UK: Lucas sees the light.

UK: Lucas sees the light. - Lucas was dogged in the '60s by its US nickname. Now the Americans have become good customers.

by Daniel Butler.
Last Updated: 31 Aug 2010

Lucas was dogged in the '60s by its US nickname. Now the Americans have become good customers.

Prince of Darkness. A name guaranteed to make a Lucas executive wince. Yet in the '60s, this was the mocking tag given to the late Joseph Lucas because of the less-than-reliable state of his car electrics by disgruntled Americans.

Today, the 1,150-strong workforce at the Lucas aerospace plant at Fordhouses, near Wolverhampton, is mightily relieved that the reputation has not stuck. Indeed, the plant is set to benefit from one of those multi-million pound American contracts that have become all too rare of late in British industry. In November, Lucas won an order from General Motors' Allison aviation subsidiary to supply parts for a range of engines, that could be worth from $1.7 billion to $3 billion over the next 10 years. Enough to make old Joseph Lucas turn in his grave. More importantly, the Allison work should protect 2,000 jobs around the Lucas aerospace empire.

Coincidentally, this figure almost matches the recent spate of job losses from British Aerospace, part of the haemorrhaging of the industry in the wake of swingeing defence cuts. When the bleeding is staunched, some 50,000 of the 225,000 jobs dependent on the industry will have gone in a two years. Lucas may be an object lesson in how to deal with these industry-shattering events, which other hard-pressed groups would do well to take on board.

Through the '60s and '70s, the Prince of Darkness era, Lucas was a company heading for trouble. Its low margin, high volume car parts business was too over-dependent on a fickle British economy and an even sicker British Leyland group. Union power was at its zenith, and it often appeared that the shop stewards were running the show. For Sir Anthony Gill, Lucas chairman and a company man since completing his national service in 1956, it was a frustrating time. "We went down with the industry. Down but not out."

The crunch came in 1983 when the company reported a £12.8-million loss and cut its dividend for the first time since Joseph Lucas had taken his cycle company to the stock market at the turn of the century. Jobs went by the thousands. In 10 years, the company more than halved its UK workforce to 29,000. Today, there are just 54,000 working in 150 plants world-wide.

The Lucas survival strategy was to diversify and move upmarket in products, looking for new overseas markets to sell them in. Its real skill has been to manage diversification twice over in recent years. First it lessened its dependence on the automotive business, building up its aerospace interests, which today account for some 30% of turnover against 19% 10 years ago. Second, as world defence spending tailed off in the late '80s, the aerospace business turned to civil markets for new work. Fordhouses is a good example of this changing face of Lucas. Fifty years ago, the plant was working flat out on Spitfire parts. Today, the building's appearance may seem to epitomise old-style Black Country manufacturing, with its low slung red-brick walls, and its "saw-toothed" roof. Yet inside a veritable revolution has taken place.

The workforce, led by plant director, Eddie Grimshaw, has transformed working practices and productivity and Lucas has just become the first European company to win Boeing's coveted DI/9000 seal of approval. Grimshaw, a blunt Yorkshireman, who nearly played cricket for his county, savours this accolade from the aerospace giant. As Boeing has a policy to cut its suppliers, the award will almost certainly guarantee a continuing relationship.

New markets such as Boeing or the European Airbus programme, where Lucas provides state-of-the-art wing-flap controls and other technological wizardry, help compensate for a run-down in military work. When Grimshaw arrived at Fordhouses in 1988, much of the plant's work was concentrated on the Tornado aircraft, 800 of which had been ordered by airforces across Europe.

Grimshaw reckons that the defence work was a mixed blessing. Though it provided valuable orders and the chance to work on highly specialised areas such as thrust reverse actuators, (a form of air brake), he believes it eroded the competitive spirit through the now-notorious cost-plus contracts, where R and D costs are guaranteed with a fixed margin added for profit.

Reluctant to leave the military sphere entirely, Lucas turned the valuable expertise gained from Tornado work into civil aviation applications. But with the civil aviation market set to grow by five per cent a year in the late '80s, it seemed sensible to move into the civil market. Grimshaw recognised that "selling to the civil world is very different from the incestuous world of the military. To make your mark you have to be smarter and craftier than the competition." Sir Anthony and his team were caught out by the dramatic nature of changes in the world in the late 1980s leading to the eventual collapse of communism. "We expected defence to go into decline, though obviously we couldn't have predicted the Wall coming down, nor the changes coming in so fast."

As a first step to tackling new markets, Fordhouses had to be reorganised from top to bottom to gain Lucas a competitive edge. Its origins were as a family firm, HM Hobson's, taken over by Lucas in 1969. This left its mark on the plant, as Grimshaw admitted: "It was just like those old mills - very much a family outfit." This manifested itself in tight little empires around the 31-acre site. Design, drawing, engineering and production offices were scattered, leading to delays as instructions from one office to another were lost in the internal mail.

The very nature of the Fordhouses workload appeared to militate against huge increases in productivity. And in 1988, before re-organisation, profitability per head - at £30,000 - was also too low. A piecework system which rewarded the staff for their output meant that stock control was a particular nightmare. Today Grimshaw describes the plant as a "glorified jobbing shop, making all the bits and pieces." With some 200 customers and over 200 different product lines, this description is an apt one, particularly as the longest production run is no more than 80 of any particular product line a month.

Fortunately, Grimshaw was able to deploy a key Lucas weapon in re-organising Fordhouses: John Parnaby. Hired by Gill in the early '80s to improve Lucas's manufacturing performance, Parnaby has spent his working life running factories, ranging from blast furnaces to chemical works. He knows everything there is to know about the theory and practice of manufacturing after 14 years as professor of manufacturing systems at Bradford University.

Parnaby's first task at Fordhouses was to abolish the piecework system and develop the concept of teamwork. The plant's three unions (APEX, AEU and MSF) were consulted and Grimshaw found them to be "sceptical but not negative. They forced us to demonstrate the need".

The team concept was first tried on the transmission shafts production, where a mini-business run by a small team was created. Within a year, the benefits were coming through in a startling way. Work-in-progress fell from 4,000 to just 300 shafts, deliveries doubled and defects almost disappeared from 35% to 1%. Grimshaw says that today quality control is mainly used to fine-tune products which have to perform to tolerances of thousands of an inch. But spreading teamwork to the whole plant was not painless. The changing culture empowered team members to oversee and inspect their own work. "Our workforce is skilled and didn't need someone looking over its shoulder," Grimshaw claims.

In four years some 500 jobs went, mainly in administrators and overseers. The task required delicate handling to retain the loyalty and goodwill built up by generations of family ties. It was accomplished by care and judicious use of the company's rich pension fund (in stark contrast to the Maxwell rape). "We were able to offer enhanced retirement deals," smiles Grimshaw. Today, profitability per head at the former Fordhouses has more than doubled to £65,000.

The success of the scheme is evident in one workshop where Roger Thomas is checking the first offset gearbox for the new A321 Airbus to come off the line. "I grew up with the guys who've retired and still drink with them," he says. "They're very happy people and Mr Grimshaw is a very popular man." He claims that those who remain are happy with the new atmosphere, too, preferring the sense of achievement at having responsibility for finished products rather than being mere cogs in a machine.

For a showpiece of Lucas Industries, the plant looks remarkably ordinary. The floors are grubby with spilt oil, the walls hung with Page Three girls. A Times article on the Airbus provides the contrast. Thomas's sentiments are echoed across the shopfloor. As they inspect what used to be a 70kg block of aluminium, still dripping with milky lubricant, but now whittled down to half its weight, Dave Nicholls and Stuart McAllister say there has been a revolution in work practices. Instead of the old eight-hour day, in 1991 the plant shifted to 24-hour working from Monday until Friday lunchtime. Though the changes have not meant more money, Nicholls says they are welcome - survival is paramount: "Security is the important thing", he says. "If we win a really big order we've got a job for 12 years."

Perhaps the best evidence for the success of the aerospace division is that Sir Anthony's successor, Tony Edwards, is currently managing director of the aerospace division and due to take over the role of chief executive before Sir Anthony retires at the end of 1994.

Both Grimshaw and Sir Anthony believe that good staff relations are vital to the success of the changes they have made. Although Sir Anthony says Lucas has always been "paternalistic in the best possible sense of the word", the '80s saw a revolution in relations between workers and management. Part of the transition was aided by the Government which he says "changed the environment", but much of it came from the workforce itself: "Employees were aware the world was changing, but no one told them about it and no one helped them deal with the changes," he says. The company set about improving communications and invested in training, both to teach new skills and to help employees with personal goals, the latter with a "Continuing Education and Training" scheme which helps employees with time off and grants. It was expected to have a 5% take-up-rate, but has in fact proved far more popular, with a fifth of the workforce taking part. As a result multi-skilling is now popular (in contrast to the single-skill practices of the '60s) and, according to Sir Anthony, today's workforce is "far more flexible".

But with the second harsh recession in a decade, he says, the firm needs every ounce of commitment. He shudders at the thought of what might have happened if the company hadn't insulated itself abroad. Even so the current trough is much more painful than could have been anticipated. As Sir Anthony remarks bitterly: "Every market has gone into recession simultaneously when everything over the past 20 years told us our markets were counter-cyclical and ought to balance each other out."

To illustrate his point he cites aerospace where all pre-conceptions have been overturned: "Obviously the Gulf hit air travel," he says. Instead of the 5% annual growth everyone had been predicting, the market shrunk by 5%. In theory the company should have been insulated from a civil downturn by its defence work, but this didn't materialise: "The shock was that instead of boosting defence expenditure, the war was fought from stock. But now it's over that isn't being replaced and the civil market is still suffering."

The recession is expected to hit the company hard, according to Zafar Khan, engineering analyst at Societe Generale Strauss Turnbull. Last year's profits were £55 million, but this year he anticipates a trading loss of £10 million, with a final result of £80 million thanks only to a pension fund surplus of £90 million. Khan attributes the results almost entirely to the state of the domestic car industry and is bullish about the company's future. He points out that its gearing at the year end is likely to be about 30% (good for the depths of recession) and that with dividend predicted at 8%, it is an attractive option. "The management has done an extremely good job since the early '80s," he says. "Today's problems are due to markets, not company structure. When the upturn comes, Lucas will easily out-perform the competition."

Sir Anthony is sure the future is bright: "No one has yet thought of a better way of travelling short distances than the car and six out of seven people worldwide don't have one," he says. "The same goes for aircraft and long-distance travel." The company will concentrate on the highest growth areas. These, he says, are electronics and diesel technology for cars and user-friendly electronics in aerospace. Technology is the stake which, he believes, has finally put paid to the "Prince of Darkness".

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Subscribe

Get your essential reading delivered. Subscribe to Management Today