The Turnaround

How a dying division of International Harvester became one of America's most competitive small companies.

You can find Joann's Expressway Lounge on the West Chestnut Expressway in Springfield, Mo. It's located in a yellow cinder-block bunker, fringed along the roof with blue shingles. Inside, there are two pool tables, a pinball machine, a jukebox, a bar, and assorted tables. For most of any given day, it is exactly what it appears to be: another juke joint along another midwestern highway. But around 4:30 every afternoon, JoAnn's is transformed into a kind of true-grit tabernacle, when the regulars begin to arrive from Springfield Remanufacturing Center Corp. (SRC).

At the moment, about 25 of them are scattered around the bar, playing and talking as the jukebox pleads, "I want to bebop with you, baby, ALL NIGHT LONG." They range from assembly-line workers to senior managers, the latter indistinguishable except for an occasional loosened tie. Here, for example, are Pam Smith and Verna Mae Ross, who assemble fuel-injection nozzles, as well as general foremen Steve Choate and Joe Loeber. Over there, pounding on a pinball machine called Memory Lane, is Doug Rothert, the production manager, and the guy trying to bank the nine ball is executive vice-president Mike Carrigan.

It's an odd assortment of people, defying the normal stratification of corporate society -- a fact of which they are all aware. "The barriers between management and employees just don't exist here," says Pam, the nozzle assembler, to which Verna Mae adds, "Here I am pretty low in seniority, and I can sit here and bullshit with Jack over there."

"Jack" is John P. Stack, SRC's president and largest shareholder, who is presently lost in thought, calculating the more esoteric geometries of pool. He is 37 years old, slightly under six feet tall, thin, and lanky, with thick brown hair and a boyish face. Of all JoAnn's regulars, he is the most regular. On any day, Stack can be found here from roughly 4:30 to 6:00 p.m., just in case someone should want to talk through a problem in less formal surroundings. Right now, however, he is more intent on making his next shot.

Standing there, leaning on his pool cue, blowing cigarette smoke over the green felt, he hardly seems like a man with a mission. And yet he is just that, for Stack has come about as close as anyone to solving one of the more perplexing business puzzles of our time.

The problem dates back to the early 1960s, when the idea took hold in boardrooms and business schools across the country that the secret of effective management lay in the numbers: first, in collecting the raw data on sales, profit margins, inventory levels, and countless other statistics; then, in arranging them into various pie charts and bar graphs; and finally, in conforming business strategies to their mathematical authority. Aided by the advance of computer technology, "quantitative" management soon became the shibboleth of the executive suite. Unfortunately, this preoccupation with numbers all too often reduced employees to the status of mere ciphers, thereby isolating the company from the creative energies of its work force.

It was a dangerous balance: too many statistics could prove toxic to humans, and too few could just as easily murder a business. To this day, the proper mixture of dismal science and effervescent humanity is the subject of heated debate, not to mention a number of best-selling books. What Stack and some 360 of his colleagues seem to have demonstrated is that a rigorous, even obsessive, quantitative regimen can still produce a strikingly people-oriented enterprise. Indeed, Stack is convinced that his number-crunching works so well because his people are so involved.

Ironically, all this has happened in a company that, up until three years ago, was a division of International Harvester Co. -- the industrial giant that grew out of Cyrus McCormick's original reaper company. A rebuilder of engines and engine components, SRC was losing $2 million a year on sales of $26 million when Stack arrived in 1979 to turn things around. In 1983, he and 12 other employees bought the business from Harvester and struck out on their own. Carrying a crushing debt load, and facing potential ruin, they developed a meticulously detailed reporting system that at one point had them calculating a full-blown income statement every day.

The results have been impressive. Since the leveraged buyout, SRC's sales have grown 40% per year and are expected to reach $42 million in fiscal 1986; net operating income has risen to 11%; the debt-to-equity ratio has been cut from 89-to-1 to 5.1-to-1; and the appraised value of a share in the company's employee stock ownership plan has increased from 10¢ to $8.45. Meanwhile, absenteeism and employee turnover, once high, have all but disappeared, and the frequency of recordable accidents in the plant has fallen dramatically.

To hear Stack tell it, this turnaround owes much to SRC's exacting quantitative controls, but even more to its almost evangelical insistence on giving human potential its due. "Look, we're appealing to the highest level of thinking we can in every employee in our company," he says between pool shots at JoAnn's. "Why hire a guy and only use his brain to grind crankshafts?"

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