(FORTUNE Magazine) – MARCO Tronchetti Provera got his job the old-fashioned way. At 28, he married into the Pirelli family, one of Italy's richest. A decade later he joined the family business, which is Europe's second-largest tiremaker, and rose quickly, leaping over several more experienced managers to become managing director in February 1992. But don't be fooled. In 18 months on the job, Tronchetti, now 45, has shown that he is more than just a good-looking son-in-law. When he took over, Pirelli was on the brink of bankruptcy. A late 1980s acquisition binge had left it with debt more than 1 1/2 times its equity. Tronchetti began a series of moves that would have been unthinkable in Europe a few years ago. He closed 12 plants, sold a huge division, fired 170 senior managers, moved the company's headquarters from Milan's plush Piazzale Cadorna to a modest building on the corner of a 74,000-acre factory site outside town, and hired actress Sharon Stone to lead a European image campaign. Almost as an encore, he and the chairman's daughter separated. Pirelli is still losing money, but a lot less than before. Last year losses were $85 million, down from $353 million the previous year. Many European brokers have switched Pirelli stock to their buy lists, and the company seems poised to flourish. Says Tronchetti: ''The power of Japan cannot be fought by doing business in Europe as usual. We have to fight as if we were starting from scratch.'' Tronchetti is just one of a new generation of managers taking charge in Europe. Unlike their predecessors, who often managed in an easygoing, collegial style, they are proving to be every bit as aggressive and innovative as their American counterparts. Boards, which rarely challenged CEOs on anything, seem to be starting to stir too. The result is a startling change in European business culture. At Daimler- Benz, Chairman Edzard Reuter, 65, spent millions on an art collection for the company and on some dubious acquisitions. But with profits sliding to nearly zero, he has come under strong pressure from shareholders and an increasingly unruly board. Helmut Werner, 56, was brought in from Daimler's profitable truck business to revamp the anemic Mercedes car division, pushing aside Reuter's handpicked deputy, Werner Neifer. A short time later Neifer retired. If Werner succeeds in turning around Mercedes, he may inherit the top job some time before Reuter's scheduled retirement in December 1995. The changing of the guard cuts all across European industry. At BMW, business statesman and visionary Eberhard von Kuenheim, 65, is retiring, to be replaced by Bernd Pischetsrieder, 45, a hands-on production man. At Robert Bosch, the German electronics firm, Friedrich Schiefer, 54, a McKinsey veteran who has headed Bosch's North American operations for nearly two years, is being brought back to Stuttgart to help the private company push through change more quickly. In the past 24 months in France, boardroom coups have replaced the CEOs of retailer Carrefour, Thomson Consumer Electronics, and the Paribas financial group. More may follow as the new conservative French government carries out its plan to privatize 21 companies, including Bull, the money-losing computer maker. Says Michel de Rosen, an ambitious executive at Rhone-Poulenc, the soon-to-be-privatized chemicals giant: ''In the past, an advanced degree from the right school was enough to get you the top job. Now performance counts for much more.'' Global competition lies behind all of this change. Between 1983 and 1992, Europe's share of world markets dropped 14.4%, to 13.9%, while Asia's fast- growing nations -- not even counting Japan -- have seen their share rise from 4.6% to 8.1%, according to the International Monetary Fund. Even worse, Europe has failed at creating strong companies in the high-tech industries ) that will dominate the next century. Partly due to a lack of aggressive investment capital and partly due to a hidebound corporate structure that has isolated management from market pressures, many European companies have seen a steady erosion of both market share and profits as costs rose out of control. Warns Pirelli's Tronchetti: ''We have to go from being a tanker to a torpedo. Our way of life is at stake.'' Any European revolution has to start with an attack on production costs. Operating in the most generous of social welfare systems, and paying the world's highest wages, European companies have trouble offering goods at globally competitive prices. In the past they could count on superior quality to make up for high prices, but Asian manufacturers have raised the quality of their own products enough to dilute that advantage. THE NEW European management style contains elements of reengineering, total quality management, and other trends popular in the U.S., but it also has its own flavor. It could be called the supply-side revolution, because a big part of it is aimed at pressuring suppliers to raise productivity and reduce their own costs. ABB's Percy Barnevik has been a master of the technique, but its real father may be the contentious Jose Ignacio ''Inaki'' Lopez de Arriortua, 52. Lopez became a managerial legend when, as purchasing chief at General Motors, he cut $2 billion out of the U.S. automaker's expenses, mainly by badgering parts makers to cut prices or risk losing GM's business. But the accusation by GM that Lopez pilfered secret documents before defecting to Volkswagen last winter -- which Lopez denies -- has badly tarnished his reputation. Lopez's usefulness to VW -- he has already achieved big productivity gains -- may be in jeopardy. And Lopez has detractors outside of GM. Because their own costs are so high, many German suppliers claim VW is asking too much of them. Martin Herzog, secretary of the powerful Association of the German Motor Industry, blasts Lopez for ''ruining ((the parts industry)) with his rude supply policy,'' while Gunter Mordhorst, CEO of Varta, a $1.4-billion-a-year battery maker, accuses Lopez of ''mass murder.'' France's Valeo (1992 sales: $3.8 billion) is one European parts maker that can compete. CEO Noel Goutard, 61, has changed almost everything. A new budget is now made up every six months instead of once a year so the company can shift or readjust its strategy more quickly. Goutard put workers into teams responsible for organizing their own activities. Each team meets for five minutes or so every morning and for an hour once a week to talk about problems and ways to improve. Every worker is expected to make ten suggestions for improvements a year, and Goutard insists that all suggestions be considered within ten days. Says he: ''We couldn't just copy the Japanese. We had to develop our own management system.'' Goutard says workers have accepted the changes enthusiastically: ''People like to work for a company that is prepared to confront market conditions.'' Last year, despite major layoffs, Valeo hired 800 graduate engineers. As Goutard notes, ''We're moving out of unskilled labor and into skills.'' By the end of next year, he wants half the staff of the purchasing department to be trained engineers.

Now the results are apparent. Set foot inside Valeo's headquarters on Paris's quiet Rue Bayen and ask anybody how the company managed to increase profits by 26% last year in the ferociously competitive parts market. ''Quality, service, price,'' comes the answer. Goutard has so effectively conveyed these buzzwords from the top to the bottom of his organization that even the farthest-flung outer-office secretary sounds like Peter Drucker. Valeo has also laid off nearly 9,000 workers and moved some production overseas, but Goutard says that Europe still has strengths as a manufacturing base. He insists that he has acquired factories in Korea, Brazil, Mexico, and Turkey not just to cut costs but also to get a better foothold in those fast- growing markets. Still, he wants to keep some production at home to stay close to the European market. Speaking of Europe, he notes, ''I've never seen changes take place without strong incentive. The incentives are here now: erratic markets, Japanese competition, intense job pressure. They are forcing change.'' Where did Goutard learn so much about management? ''Listening to customers,'' he says. ''They can teach you everything you need to know.'' Just how good is Valeo? Last year, when he was still at GM, Inaki Lopez gave Valeo an award for delivering the best value and service. Barnevik, 52, the rangy Swede with a Stanford MBA, has forged a competitive powerhouse out of ABB by taking the concept of leanness to extremes. He turned ABB into 5,000 profit centers, each with its own balance sheet, then shrank headquarters drastically. His now famous cut-then-cut-again style reduced his ! Zurich corporate staff from 4,000 to 200. ''We dislike headquarters,'' he says. ''They cost a lot of money, and they disturb the people who are doing the real business.'' His formula? Cut the staff to 10% of its original size, let it run for a couple of years, then go back and cut it again by farming out every administrative chore that you can get done for less money outside. As a result, Barnevik has turned two sleepy European engineering companies into a highly competitive machine (1992 sales: $29.6 billion). In a recession year, profits slipped just 4%, to $1.1 billion. He has made few friends along the way, though, except among shareholders. Europeans marvel at his achievement but grumble that the man is a slave driver who has terrified his staff. Barnevik has also embraced supply-side management. Many supplies for ABB's 5,000 business units worldwide are purchased by a single center in Mannheim, Germany, run by two Swedes, Sune Karlsson and Roland Andersson. At every other board meeting one of them reports on the latest savings from working more closely with suppliers. Karlsson and Andersson visit suppliers not only to insist on lower costs but also to show managers how to attain them. ''It's a win-win situation,'' says Karlsson. ''We're helping them lower ABB's costs, and we're also helping them improve their competitiveness.'' ABB has also begun urging suppliers to help with R&D. Instead of giving a supplier a new design, the company asks it to create its own design within certain parameters -- at lower cost. Andersson says that one Japanese supplier, which he won't name, was asked to take on such a project. The result was a new part 30% cheaper than the earlier version. Says he: ''Our first reaction was to get angry and say, 'Why didn't you do this before?' They said, 'Because you didn't ask.' '' Not everyone does things so radically. In fact, Nestle CEO Helmut Maucher, 65, suggests that friendliness is as effective a management technique as Barnevik's neutron bomb tactics. His philosophy: ''If you do things quietly, step by step, you avoid causing friction. But you can look back over five years and see that radical change was accomplished.'' In his nearly 12 years as CEO, Maucher has quietly expanded his company, based in Vevey, Switzerland, through a series of shrewd and well-managed acquisitions. Nestle's sales have doubled, from $17 billion to $38 billion, and Maucher vows that they will double again by the end of the century through & forceful expansion in Third World markets. Says he: ''Only 25% of our products are sold in the developing world, where 80% of the population lives. I see growth possibilities everywhere.'' While Maucher plans expansion, he has handed over daily management of the world's third-largest food company (according to the 1993 FORTUNE Global 500) to Ramon Masip, 52, a suave, urbane Spaniard who embodies the new type of hard-driving Euromanager. Over lunch on the sixth floor of Nestle's stylish offices overlooking Lake Geneva, Masip is a picture of Iberian courtesy and charm. He chats amiably about his rise from a Nestle market researcher to chief operating officer. But when talk turns to the difficulty of running one of the most truly global corporations, his eyes narrow slightly and this gregarious manager briefly flashes the sharp teeth behind that warm smile. Lest his visitor underestimate him, Masip calmly ticks off a list of factories he has closed -- including several back home in Spain, where the unemployment rate exceeds 21%. Says he: ''Sometimes you have to cut off a finger to save an arm.'' EUROPE STILL has a long way to go in overcoming the competitive drag of its too generous social welfare system and its laid-back approach to management. But if the trend toward a new management style continues, and even picks up, Europe could become a paradigm of how to manage in the new global economy. The Old World is capable of producing the archetypal manager for the 21st century. More than many Americans or Japanese, Europeans are often very comfortable in international situations. The better-run companies -- like Nestle -- have corporate boards that closely resemble the U.N. Security Council. Says Paul Strebel, a professor at the International Institute for Management Development in Switzerland: ''Our cultural diversity is a huge asset.'' Adds Roland Berger, head of Germany's Roland Berger & Partner consulting firm: ''Europeans are better equipped for globalization.'' The question is how far European society will let managers take their tough new approach. With workers and managers long accustomed to virtual lifetime employment guarantees, Europe has watched its structural unemployment rise to 10.5% -- and it won't go down soon. Barnevik estimates that as few as one- third of the major companies in Europe are prepared to survive under increasing global competitive pressure. Says he: ''We face productivity challenges that were undreamed of in the 1970s.'' The risk over the long term is that rising unemployment may bring back overregulation and protectionism rather than force the loosening of these stifling restrictions. As Maucher puts it, ''The question is whether Europe is politically able to be competitive.'' The time when European management methods are taught at Harvard is still a way off. But make no mistake: At this moment, European managers are gearing for the competitive challenges of the 21st century. And they are doing it fast.