It seems like a simple enough task. Take over the leadership reins at a $6 billion well-established industrial giant that has an enviable reputation for quality and whose customers rank among the world's largest industrial giants. But that's not the way Stephen R. Hardis saw it when he was asked nearly four years ago to become CEO and chairman of Eaton Corp., a maker of truck transmissions, engine components, automotive switches, electronic controls, and hydraulic products. "The soul-searching we did . . . led to a conclusion that [the board of directors and I] all shared," says Hardis, who became CEO in September 1995 and chairman four months later. "We felt that we had [been] on the defensive for the [last] 15 years, that we had narrowed our focus, thought in defensive terms, been too risk-averse and that we had not been proactive enough in undertaking growth initiatives." Hardis believed Eaton had to address two questions: How could it achieve annual sustainable earnings growth of 10% when the end markets where it sold its products had an average growth of 3% to 4%? How could it change in order to compete in a communications-driven economy that lets customers shop anywhere for the best package of value, design, quality, shipment, and price? His three-pronged solution: focus Eaton on growth, take a new approach to R&D, and stay only in markets where it can be a leader. "The only way you can make an acceptable return," argues Hardis, "is with the physical scale that comes with leadership in markets. Either be leaders or get out of the business." With that, Hardis turned Eaton into an almost $9 billion company focused on industrial controls, automotive components, and hydraulics. Under his leadership, Eaton has acquired more than 16 companies with combined sales of $3 billion and, when the engineered-fasteners and fluid-power divisions that now are for sale are divested, they will have sold five units with $1.8 billion of sales. Hardis' biggest moves:
- Acquiring $2.1 billion Aeroquip-Vickers Inc. in April to create a $1.5 billion hydraulics business.
- Swapping its gear and axle business -- on which Eaton's predecessor company was founded in 1911 by J.O. Eaton and two others -- for Dana Corp.'s clutch business in 1998.