Rescue Mission

The alarming thing is not the speed. Well, maybe it is the speed-upward of 100 mph along the crowded autostrada heading north from Piacenza to Milan, with the snow-capped peaks of the Italian Alps looming in the distance. But also alarming is the apparent lack of attention Andrea Mattarelli is giving to the other cars on this highway. Oh, yes, he does offer the occasional honk of the blue BMW's horn or flashing of the lights to clear a slow-moving car out of his path, but he is far more interested in making his case, and this requires frequent eye contact, elaborate gestures, and the occasional touch on your forearm to drive home a point. After 20 minutes of this sort of driving, it's almost possible to banish the fear of imminent death by concentrating on the steady stream of ideas that tumble from the mouth of Mattarelli as he explains his future vision for Mandelli Industrie SpA, one of the proudest names in Italy's machine-tool industry. He's a slim, youthful, and remarkably accessible man, this 39-year-old former venture capitalist and Columbia University M.B.A. grad who now serves as president and CEO of Mandelli Industrie. When it emerges that his visitor is going to Milan after interviewing him at Mandelli's Piacenza headquarters, Mattarelli doesn't hesitate to offer a lift. Mattarelli is remarkably unassuming. As he guides the BMW through Milan's jumble of traffic, he asks, with genuine curiosity, why an American magazine would want to write about his company (an enterprise, mind you, that has undergone a stunning transformation over the last three years). This is not surprising for a man who confessed to a reporter last year that he didn't really know how the Mandelli machining centers work, who says the company now "has the ingredients to be successful," and who thinks that in the next 12 to 18 months Mandelli Industrie will be regarded as a very good company. By most measures, though, Mandelli is enjoying remarkable success. Just three years after Mattarelli and a group of investors rescued the former family-owned firm from state receivership, Mandelli Industrie is posting healthy profits, its productivity is way up, its market share is increasing, and its prospects seem as bright as the virgin snow that coats the alpine summits. Still, Mattarelli is not satisfied with how far the company has come, preferring to focus on how far the company has to go. "I'm kind of a perfectionist," he confesses with a boyish smile. It's surprising, then, to learn that Mattarelli took over Mandelli Industrie more or less on a bet. After receiving his M.B.A. from Columbia in 1987 Mattarelli returned to Italy, where he went to work for Olivetti SpA's venture capital division, later joining the mergers-and-acquisition team of a Swiss bank in Milan. In 1992, as Italy plunged into recession, Mattarelli started his own company doing consulting work for entrepreneurs. But the work proved to be too hands-off for the Genoa native. "It was very cold, if you wish," he recalls, "very far away. I always wanted to be on the operational side." There was another problem with being a consultant: clients. Mattarelli grimaces at the thought of all the good advice he gave them that went ignored. While at a trade show, one such client led him to the Mandelli booth and told Mattarelli, in essence, to put his money where his mouth was. Mattarelli grins. "I didn't have a clue," he says, "what a machine tool was." At that stage Mandelli was a deeply troubled company. Founded in 1932, the family-owned firm, located about 40 miles southeast of Milan, had become a leader in the Italian machining-center industry before running into trouble at the end of the 1980s. It was a familiar story in countries such as Italy and Spain, whose manufacturing sectors are dominated by small, family firms that often run into difficulty when the founder steps out of the picture, says Miguel Angel Gallo, a professor of management specializing in family-owned businesses at the Instituto de Estudios Superiores de Espaa in Barcelona. The challenge for people who join such ventures, explains Gallo, is to change top management and find new market niches so that they can keep pace with an evolving business world. "The changes are coming very rapidly," says Gallo, "especially in the case of family businesses." Such was the case with Mandelli. By the time Mattarelli first heard of the company, it already had spent three years in state receivership, kept on life support by bureaucrats in Rome while most of its best employees fled for sounder enterprises. "You can imagine the morale of the people," he says. So Mattarelli found a group of investors and approached the government receivers about buying the company. Then he waited. And waited. Finally, after two years in Italy's bureaucratic morass, Mattarelli won control of Mandelli in September 1996. Thus began what Mattarelli calls his "continuing education." The problems he found at the ailing company were many. Mandelli had retained only 350 of the 900 employees it had had in 1989. It was "very product-oriented and very old-fashioned," he says, with a fully vertical management structure peopled by managers who were set in their ways. Another problem was Mandelli's positioning. The company's focus was on large horizontal machining centers, which made up only about one-fifth of the global machining-center market whose value he puts at about $2.5 billion annually. "Mandelli was number one in Italy, with a very famous name," says Mattarelli, "but it was confined to a small market niche." Mattarelli and his partners decided to invest heavily in technology to produce a new product that would help the company achieve his medium-term goal of being the European leader in large machining centers and the Italian leader in the remainder of the machining-center market. An estimated $15 million to $20 million investment in computer-aided design packages, an ERP system, and new equipment helped streamline the development process. Working with suppliers and his shop-floor managers, Mattarelli was able to bring efficiency to what had become an unwieldy production process. And the teams he assembled used their newfound freedom to develop a new product, the Thunder line, which is helping Mandelli grab some of the market for small and medium-sized machining centers. The results show on the bottom line. Mandelli, which lost roughly $3.5 million in 1996, showed a profit of the same amount a year later, and posted profits of roughly $5 million in 1998. Overall revenues have increased by 40% in that time, with more than 60% of the company's products being sold outside Italy's borders. Revenue per employee has jumped by more than 25%. The company has slashed inventory in half and has halved its delivery times. Mattarelli defines success for the company as continuing to increase its European market share while also improving its position in Asia and the Americas. If things continue to go well, he says, it's likely that he and his partners would take Mandelli public, using the infusion of cash to make acquisitions that would help increase the company's share still further. Mattarelli attributes his success at Mandelli to giving it a clear strategy and his own determination. "I don't give up easily," he says. And that, argues Mattarelli, is all you really need to succeed. "The point is using common sense," he says. "It's industry, not poetry." Tradition and technomania Italian business adapts to the New Economy. The setting was a room with frescoed walls, in a building that might once have entertained Leonardo da Vinci or Cesare Borgia. But the topic under discussion in this very Renaissance structure in the heart of Bologna was as 21st century as it gets: technology start-ups. The backdrop "was a bit peculiar," laughs Alessandro Baroncelli, a professor of economics at the University of Bologna and one of the organizers of the event. Called Second Thursday, the monthly gathering of technology-oriented entrepreneurs and "angels" who might be inclined to fund them was the third of its kind in Bologna, but the concept had caught on fast. While the first Second Thursday gathering in January drew a scant 40 attendees, there were 250 at the March event. Second Thursday's popularity in Bologna also speaks volumes about the way Italian business has changed in a very short time. One of the last countries in Western Europe to embrace the Internet, Italy has gone e-crazy over the last year. Venerable tire manufacturer Pirelli SpA unveiled plans in March to transform the company into a New Economy player. Home-grown telecom start-up Tiscali SpA went public last year and gained market capitalization of an astonishing US$13.6 billion. Another new Italian company is poised to become a leader in MP3 technology. Further evidence of Italy's emerging technomania is in the promotional materials of Mandelli Industrie SpA -- a leader in Italy's mature machine-tool industry -- which boast of the Piacenza-based company's technological prowess. But Mandelli and its CEO, Andrea Mattarelli, are symbolic in other ways. They represent the adaptation of Italy's traditional manufacturing to the New Economy. Mandelli's experience is familiar to Miguel Angel Gallo, a professor of general management at Barcelona's Instituto de Estudios Superiores de Espaa, and chair of the program that concentrates on family-owned businesses. The key to transforming second- and third-generation businesses -- which form the backbone of Italian and Spanish manufacturing -- is to overhaul the management, including the board of directors. The next step, says Gallo, is to convert the company from a local leader to a regional power. But, Gallo says, that sort of approach means confrontation. Before the Mandelli story can be repeated on a wide scale, it may be necessary for Italian business to make some fundamental changes. The Italian government still runs far too many businesses, a problem the ruling center-left party, Centro Sinistro, has been trying to address. "Ten years ago, there were government companies producing cakes or being in the food industry, which was nonsense," says Baroncelli. But Baroncelli is bullish on Italy's prospects, which he thinks are bright precisely because of its history of producing family-owned enterprises. After all, he notes, creating a business is the very essence of entrepreneurship. "Italy is seeing a new wave of entrepreneurship that involves new actors other than [those from] the traditional sectors," he says.