According to Plan

Diversification has come to have a magical sound. But it takes doing. A company may wind up with an unwieldy assortment of unrelated products and a top management spread too thin. Three years ago, competitors predicted as much for Los Angeles' Litton Industries, an electronics firm that, largely through whirlwind acquisitions, had soared to annual sales of $83 million in only five years of existence. Instead, Litton has just reported a 30% increase in sales (to $245 million) from last year, and after-tax earnings of more than $10 million. And last week, in another manifestation of corporate coming of age, Litton got itself a new president. Slow-spoken Charles B. ("Tex") Thornton, 48, chairman and president of Litton since its founding, cut himself back to one title: chairman. He turned over the presidency to articulate, computer-quick Roy Ash, 42, who from the beginning has been Thornton's alter ego.

The Goal: Leadership. Thornton and Ash only seem to be fanning out in all directions. Their success in building a clutch of purchased companies into a single sound corporation rests, they say, on a detailed master plan that they drew up when they started Litton and are still following. "Our goal," explains Thornton coolly, "is leadership in the electronics industry."

In pursuit of that goal, Litton has been highly selective in its corporate acquisitions. "We have never bought a company just to be getting another company," says Thornton. "We have bought time--time that otherwise would be lost to us forever. We have bought a product, a market, a research team, a management or a plant--things that would have taken us years to build from scratch." Currently, Litton gets an average of 80 feelers a month from firms that would like to be taken over. From this bunch, Thornton and Ash winnow out three or four a year.

Out of the Lode. Thornton and Ash both came out of a peculiar lode of executive talent: the U.S. Air Force's World War II statistical control service. After the war, Thornton led out to Ford Motor Co. ten young officers who later became famed as "the Whiz Kids."* Meantime, Ash went off to get an M.B.A. at Harvard Business School. (Since his family was too poor to send him to college, Ash has no B.A.--a fact that, he grins, "I hate to admit because someone's liable to take my master's away.")

When Thornton left Ford in 1948 to become operating chief at Hughes Aircraft, he recruited Ash as assistant controller. Five years later, the two decided to go into business on their own. Thornton persuaded Wall Street's Lehman Bros, to sponsor a novel financing deal: each investor had to buy at least one package of stocks and bonds priced at $29,200. Today each original $29,200 package has a market value of about $4,200,000.

Vertical Take-Off. With the Lehman-raised cash, Thornton and Ash bought Litton, then a small microwave tube manufacturer, and began broadening its spectrum by picking up a handful of other small electronics firms. As its stock soared. Litton found it easy to swap shares for control of larger companies. By acquiring Digital Controls Systems Inc., it got a foothold in the manufacture of compact computers that make as many as 15,000 calculations per second for aircraft in flight. A merger with Monroe Calculating Machine Co. gave Litton a chance to apply its electronic talents to the burgeoning business-machine field, with the head start of an established name.

Footholds, however, are rarely enough for Litton. "We like vertical strength," explains Ash. One typical chain of Litton acquisitions began two years ago, when Litton bought Stockholm-based Svenska Dataregister, a manufacturer of point-of-sale electronic scanning and recording devices that can be linked to computers for instantaneous inventory control. Last January Litton bought a company that makes the equipment that links the point-of-sale recorder to the computer and the tags the scanners read. Last June Litton completed the circle by acquiring a company that makes the adhesive for the tags. Plain Front. Despite Litton's mounting prosperity, the company's headquarters in Beverly Hills is an undistinguished, two-story stucco building without the usual trappings of corporate grandeur. Though Litton now employs 22,000 workers and has plants and laboratories in nine countries, it still has no table of organization--except, says Roy Ash, "in our heads." And there are no corporate standing committees, since "committees lead to agendas and agendas lead to more committees." Roy Ash's promotion will not essentially alter his relationship to Chairman Thornton, who remains Litton's chief executive officer. But as president. Ash will be able to relieve Thornton of many of the chores of top-level negotiations. Ash need not feel embarrassed, as Thornton might, in negotiating defense deals going through Thornton's old friend. Defense Secretary McNamara. Between them, Thornton and Ash expect to go right on diversifying their way into what they call "a proprietary position in an industry that is only now beginning to mature."

* Other ex-Whiz Kids: Secretary of Defense Robert McNamara, Ford Motor Co. Group Vice President James O. Wright.

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