LETTER

(FORTUNE Magazine) – Game On!

In "The New Rules" (July 24), senior writer Betsy Morris argued that the management playbook associated with former GE CEO Jack Welch is no longer sufficient and needs updating. The cover story has sparked a firestorm of feedback. Some FORTUNE readers strongly defend Welch's legacy (and criticize our cover language and image). But twice as many respondents embrace our call for a shift in priorities. A taste of the debate, including a contribution from Welch himself, follows. Join in at fortune.com/newrules.

BETSY MORRIS couldn't be more correct. In the new reality, the companies that win will be those that instill a culture of business-model innovation--the willingness to change the way they operate. In our analysis of global industry, some of the companies that "get it" are Toyota, which has led the way for more than a decade, and Motorola, which has demonstrated the ability to respond rapidly and successfully.

ADITYA NATH CEO and Managing Partner SESHADRI GUHA Chairman and President CGN & Associates, Peoria, Ill.

YOU ARE certainly right in saying that Welch's rule of "being No. 1 or No. 2 in your market" has outlived its usefulness as a universal management goal. We recently analyzed the total shareholder returns (TSRs) and financial performance of 3,307 publicly traded companies worldwide for the ten-year period through December 2004. Market-share leaders lagged behind their smaller peers. Over the past five years the median TSR of the No. 1 and No. 2 players (in terms of revenues or assets) was less than 10% of the median TSR of nonleaders. Scale remains a powerful potential source of competitive advantage, but it is only potential.

BRIAN BURWELL, CEO JEREMY SICKLICK, Manager Marakon Associates, San Francisco

KUDOS TO Betsy Morris. What Welch and others ignore is that the most limiting factor of bigness is its devastating impact on culture, structure, passion, and creativity. The bigness of organizations causes defensiveness and uncertainty. The success of smaller, more innovative companies leads one to conclude that many organizations should simply become smaller.

BERTRAM C. SHLENSKY New Rochelle, N.Y.

YOUR ARTICLE blends shortsighted, revisionist history with point of view run amuck. The portrait of Welch has little in common with the man we've observed for a quarter-century. Nor does it correspond with his actions as GE's chairman for more than 20 years. Morris's "new" rules have been around for 25 years or so, and ironically most were borrowed from Welch's own playbook. For the editors who decided to print this tirade, we are, gulp, speechless.

WARREN BENNIS Distinguished Professor of Business University of Southern California Los Angeles

NOEL TICHY Professor, Management and Organizations; Director, Global Business Partnership, Stephen M. Ross School of Business, University of Michigan, Ann Arbor

IF JACK WELCH were in his prime today, would giant multinationals jump at the chance to sign him up as CEO? Of course they would, because they would recognize that his real leadership--indeed, his genius--was to figure out the world in which he lived and pioneer new ways of winning. A fairer cover line would have been, "If Jack Were CEO Today, What Rules Would He Invent?"

DAVID GERGEN Director, Center for Public Leadership John F. Kennedy School, Harvard Cambridge, Mass.

USING JACK WELCH as a straw man badly misrepresents his legacy. (1) Welch never suggested that bigness was a cure-all. His point is that larger companies have opportunities denied to small companies. (2) Being No. 1 or No. 2 in a market and finding a niche are not mutually exclusive. As a scholar of celebrity CEOs, I can tell you that Jack Welch is one of the rare examples with such a strong internal compass that he used his celebrity to benefit his firm rather than feed his own pride. Having said all that, I do believe he overplayed the rank-and-yank performance-evaluation process.

MATTHEW HAYWARD Professor, Leeds School of Business University of Colorado, Boulder

ON BEHALF of the many employees whose careers and families were disrupted by GE layoffs as Welch maximized stock dividends, a big DUH! to the business world as it realizes Jack's rules don't work. And a thumb of my nose and a round of raspberries to the lemming-like companies that followed Jack's lead.

LANCE KACZOROWSKI Fort Wayne

WHY COMPARE old rules and new rules? Businesses that combine proven techniques with new ideas win. (1) Big dogs who are agile win big. (2) Companies that are No. 1 or No. 2 must continue to create new ventures to keep winning. (3) Shareholders and customers must be kings. (4) Be lean, mean, and look outside the box. (5) Promote passionate A-players. (6) Hire a charismatic and courageous CEO.

ALFRED S. LEBLANG Boulder

THANKS FOR describing how changing expectations are creating a new model for success not measured exclusively by quarter-to-quarter stock prices. The new rules echo what we see around the world: the gravitation of both customers and the "best and brightest" to companies with vision, soul, and a desire to serve the customer rather than the shareholder.

JOHN FRIEDMAN DC Sustainable Business Network Annandale, Va.

A for Enterprise

TOWARD THE end of "The Big Surprise Is Enterprise" (July 24), Carol Loomis cites the Enterprise Rent-A-Car Service Quality Index and the quick, cheap research that produces it. The directness of the two customer questions [How would you rate your last Enterprise rental experience? Would you rent from Enterprise again?] should be studied by other companies, particularly those in financial services, who want to gauge their clients' level of satisfaction.

JAMES K. ROWBOTHAM Director, Business Development & Research, Marinelli Communications New York City

I STARTED at Enterprise in 1963 and retired as a corporate vice president in 1995. Many articles have been written about the company, but yours is the first to really catch the flavor of it. I'm glad FORTUNE readers can get to see what a hard--but wonderful--place it is. Thanks!

VAN-LEAR BLACK III St. Louis

Plugging the Brain Drain

ANNE FISHER'S "Retain Your Brains" (July 24) was intriguing. I'm leading a similar project at Caterpillar on the issue of knowledge that's lost when people retire or is "misplaced" when they move from one business unit to another in a different country, and I'm entertaining a similar solution.

COLIN KERELCHUK Peoria, Ill.

WHEN I left my last job, I tried to write procedures clearly enough for a new person to understand exactly what to do. Even so, I still get questions from the manager who took my place. Even at companies with small budgets, solutions can be implemented by using a little creativity. It is so important for our economy.

DAN LONGO eRecords Administrator Northrop Grumman, Hampton, Va.

Ghosn? Non!

THE THOUGHT of Carlos Ghosn running GM ("What Would Carlos Do?" by Alex Taylor III, Dispatches, July 24) sends tremors down my spine. Nissan failed in its attempts to enter the U.S. truck and SUV markets, and as for Renault--can you think of anything worse than dealing with the French government? Rick Wagoner has done a superb job working GM out of tough problems caused largely by others. GM is lucky to have him.

BILL NOACK West River, Md.

CORRECTION

In "Bunker Mentality" (July 24) we said Daniel B. Prieto wrote his paper on homeland security for the Brookings Institution. He wrote it for the Council on Foreign Relations. FORTUNE regrets the error.

Jack Welch Responds

WHEN I SAW the cover, my first reaction was "Well, long live the competition between FORTUNE and Business Week" (where, as you mentioned, Suzy and I have a weekly column). Given that it turned out to be a cover story ("The New Rules," July 24), I do wish I'd had more than a 20-minute phone conversation with writer Betsy Morris to make the broader case for my business thinking and its current applicability, which I believe in to my toes.

As to the article itself, most of the "old rules" weren't anything I would ascribe to, leaving me to believe they are just a bunch of silly straw men conjured up by FORTUNE for argument's sake. Odder still, most of the "new rules" are actually leadership principles I've been publicly advocating and practicing for up to 25 years.

In any case, any debate about business ideas is great, and I look forward to more of it in the years to come.

JACK WELCH, Nantucket, Mass

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