Walking tall Featured

8:00pm EDT March 26, 2008

When Steve Newberry came to Lam Research Corp. in 1997 as executive vice president and chief operating officer, he and the new CEO, James Bagley, faced a tough uphill climb.

The company, which supplies semiconductor manufacturing equipment and services, had quickly grown to $1.1 billion in fiscal 1997, but it was also splitting at the seams because it couldn’t handle the growth.

“Technologies and products had begun to wane, and it was losing market share, and it was beginning to lose money as a function of getting out of control at that rapid level of growth,” Newberry says.

Because of the downward tumble the company faced, Newberry and Bagley knew they needed to enact change if Lam had any hope of surviving and thriving.

“When we came in, we really had to change the whole orientation of the company,” he says. “It’s really a classic leadership challenge to redefine the vision, redefine the definitions of success, redefine the strategies and then look at whether the leadership team ... was capable of performing to the level that was needed.”

With that in mind, Newberry and Bagley set to establishing core values and strategic principles, and then identifying those who would stay and those that would go.

Create an identity

Lam needed to redefine its strategic objectives and create new values by which it could operate, so Newberry took the team off-site for a few days to establish these necessities.

Business was spread across the semiconductor industry as well as manufacturing flat-panel display equipment. They recognized that the company’s core competencies were in its etch technologies, so they exited other semiconductor businesses as well as the flat-panel equipment manufacturing and focused on developing that one facet, even if that meant turning down short-term opportunities.

Now, with a focus, they identified what success looked like: being No. 1 in customer trust and market share, being a place successful people wanted to work and being profitable enough to finance solutions to customers’ problems. They also decided it wasn’t merely enough to do these things — they wanted to be world-class in doing so.

The leaders then asked how would they achieve those successes.

“The how part, being core values, really speaks to behaviors that we wanted,” Newberry says. “We started that off with ultimately recognizing that whatever those core values are, it needs to be what we practice, we believe in and we reward.”

This was important to him because he didn’t want Lam to be one of those companies that just gave lip service.

“In most companies, they have a bunch of core values that sit on a wall, but the degree to which the senior leaders practice those values can be pretty inconsistent, and sometimes, senior leaders will stand around and say, ‘Those core values are for the rest of the people in the company, but we don’t necessarily have to practice that (ourselves),’” he says.

Some people didn’t want to be held to such high standards, so the discussion became the most heated one of the retreat. When a couple of the executives continued to resist, Newberry laid it on the line for them.

“I didn’t leave where I came from to come to a company that wasn’t going to believe in being values-driven,” he told them. “The leadership team, in essence, defines what a company is going to be. If you guys don’t want to do this, fine. Then I’m not going to be the chief operating officer for this company, so you guys need to decide what do you want to do because if I’m going to be a part of this team, this is what we’re going to do.”

With that, people realized that he meant business, so they committed to it. Wanting to avoid confusion by not having too many values, they settled on eight.

“It was a group of eight that we thought were representative of what was important to us — not somebody else, not some author out of a book,” Newberry says. “Essentially, a senior leadership team — particularly the CEO and president — you have to bring your own core personal philosophies of what you’re doing in a company. For better or for worse, the company is going to align to that. ... You basically choose what really is a makeup of who you are as a leader.”

Newberry says that as long as you’re not choosing odd values, people should align with them.

“Choose a set of values that aren’t off the wall,” he says. “If you’re choosing a set of values that are off the wall and people don’t understand or relate to ... those can be very effective, but then you have a culture that is very individual-oriented. If the values system that you choose, people can relate to and can ultimately make their own, then it doesn’t become the CEO’s culture — it becomes the company’s culture.”

Weed out nonbelievers

Once you have a clear purpose and identity, you then have to align the people.

Newberry and the top eight executives in the company put all of the new objectives and values together and went through a series of presentations to the 130 executives at the director level and above. On top of the presentation series, they also individually met with executives.

“The first part of the process is you sit down with people and say, ‘OK, this is where we want to go, this is how we want to do it, and this is what we’re going to need from you in your role,’” Newberry says.

Then it’s just asking one simple query. “The first question you ask is, ‘Is this an approach that you could buy in to and you could support?’ If the person says, ‘No, I don’t agree with that,’ then you say, ‘OK, you can either resign or we’ll fire you.’ You can’t change the direction of a company if the leadership team doesn’t all get on board and start pulling in the same direction.”

After nine months, about 75 percent left on their own or were asked to leave.

“It’s the last 25 percent that you’re giving people the opportunity to demonstrate do they have what it takes to really be a part of this team, and you make a series of decisions at the end of the year,” he says.

Newberry’s gut told him most of that remaining 25 percent weren’t going to make it, but he likes to go with the innocent-until-proven-guilty approach.

“The process of allowing people to play out the strengths is important, not only for them, but it’s also important for the other members of the management team to see that the decision-makers — that the president and the CEO — are really being as fair as possible in terms of deciding who’s going to stay and who’s going to go,” he says.

During that wait-and-see period, it’s important to measure those executives.

“You have to remove the subjectivity and the words out of the equation, and you do that by making sure you define good objectives in terms of how you measure success,” Newberry says.

The key to creating good objective measurements is understanding what’s important to customers and what’s important to the company. He says that leaders often measure activity as opposed to productivity, and he uses training as an example.

“They’ll measure, ‘We had 75 people attend the course,’” he says. “They’ll measure the fact that everybody went through the training. The definition of success is not that they attended the training, but that they demonstrated in the course of the training that they understand it, and now the issue is how well are they applying what they learned.”

After creating important metrics, you then review the performance of the organization that falls under the executive’s leadership.

“You eventually look at the speed at which the organization is moving in the right direction, the degree with which the other executives are getting the leadership they need from this person that you’re looking for, and you come to the conclusion with discussion with them in one-on-ones ... that if the progress of the group to the objective measurements isn’t occurring, then they’re not the right choice,” he says.

He says measurements take the blinders off when you can’t or don’t want to see people’s inabilities.

“Objective measurements become very important because people will try to talk their way through and say all the right things,” Newberry says. “At the end of the day, a person could be well-intentioned, but they are not able to translate that well-intentioned effort into results. You have to stay focused on the results orientation.”

At the end of the first year, not only had Newberry swapped his EVP title for president, but he and Bagley had finally tossed all the bad apples, and Lam could start moving forward.

Move forward

Previous management had focused on just making Lam a fun place to work, so Newberry had to redefine the word fun by making everyone understand that losing market share and losing money wasn’t fun.

To continue educating managers, he met with 50 at a time, twice a year, for the next three years to reiterate the plan. He also had quarterly meetings with employees during this time.

“People need to hear things seven to 10 times before they really absorb it and understand it,” Newberry says.

If you think you can just create a plan, roll it out in a two-hour meeting, and everyone will understand it as well as the team that created it did, then Newberry says you have another thing coming.

“You have got to break it down and really go into detail, piece by piece, and you have to have the patience to recognize that it’s not going to happen overnight,” he says.

During the next three years, Lam began to thrive, but it was hard for outsiders to see this because revenue dropped below the $1 billion mark because of the downturn. With financial pressures facing the company during 2001 and 2002, it had no choice but to cut the employee count from 5,300 to 2,000.

“When times are good, it’s easy to be upbeat as a manager,” Newberry says. “It’s when times are horrible that you really have to step up and be able to see where things are going and get people to believe that we see the light at the end of the tunnel, and it isn’t a train coming.”

That light was a realization of a better system than hiring thousands of great people and then laying them off. Newberry decided to instead outsource the transaction-intensive operations — parts of human resources, IT, finance and other departments — and instead focus on core initiatives — research and development, sales, and customer service.

“That made us more cost-effective, but it also allowed us to tell the employee group that those who are Lam Research employees are core employees, and we will be retaining you as employees through thick and thin and ups and downs because we knew the industry would remain cyclical,” Newberry says.

Since the downturn, revenue has climbed, hitting $1.6 billion in fiscal 2006. Net income for that same period was $336 million, compared to a net loss of $90 million in fiscal 2002. Additionally, Lam has become more efficient and effective with what it does have.

“When we combined all of that with our new product capability, then we were able to grow our market share,” Newberry says. “We had dropped to as low as 24 percent, and we were now up to 49 percent.”

On top of that, the values and strategic objectives haven’t changed since they created them 11 years ago, so the direction has stayed the same.

“Don’t be short-term tactical when you’re talking about where you’re trying to go with a company,” Newberry says. “Stay the course with well-thought-out strategies and allow people the time to understand them, align to them and begin to execute to them. ... Don’t change direction just because you haven’t had time to give it enough time to develop and actually come to fruition.”

That patience has been the key to Lam’s turnaround. “You always read that if you want to change a culture of a company, it takes three to five years,” says Newberry, who assumed CEO responsibilities in 2005. “Well, it does, and it takes a lot of time and a lot of effort, but what happens is, if the senior management team is consistent enough and stays the course and stays focused on the same messages — in that those messages are right and they’re working — then it starts to take on a life of its own.”

He says now when people come to interview for jobs, interviewees talk about what Lam stands for and behavioral objectives for potential employees.

“The culture in the company today and the core values in the company today are owned by the employees, and it’s embraced by the employees,” Newberry says.

“You know that you’ve been successful in changing the culture when basically the employees are the ones that now do all the talking about it.”

HOW TO REACH: Lam Research Corp., (510) 572-0200 or www.lamresearch.com