LEAD: FOR Karl D. Bays, figuring out what he wanted to do with his life was never much of a problem. There was really just one career that interested him. ''All I ever wanted to be was a manager,'' said Mr. Bays, a husky, cigar-smoking Kentuckian.

FOR Karl D. Bays, figuring out what he wanted to do with his life was never much of a problem. There was really just one career that interested him. ''All I ever wanted to be was a manager,'' said Mr. Bays, a husky, cigar-smoking Kentuckian.

To hear Mr. Bays tell it, he is equally clear about what he wants for IC Industries, the company he has headed since leaving the chairmanship of Baxter Travenol Laboratories in June 1987.

His aim, he says, is to build IC into a company whose cash flow, a measurement he prefers to profits or other forms of returns, increases by close to 15 percent every year. In his mind, consumer goods, with their high margins, are the best avenue to do that. And so, he has said repeatedly that he is going to remake IC - which had already metamorphosed from a railroad into a wide-ranging conglomerate - into a consumer products and services company.

It is a strategy that fits right in with the conventional wisdom of the 1980's - that is, that companies must define their core businesses and stick to them. It is a strategy that many IC executives are comfortable with, given their concerns about the company's seeming lack of direction over the last decade. And it is a strategy that analysts, who often have trouble following conglomerates, can easily understand. In fact, several say they have been recommending IC stock specifically because the 54-year-old Mr. Bays is beginning to make sense of the company.

But as pleased as veteran IC-watchers are with Mr. Bays's strategy, they are even more pleased with how he is using it. For to Karl Bays, a strategy is a guideline, not a straitjacket.

Indeed, Mr. Bays is defining consumer products in the widest possible way. Just last month, he spent $30 million to buy 18 percent of Northfield Laboratories, a company that is trying to develop a commercial blood substitute. Does Northfield fit into a consumer company? ''Blood is the ultimate consumer product,'' he said.

Then there is the $13 million he recently spent on a new research and development complex for the Hussmann Corporation, the $756 million IC subsidiary that sells display cases and other equipment to supermarkets. Does that fit with the strategy? ''They sell to the same supermarkets that the food companies sell to,'' he said. Mr. Bays's fans - and there are many - say his combination of rigid adherence to cash-flow goals and flexibility about investments is exactly what IC needs right now. ''There are abundant opportunities for employing the company's resources, and he is always looking for interesting opportunities to create value,'' said Richard G. Cline, chairman of Nicorp Inc. and an IC director.

MR. BAYS is making a powerful effort to get presidents of IC subsidiaries to do that kind of searching as well. In October - ironically, just three days before Black Monday - he gave 1.2 million shares of IC stock to 26 of his top people, to get them to think like owners rather than managers. IC subsidiaries still have their own boards. And, even though Mr. Bays monitors all spending for training, new plants and such, his executives say their autonomy has remained inviolate. ''I don't feel like there's someone looking over my shoulder at all,'' said Ray Morris, chief executive of Pet Inc., IC's huge food products subsidiary.

Over the last year Mr. Bays and his unit presidents have done a good deal of auspicious pruning, selling off businesses that do not fit with IC's blueprint for its future, and cutting product lines that, while they fit strategically, do not yield high returns.

In September, IC's board approved Mr. Bays's plan to spin off the Illinois Central Railroad, IC's original business, as an independent company. In April Mr. Bays arranged to sell IC's $967 million Pneumo Abex subsidiary, which makes aircraft landing gear and flight controls, to a joint venture of the Henley Group Inc. and Wasserstein, Perella & Company, for $1.3 billion. On a much smaller scale, Pet and other IC subsidiaries have been unloading product lines - Musselman's Fruit Products is one example - that, while marginally profitable, did not seem the best use of corporate resources.

Already, IC is a smaller but healthier company. IC's income from continuing operations was up about 62 percent last year, to $198 million, from $122 million in 1986. The divestitures will trim IC's sales from more than $4 billion last year to about $3.5 billion in 1988. But that number, if Mr. Bays has his way, will not remain static for long. He has loosened IC's purse strings, encouraging his unit presidents to pump capital into their businesses. And he is ''scanning the horizon'' for a consumer products company to buy.

The result, predicted J. Robert Copper, senior vice president of planning, will be that ''in five years, IC will have grown by compound double digits in earnings.'' And what will be the source of that growth? ''IC will have a heavy presence in Europe, Asia and the Pacific rim, it will be in consumer products, but it will also be in about 10 emerging technologies,'' he said.

Mr. Bays's moves are playing well on Wall Street, too. ''Karl Bays has not only streamlined IC, he has revitalized it,'' said William Tiritilli, who covers IC for Rodman & Renshaw and has been recommending IC stock for his ''longer-term conservative'' accounts. Alan S. Greditor, an analyst at Drexel Burnham Lambert, has a blanket ''buy'' recommendation on IC. The reason: ''Karl Bays is a proven chief executive, and he has IC headed on exactly the right course.''

To be sure, Mr. Bays's background gave him a running start.

For close to 15 years, Mr. Bays had been chief executive of American Hospital Supply Corporation. Through acquisitions and capital investments - and through a decentralized management style that gave divisional subsidiaries wide latitude on how to run their shows - he grew American Hospital into a $3.5 billion health-care concern.

But his very success turned out to be his nemesis. Baxter Travenol, another health-care concern that was itching to expand, decided that American Hospital was the kind of company it wanted and made a successful hostile run at it. In 1985, the two companies merged. Mr. Bays got the title of chairman of the newly merged company, but few hands-on management duties to go with it.

For IC, Mr. Bays's mounting frustration could not have come at a better time. He was already an IC director, so he knew the company. And he certainly knew how to manage. So, when William B. Johnson, IC's chief executive since 1968, was sidelined by a stroke in June 1987, the board passed over such veteran IC officers as executive vice president Bruce S. Chelberg and vice chairman Boyd F. Schenk, and asked Mr. Bays to sign on.

''Karl was an experienced C.E.O., he was on the board and it was a once-in-a-lifetime opportunity,'' said Mr. Cline, the director. Mr. Bays described the situation more succinctly: ''I was a rare find.''

THERE is no question that Mr. Bays has changed the style and tempo at IC. Where Mr. Johnson, a lawyer by education and a numbers man by preference, was mainly interested in bottom-line results, Mr. Bays is fascinated by operations.

Mr. Bays plays down the differences between himself and Mr. Johnson (''I'm fatter than he is,'' is all that he will allow). But IC executives say there has been a sea change.

''Our board meetings used to be taken up with talk of receivable days outstanding, payable days outstanding and other numbers,'' recalled Mr. Morris, the Pet chief. ''Karl's attitude is, let's go through a quick overview of the quarter and then discuss a segment of business.''

Even John F. Fagan, IC's executive vice president for finance and its chief numbers man, has changed his emphasis. ''Bill wanted details on final numbers, but Karl is more interested in developing a plan to serve customers,'' he said. ''The result is that now I spend less time presenting routine numbers, more time on exceptional things, particularly those that affect operations.''

There were, of course, many points of intersection between Mr. Bays's thinking and Mr. Johnson's. In fact, some of the acquisitions made in the Johnson days seem to have followed reasoning of the sort that would delight Mr. Bays.

For example, IC withstood a lot of flak from Wall Street when it paid $320 million - 30 times earnings - to buy Progresso and a handful of lesser-known brand names from the Ogden Corporation in 1986, a year before Mr. Bays took over. Mr. Copper says he worked out a five-year plan for Pet incorporating Progresso, compared it to an existing plan without the acquisition, then calculated the difference between what Progresso cost and what value it added. ''We recognized the synergies in advertising, distribution and production, and we would have paid more,'' he said. Indeed, Progresso added more than $30 million to Pet's earnings the first year after it was bought.

Still, if Mr. Bays inherited a basic game plan, he also inherited a company that was in an operational vacuum. It owned a mishmash of businesses and, because it had not gone through any obvious financial debacles, IC executives felt little pressure to modernize their factories, to cut their costs or to weed poor performers from product lines that showed satisfactory returns as a whole. Pet, for example, thought its main profit source at one plant was cultured milk products; the line was actually losing money.

Even before Mr. Bays joined, IC's planning staff had begun segregating businesses into winners, losers and what-ifs. But with Mr. Bays's urging, they have stepped up the pace. Today, IC is busily selling the losers, nourishing the winners and creating strategic plans for the what-ifs. For example, the Midas International Corporation, best known for its muffler repair operations, is a what-if. The franchise operation, which provided IC with nearly $351 million in revenues last year, has moved into brakes and other car services, and has just started a $4 million training program for its mechanics.

Mr. Bays is being particularly tenacious about expanding IC's clear winners. In doing so, he is taking IC from a ''deal'' company - one that buys what others build - to one that explores any avenue for growth.

IC executives say Mr. Bays's open-mindedness already saved one deal from going sour. Before he joined, IC had targeted its Pepsi bottling operations as a good growth area and decided to expand them by buying RKO Bottling Inc. from Gencorp. Pepsico Inc., which did not want any franchisee to grow that powerful, tried to block the sale.

Just a few days before the two companies were scheduled to go head to head in court, Mr. Bays and Roger Enrico, chief of Pepsi-Cola Worldwide Beverages, negotiated a settlement in which IC's entire bottling operation would be turned into a joint venture with Pepsico. Today Pepsi-Cola General Bottlers Inc., which includes RKO and several bottlers formerly owned by Pepsico, is the largest Pepsi bottler in the world. IC owns 80 percent, Pepsico 20.

''Karl divorced himself from a confrontation mode,'' Mr. Copper said. ''Bill would have been content to try his luck in court.''

Mr. Bays has equally delicate internal negotiating tasks ahead. He must keep IC's momentum going, even among divisions that have been selected for drastic cuts. And he must persuade unit chiefs that he really wants them to stress internal growth, even as they carve away at operating costs.

SO far, he seems to have gotten his point across. He proudly notes that capital spending, which had averaged about $70 million a year for several years, will come close to $200 million this year. And IC has lopped $80 million from its costs.

The cuts have been painful. Mr. Copper has reduced his staff from 10 to two. Mr. Fagan cut his staff in half, to 40. Throughout the company, about 1,300 jobs are gone.

The stock grants were the prime motivation, executives say. ''What we've really been doing is acting like aggressive shareholders,'' Mr. Fagan said.

''We asked them to cut $50 million and they cut $80 million,'' said Mr. Cline, the director. ''Without ownership we'd have been lucky to get $40 million.''

Of course, not all cost cuts mean job losses. Some headquarters savings came from cutting the number of suppliers and putting off plans to computerize certain functions. And subsidiaries have been busily looking for synergies. Pet, for example, has been working on keeping company trucks from logging too much down time. A few years ago a truck delivering flour to a plant on the West Coast might have come back to St. Louis headquarters empty; now, it is likely to pick up taco shells for its El Paso Mexican foods line along the way.

BUT there has been bloodletting at Pet too. It once had 33 profit centers, each with its own general manager. Now it has five groups, each with a president. There used to be 39 division managers; now there are 22. Total employment is down by 91 people, half of whom were managers.

''This was a substantial savings but it also opened market opportunities,'' Mr. Morris said. For example, frozen foods and grocery shelf foods, once separate fiefdoms, now report to the same manager. That gives them an incentive to publish recipes, say, that use several Pet products, or to combine advertising budgets to get better rates.

Mr. Bays is trying to elicit that sort of cooperative effort from people at all levels of IC. ''It sounds trite, but I really do believe management is getting things done through other people,'' Mr. Bays said.

As part of that belief, Mr. Bays has been trying to promote cross-fertilization of ideas between different levels of employees and between similar-level people at different IC subsidiaries. Meetings among subsidiary heads to exchange tips have become more frequent. Hussmann right now has a $2.5 million project at one of its largest plants to find better ways to get workers and management to act together to fine-tune work flow and other production details. If it is successful, Mr. Bays says, he may suggest that other subsidiaries adopt the approach.

Mr. Bays already is holding periodic ''Coffee and Breakfast with Karl'' meetings for headquarters employees and encouraging subsidiary presidents to do the same. And he is including lower-level people in some of IC's awards programs.

For five years IC has been giving annual Chairman's Awards to top-level employees. This year, at Mr. Bays's urging, award winners included a woman who trained the office staff on a new computer system and a regional sales manager. Each winner got 100 shares of IC stock.

Mr. Bays also is attending to customers. He joined the board of the Grocery Manufacturers Association, primarily to become better acquainted with the supermarket executives who stock Pet goods and use Hussmann equipment. And he has persuaded Hussmann people to help the executives with floor planning, and to invite them to the new research center.

Mr. Bays is certain that he has gotten his message of cost cutting and customer emphasis across to the subsidiaries. But dramatic examples, he conceded, are hard to come by. ''There are no showstoppers, no whiz-bang things,'' he said. ''It's day-to-day hard work.'' AT A GLANCE: IC Industries All dollar amounts in thousands, except per share data. (loss)

CAPTION(S):

Photo of Karl Bays (NYT/Mark Joseph) (pg. 8); graphs of 1987 revenues and earnings of IC Industries' subsidiaries, showing division between consumer and commercial products (Source: Company reports) (pg. 8)