UK: OPENING MINDS ON CLOSURES.

UK: OPENING MINDS ON CLOSURES. - The reasons for closing a company down may not always be as bleak or as simple as the cold facts suggest. Tom Lester sees another side.

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Last Updated: 31 Aug 2010

The reasons for closing a company down may not always be as bleak or as simple as the cold facts suggest. Tom Lester sees another side.

On 30 September this year, the lathes in the factory that produced Britain's first torpedoes more than a century ago will spin to a final halt, the power will be turned off, and the padlocks put on the doors. One more bastion of Britain's industrial base will be handed over to the estate agents, perhaps for redevelopment as a hyper-market or leisure complex, and the economic Jeremiahs will find fresh grounds for pessimism.

Who, if anyone, was to blame? Closure, in most minds, spells failure - managerial failure. But is blame always appropriate? A close examination by Management Today of three recent, randomly selected closures reveals a picture that is neither as bleak nor as simple as the cold facts suggest. Indeed, far from hurrying to shut up shop when things get tough, British managers could be accused of being too hesitant to close down capacity when a realistic assessment of the prospects points in that direction.

No simple equation explains why management's last resort becomes the chosen route. Redundant capacity was one of the few common threads to run through these three random examples. The Ferrybridge Works in Weymouth, formerly a torpedo-maker, has latterly been producing diesel engine components as part of T and N's Piston Products Group. The group's other plants, at Sunderland, Bradford, Bridgwater, Salisbury and Ringwood have ample capacity between them, rendering Ferrybridge redundant. The Swan kettle factory in Birmingham, has been owned for the past five years by Moulinex. The French small appliance manufacturer is itself now suffering from severe overcapacity in Spain and Germany as much as in France and Britain. The third case is that of one of ICI's plants at Hillhouse, near Blackpool, where the 80,000 tonnes of chlorine it produced annually until last year is now supplied from Runcorn, without the need for extra investment or jobs.

None of the three closures, therefore, has entailed any reduction in output to speak of, although Moulinex has transferred plastic electric kettle production to France. Production technology and improved methods have combined to allow major increases in output, raising labour productivity and - often more significant - asset utilisation. At the Ferrybridge works, the workforce fell from around 1,000 in the mid-1970s to only 300 in the early 1990s, while output remained roughly constant. At the Hillhouse plant, there were 256 electrolytic cells in use, each producing 312 tonnes of chlorine annually.

The cells in ICI's latest plants produce 4,000 tonnes annually. The cut in fixed costs alone resulting from the closure of one complete production unit would probably justify the move.

Natural disadvantages was another common theme of these three closures. The Swan factory, originally Bulpitt's, is over 100 years old, situated on a steep hill not far from the centre of Birmingham. It dates from Birmingham's great days in the hardware business, and by coincidence, it also made torpedoes during the second world war. But it is on at least four different levels, with congested streets on two sides. The Ferrybridge site is no better: the works are right on the edge of Portland Bay to suit the testing of torpedoes, and near where the Admiralty's underwater research was centred until recently. The site is also on several levels, and is bounded by water on three sides. Access is down a narrow, winding street, and just-in-time deliveries to customers in the Midlands could involve a 400-mile round trip. The Hillhouse plant is the most modern of the three, but even that was inherited by ICI from the Ministry of Supply shortly after the second world war. The chlorine was needed for bomb-making materials, and its location owes more to nearby supplies of sodium chloride and to security from Nazi air raids than proximity to major markets. In the ensuing 50 years, the plant was gradually overtaken by technological progress, and the cost of upgrading it to meet new performance standards and environmental regulations became progressively uneconomic.

Blame for poor sites and redundant capacity may not, in fairness, be laid entirely at management's door. Strategic shortsightedness is a different story. Indeed historic managerial myopia, at Ferrybridge and Swan, has proved an insurmountable obstacle for the current management team. Decades without strategic planning has effectively scuppered Ferrybridge's chances of survival. Owned by Vickers until 1967, it was then saved by Wellworthy, a private south-coast engineering company (later part of Associated Engineering and thus part of T and N) that needed additional capacity in the area, and was prepared to ignore its dilapidation. Three years later, following a change in Wellworthy's policy, half the Ferrybridge skilled workforce was made redundant. In the 1980s, AE merged Wellworthy with another subsidiary, Hepworth and Grandage in Bradford, and Ferrybridge became one of a total of seven plants making up AE Piston Products. Only under T and N's guidance, it seems, have the makings of a robust international strategy begun to emerge - too late for Ferrybridge.

Swan was in the same position as Wellworthy, with no international ambitions to speak of until the last five years or so, and therefore vulnerable to multinational competition. The Birmingham factory was the principal Swan kettle manufacturing facility, and when Moulinex bought it, the initial intention was to exploit the European single market by rationalising all the group's small appliance production among its 23 European manufacturing sites. Toasters went to Spain where facilities were better, but kettle production was centred on Birmingham, the UK being by far the largest European kettle market. More than £10 million was invested on new plastic moulding machines and other improvements there. The recession has forced capacity cuts, and Moulinex found it could do without Birmingham's problems. Cynics concluded that Britain was being paid back for Hoover's parallel decision to move all its vacuum cleaner production out of Dijon and into Cambuslang, near Glasgow.

The cases reveal, in some details, a lack of strategy and vision - a degree of which, however, may be attributed as much to the political and social conditions of the time as to the failure of individuals. It is significant that a common factor in all three cases was the emergence of a management buy-out, with the encouragement if not actual assistance of the parent. None of the MBOs, however, is taking on any of the old businesses head-on, nor are they likely to rival them in size. If the old businesses had really been viable, they would probably have survived even with a modicum of management neglect.

Closing down does not always spell failure. In some cases it can be viewed as the inevitable conclusion to a long business life. And while the human cost of closure, emotional as well as financial, can never be underestimated, nor should the social and economic costs of maintaining obsolete facilities - and not investing in replacements. When managements fight to keep plants running they may merely be delaying a merciful release.

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