(FORTUNE Magazine) – HOW DOES IT feel to be an outsider taking control of a huge, strange organization? Just ask Michael Walsh. Since abandoning law for business 11 years ago, Walsh, 49, has been traveling faster than a locomotive. From his job as U.S. Attorney in San Diego, he jumped in 1980 to Cummins Engine, where he became executive vice president for worldwide business. After six years he moved on to Union Pacific's railroad subsidiary as CEO and chairman and succeeded in nearly doubling profits. Along the way, he established himself as one of America's most dynamic young managers. Last August, Walsh changed jobs again, this time to become president of Tenneco, the Houston conglomerate. The challenge: to determine which of Tenneco's six major businesses, among them chemicals, auto parts, and natural gas pipelines, are most seaworthy and which should be set adrift. Walsh, who takes over as CEO in January, went to Stanford on a football scholarship (he was a running back, and now he's a Stanford trustee). He still has the physique of an athlete -- a good thing, since he travels 80% of the time. Married and the father of three all but grown children, he lives in Houston, where he spoke with FORTUNE editor Alex Taylor III about his plans for Tenneco.

''Coming into Tenneco from the outside the way I have is stressful and potentially overwhelming. Your entire life is disrupted. When you walk into a place like this, you don't know a single person, you don't know much at all ^ about the customers, and you don't know anything about the businesses. Success in this kind of situation depends on leadership -- motivating and evaluating people -- and good judgment. You almost always have to decide things way before you're prepared to decide them. The benefits of being an outsider are that you get a fresh look at the strategy, the people, and the process. But you pay a price for that fresh look. I don't know very much about Tenneco, so I need people who understand it like a dead man needs a coffin. The idea that an outsider can come in, start firing bullets at random, and hit anything is nuts. An outsider also has to win people over. There are a lot of people who wonder just what the hell you're doing here -- or resent your being here. You don't win 'em over with memos and you don't win 'em over with happy talk. You travel a lot. You have to reach out and touch the people who have to be touched. I'm very big on direct personal contact, action-oriented programs, and informal organizational structures. I expect to spend at least four days a week out of the office meeting employees and customers. More than one day a week in the office, you don't get very much done. You keep holding meetings, and that screws up everybody else's life. You also have to get out to make an impact on the organization: to get your cost of quality down, your market share up, and to improve your productivity measures. I encourage oral as opposed to written communications. My desk seldom has any paper on it; I use other people to read reports and underline them for me or tell me what they say. There's an enormous energy component in all this, because you're driving the process and you're driving the decisions, and you're working to win over a bunch of new people. You don't do it for the money -- I'm just not bolted together that way -- and you don't do it for the peace of mind.

WHY CHANGE JOBS? So why did I come here? Things were going well for me. I liked Omaha ((the railroad's headquarters)), I was pretty much on top of things, I didn't have headaches 20 hours a day, I got to see my kids on the weekend -- most people would kill for that at age 50, which I'm approaching. I'm not going to make significantly more money at Tenneco than I would have staying at UP ((Walsh made $1.1 million last year)). But about a year ago, I was approached by a headhunter to go on Tenneco's board. As it turned out, the meetings conflicted with the Stanford board of trustees -- the calendar drives everything. But I started to think about Tenneco. So when they came back to me last spring, I was already partway there. It's difficult to consider a big job change like this because you're just too busy -- you're already working 16 to 18 hours a day and you're charging all over the place. To some extent you feel like you're cheating on your wife. You're sort of sneaking around and having meetings that you have to plan carefully. For me, it was very uncomfortable. But after five years I'd accomplished a lot at the railroad. When I joined in 1986, Drew Lewis, chairman of UP, said to me: 'Look, I don't want to put any pressure on you, but I think this company ought to earn $600 million five years from now.' It was earning $322 million when I got there, and it will earn $600 million this year. Also, the 80-20 rule was at work. About 80% of what I could bring to the party was done. It would take another five or seven years to finish the other 20%.

THE TENNECO CHALLENGE Tenneco's situation is particularly interesting to me because it's an industrial and manufacturing conglomerate, and I'm interested in large industrial businesses, especially those that are in the global competitive struggle. Whether we can compete with the Japanese is the question of the age, and I'm not certain what the answer is. ((GE's)) Jack Welch talks a lot about the management leverage and management intensity that can be brought to bear on multiple businesses. That's the challenge. With its six separate operations, Tenneco isn't all that different from the railroad. Carrying finished automobiles is very different from carrying coal, which is very different from carrying grain. Operationally the railroad was equally diverse. You make up 800 trains a day and switch and unswitch 150,000 cars. It's a major construction business because you're building all that track. And it's a major maintenance business because you've got 3,000 locomotives; by comparison, American Airlines probably has 500 airplanes. Is conglomeration like Tenneco's a good thing? At the end of the day you've got to show some value comes from the mass. But if you keep your balance sheet in shape and a handle on your debt, there is an advantage to being able to take the money you make at the top of the cycle in one business and invest in another one at the down part of the cycle. Five years from now I'm going to be judged on how well I've done. Tenneco will look different in 1996, but my guess is that it will still represent some combination of diversified businesses. Whether they will be the same businesses we have is an open question. I believe that we are in a better position than a single-product company, but if we can't prove that, then we'll have to follow a different course of action.

ON MANAGING AND LEADING In these industrial businesses, how you manage makes most of the difference. In the beginning you really have to get into the details, or the organization just wears you out or waits you out. There aren't any Tagamets to be invented or patents to exploit, and costs are deeply embedded throughout the system. If you have lousy businesses and run them well, you are still going to have poor returns. So you have to know whether you are in the right businesses and be unsparing about ones that don't have good prospects. If you followed purely strategic studies, everybody would want to be in high-growth, high-margin businesses like pharmaceuticals or consumer products. But you have to work your way from where you are to where you want to be.

When I went to the railroad in 1986, people said it was a lousy business because it was mature and it had union and regulatory constraints. I saw it as quite a good business but one that was operationally deficient. It took us 24 months to understand the business so that we could set goals about the things that counted, such as customer service, quality, and safety. I'm starting the same process around here. I want to know which things move what indicator and why those are the right indicators. Because it is those linkages that provide operational and financial success. One thing I know is that you get up every day and bring all the energy you have to bear on the problems you face, and sometimes things go the way you want them to and sometimes they don't. All the talk we've had about management and leadership intensity and leverage requires very long and intense days. You have to pace yourself and keep yourself from getting exhausted. I don't believe in working seven days a week.

ON COST CUTTING You can't asset-sale your way to prosperity. And you can't do it by cost cutting, either. You don't make much progress if you take people out and your wage and benefit costs continue to go up when prices are going down. As I used to say when I was playing football, you have to come up with a plan that allows you to differentiate yourself from the 11 guys across the line. I'm not too happy with the reputation that I've gotten as a cost cutter. I've fundamentally been a builder. In the first six months of 1991, UP's railroad car loadings were up 5% while the industry was down 5% to 10%. I focus less on cost reduction than on the elimination of old baggage that gets in the way. To use another sports analogy, people who participate in triathlons have less body fat than other people because they are in better shape, not because they are trying to lose weight. Companies should be that way too.''

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: TENNECO