judith rehak


Metering the Infobahn

The colorful and oversize paintings that hang in the New York headquarters of Wave Systems are an appropriate metaphor for the company's chairman and CEO, 56-year-old Peter Sprague. Before and during his 30 years as chairman of chip maker National Semiconductor, Sprague spearheaded a number of ventures, some of them admittedly quixotic: a chicken farm in Iran, a run for Congress, stints as chairman of luxury car maker Aston Martin and as a movie producer.

No one ever accused Sprague of being unwilling to take a chance. And with sevenyear-old Wave Systems, his chips are again on the table. The Silicon Valley entrepreneur is targeting the desktop PC with his unique product, a chip that can encrypt and meter access to electronic information, ranging from medical and legal libraries to photographic images. It is a pay-for-use proposition: The chip prevents hackers from hauling in freebies, but allows browsers to access an index for free, paying only to unscramble the text they need. Wave will make its money on back-office operations, taking a cut for metering usage, billing, and gathering marketing feedback.

In August, Sprague signed a deal with Hughes Network Systems and wire service providers Knight Ridder/Tribune Business News, PR Newswire, and Businesswire, which collectively will sell information to desktop subscribers, who will pay for downloading.

The venture, based in Reston, VA, and known as Network News, is only a piece of the pie. Sprague's other line of attack is for publishers to sell a package of CD-ROMs with encrypted information and a Wave chip to unlock it. Fifty-odd publishing deals are in the works, he says, starting with tax, accounting, and legal information suppliers. And Sprague is not completely bypassing the Net: Users with the chip would have the option to retrieve encrypted information from the World Wide Web.

In a departure from his free-wheeling past-when he was juggling two or three companies at once-Sprague resigned his post last May at National Semiconductor to focus exclusively on Wave Systems. He faces a formidable challenge. Wave's success rests on his ability to sell th both publishers and users. "We must convince users to put in the chip, and they won't do that unless publishers are willing to supply information," he says.

For the company to fly, Sprague also must convince PC makers to ship their computers with the chip already installed. Indeed, he reckons it will take 10 million chips in the marketplace to reach critical mass. That means he will have to sell the idea to PC manufacturers-who operate on razor-thin margins-by paying them a share of revenues from the back-office operations.

Clearly, Sprague has placed a hefty bet: He and his family own 2.8 million of the company's 14 million outstanding shares. (Wave went public at $5 a share in August 1994, and recently was trading around $6.) He thrives on such risks. In any case, he's hoping that in five years and with myriad technical and logistical issues resolved, "Wave will be the dullest company around: We'll be just a service provider." 

William G. Parzybok Jr.

Bill Parzybok suffered only one disappointment when he accomplished the feat of scaling Mt. Rainier two years ago. The guide service wouldn't allow the experienced climber to plant a flagpole containing a microfilm copy of his company's mission statement atop the 14,410-foot peak.

Mission statements are sometimes written off as empty words, but not in Parzybok's book, He's convinced that Fluke Corp.'s statement has revived the once-struggling maker of test and measurement devices instruments, in essence, that measure other instruments in computer networks and a variety of automotive, marine, electrical, and heating equipment.

"It was a good company, with good people and quality products-and no sense of where it was going," says Parzybok, describing affairs at Fluke when he was recruited from Hewlett-Packard as its chairman and CEO in 1991. Sales at the Everett, WA, firm were tumbling: Its biggest customers, aerospace and defense companies, had been hit by cutbacks in government contracts.

Undaunted, 52-year-old Parzybok rallied his new colleagues and crafted a mission statement-"to be the leader in compact, professional, electronic test tools," then put it into action. Businesses that didn't serve the core $8.5 billion market, such as the production of screens for bank automated teller machines, were sold off. So far, so good: Revenues in the fiscal year ending April 30 are expected to reach $375 million, up some 5 percent from the year before; net income for the first half of the year is up more than 67 percent to $5.6 million. With the recent acquisition of its European joint-venture partner, a division of Dutch electronics giant Philips N.V., more than half of Fluke's business will come from overseas.

Inevitable puns about Fluke's name taken from founder John Fluke-led the company to consider a change. But when it was discovered that customers testing anything from a traffic signal to an air conditioning unit used the expression, "Did you 'fluke' that?", the idea was scrapped. "The identification was just too strong," Parzybok says.  

John Tugwell

John Tugwell decided to give up his Harley-Davidson motorcycle two years ago after a nasty run-in with a pothole. But the president, CEO, and chairman of NatWest Bancorp, the U.S. unit of National Westminster plc, hasn't backed off from the challenges of leading a "foreign" bank in the rapidly changing American market.

His work was cut out for him when he was sent over from NatWest's London headquarters in 1991 to whip the U.S. operation into shape. Mired in recession and real estate loans gone sour, it had racked up $353 million in losses the previous year. Now, after three years of cost cutting, write-offs, and new management, the picture has changed dramatically. From his offices in a gleaming Jersey City skyscraper, Tugwell oversees a regional bank that covers New York and its stronghold, New Jersey, where it has 221 of its 348 branches. It has assets of $30 billion and posted a record net income of $298.6 million for 1994, nearly double that of two years earlier.

Most surprisingly, Tugwell has engineered this turnaround by carving out a solid base in U.S. consumer banking, a notoriously competitive arena that has proved disastrous for other British banks. Barclay's, NatWest's arch-rival at home, bailed out of its American retail business after it, too, suffered heavy losses in the early '90s.

A cornerstone of Tugwell's winning strategy has been running the bank's branches like franchises. NatWest branch managers act more as retailers than bankers, catering to the needs of local customers with everything from Saturday hours to special loan sales. All branch employees receive bonuses if they exceed their profit goals-but they're on notice that they had better not slack on service, a priority for gaining market share in Tugwell's view. "If I get a service complaint, no matter what contribution you've achieved above your target, you'll suffer financially," he states flatly.

Also part of what Tugwell calls the bank's "armory of delivery systems" is a network of shiny, red automatic teller machines, expected to number 1,000 by the end of 1995, and telephone customer service, which currently fields about 1.3 million calls a month. An array of pilot projects that deliver product directly to the customer are underway, including "mortgage vans" stationed outside realtors' offices and banking via interactive television.

The objective, Tugwell says, is to win more sales per customer. "We're currently selling just three products to each one. The target is five." Right now, the bank is aggressively pushing higher-margin products such as residential mortgages and home equity loans; Tugwell is waiting for regulatory changes that will permit banks to sell insurance products as well.

The bank's retail business has received another boost with the acquisitions of two New Jersey community banking groups in the past year. Current market share figures are difficult to come by, but Beth Summers, an analyst with Ryan, Beck & Co., a broker? age specializing in bank stocks, reckons that makes Nat West fourth and possibly third in the state. "It's become a major player," she says. "It's very visible and very committed to this market." She adds that the bank's size gives it the economies of scale and efficiency to market a wider range of products, something the many small banks in New Jersey's fragmented retail market are ill-equipped to do.

On another front, Tugwell is taking a major step forward in his cost-cutting battle with a new $31 million service center in Scranton, PA. Labor costs at the facility will fall by a hefty 30 percent, shaving another two percentage points off the bank's "efficiency ratio," the cost in cents of producing a dollar of revenue. That figure, which stood at a whopping 72 percent in 1991 now will fall to 60 percent. Tugwell's goal is the a industry average of 55 percent.

But retail banking isn't the only item on NatWest's ambitious U.S. agenda. In February, Lord Alexander, the bank's London-based chairman, announced it may buy an investment bank in the U.S. The impetus is the crumbling of the Glass Steagall laws that separate commercial and investment bank activities. NatWest is one of a crowd of foreign and U.S. commercial banks jockeying for a foothold in investment banking, despite its unpredictable flow of income and brutal competition.

Tugwell hopes to gain an edge by homing in on specific industries. The bank already has a strong position in the media industry, and recently, it teamed up with NatWest Markets, its existing investment banking arm in Manhattan, on a $350 million lending facility for a media client. "We don't want $350 million on our books, because it's too big an exposure," Tugwell explains, "but using the syndication sales of NatWest Markets, it will be sold out, and we'll underwrite it." The bank also has a 13 percent market share in fashion industry lending; its newly renovated branch in the heart of New York City's garment district features monthly fashion shows-for designers who are customers, of course.

"Without those relationships, and coming into a mature market, how would you persuade people who do business with a NationsBank-which also has an ability to underwrite with the falling away of GlassSteagall-that they should come to a foreign bank that hasn't been here long?" Tugwell asks.

Unpretentious and hard-driving, Tugwell is a new breed of executive in British banking, once a bastion of the "old Etonian" network. He studied banking on a scholarship from predecessor Westminster Bank, starting work there as a part-time teller while in school, and rising through the ranks to a seat on the current board of directors. Though it hasn't been an easy ride for the past three years, Tugwell seems to have kickstarted NatWest in the right direction.

Peter McCausland

With his boyish face and habitual bow-tie, Peter McCausland, 45, still looks like the young lawyer from Philadelphia's Main Line he once was. Only today, he's the chairman and CEO of Airgas, the country's largest distributor of industrial, medical, and specialty gases.

That wasn't what McCausland had in mind in 1976 when he joined the U.S. subsidiary of a German industrial gas producer as in-house counsel. "I knew nothing about the industry," he admits. But in a classic case of on-the-job training, he ended up running the company's acquisitions program-and becoming enamored of the industrial gas business. In 1981, McCausland formed Radnor, PA-based Airgas, and the following year, he bought his first distributor.

As an outsider, McCausland had spotted an important trend: The owners of many distributors were retiring, and the rest faced mounting pressures from environmental requirements and spiralling insurance costs. The stage was set for consolidation. "We were in the right place at the right time," he says.

Since then, Airgas has prospered by buying up 179 small companies in the fragmented industrial gas distribution industry. Its prime customers are small users who buy gas in cylinders-ranging from welders and medical clinics to food processors-and users of welding safety products. Sales, only $3.5 million in 1982, have soared to an estimated $680 million for the year ended March 31, 1995.

McCausland's strategy is to eliminate overlap among his acquisitions, obtain economies of scale, and keep local management on board. "You need to be close to the customer, so we give a lot of autonomy to our 30 subsidiary presidents," the CEO says. He also is giving them management training and benchmarks by which to run their businesses. Another incentive: shares in Airgas, which went public in 1986 (McCausland owns 16 percent) and recently were trading at $25 a share.

Boosted by continuing acquisitions, economic recovery, and 20 percent annual growth in the specialty gas business, McCausland's game plan is paying off. Airgas posted a record $22 million in net earnings for the nine months ending December 31, up 59 percent from $13.8 million for the same period a year earlier.

Such numbers have attracted a crowd of admirers on Wall Street. Analyst James van Alen of Janney Montgomery Scott is predicting a leap of 35 percent in earnings per share for the fiscal year ending March 31, 1995. "It's bringing on $30 million and $40 million companies now," he says. "In the old days, it had to convince a guy doing $1.5 million a year that it was a viable company." While there are other large independent distributors, no new competition is looming. The big industrial gas producers such as Air Products and Chemicals or BOC that might be serious contenders are focused on large bulk and pipeline users.

McCausland isn't taking any chances though. With roughly 1,000 more small distributors still out there, and a considerable cash flow, his buying spree should continue for another five years. He's also scouting for more hard products to distribute to Airgas customers.

Despite its phenomenal growth, McCausland emphasizes that Airgas is a "little bit here and a little bit there" business, whose average invoice is $114, compared with $2,500 for a large bulk customer. That clearly suits him, however. "There are no home runs," he observes. "It's a different mentality, and I've grown to like that."

Bill Hayden

In the best tradition of high-tech folklore, entrepreneur Bill Hayden launched CompuAdd Computer a decade ago with a $15 ad in a trade magazine and $100,000 earned selling real estate on weekends. That seed capital has paid big dividends for the Austin, TX-based maker and seller of computer clones. Last year, the company racked up $514 million in sales, not counting revenues from its mail-order spin-off, CompuAdd Express.

The first 10 years were a breeze compared with the difficulties Hayden faces today. In the direct sales market, CompuAdd is pitted against competitors ranging from mail-order upstarts such as Gateway 2000 to giant IBM. And computer "superstores"-volume discounters with rock-bottom prices-threaten CompuAdd's 125 retail stores. These outlets account for half the company's sales.

Hayden's strategy for beating the competition in this radically changed marketplace is to return his company, now 1,500 employees strong, to its entrepreneurial roots. "We're going to be small, nimble and focused," says Hayden, sole owner and CEO of CompuAdd. Toward that end, he's splitting CompuAdd into separate companies, each specializing in a single market such as mail order, software, retail, government, or international. He says he will probably take one of these new spin-offs public.

"I want to keep multiple channels open. You never know which one will hit," Hayden says.

Despite the cutthroat climate, Hayden had planned to open another 75 retail stores this year, but now he says CompuAdd's overseas efforts could use more attention instead. The company stumbled in its first European foray when customers equated its bargain-basement prices with poor quality. "We actually sold more when we raised prices," says Hayden, somewhat chagrined.

Hoping to grab bigger profits in global markets, he adds, "We're going to slack off on retail to focus more on international. We see it as our biggest opportunity."

Ray Wild

In recent years, business schools have been under heavy fire for turning out MBAs ill-equipped to survive in the corporate jungle. The campaign forced England's Henley Management College, for one, back to the drawing board.

The result, says Ray Wild, professor and principal of Henley, is a program designed, taught, and attended largely by corporate executives with an emphasis on management development, problem solving, and analytical skills.

"Resilience and flexibility, confidence and courage," says Wild, ticking off the characteristics both executives and business schools will need to thrive in an increasingly competitive, global environment. "Not syllabus stuff."

From the school's headquarters in a 14th century estate near Henley-on-Thames, Wild and his faculty continue to refine their curriculum. Among the most intensive of Henley's offerings is a "total immersion" program, in which teams of students resolve business situations and conflicts. One group even traveled to Italy to observe first-hand a family-held company's transition to public ownership. Wild, 51, encourages these educational excursions.

"The whole ethos of what we're doing is to provide management development by putting people in touch with the situations they're going to have to work in," he says.

Henley's programs are structured in consultation with corporations such as Intercontinental Hotels and Grand Metropolitan, and taught by an untenured faculty that includes many former executives. A typical student is a 34-year-old corporate hotshot, whose education is being bankrolled by the company.

Barry Gibbons, a 1975 alumnus of the program and now CEO of Burger King, recalls sitting near classmates ranging from investment bankers to public sector executives. "What we learned was that we could approach problems from very different viewpoints," he says. "You come out with a much more balanced attitude toward business situations."

With globalization and Eastern Europe the latest corporate buzzwords, Henley has fielded a rush of inquiries from U.S. companies lately. The attraction? "I think they take the view that they cannot study developments in Europe at a distance. They want to be here to feel they're a part of it," says Wild. He notes that the school's joint MBA programs in 16 countries-including the Netherlands, Hong Kong, and most recently, St. Petersburg-ensure that almost half the 3,500 executives, and increasingly, the faculty, who pass through Henley's U.K. campus each year come from abroad.

Wild's own career reflects at least one component of the Henley credo-flexibility. "I think I'm the only engineer who is the head of a U.K. business school," says the educator, who also authored a popular series of children's books on technology with such whimsical titles as "A Car Called Maurice."

And don't forget his marketer's hat. Wild insists that Henley clients must be satisfied customers. Says he, "They know what they want, and if they don't find it here, they'll go somewhere else."

Dean R. O’Hare

On Kentucky Derby Day, I take a deep breath if none of the horses have died on the track," says Dean R. O'Hare, chairman and CEO of Chubb Corporation.

You can't blame him. Chubb has millions of dollars in insurance policies riding on some of those thoroughbreds-an example of the entrepreneurial culture that has nearly doubled the property-casualty insurer's net income from $267 million in 1986 to $522.1 million in 1990. Moreover, its record earnings have come as much of the industry is struggling.

O'Hare believes that the current problems of the industry stem from lack of strategy. He's had first-hand experience, because he saw how Chubb refocused its strategy after it suffered unexpected losses back in 1973-74.

Since then, the insurer has cut back on less profitable lines such as general auto insurance, and concentrated on niche areas such as wealthy individuals. "If you're not rich, we're not really interested," says O'Hare unabashedly, listing Chubb's lucrative coverages for mansions, fine works of art, and jewelry.

Replicating the same strategy overseas has boosted premiums from Europe by more than 40 percent in the first three quarters of 1991. Chubb is also tackling Asia's fast-growing market. He expects premiums from abroad will account for 25 percent of total revenues by the year 2000.

At home, O'Hare deplores the price cutting and junk bond investing that have rocked the industry. As for Chubb and its very solid financial position, O'Hare says, "We're selling a promise to pay, and if our balance sheet isn't pristine, we can't keep that promise."

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