GE under the once-acclaimed Jack Welch featured two management practices. One was the ruthless elimination each year of the "bottom 10%" and the other was Six Sigma systematic quality.
No one dared speak up at the time, but the truth is that many of us believed the "annual bottom 10%" practice to be unfair, inherently political, and ultimately counterproductive. A lot of people refused to consider working for a company that practiced it. It took a while, but the inability of GE to attract creative people in large numbers is a silent factor in bringing the company to its knees.
As for Six Sigma, it's a great idea when you are manufacturing millions of units of the same product: light bulbs, smartphones (the hardware, that is), etc. The benefits of Six Sigma are indisputable in that context. However, Six Sigma does not help you innovate to bring new products to market. That takes a different set of skills and techniques, and you'll find that experts in the "front end" of the business would rather slit their wrists than work under a Six Sigma regime.
Combine these two factors, and you can understand why GE quit innovating. Instead their focus was cost-reduction and financial optimization. After 30 years GE simply ran out of costs to reduce and optimizations to implement; the company became strategically bankrupt. Meanwhile, the easy money that Welch made in the financial markets and that kept investors happy while obscuring the company's underlying problems dried up abruptly after 2008. If you play with fire, you get burned eventually.
I saw something similar happen to Nortel, my former employer, although not exactly in the same sequence. From the mid-1970s on, Nortel was the most successful company across the globe in the telecommunications products space. At one time Nortel was the tenth most valuable company in the world. But it went bankrupt in 2009. How'd that happen? You can find hundreds of explanations, but to my eyes it's simple: the company ceased to offer products that customers were willing to pay Nortel's historic margins for. Despite the heroics of its R&D team in the 1970s and 1980s, Nortel died from a lack of innovation. There were other contributing causes, not the least of which was the adoption company-wide of Six Sigma just when the crap was hitting the fan. All that Six Sigma accomplished, really, was diverting the attention of management and hundreds of the company's best employees to solve problems that just didn't matter in the big picture. When you are bleeding to death, don't obsess over small cuts on your toes.
The Welch philosophies and practices have been injected into the core of most if not all MBA curricula. I hope that B-school professors now reexamine the long-term legacy of Welch and revisit the importance of innovators — something that Steve Jobs, despite his awful personality, understood quite well.
