Winning with Differentiation

Jack Welch is the former CEO of GE. Under his leadership, GE grew from $26 billion in revenues to $130 billion and from around $14 billion in market value to over $410 billion, making it the most valuable company in the world at the time. He might be best-known for what he terms as differentiation. He defines this technique and many more in his outstanding book, Winning.

"Differentiation is the ability to make clear and meaningful distinctions between top and bottom performing businesses and people." ~Jack Welch

Welch set a crystal clear picture for GE and the results he expected. Here are 3 of these standards:

  1. If a GE business could not be number one or number two in its market, it would be cut. (There was a time when 12 out of GE's 14 business units were leading their markets.)
  2. Any business that was struggling would be "fixed, closed, or sold."
  3. Every year, GE would fire the bottom 10% of their work force.

Because of these dramatically high standards he received the nickname Neutron Jack and many negatively remember him for the over a hundred thousand people who were laid off during his tenure. So, what was his reasoning for such drastic standards? He explained it this way in one of the chapters of the book:

Why Differentiation?

  1. A company wins when their managers cultivate the strong and cull the weak. Winning leaders invest where the payback is the highest. They cut their losses everywhere else.
  2. Differentiation is a way to manage people and businesses. One of the main misunderstandings about differentiation is that it is only about people. That’s to miss half of it.
  3. Differentiation requires managers to know which is strong and which is weak and invest accordingly. Every company has strong businesses or product lines and weak ones and some in between.
  4. Differentiation should only be implemented after clear-cut performance systems, with defined expectations and goals and timelines, and a program of consistent appraisals.

As you can imagine, not everyone gets excited about differentiation. To many it is cold and uncaring. Welch faced enormous amount of criticism and is still considered to be the CEO of the century. He addressed the top 3 complaints this way.

Reasons People Hate Differentiation:

  1. Differentiation is unfair because it’s always corrupted by company politics, it is just a way of separating the people who kiss the boss’s rear from those who don’t.
 This is why differentiation can only be implemented after clear-cut performance systems, with defined expectations and goals and timelines, and a program of consistent appraisals.
  2. Differentiation is mean and bullying. It’s like the playground in the worst possible way - weak kids are made into fools, outcasts, and objects of ridicule. When differentiation is working, people know where they stand. When you know where you stand, you can control your own destiny, and what is more fair than that?
  3. Differentiation pits people against one another and undermines teamwork.
 Differentiation rewards those members of the team who deserve it. By the way, that annoys only the underperformers. To everyone else, it seems fair. And fair environment promotes teamwork. Better yet, it motivates people to give their all, and that’s what you want.

I found this book to be a very interesting read for a number of reasons. I wasn't sure at first how the principles Welch shared could be translated to the non-profit/church setting. What I discovered as I read through each chapter were principles of leadership and outstanding management that would have immediate impact on my ministry. I definitely feel this book made me a better leader.

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