Chad was still reluctant to say yes, and still insisted on a free hand. Despite having control of everything but finance, however, he found he could do little to change the management philosophy. Oh, yes, he was able to hire a few professional managers, eliminate some obvious inefficiencies, and boost sales enough to get the company back in the black. But real growth would require much more. Ruben was intrigued, but Chad's uncle, who worried about taking too many risks with cash flow and reinvesting too much of the profits, was not. "It's him or me, Ruben," Chad's uncle announced one day in 1973.
That's when the exodus of family members began. Later that year, with a line of bank credit, Chad and his father bought their relatives out, uncle and cousins alike. In 1977, they set aside some preferred stock for Chad's brother and sisters, and held the rest for themselves: Ruben as majority stockholder, Chad with an option to buy him out eventually. Although Chad was named the company's new president, he was not satisfied to leave it at that. There were still questions of succession to settle -- when, and under what conditions his father would finally bow out. And to reassure his new professional managers, Chad won hard-and-fast guarantees that there would never be family claims on the business again -- not from brothers, cousins, uncle, or even his own children.
Actually, it took four more years, and the specter of the recession, before Ruben Frost finally decided to step aside. Only then did it become Chad's company, but it didn't look like much. Realizing that what the economy did not need was yet another decaying plant turning out another product that fewer and fewer people wanted to buy, Chad invested some $500,000 to diversify his line -- on lawn-mower spindles that he couldn't make to spec or on time, and on precision machining that the engineers couldn't design and the salesmen couldn't sell. Nor was he much more successful in implementing new management techniques. "I had a head full of ideas of how to revolutionize the workplace, yet not one of them worked," he admits.
Although Chad had banished the family, he had not banished the family business culture. "I didn't realize that everyone was so comfortable with the traditional way of doing things, or that change was perceived as a threat. This company had been a classic family business, and that was the problem. To change that, I'd have to undo all the stuff that was done all those years."
After a month of soul-searching, Chad decided the only hope of saving the company was to force radical changes in the company's culture. His focus, as it had been once before, would be on new technology and new management techniques. Only this time he would do it right. Appointing an acting CEO, he stepped away from day-to-day management, and for two years studied the success of automated plants in Japan and the United States. He returned in 1983 with a concept he called "Technetronic."
"It was 'Katy bar the door' when I started," Chad remembers. "I knew I was risking everything." From then on, there would be a minimum of hierarchy at Frost: no more secretaries, support staff, or closed doors. Eleven formal and six informal layers of management were replaced with a simple four-tier structure: 6 top managers, 25 functional managers responsible for such areas as procurement or outside sales, and everyone else (but no titles on business cards, please). Except for salaries, there would be no corporate secrets, and in-house communication would be facilitated by personal computers on every desk. Most important, the company's most vital numbers -- sales, expenses, productivity -- would be distributed in a timely fashion throughout the plant. Chad wanted people to work hard, and to see their labors having an impact.
Not everyone thought it would work, however. His banker was skeptical of the benefits of automation. And there were those inside Frost who balked at the new workplace democracy. By the time he was finished, almost a third of the staff would be given professional outplacement services.
For those who stayed, the transition is something they'll never forget.All employees became owners. And with ownership came new responsibilities and duties. All employees would have to enroll in "Frost 101," a course in the whys and wherefores of progress, productivity, and profit. Monthly "let's talk" sessions were devoted to such topics as the company's business plan or why the payroll was being moved to another bank. And continuing education became part of every job, with the average shareholder taking 40 hours a year in math, engineering, or programming classes, taught on site by an instructor from the local community college.
These were not reforms simply meant to make people feel good. Chad meant to take them right to the bottom line. "You can wave all the excellence flags in the world," he says, "but if you aren't making money, it's not worth anything." Apparently, at Frost it's worth quite a lot. Sales at the company have climbed close to $18 million, up 30% a year since 1983. Gross margins have doubled, up to 35%. And while the company is selling more bearings than ever, at prices down 20% from 1982, new products have been introduced that now account for a third of Frost's total sales.
"This is no longer a family business," Chad states proudly. But it is not simply the absence of relatives that defines the difference. "My father was in the business for personal wealth. I like personal wealth, but I know I'm not going to get it if everyone here isn't successful. It never would have occurred to him that people on a factory floor could want to succeed as badly as he did."
