The Shape of Things to Come
By moving quickly and living close to the bone, the aptly named Spartan Motorsis flourishing in a shrinking market -- and demonstrating whatsmart business means today
Spartan motors' corporate headquarters looks like those of many other hot and high-flying growth companies these days. The visitor steps into a lobby of glass and polished stone to be greeted by a receptionist sitting in front of a potted palm and an eight-foot-wide abstract canvas. Water splashes in a central fountain as the gentle trilling of the company's ultramodern phone system resonates down a distant hall. . . .
Wait a minute. Cut. We're in the wrong place. Let's try that again.
Spartan Motors sits in an industrial park carved from a cornfield, in a squat, functional building that does what it can to marry the elements of brick and aluminum. A heavy glass door opens into a cramped space where the walls are cinder block and the carpet is stained. A narrow staircase ascends to the "executive" offices, where you find yourself in what appears to be an outpost of the Michigan Department of Motor Vehicles. Partitions, beige and listing, keep the cheap, undersized desks from bumping against one another, and a fine rain of plaster dust settles on the scene as carpenters doing some patch-up work muscle a piece of ductwork in around the drywall.
Spartan's executive offices exist as little more than an entryway to the heart of the operation. At Spartan the real drama unfolds in the adjoining space, where fluorescent light dances off the gleaming cabs of brand-new fire trucks, as uniformed workers -- scripted names (Rod, Earl, Jimmy) affixed to their pockets -- crawl over the big machines, bolting, wiring, drilling the parts together.
Spartan builds chassis for fire trucks, motor homes, and other heavy-duty vehicles. For the past five years, while the heavy-truck industry has drifted down, down, down into a quasi depression -- sales are off by 40% in the last two years alone -- Spartan's revenues have gone the other way: up from $14.6 million in 1986 to about $90 million in 1991. Net earnings have jumped from $670,000 to $5 million. From 1990 to 1991 the Charlotte, Mich., company doubled sales and tripled profits. In 1991 it increased its work force from 290 to 380 employees and treated its shareholders not too shabbily, either: Spartan stock rose 800% during the year.
Spartan's chairman and driving force, George W. Sztykiel (pronounced Stee-cull), believes Spartan's bare-boned, no-nonsense ethic is the key to the company's gains in a market that is mature to the point of senility. He also believes Spartan is riding the wave of the future -- one that has just begun to build, as U.S. companies rush to pare themselves down in an era of heightened costs and competition. "In 10 years a lot of companies in the United States will look like we do," says Sztykiel, referring to ideas that surpass the symbolism inherent in Spartan's threadbare appearance. He's talking about such issues as job security and executive compensation, blurring the line between labor and management, and the idea -- central to the way Spartan operates -- that every spare dime must be plowed into production, not fancy fixtures.* * *
The Power of Poverty
Sztykiel, an engineer, started Spartan after his last employer, Diamond Reo Trucks Inc., went bankrupt, in 1975. Before that, he had worked for 19 years at Chrysler, where he grew to detest the bureaucracy. "I felt I was wasting my life," he says. When Diamond Reo went under, Sztykiel was 46. He had one son in law school, another in college. His wife was suffering from a blood disorder. Sztykiel and his three cofounders -- Bill Foster, Spartan's vice-president, and Jerry Geary and John Knox, who have both since retired -- built their first chassis in a commercial garage, funding the venture with second mortgages. Despite the stress of Diamond Reo's death and Spartan's birth, Sztykiel cherishes the chance he had. He was forced to become an entrepreneur. He was forced to husband his resources and live by his wits. "We had the luxury of having our house burn down at Diamond Reo," he says. "We had the power of poverty."
The power of poverty is a principle that Sztykiel has strived to maintain to ensure that life at Spartan does not drift toward the fat and happy. To Sztykiel the power of poverty is a simple notion: if you are driven by want, you are forced to work hard. Hard work builds value and creates wealth. When the hunger fades, so, too, does the company.
At Spartan the secondhand furniture and creaky phone system serve as more than gimmicky trademarks. They make a statement -- one that George Sztykiel is happy to expound. "I have used furniture in my office. How much production do I get out of a $1,000 desk?" says Sztykiel, energetically launching into a sermonette. "Why waste it? We are here for one reason, to make money. A solid-gold watch doesn't keep better time than a Timex. Luxury must be dumped."
Sztykiel, an ardent student of history, loves to talk. Questions put to him often result in minidiscourses charged with a Socratic urgency. He doesn't have a secretary, because "you have to dictate letters to keep a secretary busy. At Chrysler I had a secretary, and what we had was a paper factory. We mistook that for production."
At Spartan, because it is assumed that budgeted money will be spent and departments will waste time crafting ever-larger requests, there are simply no budgets. Three department heads rule on all budgetary matters. "I have to justify each expenditure by showing how it will improve the profitability of the company. I have to show a desperate need," says Tony Sommer, Spartan's chief financial officer, who also doubles as personnel manager. Sommer says that mind-set informs the company down to the assembly-plant floor, ensuring that few if any frivolous requests will surface. Last year a cost-reduction committee made up of 10 workers was able to cut Spartan's raw-material costs by $500,000.
Spartan strives to achieve what executive vice-president John Sztykiel (George's son) labels "impact spending." "We are always asking ourselves, 'If we don't spend money on car phones, can we then use that money to hire somebody in the plant?' We want to spend money on production."
Spartan, not surprisingly, spends little on advertising. Yet last year it willingly incurred $100,000 in interest expenses on various chassis it took to 42 trade shows on three continents -- not to mention the expense of getting people to those shows. John Sztykiel knew that was money well spent. "We got products out there so our customers could touch and kick them. That's the best kind of advertising."* * *
The Homegrown Work Force
Money is not the only resource that Spartan managers religiously seek to put to best use. When it comes to the work force, George Sztykiel runs as pure a meritocracy as a hierarchically based corporation can muster. "You come here, and what we want to know is, what the hell's inside your brain, what's your attitude?" he says. "Your pedigree means nothing to us." The only credentials Spartan "engineers" seem to have are advanced degrees in common sense and practical knowledge. Most of them started in the assembly plant and worked their way up to the drafting board.
Of 380 employees at Spartan, only 8 have college or advanced degrees. The preponderance come from inside the county, off the farm and out of the local high school. Tony Sommer calls the Spartan work force "vocationally literate" and "not afraid to work." Many grew up on farms, tending -- from an early age -- not only to livestock but to broken tractors as well. Many still rebuild car engines in their spare time. Many come from families in which generations have worked at GM's big Oldsmobile plant in Lansing.
"We are pros in designing chassis. We don't push complexity," says Sztykiel. "Building trucks is not science, it is art, strictly art. The old engineers pass on the feeling to the new guys. We produce 10 times faster and cheaper than big companies, where they have lost the feeling, so all they can do is apply science."
The feeling comes from going to a lot of trade shows, talking to customers, and seeing what's out there in the market. It is developed through a rigorous cross-training of the work force, giving chassis assemblers a greater sense of the overall product. Spartan, meanwhile, hires so many people right out of high school because Sztykiel believes it is mainly the young who are supple enough in mind and spirit to grasp the Spartan unorthodoxy. Todd Chapman, for example, started working at the company during his senior year in high school, through a co-op program. After graduation he came to Spartan full-time, where he is now -- at age 20 -- the head electrical "engineer."
Reed-thin and clean-cut in a sport shirt, jeans, and cowboy boots, Chapman looks young enough to still be in high school. He figures he spends 60% of his time either troubleshooting on the floor of the plant or talking on the phone with vendors, learning about products they have in development. How did Chapman end up with so much responsibility so early on? He shrugs at the question: "I guess I'm willing to learn. I'm open-minded, and there are a lot of people with experience and wisdom here."
He's talking about people like Larry Karkau, a 30-year veteran who worked with George Sztykiel back at Diamond Reo. It was Karkau's extensive knowledge of chassis design, coupled with the tenacity of Tim Williams, 25 years his junior, that produced a breakthrough for Spartan in 1990.
For years the company and its competitors had been puzzling over how to produce a low-cost chassis for a high-end motor home. The weight of the motor home demanded expensive components, driving the final cost up to more than $100,000, a price range in which there is demand for fewer than 1,000 units a year. It was a problem competitors seemed to have given up on.
For a year and a half Karkau and Williams labored to produce a chassis that would cut the price in half, a price point at which the annual market widens out to 20,000 units. But there was one big hitch -- the job required custom-made parts.
Williams, says Karkau, "had a lot of ideas. He likes to tinker around. He has a good practical knowledge of how things have to go together." Williams's résumé certainly wouldn't indicate that. He took drafting in high school and spent a decade "kicking around from place to place. I drove a semi for a while." The two men decided to rethink the concept by using a diesel engine instead of a gasoline engine and mounting it in the rear. That resulted in less noise, better fuel economy, and more room in the cab. Those changes piqued the curiosity of other component suppliers. "We convinced outside vendors to make the product we wanted," says Karkau. "The tooling costs were theirs, not ours." Williams recalls that there was periodic talk at Spartan about killing the project, which he resisted. "I was real candid about this. I knew it could work," he says.
The EC-2000 chassis, devised largely by Karkau and Williams -- with a big assist from vendors energized by the task of designing components for it -- came out in 1990. The project cost the company about $500,000. Last year sales of the chassis totaled $30 million, and Spartan expects that number to double in 1992. Out Tim Williams's window at work there is tangible evidence of that bet paying off, in the form of plant number four, under construction and rising from a concrete pad. The new plant will be devoted exclusively to the production of EC-2000 chassis.
John Rouser, manager of original-equipment-manufacturer sales at Cummins Michigan, which supplies Spartan with diesel engines, says the development of the EC-2000 chassis is true to the company's form. He calls Spartan "my favorite account," because of "the sheer number and complexity of the things it is doing. It builds unique products, and we have a unique relationship. We take our resources and its resources, and together we go farther than either of us could alone." Rouser goes on to note that Spartan has now become Cummins Michigan's biggest account, entailing a degree of risk. "We do $60 million a year in sales, and at any one time we might have $3 million to $4 million tied up in inventory and receivables with Spartan. But it has never let us down. We share the risk. We bet on its ability to execute."* * *
Blurring the Line Between Labor and Management
Once a quarter Sztykiel goes into the plant to give each shift a review of the company's performance over the past three months. On a recent autumn afternoon, Sztykiel, wearing a windbreaker and no tie, got into his beat-up, eight-year-old compact car and drove over to plant number three. There he greeted the second shift, about 100 workers sitting in folding chairs 10 rows deep. A subsequent show of hands revealed that about half were recent hires.
Sztykiel took his windbreaker off and laid it on top of a cardboard box in the corner of the room. He climbed a small stepladder, sat on the top step, and, like a senior professor giving a classic lecture he has been delivering to a generation of students, began: "Welcome. We think this is a good corporation. It's run on the same principles that a family is, because we think that's the most effective way human beings have managed to get along. We try to split the gain with everybody.
"Your bonus is a very good indication of the well-being of the corporation. If it's higher, things are looking up. If it's not, they aren't." The bonus for the third quarter of 1991 was double what it had been the previous quarter, or about an extra two weeks' worth of pay.
Sztykiel proceeded to relate how in the fall of 1976, with the payroll stretched to breaking, it looked as though he would have to lay workers off. Instead, he told workers on a Friday that they would have to take a 15% cut in pay, and that anyone who could not tolerate that should simply not show up for work on Monday. "They went home mad. Who wants to work for less? They were so mad that in three months we had things restored to where they were before."
Today the assembly-plant workers at Spartan make roughly 80% of what their unionized counterparts at GM do. Sztykiel, however, thinks he can offer his company's workers something of greater importance -- namely, profit sharing, job security, and a sense of fairness and equality.
Spartan distributes 10% of pretax profit quarterly among its workers, a sum that currently amounts to about 10% of base salary. Spartan, in contrast to the automotive industry, in which plant shutdowns and worker furloughs are the norm, has never had a layoff, and Sztykiel vows that will never happen: "You wouldn't do that in your family. If you have 10 children and times get tough, you wouldn't send the 3 youngest ones out the door. It's not only immoral, it's stupid. Why? Those who have been let go are soon forgotten -- screw them -- and the ones who stay haven't learned anything from the experience."
Meanwhile, Sztykiel believes most American executives are grossly overpaid. Last year, when Spartan had about $90 million in revenues, the company's six top executives paid themselves a total of $430,000. That included bonuses. Sztykiel, running a company whose average return on stockholder equity for the past five years was 35%, earned $78,000 -- or about four times as much as the lowest-paid worker at Spartan.
"We don't recognize the terms labor and management here," says Sztykiel. "I am not the boss. I am the number one servant of this corporation." At Spartan all job openings are posted, and anyone can apply. If Sztykiel were to be run over by a fire truck tomorrow, his job would be posted.
Katharine A. Michalak, an analyst with First of Michigan Corp., a Detroit-based securities firm, notes that Sztykiel's common touch transcends the fact of his modest salary or egalitarian pronouncements. "George built Spartan's first chassis himself," she says. "He still has the ability to go into the plant and build a chassis. How many CEOs of manufacturing companies of Spartan's size do you know who can do that?"* * *
Ludvik Koci, president of Detroit Diesel, another large Spartan supplier, calls the company "a very aggressive organization that reflects George. He is always moving in new and different directions." John Rouser seconds that, saying, "Over and over again he surprises the industry, he shocks the industry, and he has moved the industry."
But Sztykiel believes the method to his madness lies in being not a grand innovator but an artful copier -- seeing what the state of the art is in his industry and using the accumulated knowledge and energy of Spartan's work force to take a product to its next logical step. The strategy is known as benchmarking, and for bootstrapping companies like Spartan, it's an efficient form of research and development. "It's simple; we go to a lot of trade shows and talk to a lot of people," says Sztykiel.
At one trade show, Spartan designers started hearing that fire fighters were falling out of fast-moving fire trucks, creating huge liability problems. Spartan introduced the first enclosed cab, which today is the industry standard.
At another trade show, in Europe, Sztykiel saw a fire truck with a cab free of the customary partition between the front and back seats, allowing fire fighters to communicate with one another more easily. "Within three weeks of his getting back from that show, we were tearing our first cab apart," recalls Jim Davidson, head engineer for the fire-truck division. Spartan's "Eurospace" cab set a standard for the industry, and virtually all the company's competitors have since copied it.
When Detroit Diesel created a new engine for the truck market, the Series 60, Sztykiel badgered the company to supply the engine to Spartan. Conventional thinking was that the Series 60, with better fuel efficiency and less pickup, would work for trucks but not emergency vehicles. Few of Spartan's competitors thought that it would try to design a fire truck around the Series 60. But the engine allowed Spartan to design into the chassis two elements critical to fire fighters. Its shape allowed for a roomier cab, and its relatively low "heat rejection" made for a much cooler cab. Since the engine was introduced, in 1990, 40% of the fire trucks Spartan has sold have been powered by the Series 60 engine.
When Allison Transmission of Indianapolis -- a subsidiary of General Motors -- introduced a new electronic automatic transmission, the World Transmission (primarily for the bus market), Sztykiel jumped on it. He got Allison to supply him with some of the first transmissions, and Spartan engineers set about designing a fire-truck chassis, the Metrostar, around it. "We engineered and built that chassis in two and a half months," says chief financial officer Tony Sommer.
In that breakneck project, engineers worked alongside assemblers and debugged the first production chassis as they were being built. "Ninety percent of the problems cropped up when the cab was set on the first chassis," says Sommer. "Then our engineers were all over it on the assembly-plant floor, figuring it out." Davidson estimates that 20% of the engineering on the Metrostar was actually done by assemblers.
The Metrostar, built around the World Transmission, saved Spartan $6,000 on transmission components alone. It also incorporated lighter rails and the same front axle as the company's motor-home chassis, allowing the company to use a smaller engine and buy components in greater quantity. The Metrostar amounted to a custom-designed piece of equipment at a stock price. Custom chassis cost about $70,000. Spartan could offer many of the same features with the Metrostar at $54,000.
"That's an unbelievable price," says Al Morganelli, an independent consultant to the fire-fighting-equipment industry. "George has always been ahead of the curve. He's always known what the next product is or should be. He has the ability to take new components and put them together in an innovative way."* * *
John Rouser calls Spartan's modus operandi "organized chaos," adding, "George doesn't want his people serving some corporate plan and not the customer. He feels that if you become a slave to the plan, then you cannot do original thinking." Sztykiel refers to that organized chaos with a pithier phrase. "I submit that to achieve unorthodox results you must apply unorthodox methods."
Sztykiel has lived an unorthodox life. He was born in 1929 in Poland, where his family endured the German occupation and then fled the advancing Red Army as the war came to a close. Sztykiel's most vivid boyhood memory is of the mauled German army retreating from the Russian front in the winter of 1941. The Germans, fearing public outcry if they returned too many wounded soldiers to Germany, forced Polish citizens to take them in. Sztykiel's family boarded a 22-year-old private who had lost his toes to frostbite. The soldier said many other German soldiers had suffered a similar fate because their well-made boots fit too tightly, and the hobnails were efficient conductors of the cold. There were tales as well of the German weaponry, well made but not rugged, malfunctioning in the bitter winter weather. Each Russian soldier, meanwhile, carried a can of lard on his belt to heat over a portable stove when he got tired and hungry. He wore loose-fitting mukluks stuffed with straw.
That wartime experience made a strong impression on Sztykiel. Traveling light and living close to the bone have become second nature to him -- and by extension, to his company. Sztykiel says it would be easy for his competitors to overtake Spartan. "All they have to do is give up their big salaries and fancy offices." Until that happens, George Sztykiel will just keep going to trade shows, culling talent from the local high school, and building chassis -- quicker, cheaper, and better.
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