What a ride! First, it was up, up, up. In the spring of 1983, little more than a year after entering the highly competitive field of computer memory chips, tiny Micron Technology Inc., in Boise, Idaho, was hailed as a success in high-technology manufacturing. Back then, Micron was the country's hero in the struggle for economic hegemony, a vindication of individual creativity and self-reliance against the might of Japan Inc.
What's more, Micron's bottom line gave substance to the sentiment. By the end of its 1984 fiscal year, the company was spinning profits of $29 million out of sales of $87 million, among the highest profit margins of any electronics company in the world.
Yet less than a year and a half later, in the spring of 1985, Micron had laid off half its work force and closed down one of its two production lines. Its stock had lost nine-tenths of its value. Its results for the quarter ending November 1985 showed losses of $11.6 million on revenues of just $5 million.
What had gone wrong?
Chief executive officer Joseph Parkinson blamed the Japanese, whom he accused of dumping their chips -- illegally pricing the product at below what it cost them to make it. Micron counterattacked with an extraordinary move for so small a company. The company launched an intense legal campaign in Washington, D.C., to solicit the Reagan Administration and Congress for protection against the Japanese companies' unfair trade practices.
And it won. The resulting penalties against the Japanese tightened up supply and drove up prices. The roller coaster was on a steep climb once again. In the spring of 1988, on the day that INC. senior editors Stephen D. Solomon and Michael Hopkins arrived in Boise to interview Parkinson, the local newspaper carried a front-page headline announcing that Micron had just concluded a stunning long-term deal with Intel Corp., the semi-conductor giant. Micron expects to be hiring 1,000 new workers over the next two years. Other vital signs are equally lively. In its second fiscal quarter ending February 1988, the company recorded net earnings of $16.9 million on sales of $58 million.
That's a stunning turnaround in anybody's book. INC. wanted to know how Parkinson managed his way through those bleak times. The interview began at the beginning -- with what might have looked, to anyone but Parkinson, like the beginning of the end.
INC.: The day the Japanese slashed their microchip prices, how much advance warning did you have, if any?
PARKINSON: I would say we had a week or two.
INC.: A week or two?
PARKINSON: Yeah, it was sometime in September 1984. I remember vividly, a group of us were here late at night, just back from the road, and we were all getting the same sense that this thing was turning, and turning quickly.
INC.: What sort of sense? Where did it come from?
PARKINSON: From customers, mostly. Customers are always your best source of information, provided you're in the same room with them, looking at them. But in this instance, the message would have come through loud and clear if we'd been on another planet.
INC.: It was that blatant?
PARKINSON: There you are, closing a deal with a customer, and you've got the feeling that $1.70 per chip will do it. But the customer comes back and says, "No, $1.70 won't do it. Let's try $1.60." So you say, "Well, suppose we come down to $1.60. Will you deal at that price?" And he says, "Maybe." Well, you hear a couple of messages like that, and it pretty quickly sinks in that your Japanese competitors are acting on one simple set of instructions: "Get that business at any price."
INC.: So that meant prices were dropping pretty fast.
PARKINSON: One month we were selling product at $3, and six months later, it's under a dollar, with some spot business going at 50 cents. We went from revenues of $12 million a month to less than $2 million a month. That's the kind of situation we were facing. And it wasn't pleasant.
INC.: There must have been plenty of moments when you thought, this is the end.
PARKINSON: Never. That's not the way we are around here. The way we saw it, we were being challenged. And we took up the challenge. There was no bunker mentality. Nobody said, "Let's hunker down and try to survive." We wanted to do more than survive. We wanted to prevail. So we went on the attack.
INC.: Most companies in your situation think survival. The idea of prevailing sounds absurd, or at least naively romantic, when you're fighting to stay out of Chapter 11.
PARKINSON: By committing to a survival strategy, you cut everything that doesn't directly contribute to the product going out the door. But you're just postponing the inevitable. It's true that we were intensely focused on cutting costs, which is a survival tactic. But we also continued improving the product, broadening our customer base, innovating new products. That costs money. But that's the only way to play the game -- play it to win. I'm not interested in survival, not at all.
INC.: Many of your domestic competitors didn't survive.
PARKINSON: Something like 65,000 jobs were lost during that period. Many companies got out or went bankrupt. And who can blame them? We were shipping 25 cents, 50 cents, with each chip we sent out. Many of our competitors were probably shipping a dollar bill. The Japanese, they shipped $4 billion before it was over.
INC.: In practical terms, what did it mean to attack, rather than just survive?
PARKINSON: Using our political muscle was a major part of the strategy. I got a call one day from a man named Nelson Hogge from the International Trade Commission. What he said was, "We've lost the memory-chip market, and we can't find anyone who wants to speak to the commission. Would you have any interest?" I did, and he introduced me to several other people who were sympathetic to our cause. One of them gave me the idea of suing the Japanese for dumping.
INC.: Some people criticized you for this. They said you broke therules -- running to the government to fight your battles for you.
PARKINSON: We're not competing with companies anymore, we're competing with countries. So we went to the government and told them that what was happening to us was against the law. It wasn't something I was eager to do, but what I found out very quickly is that as soon as you start facing the kind of threats that we were facing, all your political philosophies go right out the window. You look for help anywhere you can find it. Again, you can't sit back and try to muddle through.
INC.: But back in Boise, as you said, you were losing money on every chip you shipped. What did you do about prevailing at home?
PARKINSON: Well, we offered the price discount in September 1984, and when that didn't hold, we moved almost instantly to lay off half our work force. It was the most unpleasant thing I've ever done, but I had no choice. We didn't have the deep pockets of some of the bigger companies, so if we were going to stay in the fight, we were going to have to let some people go.
INC.: How did you do it?
PARKINSON: We very quickly came up with the 50% target -- from 1,400 people down to 700. We told our people to cut half the employees working in their areas of responsibility, the supervisors, and so on. We laid off some upper management as well, in somewhat the same proportion.
INC.: Very neat, but how did you know what people to cut? Were there any guidelines?
PARKINSON: Well, the simple thing to do is to go by seniority, but I don't think that's fair or in the best interests of the company. So we went down to the core group.
INC.: The core group, what do you mean by that?
PARKINSON: They're the people we would need to come back up again, who we felt would be committed to this company, who could withstand the kind of stress we anticipated going through. And instead of having serial layoffs, we decided to cut to the bare bones right away.
INC.: Wouldn't it have been better to lay off employees more deliberately, as you needed to?
PARKINSON: No way. We wanted to get the morale hit behind us, and not have people worrying if this is an ongoing process. We told them, "This is the crew, this is the boat. We're going to either make it or sink together."
INC.: How could you so quickly judge who was part of the core group?
PARKINSON: It was sort of like putting the hiring process into reverse. The way we hire people is that the line supervisor interviews candidates and picks a person. The person then goes to the group manager, then on up the line to me or to our president, Juan Benitez, if I'm not in town.
INC.: One of you actually interviews everyone who comes to work for thecompany?
PARKINSON: Every new person, yes. And I always probe them to discover what their level of commitment will be. Will they work any shift, do any job, even pick up the garbage? That goes for managerial types as well. I would sacrifice talent to get the right attitude. In interviews, I always ask myself whether this guy has what it takes to make in this extremely competitive situation. We want people who have the courage to take the risk and, if need be, sacrifice some personal life to work the odd shift or do another job -- whatever it might take to make this company go. So when we decided to cut back to the core group, they were it -- the people we needed in order to come back up again.
INC.: What sacrifices did your top management make?
PARKINSON: Well, there was no one making a very substantial salary during that period.
INC.: Everyone took a cut?
PARKINSON: It was at least 10%. Salaries weren't all that high to begin with. We were noted in the industry, not for our high salaries, but for distributing stock and having substantial bonus opportunities when times were good. That came to an end. We eliminated pension plans, life insurance, disability, and dental. And we reduced medical and vision coverage. That applied to everyone.
INC.: Any other cuts? I mean, you've got a great many amenities in this establishment: basketball courts and such.
PARKINSON: We talked about that. About cutting back on the landscaping, some of the more obvious cosmetic things; maybe cutting back the janitorial service, reducing maintenance. But then we decided that would have been fatal. Whatever was left was going to be highly maintained -- the best we could do. In fact, we continued to add equipment during this period; we continued to rework our fabrication plants and upgrade our air handling. Even some of our outside service people, who I think normally would have been cut, we preserved the relatioship with them. And I'm very glad we did.
INC.: Who cares if the lawn is cut when the company is battling for its life? That doesn't sound like a smart way to spend money, given the circumstances.
PARKINSON: You're wrong, totally wrong. You have to show people that you're still doing the little things that say the company has a future.
We even kept Dick Heyer, the leader of our construction crew, on payroll at the company. Obviously, there wasn't any building going on in this period. Dick had 20 to 25 years' experience in the construction industry when we hired him. He was a man who was used to managing a lot of people, working on multimillion-dollar projects, and now there wasn't any construction for him to do. But we kept him. And we kept the R&D team, too.
INC.: All this must have added to your marginal costs -- at a time when you were shipping product at below cost. How many people like Heyer did you keep on the payroll?
PARKINSON: Don't misunderstand me: nobody was paid to sit around doing nothing.
Dick Heyer was cleaning pumps, dirty, greasy pumps, for months at a time. Other people were deployed on the problem of cutting manufacturing costs and improving product. The research-and-development people were focused on the problem of diversifying our product lines and bringing on a new generation of DRAMs [dynamic random-access memory chips]. That was the whole thrust of our strategy -- to use the downtime to prepare for the comeback.
INC.: And all that was part of the relentless focus on winning.
PARKINSON: The speed, the performance, the quality of our products -- all the decisions for which we're given credit today -- are the outcomes of those dark days. It's what comes with being threatened. We learned to squeeze the last ounce of production from the people we kept on board. We got by with equipment that no one else felt was adequate. The new products we're bringing out now are the outcome of those same dark days.
INC.: One thing puzzles me. Even with the highest level of commitment in the world, it must have been quite a job keeping up everyone's morale.
PARKINSON: It was, in a way. But remember, we had a great advantage. We had an enemy, and we were sworn to prevail over that enemy, not just to survive the battle. That was our war cry, and we took it everywhere. We had meetings with all the employees, frequent meetings. Everyone would get all excited. They were like rallies, like revival meetings.
INC.: The important thing in those meetings was to convey a sense of the future, that they had a future?
PARKINSON: Right. And they could see it. I mean, we were giving them progress reports on the 256K DRAM, that it was being cost-engineered down. But they could see it, too, in the new products we were coming up with -- at great expense to the company. So they knew we were making the moves necessary not only to dodge the bullets, but to do an end-run around the competition to attack them from a different direction. And that's just what it was, benefits we were starting to see from attacking rather than just trying to survive.
INC.: Were you persuasive?
PARKINSON: Well, we must have been doing something right. During this time we were selling stock to our employees at $2.40 a share. We sold stock out of a million-share pool on a payroll-deduction plan, which allowed people to buy stock up to 25% of their salaries. That was as high as we'd let anyone go. We were afraid people would be bankrupting themselves.
INC.: That saved you 25% of payroll. In effect, the whole company was helping finance the turnaround effort.
PARKINSON: In a sense, yes. But we didn't push it; after all, someone might have family troubles. We would announce the programs, "If you're able to afford it, if you can make this sacrifice, great."
INC.: Many of our readers are probably in the phase you were in from 1981 to '85, when you were hell-bent on growth. And most of these companies will go through difficulty at one time or another. What advice would you give them about preparing for those downtimes?
PARKINSON: I would certainly say that building a war chest is just as important as sales growth. We had very little debt and a $40-million line of credit with the bank. That was our war chest, and it was a very serious mistake. Because when the crunch came, the bank did not hang in there with us and came very close to pulling back its entire line of credit. It would have been far preferable, in hindsight, to have had money in the bank, rather than to rely on bank people and credit. Bank managements change -- as we found out -- and the new ones don't always honor the commitments of their predecessors, or they find ways to get out from under them.
So the important thing is to have reserves any way you can get them. Obviously, the best way is to have an ongoing stream of cash flow. That's the multiproduct strategy, in our case. Conventional wisdom, you'll say, but I needed to go through it to have it sink into a dense skull like mine.
INC.: Besides not paying down your debt, what other things should you have done differently in your earlier growth period? Leasing and renting things, say, instead of buying them?
PARKINSON: Yes, indeed. There's a multiplicity of financing approaches and we're using them now, for sure.
INC.: What else did you learn?
PARKINSON: I keep coming back to the importance of the customer base and your employees. There are some people who are more reliable than others. Those are the people who must be identified and embraced, people you'd do anything for. It's a matter of resource allocation. There are some engineers who design better chips than others. They should be paid more money, given bigger bonuses, stock options, promotions. They'll give it back to you.
INC.: And customers?
PARKINSON: What we ask is, who are the customers who give it back to us? I learned that extremely good relationships need to be nurtured, promoted, and valued. Those are the people you do anything for. None of this in any way inhibits growth. It's a matter of using better judgment and pouring your resources where they get the best return.
INC.: Now that things have gotten a lot better at Micron, do you find it easier or harder managing a business in a noncrisis situation? You don't have any obvious enemy to kick around anymore.
PARKINSON: That's true. It's not as focused now as it was then, and therefore, not as easy. But you can't stay in a frenzy forever. You have to get down to rational, planned, consistent progress. People can't work around the clock a night or two a week forever, and we had people who did that for a fairly long period. This is a much less emotional time for us.
INC.: Less emotional, perhaps, but perhaps more satisfying? I see that Dick Heyer isn't cleaning greasy pumps anymore -- he's back to building a new production line.
PARKINSON: When I see Dick supervising the construction site, it reminds me of the philosophy that guided everything we did back when things were bleak. You can fail, you can plod along, or you can prevail. It's by no means inevitable that you will prevail, that you will come out of it better and stronger than when you went in. The trick is, I think, to manage the situation somehow so that it does bring out the best in people. And I think it's a matter of persuading people that they can have an effect on their own destinies. I believe in personal responsibility, not only for problems but for successes. Neither one is inevitable. People need to stay in condition, in shape, and be prepared to fight when they're losing as well as when they're winning.