THE TIMES 100 : THE BOTTOM LINE : Looking for a New Dawn

SAN FRANCISCO —  Get back to basics. Offer value. Be lean and mean. Don’t put too many eggs in one basket. Seek opportunities amid the gloom.

An obvious formula for success in corporate America? Hardly. More like lessons from the California campus of the School of Hard Knocks.

As California businesses look toward an inevitable--if weak-kneed--recovery, these are some of the survival tips gleaned from the great recession that has plagued the Golden State so far in the 1990s.

Californians know firsthand how painful these lessons have been, accompanied as they were in 1992 by continued belt-tightening, layoffs, sagging morale and changing corporate cultures. But, to the extent that the lessons have truly been learned, economists and executives say, California companies--and their shareholders--stand to benefit from them as the state meanders down the path toward economic recovery.

“Companies have really gotten focused on what they’re good at and how to run their core businesses well,” said Robert F. Felton, a director at the Los Angeles office of management consultant McKinsey & Co.

At Silicon Valley’s Apple Computer Inc., leaner profit margins and improved productivity are the order of the day. With competition more intense than ever, the rush is on to develop new products such as the much hyped Newton, a hand-held computer that will serve as an organizer, fax machine and all-around “personal digital assistant.”

Kaufman & Broad, the Los Angeles home builder, has discovered that prudent first-time home buyers respond readily--downturn or no downturn--when prices shrink along with the size of houses. Fleetwood Enterprises, the nation’s leading maker of recreational vehicles, boosted market share by putting the brakes on price increases.

Oil behemoth Chevron Corp., the state’s largest publicly held company with more than $37 billion in sales last year, has slashed corporate staff and overhead by 30% and transferred much of its oil exploration--and employment--overseas, where the political environment is friendlier and labor costs are lower.

Wells Fargo & Co., burned by a concentration of problem real estate loans in California, has vowed to manage its balance sheet better from now on. Last year, for the first time in modern history, the San Francisco-based bank began breaking with its long-established tradition of holding on to most of its loans. It now is seeking to limit its risk by selling off some loans to pension funds and other buyers. It also sees an opportunity in lending to small businesses, which are bouncing back faster than many of the state’s big companies.

The Times 100, an annual listing of California’s top publicly held companies ranked by two-year average return on equity, spotlights businesses that have learned to adapt to lean times. These firms have shown that they are capable of not only surviving, but also thriving, when the going gets tough.

The last year has been difficult--even for companies accustomed to excelling. Clothing retailer Gap Inc., one of the list’s perennials, tumbled six spots--to 10th place--as its vaunted merchandising strategy stumbled and profit suffered. Northrop Corp., a key player in the region’s troubled defense and aerospace industry, plummeted 24 places, to No. 64.

California companies continued to hunker down in 1992, but the smart ones also realized that they had to begin positioning themselves for recovery.

“The real lesson is: Can you go beyond (the cost cutting) and figure out where to put yourself in the future?” said Larry E. Greiner, a management professor at USC’s School of Business Administration. “That lesson isn’t learned easily.”

Northrop and other defense companies, which began slipping into recession well before the rest of the economy, are casting about for ways to remake themselves as Pentagon cutbacks force California to wean itself away from the industry.

With 90% of its revenue coming from defense work, the Los Angeles-based company figured that the only way to survive was to become more cost-competitive. It has pared its major divisions to three from five, sold its two corporate headquarters buildings and consolidated manufacturing facilities.

As defense projects dwindle, Northrop researchers are looking into making transit buses and light-rail systems. But those programs “will never make up for our defense jobs,” said James G. Roche, a Northrop vice president responsible for planning.

At best, he added, “we could expect to be a healthy--albeit much smaller--Northrop that could be very good for our shareholders if we become cost efficient.”

For Fleetwood Enterprises in Riverside, the recession has merely “reinforced (what) we’ve known for a long time: that we have to operate our company in a lean and mean way,” said Paul M. Bingham, financial vice president.

Despite reducing expenses by about 10%, however, the company found that to compete, it also had to temper its RV prices to lure buyers of these luxury items. Lower prices on some travel trailers have meant lower profit margins, a price the company willingly paid for 20% sales gains.

Having the right product at the right price has also paid off for Kaufman & Broad, which had a 48% surge in orders for new homes last year. A builder of starter homes, the company in 1992 reduced the average size of its California products by nearly 100 square feet (to about 1,500 square feet) and lowered its average sales prices to $164,000 from $176,000 the year before.

Sensing a need to get closer to its customer, the company has more than tripled its research and marketing budget, using extensive television, radio and telemarketing campaigns.

“During a recession, the potential customer doesn’t always know they are a customer,” said Bruce Karatz, president and chief executive. This might surprise Californians used to hearing gloomy reports on the housing front: Kaufman & Broad delivered 3,944 new homes in California last year, 27% ahead of 1991 and a company record.

Whereas many rival builders ran out of cash during the downturn, Kaufman & Broad has more than $700 million that it can draw on to buy land while prices are low.

“You need capital to survive,” Karatz said.

To a top Chevron economist, a key lesson of the recession has been that California is not immune to hard times. He wonders whether political leaders have gotten the message.

“We are not somehow protected,” said Thomas G. Burns, manager of economics for the San Francisco oil company’s planning staff. “This belief that we were largely immune has led California to follow policies that made the situation worse.”