By Mark Alpert

(FORTUNE Magazine) – MAKING postage meters hardly seems a business to write home about. But the folks at Pitney Bowes in Stamford, Connecticut, can barely contain their enthusiasm for their latest product. Introduced in July, the Paragon mail processor is, well, the paragon of postage meters. It's also a milestone in the march of Pitney Bowes from old-line manufacturer to high-tech growth company. Feed the Paragon a stack of mail and it seals each letter by spraying a thin jet of water on the glued edge of the envelope flap. Then it weighs the letter in milliseconds, prints the appropriate postage on the corner, and shoots it out the other end of the machine at rates up to 240 pieces per minute. The Paragon employs three kinds of microprocessors; its development generated 75 new patents. Industry analysts predict the machine will bring in at least $100 million of revenues over the next year, which would lead to sales and earnings records. That's a remarkable achievement for one product, but to CEO George Harvey, 61, the Paragon is even more: It's proof that the company has transformed itself from a stodgy office equipment supplier into a technologically sophisticated manufacturer with its sights set on growth. Harvey started the process in 1985, when Pitney Bowes faced serious competition for the first time ever in its bread-and-butter postage meter business. Postage meters and other mailing equipment account for 50% of sales and profits; the company also sells fax machines, copiers, and dictating machines. In the six decades after 1920, when founders Arthur Pitney and Walter Bowes introduced the first postage meter, their company held a virtual lock on the market. But by the mid-1980s, European-owned rivals had trimmed its domestic market share to 88%. Harvey increased R&D spending from $48 million, or 2.7% of revenues, in 1985 to $114 million, or 3.4%, last year. But bolstering R&D wasn't enough. Pitney Bowes also had to retrain and redeploy its work force, which is non-union. The company found that many line workers lacked basic communications skills. So it recruited local college instructors to teach English and math during work hours. It also adopted a compensation plan that bases workers' salaries on competence rather than on seniority. It reorganized the workers into self-directed teams that choose their own members, set their own production goals, and schedule their own vacations with a minimum of interference from management. Over the past four years Pitney Bowes has cut 1,300 manufacturing jobs, about 4% of the work force. The increased efficiency has been impressive: a 50% reduction in inventories and a 50% rise in output per square foot of manufacturing space. This year the company is seeing the fruits of its transformation. No rival offers anything comparable with the Paragon, so Pitney Bowes has a chance to regain market share. Since the tepid economy has slowed sales of new equipment, the company is pushing the $20,000 system as a labor-saving device. Paul Reece, vice president of operations and technology, estimates the Paragon can save the average mail room up to three worker-hours of tedious sorting daily. Says Reece: ''You don't have any delays for separating the piles and adjusting the machine. The mail goes through so fast, you need a person on roller skates to take it all away.'' Analysts expect 1992 revenues to rise 5% to $3.5 billion and profits to jump 14% to $338 million. Wall Streeters have taken notice of the transformation and now see Pitney Bowes as more of a growth stock than a cyclical issue. Prudential Securities analyst Alex Henderson considers the shares his single best investment idea of the past two years. Says he: ''The stock has had a hell of a run, but it's still cheap.''