The Real-Life MBA, by Jack and Suzie Welch

Jack Welch (1935-2020) was an American business executive, who led General Electric as Chairman and CEO over 1981-2001, and wrote several management books. Though criticized for some practices, he was considered one of the best CEOs of recent decades.

Below are the lessons from his book The Real-Life MBA, co-authored by Suzie Welch.

Build a great team:

• Hire for skills and behaviors with discipline, rigor, and a curated checklist
  • Great teams start with great players, which is why hiring is so important.
  • Hiring takes discipline: (1) Knowing the particular skills and behaviors needed to win, (2) probing candidates to see if they possess them, (3) Signing only those people who do.
  • Hiring is hard: (1) Some people interview like pros but implode when faced with the real work, (2) You screw up by hiring for a certain skill when what you really needed was a different one, or you failed to notice a team-killing personality trait.
  • When you make a hiring mistake, admit it: Stop doing the new work’s hire for him to hide your mistake, move the candidate out quickly and with dignity and start again.
  • Use a hiring checklist: (1) Integrity, (2) Emotional intelligence (self-regulation, self-awareness, internal motivation, empathy, social skills), (3) IQ, (4) Specific skills and behaviors to achieve the mission, (5) Check references.
• Create an environment that motivates and retains talent, by ridding your culture of bureaucracy and politics, and unleashing people to care and contribute as if they were owners.
  • Retention is a matter of happiness.
  • It starts with money. Pay generously and based on performance.
  • Create a fun, exciting, empowering environment, where people want to come to work. You will lose your best people to entrepreneurial ventures unless you offer what they do and have a culture that unleashes people to feel and act like owners
    • Positive energy.
    • A “we might be giants” ride.
    • The opportunity to speak up and be heard.
    • The chance to make a real impact.
    • Freedom from bureaucracy.
    • Immediate responsibility.
    • Fun.
    • Financial upside for outsized results.
    • Great ideas that don’t work admired for the effort.
    • Promotion for performance.
    • Ability go get things done.
• Differentiate.
  • Good people are attracted to meritocracies.
  • At least twice a year, managers should meet with every employee and discuss (1) What they like about the employee’s performance, (2) Where they could improve, (3) How the employee is doing in terms of hitting their goals, (4) How well they are demonstrating the company’s key behavior, (5) Where they stand versus other employees, (6) The consequences in terms of pay and future with the company.
• Empower HR.
  • Release them from administrative minutiae to do their real job: identifying talent, building careers, helping forge strong teams.
  • HR must be filled with streed cred and include a healthy mix of seasoned HR professionals and savvy, people-oriented managers drawn from all functional areas.
• Deal with challenging employees.
  • Geniuses: coders, experts, engineers. Show them that you want to learn from them and that their work interests you, care about them as people, go over their proposals chunk by chunk to make them understandable, give them the big picture, explain why the company is doing what it’s doing, keep them motivated and inspired.
  • Tramps: homeworkers, freelancers, contract workers. Maximize socialization, i.e. interactions that make sure the culture and spirit of your company, its values and behaviors are demonstrated and transferred. Tools include “lightning round meetings”, where every freelancer has five minutes every week to talk about her project, CRM-like processes to ensure personal contacts on a weekly basis (daily calls, emails, video sessions), dashboards and surveys to track performance.
  • Thieves: underperformers and conflict creators who steal your time and energy. They need to move on, sooner rather than later. The most valuable resource you have as a manager is your attention: invest it in top people and those with the potential to join their ranks.
• Speak with candor in good times and bad: about each person’s performance and professional trajectory, the business’s financial condition and growth prospects, your understanding of the industry’s future.
• Relentlessly upgrade your team.

Provide meaning:

• Be the Chief Meaning Officer. Give context and purpose to your teams, relentlessly explain “Here’s where we’re going. Here’s why. Here’s how we’re going to get there. Here’s how you fit in. And here’s what’s in it for you.”
• Identify an inspirational mission: clarify where you’re going, why, and what it will mean for the lives of each employee. The best missions are aspirational (“that sounds amazing”), inspirational (“we can do it if we stretch and try”), and practical (“sounds reasonable, I’m going to work with my team to get it done”).
• Name the required behaviors: name the ways in which employees need to think, feel, communicate and act to get to the destination.
• Align mission and behaviors with consequences: reward people (bonuses, raises, promotions, demotions or removals) based on how much they embrace and advance the mission and how well they demonstrate the behaviors. Managers must tell their employees where they stand, at least twice a year: “Here’s how you’re helping us achieve the mission, and here’s what you could do better. Here’s how you’re demonstrating the behaviors we need, and here’s what you could do better. Here’s how your salary and bonus and your future here reflect what I’ve just said”.
• Ensure your people live and breathe the firm’s vision.

Build trust:

• Know and care about your people as individuals. Really good leaders are like coaches who stand on the sidelines jumping up and down because they can’t contain their excitement about how everyone’s doing, who hug their players when they come off the court, and who know what makes each one of their people tick. Build trust and credibility with words and deeds that prove that you respect and honor your people.
• Like a curling player, sweep out every blockage from your people’s way: bureaucratic petty stuff (e.g. 2% across-the-board increases), action blockers, change resisters, process obsessives.
• Be generous. Celebrate your people with money, more responsibility, and public praise. Don’t hide your best employees or hold back on raises and promotions.
• Have their back when they’re down.
• Give them credit for their ideas.
• Let them share their thoughts.
• Encourage open debate.
• Praise courage when someone says something bold.
• Use role model leadership: call out an employee’s behavior as a standard for others to admire and imitate.
• Don’t gossip with subordinates about other subordinates.
• Keep confidences closely.
• Make it clear that everyone is on the same team, in public and private conversations.
• Tell the same story to everyone all the time.
• Show empathy: see the situation from your employees’ perspective, with their history, their needs, their risks, their values.
• Don’t allow an employee to become a dead man walking: by conducting regular, candid, truth-imparting performance reviews, no employee should be surprised by the news that he or she must start the process of moving on.
• When letting someone go, own it: own the mistake you (or the organization) made in hiring the individual, own your inability to coach him or her to better performance, own the responsibility for making the employee’s exit as gracious as possible.
• Act with transparency.

Unleash energy and action:

• Exude energy, confidence, passion and optimism.
• Inspire risk-taking.
• Take time to celebrate victories large and small.
• Ensure ideas and directives result in action.
• Have the courage to make tough calls.
• Have the edge necessary to make decisions.
• Make sure work is fun. Create an environment that’s exciting and enjoyable, celebrate milestones and small successes, embrace humor and candor, let people be themselves, smite bureaucratic behaviors, banish jerks, do stuff together outside the office.

Grow, even in slow-growth times:

• Bring in fresh eyes: when growth is slow, the last thing you want to do is go on a hiring spree. And you probably feel that your team is experienced, and has already tried everything to spur growth. But you and your team have probably not tried everything: you have likely been too accepting of the circumstances, and simply don’t know what you don’t know. To break out of that place, you need new brains who can look at things with new eyes. This can be done by hiring new leaders from outside the industry and/or by moving existing leaders into different roles.
• Concentrate, don’t sprinkle resources: the resources available for growth initiatives are not infinite. All too often, managers allocate such resources by sprinkling a bit of money on each initiative. If you want growth, avoid this and focus on just a couple of them for maximum payback.
• Redefine innovation so that it’s everyone’s job: when thinking of innovation, the image of the lone genius making a disruptive breakthrough often comes to mind. But innovation is most likely to occur when it is defined to mean ongoing, incremental improvements held to be everyone’s job, such as finding ways to close the accounting books two days earlier, to increase customer retention rates by 5%, to improve inventory turns by 5%, or to call on 4 customers a day instead of 3. This requires a culture of recognition, in which leaders celebrate incremental improvements in a visible way, such as toasting the discovery with the very public reward of tickets to Disney for the whole family.
• Put your best people on your growth initiatives: leaders should create a chart showing, on the vertical axis, each major growth initiative, and on the horizontal axis, the categories of employees assigned to those initiatives (top tier, average to good, and not meeting expectations). If each initiative has adequate potential and funding yet things aren’t moving as fast as expected, chances are there is a disconnect between the talent level required and the talent actually assigned. Assigning a star player, even if he thinks he has a better job to do, can make a big statement about the importance of an initiative.
• Keep compensation fresh and reward people for growth: instead of paying sales reps according to their past sales success (e.g. book of business), reward them based on their contribution to growth (e.g. sales growth dollars, margin growth dollars, and number of customers).
• Coopt growth resisters: to get rid of this “competition inside”, have a conversation with them about mission and behaviors, link a significant part of their bonus to the growth initiative’s success, and if that doesn’t work, let them go.

Get at the truth:

Measure your firm’s health with three key indicators

• Employee engagement: survey at least once a year to measure alignment (strategic direction of the company, quality of career opportunities, connection of everyday work to leaders’ speeches).
• Customer satisfaction: site visits (including with customers whose orders are inconsistent or dropping), Net Promoter Score.
• Cash flow: how much money went out, how much came in, how much you have.

Use finance to get at the truth and make better decisions

• Figure out the firm’s financial flexibility with the balance sheet: it summarizes what the company owns (assets), what it owes (liabilities), and the amounts invested in it (equity).
• Use the income statement as a truth-seeking conversation: it reports how much is being sold, how much these sales are costing to create, and what’s left over. It tells you about the trade-offs the business has been making, and about how the business is doing. It’s a story about the past and present, and an invitation to a conversation about the future.
• Compare numbers and start conversations about variance: (i) Gap between the plan and real life (“What’s going on?”), (ii) Gap between results delivered in the past and results projected in the future (“What makes you think that’s going to happen?”), (iii) Changes on a financial statement that make you perplexed, uneasy, or curious (“Why?”).
• Use time-tested variances: (i) Orders, as a proxy for future sales, (ii) Salaried employment by function, as a proxy for future costs, and to see what part of the organization is hiring and why, (iii) Quarterly variances in the operating margin and working capital turnover ratio, as indicators of how efficiency is trending, (iv) ROI as a measure of investor satisfaction, (v) Market share as a measure of customer satisfaction.
• Push and probe: take the numbers one at a time, pull them apart, question where they came from and why, debate where they’re going and how that can happen, make sure everyone’s voice is heard (seek the truth from every point of view), and if need be, assemble a SWAT team to decide on specific actions.

Master the basics of marketing:

B2C marketing

B2C marketing is about having the right product, in the right place, at the right price, with the right message, delivered by the right team:

• The five P’s remain useful to explore consumer marketing: effective consumer marketing is about the right product, in the right place (distribution channels), at the right price, with the right promotional message, delivered by the right people (organizational support).
• Product: devise a desirable product that makes customers’ life better in some way. The best marketing always starts in R&D or its equivalent, with the continual improvement of current products, the invention of irresistible and exciting new ones, and features and benefits that really matter. Ask if you are selling “meh” or “me-want”, if you are playing good or great, and if you are pushing hard because you’ve got no pull.
• Place: select the right channels. Instead of trying to get into as many channels as possible to reach the most eyeballs and wallets, select the ones that enable you to profitably sell the most volume.
• Price: run a test. Pricing is about identifying the price you want to charge (a function of cost and branding), identifying the price you think your customers want and expect to pay, and then testing every point between them.
• Promotion: experiment and surprise people with your messaging. To grow, every company has to sell its stuff. To break through the marketing noise and consumer defenses, (i) experiment without attachment: let go of your ego and rely on the data (instead of your gut feeling) to select the best creative option, and/or (ii) experiment with surprise: innovate to reach people in ways they don’t expect to (what you say, how and where you say it) and might even like.
• People: marketing is everybody’s business. It has to sit within every function of the organization.

B2B marketing

B2B marketing is about becoming a trusted partner, going for the margin, and providing killer service:

• Become a trusted partner: get to know your customers, build trust, give them something that makes the savings of any auction not worth it (guaranteed quality, bundles of services, design input). This will minimize RFPs and online auctions.
• Go for the margin: in consolidated industries, there is often a trade-off between growth and margins. Stealing a big customer from your main competitor will free up its factories and call for retaliation. Since you cannot win every battle over a customer, it usually makes sense to go for the margin.
• Provide killer service: Amazon has recently been moving into non-consolidated B2B industries with killer pricing, killer shipping, and killer supply chain operations. Your only defense will be to provide killer service (expertise, guidance, genuine interest, insight).

Manage blows and crises:

Recover from blows

• Own it. Don’t resort to denial, blaming, or self-pity.
• Adopt a “we’re going to beat this” mentality (hard work, defeat is impossible, passion to be the best), invoke the company’s mission and behaviors, and reinforce them with cash awards and celebrations.
• Hang on to your best people. Don’t fire people or reduce pay across the board, without consideration for performance. You are never going to get out of a hole without your best people: in hard times, give them more in current pay and long-term, performance-based equity.
• Crunch data to improve every part of the business. The only data that matters is the data that is actionable: discern what information matters and crunch it to determine the true drivers of costs, performance and growth.
• Reinvent your strategy process. Don’t use annual staged sessions with elaborate presentations about trends and core competencies, or meetings to establish buy-in. Instead, adopt the “five slides” approach, with your best minds (engaged, knowledgeable, curious, original, likely to debate, and with a propensity for paranoia): (1) competitive playing field, (2) competitors’ recent activity, (3) what you’ve been up to, (4) what worries you, (5) your next big, winning move. Hold market reviews as frequently as once a week, focusing on what’s out there (customers, competitors, technology, products, social and political events). Strategy is not a complex endeavor, but rather a matter of coming up with the big “aha” (smart, realistic, fast way to gain a sustainable competitive advantage), putting the right people in the right jobs to drive the “aha” forward, and relentlessly seeking the best practices to achieve the “aha”.
• Reality-check your social architecture. IT and risk management are major strategic functions, and should therefore be filled with top talent and connected closely to top leadership instead of being marginalized.
• Worry productively. It is smart to worry as long as you nail down what you’re worried about, and face it.

Prepare for the storm

• Stockpile goodwill before you need it: having authentically earned friends and supporters in good times will increase your odds of having vocal defenders in bad times. People will forget what you said and did, but not how you made them feel. By your words and actions, make them feel like you’re a good and decent person.
• Have a robust public voice up and running on every platform: a crisis is not the time to be meeting your followers or figuring out what your voice sounds like. Communicate on every platform in good times, as your opposition will be busy attacking you on any platform that you’ve left out.
• Don’t create a crisis with how you let someone go: many crises occur because managers fail to treat employees on the way out with dignity.
• Prepare for things to get ugly: your crisis will get bigger and deeper than you think, everything will come out, you will be portrayed in a poor light, some people will need to go.
• Remember that the crisis shall pass: you can’t control the timing, but eventually the mob will move on. Don’t let yourself believe things will never be OK again. Fight back, make amends, repair what is broken, change the people or processes that went awry, clean up, and get back in the game.

Get globalization right:

• Create a win-win situation and plan for the long term: (i) before throwing money into exporting, make sure that your product has something unique that the market wants and needs (strong brand, technology, etc.), and that you can protect it from getting easily copied and sold for less; (ii) sit down with your local sourcing partner at the beginning and think about the 5-10 year plan, (iii) don’t send your expats for 1-2 year gigs: it takes at least 3 years to function properly.
• Send people with discernment: business savvy, cultural sensitivity, wisdom, ability and self-confidence to know when to impose the firm’s ways and when to bend to local customs.
• Manage risk: (i) avoid dependence to a single country, particularly for sourcing, (ii) go overboard with compliance, do not resort to bribery, become the gold standard of integrity (think “global best practices”), (iii) do not delegate to a middleman: go there, get into the factories, build relationships, talk to the people, stand there and watch them work, talk to them about logistics.
• Take advantage of expansion and innovation opportunities: (i) expand into markets nearby, (ii) use each foreign market as a laboratory for innovation.

Manage your career:

• Build your career at the intersection of stuff you are very good at and stuff you really love to do.
  • Identify the skill, capability or trait that really differentiates you from the pack. When did you particularly excel? In which situations did you make the most impact? Was it as a peacemaker, a negotiator, a listener, a persuader, an analyst, an investor, a critic, a facilitator, a competitor?
  • Which activities, undertakings, and pastimes really turn your crank?
  • Figure out which industries, companies, or lines of work exist at the intersection.
• To be an entrepreneur, you need an idea and a rare kind of fearlessness.
  • You need a different and better idea than all the ideas already out there.
  • You need the cold-blooded courage, crazy passion, and irrational determination to endure the repeated near-death experiences that will occur along the way to making your idea a reality (running out of money, making dumb mistakes, having suppliers and partners flake out on you, not sleeping).
  • If you are an entrepreneur-wannabe without an idea, you can be part of a team.
• Understand what kind of work-life balance you want.
• If you are stuck in your career, understand why, and act.
  • Your company does not have a position for you to grow into. There is a blocker above you, and the culprit is usually lack of growth. Your only choice is to decide how long you are willing to endure stasis. In so doing, consider your standing with the company (Are you likely to get a promotion if it becomes available? Are you getting A-plus performance reviews or Bs? Do you have a reputation that might be hard to shake? Is your boss known for promoting his best people or for sitting on their careers while he reaps the benefits?).
  • You have a wrongheaded notion about the importance of multifunctional expertise. If you are really talented at something and move to an area where you are not so talented, it is a surefire way to stall a career.
  • You have an attitude problem. Without a serious change in mindset, you will be truly stuck.
  • You are underperforming. (1) Do not just deliver, exceed expectations and overdeliver. (2) Volunteer for a hard, high-visibility assignment. (3) Acquire followers by speaking up, synthesizing ideas you have gathered and sharing insights to contribute to contribute to your organization’s success. (4) Make sure you are tech-current. (5) Treat everyone around you as a mentor. (6) Be kind and encouraging, and refuse to talk about other people unless it is in positive terms.
  • You got fired. Summon the courage and fortitude to end the pity party. Understand why you were fired, accept your responsibility for your part in it.
• Reinvent yourself when you change companies. Take your citizenship of the new company as a way to augment and expand your skills, try new behaviors, and shake up your assumptions about how everything should be done.