A Wake Up Call For Bell Atlantic

The walls of a Bell Atlantic Corp. conference room are covered with brown wrapping paper. Diagrams and flow charts describe the marketing department's hierarchy and functions. Markers in hand, executives zestfully cross out steps in product-development cycles, slash positions, and question goals. Each day, others wander in and add their graffiti. "Is this really necessary?" queries one anonymous contributor, pointing to a staff function. Before long, the writing is on the wall: The department needs to be dramatically pared down.

Welcome to the Bell Atlantic Way -- a management scheme to cut costs, spur salesmanship, and promote independent thinking at the $12 billion, Philadelphia-based regional Bell phone company. All seven Baby Bells are striving to break out of their bureaucratic ways, but under Chairman Raymond W. Smith, Bell Atlantic's program stands out for its sheer pervasiveness. In the past two years, Smith has sent 20,000 managers through a 2 1/2-day training program to learn the Bell Atlantic Way. Nearly 60,000 other employees will get similar training starting in 1992. True believers wear "Coach Me" buttons, an invitation to co-workers and even subordinates to offer advice.

Smith, 54, became chief executive in January, 1989, and chairman that July. Since then, he has become thoroughly steeped in the ways of motivational management. The Carnegie Mellon University engineering grad keeps a plaque on his desk reading "Be Here Now," a reminder to remain focused on the business at hand. He encourages employees to carry a blue poker chip, as he does. That's to keep them working on blue-chip priorities first, leaving the reds and whites for later.

STAGNANT GROWTH. These tricks may sound hokey, but Smith says they're helping transform his executives into the kind of managers who can compete in all sorts of businesses. Like other regional phone companies, Bell Atlantic is struggling to launch new businesses as its old ones slow. Bell Atlantic generated 88% of its revenue last year from local phone companies in Delaware, Maryland, New Jersey, Pennsylvania, Virginia, West Virginia, and the District of Columbia. But growth is nearly stagnant in local calling, and large customers are bypassing local carriers to connect directly with long-distance phone companies. Competitors are moving in on short-haul long-distance service, coin telephones, operator services, and yellow pages. The results are clear: For the nine months ended Sept. 30, Bell Atlantic's net income rose a scant 1.4%, to $1.09 billion from $1.08 billion a year earlier, and revenue actually dipped, to $9.18 billion from $9.19 billion.

Getting out of that rut will require a far more aggressive approach -- wringing more income out of local phone service and a smarter grasp of new businesses than the company has shown in the past eight years. Smith is asking employees to work on these corporate goals, instead of just fulfilling the narrow, bureaucratically defined objectives that marked the old Bell system. That message is unrelenting, expressed in company newsletters, training sessions, and ubiquitous "Bell Atlantic Way" posters. Says one former company executive of Smith: "Changing a company's culture takes either a crisis or a fanatic. He's a fanatic."

The new culture is already apparent in the executive suite. To set an example, Smith turned the executive dining room into an employee cafeteria. He also dispersed top brass from the executive floor and stationed them with the groups they oversee. "What kind of message do we send employees if we're all on the same floor and lunch in a private dining room?" Smith asks.

While bottom-line results won't be apparent for some time, Smith's efforts rate cautious praise from an important constituency: regulators. "The effort, it seems to me, is consciousness-raising," says David Rolka, a member of the Pennsylvania Public Utility Commission. To be more responsive to the market and more competitive,he says, "These types of programs are necessary."

ESPRIT DE CORPS. The thrust of the Bell Atlantic Way, developed with the help of Los Angeles-based Senn-Delaney Leadership Consulting Group, is to foster worker participation at all levels. At a session for Bell Atlantic Mobile Systems supervisors, a blindfolded employee is told to hit a target with a velcro-tipped dart. At first, no one lends any guidance. Then, people shout directions that help the employee hit the target. Such drills are more motivational than instructional. Indeed, employees whose esprit de corps appears to be flagging sometimes are advised to attend a "reinforcement"session.

To some employees, it all seems a bit Big Brotherish. One network manager, who spoke on condition of anonymity, says he's considering early retirement to avoid wasting time on "silly programs." As for unionized workers, who won't experience the Bell Atlantic Way until next year, one 11-year veteran says he doubts he'll ever be allowed to "coach" his own boss, calling the program "another attempt to brainwash employees." That kind of attitude exasperates Smith. "Some people don't want to change under any circumstances, but this isn't going to go away," he vows.

There are early signs of success. For example, the brown-paper exercise, which was developed with the help of the MAC Group Inc., a consulting firm in Cambridge, Mass., has aided in corporate restructuring by making the employees involved feel more like participants than victims. Without such measures, "We have a tendency to dig our heels in and defend our territory," admits Graham Ragland, assistant vice-president for compensation and benefits. Ragland actually scratched his own job off the wall last summer -- knowing that a new one would be found for him.

When it comes to broad corporate strategies, it's harder to draw connections between the Bell Atlantic Way and the company's performance. Its basic strategy has been to invest heavily in its network. By the end of 1991, 90% of its phone lines will be equipped with Signaling System 7, a data-messaging network that automatically sets up calls and permits new services, such as caller I. D., call blocking, and automatic re-dialing. Last summer, it was faulty Signaling System 7 software from DSC Communications Corp. that led to major phone outages in Bell Atlantic's network in Washington, Pittsburgh, and elsewhere. By plowing hundreds of millions of dollars in the network, Smith hopes to offer new phone features and services that will raise network revenue growth to a level of 4% to 6%, rather than the 1% to 2% the company could otherwise expect.

BIG LOSSES. But Bell Atlantic also holds another, not so laudable record, among the Bells. It has the highest debt ratio (chart, page 133), thanks to forays into financial services and real estate, an employee stock-ownership plan, and its part of a $2.4 billion purchase -- with Ameritech Corp. -- of Telecom Corp. of New Zealand. Short-term debt, at 32% of equity as of June 30, was twice the average of the other Baby Bells, says Marion M. Boucher, an analyst at Donaldson, Lufkin & Jenrette Securities Corp. Bonds issued by Bell Atlantic Capital Funding Corp. still carry an AA- rating from Standard & Poor's Information Group. But Boucher says they may be overpriced given the risks. "People have thought of these phone companies as underleveraged, conservative. That's no longer the case," she says. "Often, when you become adventuresome, you stumble."Bell Atlantic already has stumbled in financial services and real estate. Even as the real estate market was stalling in early 1990, the company was predicting that it would double its $650 million portfolio within five years. But Smith recently told analysts that the company will gradually get rid of almost all real estate beyond what it uses itself. He said it also is shrinking its computer-leasing business, which at one time had more than $1 billion in assets. The company doesn't break out the profitability of individual business units, but analysts say real estate and financial services have tied up enormous amounts of capital while generating lackluster returns and heavy write-offs.

Now, Smith says new businesses will be closer to the core business -- cellular networks and ventures with foreign phone companies. Smith ended the company's self-imposed ban on buying cellular properties outside of its home territory in September, when the company agreed to buy New York-based Metro Mobile CTS Inc. for nearly $2.5 billion in Bell Atlantic stock and assumption of debt. The acquisition puts Bell Atlantic roughly sixth in size among cellular operators nationally.

Recently, the Bell Atlantic Way has been applied to the company's overseas push -- with mixed results. Teamwork helped in New Zealand: Instead of leaving the bidding up to a small international team, the people who run the domestic network pitched in. But Bell Atlantic has fallen short in other bids for phone companies in Eastern Europe and Latin America, most recently losing the auction for a piece of the Venezuelan phone company, CANTV.

As Smith strives to steer Bell Atlantic in new directions, his biggest challenge will be to keep employees from slipping back into comfortable Bell habits. "We're still dealing with the monopoly mindset," the chairman concedes. If the Bell Atlantic Way does help the bottom line, however, it may not be long before Nynex Corp., Southwestern Bell Corp., and the rest start tacking brown paper up on their conference-room walls, too.

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