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Letter to Share Owners
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People

Our technology, our great businesses, our reach and our resources aren't enough to make us the global best unless we always have the best people—people who are always stretching to become better. This requires rigorous discipline in evaluating, and total candor in dealing with, everyone in the organization.

In every evaluation and reward system, we break our population down into three categories: the top 20%, the high-performance middle 70% and the bottom 10%.

The top 20% must be loved, nurtured and rewarded in the soul and wallet because they are the ones who make magic happen. Losing one of these people must be held up as a leadership sin—a real failing.

The top 20% and middle 70% are not permanent labels. People move between them all the time. However, the bottom 10%, in our experience, tend to remain there. A Company that bets its future on its people must remove that lower 10%, and keep removing it every year—always raising the bar of performance and increasing the quality of its leadership.

Not removing that bottom 10% early in their careers is not only a management failure, but false kindness as well—a form of cruelty—because inevitably a new leader will come into a business and take out that bottom 10% right away, leaving them—sometimes midway through a career—stranded and having to start over somewhere else. Removing marginal performers early in their careers is doing the right thing for them; leaving them in place to settle into a career that will inevitably be terminated is not. GE leaders must not only understand the necessity to encourage, inspire and reward that top 20%, and be sure that the high-performance 70% is always energized to improve and move upward; they must develop the determination to change out, always humanely, that bottom 10%, and do it every year. That is how real meritocracies are created and thrive.

Informality

Informality is not generally seen as a particularly important cultural characteristic in most large institutions, but it is in ours. Informality is more than just being a first-name company; it's not just an absence of managers parading around the factory floor in suits, or of reserved parking spaces or other trappings of rank and status. It's deeper than that. At GE it's an atmosphere in which anyone can deliver a view, an idea, to anyone else, and it will be listened to and valued, regardless of the seniority of any party involved. Leaders today must be equally comfortable making a sales call or sitting in a boardroom—informality is an operating philosophy as well as a cultural characteristic.

One of GE's long-standing management tenets has been the belief that businesses must be, or become, number one or number two in their marketplaces. We managed by that tenet for years, and enjoyed the business success that came, over time, from implementing it. But, once again, insidious bureaucracy crept into the definition of number one or number two and began to lead management teams to define their markets more and more narrowly to assure that their business would fit the one-or-two share definition.

It took a mid-level Company management training class reporting out to us in the spring of 1995 to point out, without shyness or sugar-coating, that our cherished management idea had been taken to nonsensical levels. They told us we were missing opportunities, and limiting our growth horizons, by shrinking our definition of "the market" in order to satisfy the requirement to be number one or two.

That fresh view shocked us, and we shocked the system. At the July three-year planning review that year, leaders were asked to define their markets in such a way that their businesses would have a 10%-or-less share. Rather than the increasingly limited market opportunity that had come from this number-one or number-two definition that had once served us so well, we now had our eyes widened to the vast opportunity that lay ahead for our product and service offerings. This simple but very big change, this punch in the nose, and our willingness to see it as "the better idea," was a major factor in our acceleration to double-digit revenue growth rates in the latter half of the '90s.

That's the value of the informal culture of GE—a culture that breeds an endless search for ideas that stand or fall on their merits, rather than on the rank of their originator, a culture that brings every mind into the game.

GE, as a Global Learning Company, is the result, the culmination, of the values and behaviors we've described. Today, the whole world's intellect and best ideas are ours because we are "boundaryless." More than just being receptive to these ideas, we spend our days seeking them out. Years ago Toyota taught us asset management. Wal-Mart introduced us to Quick Market Intelligence. AlliedSignal and Motorola got us started on our enormous Six Sigma initiative. More recently, Trilogy, Cisco and Oracle helped us begin the digitization of GE.

In today's GE, the rewarded behavior has changed from being the exclusive originator of an idea as a vehicle for standing out among colleagues—to, more importantly, finding a better idea and eagerly sharing it across the business and the entire Company, with the intent and effect of raising the bar of performance for all of GE.

The innovation that keeps every one of our businesses—from Aircraft Engines to Medical Systems—at the leading edge of their industries occurs much more rapidly because of the technology that flows rapidly back and forth across our Company in countless streams: metallurgy from Aircraft Engines to Power Systems; digitization from Medical Systems to Industrial Systems to Capital Services; span success from Plastics to Mortgage Insurance to every other business.

The GE operating system, which we have illustrated in the pages that follow our letter, is not a bureaucratic series of reviews, budget drills, reports and dog-and-pony shows, but a regular series of sessions devoted to learning and to sharing the best ideas and practices from across the Company and around the world.

Understanding how this learning culture, this insatiable thirst for new ideas fuels and is the central agenda of this operating system, explains how businesses as diverse as Plastics, Aircraft Engines or NBC can grow faster and perform better as part of this system than they would if they were not. It's what makes GE work. It's the fabric of the learning culture. Such an operating mechanism is difficult to bring alive on paper or in a chart, but is vividly clear when one observes the ferment and sharing of ideas that are at the heart of what might look like, from an agenda, just another series of boring business meetings.

It is this passion for learning and sharing that forms the basis for the unrelenting optimism with which we view the future, and for the conviction that our greatest days lie ahead.

The GE of the future will be based on the cherished values that drive us today: mutual trust and the unending, insatiable, boundaryless thirst for the world's best ideas and best people. But the GE of the future will be a faster, bolder GE whose actions will make the Company of today appear slow and tentative by comparison, a GE whose every employee will understand that success can only come from an inextricable link to the success of our customers.

And it will be a GE that will always be, as it is today, grateful for your continuing support.

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