ALLIED-SIGNAL'S TURNAROUND BLITZ If you think it takes a long time to transform a company, think again. Larry Bossidy is breaking stopwatches -- and performance records. Here's how he's doing it.
By Thomas A. Stewart REPORTER ASSOCIATE Ani Hadjian

(FORTUNE Magazine) – LAWRENCE A. BOSSIDY, chief executive of Allied-Signal since July 1991, grew up in Pittsfield, Massachusetts, in the shadow of General Electric's big transformer works. In high school he was a star pitcher, a fastballing southpaw who hero-worshiped New York Giant screwball ace Carl Hubbell. Senior year, the Detroit Tigers offered Bossidy a $40,000 signing bonus. His mother pressed him to take Colgate University's athletic scholarship instead. Four years later he pitched in the College World Series, but the Major Leagues were no longer an option. ''I was big as a youngster,'' explains Bossidy, who is 6- foot-1. ''When I graduated I wasn't good enough anymore.'' He signed on at GE instead. Larry's mom made the right call. If the boy had gone to the Tigers, socked the bonus in the S&P 500, and left it, he'd have $3,280,000 now -- not bad. But to lure the man from GE, where he had become vice chairman and right-hand man to CEO Jack Welch, Allied-Signal's board gave him 345,798 shares of deferred stock and options on 250,000 shares at $29.75 -- a package worth roughly $25,629,000 today. Bossidy has a paunch now, and his 57-year-old left arm isn't what it was, but he's still throwing heat. In his first 15 months on the mound for the Morristown, New Jersey, company, operating profits increased 28.5%. Return on shareholders' equity leaped from 8.9% to 17%. And the stock, 29 3/8 when Bossidy's appointment was announced, was recently 55 1/2. The Tigers, by contrast, finished sixth, 21 games out. Bossidy's performance at Allied-Signal is an object lesson in corporate transformation. Says he: ''Change can be done faster than most people think.'' And he's out to prove it -- not just by cutting (though he has done that) but also by preparing the company to grow and add jobs. Shamelessly picking off tools and talent from GE, Xerox, and other companies, Bossidy has set himself the ultimate test of cycle-time reduction: increasing the speed of corporate revolution. ''Personally, I couldn't do it any other way,'' he says. ''I'm not mature enough. I had to get it all out on the table.'' In this case, ''all'' meant housecleaning and culture change -- urgently and simultaneously. The key features: ambitious goals like 8% annual revenue growth, a total-immersion total quality program, an aggressive plan to recast the company's supply chain, and a top-to-bottom change in human resources management. Informal as well as impatient, Bossidy is determined to accomplish the kind of transformation that took GE more than a decade in less than half the time. ''We couldn't have done it this fast 15 years ago,'' he admits, crediting pioneers like GE, Motorola, and Xerox for showing him how. Says Ralph Reins, who became head of Allied-Signal Automotive in November 1991 after stretches at United Technologies, Mack Trucks, and ITT: ''I've never seen anything move as fast.'' The company Bossidy joined was the creation of Edward L. Hennessy Jr., one of the grand acquisitors of the Eighties, who turned sleepy Allied Chemical into a multibillion-dollar power in automotive components, aerospace, and engineered materials (see chart). But by 1991 the house that Ed built was ramshackle. Debt was 42% of capital, and cash was pouring out like heat through an uninsulated roof. Hennessy was already looking for an heir. Bossidy, a year older than Welch, was an obvious candidate. But he said no when Allied-Signal's board proposed to sit him at Hennessy's feet, not crowning him CEO till Hennessy retired on an unspecified date. Bossidy had been No. 2 long enough. His counteroffer: Hennessy could remain chairman till the end of 1992, with Bossidy CEO from the get-go. The new chief has been telling people to move faster ever since. His first day, a new company forecast predicted a negative cash flow of $435 million in 1991 and $336 million in 1992. A survey taken a month before showed that executive morale was, he says, ''the worst I'd ever seen.'' Within ten weeks, Bossidy started dropping shoes. First came a restructuring plan. It chopped $225 million from capital spending, reduced the annual dividend to $1 a share from $1.80, put eight small divisions up for sale, cut 6,200 salaried jobs, and combined ten data-processing centers into two. Those steps were supposed to cut the cash drain to $250 million in 1991 and to zero this year. What actually happened was stunning: Negative cash flow of $195 million last year and a positive $255 million in the bag for 1992. In all, an $831 million turnaround from the July 1991 forecast.

CREDIT SOME OF IT to Bossidy's other shoe. With the restructuring, he outlined lofty goals for folks to ''see the promised land and know when they got there.'' Targets included 6% annual gains in productivity and big jumps in operating profit margin from 4.7% in 1991 to 9% in 1994, return on equity from 10.5% to 18% over the same period, and working capital turnover from 4.2 times a year to 5.2 (see box). A statement of corporate vision and values came out with the goals. It was the handiwork of Allied's top 12 executives, who compose the leadership committee, and it accomplished the dual job of raising the senior executives' sights and bringing them together with Bossidy to see what they could all agree on. Much of the statement is standard, bracing stuff: the vision of being ''one of the world's premier companies, distinctive and successful,'' and the values of satisfying customers, integrity, and teamwork. But it galvanized people. And one aspect caught everyone's attention. Asks Frederic Poses, who runs the engineered materials division: ''Did you notice the most interesting value on the list? Speed.'' Bossidy chose total quality management to turn the vision and values into reality. Hennessy had already hired James Sierk to be vice president of quality and productivity. Sierk came from Xerox's Baldrige Award team, where he prepared the famous ''Wart Report,'' which became Xerox's agenda for continuing improvement after it won the prestigious quality prize. Bossidy strongly buttressed Sierk's efforts at Allied-Signal. Says Noel Tichy, a University of Michigan business professor who led GE's renowned Management Development Institute in the mid-Eighties and follows Bossidy's work at Allied-Signal: ''TQ is a joke in a lot of places. Larry put a hardness into the process with a clear set of goals, values, and methods.'' He changed the timetable first. ''I'd laid out a five-year plan,'' Sierk recalls. ''Larry told me to do it in two.'' By the end of 1993, the CEO wanted all 90,000 employees to complete a four-day course in the use of tools like process maps to hunt for unnecessary work and benchmarking to study other companies' successes. (They're ahead of schedule.) Bossidy was determined that total quality become a part of normal operations rather than a separate bureaucracy. To that end, Sierk told Coopers & Lybrand, the firm he hired to set up the course, that within three months the consultants were to finish training a generation of trainers and then scoot, leaving employees to carry on the work. The students were people like Doreen Mannix, 34, a production manager at Allied-Signal's sprawling chemical plant in Hopewell, Virginia, who became a ''master facilitator'' as well as doing her regular work, and spent three months on the road -- even traveling to Singapore -- to teach quality methods to employees in all three divisions of the company. Bossidy also set a deadline for Sierk. After three years he was to close his office and be prepared to take an operations job. The training itself is unique. Employees come to the course in natural work groups -- colleagues who build part of a brake system, for example -- and bring a real-life problem, like reducing idle machine time. Trainers and supervisors must approve the choice in advance. This ensures that the problem is neither trivial nor too big for the team to fix, and it almost forces managers to okay team proposals later. During their four-day training, teams work on their problem. Then they return to their jobs to complete it with help from trainers on-site. In Tempe, Arizona, aerospace worker Barbara Peters had a very personal project -- to save her job. Peters and her teammates, who hand-finish machine hardware, saw the company send $25,000 a month in work to outside vendors and smelled the unemployment office. The team found that in-house work was expensive because antiquated tumblers did a poor job of prepping the hardware for finishing. Cashing their management-approval chit, they got the company to buy new tumblers, a $60,000 expenditure that should save $240,000 a year. Using real problems, not classroom training, hard-wires the quality effort to performance. Evidence? Allied-Signal achieved its increased productivity and working capital goals over the past 12 months despite flat sales. Says Bossidy proudly: ''That is a bitch.''

To keep the gains coming, the boss is not relying on TQ alone. Another major initiative is improving materials management. Materials costs directly affect productivity as Allied-Signal reckons it, which is the same way GE does. Rather than tallying output per man-hour, the company keeps track of ''total cost productivity.'' By this measure, productivity is sales, discounted for price increases that don't reflect an increase in value, divided by all costs (including plant and equipment, materials, and labor), adjusted for inflation. The definition helps managers look beyond layoffs for sources of productivity gains. Explains Poses: ''If I had to get 6% productivity growth from labor alone, there'd be nobody left in about three years. The real opportunities are in raising the value of what you sell and cutting material costs.'' Enter Raymond Stark, vice president of materials management. Stark is another Xerox vet, who like Jim Sierk has a three-year sunset job. Stark's mission, similar to work he did at Xerox, is to revamp Allied-Signal's supply chain, with the aim of getting it to deliver productivity gains of 6% a year forever. That will mean drastically reducing the base of some 9,500 suppliers who currently sell Allied-Signal $5.6 billion a year of raw materials, parts, and services. This autumn 1,500 U.S. suppliers were summoned to mass meetings to learn what Stark had in mind. (The others received a strong hint that they are unlikely to make the cut.) At a meeting of aerospace suppliers, some in the audience gasped when they heard that Allied-Signal expected them to show up in January with credible plans to reduce their prices 10% to 15% and lead times 30%, while meeting stiff quality standards. THE COMPANY insists it wants to help its suppliers, not bully them, lest they end up cutting corners. To give the purveyors a start on cost reduction, Allied-Signal arranged to let them piggyback on its purchases of office supplies, tooling, and corporate travel; the volume discounts can mean major savings to small companies. More important, the company formed ''commodity teams,'' cross-functional squads of manufacturing engineers, designers, and purchasing and finance experts in such areas as castings, electronic gear, machine parts, and raw materials. Each team is responsible for picking the best suppliers in its specialty. The chosen will get long-term national contracts, early involvement in new product design, help in introducing TQ at their own companies, electronic links with Allied-Signal to cut paperwork -- in sum, a partnership that aims to bring down costs for both sides, not just prices. It's a tall order, but Xerox, Motorola, Ford, and others have done it. Says Todd Haas, executive VP of Small Castings of Bechtelsville, Pennsylvania, which makes aluminum and zinc housings for the aerospace business: ''We've been through this as a supplier to AMP ((an electronic components maker)) and AT&T. I'm delighted, not worried.'' But another supplier asks, ''Isn't this more like dictatorship than partnership?'' If it's not Draconian, it is Darwinian: Separating the big cats from the pussycats is the whole idea. For the winners, the rewards are fatter margins as costs fall and more sales as they carve up the business others lose. Supplier management is one area where the headlong sprint may result in some stumbles and skinned knees for Allied. As Stark formed his commodity teams this fall, Bossidy told him, ''This organization needs no bozos.'' But top talent is tight. As late as Halloween, two teams hadn't been fully staffed. Bossidy admits that when the company offers help to suppliers who ask for it, ''We have to be careful what we bite off.'' Some will have to wait till the doctor can see them -- and they may not be happy about it. Bossidy's belief that Allied-Signal needs stronger executive talent has led him to take personal responsibility for the company's human resources -- an unusual role for a big-time CEO. He says, ''The first team here is just fine, but we don't have anywhere near the depth GE has.'' (Nor anywhere near the size: Allied-Signal's revenues are a fifth of GE's.) True to form, the CEO moved on all fronts at once. Among the top 125 executives are 44 new faces, with new hires, promotions, and new assignments represented about equally.

Bossidy then told his three executive vice presidents and President Alan Belzer to lead teams to prepare detailed plans to improve college recruiting, staffing, career development, and training and education. They benchmarked the best -- companies like Corning, Bechtel, Hewlett-Packard, Johnson & Johnson -- and held focus groups to learn how employees felt human resources could help their careers more. Says aerospace head Daniel Burnham: ''Can you imagine this much senior management attention -- to personnel, yet? But it is the heart of what we do.'' The human resources department itself revamped employee appraisals. Starting in January, a boss must offer subordinates help such as special training or outside courses to improve weaknesses he or she identifies. Salaried workers will fill out a form listing their skills, describing their career goals, and naming other divisions they would like to work for. This information will create a database of people who might fill various openings throughout the company and will become an agenda for an annual, informal, but mandatory ''How'm I doing?'' chat with the boss separate from appraisals. The master plan is to deepen the talent pool by devising new career paths, rotating managers among businesses -- a tradition at GE but rare at Allied- Signal -- and intensifying management education. Bossidy is interviewing candidates for a ''manager of curriculum'' whose job will be to create courses for managers and executives. The quondam hurler still hasn't run out of fastballs. Bossidy's next pitch is for growth -- and as usual it's a high, hard one. He has promised Wall Street to increase revenues at a compound annual rate of 8% through 1995. Fortunately, he knows where at least half that 8% will come from. The automotive sector expects $164 million in air bag sales this year, up from $78 million in 1991, and double-digit revenue increases in Europe, Japan, and Mexico, mostly from gains in market share. Engineered materials anticipates 28% annual growth in sales of oximes (specialty chemicals used in drug manufacturing) and substantial gains from globalization -- for example, selling automotive catalysts in Europe, where car emissions standards are relatively new. THE OTHER 4% will have to come from new business. With cash pouring in from operating gains, Bossidy says he has over $1.5 billion to invest internally and in acquisitions in the next three years. But how to buy without falling prey to internal inefficiency, Allied-Signal's bugbear in the Eighties? ''We weren't better at operations then because we weren't working on it,'' Bossidy says, making it clear the heat is still on. His rule: Acquisitions must be modest and closely related to existing businesses -- ones operating managers understand. But he is relentless about the need to grow. On his desk is a set of charts he prepared to dramatize this imperative for his executives. One shows that, without revenue growth, Allied-Signal would have to shed 5,000 jobs a year to raise productivity 6%. Another plots the company's narrowing ratio of active to retired employees -- grim evidence of the burden a shrinking work force would shoulder absent new business. He speaks as if his lieutenants were in the room: ''We start planning now. We place bets in March.'' Then he alludes to Dwight Eisenhower's famously vague campaign promise to end the Korean war: ''I want real plans. Don't just tell me you'll go to Korea.'' / According to company President Alan Belzer, there is an art to ''setting big goals -- which is maybe the most important thing a manager can do -- without pissing people off.'' So far Bossidy seems to have mastered it. Says he: ''We have a suburban plant in L.A. I went there after the riots. I was out at the loading dock with Hispanics, Koreans, Vietnamese, whites, blacks -- they were all pushing me for more speed. The people know. They see companies like IBM and GM under tremendous strain. It's mostly managements who worry about the pace of change.'' But not Larry Bossidy.