Westinghouse Identity Shift Echoes Pittsburgh's
Ever since George Westinghouse rented a factory near Pittsburgh's Allegheny River, the manufacturer has done a little bit of everything. Westinghouse became a household name because it made the things people used: refrigerators, light bulbs, elevators, and rail systems. When times got tough, it sold off those divisions.
On Wednesday, the company announced its boldest restructuring plan yet.
The move to split the company into two parts - a media company and a slimmed-down industrial firm - is dramatic. But it is hardly unique. Just as the Pittsburgh-based conglomerate is reformulating its operations, its hometown city is redefining itself.
Once synonymous with steel, Pittsburgh has become a remarkably white-collar and service-oriented city. This diversification has brought far more stability to the region, but little growth. Unlike cities such as Cleveland and Detroit, which have kept more of their manufacturing base, Pittsburgh's job growth is weak.
"People say we have an economic crisis," says Paul Flora, regional economist at PNC Bank here. But "it's not an economic crisis, it's an identity crisis."
It's a situation much like the one Westinghouse faces. Like the city, the 110-year-old manufacturer grew, prospered, and then lost its way because of increased foreign competition and ill-fated diversifications into the service sector. Company chairman Michael Jordan hopes he's fixed that with his move to split the company.
The Westinghouse Electric Corp. will become a broadcasting giant based in New York. The move had been expected ever since Westinghouse bought the CBS television network last year. The company hopes investors will be more willing to hold the stock as a pure media company. A pending buyout of Infinity Broadcasting Corp. would make it the nation's largest radio broadcaster.
The other half of the company, to be called WELCO, will sell off some divisions and focus on making electrical power systems, including nuclear reactors, and refrigeration systems for trucks and other forms of transportation.
The company will remain in Pittsburgh. But Mr. Jordan, the chairman, vows to transform it from a sleepy, bureaucratic entity into a more focused and nimble organization. "Instead of a giant, it's going to be an alley fighter," he says. (Jordan will be chairman of both Westinghouse and WELCO until a new chairman can be found for the latter.)
Pittsburgh, too, is shedding its industrial past. Once the Steel City, it has a larger-than-average service sector and a smaller-than-average manufacturing work force - about on par with a state capital or university town, says Mr. Flora of PNC Bank. Even its industrial base is shifting away from large, old corporations like Westinghouse and steelmaker USX to smaller, fast-paced manufacturers.
"It used to be that there was a group of top 20 corporations that really were the vibrant force" in Pittsburgh, says Richard Florida, an economic-development expert at Carnegie Mellon University here. "In the past five years, we've seen this tremendous activism on the part of these younger companies."
These include start-ups with high-tech links to Carnegie Mellon, such as Fore Systems Inc., which makes telecommunications switches. It also involves large foreign investments in more traditional manufacturing, such as Sony's local TV picture-tube factory and a people-mover joint venture between Daimler-Benz and Asea Brown Boveri.
"There's just a number of companies that are literally having to reinvent themselves," adds Marshall Bond, executive director of the advanced manufacturing network of the Pittsburgh High Technology Council. PPG, an old-line paint and glass company, now gets about 40 percent of its profits from products it didn't make five years ago, he notes.
Just as it's not clear how well Westinghouse's new industrial company will fare (competition in power-generating systems is fierce), Pittsburgh's new manufacturers face a future far more uncertain than the steel industry did. Global communications and cheap foreign labor make it tougher for companies to turn their innovations into long-term jobs, says Flora. Instead, Pittsburgh must encourage entrepreneurs to take risks, he says: "The idea is to create an environment where there's so much going on that hopefully one out of a thousand will turn into Microsoft."