When big still seems small - retaining the entrepreneurial spirit after an acquisition

Nation's Business, Oct, 1994 by Michael Barrier

To many owners of small or mediumsized businesses, selling their companies to a large corporation can look like the ultimate dream--or the ultimate nightmare.

A dream, because acquisition can bring with it not only a financial reward for an entrepreneur's years of hard work but also resources that permit an acquired company to do things it could never do on its own. A nightmare, because a corporate bureaucracy can sometimes smother the entrepreneurial drive that made the smaller firm a tempting acquisition in the first place.

But even if the parent company is enlightened and sympathetic, is there really any way that a smaller company, once it becomes a subsidiary, can keep the entrepreneurial flame alight? And if the flame does die out, can it ever be revived?

The stories of two companies--one acquired 26 years ago, the other only this year--suggest that the answer to both questions can be yes; and that a commitment to quality can be a key.

A case in point is the machine-tool manufacturer Landis, headquartered in Waynesboro, Pa., which made its first production grinder, a machine that now sits in the Smithsonian Institution, in 1885. Once a classic small-business success story, Landis since 1968 has been part of a much larger corporation. It was bought that year by Litton Industries, which spun off Landis and other divisions last year to form a new company called Western Atlas, Inc.

Landis' machines are cylindrical grinders, used for a finishing operation in the manufacture of engines. The machines grind automotive parts---crankshafts, camshafts, and transmission parts--to the necessary smoothness and roundness, with tolerances measured in millionths of an inch.

Landis builds all machines to order, 95 percent of them for the automotive industry. Designing and building a grinder can take up to a year, and installing a machine is a complex process requiring a team of six or eight people working for six months. Not surprisingly, the grinders are expensive--Landis' least expensive machine sells for about $500,000, with the typical price in the millions.

"You can go to any engine manufacturer in the world," says C. L. Hartle, who runs Landis as its general manager, "and mention Landis, and they will know who we are and what we do. I can't think of an engine plant in the world where we don't have cam or crank grinders."

In the late '80s, though, Landis was locked into a rigid, top-down management style, Hartle says, "and we were sinking fast. We were falling behind in our technology. We were not listening to the customer."

Litton and then Western Atlas have always stood in relation to Landis more or less like a board of directors--exercising a general oversight, but not interfering in operations "as long as we made money," Hartle says--and it was only as profits eroded that Litton stepped in to make a change. Hartle moved into his present job at that time; he had been vice president for sales. "In six years," he says, '"we've changed the culture of the company" and more than doubled annual sales.

In contrast to the autocratic style that dominated before he took over, Hartle says, he has steered Landis into the mainstream of the quality movement. Every Landis employee has undergone at least 25 hours of quality training.

"I try to let everybody run their own departments," Hartle says, and beyond that, to give the people on the plant floor greater decision-making power. At the same time, he says, "we try to share all the information we can with all the employees, all the supervisors."

Landis, which has about 400 employees now, had around 700 when Hartle became general manager in 1988. It was vertically integrated to an extraordinary degree (the company once used water from its own well and generated its own power).

The firm now relies much more on outsourcing, Hartle says; as a result, when the economy slows, Landis doesn't lay off workers but instead cuts back on purchases from its suppliers. "We can do $90 million, or $100 million, without adding people," he says. "And if sales drop to $40 million, we don't lay off anybody."

Even though it has increased its outsourcing, Landis hasn't increased the number of its suppliers. In fact, in keeping with the precepts of the quality movement, it has pared the number of suppliers from around 130 to 25. Once a supplier has passed Landis' own rigid quality tests, Hartle says, "then we may inspect one out of every 20 pieces" from that supplier, as opposed to inspecting everything.

Hartle started with one great advantage: a strong tradition of quality workmanship. Grinders are by their very nature such highprecision tools that any indifference to quality in their manufacture quickly asserts itself.

Landis' plant is impressively clean and orderly, reflecting a philosophy that goes back a long way. When he started work at Landis as an apprentice 42 years ago, Hartle recalls, the company's president at the time said in effect that if a company was going to sell precision, it had better look the part--precision and dirty floors did not go together. Today, even the shrubbery in front of the Waynesboro plant has been trimmed with what looks like mathematical precision.