WSJ June 27, 2001

                  In Choosing the Right Management Model,
                Firms Seesaw Between Product and Place

                   One System Is Based on What a Company
                   Makes, the Other on Where It Operates

                   By JOANN S. LUBLIN
                   Staff Reporter of THE WALL STREET JOURNAL

                   Last year, Robert A. Lutz, chairman and chief executive of Exide Corp.,
                   launched a master plan to help turn around the money-losing battery maker
                   and solve a thorny business problem.

                   Exide's structure -- built around 10 separate country organizations -- was
                   encouraging its managers in Europe to undercut one another's prices. They
                   were "driven to maximize their own results -- even if it was at the price of
                   their next-door neighbor, who also was Exide," says Mr. Lutz. "The guys
                   were poking each other in the eye.''

                   So, Mr. Lutz spent about a year and $8 million crafting a new structure for
                   the $2.4 billion company. In place of the geographical fiefs, he formed
                   global business units to manage the company's various product lines, such
                   as car batteries and industrial batteries for high-tech gear.

                   But that gave rise to new problems. Half of Exide's top European
                   managers resigned. And when Exide made an important acquisition, it
                   worried that a top executive it wanted to keep would be miffed if his turf
                   got swallowed up by one of the new units. Soon, Mr. Lutz was tinkering
                   with Exide's structure again, tilting the organizational seesaw back toward
                   the geography plan.

                   Dawning Realization

                   As companies grow more global, they keep running into the same basic
                   management dilemma that bedeviled Mr. Lutz: Is it more efficient to
                   organize by product line or organize by geography? NCR Corp., Ford
                   Motor Co., Procter & Gamble Co. and several others have spent fortunes
                   transforming themselves from one to the other. But taken too far, each
                   model can cause its own headaches.

                   In the product model, businesses can reap efficiencies by standardizing
                   manufacturing, introducing products around the world faster, coordinating
                   prices better and eliminating overlapping plants. Yet, companies typically
                   find that tilting too far away from a geographic model slows their local
                   decision-making, reduces their pricing flexibility and can impair their ability
                   to tailor products to the needs of specific customers.

                   Under "Ford 2000,'' the No. 2 U.S. car maker's most sweeping
                   management redesign to date, Ford sought to forge its functional
                   departments -- such as new-car development -- and its geographical fiefs
                   into a single global automotive operation, pursuing the product-based
                   model. A Ford spokesman says the reorganization, begun in early 1995,
                   saved $5 billion during the first three years, primarily through swifter
                   product development and the adoption of world-wide manufacturing
                   standards.

                   Lost Ground

                   However, it cost Ford some of the ground it had gained in Europe. By
                   January 2000, the company's European market share had slipped to 8.8%
                   from 13% five years earlier. Between 1996 and 1999, four different
                   executives oversaw its European operations.

                   Early last year, Ford shuffled senior management again, restoring some of
                   its regional executives' lost authority. They gained more power to decide
                   what kinds of cars and trucks to make and how to market them. Ford
                   called the partial retreat a "refinement'' of Ford 2000.

                   P&G's "Organization 2005" plan replaced separate country organizations with global
                   business units tied to product categories, such as paper goods, feminine protection and
                   beauty care. The 1999 realignment sought to bolster sales and globalize the maker of Tide
                   laundry detergent, Pampers diapers and Crest toothpaste.

                   Unanticipated Results

                   But P&G's switch failed to anticipate the tremendous upheaval involved as
                   thousands of employees shifted into new jobs. More than half of the
                   company's executives were assigned to new roles. The company
                   transferred about 1,000 European staffers to Geneva, causing an influx
                   sudden enough to push up residential rents in the staid Swiss city. The
                   company's goal of cutting 15,000 jobs world-wide, or 13% of P&G's
                   work force, over six years also alarmed many employees.

                   European managers complained to some of P&G's ex-chairmen, who
                   remained close to company directors. Such middle-management griping --
                   on top of unexpectedly weak earnings -- helped trigger the abrupt
                   departure of CEO Durk I. Jager last June after just 17 months in the top
                   job. Like Ford, P&G has since partly reinstated its geographic focus,
                   hoping to get closer to customers.

                   Shortly after his arrival at Exide in December 1998, the outspoken Mr.
                   Lutz, a former Chrysler Corp. president, became convinced that the
                   company's geographical focus no longer made sense. Exide, the world's
                   biggest producer of automotive and industrial batteries, was facing
                   mounting losses, a depressed share price and a heavy debt burden. It also
                   faced allegations in the U.S. that it had sold many used auto batteries as
                   new ones. (In late March, an Exide unit pleaded guilty to separate criminal
                   charges involving the sale of defective batteries and agreed to pay a $27.5
                   million fine.)

                   Exide's once-booming European business missed profit targets for the
                   fiscal year ended March 31, 1999, and U.S. losses widened. Exide's
                   European country managers blamed falling prices. Competitors and clients
                   blamed Exide. "They said, 'Your country managers are exporting into each
                   other's countries,' " recalls Mr. Lutz. "The prices we had to meet were our
                   own.''

                   Many of those executives had headed local businesses that Exide had
                   acquired, and they could earn sizable bonuses for hitting local profit goals.
                   They "acted like barons," says Mark Stevenson, the company's managing
                   director for Britain.

                   So, to a degree, did Mr. Stevenson. He once clashed with German
                   colleagues over batteries that the British unit sold in Austria for 10% to
                   15% less than what Germany Exide charged there. He felt his prices fairly
                   reflected the market.

                   Seeking to build consensus for an organizational overhaul, Mr. Lutz held
                   five management retreats between June 1999 and January 2000. "Where
                   does our future lie?" Mr. Lutz asked 30 senior executives assembled for
                   the first retreat at a downtown Madrid hotel. "Does it lie in country
                   management? Or in global business units?"

                   At first, Albrecht Leuschner, then head of Exide's six-factory German
                   operation, doubted Exide needed to shift to the business-unit model,
                   organizing by product lines. "My region was in good shape,'' he says. "I
                   was afraid we would destroy structure and that would damage the
                   [German] business.''

                   Resolving Dilemmas

                   Between retreats, managers working in teams were assigned to grapple
                   with various Exide dilemmas, using existing and alternative organizational
                   models. In assessing Asian expansion strategies, one team realized that
                   Exide's geographic focus encouraged construction, even though "it was not
                   profitable for [Exide] to keep putting plants up,'' says Judith Glaser, a New
                   York consultant who helped run the retreats.

                   The teams reported their findings during the first two days of their third
                   retreat, held in September in a castle-like hotel in the hills near Florence,
                   Italy. The tentative consensus: Only a product-line structure could cure
                   Exide's ills.

                   On the last morning of the three-day retreat, the executives arranged their
                   chairs in a semicircle around Mr. Lutz and hotly debated the proposed
                   management structure for more than two hours. Finally, Mr. Lutz stood
                   and announced, "We don't have 100% consensus yet. ... But I'm going to
                   make a decision, and we are going to go to a global business unit
                   structure.'' Santiago Ramirez, then in charge of 1,500 executives and about
                   8,500 rank-and-file production and sales workers as head of Exide's
                   European operations, "looked disappointed,'' Ms. Glaser recalls.

                   Several Ramirez lieutenants made sour faces.

                   "Why don't you give it a try?" Mr. Lutz says he asked the frowning
                   Eduardo Garnica, Exide's managing director for Spain.

                   "No, I'm out of here,'' Mr. Garnica replied, according to Mr. Lutz.

                   Mr. Garnica couldn't be reached for comment. Nor could Mr. Ramirez,
                   who left the company six weeks after it implemented its reorganization.

                   Other country managers got even more upset during their December 1999
                   retreat. In a windowless room of an Amelia Island, Fla., resort, Mr. Lutz
                   displayed tentative organizational charts for the global business units.

                   The charts distressed Giovani Mele, a managing director for Italy. At
                   dinner that evening, Ms. Glaser noticed him huddled with two equally
                   morose-looking European associates. "Being a country manager is my life,''
                   Ms. Glaser recalls Mr. Mele telling her in a choked voice. "It's something
                   I've worked for my whole life. I don't see how I'll have a role going
                   forward.''

                   Mr. Mele also dreaded the personal sacrifice that the reorganization would
                   require. Exide moved him to Frankfurt, where he presently makes less
                   money than before. "They said, 'this or nothing,' '' he says. His family
                   refuses to leave its home in Naples.

                   Exide, which is based in Princeton, N.J., initially formed six global business
                   units primarily around its product lines. Most of its remaining country
                   managers were demoted to the post of local coordinator. A few gained
                   power. Dr. Leuschner, for instance, took charge of the global
                   network-power business unit, which makes standby industrial batteries for
                   phone systems, computers and the like.

                   A Six-Week Tenure

                   But the new structure didn't last long. "For six weeks," Dr. Leuschner
                   recalls, "I was emperor of the world." In May 2000, however, Exide
                   agreed to buy international battery maker GNB Technologies Inc. for
                   about $368 million in stock and cash. The deal offered a chance to regain
                   a significant and profitable presence in the North American
                   industrial-battery market that it had abandoned more than a decade earlier.

                   Mr. Lutz feared that Mitchell Bregman, the well-regarded president of
                   GNB's industrial-battery division, might bolt once Exide folded his
                   operation into the newly created global business units. So, just before both
                   sides signed the accord, the Exide leader corralled Mr. Bregman at the
                   company's Chicago law firm and assured him a significant role in the
                   combined operation. "If we had been rigid about our organizational
                   framework, we would have broken up GNB,'' says Mr. Lutz, whose
                   offices are in Ann Arbor, Mich. Instead, Mr. Lutz tilted the structural
                   seesaw back somewhat toward a geographic model by letting Mr.
                   Bregman keep control of the North American industrial-battery business.

                   Initially, the move triggered a turf battle. Last summer, Mr. Bregman and
                   Dr. Leuschner, his soon-to-be colleague, clashed over who should run
                   China for Exide. Mr. Bregman, whose company's revenue in China had
                   recently doubled and exceeded Exide's there, wanted to form and direct a
                   Chinese subsidiary. Because China represented his unit's fastest-growing
                   market, Dr. Leuschner lobbied to form a local joint venture there under his
                   command.

                   Mr. Bregman says he finally gave in under pressure from Exide President
                   Craig Mulhauser. In return, Mr. Bregman was put in charge of South
                   American operations while keeping Korea, Japan and Taiwan.

                   'Industrial Bad Guys'

                   These days, Mr. Bregman says he gets along well with his European
                   counterparts, Dr. Leuschner and Neil Bright, who directs Exide's motive
                   power global business unit, which makes batteries for forklifts, electric
                   vehicles, submarines and other equipment. The trio confer face-to-face
                   once a month and show such a fierce esprit de corps that Mr. Lutz
                   nicknamed them "the industrial bad guys.''

                   There are other signs of progress from Exide's latest approach: blending
                   the geography and product-line models. As a result of its partially restored
                   geographic focus, Exide still employs separate industrial-battery sales
                   forces on both sides of the Atlantic. But in recent months, the teams have
                   begun making joint pitches to global customers, such as Ford. And Exide
                   has just signed a three-year agreement with Emerson to be the St.
                   Louis-based company's primary world-wide supplier of certain large
                   lead-acid batteries. Mr. Lutz believes the deal never would have happened
                   under the company's old structure.

                   Exide's operating results started to recover in the second half of the fiscal
                   year ended March 31, reversing first-half operating losses. For the fiscal
                   fourth quarter, Exide posted income from operations of $500,000, or two
                   cents a diluted share, though a large nonrecurring charge left it with a net
                   loss for the period of $144.7 million. That compares with a year-earlier
                   loss from operations of $1 million and a year-earlier net loss of $127.3
                   million, after a nonrecurring charge. Operating profit for its industrial
                   segment more than doubled during the quarter. Exide attributed the
                   improvement to the GNB acquisition and strong growth in its network
                   power and motive power businesses.

                   The reorganization "is definitely working far better than what we had,'' Mr.
                   Lutz insists. Yet no one views it as a permanent solution. And Mr. Lutz
                   vows to seesaw again if conditions warrant.

                   "Come back a year from now and we will look different,'' says Mr.
                   Mulhauser, his second-in-command. Indeed, Exide is exploring ways to
                   combine the separate operations run by Dr. Leuschner, Mr. Bright and
                   Mr. Bregman. "We were searching for the Holy Grail. But there isn't one.'