The result has been a growth explosion: Oracle has doubled in size in the past two years, reaching $1 billion in sales. Rather than a pyramid, with the CEO on top, the company has become a wheel, with the CEO at the center of the spokes.
Andrew Stewart has followed a similar path at Computer Methods (#43) -- "carving the world into tiny niches," he calls it. With $18 million in sales, his company is working on a far smaller scale than Oracle is, but the logic and method are much the same.
By 1983 Stewart had built Computer Methods into a $2.4-million company supplying temporary software personnel primarily to Detroit's automotive giants. Then H. Ross Perot sold Electronic Data Systems to General Motors, causing 90 of Stewart's 150 programmers to be thrown out of work. Although Stewart remembers the experience as "brutal," it turned out to be a blessing, forcing Computer Methods to look for new markets.
The company started by moving into health-care billing, bundling a newly developed proprietary software package with contract data services for local hospitals, on the theory that -- as the automakers continued to slump -- laid-off workers would push to have their medical work done before their benefits expired. Today health-care products and services account for one-third of the company's sales. Stewart's next move was back to the automakers, providing software and consulting services for the Big Three's engineering departments, creating software products for service-bay diagnostics, say, or for monitoring performance on a factory floor.
Computer Methods is now stronger than ever, with 20 divisions, but Stewart insists it is not really his company anymore. His 275 employees own 40% of the equity and have taken home about $3 million in bonuses over the past six years.
To keep the company's division managers entrepreneurial, Stewart treats them all like entrepreneurs -- literally. He helps them define the market and the service, and he provides them with support, but it's up to them to make their businesses grow, and they get to reap the rewards. He even lets the divisions keep their own profits. Each division is run "like a franchise," he says. It is financially autonomous, paying headquarters a profit percentage as well as a fixed fee for administrative services.
"It's simple," he says. "I just go get the best people and pay them more than anyone else." He then focuses on clearing obstacles out of their path. "I looked at what would have kept me from starting my own company. My first three or four years here I spent with insurance people, bankers, and the IRS, and I wasn't very good at it. So I take care of all that for the divisions and let them concentrate on what they're good at."
Stewart is as far from being a hands-on manager as a CEO can get. The only controls on his divisions are his employees' ambition and talent and the response of the marketplace. "This is the real world. People either have it or they don't. If the division can't pay me my franchise fee, they're out of a job. They can move to other groups in the company, but that's it.
"I used to try to manage, to listen to everybody's problems, but it bored me," he says. "And I was bad at it -- my employees told me." So he just stopped doing it six years ago. Now he concentrates on strategic planning and allocating the R&D budget, working a five-and-a-half-hour day. "Management is too expensive anyway. I'd rather give that money back to the employees." October he spends fly-fishing in Montana. In November he's in Florida, fishing with clients. "I've got it pretty good for myself," he admits. "I love working, though. I'll never stop."
Three growth companies, all wrestling with a problem of size: how could they acquire the advantages of scale before they actually got big?
* For John A. Varacchi, the issue was service range. Furniture Consultants (#36) was a $19.7-million dealer selling furniture to Manhattan architects and designers, but the company had to attract large corporate clients to grow. To do that, it had to provide turnkey solutions, supplying everything from the wiring at a Darien, Conn., headquarters to facilities management of a data-processing department in White Plains, N.Y.
* For Michael Dunham, the issue was geographic reach. Effective Management Systems (#28) was selling $3.1 million worth of business software and software systems for manufacturers, distributors, and food-service operators to hundreds of small companies near its Milwaukee headquarters. But how could the company sell to similar customers in other cities, given Dunham's commitment to service?
* For Al Toth, the issue was buying power. His Independence, Ohio, distributorship, PBM Office Products (#63), had grown to $6.8 million in sales by 1982, but it sold a commodity and was therefore forced to compete on price. That proved a major disadvantage when office-products superstores such as Staples and Office Depot arrived on the scene, with buying power PBM Office Products couldn't match.
Varacchi, Dunham, and Toth all chose the same solution. Instead of creating a structure of relationships inside the company, they looked for relationships on the outside, putting together a patchwork of networks and alliances with other entrepreneurs who shared their ambitions. On the surface, their solution seems the opposite of the decentralized corporate structures developed by Oracle and Computer Methods, but the goal -- building a team to grow with -- is exactly the same. The management demands are the same, too: an alliance's success depends on finding the right people and motivating them, creating a compelling mutual advantage rather than exercising control in the traditional sense.
At Furniture Consultants half the revenues still come from sales of furniture, but it also sells project-management services, organizing what Varacchi calls one-stop shopping for such giant clients as Shearson/American Express. Need service in the Hudson Valley or along the Greenwich/Darien axis? The company owns Furniture Consultants of Connecticut/New York, with outlets in Greenwich and Poughkeepsie. Need a specialist to do the computer or telephone cable layout for a 30-story office tower, to lay the cable, or to manage the facility when it's built? The company has an alliance with an organization that can do all of that.
