Peter Drucker, Jack Welch and outsourcing…


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Despite having the reputation as one who promoted respect for the worker and beliefs that employees are assets and not liabilities, Peter Drucker will always be linked to Jack Welch and General Electric’s policy of outsourcing in the 1980’s and ’90’s.

While he had been an advisor for General Electric since the 1950’s, it was during his first meeting with new CEO Jack Welch in 1981 that Drucker asked the following question:

“If you weren’t already in this business, would you choose to get into it now?”

That question prompted Welch to begin the process of shedding any business in which GE could not be number one or number two. It ultimately led to a massive restructuring that eliminated dozens of businesses and one out of every four jobs at General Electric over then next fifteen years.

Later that decade, Drucker was summoned back to General Electric and he made the following observation:

“Make sure your back room is their front room. In other words, don’t you do guard services at your plant. Get someone who specializes in guard services to do them for you. Get rid of in-house printing, in-house conference services, any business that isn’t at the core of your focus.”

According to Andrea Gabor, author of The Capitalist Philosophers, this simple observation by Drucker helped define Welch’s approach to outsourcing. Explains Welch, “He [Drucker] made it very clear what a waste it was to be in marginal activities where, inevitably, General Electric would put its weakest people.”

“Take the case of GE’s central-air-conditioning business. ‘After I sold the business to Trane,’ a maker of air conditioners, say Welch, he called his old business manager. ‘how’s it going.’ Welch asked.”

“ ‘I can’t tell you how great things are,’ he answered. ‘Every morning my chairman tells me how much he loves air conditioning. Every morning I woke up around you [Welch], you told me how much you hated being in the air-conditioning business.’ “

Here’s the takeaway: “Make sure your back office is their front office.” This simple statement by Peter Drucker pretty much described the whole General Electric restructuring movement under Welch.



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