Making The Elephant Dance

How Lewis Campbell took the sprawl out of Textron. On the short list for GM?

You don't get to be a chief executive by waffling your way to the top. Most stick with the playbook and are steadfast and unflinching, or at least they want to be. That's what makes Lewis B. Campbell's story so intriguing. A CEO from central casting -- tall, 59, with ruddy, regular features and a resolutely confident air -- he has engineered an unlikely turnaround at the $12 billion industrial conglomerate Textron Inc. (TXT ). And he did it by letting go of every dearly held management concept he had developed over his decades as a manager.

In 2001, three years into his tenure as CEO, nine years after joining up as chief operating officer, and 33 years into a career that began in the engineering trenches at a once-proud General Motors Corp. (GM ), Campbell confronted the biggest crisis of his professional life. The economic downturn, and then September 11, had dried up the industrial and aviation markets from which Textron derived the bulk of its profits. The company's share price was in free-fall: From 1992 to 1999, Campbell had watched the stock rise from 20 to 100, but in a little more than a year it had plunged half the way back down. Over two years, from 1999 to 2001, profits sank 75%.

Campbell took a drastic step, wresting Providence-based Textron away from its roots as a decentralized holding company to one with a single strategic vision. In doing so, he has won over entrenched managers, warmed up a skeptical Wall Street, and is starting to make the elephant dance. In the past three years, Textron's share price has leaped from a March, 2003, low of 26 to a recent 94. Return on invested capital is expected to rise to 15.5% in 2006, up from 8.8% in 2003.

Textron's recent success has even landed Campbell's name on speculators' lists for the top job at GM, where he spent 24 years before joining Textron. The resolve, adaptability, and motivational touch he has displayed over the past decade are all sorely needed at the auto maker. But Campbell denies any interest in replacing GM CEO G. Richard Wagoner Jr., who, in any event, has the support of his board. "It's a heck of an honor," Campbell says, "but you won't see me there."

The turnaround, or "the Transformation," as people at Textron call it, began on Jan. 17, 2001, a date that Campbell invokes repeatedly like a lucky charm. At the time, the conglomerate business model -- the one Textron helped invent in the 1940s -- seemed to be buckling under. The old mandate for Textron's many business units was simple: Meet earnings-per-share targets and kick a tribute up to headquarters every quarter. That gave the divisions autonomy, but it left Textron's various units larded up with redundancy, bureaucracy, and not much sense of what it meant to be part of the same company. "We were adrift," Campbell says. "We were doing all the things we used to do but were not getting results."

He used his platform at an annual managerial summit, held that year in West Palm Beach, Fla., to outline his turnaround plans. The goal was ruthless efficiency. Disparate divisions would have to work together and share resources. The new Textron would "add value" to its companies, instead of just curating them. "It was a very dramatic shift," says Jack J. Pelton, then an engineering executive at Textron's Cessna Aircraft unit and now its CEO. People were not even "sure what each of the peer group businesses did."

Instead of just earnings per share, Campbell's new focus was how the company as a whole was using its capital, getting the most cash back for every dollar the company put into each unit. It was a bid to make the creaking machine run more efficiently. That sort of midstream correction is rare for a CEO, especially one who had ridden the old model to substantial professional success. "It's like doing a total 180," says Cowen & Co. analyst Cai von Rumohr. "It's like saying: 'Everything I've done in my career until now has been wrong."'


The change would begin with small things. In an attempt to erase the burdensome legacy of thousands of acquisitions, more than 1,500 different payroll systems were whittled down to three, 52 health care plans came down to one, and more than 100 data centers were consolidated to just a handful. Campbell launched a companywide Six Sigma drive. Each of the business units' growth prospects would be plotted on a matrix. If the unit didn't measure up soon, it would be sold, politics and personalities be damned. To develop talent, executives were transferred from posts in one unit to another. And to help coax along managers who didn't see much benefit in caring what happened outside of their unit, incentive compensation was linked to companywide performance. As logical as those moves sound, they were still "hard for individual businesses to grasp," Campbell says. "They might have to spend money to get with it. I had to convince them that the short-term pain was worth it."

Still, employees had reason to be nervous. Textron's stock kept falling for a full two years and two months after that fateful speech in West Palm Beach. "All the Doubting Thomases said: 'See? I told you,"' says Campbell. The cavalry soon arrived in the form of an economic recovery. The commercial-helicopter market jumped back to life, giving Bell Helicopter a boost. Orders for Cessna business jets kicked back into gear, and the Iraq war brought demand for Textron Marine & Land Systems' armored security vehicle.

Finally, the business model improvements began to show their merit. Without the worry over earnings per share, Campbell felt able to invest in Cessna during some of its bleakest post-9/11 moments, when profits fell 47%. Cessna managers asked for hundreds of millions of dollars in investment, and "we didn't turn down one penny -- not a one -- even though it cost us earnings-per-share in the short term," claims Campbell. "The old me might not have said yes." As a result, Cessna emerged to meet the upturn with a bevy of new products.

Since the Transformation began, Campbell has shed 45 pounds, as well as his old-fashioned, buttoned-up demeanor. "Lewis was a very formal guy," says Ed Orzetti, who was recruited by Campbell from General Electric Co. (GE ) to help run cross-company initiatives and who has since left. "He let his hair down and became much more engaged." But he's still tough as ever. When you stop 37,000 people in their tracks and lead them in the opposite direction, says Campbell, "at the end of the day, like it or not, the CEO has to be so transparently committed that even the most steadfast doubters can be turned around."

By Brian Hindo

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