Telesis Splits Personality to Fulfill Its Dual Roles

Engineers are probing the superstructure of the 60-year-old headquarters of Pacific Telephone & Telegraph, reincarnated as Pacific Telesis Group after the forced breakup of the Bell System. They are assessing the aging tower’s ability to handle the stress of a major earthquake.

Inside, similar attention is being paid to the ability of the company’s 72,000 employees to hold up under the forces reshaping the once pervasive, cradle-to-grave Ma Bell corporate “culture.”

These employees must now march to a new drummer--one that offers a steady, carefully regulated beat for Pacific Bell, the phone company, while improvising something more free-form for Pacific Telesis’ half a dozen new, market-oriented subsidiaries, which are involved in such varied enterprises as real estate, publishing and high-tech office systems.

Now, for the first time, 23,000 managers on both the regulated and unregulated sides of Pacific Telesis find that an average of 20% of their potential year’s pay is linked to achieving specific revenue goals. Annual bonuses range from about 10% of salary to as much as 40% at the top of the executive ladder, where compensation had been frozen for more than a year.

In addition, performance incentives are proliferating among the new companies. At PacTel InfoSystems’ new retail store in San Mateo, pay is based on an individual’s own sales, and the company’s new president, recruited from outside Bell, emphasizes his entrepreneurial drive by quipping that he’s going to print up buttons proclaiming: “Get high on stress!”

Employees Put to Test

In short, new corporate needs, new measures of success and new markets to conquer are sure to test Pacific Telesis employees as Chairman Donald Guinn and his lieutenants strive, as they say, “to teach this elephant to tap-dance.”

Calling the tunes for Guinn are Pacific Telesis’ vice chairmen, both Bell veterans: Theodore J. Saenger, who heads the regulated subsidiaries, and Sam Ginn, who is responsible for the seven subsidiaries created so far to test nonregulated markets.

Saenger, 56, supervises Pacific Bell and Nevada Bell, the regulated telephone companies that inherited Pacific Telephone’s local operations, much of its service orientation and all of its generous but regulated revenue stream (which in 1984 furnished all of Pacific Telesis’ $829 million in net income). Also under Saenger is Pacific Bell Directory, a new company that publishes the old Pacific Telephone directories for the phone companies.

Ginn, 47, presides over what an aide called “the fun side”--PacTel Mobile Access, PacTel Communications Systems, PacTel InfoSystems, Pacific Telesis International, PacTel Publishing, PacTel Finance and PacTel Properties.

The famous Bell “culture”--which offered lifetime employment and promotion from within in exchange for unswerving loyalty to the “mission” of providing high-quality telephone service to every corner of the United States--is changing as Pacific Telesis seeks an identity broad enough to encompass the telephone companies and the more go-go subsidiaries created since divestiture on Jan. 1, 1984.

Worthy Mission

“Our mission was a very, very worthy one for our country, laying the base for development of our country and its economic system,” Ginn recalled of the old Bell System. “It was more than a means to making a living.”

But “current realities dictate some changes,” Saenger acknowledged in a separate interview, adding: “We’re working on the corporate architecture of this place.” While each of the Pacific Telesis companies will emphasize a certain style, he said, the holding company “puts a sort of framework around its values and goals, and then looks to its companies to see that they are in concert with what these represent.”

Even on the regulated side, Saenger said, the three subsidiaries differ. Nevada Bell is much smaller and has a more informal corporate style than huge Pacific Bell. And Pacific Bell Directory, which faces competition from other phone-book publishers, especially in hot markets such as the San Fernando Valley, is developing “a very distinctive culture, very competitive.”

Before divestiture from American Telephone & Telegraph, Pacific Telephone executives recognized that “the world had changed,” he said, that the market is “less integrated with more actors on the stage providing services,” and that “we had better understand our customers far better in the new world. . . .

“We’re still very much a mass-production operation,” Saenger said, “but we recognize that . . . we have to be responsive to our customers.”

Cultural Differences

But the two sides are already distinguished by significant cultural differences, many of them stemming from the fact that 70% of Ginn’s work force came from outside the Bell System.

“When I arrived 6 1/2 months ago,” Will Luden, president of PacTel InfoSystems, recalled with a laugh, “they said I had come ‘off the street’--and they didn’t mean Wall Street.”

But the Bell veterans who chose to enter the new companies, making up 30% of their work force, have adapted readily, Ginn said. “Once Bell people understand their mission, they produce,” he said, and within a month and a half “you can’t tell the difference” between them and colleagues like Luden.

Most notable at the PacTel companies is a highly decentralized management. Luden, who in May was holed up in a second-floor suite of offices across New Montgomery Street from Pacific Telesis’ headquarters, is to move his rapidly growing operation across San Francisco Bay this month to rather Spartan quarters in a far less costly area of San Leandro. Luden has strict financial “milestones” to achieve, Ginn pointed out, and holding down overhead in a start-up company is more important than impressing one’s neighbors.

Also across the bay and the Oakland Hills, in San Ramon Valley, Warren Sweet supervises completion of a startlingly different structure--a sprawling new administrative center for Pacific Bell. Rather than symbolize autonomy and decentralization, the new digs will bring under three multistory, 800-foot-long wings hundreds of units that occupied scores of buildings throughout the Bay Area.

Within, Ma Bell’s heritage is evident. The celebrated “level consciousness” (Bell lingo for the six traditional ranks of supervision and management) is subtly reflected in the location and size of work spaces.

Attractive Site

The work area itself is generally open, affording most employees broad vistas of grounds that will feature lakes, paths, even a jogging trail and, beyond, San Ramon Valley, nestled in rolling hills studded with California live oaks and dominated by Mount Diablo.

The relatively few enclosed offices (“Level 3s” and up) are at the ends of the building to avoid cutting off the common view, Saenger pointed out. And, while furniture changes according to the employees’ “level,” he said, the differences are slight, “as opposed to one baron going this way and another that.”

“We debated whether we wanted to be more open or more introspective,” he said, “and we opted for being more open--to give everybody in the place the opportunity to have a chance to see it all. That was trying to say something about how we’re all trying to talk with everyone as individuals.”

On Pacific Telesis’ unregulated “fun side,” a more hang-loose philosophy is evident.

Daniel W. Freeding, who joined PacTel InfoSystems last April to manage its first computer sales store, felt free to thank Pacific Telesis Chairman Guinn for attending a preopening reception in May with a “Good Morning, Don!” letter that would boggle a Bell mind. (“Interesting response,” Guinn mused in the margin.) And, in showing guests around the prototype retail outlet in downtown San Mateo, Freeding emphasized the varied work settings in which telephone and computer equipment are displayed to help buyers visualize how it could work for them.

“Hey,” he said, “the customers provide our paychecks!”

Determine Profits

Such a consumer-oriented attitude understandably differs from that found in regulated utilities. While state regulators don’t exactly provide paychecks for employees of Pacific Bell and Nevada Bell, they do determine the maximum profit that the companies can earn and then design rates that theoretically enable them to achieve it.

All the same, said analyst Robert B. Morris III of Montgomery Securities, “the idea of cradle-to-grave security is beginning to give way to the competitive marketplace,” even for regulated utilities. “Some of the large generators of (PacBell) revenue now have alternative means of telecommunications available,” he explained. “As a result, the telephone company has to become more competitive in terms of its cost structure.” It can’t depend on covering excessive labor costs with higher rates as in a monopoly, Morris said.

“PacBell has attempted to move accountability deep into the organization,” he added.

Even the parent company, Pacific Telesis Group, stands to benefit, Morris suggested. Such units as PacTel Communications Systems and PacTel InfoSystems not only can provide significant revenues, eventually, but also keep the parent in touch with the evolving information field so that Pacific Bell can adjust its network.

Still, employees find striking “cultural differences” between the two sides of Pacific Telesis--a contrast caught by another recruit from “the street” during his first visit to headquarters: “There’s a lot of people there,” he said in amused awe, “wearing half-glasses, carrying a lot of papers and riding up and down elevators all day!”

Different Mind-Set

“There’s a different mind-set here,” agreed Sally S. Fitch, a 17-year Bell veteran who signed on with new PacTel Communications Systems in Walnut Creek. “This is not an 8-to-5 place.”

But to Ginn, who heads the new companies, changes in style are apparent on both sides of parent Pacific Telesis. “I have moved faster,” he said, “because I started with a blank sheet of paper.”

The changes result in large part from a corporate decision to decentralize management of the new companies--a move “180 degrees” from the “collegial” management style that was a Bell hallmark. Consensus management has a place in a noncompetitive, service-oriented environment, Ginn said, but the competitive world requires quick decisions.

Once headquarters approves the PacTel companies’ business plans, which contain strategic goals and financial milestones, Pacific Telesis is committed to providing strong support but little second-guessing, he said. Financial support for the new companies must, however, come from their own revenues, separate debt issues or the parent’s retained earnings--and in no way from the revenues or assets of regulated Pacific Bell.

When PacTel InfoSystems last month bought Byte Shops Northwest, a chain of computer retail outlets in Oregon and Washington, bargaining was fast and furious, said President Will Luden. He credited the parent corporation with providing vital support--not to mention cash--while leaving Luden latitude to meet competitors and close the deal quickly. Within days, Pacific Telesis was able to outbid a team of investors to buy Dallas-based Communications Industries, a radio-telephone company with operations in markets across the nation, for $431 million in Pacific Telesis cash.

Swift decision-making among the unregulated companies was enhanced, Ginn said, by both the decentralized style and a paring away of management levels--three in contrast to Pacific Bell’s six.

Modifying Behavior

But Pacific and Nevada Bell are modifying their corporate behavior, too, Saenger said. As with the unregulated companies, he said, “we keep things together with the business plan--the bottom-line things we want to accomplish.” Headquarters seeks to issue guidelines and principles rather than define practices and set rules, he explained, “focusing on two goals: to provide service to customers . . . and to enhance income.”

In the Bell System, Saenger said, success was calculated by a broad spectrum of “functional measures” that tended to focus on sections of the company rather than on overall performance from the customer’s point of view. “We believe that went a bit too far; it was too internalized, too specialized. From the customer’s point of view, we were not as responsive as we ought to be.”

Saenger acknowledged that modifying behavior within such a large corporation meets some resistance. “There are skeptics who maintain that ‘this too will pass,’ ” he said. “But my sense is that, on a scale of 0 to 10, with 10 being where you want to be in the long term, we started out at about 2 and we’re now at 5.

“The elephant is still an elephant,” he concluded, “but it is a different one. And, while it is not dancing , it’s at least moving.”