GOODBYE, CORPORATE STAFF All kinds of companies are saving money and increasing efficiency by clearing out the crowd at headquarters. Watch out, lawyers, futurists, and other deep thinkers.
By Thomas Moore REPORTER ASSOCIATE Kelly Tasker

(FORTUNE Magazine) – GENERAL FOODS administers its empire from a gleaming monument of corpocracy that rises like an Aztec temple over a pond in Rye Brook, New York. But today the imposing architecture of the building and the headquarters organization it housed have become relics. Acquired by Philip Morris two years ago, General Foods recently announced it would dismantle its corporate staff hierarchy and eliminate most of its 2,000 headquarters jobs. An operating president will move his executives into the vacated offices; he and two other presidents will hire about half the people dumped by headquarters. A corporation can slim down in lots of ways. U.S. companies seem to have tried them all, from selling off businesses to closing redundant plants. But an increasingly popular route to greater efficiency is cutting the corporate staff. That is the often vast collection of planners, economists, marketers, central purchasing agents, real estate managers, human-resources specialists, futurologists, other analysts, and deep thinkers who sit at headquarters and often annoy the operating executives by offering to help them. Says Robert Tomasko, author of the new book Downsizing and a partner at management consultants Temple Barker & Sloane: ''Corporate staff is becoming an endangered species.'' Some companies hack away indiscriminately, weakening critical control functions or lopping off valuable services. Others trim insufficiently or simply smoosh people around from one organization chart to another. But a few have shown how to slough off staff neatly. In many cases the employees who remain inhabit a strange new world in which decisions are quick, accountability is clear, and everyone is working harder. Life in the new minimalist corporation is tougher but simpler. The small corporate headquarters may be located a thousand miles or more from principal operating units, as the Charlotte, North Carolina, office of steelmaker Nucor is. The new head office decides how to allocate corporate capital among internal and external investments, watches the investments closely, and ) replaces managers who do not meet budgets. Freed to manage their businesses, general managers decide what services they need and whether they should get them from corporate headquarters, from their own staffs, or from outside suppliers. Many chief executives never felt comfortable with the entourages they allowed to grow around them. In 1953, in the early days of America's postwar managerial revolution, John L. McCaffrey, then chief of International Harvester, told FORTUNE: ''We sit at our desks all day while around us whiz and gyrate a vast number of special activities, some of which we only dimly understand. And for each of these activities, there is a specialist . . . All of them, no doubt, are good to have. All seem to be necessary. All are useful on frequent occasions. But it has reached the point where the greatest task of the president is to understand enough of all these specialties so that when a problem comes up he can assign the right team of experts to work on it.'' Today, with U.S. corporations under pressure from foreign competition, these doubts have swelled into a managerial counterrevolution. Partners at McKinsey & Co., the management consultants often brought in to do hatchet work by bloated corporations too timid to draw their own blood, argue that the large staffs of traditional multibusiness corporations no longer serve much purpose in the U.S., Britain, and other developed economies.

BIG CORPORATIONS historically created value by recruiting and training talent and providing capital to invest in operations, explains Stephen Coley, a McKinsey principal in Chicago. They still do in developing countries. But in efficient economies, with sophisticated headhunters, investment bankers, and consultants for just about anything, corporations can buy these services and no longer need full-time staffs to provide them. ''Our view is that value is created only in the operating units,'' says Coley. ''The role of the corporation in a developed economy is to act as a demanding and farseeing parent, but not one that tries to do everything for the businesses it is trying to nurture.'' Few companies have shown how to do that as successfully as Anglo-American conglomerate Hanson Trust (1986 revenues: $6 billion). ''What Hanson does is go out and find corporate anachronisms -- top-heavy, widely diversified companies -- and then bust them up and get rid of corporate staff,'' says Coley. In the past 14 years its U.S. arm, Hanson Industries North America, has taken over ten companies, including two big industrial conglomerates, U.S. Industries and SCM Corp. Between 1982 and October's stock market crash, Hanson shares more than quadrupled in value; they have since fallen by a quarter. Hanson's latest move: a just-consummated $2.2 billion deal to buy Kidde Inc., another conglomerate that makes everything from Jacuzzis to pots and pans. Sir Gordon White, Hanson Industries' jet-setting chairman, holes up in an elegant Park Avenue office with a staff of 12, including secretaries and the company's one public relations officer. But the home of most of Hanson's top U.S. executives, which Sir Gordon rarely visits, is back-to-basics chic. The company leases part of the third and fourth floors of a modest four-story building in an exurban industrial park near the Amtrak train station in Iselin, New Jersey. Inside, Hanson's headquarters has the panache of an insurance company's back office. Almost all the furniture, right down to the framed prints and potted plants, are leftovers from USI and SCM. As Hanson Industries has quadrupled in size in the past four years, its headquarters has grown only from 29 people to 89. That is a fraction of what many smaller U.S. companies employ. USI, for instance, had 172 and SCM 182 at headquarters. Hanson pools a dozen or so personal computers and does not own or lease a mainframe; it uses an outside payroll service. The company's total corporate expense, including salaries and office space, was $17 million last year -- about one-quarter the combined corporate expenses of USI, SCM, and Hanson at the time of their mergers. Hanson's organization chart is something a child can understand. Sir Gordon and President David Clarke are at the top. Reporting to Clarke are five corporate vice presidents in charge of law, finance, organization development, acquisitions, and operations. Six group vice presidents, each overseeing a batch of individual operating companies, report to the corporate VP for operations. The senior management group of 12 at Iselin is supported by 42 middle managers and 35 secretaries and clerks.

CLARKE, 46, an avid sailor who used to own a fishing business, professes to be astonished by the excess corporate baggage carried by most big companies, not to mention the grand life to which many top executives have become accustomed. That's a major reason he cites to explain American companies' loss of their competitive edge. He likens the atmosphere at pre-Hanson USI to a country club's. The company had moved from New York to a spacious new building with a view on Dolphin Cove, a picturesque inlet of Long Island Sound in Stamford, Connecticut. In the summer the staff knocked off at 5:30 P.M. -- a half hour earlier than normal -- and at noon on Fridays. ''That is not an appropriate way to run a company,'' says Clarke. ''We are fighting a war with the Japanese, the Taiwanese, and the Europeans, and you don't want your people sitting on a golf club green.'' Quickly Clarke homed in on superfluous staff specialties. ''We start out with a zero-base premise,'' he says. ''We want to keep nothing more than what it takes to get the job done.'' His first act: firing the four-person economics department. ''I don't want economists taking away the authority of managers,'' he says. ''As CEO, I want my managers to sign in blood what they think housing starts will be.'' Then he got rid of 30 outside consultants: ''Why should the company spend another $2 million a year to help me do my job?'' He eliminated a central marketing department and the real estate department, which had not sold a parcel of property in three years. Clarke explains: ''The problem with an in- house capability for something like real estate is that this guy puts himself out of business if he achieves his goal, which is to liquidate property.'' Within a year Clarke sold USI's headquarters building for $9.4 million.

AT SCM he pulled the plug on an immense data services center in North Carolina that cost $8 million a year. Though many streamlining companies are letting computer services grow, Clarke felt the center was overloading his executives with information, making it harder for them to reach decisions, not easier. He also jettisoned SCM's management training center on the Hudson River and its 26 staffers. ''Hiring and developing the right people is the most important thing I do as a manager,'' he says. Strategic planners are another group of employees that bit the dust. Clarke reasons that strategy is too important to be left to experts; managers must do it themselves. Like most other executives, he says he gets no kick from firing people, but adds, ''You shouldn't let the human element affect the basic business decision.'' He tolerates lawyers as a necessary evil and instructs them to resolve issues rather than prolong them. Clarke maintains that keeping an organization streamlined is second in importance only to creating an excellent product at the right price. It's like sailboat racing, he says. He won the Newport-Bermuda race last year in part by staying lighter than most other boats. As competing craft loaded up on beer and food, sinking farther into the water, he took only the required five gallons of water per crew member plus dehydrated food to save weight. Rather than getting a good sleep below deck, the off-watch crew often clipped themselves to lifelines on deck to keep the boat sailing flat and fast. ''There was nothing in that boat that we didn't need to get to St. David's Lighthouse in Bermuda,'' Clarke says. ''The old guard at the yacht clubs say minimalists like me are ruining the sport by making sailing unpleasant. But I'm not in it to be comfortable. The winning is the fun. That's the whole point.'' A company that runs an even tighter ship than Hanson is Nucor, the feisty mini-mill company in North Carolina that is fast becoming a maxiplayer in steel manufacturing. Its big advantage is that it did not have to streamline -- Nucor never built a giant staff. With revenues that will pass $800 million this year, it maintains a corporate staff of 17 people. ''That's up 6% this year too, because we added a person,'' says Chief Executive Ken Iverson. Total corporate costs, including office space: $8.6 million last year, or a minuscule 1.3% of all costs. Corporate costs that rise above 5% begin to put an excessive burden on operating units, according to McKinsey. Nevertheless, some companies are hard put to keep them below 15%.

HOW DOES NUCOR do it? Iverson says CEOs ask him this question more than any other. He has decentralized his 14 divisions to the point where they could probably run by themselves if they had to. Each business operates as an autonomous company in a regional market, making all its operating decisions. The tiny central office monitors budgets, cash flow, and operations. Iverson occasionally employs consultants for economic forecasting but more often uses published forecasts on the steel industry he can consult for next to nothing. Strategic planning? He sits down three times a year with his general managers to discuss how to allocate the company's capital. Hanson and Nucor are models for many of America's corporate behemoths as they begin the tough job of eliminating long-embedded staff. The simplest and most radical approach, many chief executives have concluded, is to let operating managers decide what corporate services -- from public relations to real estate management -- they are willing to pay for out of their own budgets. That's what General Foods is doing. ''We wanted to make it easier for each of our operating companies to decide exactly what resources it needs to pursue its business interests,'' says Chairman Philip Smith. ''They alone will decide what they need to be competitive.'' One of the dangers of decentralizing corporate staff is that a number of oversize staffs can bloom lower down in the organization. Example: Mobil. In its oil and gas operations Mobil long maintained some two dozen regional centers, a half dozen divisional offices, plus its New York corporate headquarters, all of which were staffed as if they were separate companies. As though guided by some internal genetic structure, each of these management centers cloned the staff group of the office to which it reported. Each generally employed 175 to 200 planners, lawyers, controllers, human-resources people, systems experts, and so on -- some 6,000 altogether. The little-company syndrome, as some Mobil executives referred to their bureaucratic malady, was costly, laborious, and a drag on decision-making. According to Don McLucas, head of human resources and the man who coordinated Mobil's cutback program, staff specialists often created their own lines of authority parallel to the operating hierarchy's. With staff matrices on top of matrices, decisions could take months, even years, as each management center conducted its own review and added its own recommendations to be considered by the next level. McLucas recalls that a $1 million decision by Mobil Francaise to buy a gas station in downtown Paris, for example, was reviewed by four additional management layers. The four: Mobil Europe, the international marketing and refining division, the worldwide marketing and refining division, and finally Mobil Oil Corp. in New York. Trying to limit the staff at each center would often lead to long debates about precisely how many planners or accountants were necessary. McLucas says: ''We concluded that if we didn't eliminate some of these management offices entirely -- get rid of the whole goddamn thing -- our reduction program wouldn't work.''

MOBIL HAS HALVED its 24 regional offices to 12 in the past five years and reduced the duplication of staff at its six division offices and headquarters. Overall it has cut corporate staff by one-quarter -- the same proportion by which it has reduced total employment. Staff jobs should be even fewer by 1990, when the oil giant expects to finish moving its corporate headquarters and divisional offices into one complex in Fairfax, Virginia. As companies scale back corporate hierarchies, many are redefining the role of the head office. The notion of an elaborate system of checks and balances with parallel lines of reporting -- which found its most extreme expression at ITT under Harold Geneen -- is out. The new trend is to think of the corporate center as a small merchant bank or holding company, investing capital among various enterprises, monitoring the profitability of each against projections, replacing underachieving top managers, and constantly looking for new investment opportunities. As McKinsey's Coley says, ''It doesn't take a cast of thousands to do that.'' Burlington Northern, the railroad and natural resources company, reorganized itself six years ago. It changed from a traditional integrated American corporation into a holding company. The headquarters staff, 50 to 60 managers, moved from St. Paul to Seattle. One reason: so they would not dabble in everyday operational problems back in St. Paul or worry general managers by looking over their shoulders. The operating managers compete for capital allocation -- the best performers get the most capital -- creating new pressures to run as lean as they can. Total employment at the railroad has fallen from 57,000 to 33,000. Its management group has shrunk from 6,000 to 3,700, with corporate staff sustaining a disproportionate share of the cuts. Computer services is the only area that has grown. Even big, vertically integrated firms that don't want such a radical transformation are narrowing their corporate focus to basic strategic goals rather than tactics. Says Ford's human-resources chief, Peter Pestillo: ''The corporate role at Ford has changed from audit and review, or the oversight of other people, to corporate strategy, or what the company ought to be doing.'' Some companies have handed to corporate staff the job of reducing corporate staff. That arrangement rarely works well. AT&T tried it and has eliminated at least 12,000 staff jobs; it still has 18,300 left. The company is decentralizing, though perhaps not enough. It is dispersing many corporate functions, such as public relations and marketing, to seven regional hubs, each of which will serve AT&T's various businesses in that region. But ultimate authority remains firmly in New York. Hub staffs report to counterparts at headquarters, which also decides how to allocate corporate overhead costs to each of the units. ''The operating managers don't have the choice to do without all staff services,'' admits Charles Marshall, AT&T's vice chairman for personnel, who adds that the managers often blame their skinny bottom lines on overhead charges.

YET LEFT ALONE -- and with powerful motivation -- AT&T operating managers have shown they can cut staff as well as anyone. After deregulation, fierce competition nearly drove out of business the division that makes and markets phone products. With the blessing of the New York headquarters, its operating manager, Victor Pelson, turned the business around by short-cutting corporate channels. ''There was not time to go through the traditional organization and prepare reports and fancy review graphs,'' he says. ''We had to toss the problems right in the laps of the line people.'' They changed the entire product mix in 18 months, opened a factory in Singapore within a year, closed half the business offices and phone stores, and cut division staff by half, or some 10,000 people. Pelson says, ''The traditional staffs were cut the most. We reduced senior vice presidents by two-thirds.'' Up to then such bold actions in such a short time were unheard of at AT&T. But no longer. Pelson has been promoted to head AT&T's general business systems division, where he is doing more of the same. While staff reduction begins as a cost-cutting exercise, it usually accomplishes much more. Decisions are made faster; managers get closer to their markets. Companies that have shrunk staff find that these effects are almost always more valuable than the initial cost savings. Above all, paring the staff highlights a lesson that is often forgotten in good times and relearned in bad: Line managers are the stars of business. They probably know what they need to do their jobs. If they need help, let them ask for it -- and pay for it.


TRANSAMERICA $7,120 15,200 100 $71

CSX $6,345 52,000 100 $63

DANA $3,695 36,000 72 $51

NUCOR $755 3,700 17 $44

HANSON INDUSTRIES $3,769 33,000 89 $42

HENLEY GROUP $3,172 18,000 75 $42

HEINZ $4,366 45,000 175 $25

BORG-WARNER $3,623 82,000 175 $21

JAMES RIVER $2,607 35,500 175 $15

BRUNSWICK $1,717 18,700 180 $10

CREDIT:SOURCE: TEMPLE BARKER & SLOANE CAPTION:It pays to keep lean at the top: Most of these abstemiously staffed giants have performed admirably in recent years.

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