Although Welch was an incredible leader and full of wisdom, in this regard he was spectacularly wrong. The idea that variation, or volatility, must be removed from companies for effective operation is unsound because it constrains ingenuity; it seeks to turn people into machines.
Capital efficiency is useful, but efficiency can be taken too far. The growing mountains of capital we see on corporate balance sheets are evidence of a decades-long march toward capital efficiency. Everyone knows companies need to innovate, yet very little of the activity seems to produce meaningful results.
Most companies overoptimize for efficiency. . . . The nonintuitive thing is that it is better to be managing chaotically if it's productive and fertile. Think of the standard model as clear, efficient, sanitary, sterile. Our model is messy, chaotic, and fertile.
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