(FORTUNE Magazine) – WHEN Monte Peterson took over as CEO of Thermos in 1990, he faced the toughest task in business. Says he: ''We needed to totally reinvent the company.'' Famous for its Thermos bottles and lunch boxes, the Schaumburg, Illinois, corporation is also a major maker of gas and electric cookout grills, competing neck and neck with brands like Sunbeam, Char-Broil, and Weber. But growth at Thermos (1992 sales: $225 million) had been lukewarm. The $1- billion-a-year barbecue grill market produced a significant portion of company sales, but the fire had gone out of it. The product had become a commodity, with department stores selling many brands of black, look-alike, coffin-shaped gas boxes. To reignite Thermos's growth, Peterson felt he had to find a new product. This meant changing the conventional thinking at the company, or in today's management-speak, breaking the paradigm. Now, after three years of hard work, Peterson, 49, has taken a bureaucratic culture organized by function -- marketing, manufacturing, engineering -- and replaced it with flexible, interdisciplinary teams. How he and his colleagues at Thermos did this is a textbook lesson for any manager looking to use teamwork to revitalize a corporation, division, department, or even a small business. What drove Thermos to such radical change was Peterson's recognition that the marketplace is experiencing a revolution as extraordinary as the one inspired by Henry Ford's mass production. Today's intelligent and demanding consumers cannot be tricked by clever advertising or slick packaging into buying a so-so, me-too product. To survive in this brutal environment, companies must constantly innovate, creating goods that give their customers high quality at the right price -- in a word, value. The first fruit of Peterson's discovery is the new Thermos Thermal Electric Grill, a sleek, ecologically sound cookout stove that looks like something the Jetsons might use. So far, sales of the cool-looking cooker, which was introduced in the fall of 1992, have been sizzling. Retailers like Kmart and Target Stores have been unloading them faster than ribs at a rodeo. The grill uses an entirely new technology to give food a barbecued taste, and it burns cleaner than gas or charcoal competitors. So far it has won four design awards, including one from the Industrial Designers Society of America, for its aesthetics and ease of use -- no messy cleanup and no heavy propane tanks. Thermos believes its cooker could, over the next few years, boost the market share for electric grills from 2% to 20%. THE RED-HEADED CEO, with his muted suits and no-nonsense earthiness, made the project a success by sticking doggedly to the golden rules of product development: He formed a fast-moving team that had a commitment from top management, understood market needs, and set -- and met -- rugged deadlines. In a new survey of 77 companies that have introduced nearly 11,000 new products and services over the past five years, Kuczmarski & Associates, a Chicago management consulting firm, found that the most common reason for flops was simple. The company failed to understand the needs of its market. Those companies that succeeded understood their customers and provided their product development teams with ample top management backing and research funding. Such issues as compensation for the team ranked near the bottom of the list. That proved to be the case at Thermos. The company found it doesn't need to offer teams a special bonus or award to motivate the members. Says Frederick Mather, a team member and director of R&D: ''Our reward is that the team owns the project from beginning to end, and that gives us a sense of pride. The real reward is a new product that gets up and flies.'' Contrary to popular thinking, teams aren't appropriate for all kinds of product development. Eric Olson, an assistant professor at the University of Colorado business school, studied 45 projects at a dozen FORTUNE 500 companies. He concluded that using a team for product modification, like a new color or a new handle, didn't work that well. Self-managed teams take time to set up, as people from different functions get to know one another. In the meantime, your competitors can beat you to market. The old method of product development -- a fiat from the head of marketing or engineering -- will get a modified product into the mainstream faster, and thus more profitably. But faced with the daunting task of creating an all-new product, Peterson wisely chose the team approach. Here are the steps Thermos, owned by Japanese manufacturer Nippon Sanso, took to achieve its breakthrough electric grill:

-- Create the team. In the fall of 1990, Peterson assembled a product- development team of six Thermos middle managers from various disciplines like engineering, marketing, manufacturing, and finance. The idea was to build a network around markets -- in this case, for grills -- rather than around functions. At first some employees resisted working this new way, but Peterson patiently reminded his troops they had a great opportunity to make their market grow, and he emphasized how important the project could be to all aspects of the company's business. Says he: ''Like a politician, you provide a platform for change and then paint a picture of the difference between winning and losing. After that, the old barriers break down, and teamwork becomes infectious.'' The team christened itself not the electric grill team or even the new grill team, but the Lifestyle team. Their assignment was to go into the field, learn all about people's cookout needs, and invent a product to meet them. This point is key. If the team had focused on the product rather than on the customer, the project would have generated yet another slightly improved, ho- hum gas grill. As all managers who run good teams know, it pays to include outside suppliers and consultants to give employees perspective and to provide expertise. For instance, Fitch Inc., an industrial design firm in Worthington, Ohio, whose clients include IBM, Procter & Gamble, and Reebok, provided Thermos with ten or so team members who helped the company design the grill and conduct its market research. Says Susan Haller, a Fitch vice president and an outside member of the team: ''We started with no assumptions about grilling. We just wanted to help Thermos push the boundaries of the business.'' Adds Martin Beck, the design firm's CEO: ''A good designer has to get involved in the team's strategy and tactics, not just in the design.'' To enhance harmony, Peterson made sure no single team leader rode roughshod over the others. Rather, leadership rotated based on who had the most pressing task. When the team needed to do field research, for example, the marketing person would take the lead. When technical developments became the issue, the R&D person took over, and so on. From the beginning, the team agreed on a rock-solid deadline. Every August, the grill industry presents its goods at the National Hardware Show in Chicago. The team wanted to have a product ready for the August 1992 show, meaning they would have to plan, design, and build a new grill in a little less than two years. In setting up the team, Peterson avoided a mistake that many managers make: He made sure the project was the primary responsibility of his key team members. He had seen too many undertakings fail because team members were spread too thin, working on three or four projects simultaneously. The Kuczmarski study, in fact, shows that companies that innovate most successfully limit their team members to one major effort at a time.

-- Define the market. The team's initial assignment was to learn everything about the art of the cookout. After the intital meeting in the fall of 1990, ten members -- with marketing in the lead -- spent about a month on the road. To get a cross-sampling of America, they traveled to Boston, Los Angeles, and Columbus, Ohio. Their mission: to find out what people really wanted in their grills. As Beck of Fitch puts it: ''If you can't define it, you can't design it.'' In this way the team adopted the philosophy of many top-flight Japanese manufacturers, who spend a long time in the planning and definition stages and less in execution. The Japanese believe that more planning in the beginning helps avoid time-consuming changes during the engineering and manufacturing phases. While in the field, the Lifestyle team set up focus groups, visited people's homes, and even videotaped barbecues. What they found surprised them. The image of dad with apron and chef's hat, slaving over a smoky charcoal grill, was changing. More women were barbecuing, and some cooks were getting tired of messy charcoal. The team also discovered that homeowners were spending big money building decks and that a rusty grill spoiled their appearance. Safety and the environment were also important issues. Charcoal starter is banned in parts of Southern California, and people there were looking for another way to cook out. To avoid fires, New Jersey has prohibited the use of gas grills on condo and apartment balconies. Many people living in such buildings wanted to barbecue but couldn't -- another potential market opportunity.

-- Define the product. When the field research was finished, the marketers returned to Thermos headquarters in Schaumburg to discuss their findings with the rest of the team. What emerged after several days of lively discussion was a vague definition of a new grill that looked like a handsome piece of furniture, didn't require pollutants like charcoal lighter, and, of course, cooked food that tasted good. It also had to be safe enough for condo and apartment dwellers -- which meant it had to be electric. Once the team reached a consensus, it produced two models, an ugly one that worked and a stunning plastic foam dummy. The team dubbed them the Monitor and the Merrimack, after the Civil War ironclads, and took both to consumers and retailers to get valuable feedback on how the grill looked and cooked. Had the team made a single, good-looking, working prototype, it would have cost six times as much as the Monitor and the Merrimack and taken six months longer to produce. With the feedback on the two models, Thermos was able to go right into production. One of the biggest obstacles to any team project is getting the members to resolve disputes. In most cases they can work out differences among themselves, but sometimes they are at loggerheads, and no matter how empowered the group, the boss has to step in. Some of Thermos's marketing people, for instance, thought the grill's price -- $299 retail for the base model -- was too high to sell at Kmart and Target. The wrangling went nowhere, so Peterson finally said, ''Give me a reason why you can't sell it at that price level.'' No one could, so the price stuck.

-- Work in parallel. By now it was late 1991, and with the August deadline looming, the engineering team members stepped in and temporarily took the lead. Don't think, though, that engineering had been idle all this time. While marketing was out in the field doing research, engineering had been hunched over computers playing with ways to improve electric grill technology. Manufacturing had been making sure that any ideas kicked around for a new grill could be produced economically. The challenge for engineering was that consumers hated electric grills -- no wonder they represented less than 2% of the market. Conventional models use a heat rod, much like the element in an electric oven, that rests six inches or so below the grill and bakes the food rather than grilling it. To change that, the Thermos R&D people drew on the company's core competencies. Simply defined, a core competency is what a company does best, whether it's a technology, a process, or a service. Honda's core competency, for instance, is building advanced engines, which it has used to expand from motorcycles into cars, lawn mowers, and generators. A McKinsey & Co. study three years ago found that companies that apply their core technologies to new products generally command higher margins and gain market share. Thermos's main core competency is -- natch -- the vacuum technology used to keep liquids cold or hot in Thermos bottles. Part of the problem with conventional electric grills is that they simply don't get hot enough to sear food and give it that cookout taste. To raise the cooking temperature, the engineering folks designed a domed vacuum top that contained the heat inside the grill, much as a Thermos bottle keeps coffee hot. R&D also built the electric heat rod directly into the surface of the grill itself, which, along with the insulating top, made it hot enough to sear the meat and give it those brown barbecue lines. While engineering was working on the core technology, the Fitch design people were considering ways to differentiate the grill dramatically in the market. This meant more than just giving it a pretty face; it had to have features that truly added value. Says Fitch vice president Greg Breiding: ''In the end, you don't need a museum of art object. You need something that ( sells.'' Or as the plaque hanging on Martin Beck's office wall reads, ''You can't shine shit.'' For example, to appeal to the residents of cramped apartments and condos, Fitch designed the grill as a tripod so it could fit snugly into corners. In January 1992, to make sure they were on track, the Lifestyle team again invited consumers, as well as buyers from Target Stores, Service Merchandise, and other retailers, to look over the Monitor and the Merrimack. These people made helpful suggestions about the grill. They said the attached side table was too small to be of much use, and the position of utensils was awkward: Hang them on the side, not on the front where they get in the cook's way. Thermos incorporated most of their ideas.

-- Design to manufacture. By bringing the manufacturing people into the process from the start, the team avoided some costly mistakes later on. At one meeting in the winter of 1992, the designers said they wanted tapered legs on the grill. Manufacturing explained that tapered legs would have to be custom- made -- an expensive undertaking -- and eventually persuaded the team to make them straight. Under the old system, manufacturing wouldn't have known about the tapered legs until production time, and by then they would have caused a big cramp. Says R&D director Mather: ''If that mistake hadn't been caught, we would have lost three to four months doing rework on the design.'' After the first batch of grills rolled off the assembly line in the early summer of 1992, the team gave 100 of them to Thermos employees for testing, with instructions to use them hard. The outdoor Escoffiers cooked in the rain and loaded up the grill's shelves with heavy food platters. That's how the team discovered that the shelves broke easily and needed to be made of stronger plastic. Says Mather: ''I'd rather our people tell us the product has flaws than the customers at Target.'' It doesn't do any good to have a revolutionary new product if no one knows about it. Thermos learned you've got to tell the world you're different. After the Lifestyle team fixed the shelf problem, it loaded up some grills on the back of a U-Haul truck and toured the country, going to trade conventions (the grill's appearance right on schedule at the National Hardware Show in Chicago was a big hit) and to the headquarters of retail chains to cook for people. Team members even barbecued shrimp and vegetables for Ray Zimmerman, the CEO of Service Merchandise. % Was all the effort worth it? Peterson thinks so. He reckons Thermos's revenues should grow some 13% this year, with most of that growth coming from new products like the electric grill. But this success story goes far beyond unit sales. Motivated by the Lifestyle project, the company is now using teams in all its other product lines. Early next year, for example, Thermos will introduce improved gas grills that, like the electric version, cook food faster and cleanly; they will also sport a radically new design. Says Peterson: ''We needed to reinvent our product lines, and teamwork is doing it for us.'' Teamwork can do it for you, too.