Jack Welch believed that Strategy was not a lengthy action plan but rather the evolution of a central idea through continually changing circumstances. In his initial years his central idea was to be “No 1 or No 2″ or “fix, sell or close.” Although the strategy sounds simple, it carries great depth with it and that is why it worked.
Strategy and Competitive Advantage
For a start the strategy is grounded in the principles of good basic economics – the theory of competitive advantage. Throughout his years at GE, Jack Welch sold or closed assets in markets where he was not or could not be number 1 or number 2. Similarly, he brought in assets from external sources where he wanted to reach the top position. This meant that he built “competitive advantage” over time against other companies through accumulation of efficient, performing resources. He maximized the overall sum produced by allowing economies of scale to exist.
The strategy also worked because Jack Welsh was smart enough to know which businesses to stay in and which business to leave – where there was growth and where the competitive forces had made differentiation hard and driven margins and share of market down.
Strategy and Your Startup
The question then is how does a start-up achieve this position with limited resources?
The answer to this question may lie with a lean structure able to adapt quickly to changing customer tastes and having a unique value proposition so that you compete in a space where you can be No 1 or No 2.