Few chief executives get a chance to completely remake their companies. William T. Ylvisaker has done it twice--to the same company.
Fifteen years after he began the transformation of Gould Inc. from a stodgy battery-maker into a go-go manufacturer of electrical equipment and auto parts, pushing annual sales past the $1 billion mark in the process, Ylvisaker is now wrapping up his second makeover of Gould. This one turns it into a hot high-technology company with interests in semiconductors, microcomputers, factory automation and sophisticated electronic equipment used in the medical and defense fields.
With the closing of the sale of the company's lead-acid battery division in a few weeks, Gould will sever the last ties to the business for which it was known for more than half a century. Gould will then have finished a three-year metamorphosis that has seen the company sell off three-quarters of its operations and invest the proceeds in a variety of fast-growing businesses that Ylvisaker believes could triple the company's sales to $5 billion within a few years, assuming a few more acquisitions along the way.
The makeover has cemented Ylvisaker's reputation as a tough guy and made him more than a few enemies, mostly former Gould executives who balked at the changes and were forced out. But it has also won him friends on Wall Street, where most analysts are enthusiastic about the potential for the reconstituted company--although they believe that Gould must prove it can nurture, integrate and manage properly its hodgepodge of high-tech businesses.
For the investment community, Gould has been transformed from a steady, unexciting performer into one with the potential for a dramatic run-up in its stock price over the next few years, according to analysts. Ylvisaker indicates that Gould will likely strengthen this new image next year by slashing its dividend, so it can sink more of its earnings into research and development and improve its cash flow.
Gould's latest transformation is perhaps the most striking example of a trend that began in American business a few years ago and has been accelerated by the recession: the attempts by many corporations to bail out of slow-growing or money-losing businesses and catch on to more dynamic high-technology high-flyers.
General Electric Co., for instance, is in the process of selling its resources division, a move that will create a $2 billion acquisition war chest that analysts believe the conglomerate will use to buy a high-technology company.
And Bethesda's Martin Marietta Corp. has spent the past year shedding some of its less-glamorous businesses and concentrating its resources on its high-technology defense activities and on new ventures in genetic engineering and data processing. Ironically, Martin Marietta's moves have been spurred, in part, by the financial hardships brought on the company by its merger battle a year ago with Bendix Corp.--a company that itself attempted a Gould-like transition from auto parts to high-tech. (Compounding that irony, Bendix bought a chunk of Gould last year and considered taking it over before setting its sights on Martin Marietta.)
But none of the major companies that have tried for a high-tech transformation have accomplished a change as complete as that wrought by Ylvisaker at Gould. "With the emergence of electronics as a major market in recent years, many U.S. industrial firms have repositioned themselves for the future by increasing their exposure to high technology," E. F. Hutton analyst Edward C. White Jr. wrote in a recent report on the company. "In no case has the transition to high technology been so sweeping or as rapid as it has with Gould."
"I know of no company that has turned over 70 percent of its assets in three years--and done it outside a bankruptcy court," says Robert H. Pry, Gould's vice chairman for technology.
The makeover has been accompanied by a management realignment that decentralizes many management functions, creates division-level boards of directors that include outside members, and seems in other ways to defuse Ylvisaker's reputation as the operator of a one-man show.
Ylvisaker has been the dominant force at Gould since he took over as chief executive in 1967. Then it was mostly a maker of batteries used in cars and in industrial equipment, as well as assorted other products, with sales of little more than $100 million annually. Ylvisaker quickly embarked upon an ambitious acquisition program, picking up a variety of automotive parts and industrial and electrical equipment businesses.
Along the way, it acquired a smattering of electronics operations. And when Ylvisaker took a good look at the company he had created by 1980, it was those divisions that shone the brightest. Unlike the company's other activities, vulnerable to economic swings and inching along at growth rates roughly equal to that of the gross national product, these electronics businesses, mostly in the field of medical-diagnostic equipment, were growing by leaps and bounds.
"You would just look at that and say, 'Why don't we get into the electronics business?' " Ylvisaker says. "Basically, we said, why don't we sell 75 percent of the company?"
Sell they did, moving the company's electrical products division, which made electrical components, motors and controls, and industrial division, which produced auto parts, engine parts and fluid-power equipment. The battery division, which makes batteries for cars and industrial equipment, has been tentatively sold; the deal is to be completed in a few weeks. Like most of the other businesses Gould disposed of, the battery division was sold to a group that included the division's top managers.
Ylvisaker moved quickly to fill the holes in the corporate roster, acquiring nine companies in three years in the computer, semiconductor, factory automation and medical instrument fields. The two major purchases were Systems Engineering Laboratories, a maker of 32-bit microcomputers, and American Microsystems, a maker of custom semiconductors.
Those two companies are the centerpieces of the new Gould, providing muscle and resources for the growth of the other sectors of the company, most of which are based in some way on computer or semiconductor technology and find and exploit market niches. Gould believes that this common ground will unite its seemingly dissimilar operations and provide synergy for growth. One possibility: uniting the company's microcomputer, semiconductor and testing and measurement equipment technologies to produce sophisticated computerized work stations for engineers.
"Over time, you'll see a convergence of a lot of the businesses, due to technology," says David Simpson, Gould's president. "From a long-range point of view, we see computers and silicon chips being the baseboard for all other products."
One of the keys to creating that synergy, and indeed to the success of the remade Gould, will be the company's research and development efforts. It has tripled its R&D budget to about 11 percent of sales--about $150 million this year--and set up R&D labs on the corporate and divisional levels to maintain a strong flow of new products to the company's rapidly changing markets.
Gould also is still on the hunt for acquisitions, and Ylvisaker promises some before the end of this year. The company's executives are frankly covetous of some software businesses, and they'd also like to expand overseas. International sales now account for about a quarter of the company's revenues; Gould officials would like to push that over 50 percent. The company recently entered into a joint venture with a Japanese company to build integrated circuits in Japan for sales to the Asian market, and the company is looking for other, similar deals.
As the company embarked on its makeover, not all of Gould's executives shared Ylvisaker's vision of the brave new world. "Some of them thought I was crazy," he recalls. "They said it couldn't be done--the risk is too great. I remember one expression that it was like rolling the dice on the whole company.
"A lot of them resisted," Ylvisaker says, "so they're not here anymore."
But the new Gould also seems to have brought a new Ylvisaker. He's toned down his image and his presence in the company's decision-making, leaving more to subordinates. This is partly enforced by the company's unusual system of four divisional boards of directors, headed by each division's chief executive and including the heads of the other divisions, Ylvisaker, Simpson, and two outside directors, usually from the academic world, whose areas of expertise complement the divisions' businesses.
Ylvisaker says--and his subordinates confirm--that he plays a small role in the divisions' quarterly board meetings. On the other hand, he says, because the boards give him contact with lower-level managers, "I personally feel more in touch with the business than I ever have before."
Gould has already reaped one benefit of the makeover: while the old Gould, tied to the auto industry and other old-line businesses, would have stumbled through the recession, the company, in the process of transformation, weathered the economic downturn fairly well.
However, Gould executives readily admit that the jury is still out on the company's transformation. "One of the major questions we've been working on is, gee whiz, it's a nice collection of businesses we've got here, how are we going to make them work together?" Pry says. "It seems to be working real well. But you know, we'll have to come back in three years and see how much money we're making. That's the real report card."