How To Grow Without Getting Big

"WHO DO YOU TELL PEOPLE YOU work for?"

Margaret Barry, 23, an assembler at an auto-parts plant near Toronto, Ontario, shrugs, as if the question were every bit as stupid as it sounds. She is, after all, sitting in her boss's office in the middle of a working day. "Cam-Slide," she says. "Or Magna. It doesn't matter."

In other circumstances, it might. Cam-Slide Manufacturing employs about 150 people and expects sales of maybe $15 million (Canadian) this year. Magna International Inc. has 10,300 employees and about $1 billion (Canadian, or close to $750 million U.S.) in annual sales. There's usually a difference, in the minds of factory workers as in the minds of managers, between working for a small, single-plant enterprise and working for a multinational giant.

The difference between Cam-Slide and Magna, however, is like the difference between a neighborhood and the city it's a part of. Magna -- the city -- is a large, diversified auto-parts manufacturer, complete with brick-and-smoked-glass headquarters, a well-regarded stock (traded over the counter in the United States), and a hefty growth rate, sustained since the days when gasoline cost 30? a gallon. Within its corporate borders is a collection of, at last count, 100 enterprises much like Cam-Slide. All but 10 are wholly owned by Magna, all operate under their own names, and all have exactly one factory apiece. Most Magna plants employ fewer than 200 people. If a plant gets more work than it can handle, Magna won't add to it; instead, it "clones" the facility and starts a new operation.

"In essence," says Magna chairman and chief executive officer Frank Stronach, "we are made up of many, many small businesses."

Magna is hardly the only big company to rest on a foundation of small ones. W.L. Gore & Associates Inc., Dana Corp., and a few others set limits on the size of their facilities. Giants like Johnson & Johnson and 3M Co. spin off autonomous divisions whenever a unit gets too big. At Magna, though, the number of small plants reflects not only a management philosophy, but also a powerful strategy for growth.

Over the past decade, Magna's sales grew at a compound annual rate of 34%. Its work force expanded from 913 to 10,300. In the last fiscal year alone, Magna opened 11 new plants -- nearly one every month -- and added about 2,700 new employees. Despite the fact that it is utterly dependent on the highly cyclical auto industry, the company has expanded in every year but one. In the past two years, its sales more than doubled.

In the glamourless business of making parts for new cars, such growth is news enough. The fact that Magna has grown not by building bigger and bigger divisions, but by creating more and more small ones, makes the company an oddity even to the experts. "This is an industry where size has always been the name of the game," one muses. "But Stronach has proven that this small-plant concept can work pretty well."

Exactly how well the concept could work in practice didn't become plain until the early 1980s. Until then, Stronach's company had been on a kind of a shakedown cruise, its CEO slowly evolving some rather unorthodox ideas about management and growth.

Stronach, born in 1932, moved to Toronto from his native Austria in 1954. Trained as a tool-and-die maker, he eventually set up a small manufacturing shop, Multimatic Investments Ltd., in -- sure enough -- a garage. He soon landed a contract producing sun-visor brackets for General Motors of Canada and after a couple of years was employing 20 people. "Then my foreman," he recalls now, "began acting a little strange." Herman Koob, it turned out, wanted to go out on his own. Stronach remonstrated -- "We get along fine; there's got to be a better way" -- but Koob was adamant.

"Next day," Stronach says, "I said to the foreman, 'Why don't we open up a new factory together?" Stronach would put up the money, Koob would run the plant, and they would share in the ownership. Koob agreed to the plan. The plant the two set up -- Dieomatic Inc. -- prospered, too. In the years that followed, Stronach repeated the process several times and bought a few other companies, including taking control, through merger, of a publicly held aerospace-and-defense-oriented manufacturer called Magna Electronics Ltd. By 1978, he was head of a fair-size company, now named Magna International Inc., with about 18 plants, most of them producing metal trim for new cars.

Philosophically, Stronach had always been predisposed to keeping his plants small. "If you have a thousand people in a factory," he says, repeating one of his favorite homilies, "each one becomes a number. It's basically incompatible with the human spirit." The late Bill Gore, who built a new W. L. Gore & Associates plant every time an old one reached about 200 employees, once observed that his employees started smiling more when the size of their group was reduced (see "The Un-Manager," INC., August 1982). It's an observation Stronach would find congenial.

As managers, though, Gore and Stronach were looking for different things. Gore felt that the intimacy of a small plant helped people work together and share responsibility -- "lattice management," he called his system. Stronach chooses to focus on accountability and entrepreneurship instead. Responsibility for a factory's operation, he believes, always lies squarely with the plant manager, the "number-one guy." Keep the plant small, and its manager will know every employee, every machine, every job.Let it grow too big, and suddenly that knowledge -- and the accountability that goes with it -- gets lost in the spreading bureaucracy. Stronach has also evolved a system of incentives to encourage growth. If there's enough work not only for the existing plant but for a new one as well, a manager can develop a plan for a new factory. Though he can continue to manage only one -- the new or the old -- he's entitled to a share of the profits from both enterprises.