Do the rigorous cultures of two giant companies reflect their resource-scarce roots, the demands of today's brutally competitive economy, or both? Will every company be a bootstrapper soon?
Early morning before work. As a blaring radio thumps out hit tunes, employees at Computer Associates International Inc. pump away on the sleek instruments of torture that pass for exercise machines in the company's gleaming fitness center. Users of the machines, which rest at the head of a broad spiral staircase, look through plate glass and out on the company tennis courts, as well as the company track -- site of the company's annual Summer Olympics. Nearby, another group of workers gyrate across the buffed blond hardwood floor of the aerobics studio, while down the hall a knot of gym rats trade elbows under a glass backboard on a regulation-size basketball court.
After cooling off, employees can devour a continental breakfast provided free by the company. "I feed my people every day," boasts Charles B. Wang, chairman and chief executive officer of the 8,000-employee software giant, which is based in Islandia, N.Y. Perhaps hoping to lure the next generation into his employ, Wang also offers a Montessori day-care center, as well as a summer camp, for the children of workers.
As excessive as all that may sound -- Computer Associates also has three sports physiologists on staff, and its sumptuous cafeteria offers up a smorgasbord of good food at subsidized prices -- Wang contends that perks like those have actually nurtured a hardscrabble mind-set at the company. By tending to his workers' basic needs, Wang goads employees into being scrappy, flexible, and imaginative, thus propelling Computer Associates to its status as the world's second-largest software company, behind that of Bill What's-His-Name.
In other words, Computer Associates lays out the goodies all in the name of bootstrapping.
On the surface, the word bootstrapping sounds utterly absurd when used in connection with Computer Associates, which was founded in 1976. With $2.1 billion in sales, and with profits that grew 63%, to $401 million, in the latest fiscal year, the company can cut back on a lot of croissants before its bankers come knocking. And Wang, with his silken double-breasted suits and starched white shirts, hardly compares with the image of the dream-struck engineer tinkering away in the second bedroom of his home.
Nonetheless, Wang -- who cofounded the company with three other people, one product, and no venture capital -- has labored to retain the kind of company in which he can launch a major project simply by spotting the right candidate/victim as he patrols the halls. And Computer Associates has made more than 50 acquisitions, opportunistically devouring other software companies that have pulled up lame, and closing deals -- some surpassing $500 million -- in as few as 10 days.
"I still think of us as a small company," claims Wang (pronounced Wong). "I feel as though we are fighting for survival every day."
Wang may be kidding himself, but his belief serves an essential purpose. Once strictly the province of fledgling ventures run out of musty garages, bootstrapping is fast becoming the strategy du jour among savvy companies like Computer Associates, which are caught in an economy demanding faster, better, and cheaper merely as the ante for survival.
Today big-company bootstrappers abound. Consider Dallas-based Southwest Airlines Co., with more than $1 billion in annual revenues, which typically turns planes around twice as fast as the major airlines do, and whose financial-planning department numbers all of five. Take a look at ABC Supply Corp., of Beloit, Wis., a $600-million distributor of building materials that saves money by buying and refurbishing used equipment and last year returned an unbelievable 65% on capital employed.
Or perhaps best yet, to understand how bootstrapping cuts across industry and region, compare Computer Associates with Nucor Corp.
A $2.5-billion steelmaker, Nucor is run by a corporate staff of 23, operating out of a strip mall in Charlotte, N.C. Its mills harbor no health spas, and its subsidized cafeterias tend to feature sloppy joes and vegetables that have been boiled into submission. Nucor's Crawfordsville operation -- with revenues of $500 million a year, its largest plant -- sits out in the rolling cornfields of west central Indiana, where from a distance the mill rises from the landscape like a cathedral in a medieval town. The plant is a place of fire and dust: smudged figures move through a clanging din in which steel is heated to 3,000 degrees and then cast and rolled into 20-ton coils.
At Nucor, just four levels of authority separate top management from production workers. Research and development is ongoing and informal, driven spontaneously by workers' observations, not by some distant lab. Compensation rewards productivity. And productivity, Nucor management believes, flows from innovation. "If somebody comes up with a new idea, we seldom say no," says Nucor chairman and chief executive officer Kenneth Iverson. Some Nucor plants, Iverson says, undergo as many as three or four major equipment changes in a given year. Last year -- before profit sharing -- the average steelworker at Crawfordsville grossed $55,000, with 60% of that coming from an incentive-based bonus.
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.
Philip Montrowe, a manager of development support, says that Wang serves as the master inquisitor in a business in which technology often seduces its creators, obscuring the market's needs in the process. "The road to being a $2-billion company is littered with software companies that built better mousetraps but couldn't persuade people that they needed to catch mice," Montrowe says.
Computer Associates is run by a triumvirate of programmers: Wang, president Sanjay Kumar, and Artzt. Under them are three more seasoned technicians, and together all six track every one of the company's 300 products. "I take products home myself on the weekend" for quality testing, says Wang. "I love technology -- and I know ours is better than other people's."
Wang's assured zeal filters down through the organization and creates a mentality more Parris Island than Long Island. "People feel good when you push them. People who push themselves, we take care of them," says Artzt.
At Computer Associates the bootstrapping ethic comes down mostly from the top, rather than through worker initiative. "In the Computer Associates' Bill of Rights, you have the right to make a mistake," says Sanjay Kumar, echoing a dictum of Wang's. "You don't have the right to cover your ass over that mistake." Yet mention of a bill of rights does not guarantee democracy. "We're really more of a benevolent dictatorship," Kumar concedes.
Wang's "benevolence" keeps the organization on edge. And his omniscience penetrates, it seems, to all corners of the company. Last year Wang heard from customers that the sales force was making excessive promises. Ever the hands-on leader, he herded a handful of salespeople into a conference room. "I told them, 'OK guys, 'fess up," Wang recalls. Soon a tense session turned into a mass confessional. "This is fundamental to how we operate," says Wang.* * *
The Workforce: A willingness to be 'reinvented'
A bootstrapper of any size, Charles Wang believes, cannot succeed with workers who are just smart and hard charging. In the people who work for him, Wang prizes flexibility above all. In most big companies, that quality is lost as roles become narrowly defined, fiefdoms spring up, and the organization ossifies. "I don't want people whose livelihood depends on fulfilling a certain function," says Wang, verbally hammering away, as usual, in his sixth-floor office.
Flexibility is a virtue at Computer Associates because an essential part of the management's strategy is its dogged "reinvention" of the workforce. With his markets always shifting, Wang takes radical steps, such as routinely moving programmers to projects to which they bring little, if any, apparent knowledge.
For instance, Wang and Kumar reassigned John Kane, a programmer, to a crash project developing Unix-based software for midrange computers, even though Kane had earlier worked only with mainframes. And Kane had no prior experience with Unix, a computer language first made popular in scientific and technical circles. "It was a daunting task," Kane recalls with a wearied look. "It was less than a year from the time Computer Associates announced the concept to delivery of the product. Many of our vendors said it couldn't be done, to design a solution for a platform I had never worked on before."
But at Computer Associates, the management looks for character as much as for skill. "John knew nothing about Unix, but we knew he could take a problem, dissect it, find the solution -- and in the process learn Unix," says Kumar. He claims that most large software companies would have gone on a hiring binge and brought in a host of "Unix gurus off the street." Kumar adds that it's only later on that the companies learn they have created a system that robs those bright recruits of their creative edge. His label for that transformation: "Eagles in, turkeys out."
Nucor, like Computer Associates, looks for flexible minds to ensure a turkeyless workplace. The company does extensive psychological testing and routinely screens for possible drug use. Nucor insists on nonunion workforces and locates its plants in rural areas, where chairman Iverson believes a strong work ethic still prevails. Crawfordsville has no personnel department. Because the company knows what it's looking for -- "Teamwork, a positive attitude, aggressiveness, and a strong work ethic," says Larry Roos -- supervisors simply reach a consensus on potential hires. As Paul Rokosz, a supervisor in the cold mill, notes, "Ninety-nine percent of the people we hire have no steel-plant experience." But since 1988, adds Rokosz, the cold mill has lost just four employees, two for poor work performance and two for drug use.
Those whose psyches survive the hiring gantlet make good money and have a secure job. Nucor claims it has not had a layoff in 22 years. Short of a depression, it keeps its mills running, even at the risk of flooding the market. In return, workers must produce. Base pay for the typical production worker is about $10 an hour, but incentives can add another $15 on top of that. Such a bonus-laden pay scale pushes employees not just to work hard but also to maintain equipment to ensure it will not break down. The Crawfordsville plant, for instance, uses about .8 man-hours to produce a ton of steel -- about one-fifth what its larger competitors require.
At Nucor work is done in small, tightly knit groups guided by a supervisor. "Manufacturing work can be humdrum," says Roos, "but we give our people the chance to shape their own work." That, he reasons, takes the edge off the drudgery. Production workers are on four days, and then off four -- but each shift runs 12 hours. Seniority saves no one. All workers must alternate between working day and night shifts.
Out in the cold mill a coil of steel spins through a whining mass of machinery the size of a small two-story house. That is a reversing mill. Based loosely on the concept of the wringer on an old-fashioned washing machine, the mill rolls steel to reduce its thickness. The group running it numbers just four. Crew chief John Lewis works the computerized controls as Randy Penick, the utility person, and Al Woodall, the entry operator, watch the progress of the coil through the mill. Paul Cohee, the fourth member of the crew, operates the crane that guides the next coil into place for processing. The noise is deafening, and a greasy film hangs in the air as lubricating oil gets spun off the steel whirring through the mill. By shift's end the crew members' blue uniforms will have turned a coppery brown.
The reversing mill was deemed dated technology when Nucor bought it -- used -- thrown in for $5 million as an afterthought by the German supplier that installed the main casting line in the plant. The supplier rated the mill's output at 325,000 tons per year. Crews changed the way the coil was fed into the mill, upping the speed it could pass through from 960 feet per minute to 1,960 feet. They reduced the time it took to thread the coil on the rollers from five minutes to 20 seconds. They found a better grade of lubricating oil and installed a bigger motor on the payoff reel.
Those changes, coupled with hard work, resulted in the reversing mill's rolling 650,000 tons of steel last year -- twice as much as its manufacturer believed it could.
This year it should do 700,000 tons.* * *
Assets: Forever betting on the undervalued
Every good bootstrapper knows how to buy assets like that reversing mill for a dime or two on the dollar -- and then get more production out of them. Both Nucor and Computer Associates are aggressive acquirers of nominally different things. Computer Associates buys software companies and the talent therein. Nucor buys equipment. Ultimately, though, both companies are buying the same thing -- undervalued technology they believe the business can leverage.
Nucor's Crawfordsville plant is built around a single and substantial technological bet, the ability to achieve continuous casting of a thin slab of sheet steel. When Nucor built the plant, in 1988, at a cost of $250 million, the technology for the process had never been proved on a production scale. Metallurgists believed steel could not be continuously cast in a slab less than eight inches thick. In casting sheet steel, there is a big advantage in making it as thin as possible, since rolling steel to reduce its thickness is costly.
Nucor's bet paid off, with Crawfordsville being the first production-scale caster to produce a continuous slab just two inches thick. Competitors are now scrambling to follow Nucor's lead, but the company recently installed a second caster at Crawfordsville. The first caster gave Nucor its cost advantage by stripping out about $50 per ton in conversion cost. The second will give it leverage. It will cost $45 million and require adding 30 people to the workforce. But it will increase the plant's annual output from 1.1 million to 1.8 million tons.
While Nucor embraces breakthrough technologies like continuous casting, it also prides itself on taking a shop-floor approach to making them work.
Vince Schiavoni, manager of the hot mill, says Nucor deliberately gives equipment vendors rough parameters on the theory that engineering specifications that are too tightly drawn "can trample good-quality suppliers." Schiavoni tells vendors he wants equipment 85% done upon installation for two reasons. First, he wants the asset in place because management pay tilts heavily toward hitting return-on-assets targets. Better to have a machine running half-speed than not at all, he reasons. Second, steel-mill conditions never approximate those of the laboratory. "We want to be able to tinker with equipment, because only the workers know what's really going on under production conditions," he says.
Three years ago Nucor decided to install a galvanizing line that coats finished steel to enhance its durability. Engineers from $17.8-billion USX Corp. (formerly U.S. Steel) visited the plant in July 1992 before the foundation for the line had even been poured, and Nucor engineers told them they'd have the line running by year's end. As Glenn Pushis, a Nucor engineer, recalls, the USX visitors laughed; they, after all, had started building a similar line a year earlier, and it still wasn't up. The day after Christmas, USX ran its first coil through its new galvanizing line. Twelve hours later Nucor ran its first coil. Nucor spent $25 million to build its galvanizing line. No one else has done it for less than $48 million, according to Pushis.
Nucor and Computer Associates not only work their assets hard but also pay bottom dollar for them.
Nucor's continuous caster cost one-fifth as much as conventional technology does. Computer Associates, a voracious buyer of fallen software companies, recently paid just $310 million for the Ask Group, which has $426 million in sales. Wang says there is a lot of talent and technology out there, trapped in companies run by what he baldly labels "lousy businesspeople." After buying a company, Wang can't wait to start rummaging for hidden human assets.
"The top executives are going to leave. They have their platinum parachutes; they're all set," says Wang. "Now the midlevel people, the real performers, can come to the fore. They're just waiting for that opportunity, and we give it to them."
That's how Wang found Sanjay Kumar in the wake of Computer Associates' acquisition of Dallas-based Uccel Corp., back in 1987. Wang labels Kumar "a brilliant technician," who toiled as "a lowly development person" inside Uccel. Kumar has since ascended. He is Computer Associates' president and chief operating officer. He is also just 32.
Kumar has become a force behind many of the company's deals. Earlier this year he was off negotiating with Electronic Data Systems ($8.6 billion in sales), the systems-integration company founded by H. Ross Perot. The two companies were locked in a lawsuit -- and a countersuit -- over software licensing. Kumar, surprisingly, broke that stalemate, transforming the legal fight into a major licensing deal between the two. Meanwhile, he was sealing the Ask acquisition, which took all of 10 days to complete.
Kumar is nothing if not a shrewd judge of targeted companies. "We first leave out all the numbers and just ask, 'What can the business bring in terms of product, people, and clients?" says Kumar. "Then I look to see what we can leverage in that business to make it run more efficiently."
Executive vice-president Russ Artzt casts an equally keen eye on Computer Associates' quarry. "Before we acquire a company, we interview everybody in the company -- everybody," he says. "We look for an attitude, a mind-set. Is this person antagonistic, is he a worker? We sit down with the people we acquire and say, 'Here's what we want to do."
After every acquisition Computer Associates' management divides the conquered into three groups: keepers ("You are now part of the Computer Associates family and on equal footing with us"); flippers ("We are sorry, but you are redundant; here is a generous severance package"); and maybes ("You may work here for a certain period of time during which we will try to find a permanent position for you").
The process may sound exhaustive, but it's not. The management invariably completes it within a week.* * *
Products: Efficiency as the ultimate edge
Bootstrapping companies are efficiency hawks when it comes to turning out products. They need to be; if they can't get a product out quickly, they risk going out of business. Big companies have the luxury of time, but that is fast disappearing. Management consultant Susan Rowland says that many large companies are now caught in a squeeze. On one hand, they must scramble to innovate so they can differentiate their products. On the other, they must push to cut product-development time, since that accounts for a disproportionate share of cost.
In a sense, companies like Computer Associates and Nucor can skirt that dilemma because their products are deliberately nonrevolutionary and stable. Nucor churns out ton upon ton of commodity-grade steel. Based on casting speed, the Crawfordsville plant had an original capacity of 800,000 tons of steel a year. Last year, after modifications to the caster, the plant produced 1.1 million tons, almost 40% more.
Computer Associates takes a similar shotgun approach to the market. It makes what Wang calls "blue collar" software, products that businesses need to run such everyday operations as accounts receivable and inventory management. It has more than 300 releases on the market and 100 under development at any one time, according to senior vice-president for development Mark Combs. Those programs are designed to run on all major software platforms.
Wang considers writing software an art form, best executed by a few creative people. He assigns no more than eight programmers to new releases and claims that competitors might put 10 times as many on a similar project. If the project misses its deadline, Wang begins subtracting programmers, prepared, if necessary, to keep whittling the group down to one.
Wang notes that successful programmers develop not just good software but big egos. A hit product can send its developer off, wanting to use his or her clout to explore new directions, leaving the lieutenants to write the next -- invariably inferior -- release of that product. Wang claims that the initial creator of the program can best understand the logic and inspiration behind it. So he or she should write the follow-on product.
Wang pays his star programmers as much as $250,000 to reward them for good work and to underscore that they don't have to move to management positions to make more money. He also limits the scope of each project. "I never let my programmers do the whole thing in one fell swoop. I cut it back," he says. "I leave a carrot out there in the form of the second release. Nirvana is not achieved in one stroke."
To further streamline development, Computer Associates has spent more than 15 years devising a core architecture called CA 90s, around which it can standardize the products it writes. Such a setup not only creates uniformity across the product line but also precludes programmers' having to start from scratch with each development project. Russ Artzt says CA 90s has imposed a discipline on Computer Associates, something not often seen in software companies, where programmers so readily fall in love with their creations.
CA 90s contains what Artzt labels "reusable" components, a concept that applies in a different sense at Nucor. Nucor continually upgrades its existing equipment, instead of making wholesale technical transformations. Sitting over lunch in the cafeteria alongside coworkers Frank Pugh and Richard Painter, Glenn Pushis says, "You're looking at three-quarters of the engineering department." Their job is to persistently troubleshoot at the plant and spot equipment upgrades they can make that will pay for themselves in savings within a reasonable time frame. Most proposals costing less than $5 million get immediate approval.
The Nucor engineers have customized practically the whole second casting line at the plant, based on their observations of how the first one has run. They have been able to up the amount of steel moving down the line from 220 inches a minute to 250. The engineers, in concert with production workers, keep the entire plant in perpetual upgrade. Nine months before the galvanizing line started up, Nucor assigned production workers to consult with the engineers on its design and construction.
"We look at every piece of equipment and make it go faster or increase its reliability," says Kevin Young, the cold-mill manager. Young, who assumed that job last October, says that since then his department has increased productivity on all six of its lines. Output on the pickling line is up 10% since October. The reversing mill is up 10%. The tempering mill has increased production by 25% -- with 25% fewer workers.
Valera Shifrin, one of Nucor's three metallurgists, earlier this year began rethinking the company's deoxidation process, which removes impurities in molten steel. Ultimately, Shifrin's idea ended up saving 50¢ per ton of steel. That sounds small, until you consider that Crawfordsville will produce 1.8 million tons of steel this year -- and will save nearly $1 million.
Results like those achieved by Shifrin -- an unlikely recruit who was a citizen of the Soviet Union when he first read about Nucor in an academic journal -- are hard to argue with. But not impossible.
If there is a downside to bootstrapping in big companies like Nucor and Computer Associates, it is that every move by management becomes a return-on-investment issue and little else. Asked about the apparent incongruity of the comfortable layout at Computer Associates with the conventional bootstrapping image, Charles Wang immediately responds, "We have the highest revenue per employee in the software industry. That says we are efficient."
Wang goes on to decry companies at which a so-called roach coach pulls up in the parking lot outside and employees stream out of the building to buy a cup of coffee or a sandwich. They are wasting time. He says that offering employees a range of amenities gives them a predictable environment that allows them to focus on work. "We try to provide everything for everybody," he says.
The feeling that companies like Nucor and Computer Associates often project is that the organization always knows best. Philip Montrowe abruptly left Computer Associates six years ago after a meteoric rise at the company "because I got mad at Charles. I didn't want to be reinvented at that time." The company wanted to move Montrowe, whose expertise was in mainframe-computer-related software, into another area. Five years later he returned, conceding that Wang had been right. But Montrowe labels Computer Associates a place "where I guess you can more or less speak your mind." Though he calls Wang "brilliant" and "visionary," he also adds, "you wouldn't want to get on his bad side."
The same can be said of Nucor's management. Sitting over coffee one day at Crawfordsville, cold-mill supervisor Paul Rokosz details how one employee, who was suspected of drug use, took a urine test, which turned up negative. He was later confronted with the prospect of a hair-follicle test. "At that point he resigned," Rokosz recalls, adding, "we screen our employees heavily."
The message at these companies is that slackers need not apply. They are the Marine Corps of corporate America. And yet Nucor and Computer Associates simply mirror the rigors and perils of an economy in which bootstrapping and downsizing are beginning to converge. With companies asking their workers to do more with less, the effort to keep people motivated "will become the human-resources issue of the '90s," predicts consultant Susan Rowland.
Rowland adds that for all the corporate downsizing and cost slashing that has occurred, the bootstrapping phenomenon "has really only just begun." But at Nucor and Computer Associates, it never ended.