CEO transform thyself: in turning Textron around, Lewis Campbell found it necessary to turn himself around.

Performance improvement is on every CEO's agenda and most reckon they have a clear idea about how best to pursue it. Details in the playbook may differ from company to company but the broad strokes are familiar to most leaders. Every now and then a CEO will reach a critical point in his or her career where he must decide whether or not to throw out the playbook and start again. But in doing so sometimes a leader must also re-examine the standard playbook in his own head--the assumptions, ideas and received truths that have filled his or her mind over many decades of experience that have served the leader well. After all, it's probably what brought him to the corner office in the first place.

A Duke University-trained mechanical engineer, Lewis Campbell, 60, joined Textron as EVP and COO in 1992 after a 24-year career at GM, where he held a number of key management positions including general manufacturing manager of GM's Rochester Products Division. A William Holden--type with glasses, the soft-spoken Winchester, VA, born executive sporting his trademark blue shirt looks the part. He became president in 1994 and CEO four years later. From the time he joined the company to a year after he became CEO he saw Textron's share price rise from 20 to 98. (The company is perhaps best known for its Bell Helicopter, Cessna Aircraft and E-Z Go golf carts as well as its role, along with Boeing, for producing the V-22 Osprey in addition to other specialized military vehicles.) But six quarters into what looked like a promising start as CEO, Campbell faced the perfect storm.

In May 1999, Textron shares fell nearly 70 percent from its 98 peak at about 24x current year earnings to around 30 in late 2001. Much of the decline was precipitated by poor capital allocation decisions that led to ill-advised acquisitions of unfavorable industrial businesses. The company's EPS-focused business model that awarded quarterly accretion forced management to invest funds in acquisitions to avoid dilution. This was made worse by a collapse in the business jet market that sent Cessna into a nosedive. To make matters worse, over-earning industrial businesses such as E-Z-Go, Jacobsen and Greenlee started to turn south. The operating income lost from these businesses alone represented an earnings drag of $0.60 a share. The downturn following 9/11 only made things worse.

Many CEOs facing such a crisis would be content to fall back on their own experience. Campbell chose not to. Subordinates describe him as someone who has a willingness to learn new things and perhaps more importantly, to change himself.

As the granddaddy of conglomerates Textron was exhibiting business model fatigue. Each of its businesses was expected to meet its EPS targets and deliver a tribute to corporate. The operating companies were in their own orbits sharing little with one another. As he relates in the interview nearby, Campbell knew he had to change, but even he was unsure just how fundamental the transformation would prove to be. "I saw the 'movie' at GM and I was darned if I was going to sit through this again," he remembers.

[ILLUSTRATION OMITTED]

The result is a company with a fundamentally different conception of itself. Gathering an inner core as his war cabinet, Campbell did away with the conglomerate and created an enterprise network where each unit had to create value and not be just a caretaker. Ruthless efficiencies were enforced. Eighteen hundred payroll systems were reduced to three; 154 healthcare options from 38 providers were replaced by one plan; and 88 data centers were reduced to two. But the transformation was more than another exercise in re-engineering. Campbell soon discovered that he had to change the way Textron people thought about themselves and to do this he started with himself. In adopting Six Sigma, for example, Campbell took the time to go through the rigorous training himself and in March 2006 earned his green belt.

"Lewis is good at switching off from relying on his experience and understanding when that experience might not be valid in specific circumstances," says Stuart Grief, Textron's VP of strategy and business development and a member of the transformation's leadership team. "Imagine what it's like to be left to your own devices for years and suddenly having an activist center. If you don't do it right, it will be perceived as gross intervention," adds Cessna CEO Jack Pelton.

R. Kerry Clark, president and CEO of Cardinal Health and former vice chairman of P & G's global family health business who has served on Textron's board for several years, says that Campbell engages the board in an open and transparent way that Clark finds both refreshing and instructive for his own board. "I particularly like the way he dialogues with members of his team. The worst thing one can do with bad news is not to share it. He'll say to an executive "that was courageous of you to bring this forward, let's talk about it." Also, when one of his own ideas doesn't work, he's frank about saying, "gee I messed up on that, didn't I?"

[GRAPHIC OMITTED]

Although most of the internal heavy lifting is behind them, Campbell cautions that much work needs lies ahead. Among the tasks is a major, well-orchestrated multi-faceted brand improvement process that integrates all aspects of the brand name with Textron's disparate markets. "Some people still expect me to flinch," he says with an amused grin. For an organization once afraid of change, one that according to one executive would "freeze in the headlights at the prospect," today it has almost a "bring it on" attitude.

Textron Selected Financial Data*

                     2001      2002     2003     2004     2005

Revenue           $  10,188    8,621    8,055    8,318    10,043
Op. Income        $     498      341      302      375       516
R & D             $     671      575      573      574       692
Revenue/Employee        206      234      243      256       283
$(000s)
Op. Profit        %       9.1      9.7      8.8     10.2      11.4
Margin
S & A % of Sales         12.0     12.5     13.7     14.5      14.0

*Dollars in millions except where noted
Source: company reports

Textron Fundamentals

P/E (12/06e) 17.3x-18.3x          P/E (12/07e) 14.4x-15.3x
EPS (12/06e) $5.20                EPS (12/07e) $6.25
Book Value/Share (12/06e)         $26.52
Revenue (12/06e)                  $11.0 Bn
Revenue outside U.S.              36%
Market capitalization             $12.6 Bn
Proj. long-term EPS growth        13%-20%
ROE (12/06e)                      20.2%
Proj. long-term debt to capital*  32.0%
Employees (total)                 37,000
Employees outside U.S.            23%
Number of countries with          21
  Manufacturing operations

*As of first quarter 2006
Source: Citigroup, JPMorgan, company reports