(FORTUNE Magazine) – THE INDUSTRIAL GIANTS of the U.S. have lunged into restructuring with the same fervor that legions of middle-aged, flabby Americans have brought to crash diets and punishing exercise machines. According to a recent survey by Temple Barker & Sloane, a consulting firm in Lexington, Massachusetts, no less than 56% of the FORTUNE 500 industrial companies have embarked on the slimming-down process in the past five years. Alas, warn the apostles of corporate fitness and the Apollos of physical conditioning alike, the price of gain is pain. The pain is all too familiar: hundreds of plants or businesses shut down or sold off, and whole tiers of employees and managers cast out of work. The gain, like washboard stomachs and thin thighs, has taken longer to materialize. At last that payoff is becoming apparent. Seven corporations, representing a cross section of the FORTUNE 500, offer compelling testimony that restructuring can indeed lower breakeven points substantially and lead to a doubling or even tripling of earnings. The seven are Ford Motor Co., Ralston Purina, Eastman Kodak, Champion International, Hanson Industries, Cyprus Minerals, and Navistar International. Their performance is all the more impressive because it is occurring in the face of sluggish economic growth and tough times for many on the 500 (see introduction to list, page 355). The applause from Wall Street is already thunderous. Stocks of the more stellar reborn companies have far outdistanced even today's soaring market; others have perked up after years in limbo. Economist A. Gary Shilling speaks enthusiastically of ''bottom-line growth stocks'' -- newly trim companies in basic industries that are primed for rocketing profits on any modest increases in production volume. The trick is to distinguish true restructuring from the me-too variety. Says Donald Kelly, who as chief executive is busily revamping newly private Beatrice Cos., now called BCI Holdings Corp.: ''There's a lot of scrambling around, and many companies are doing it just so their top executives can go to cocktail parties and say they restructured. Many companies are doing it in a protective mode, and some are doing it poorly.'' Restructuring can take many forms. There are financial steps, like buying back stock, taking on more debt, divesting operations that do not fit in, and acquiring others that do. And there are operational and strategic measures, such as cutting back overhead, reorganizing day-to-day procedures, and changing the corporate focus and attitude. While no universal blueprint works for each company, some overarching themes are common to all restructuring. One theme calls into question the size and even the logic of large public corporations, particularly those whose bosses think they can run anything. Just what does headquarters contribute by way of creating value for shareholders? Too often centralized staffs merely add to costs, hamstring decision-making, and remove operating authority from line managers who know the business best. Executives, runs another theme, need to be motivated to act like owners seeking the highest return on their investment. That is seldom the case in a broadly held company whose stewards have equity positions that measure only a tenth of a percent or less of the stock outstanding. The new line at McKinsey & Co., one of the largest U.S. management consulting firms, is to teach corporate clients how to develop an ''LBO mind-set.'' The firm cites a study showing that only 10% to 20% of the stock value created through leveraged buyouts comes from financial maneuvers, like taking on more debt, while 80% to , 90% comes from managers running the companies more efficiently because they hold sizable stakes. A third theme is the rising acceptance of so-called market value theory. According to its tenets, a company should keep a vigilant watch not merely on its stock price but also on the potential market value of each of its assets and business units. How much an alternative owner might pay for an asset then becomes the new standard of performance against which a company should measure that asset's return. If a would-be acquirer is willing to pay more money for a business than the company can expect to earn from it over a reasonable time, the company ought to consider selling it off. Conversely, what the market values highest in a particular company's portfolio of businesses is what it ought to keep. According to an update of the Temple Barker & Sloane survey, managers of 74% of the companies that have restructured say they periodically review the market value of their assets; 54% do it yearly. A final theme cautions that restructuring is more than one-time financial surgery. Cutting costs, selling marginal businesses, and buying back shares can hype the stock for a time. But the benefits stop there unless the company plows money back into labor-saving machinery in its central businesses, maintains a strong research and development effort, and looks for opportunities to grow through new products and markets. In the success stories that follow, all different in their particulars, these common themes recur like insistent motifs. -- FORD MOTOR CO. Last year, with sales only two-thirds as great, Ford outearned General Motors for the first time since 1924, and by a wide margin. Best sellers Taurus and Sable, the brainstorms of Ford Chief Executive Donald Petersen, 60, are generally given credit. But the real story is that since 1980 Ford has carved $5 billion a year, or 10%, out of its costs in North America. It has lowered by an astounding 40% the number of cars it must make before it breaks even. According to David McCammon, 52, Ford's vice president- controller, who helped formulate the restructuring strategy under former chairman Philip Caldwell, the company earned $5.1 billion before taxes last year on nearly six million cars and trucks worldwide, about the same unit volume as in 1979, when it made only $1.5 billion pretax. Ford executives now say the company would make money even in a disastrous year like 1980, when it produced only 4.3 million cars and trucks and lost a record $2 billion. How did Ford do it? First, it cut back its work force by about one-third. More important, it pared capacity in line with declining demand -- a seemingly simple decision that ran against Detroit's die-hard practice of gunning production in the face of soft sales to hold market share. The company closed 15 manufacturing facilities, including three assembly plants in the U.S., and is beginning to make low-margin small cars in foreign countries such as Mexico and South Korea. The automaker switched to just-in-time inventory, realizing a huge one-time saving of $3 billion. Today's minimal inventory turns over nine times a year instead of the former six, reducing carrying costs by a third. Ford also boosted quality 60%, as measured by consumer surveys and repair costs under warranty plans. A recent company survey showed that 19.5% of U.S. car buyers would choose a Ford, more than a point above the company's market share last year. Thanks to cuts in the payroll, investments in new manufacturing technology, and a teamwork approach to the manufacturing process, Ford has lifted factory productivity in the U.S. by 6% annually over the past six years. Robots now perform 98% of the welding at the new Taurus and Sable plants in Atlanta and Chicago. Doors are taken off the bodies after painting so workers can easily work inside; the change allows the line to run faster. Soliciting employee suggestions before it tooled up, Ford was told that if the exterior sheet metal could be reduced from 13 pieces to one, the company could save money on welds and produce stronger car bodies with fewer squeaks. Ford engineers succeeded in getting it down to two pieces. SINCE 1984, Ford has bought back 30 million shares, or about 10% of its stock, at an average price of around $40. The buybacks, and surging profits, have helped push the stock up 11-fold since 1981, to a recent $84 a share. The company also sold a paint business and made two big acquisitions. In 1985 it paid $493 million for First Nationwide Financial Corp., one of the largest savings and loan associations in the U.S. Last year the subsidiary earned $102 million after taxes. Ford also shelled out $330 million to Sperry for New Holland, an agricultural equipment company that it merged into Ford Tractor to create a full-line producer that ranks third in that business. None of these moves have dented Ford's cash position. The company's debt as a percentage of total capital climbed to a high of 43% during the early ( Eighties as losses mounted and the company spent huge sums gearing up to produce the Taurus and Sable. Debt is now down to 19%. At the end of 1986 Ford had an $8.6-billion cash hoard and was looking for acquisitions in aerospace, electronics, and financial services. ''I believe that's more cash than any other company in the country has right now,'' says controller McCammon. ''It gives you a nice feeling.'' -- RALSTON PURINA. William Stiritz, the maverick 53-year-old chairman of St. Louis-based Ralston, set out to revamp this venerable company the day he took over in 1981, long before takeovers, stock buybacks, and leverage were in vogue. Stiritz says he was motivated by nothing more than common sense, which dictates that the purpose of a company is to make money for shareholders. An avid student of market value theory, he belongs to the unsentimental school of executives who believe in running their companies like investment portfolios. Or, to use one of Stiritz's similes for the food business, like a game of bridge. In his view the people at Kellogg and General Foods have pat hands because their lucrative brands have been mainstays on store shelves for years. Ralston Purina, however, ''had a bunch of doggy businesses we had to get rid of,'' and he wasn't talking about Ralston's premier position in pet food. In short order he sold off a mixed bag of small, low-margin commodity divisions, and later he unloaded Purina Mills, an animal feed producer that was the company's original business. These enterprises contributed 42% of sales in 1982, but considerably less profits, and most were a distraction. Says Stiritz: ''Too much management time was spent on trying to solve problems in small businesses with questionable prospects for the future.'' FREED OF THESE CONCERNS, the company concentrated its resources on enhancing the high returns of its cereals and pet foods by extending product lines and coming up with new offerings. ''High performance'' gourmet dog food, for instance, has been a hit. Quips Stiritz: ''High performance means high levels of palatability and nutrition and a super-premium price.'' He also forked over $475 million to ITT for Continental Baking, the maker of Wonder bread, and last year paid $1.4 billion to troubled Union Carbide for Eveready Battery, the leader in its field. According to John McMillan, an analyst with Prudential-Bache, these two businesses together will account for more than a third of Ralston's sales and profits this year. ) Since 1982 Ralston has aggressively bought back 41% of its outstanding stock at an average price of about $32. The stock recently traded around $83, or nearly seven times the price at the end of 1981. Stiritz figures that he created about $2.2 billion for remaining shareholders -- including the chairman, who holds a 0.5% stake (361,000 shares). One value-oriented investor who missed out was Warren Buffett. About the time Ralston bought Continental, Buffett's company, Berkshire Hathaway, sold a big block of shares to a broker, which Ralston then picked up at around $27 a share. ''Buying new businesses flies in the face of some value players,'' says Stiritz. But he argues that the acquisitions are related to Ralston's core business of consumer packaged goods, where the company's marketing expertise can lift returns. Today 90% of Ralston's sales are to the consumer. The company is vigilant about keeping costs down, but there have been no major staff cuts. ''Cost cutting can only go so far in our business,'' says Stiritz. ''It doesn't take a wizard to do that. But it does take a wizard to recognize where the market is going and how to get on the leading edge with new products.'' Stiritz is a wizard by any definition. Since 1982 Ralston's pretax operating earnings have jumped four times, to $526.7 million on sales of $5.5 billion last year. Return on equity has shot from 6% to 39%. -- EASTMAN KODAK. How do you teach an elephant to dance? That is how executives at the ponderous film and chemical company long thought about their particular management challenge. After many smashed toes, they learned the obvious. Elephants don't dance. But if you can get one to walk in the right direction, he can pull a lot of weight. Because it has loosened corporate reins, lightened overhead, and pointed the beast down its favorite and lushest path, Kodak stands to carry home tons of profit in the next few years. The prod was the strengthening dollar in the early Eighties, which squeezed the company's earnings abroad, where it books up to half its sales. ''It was like taking a 15% price cut for five years in a row,'' says Colby Chandler, Kodak's unpretentious 61-year-old chief executive, who drives to work at the company's Rochester, New York, headquarters in a pickup truck. ''The strong dollar not only hurt us. It helped the competition to penetrate our markets with price cuts.'' Fuji, No. 2 in film, has also improved quality and snagged 10% of the U.S. market that Kodak once monopolized. Kodak made a mild pass at cost cutting in 1983 by nudging out 8% of its employees, but other costs welled up to cancel out the savings. So last year the company got serious. It trumpeted loudly that it would pare employment as well as its overall budget another 10% by the end of 1987. The annual savings will amount to over $500 million. Wall Street analysts say most of it will drop straight to the bottom line. Last year net earnings rose 13%. In anticipation of the payoffs from restructuring, and from the dollar's steep decline, Kodak's stock has surged 45% in recent months. Scrapping an archaic organization based on functions -- manufacturing, R&D, marketing -- Kodak has reorganized into 24 business units, each with its own profit-and-loss responsibility. The company injected a new entrepreneurial spirit by establishing ten venture businesses to develop new products. Kodak hopes to transform its executives into ''owner-managers'' by giving them more responsibilities if not yet big bonuses or stock options. Says Chandler: ''Making them accountable and responsible for the resources given them is an enormous motivation by itself.'' DECISIONS ARE now made at lower levels and more quickly, and products are moving to market faster. One of the first venture businesses, Ultra Technologies, developed Kodak's new lithium battery, which analysts expect will grow into a $300-million to $500-million business in the next few years. The battery made it to store shelves in two years instead of the five to seven that used to be the norm at Kodak. ''Under our old system many product decisions went all the way to the top of the company to be resolved,'' says Chandler. ''That deep, tall organization is what has really been changed now.'' At the same time, Kodak is cutting back on the number of marginal products it produces. A 1985 study showed that 80% to 90% of its products generated only 10% to 20% of its revenues. The company has since discontinued 10,000 products, such as various special graphic-arts and industrial X-ray films, and some home videotapes, reducing the total to 55,000. More products may get the ax. Kodak also fell in love again with the century-old chemical photography business that still produces over two-thirds of its profits. After spending millions to develop sexy electronic imaging technology, the company realized it would be years before a broad amateur market would be willing to pay more for its convenience. The low cost and high quality of traditional silver ) halide photography, which Kodak's scientists keep improving, look unbeatable for a long time to come. The company's announcement in March that it would build a new $200-million film manufacturing plant in Rochester symbolized a return to its roots. Chandler has made a few financial moves, like buying back 22 million shares, divesting a textile dye company, and taking on debt, which now stands at 28% of capitalization. But if he gets more out of assets like Kodak's brand name, the company's technological prowess, and a cash flow that spills into the streets of Rochester in embarrassing quantities, the company doesn't need to execute too many financial pirouettes. -- CHAMPION INTERNATIONAL. ''Don't believe you can run anything,'' counsels Andrew Sigler, outspoken chief executive of the fourth-largest U.S. paper producer. ''You can run certain kinds of things better, and in the long run you're a hell of a lot better off just doing that.'' His view is shared by many chief executives whose companies succumbed to scattershot diversification in the Seventies, only to see problems grow and profits shrink. As a member of the Business Roundtable, Sigler has called on the government to crack down on corporate raiders. But instead of relying on government to shield poorly run companies, Sigler went ahead and toughened up Champion. The Stamford, Connecticut, company used to be a typical forest products business with a wide range of wood and paper goods. It did well when the economy and commodity prices boomed, but got clobbered in downturns. When prices failed to come back during the 1983 recovery, Sigler decided that Champion would do best ''skinnying down'' to making paper. He bought St. Regis in 1984 for $1.8 billion, largely for its newsprint and magazine paper businesses, and then embarked on a rapid and single-minded restructuring, stripping both companies of businesses he did not think could be made cost-competitive. In the past two years Champion got out of brown paper packaging, envelopes, cardboard boxes, and many wood products, as well as related distribution businesses and an insurance company. The sale of the brown paper packaging company to Stone Container proved how some assets are worth more in the hands of other owners. Sigler insisted on keeping 10% of Stone's stock as part of the deal, and Champion has seen the value of its holding zoom from $69 million to $140 million over the past 13 months. ''We've made more money than we ever made when we owned the business,'' he says. Divesting was the easy part. Now the company has set out to meld the remaining businesses and boost return on equity from single digits into the top quarter of U.S. industry -- more than 16% by Sigler's reckoning. There's only one way to do that in the paper business, where prices are set in global markets, and that is to cut costs and jack up productivity. To reach its goal, Champion intends to save $400 million annually, or 10% of its costs. THE COMPANY has already chopped overhead from $265 million a year to $140 million. It did this by reorganizing Champion into four business units, eliminating staff duplications, cutting out management layers, and reducing overall employment from 58,700 to 31,300. Sigler hopes to pick up over $250 million in savings with new computer-controlled manufacturing technology that will improve productivity. By modernizing just one huge machine in a plant in Pensacola, Florida, the company can produce paper for up to 5% less per ton than at comparable plants -- a reduction that will total over $5 million a year. Under the new regime, work teams on the mill floors will be in charge of production. Sigler's decision to apply the team approach companywide follows a successful experiment in a new Michigan plant. The idea is to assign a team to the operation of a paper machine, for example, and let it decide how best to run it. Among other things, the teams have been good at figuring out ways to achieve incremental production gains. These could add up to another $100 million of savings within two to three years. Even before these moves pay off fully, Champion's business is surging as import competition fades with the falling dollar. Profits were up 23% last year. Evadna Lynn, a security analyst with Merrill Lynch, estimates they will jump about 40% this year and next. Raising the bottom line by slashing costs, says Sigler, requires significant structural change. ''To generalize, 'trying harder' accomplishes practically nothing. The 'let's hold down the travel and entertainment next month' is a delusion because those costs will pop back up. In overhead, you either absolutely stop doing something that you're spending dollars for, or people go out the door -- one or the other.'' -- HANSON INDUSTRIES. The American half of one of Britain's largest companies, Hanson Trust, is No. 97 on the FORTUNE 500 list in its own right. Hanson Industries, headquartered in Iselin, New Jersey, is a restructurer by trade. It pays bargain prices for underperforming U.S. companies, generally in low- tech basic industries, and streamlines them for profit. Often it sells off divisions to recover part or all of its purchase price. At the divisions it keeps, it jettisons most of the corporate staff, turns over operations and budget responsibility to line managers, pays them bonuses worth up to 100% of their salaries for outperforming their budgets, and demands to know why if they don't. Oh yes, and it makes a royal bundle. The company's founders, Lord Hanson and Sir Gordon White, like to think of their company as a closed-end investment fund. ''Our whole philosophy is to add money for the shareholders,'' says White, a high school dropout and former World War II pilot who moved to the U.S. in 1973 to start Hanson Industries. For the past 22 years Hanson Trust's pretax profits have grown 45% a year on average. Since 1984 the American arm has bought U.S. Industries, the building and industrial products company; SCM Corp., the typewriter and chemicals conglomerate; and Kaiser Cement. SCM, which bitterly fought the takeover, was as close as you come to the perfect deal. Hanson paid $930 million for it in January of 1986 and by September had sold off Glidden Paints, Durkee Foods, and several other subsidiaries for over $1 billion. Hanson still owns the typewriter and chemicals businesses -- which in effect have cost nothing. White expects they will earn over $165 million in pretax profits this year.

The company's portfolio of businesses is diverse. Hanson holds on only to those businesses it can operate very profitably. Company managers run their own shows but are held to strict financial yardsticks by six divisional commanders with responsibility for six companies each. ''If managers want capital, they come to us,'' says White, a stickler about return on capital employed. Hanson's recent acquisitions do not seem to have sated its appetite. Hanson Trust is currently sitting on $5.5 billion in cash -- plus $500 million a year of cash flow beyond what's needed to maintain the existing businesses. Potential acquisitions are pricey in today's stock market. But, notes White, ''in the last three or four years more and more companies have been offloading divisions because they know that if they don't clean up their act, somebody's going to come along and do it for them.'' That's opportunity enough for him. -- CYPRUS MINERALS. To be profitable at all is a near miracle these days in the mining business, which has undergone unusual agony during a prolonged slump in commodity prices. According to a study by Morgan Stanley, between 1980 and 1985 the industry went through the most draconian restructuring of any sector of the economy. Yet the result, note Morgan economists John Paulus and Robert Gay, has been a phenomenal improvement in productivity. Output per hour soared 8% to 10% annually, they say, even though production fell on average 7% a year. Cyprus Minerals, a mining company that makes its first appearance on the FORTUNE 500 this year (No. 354), is like a strip of metal that has emerged stronger and springier from the annealing furnaces. It used to be a relatively small, troubled subsidiary hidden deep inside Amoco, the oil company (No. 13). In 1979 the oil giant paid $669 million for Cyprus, now headquartered near Denver, and then poured another $1 billion into expanding and modernizing the company's copper, molybdenum, and coal mines. COMMODITY PRICES soon tumbled below production costs, however, and Amoco never made a penny on its investment. After losing $95 million pretax in 1984, it spun off Cyprus to shareholders in mid-1985. Once liberated, Cyprus made money almost right away, even as bad times continued for the industry. Admittedly, the profits have not been big -- $32 million before extraordinary items for the second half of 1985 and $21 million in 1986, down because bankrupt LTV abrogated long-term contracts at high fixed prices for Cyprus coal used in steelmaking. Since it became independent, Cyprus has cut corporate overhead about 30%, saving $10 million to $15 million a year. Staff cuts and Amoco's heavy investment in efficient new equipment have helped reduce copper and coal mining costs 15% to 30%. Productivity has jumped. At the company's Bagdad mine in Arizona, the annual production of copper per man has risen from 99 tons a few years ago to 172 tons today. Cyprus also wrote down $675 million in assets, a charge Amoco was reluctant to take because it would hurt earnings.

''Amoco had a big-company mentality, and everything had to go through executive committee meetings,'' says Cyprus Chairman John C. Duncan, 66, who previously headed St. Joe Minerals. ''But the mining business is run best by a small, lean, hungry management with a small board that knows the business and can make rapid decisions.'' Kenneth J. Barr, 60, Cyprus C.E.O. before and after the spinoff, used to travel once a week from his office near Denver to + Amoco headquarters in Chicago to report on operations and seek approval for even small decisions. Since the Amoco executives knew little about mining and liked everything laid out in big pretty pictures, his presentations were slick and costly. He had a bunch of people just working up forecasts and fancy slides. Today those people are gone. Says Barr: ''Now we do our presentations on the back of a sheet of paper.'' BECOMING INDEPENDENT has changed the whole psychology of working at Cyprus. Employees no longer compare their salaries with those of better-paid counterparts in the oil business, and have been more willing to accept wage freezes and reductions. Profit-and-loss responsibility, which used to go all the way up to Amoco's executive committee, now rests with the head of each mining operation. ''Our managers felt Amoco was a great company, but the day we were separated there was a surge of enthusiasm,'' says Barr. ''They realized they would no longer be buried in a big oil company and had a chance to show what they could do.'' The retrenching is largely over. Cyprus recently bought coal mines in Colorado and Utah and an Arizona copper mine from two other oil companies disenchanted with mining, Texaco and Pennzoil. The change in ownership eliminated the last vestiges of a union at the Sierrita copper mine in Arizona. Cyprus reopened it with 600 workers after Pennzoil's Duval division had closed it down and let 1,100 workers go. Most of Cyprus's other mines are now non-union. The new acquisitions would have been a tough sell to Amoco, which didn't want to put another nickel into mining. But for Cyprus they represent a strengthened position in coal and metal mining -- and they were bought for less than the value of the mines' spare parts. ''They were a steal,'' laughs Duncan. ''There's no better seller than an oil company that's fed up with mining.'' Cyprus has also branched out into gold and is developing new mines in the U.S. and Australia. That is another move Amoco might have vetoed, because the returns would have seemed minuscule compared with those of an oil behemoth. For Cyprus the gold adds glitter to earnings prospects. So does the prospect of higher inflation and commodity prices. Says Duncan, ''A 10-cent increase in the price of copper would add a $35-million pretax kicker to profits.'' Wayne Atwell, metals analyst at Goldman Sachs, thinks this year will be transitional. He projects earnings at $1 a share, down from $1.21 last year. For 1988, though, when the company's gold mines start producing, Atwell looks for earnings of $1.65. -- NAVISTAR INTERNATIONAL. Restructuring this old-line company, the remains of Chicago's once proud International Harvester empire, was a little like trying to salvage the Titanic. In 1979 it was steaming along, posting a new high in earnings of $370 million on record sales of $8.4 billion. Then, in the next four years, Harvester lost $2.9 billion. Its three major businesses -- agricultural equipment, construction equipment, and trucks -- were supposed to follow different business cycles, cushioning the company from severe fluctuations. But they all headed down at the same time. ''How could a company follow its best year in history with the four worst years in its history?'' asks James Cotting, 53, Navistar's former chief financial officer who took over as chief executive April 1. ''It goes back to the simple fact that for ten or 15 years prior to that, the company really hadn't earned its cost of capital. It was liquidating itself.'' Plants had become old, corporate costs had ballooned, and management was doing little about it. When the recession hit in the early 1980s, the company's high cost structure impaired its ability to respond quickly. A strike blew another gaping hole in its side. Debt swelled to $2.5 billion, or 93% of capitalization, just as the prime rate was rising above 20%. The company paid $376 million in interest in 1981. Though Harvester never went into Chapter 11, getting it above water took five years, three financial restructurings, and shrinking the company to 40% of its former size. Harvester sold its construction and agricultural equipment businesses, concentrating on heavy and medium trucks and spare parts, in which it was long No. 1 in the U.S. Loans from over 200 creditors, ranging from European banks to down-home institutions, were consolidated and eventually paid off with equity and cash from junk bonds. In a brilliant recapitalization engineered by Cotting, Navistar managed to sell a new issue of stock at $4.75 a share late last year, using the proceeds to retire its junk bonds. Today debt has been cut to $206 million, only 28% of capitalization. The company's operations have been reduced from 48 plants around the world to six in the U.S. and Canada. Employment is down from 98,000 people to under 15,000. And Navistar is once again seaworthy. In fiscal 1986, when the seas were still rough, it managed to earn $1.7 million on sales of $3.4 billion. The company's market share in trucks increased a couple of points to 27%, even as overall industry sales declined. The deregulated trucking industry found itself short of cash to buy new vehicles. This year the company expects to be very profitable. The retirement of the junk bonds will save $86 million in annual interest costs. Navistar has also scrounged up several hundred million dollars to invest in updating manufacturing plants and boosting productivity. Among other things, it has cut its man-hours per truck in half, and overhead from 13% of sales to 6%. COTTING NOW hopes to diversify. ''We can get earnings up by improving margins to a point,'' he says. ''But then you're left with a cyclical business.'' He won't say what kinds of acquisitions he has in mind. But with over $1.3 billion in tax-loss carry-forwards, the company can shelter a lot of positive cash flow. This year shareholders approved a plan to turn Navistar into a holding company, which will give it more flexibility to buy and operate different companies. Says Cotting: ''We'd like to look ten years out and have half our sales and earnings coming from businesses separate from trucks and engines.'' International Harvester's successful reincarnation as Navistar serves as a stunning example of the kind of transformation that is reviving scores of industrial companies. They are not simply rolling over or rusting out in the face of intense foreign competition, deregulation, and disinflation. They have learned, as Cotting says, that they must continually renew themselves -- or else.