Knowledge at Work : Companies That Know How to Manage Employee Know-How

By MARTHA GROVES

Dec. 17, 1995 12 AM PT

TIMES STAFF WRITER

Knowledge society. Knowledge economy. Knowledge workers.

Pundits are fond of reminding us that knowledge is today’s most crucial commodity. Brainpower, not brawn, is behind the technological advances--Pentium chips, laptop computers, genetic engineering, wireless communications--that make headlines.

It would stand to reason then that arriving at how to manage knowledge workers--who by 2000 could account for as much as a third of the U.S. work force--would be a key to whipping the competition.

But is there a single “silver bullet” management model for the knowledge economy? Hardly.

“Knowledge workers cannot, in effect, be supervised,” wrote Peter F. Drucker, the famed management professor, in “Post-Capitalist Society,” one of his many books about the subject.

A typical knowledge-intensive company is less corporate than other businesses. Unlike the assembly line workers of the recent Machine Age, knowledge workers tend to have many years of education and don’t need--or want--to be managed or watched.

“They are at the frontier of our knowledge,” said William G. Ouchi, a management professor at UCLA. “They’re working on problems about which little is known.”

One definition of being at the cutting edge, he noted, is that no one can see clearly what lies ahead. An organization must be flexible enough to allow workers to take off in different directions.

Managing companies such as these poses enormous challenges, not the least of which is to get workers with very specialized knowledge to communicate with other specialists within their companies. Managers must be approachable and agile, not stodgy or remote. They must be willing to embrace ideas that bubble up from a work force that is spirited and independent.

“Very few organizations really understand the kinds of new knowledge and thinking they need,” said Ian Mitroff, a professor of business policy at USC’s School of Business Administration.

But some companies--and not just high-tech giants such as Bill Gates’ Microsoft and Andy Grove’s Intel--seem to have figured it out. Like their counterparts at traditional corporations, knowledge-company executives defy stereotypes. Yet they all have strong styles that set the tone for their companies’ operations.

Here are profiles of four companies, none of them a household name, with distinctive--but successful--ways of operating.

Mapping Success

REDLANDS--Jack Dangermond’s idea of Nirvana is zero population growth.

Given the extreme unlikelihood of that, he instead is doing his bit to ensure that the world can accommodate its fast-growing multitudes without wrecking the environment.

Dangermond’s company, Environmental Systems Research Institute Inc., is the hottest producer of software in the booming field of geographic information systems, or GIS. Better known by its initials, ESRI, the flourishing, 1,000-person company develops products that link demographic and geographic data.

With its “flat” structure and lack of corporate titles, ESRI epitomizes the sort of company made possible by the emphasis on knowledge. Teams of workers are given great freedom to devise projects and follow through on them.

ESRI’s 30,000 customers are cities and counties, marketing consultants, utilities, scientists, retailers and others that want to be able to visualize data on a computer screen.

United Parcel Service, for example, uses GIS software to establish the most efficient delivery routes; PepsiCo sizes up the fast-food competition before selecting future locations for Taco Bell and Pizza Hut outlets; Pacific Bell enlists GIS to help plot its emerging broad-band network; farmers use it to manage water use, fertilization and plantings. With the help of ESRI software, Thomas Bros., the venerable map company, moved to automated mapping from drawing with pen and ink.

Bespectacled and gangly, Dangermond, 50, is widely viewed by industry peers as the man who pioneered commercial GIS. He contends that the company he and his wife, Laura, co-founded in 1969 with $1,100 in savings has a high purpose, indeed--one that basically involves repairing, if not outright saving, the world.

In theory, he said, computer mapping enhances the ability of governments to decide how to allocate land and resources.

“Where do we locate new industry?” Dangermond said in his characteristic near-whisper. “Where do we not locate urban development? Where do we . . . drill for oil, while creating safeguards for oil spills?”

These are the sorts of issues with which Dangermond has wrestled since his days at Harvard, where he studied in the Graduate School of Design. It was also at Harvard that Dangermond was exposed to the potential of using automated geographic data.

One of his professors was economist John Kenneth Galbraith, whose liberal notions about public policy--in particular, funding for education--intrigued the young Redlands native.

“His whole point was that there is no poor country that’s well educated and no wealthy country that is illiterate,” Dangermond said.

Daratech Inc., an industry research organization in Cambridge, Mass., projects that privately held ESRI will have revenue this year of $160 million and capture 29% of the $563-million GIS software market. ESRI devotes 25% of its annual revenue to technical support and 20%, or double the typical level in the industry, to research and development.

ESRI was initially a research and consulting group devoted to improving the handling of geographic data. During the early 1980s, with an eye toward growth, ESRI recruited a team of top-level software engineers from universities and technology companies. Since then, Dangermond said, the company has taken pains to hire good people. Benefits and pay are far from lavish, although there is a modest profit-sharing plan. Everyone--including the Dangermonds--gets paid by the hour.

“If they work hard, they’re paid that week,” Dangermond said. “It’s an honor system, and 50-to-55-hour weeks are average. It places a lot of responsibility in the hands of the employees.”

Dangermond believes in running a flat company. “Upper management” consists of about 10 individuals other than him and his wife. The company discourages the use of titles for its own purposes and tends to assign them only when the news media demands it. (Jack Dangermond is president and chief executive, and Laura is vice president in charge of financial operations.)

Dangermond has no intention of converting the company to public ownership, even though that would represent a way to share the wealth with employees. By remaining private, Dangermond said, the company can concentrate on keeping customers and employees satisfied, without having to worry about constant returns to shareholders. All growth and new projects are financed without borrowings. Software and training are donated, or sold at low cost, to schools, libraries and conservation groups.

The work force, heavily populated by techies (“we call them ‘geeks,’ ” a spokeswoman said) in their mid-20s to mid-30s, is enthusiastic, with their intense boss setting the pace. Workers refer to the pleasant, tree-shaded headquarters building as a workaholic’s paradise.

In return, Dangermond noted, employees have the luxury of working in small teams and establishing their own work methods. One of Dangermond’s goals is to have ESRI “be a really neat place to work, so that employees can do what they want to do and enjoy themselves.” He acknowledges that there is some turnover. But, he added, “I doubt they get in their new jobs what they get here.”

Customers praise Dangermond’s vision and entrepreneurial spirit. “GIS is not just a big business but a huge business,” said Horst Bergmann, president and chief executive of Jeppesen Sanderson Inc., the world’s leading publisher of flight information, including electronic navigation data. “Sooner or later, everything on blueprints will be on database. I think he saw that early on. [ESRI is] . . . set up for growth.” (Jeppesen Sanderson is a subsidiary of Times Mirror Co., which also publishes the Los Angeles Times.)

Dangermond sees GIS reaching into the ranks of just plain folks. The company recently started selling products over an “800” number, and one of its programs sells for less than $1,000 (contrasted with as much as $50,000 for some big-system products).

For Dangermond, this all satisfies a dream: “I have a very strong interest in having this technology be used and having it matter.”

Back to the Books

FORT SMITH, Ark.--Baldor Electric Co., a maker of industrial electric motors, would scarcely seem an obvious candidate for enlistment in the Knowledge Company brigade.

But perhaps more than the Compaqs, Intels and Microsofts of the world, this 75-year-old company illustrates just how powerful an economic weapon pure knowledge can be. What helped propel Baldor to unexpected strength, after all, was a firm commitment to educating and training its workers.

A fixture in Fort Smith--erstwhile stomping ground of Belle Starr, the Dalton Gang and an 1870s-vintage hanging judge named Isaac Charles Parker--Baldor in the 1970s and ‘80s spent most of its time bucking trends.

Manufacturers in Japan, South Korea and Taiwan began churning out low-cost, commodity motors from highly automated factories. Many U.S. manufacturers transferred some of their production overseas or abandoned the business. Then the dollar rose against overseas currencies, making foreign-produced machinery powered by foreign-made motors a bargain in the United States.

Through it all, Baldor decided to hang tough in Fort Smith, on the border with Oklahoma. In years past, it had had good success with specialty motors that powered pumps, fans and conveyor belts at factories and other work sites. Chief Executive Roland S. “Rollie” Boreham Jr., a cheerful bearded man, figured that the dollar would eventually come back to earth and that Baldor could keep closer tabs on quality--a high priority--if its manufacturing stayed put.

So Baldor boosted its investment in equipment and developed a new system of just-in-time manufacturing called “flexible flow.” For customers, this represented a big improvement over the 1970s, when they often had to wait a year for the goods they ordered. Baldor’s normal delivery time is now four weeks, but customers in emergencies can sometimes get overnight delivery from one of 31 regional warehouses. (The company has a mind-boggling 4,000 motors--with 25,000 configurations--in its repertoire.)

The new method rendered traditional progressive assembly obsolete. Each worker instead would put together a complete motor from a tray of parts, with a computer printout for a guide.

That’s when the real trouble started.

“We were making some prototypes for General Motors,” Boreham recalled. “The tags read, ‘Do not weld rotors.’ So they went out with the rotors welded, and we lost the order.”

Irate, Boreham flew to the company’s plant in Columbus, Miss., to scold the manager. “How the hell could this happen?” Boreham demanded to know. “It’s sloppy, careless. There it is right on the order.”

From the hushed crowd that had gathered, an older welder stepped forward. “I don’t read too good,” he said.

Now, some managers might have fired the welder on the spot. But not Boreham. “What do you guys think we ought to do?” he asked. Go along and hope that this doesn’t happen often, was one suggestion. Another: Fire all the nonreaders and hire some Harvard graduates, although they might not make very good welders. Or make sure everybody learns to read.

Another choice got shouted down: Give up the new manufacturing technology and go back to the old method of getting verbal instructions from a foreman.

“Workers don’t want to go back to the old way,” said Boreham, 71, who went to Beverly Hills High School and studied meteorology and electrical engineering at UCLA. “The new way makes adults out of them. Modern manufacturing is much more efficient; everybody has the knowledge of what to do and how to do it. We don’t hide anything from them.”

In Columbus, Boreham’s solution was to get his nonreading workers into classes at a local community college. Similar programs were started in Arkansas and elsewhere. In addition, all 1,000 employees each year go through 48 hours of training--some practical, some philosophical--on such issues as value, quality and cost.

Many companies look at training and education as an expense. At Baldor, they’re an investment--one that Boreham credits for the company’s briskly rising productivity (10% this year) and profit.

“The only way to take better care of customers is to have good employees,” Boreham said. Echoing the philosophy of his favorite management guru, Peter Drucker, he added: “Knowledge is an important part of being better.

“I’ve had some discussions with [Labor Secretary] Robert Reich about human capital. Accountants say you can’t amortize this type of investment. Our workers’ average tenure is 10.1 years, so why not amortize it over 10 years? We just need to convince the [accounting standards] guys.”

With $418 million in sales last year, Baldor is a gnat compared with rivals Reliance Electric, Emerson Electric and General Electric. But its net income per dollar of sales surpasses or equals that of its much larger counterparts.

Net income last year reached a record $26 million. Boreham figures sales could hit $1 billion by 2000.

Employees share in the wealth they’re creating through profit sharing and stock options. Although union-free, Baldor pays competitively.

Much of the reward is less tangible, however. Just ask Randy Goldsmith, a 20-year veteran.

Born to deaf parents, Goldsmith never learned to read as a child and barely made it through high school, but he was great at running machines and so was hired at Baldor. When the company started its education program, Goldsmith went at it full bore. He now teaches reading to others.

“There was a point in time when they said, ‘Where you clock in, check your brains,’ ” said Goldsmith, 38. “Now, you’re given any information you want. They encourage you to make decisions, and there are fewer bosses.

“Back then, if an opportunity came my way, I’d say I wasn’t interested. Now I know I can do it. I feel good about myself. I really am able to contribute.”

Management Maverick

WESTFORD, Mass.--Al Lucchese despises management buzzwords and disparages the three-piece-suit crowd. No total quality management or benchmarking for this guy.

Management Lucchese-style is strictly a seat-of-the-pants affair, and so far it has paid off handsomely in two successful turnarounds, most recently at Davox Corp., a company that he had left in frustration a decade ago when he failed to see eye to eye with the chief executive.

His quick rescue of Davox demonstrates that old-fashioned common sense has a place in the emerging knowledge economy.

Davox, based in this technology-heavy suburb of Boston, is a leading developer of software systems used to manage and operate telephone calling centers, primarily for calls to clients from financial institutions, telemarketers, fund-raising organizations and independent collection agencies. In the last two years, the company has also come on strong in the much bigger market for inbound calls from customers of catalog retailers and home-shopping services.

Despite heady growth in the multibillion-dollar call-center market, Davox years ago had become a classic case of a company with great products but lousy execution. Managers had let expenses race out of control, with a bloated payroll contributing to losses of more than $25 million between 1987 and 1993.

The board of directors’ choice to salvage the company was Alphonse M. Lucchese, a lean, gray-haired runner (“I always finish in the last 10%”), fresh from a lucrative turn at Iris Graphics, a maker of high-quality color printers. During a seven-year tenure at Iris--which began when the company was about “to go down for the last time,” as Lucchese put it--he took it from $1 million to nearly $100 million in sales before selling it. Along the way, he earned a reputation among the Route 128 technology headhunters as a fix-it wizard.

Recruited by Davox’s board in mid-1994, Lucchese insisted that the outgoing management team do most of the necessary slashing. He then whacked away further at the work force--while preserving research and development, the crown jewel, and customer service. He called a meeting early on to explain his corporate equivalent of “tough love.”

“I had to lay off 40 people so that the rest of you can come to work,” he told the assembly. “If you want to switch places with one of these 40, I’ll gladly do it.”

In his open, blunt way, Lucchese told the remaining 150 employees to refocus on their core businesses, instead of trying to be all things to all customers. Stretch, he told them, but don’t commit to something you can’t do well. Under his guidance, the company has moved away from making hardware, emphasizing the far more profitable software and systems side--where value added by the knowledge workers who devise the products translates into higher profit margins.

One of the first changes Lucchese made was to eliminate a distasteful policy that only executives could enter the building through the front door. He also established a routine of holding a quarterly staff session, where, over pizza, he gets “professorial” about the bottom line.

The sales force, notorious for calling most of the shots and promising more than R&D; could deliver, was forced to hew to strict performance guidelines.

“The first couple of weeks were like being force-fed from a fire hose--either go with him or get out of the way,” noted Douglas W. Smith, vice president of sales and marketing, who followed Lucchese to Davox from Iris Graphics. “But the changes were pretty positive and quick, and we got a lot more efficient.”

The first quarter under Lucchese, Davox turned a profit of nearly $469,000. For the most recent period ended Sept. 30, the company reported record net income of $1.3 million on sales of nearly $10 million.

Given his background, even Lucchese sometimes finds it difficult to believe that he made the leap to CEO.

Born 60 years ago to Sicilian immigrants in the hardscrabble Boston suburb of Waltham, Lucchese graduated from high school and took a variety of menial jobs--among them stocking shelves in an underwear factory--before volunteering for the Army. He married and, four children later, came to the realization that his lack of education would cripple him.

“I [did] not want to work the rest of my life in a factory,” said Lucchese in his pronounced Boston accent. For 13 years, he attended night classes at Bentley College, a well-regarded local institution. In 1970, his family by his side, he received his degree.

His father, who Lucchese said “worked his whole life with a pick and shovel,” had a third-grade education but, by pooling resources with relatives, managed to buy a house, a car and even a summer home at the beach.

A child of the Depression, Al Lucchese contributed all pay from odd jobs to the family. Steeped in Italian and Catholic traditions, he came to view relatives and friends as paramount. His best friends today are still the people he grew up with on Oak Street in Waltham, and he boasts of having been in attendance at all the significant events in his children’s lives.

From his late mother, he learned about interpersonal skills and hard work. “She was a tough, tough lady--very strict,” he said, studying a photo of her that he carries in his wallet. “I could not go out to play on a Saturday unless I did my chores. Working hard is no problem.”

Lucchese is fond of noting that he didn’t learn his management skills from textbooks.

“I read books about guys who really made it happen, like [retailer] Sam Walton, [auto executive] Lee Iacocca and [football coach] Vince Lombardi,” Lucchese said, “not books by writers who [just] interview people.”

Being a CEO, he said, is a lot of blocking and tackling. “I assure you I do not have an IQ in the 140-to-150 range,” he said. “I have struggled with doing crossword puzzles. It’s just hard-core, hard-nosed, day-to-day business.”

Tiny Giant

HOPKINTON, Mass.--It’s a safe bet that most Americans have not even heard of EMC Corp. But powerful IBM Corp. knows the name all too well--and fears it.

This year the little-known company, based in the upwardly mobile suburb where marathoners begin their arduous lope toward Boston each April, will unseat its giant rival as the leader in the highly competitive $4-billion market for systems that store and retrieve information processed by IBM mainframe computers. It is a market that IBM created and long dominated.

Such phenomenal success could scarcely have been imagined in the late 1980s, when EMC stumbled badly after customers began complaining that the company’s new line of data storage products was given to random failures. Losses topped $26 million over two years as EMC struggled to diagnose and solve the problem and replace errant equipment.

The fiasco impressed upon EMC’s entrepreneurial founders that the company could no longer afford their street-smart--but unschooled--management style.

It appeared that even a company founded on knowledge and populated by independent thinkers could benefit from a button-down, business-school approach. Order and consistency were needed to get EMC back on firm footing and make it fleet enough to run with Big Blue and other big guns.

Enter Michael C. Ruettgers, a seasoned Harvard MBA who had most recently been a manager at Raytheon Co.’s Patriot missile division. Quality was a religious obsession there. “We had to focus on what would be necessary to make sure the system worked every time,” Ruettgers said.

Initially as a consultant to EMC and then as head of operations, Ruettgers in 1988 began preaching a program of continuous improvement and “total quality management,” philosophies in vogue throughout corporate America in the wake of Japan’s ascendancy in manufacturing.

Problems were widespread. Ironically, among the most embarrassing were the flecks of makeup and skin oil that showed up routinely on disk drives (information storage devices) supplied by NEC Corp. of Japan as components of EMC’s storage systems. Those flawed drives turned out to be the culprits in the random data losses.

Despite EMC’s tattered finances, Ruettgers began spending wads of cash--broadening technical support and instituting a comprehensive testing program for components and systems.

Early on, Ruettgers hired consultants who lauded the theories of W. Edwards Deming, the U.S. quality-control guru who steered the Japanese toward manufacturing supremacy after World War II.

Ruettgers, now EMC’s president and chief executive, determined that the best way to avoid a recurrence of the costly flaws was to thoroughly test each system, even if it meant delays in getting products out the door.

EMC today claims to have the most rigorous testing in its industry, where the norm is to sample one product from a batch. Each board that contains circuitry undergoes about 30 hours of testing in a big, boxy device called a chamber. The Hopkinton plant has 22 chambers, and EMC’s plant in Cork, Ireland, has 15; a chamber costs as much as $300,000.

After being put through their paces, components are assembled into storage systems--”electronic filing cabinets”--which then undergo an additional 24 days of real-world simulations.

“We cherish defects,” said Michael Schoonover, EMC’s chief information officer and former head of operations.

The continuing feedback means that managers can make decisions based on appropriate information--good and bad.

“It’s quite different from most hierarchies where only good news gets passed because [otherwise] the messenger gets shot,” said Philip C. Rueppel, an investment analyst in the San Francisco office of Alex. Brown & Sons.

EMC’s reward for its hefty investment? Customers including Coca-Cola, Home Depot, Delta Airlines and UPS have ranked the company No. 1 in product quality, support and value over other hardware vendors. And, when there is trouble, another cheerful surprise awaits customers: The technical support center in Hopkinton sits in the middle of the design engineering organization, so that a caller might end up getting a quick assist from an engineer who helped create the product.

This highly disciplined approach is a far cry from EMC’s early days. College pals Richard “Dick” Egan and Roger Marino founded the company in 1979 with a third partner whose name started with C. He dropped out just as things were getting underway, but, with the company stationery already printed, Egan and Marino kept the C. In a nod to Albert Einstein, featured in a nearly life-size photograph in EMC’s lobby, the company refers to itself as EMC2 .

The company sold an odd melange of wares, including office furniture. But the chief product was cheap knockoffs of name-brand memory boards that could boost the amount of stored data in computer systems. The company went public in 1986.

Since 1990, when EMC introduced its Symmetrix line of storage systems, the company’s share of the IBM mainframe market has soared--to a projected 38% this year from 0.2%. EMC is on track to garner $1.8 billion in sales for 1995, up from just less than $1.4 billion last year. (Analysts foresee net income for 1995 of $310 million.)

Concern about EMC centers on its ability to sustain the strong growth. A promising new area is storage for so-called open systems--networks of desktop computers tied in to large computers known as servers. In that arena, EMC has seen sales sprout to $200 million from almost nothing last year.

“What we try to do is run the business in the best interest of the business,” said Ruettgers, 52. “If I ran the business to keep Wall Street happy all the time, I’d probably end up in a straitjacket.”

JACK DANGERMOND

Co-founder, president and chief executive, Environmental Systems Research Institute

Age: 50

Birthplace: Redlands

Education: Bachelor’s degree in landscape architecture, Cal Poly Pomona; master’s in urban planning, University of Minnesota’s Institute of Technology; master’s in landscape architecture, Harvard University’s Graduate School of Design

Family: Married to ESRI co-founder Laura Dangermond

Hobby: Landscape architecture

Guru: John Kenneth Galbraith

ROLAND S. “ROLLIE” BOREHAM JR.

Chairman, Baldor Electric Co.

Age: 71

Birthplace: Los Angeles

Education: Bachelor’s degree in physics and meteorology, UCLA; master’s in electrical engineering, UCLA

Family: Married, two children

Hobbies: Reading, golf, weather

Guru: Peter Drucker

ALPHONSE M. LUCCHESE