Although it carries the historic ITT ticker symbol on The New York Stock Exchange, the company Louis J. Giuliano heads is not the company that you think you know. This ITT is not the owner of Sheraton hotels. They were spun off in a 1995 corporate redistribution. Nor is it the ITT of the 1960s and 1970s, a rogue multinational that, among other things, is alleged to have helped destabilize the socialist government of Chilean President Salvadore Allende. ITT has changed since then. A lot. And with value as his watchword, Giuliano is driving change apace at today's ITT. Value is an active adjective, a goal, an operating principle and a performance measure at the six-year-old, $4.7 billion, 42,000-employee, White Plains, N.Y.-based diversified engineering and manufacturing company. And one of the shiniest links in Giuliano's "value" chain at ITT Industries Inc., as the company is formally known, is a different kind of change agent dubbed Value-Based Six Sigma. "We want to grow both revenues and earnings. But we also want to create value -- and that's an important part of the equation," stresses Giuliano, the corporation's chairman, president and CEO. Foremost, from Giuliano's strategic perspective, is the value of business diversity. ITT Industries has 31 business units, collected into four management companies -- fluid technology, defense electronics and services, motion and flow control, and electronics components. "We think that we can create shareholder value over time -- steady, reliable shareholder value growth over time -- with the mix of businesses we have," says Giuliano. Specifically, he's betting that a combination of long-cycle businesses, such as defense electronics and pumps, and such short-cycle businesses as electronic connectors better protects ITT Industries against individual market weaknesses. Giuliano believes also in using acquisitions to create economic and shareholder value, and he pursues acquisitions that promise to enhance or complement existing businesses while quickly adding to earnings. Two cases in point: the acquisition of mobile-phone keypad maker STX Pte. Ltd. and the acquisition of the space and defense communications business of Stanford Communications -- both announced in the third quarter of 1999. Each helped ITT Industries gain competitive advantage and capture business. "We don't want to be just a deal machine," stresses Giuliano. "We're an operating company." Value -- economic value -- comes into play as well when Giuliano decides which businesses to sell. The most notable examples are the 1998 sales of ITT Industries' automotive electrical systems business to France's Valeo SA and the brake and chassis business to Germany's Continental AG. The two businesses accounted for about $4 billion in sales. They were growing. They were market leaders. They had good margins and technology. But they weren't earning their cost of invested capital. By some very basic financial measures, the five-year value strategy Giuliano and his senior management team launched in 1998 appears to be paying off -- literally. Earnings per share advanced to $3.09 in 2001 from $1.25 in 1998, a compound annual growth rate of 35%. ITT Industries' operating margin in 2001 was 11.7%, up 300 basis points from 1998's 8.7%. And free cash flow, a basic measure of money coming into and going out of the company, was $303 million in 2001, a dramatic $327 million improvement from 1998's negative $24 million. True, total revenues slipped $153 million to $4.676 billion from $4.829 billion between 2000 and 2001 as demand fell for the company's electronics components. But given the U.S. recession and the impact of Sept. 11, that's still a respectable top line. Wall Street clearly likes what Giuliano, who previously was ITT Industries' president and COO, is doing. The consensus recommendation of securities analysts as compiled by First Call/Thomson Financial remains a "buy." Credit Giuliano for results. And credit him for remaining an operating guy. Even as CEO, Giuliano, who once co-authored a factory-focused paper formidably titled "Accelerating Supply Chain Velocity and Cash Flow," continues to be the driving force behind the company's very deliberately named and highly successful Value-Based Six Sigma (VBSS) program. Begun in 2000 and designed to streamline processes and increase operating effectiveness, the program of continuous performance improvement is a standout. It produced cost savings of $135 million in 2001. VBSS "is our principal change accelerator," states Giuliano. "Both Lou and I recognized what we were trying to do before, but we agreed that maybe we weren't being as smart as we could be," notes Neil A. Gallagher, president and general manager of ITT Industries' Roanoke, Va.-based Night Vision Division. Different Kind Of Six Sigma Like successful Six Sigma programs at such companies as Motorola Inc., General Electric Co., ABB Ltd. and DuPont & Co., VBSS makes use of statistical tools and techniques that can lead to higher quality, better customer service, leaner production and faster product development. And like the others, ITT Industries' Six Sigma program has Black Belts, a cadre of specially trained facilitators who guide project teams. But VBSS differs from the others in two major ways. One difference is its emphasis on economic value creation. "We insist on ranking projects," emphasizes Giuliano. "And we insist that no matter which project is the general manager's pet project that the [projects] get laid out in terms of order of value creation." In practice, that means weighing not only a project's potential revenue and earnings impacts, but also the investment required -- the same drill Giuliano follows in buying or selling a business. "The return, over time, has to be better than the cost of the capital needed to make that investment," stresses Giuliano. "The bigger the spread between the cost of capital and the potential value creation, the higher the priority the project." The leadership skills that ITT Industries' Black Belts are taught are the other defining difference. "We knew from past experience that to really make continuous improvement work, the people charged with implementing it had to have the leadership to make teams effective," says Giuliano. "Our Black Belts are better equipped to deal with different personalities and management styles -- and that [affects] tremendously project outcomes," says Mark. E. Chubik, who as the Night Vision Division's VBSS champion helps develop projects and keep them aligned with corporate strategic goals. "When these people have been through their training and work their first projects, they are excited," says Giuliano. "They are enthused. They know that they can make a difference," he stresses. "What happens is that this excitement builds and more and more work gets done. People start to see [this] as a real way for them to improve their competitiveness [and] to create opportunities for their company, their product lines, their jobs," says Giuliano. "I have just been amazed at the breadth and variety and effectiveness of the different types of projects that we have seen over the past couple of years. Things that I would never have thought of." Such as, he says, people creating a process that cut average hiring time in half in an ITT Industries service business where there's a direct correlation between the number of people on the payroll and sales and profits. Plus, there was a side benefit. "By making the recruiting decisions earlier, we got the better people," Giuliano relates. Once projects have been thought of, Giuliano keeps a very close tab on their progress. "I want to hear about the Black Belt projects at every plant I visit. I hear about them in monthly reports. I hear about them every time we have a business review," he states. What's more, "I can go on to our intranet site and tell you how many projects are going, where they're going, what their potential value is and what their topic is." VBSS Works In Roanoke Among the projects Giuliano can access online are those underway at ITT's Night Vision Division in Roanoke. Because of national security sensitivities surrounding the equipment it produces for the U.S. military and friendly forces elsewhere, the division's employees don't talk openly about production capacity or manufacturing square footage at their plant in the shadow of the Blue Ridge Mountains. But ask about VBSS and people speak with energy and enthusiasm -- whether they are making a Power Point presentation or just talking informally. For example, a VBSS team guided by Frank E. Gorena, a manufacturing Black Belt, was able to eliminate several million dollars worth of work-in-progress inventory as it engineered a 50% reduction in "back-shop" cycle times in the production of the image intensifier tubes that are the core of night-vision equipment. Production output has increased and cash flow has improved as well. A VBSS team led by Black-Belt Lisa Highberger has developed a system that allows operating managers within ITT Industries' Night Vision Division to use Internet-accessible video technology to do process auditing and flow charting. The team was formed last year, and the impressive results so far include a marked reduction of scrap in the production of image intensifier tubes and a $785,000 contribution to operating profit. The complex manufacturing process for image intensifier tubes involves 400 separate steps. Chubik, the VBSS champion for the Night Vision Division, figures that $7.5 million has been added the division's operating profits since 2000's third quarter by Roanoke's VBSS teams and those at K&M Electronics Inc., a West Springfield, Mass. producer of customized high-voltage power supplies that ITT Industries acquired in 1999. "We are solving some very difficult problems that were once in the too-hard-to-do box," says Gallagher, Night Vision's president.