Bootstrapping for Billions

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These two companies -- among many others -- aren't slimming down just because they know downsizing is the rage. The fact is, neither Nucor nor Computer Associates ever upsized. They have consciously chosen to run lean, to bootstrap while others become bureaucratic. As dissimilar as they may seem on the surface, sleek Computer Associates and grimy Nucor both work hard to maintain their status as billion-dollar bootstrappers.

What follows are the main principles of bootstrapping as practiced by the two giants. At Computer Associates and Nucor, the management stays close to operations -- and workers stay flexible. The hunt for undervalued assets never ends, and devotion to efficiency gives the companies' products a consistently competitive edge. Both companies work hard to keep the bootstrapping spirit alive when success and size could so easily scuttle it.

Managers: Never far from the action
The best bootstrapping companies are run by people who work closely with the product. In small companies managers have little choice because production drives the business and determines survival. But as a company grows, many product-oriented people yearn for more status or responsibility. They want to manage people and projects. Many land in middle-management purgatory, isolated from the immediacy of the factory floor, denied the status of the executive suite. The bulk of Fortune 1,000 companies are still run by people with backgrounds in accounting, law, and business management, observes Susan Rowland, a principal and compensation specialist at consulting firm Towers Perrin Forster & Crosby, in Valhalla, N.Y.

But go to Nucor's headquarters and you won't find an executive vice-president in sight. That's because they have all been banished to Nucor's 16 plants -- where they are busy running them. "Plant managers have to be good business managers," notes Nucor chairman Iverson. "Each plant does its own marketing and sales. Each division is a stand-alone business with its own operating targets."

Larry Roos, with 21 years' experience in the steel business, serves as plant manager at Crawfordsville. This year the mill should produce 1.8 million tons of steel, up from 1.1 million in 1993. Roos spends much of his typical 12-hour day roving through the mill in a flame-retardant jacket and steel-toed shoes. Roos (pronounced Rose) understands the operation so well that he can boil its performance down to a single number.

Nucor's conversion cost -- the cost of turning a ton of scrap into a ton of finished steel -- animates the operation and drives the decision-making process. That number, says Iverson, is currently around $170, and analysts believe the company has a $50 to $75 advantage over competitors, making Nucor a low-cost producer in the industry.

Nucor keeps pounding away at its conversion cost by insisting that the management stay close to its roots. Under Roos at Crawfordsville, which employs 475 people, there are just seven department heads and 24 supervisors. All have come up through the mill, and all still spend much of the day there. In a good year more than half the compensation received by Nucor department heads and supervisors is based on return on assets. That directly rewards -- or penalizes -- them for decisions they make regarding the manufacturing process and capital expenses. Put in the wrong kind of furnace and your paycheck gets singed.

In the past two years Nucor workers have lowered the time it takes to melt the steel from 72 minutes to about 65, which has allowed for the pouring of an additional 25 tons of steel during a typical 12-hour shift. Nucor owes that increased yield not to any one revolutionary change but to a host of small changes effected by workers. Their contributions range from tinkering with the chemistry of the melt to replacing a 4-foot-long exhaust pipe with one measuring 10 feet.

Crawfordsville is in permanent evolution. Workers are doing so much experimentation, Roos says, that "half the time I don't know who's doing what out there." Dave Smith, manager of the melt shop, recalls a recent instance when the grade of sand used to plug the "taphole" in the vessel carrying the molten steel solidified, impeding the pouring of the steel into the caster. Workers started bringing in different grades of sand and gravel. One day Smith looked out his window to see workers shoveling limestone out of the driveway.

In a climate of rampant experimentation, "we do have failures," admits Iverson. He cites the replacement in one instance of an electric arc furnace with an induction furnace -- an $8-million mistake, but one that seems to have left Iverson unfazed. "The real problem much of the time is that people don't take enough risks," he claims.

At Computer Associates, by contrast, the management leaves little to chance. Risk taking comes from the top down. Charles Wang promotes a process dubbed zero-based thinking, which routinely reexamines cost and strategic questions on all projects. "We are always asking, 'Why are we doing this? What do we need to get done?" says Russ Artzt, executive vice-president and chief of research and development.

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