 Blackwell Publishing
CASE STUDY
revolution. Jeff Immelt is following a time-
honored GE tradition: abandoning the most
treasured ideas of his predecessor’ (Useem,
2004).
The Thermidorean Reaction
Welch’s ‘Terror’
As the French Revolution evolved and France
fought to prevent European powers from
invading and reinstating the king, Robespierre
became dictator and instituted the Reign of
Terror. Two hundred years have passed, and
GE is not France, nor are its competitors
striving to conquer GE. Nonetheless, Welch
instituted his own polices of conformity, as
described above, as well as a reign of terror
(Byron, 2004) to consolidate and assert his
power. GE managers and employees were
scared by Welch’s increasing outbursts of rage,
even over small issues, that were punctuated
by foul language. The worst, however, was his
policy that every year ten percent of employ-
ees in each department must be replaced.
Across the board the lowest performers were
removed, regardless of their actual perfor-
mance. This policy is not effective (Lawler,
2002), and in the case of GE was clearly unfair,
because some departments had excellent
results, others poor results. No matter, ten per-
cent had to go (Welch, 2001)! Also, as dis-
cussed above, some higher performers who
were suspected of disloyalty to Welch’s values
or who lacked political support were fired. In
this way Welch kept everybody on edge and
paved the way for the Thermidorean reaction.
The Thermidorean Reaction in France
(1793–98)
During the Reign of Terror, Roberpierre
demanded complete loyalty to the principles
of the Revolution, and he executed anyone
suspected of dissent or disloyalty. This lasted
until July 27, 1794 (9 Thermidor, year II accord-
ing to the new Revolutionary calendar), when
Robespierre and his associates were over-
thrown and executed in a coup d’état. The
people of France, tired after years of turmoil,
gave a sigh of relief and supported the new,
more moderate leaders, who were called
Thermidoreans.
This was the beginning of the Thermidorean
reaction, which lasted until Napoleon took
power. It was characterized by relaxed moral
standards, conspicuous consumption, drunk-
enness, orgies and sexual license, all fueled
by war profiteering, political payoffs and
corruption.
© 2006 The Author
Journal compilation © 2006 Blackwell Publishing
81
The Thermidorean Reaction at GE
(2002–2004)
In the case of GE, the Thermidorean reaction,
which came after 20 years of Welch’s revolu-
tion, had three main aspects:
1. Lassitude among GE employees who
hoped to relax under Immelt, who was
reputed to be less ‘mean’ than Welch. Their
attitude was ‘let’s wait and see which way
Jeff will go.’
2. A reexamination by business analysts and
the press of GE’s financial results, account-
ing practices, and forecasts. For instance,
The Economist published an article critical of
GE with the headline ‘The Jack and Jeff
show loses its luster’ (Economist, 2002).
3. A long period of transition (2002–2004)
while Immelt was reenergizing GE and dif-
ferentiating himself from Welch.
Welch’s ‘Thermidor’
For Welch the Thermidorean reaction led to
changes in his personal and professional
behavior that tarnished his image. Suffice it
to say that The Economist, which had often
praised Welch to the sky, became disillusioned
and excoriated him as an ‘aging philanderer’
(Allio, 2003). This radical change in Welch’s
image was due to two episodes that were
treated as scandals in the press and in a book:
his severance package and his affair with a
prominent editor.
The policy and practice at GE has always
been no employment contracts. Employees
can be terminated by the company at will, and
they can also leave at anytime. In 1996, five
years before his retirement, Welch negotiated a
contract that included an extremely generous,
even lavish, package of life-long, post-
retirement benefits. This contract came to light
when Welch’s second wife sued for divorce
and claimed a payment of almost half a billion
dollars. Welch, who had been praising ‘open-
ness, simplicity and unyielding integrity,’ was
condemned by the press. He had no choice but
to give up the entire package and repay GE for
$2 to $2.5 million annually in services (Welch,
2002). The second scandal was caused by an
interview with the editor of Harvard Business
Review that promoted Welch’s autobiography.
The resultant headline in Business Week was
‘Too Close for Comfort. GE’s legendary former
CEO Jack Welch kicks up a controversy over
his affair with a journalist.’ The journalist
boasted openly of her relationship with Welch
and ‘quit after having lost the confidence of
her staff’ (Orecklen, 2002). Due to the conflict
of interest, a watered-down version of the
interview was edited by others (Collinwood
Volume 15 Number 1 2006
82
and Coute, 2002). Other dismal aspects of
Welch’s Thermidor were publicized as a result
of the divorce proceedings but will not be dis-
cussed here.
Conclusion
Answers to the Two Questions
After having described the rise and fall of the
revolutionary Jack Welch, his creative trans-
formation of GE, and the Thermidorean reac-
tion, we turn to the two questions at the
beginning of this paper:
1. Was Welch a product of GE, as claimed by
Collins and Porras, or was GE (after 1981)
a product of Welch?
Our conclusion is that, while GE would
have selected another capable executive in
his stead, GE’s revolutionary transforma-
tion was due primarily, if not exclusively, to
Welch’s creative leadership. In fact, it is
clear that Welch, as a true revolutionary,
intended to overthrow the GE system after
his disillusionment with his first year of
employment, and that he worked within
the system in order to become CEO, seize
power through a coup d’état, and destroy
the old system.
2. Was the major decline of GE’s stock value
due to the collapse of the Internet bubble or
to the Thermidorean reaction, which in turn
had its root cause in Welch’s last years as
CEO?
GE’s stock fell 45 percent from 2000 to
2003, while the S&P Index fell by 32 percent.
Other large, well-managed companies were
less affected. Microsoft fell 19 percent, Wal-
Mart 10 percent and IBM 22 percent. As dis-
cussed above, Welch’s hardening and his
determination to stay in power would have
made a fourth wave of change ineffective,
indeed dangerous, for GE. We have also
shown that Welch’s insistence that his suc-
cessor should be his clone reinforced the
effects of the Thermidorean reaction and
delayed for three years Immelt’s establish-
ment as the new CEO and his differentiation
from the Welch legacy. Our conclusion is that
Welch was the major cause of both GE’s suc-
cess and GE’s decline.
Welch’s Accomplishments and
Driving Force
In spite of the managerial and personal short-
comings at the end of his tenure, Welch’s
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CREATIVITY AND INNOVATION MANAGEMENT
accomplishments are unique in the history of
business. He transformed a mature electrical
company with a slow-moving, overstaffed
bureaucracy, poor cash flow, and lethargic
stock into a global powerhouse, where electri-
cal products represent only 15 percent of sales,
other innovative high-tech products (aircraft
engines, engineering plastics, man-made dia-
monds, medical diagnostic systems, etc.) 10
percent, and services 75 percent.
While there have been many revolutionary
leaders in politics and business with clear
vision and unbreakable motivation to imple-
ment their vision, not many have succeeded in
maintaining the momentum for 20 years.
Welch is unique in his successful implementa-
tion of revolutionary change in a company that
was already among the most admired when he
became CEO. How did Welch achieve this?
The progress of nations is marked by revo-
lutions that lead to a higher level of wellbeing
for the citizens. As Thomas Jefferson wrote in
1787 ‘A little rebellion now and then is a good
thing’ (Jefferson, 1853–54).9 In a similar man-
ner, according to Greiner (1972), companies do
not grow continuously and smoothly but
rather go through periods of evolution and
revolution, separated by crises. According to
Collins and Porras (1997):
Visionary companies install powerful
mechanisms to create discomfort to obliter-
ate complacency and thereby stimulate
change and improvement before the exter-
nal world demands it.
Visionary companies are created by vision-
ary leaders who take advantage of impending
external crises (as an economic recession) or
even create their own crises in order to revo-
lutionize the company and raise it to a higher
level of performance. Markides (1998) states:
The successful innovators were not afraid
to destabilize a smooth running machine
and to do so periodically but contin-
uously. . . . The development of positive
crises. . . . is a powerful mechanism to des-
tabilize the system and start the thinking
process again. . . .
However, one revolution is not enough. The
revolutionary spirit fades over time, and a
Thermidorean reaction follows10. At the same
time, few visionary company leaders are will-
ing and able to maintain the revolutionary
drive over their entire tenure.
It takes a great leader to fundamentally
question his or her mental models continu-
ously and escape the trappings of success
more than once (emphasis added) (Markides,
1998).
© 2006 The Author
Journal compilation © 2006 Blackwell Publishing
CASE STUDY
In conclusion, the driving force of Welch’s
undeniable accomplishments was his will and
ability to create a new vision of GE, to imple-
ment it through a continuous revolution, to
question the status quo, to dynamically mod-
ify his vision and strategy, and to propel the
company to ever higher levels of performance
and success.
Notes
1 The literature on revolution is enormous. A
basic reference is the Encyclopedia of
World History (Langer, 1968). The French
and Russian revolutions are analyzed by
Crane (1957), the Mexican revolution by
Johnson (1968), the Chinese revolution by
Guillermaz (1972), the Fascist revolution
by De Felice (1981), and the National
Socialist revolution by Bullock (1952).
2 The sales of large multinational corpora-
tions are often compared to the GNPs of
developing countries. A better measure is
the value added by a company (Bartlett,
Goshal, Birkinshaw, 2004).
3 Following the example of Machiavelli
(1515) we present the leaders as they were
and their actions without passing judg-
ment.
4 From the Greek α′γιος = saint and γρα′ϕος =
writer, the writers of the ‘Lives of the
Saints’ of early Christianity.
5 According to Welch, Reg Jones did not
expect drastic changes. In fact, Jones was
often disappointed with Welch’s behavior
starting with the coming-out party he orga-
nized just before Welch officially became
CEO (Welch, 2001). Although Jones had
doubts about the wisdom of his choice,
Jones did not interfere after retirement
(Byron, 2004).
6 For instance, the ‘Novus Ordo Seclorum’
(New Order of Centuries) of the American
revolution, as shown on one dollar bills.
7 Attempts to develop a ‘GE Strategy’ under
Reg Jones failed for three reasons: (1) the
task was delegated to analysts, (2) the top
executives were not involved and kept
changing their minds, (3) the strategy was
top-secret, and only five executives (out of
400,000 employees) had access to the doc-
uments.
8 Other examples are the early Stalin era in
the Soviet Union (1927–37) and Chairman
Mao’s cultural revolution (1966–67).
9 Jefferson referred to the American revolution
as a ‘rebellion’.
10 To forestall the slackening and bureaucra-
tization of the Soviet revolution, Trotsky
developed the theory of the ‘permanent
© 2006 The Author
Journal compilation © 2006 Blackwell Publishing
83
revolution’ (Deutseher, 1954) which was
anathema to Stalin, who wanted to consol-
idate his power by stabilizing the Soviet
Union.
Acknowledgement
The author wishes to thank Lindsay Evans for
reviewing and editing the manuscript.
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Pier A. Abetti (abettp@rpi.edu) holds a
Ph.D. degree in Electrical Engineering from
Illinois Institute of Technology. Prior to join-
ing Rensselaer Polytechnic Institute in 1982,
as Professor in the Lally School of Manage-
ment and Technology, he worked 32 years
for the General Electric Company (USA).
He was manager of the Electrical and Infor-
mation Advance Technology Laboratories
and manager of General Electric’s Europe
Strategic Planning Operation. He presently
teaches management of technology and
technological entrepreneurship courses in
the USA, Finland, and Tunisia. Author of
two books and more than 150 technical and
management papers in five languages, he
was the recipient of the 1993 Kaufman
Foundation Award as University Entrepre-
neurship Professor of the Year.
© 2006 The Author
Journal compilation © 2006 Blackwell Publishing