How to Manage a Company: 3 Practices for Leaders

This article is an excerpt from the Shortform book guide to "Winning" by Jack Welch and Suzy Welch. Shortform has the world's best summaries and analyses of books you should be reading.

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How can you set your employees up for success? How do you adapt to a changing market?

If you’re new to managing a business, you might feel terrified to have so many people look up to you for answers. Luckily, Jack Welch’s book Winning has advice regarding the best business practices, such as hiring, people management, and adaptation.

Learn how to manage a company and set it on the right path.

1. Hire Effectively

One of the first things you need to nail down to learn how to manage a company is hiring people. Welch emphasizes the importance of having strong hiring practices as a way to ensure the right people are working for your business. He claims that hiring is a tricky process, and though a strong résumé and experience are important, you’ll often have to rely on instinct to determine who will be best for the job. Through trial and error, Welch has identified five key characteristics to look for when hiring an employee:

Vigorous: You want employees who are active and optimistic. Such people work hard and get along well with others.
Inspirational: You want employees who can inspire and motivate others through both their words and actions.
Decisive: In business, people have to make tough decisions, and they often don’t have as much time or information as they’d like to have. You want employees who try to analyze situations and make the best possible decisions when they can, but who are also not afraid to make a quick decision when necessary.
Effective: Make sure your employees know how to get the job done. Welch admits that effectiveness can be easily overlooked—sometimes people seem to have great potential and the right characteristics but for whatever reason can’t implement decisions effectively.
Enthusiastic: Finally, you want employees who are excited about the work they’re doing. No matter your work ethic or business experience, it’s enthusiasm that truly sets people apart.

2. Manage Your Employees Well

Once you’ve hired the right people, you must set them up for success and manage them effectively. Welch provides several tips for managing employees:

Establish a strong human resources department: Welch argues that HR is crucial to the success of any company and yet is often overlooked or disregarded. HR, when implemented correctly, should be a transparent organization that addresses employees’ concerns, fosters compromise between departments, and helps people develop. Businesses are filled with people, and there will always be interpersonal conflict—office politics, hurt feelings, and disagreements. A strong HR department that has true power helps alleviate conflict and ensure that the company is as healthy and strong as it can be.

Create a strong system for evaluating performance: According to Welch, most companies don’t have a good method for evaluating employees. Though every company’s will differ, Welch says that an evaluation system should be direct (clearly stating what the employee did well and where they can improve), data-driven (using quantitative data to measure performance), and should occur at least once a year (though more frequent evaluations may be helpful).

Delineate clear roles and responsibilities, with as few hierarchy layers as possible: Welch points out that many companies, especially bigger ones, suffer from a lack of clarity regarding each employee’s role within the company. To avoid this, design a detailed organizational chart that clearly shows the work each employee is responsible for and who they report to. This will promote transparent communication and ensure that everyone knows what they should be doing on a daily basis.

Welch recommends having as few layers of hierarchy in your company as possible because they cost the company time and money. He claims that some companies keep adding levels within their ranks as they grow; others add layers so they can more easily promote top performers. But a company with too many hierarchy layers becomes difficult to manage and for employees to navigate. It also tends to add unnecessary costs and complicate even the most basic business decisions, requiring employees and managers to run every decision up the chain of command. Instead of having several rungs of managers within one department, it’s better to have one manager who oversees the department and reports directly to the CEO.

3. Learn to Adapt

Along with hiring the right people and having an effective management system, successful companies must also know how to adapt to changing market conditions. Yet enacting change within a company can sometimes feel like an uphill battle—employees are often resistant to change, and it can be costly and time-consuming. Welch gives three pieces of advice on how to adapt successfully.

Adapt purposefully: Because change is a necessary part of business, a common mistake companies make is to enact change without a clear direction in mind, jumping on the latest trend or trying to adapt in several ways at once. This can lead to a disorganized work environment in which time and money are wasted and employees don’t buy into the new way of doing things.

But if you instead adapt thoughtfully, with a clear goal, things will go much more smoothly. To do this, Welch recommends backing your changes with as much data as possible. This will ensure that the changes are actually good for the business and will be implemented correctly.

For instance, if you’re a car company looking to adapt to the rapidly growing market for electric vehicles, you should research everything that might affect this transition—the expected market share of EVs, the expected cost of research and development, design, marketing, and manufacturing, customer sentiment regarding greener energy, quantity and quality of potential competitors, and so on. With this data, you’re more likely to make a sound business decision, and when your employees see the amount of research that’s gone into the decision, they’re more likely to be on board with the change.

Dismiss the obstructors: Though a purposeful and data-backed change will help sway the skeptics, there will always be employees who remain resistant. Welch says you have to get rid of the people who aren’t on board with the change. Not only will they provide little value, they’ll also lower the morale and motivation of everyone else.

Search for opportunities everywhere: Sometimes, it’s obvious what changes your company needs to make—for example, buying out a struggling competitor for pennies on the dollar or transitioning to e-commerce with the rise of the internet. But Welch claims that to be a truly successful and adaptive company, you need to be constantly on the lookout for less obvious changes. This might mean staying up to date on the latest technologies or emerging industries. By staying ahead of the curve on potential changes your company can make, you ensure that you’re one step ahead of the competition and, when a new market trend develops, you’re not the last one to realize it.

How to Manage a Company: 3 Practices for Leaders