Welch remembers his roots in plastics

By Bill Bregar
Senior Staff Reporter

Published: June 19, 2006 6:00 am ET

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Jack Welch, the superstar businessman who transformed General Electric Co. into a high-flying performer, had a more-humble start in plastics - and Welch said the people and projects during those plastics years stuck with him. GE increased its market value by more than $400 billion during Welch's 20-year run as chief executive officer. He has become a global business icon.

Welch's experiences during his 11 years in plastics shaped many of his management principles. He adopted some things that worked, such as fostering an entrepreneurial attitude. He remembered what failed. Disappointed with getting the standard raise everybody else got, Welch later developed the policy of differentiation - to reward strong players and get rid of weak ones - that led to the nickname Neutron Jack.

Now Welch is set to go into the Plastics Hall of Fame. Two industry titans nominated him: Gordon Lankton, co-chairman of injection molder Nypro, and G. Watts Humphrey Jr., chairman of Pittsburgh-based auxiliary equipment maker Conair Group Inc.

Welch, a chemical engineer, started at GE in 1960, in the fledgling polymer products operation. He was a junior engineer.

"It was a fun, small band of guys trying to build something from nothing. It was a back-room startup," he said in a June 5 telephone interview.

Housed in Pittsfield, Mass., the plastics unit was like a small family business, smack in the middle of giant GE. The young Welch and the other plastics employees poured themselves into projects with a sense of teamwork. They celebrated each win, stopping off for beers and having pizza parties.

"We thought we had a role with the company, that GE was the bank, and we were out trying to build our own company. When we got 500-pound orders, we had a party," Welch said.

Welch, 70, said he easily could have gotten buried in the pack if his first job had been in a larger, more-established part of GE. "When you're starting something from scratch, you really can make a name for yourself."

During his job interview, Dan Fox, GE's famous Lexan polycarbonate inventor, told Welch he would be in charge of moving a new thermoplastic, polyphenylene oxide, out of the laboratory and into commercial production. The PPO was commercialized as Noryl.

It was the type of job Welch was craving. He had earned his doctorate in chemical engineering from the University of Illinois. He wanted to work on developing new products.

At GE, he was in the right place at the right time. The plastics business was so small it didn't suffer from the stifling GE bureaucracy that Welch would later so famously tear down as CEO.

Welch also learned to keep battling back. He recalled that Lexan, which was commercialized in 1957, was organized under another department, chemical materials. His polymers group was assigned to come up with the next big winner, PPO.

"We had nothing to do with Lexan - Lexan was the gold standard. We had this PPO, which was difficult to mold, and we were having trouble getting volume applications for it," Welch said. "We looked at Lexan with very envious eyes because it was clear, tough as steel."

General Electric management wanted more big winners.

Welch was assigned to build a PPO pilot plant in Pittsfield. One spring day in 1963, he was sitting in his office across the street when there was a huge explosion at the pilot plant. He ran over to the building and saw that a big piece of roof and ceiling had collapsed. Amazingly, no one was seriously injured.

Welch was 28. The next day, he drove to Bridgeport, Conn., to explain the accident to Charlie Reed, a corporate group executive.

In his 2001 book Jack: Straight From the Gut, Welch said he "was prepared for the worst."

"GE's bosses had all sorts of expectations of their managers. They expected them to come up with new ideas for products. They expected them to enter new markets and increase revenues. They did not expect someone to blow up a plant."

Welch was a "nervous wreck," but he explained what caused the blast in the reactor and how to fix the problem.

Reed was GE's highest-ranking executive with hands-on experience in chemicals.

"That day, he was incredibly understanding," Welch wrote, adding that Reed said it was better to figure out the problem at the pilot-plant stage than at a large-scale resin plant.

"Charlie's reaction made a huge impression on me," Welch wrote. "When people make mistakes, the last thing they need is discipline. It's time for encouragement and confidence building. The job at this point is to restore self-confidence."

Welch remembered the "no piling on" rule as CEO.

"If we're managing good people who are clearly eating themselves up over an error, our job is to help them through it." The same principle applies to employees who take a chance but fail.

In 1964, GE's board of directors approved a new, $10 million PPO plant in Selkirk, N.Y. After Welch lobbied hard for the promotion, he became general manager of polymer products.

PPO soon faced another big challenge. After breaking ground in Selkirk, tests showed that the plastic over time would become brittle and crack under high temperatures - a serious problem, since PPO boasted a unique ability to withstand high temperatures. One huge potential market was as a replacement for copper pipe for hot water.

Lankton said Nypro experienced the problem firsthand. The company in Clinton, Mass., molded the early PPO into oven-ready trays used on airplanes to reheat food.

"The trays cracked, and the airlines were very unhappy with Nypro because GE had not tested the material under certain temperature conditions like that," he said.

In Straight From the Gut, Welch put it bluntly: "I had lobbied myself into a potentially career-killing change."

After six intense months of effort, the problem eventually was fixed, when Fox led a team of chemists who blended the PPO with polystyrene and rubber, to create the blended Noryl, billed as a modified PPO.

"Dan Fox was a remarkably innovative guy. ... He was one of those guys who would forget what he just invented and say, OK, here's PPO. He was a fantastic innovator," Welch said.

Asked by Plastics News about the PPO mess, Welch stopped short of saying he would have been fired if PPO had turned out to be a failure.

But he said that, for a young manager, "it certainly could not have been a career enhancer."

But it all worked out. Noryl became a huge seller. In 1968, Welch was promoted to general manager of the entire plastics department, including Lexan and Noryl. The business was renamed GE Plastics.

Lankton said he dealt directly with Welch in 1970, when Tonka Toys gave Nypro an order for plastic parts for toy race cars designed to compete against Mattel's Hot Wheels.

"It involved a million pounds of Lexan, which was a big order in 1970, and Jack Welch came over to see us and talk about it," Lankton said.

Tonka needed the toughest plastic material to maintain the reputation it had built with high-quality metal toys. Lankton said the plastic versions later were pulled from the market, not for performance reasons, but simply because Hot Wheels was too dominant.

In 1972, Welch was promoted to vice president of the Chemical and Metallurgical Division, where he ran a large portfolio of businesses.

He kept moving up. GE named Welch chairman and CEO in 1981, succeeding Reginald Jones. When Welch retired in 2001, Jeff Immelt took the top spot.

This week at NPE, industry veterans will recall GE Plastics exhibits and events of NPEs past. Peter Bemis, co-owner and vice president of Bemis Manufacturing Co., said he attended dinners for hundreds of GE customers. Welch would attend and answer questions.

"He would say, 'I don't necessarily want to hear what we're doing right, but tell us some of the things that we could do better - what are we doing today that you'd like to see changed?' " Bemis said.

Welch said he enjoyed NPE shows, although he said he did not plan to attend the Plastics Hall of Fame induction ceremony tonight.

"We always had a good show. We always went out of our way to establish ourselves there," he said.


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Welch remembers his roots in plastics

By Bill Bregar
Senior Staff Reporter

Published: June 19, 2006 6:00 am ET

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