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Very recently on the professional networking site LinkedIn, one of the most well-known GE ex-CEOs Jack Welch offered an article that was fundamentally flawed and in the process uncovered a hidden secret of corporate America: even well-known and “successful” managers lack understanding of business fundamentals. In the above-mentioned article Jack made the basic mistake of confusing product innovation with product evolution.

He stated that innovation can be incremental which is actually impossible because by definition innovation is something new and new things cannot be incremental. Jack confused innovation with evolution of the product. Product evolution is indeed incremental. For example let’s look at Apple’s iPhone: the original iPhone was an innovative product and it changed the way consumers viewed smart phones and arguably changed the market. Since then however the iPhone has been evolving, which is a normal process in the lifecycle development of any product. The iPhone has evolved: it has become thinner, it has become faster, but it has remained fundamentally the same product. There has been no innovation since it was first introduced.

Another great example is the automobile. The internal combustion engine was an innovation, replacing steam engines as the main mechanical locomotive method: meaning that it did something that was already done in a drastically different way than internal combustion engines. At the time it was innovative, but since then it has only evolved. There has been no great innovation when it comes to the automotive power plan...(excluding the very new fuel cell engines that are still in very early development; electric cars however have existed since the 1960's and thus do not represent innovation.)

This issue underlines a fundamental problem in American business: many senior executives have risen through the ranks but lack fundamental business education and while it was possible in the past, it is no longer possible for a successful company to be led by an uneducated executive. Furthermore, many executives in charge of Fortune 500 companies in the past were able to operate their companies even though they lacked the fundamental understanding of business, because running a business was a simpler process. Now we’ve moved to a global economy and the business world has become very complex; without formal training in business even a very smart person can no longer effectively lead a large corporation (or for that matter even a small one). Many of these old generation executives simply got lucky: they were at the helm of their companies during a growing economy and an environment that favored business growth. As long as the executive did not commit serious mistakes his or her company grew.

In fact, while Jack Welch is often viewed as a prime executive, General Electric did not perform at the stellar level that it could have had he had a better understanding and training in business. His books are flawed and full of very serious errors and I have doubts that he would run even a small company today. We need to stop glorifying ineffective leaders that simply got lucky and start evaluating them only based on results.