Bill McKelvey


CHANGING BUSINESS ENVIRONMENT CALLS FOR COMPLEXITY LEADERSHIP


Bill McKelvey says that Key Qualities were Embodied by Jack Welch at General Electric

Jack Welch never refers to complexity science when talking about his 20 years as Chairman and CEO of General Electric. Yet, UCLA Anderson Professor Bill McKelvey, an expert in complexity science, says that Welch exemplifies a long list of qualities from this field that are essential in leading an organization like GE. McKelvey describes these qualities in a new elective course for Ph.D. students called, Complexity Leadership.

"Complexity leadership aims to foster emergent self-organization and distributed intelligence rather than top-down vision and control," says McKelvey. "Jack Welch never talked about complexity leadership, and it is not mentioned in his books," he continues, "But his leadership techniques were rooted in complexity science. He created conditions in which adaptive behavior could take place."

Click here to watch a video of Welch speaking at UCLA Anderson (Windows Media).

The result was tremendous productivity. GE's market value grew from $12 billion to $400 billion under Welch. GE stock earned an average of 24 percent a year during his first 18 years as CEO. In 1999, Jack Welch was named "Manager of the Century" by Fortune Magazine.

McKelvey points out four distinctive things about Welch's tenure. First, he demanded that each of GE's divisions hold the number one or two position in its industry. Otherwise the unit was to be divested or the leaders replaced. McKelvey calls this a tension statement.

"Think about water being heated in a teapot," says McKelvey. "The molecules are originally in equilibrium but, as they are heated, they vibrate faster and faster until they transition into a rolling boil. This is called a phase transition. The same is true of people in an organization. By increasing tension, Welch created conditions in which employees naturally developed adaptive behaviors."

"Tensions are not goals, but they are energizing devices," he continues. "Without tension, nothing happens." At GE, tension reflected Welch's survival of the fittest mentality. Employees were graded as As, Bs and Cs. The Cs were fired - along with managers who couldn't fire the Cs. McKelvey says that GE employees learned to work effectively in such an environment.

Secondly, Welch infused GE with new human capital. "He got rid of 130,000 people early on," says McKelvey. "He divested really quickly. This is why he became known as Neutron Jack."

But Welch also brought in some 70,000 new employees - often in groups through acquisitions. "Around 2000, GE was assimilating three to five new companies per week," says McKelvey. "New employees were chosen and placed in specific organizational units - meaning that this new human capital was placed into an existing network." This brought great diversity of thoughts and ideas to GE, minimized the learning curve for new employees and quickly impacted the bottom line.

The third thing was the physical situations that allowed people to talk to each other in ways that were not possible in the normal course of business. This helped employees develop what are known as weak-ties - connections that promoted knowledge diffusion throughout GE. One venue for this was the firm's Crotonville, NY training facility, which has since been named after Welch. Here, training was combined with employee interactions and professionally facilitated conversations between employees and their bosses known as work-outs.

Each year, GE brought employees from all over the world to Boca Raton, FL for recreational, business and social activities. "They connected and got new ideas," says McKelvey. "They didn't develop 'group think' because they only saw each other once a year. My argument is that Welch created the conditions for communication and collaboration."

"The work-outs were about confronting the boss, while the Boca Raton meetings were platforms for Welch to talk to all the key players. Underneath these overt agendas, the physical sites fostered networking," says McKelvey.

"The fourth concept is the hardest one for students," says McKelvey. "It's called the strange attractor. "Imagine a rabbit tied to a stake with an elastic tether. After the rabbit runs around all day, where's it going to sleep? At the low tension spot - the stake." McKelvey calls the stake a point attractor. It has a specific meaning to the rabbit - like a goal a boss might set for employees.

"Managers are trained to manage," says McKelvey. "This leads to top-down control and passive employee behavior. People are very engrained with point attractor thinking.

"Now imagine the rabbit is in a cage. Outside the cage there's a wolf running around trying to get at the rabbit," says McKelvey. "The rabbit tries to stay away from the wolf. So, at the end of the day, where's the rabbit going to sleep? The safest place is in the middle of the cage. Well, a strange attractor would be like taking away the cage and the wolf - but seeing the rabbit continue to behave the same way.

"Jack Welch was really good at defining the attractor cage," he continues. "He would say, 'We're not going to get into making airplanes ... we're just going to make engines. We're going to run NBC ... but we're not going to make movies or TV shows. There were a lot of things they didn't do."

Once the cage was defined, Welch left the execution to others. The result was an adaptive and self-organizing firm that came to dominate competitors in some 350 markets. Many other CEOs succeeded at coming into firms and cutting costs, but Welch went further by molding a bottom-up, autonomy driven firm that thrived in an era of increasing complexity.

CEO turnover has increased dramatically in recent decades. One theory for this is that boards have failed to choose charismatic, visionary CEOs. Another is that economic conditions have become more demanding and placed a greater load on CEOs. McKelvey's view is that recent changes in the U.S. economic environment have created a transition period in which firms need to explore new leadership solutions. He thinks they would do well to learn from complexity science and Jack Welch.