UK: BUTTON'S SHINING EXAMPLE - UCC. - Having a large share of the world market supplying equipment to the hydraulics industry isn't enough for UCC. It wants 10 out of 10, and a gold star.

by Jane Lamacraft.
Last Updated: 31 Aug 2010

Having a large share of the world market supplying equipment to the hydraulics industry isn't enough for UCC. It wants 10 out of 10, and a gold star.

Management Today's reporter has arrived at UCC International's offices in Norfolk by BR and mini-cab. Managing director David Button is mortified. Why was the company Rolls Royce not despatched to save said reporter the ignominy of the Thetford stopping train? 'That hurts me.' Button likes to see visitors to UCC treated more royally. Overseas clients, for instance, are not only met at the airport by chauffeur-driven car, lunched and looked after, but there is even a company helicopter for when the stops really have to be pulled out.

Those who have ever wondered about the derivation of the phrase 'bright as a button' need look no further. An engineer by training and an entrepreneur by nature, Button founded UCC in 1961, building it up from the faltering remains of his father-in-law's south London firm which made 'bits and bobs for anyone' and was - he winces - 'losing money'. Within two years the company had upped sticks to Thetford in Norfolk and had introduced a small programme of products for the hydraulics industry, then in its early days.

Today UCC is in rather better fettle: it is a leading supplier of filtration, pressure measurement and condition monitoring equipment for the hydraulics industry and is, if conventional wisdom is to be believed, something regrettably rare: a British engineering company that not only develops products but also succeeds in exploiting them successfully overseas (exports account for two-thirds of turnover). Rarer still, UCC has managed to make a profit every month throughout the recession without a single lay-off. The group's net profit last year was £633,000 on a turn-over of £12.4 million.

The executive trappings - the offices overlooking manicured lawns, the sporty Mercedes with the registration number 1 BUT - are there to show for it but at 57, Button, who owns 92 % of the company, isn't sitting back and taking it easy yet.'We think we are pretty good but when we mark ourselves against some other companies, phoof.' Among the organisations he cites with admiration are Honda ('for innovation, what a company'); Marks and Spencer ('the quality - fantastic, aren't they?'); and Lexus cars ('the detail'). 'We are always asking ourselves how we can make things better,' he says. 'We are always hunting for new ideas.' To this end, UCC invests more than £1 million a year in research and development. This is entirely funded from earnings: UCC has a no-bank-borrowing policy that dates back to a corporate near-death experience in the recession of 1974-75 when it found itself overstocked, underfunded, in the hands of the bank and 'not in control of our destiny'. To plough such a hefty proportion of gross sales - over 10% - into R and D may fly in the face of the fashion that says if you want it, buy it, but 'we believe in technology,' says Button.'We believe in development. There's a tremendous future out there, even in recession.' One of the more recent fruits of UCC's R and D investment - which bears out Button's view - is an ingenious little black box called the CM20. A portable contamination monitor, it first appeared on the market three and a half years ago and now represents 10% of turnover.(Regular viewers of BBC's Tomorrow's World will already be acquainted with it.) For the hydraulics industry, claims UCC, the introduction of the CM20 meant a breakthrough: the ability to test for contamination in hydraulic oil - one of the major causes of breakdown in hydraulically-operated machines - on site, in just a few minutes, rather than sending samples away for lab analysis. The potential savings in repairs and machine downtime are huge.

For UCC meanwhile, the CM20 meant a sharp shift in company psyche and a steep learning curve: the sales force, accustomed to selling low-cost filtration products from the shop floor up, suddenly found themselves pitching a £7,000 piece of technology to MDs and finance directors. 'It was a quantum leap for us, and a quantum leap in technology,' says Button. It was also a major risk. Customers who trusted UCC's track record in producing the nuts, bolts and widgets of the hyd-raulics industry doubted its ability to provide such hi-tech equipment.

'Their response was, "UCC who? I thought you made little filter things ...",' says marketing director Mark Batting. 'In our main market, the fluid power business, we have to compete on price, but the condition monitoring market (which encompasses not just the CM20 but also the pressure/flow/temperature measuring products that preceded it out of UCC's R and D department) is a completely different kettle of fish. We have had to educate customers about the product, tell them why it's important.' At the same time, the company has had to initiate its own sales staff and distributors into the product's technical niceties.

'Our main market is not a growing market any more,' continues Batting. 'It has become a commodity. A filter is a filter. There was a lot of "me too" we could do but not a lot that's new.' The condition monitoring market, on the other hand, promised not only plenty of potential for growth but there was only one major competitor, the American firm, Hiac-Royco. Sales of condition monitoring equipment now make up 15% of UCC's sales (75% going overseas), a figure Batting wants to see trebled within three years. 'That's a difficult task,' as he admits, but a sizeable contract from the MoD, recently signed and signalling UCC's debut in the UK military market, will no doubt help. Moreover, Batting and Button both believe they have a two-year headstart over the opposition (UCC has 50% of the worldwide market for portable contamination equipment, which it reckons to be worth £10 million) and plan to keep it that way: the R and D team is currently honing two follow-up products which will monitor water in oil and viscosity respectively, the first to be launched by the end of the year.'It's a bit like Lego,' says Button. 'We have the first piece in position and we are building on it.' Competition, particularly from across the Atlantic, is now hotting up but this, he adds, is how it should be: 'If there's no competition, there ain't no market.' No one at UCC pretends that the shift from commodity to capital goods has been glitch-free: 'Anyone who is developing new products has terrible frustrations,' says Batting. 'Anyone who tells me otherwise is not telling the whole truth. You get serious aggro.' In the case of the CM20, the aggro included an abortive first attempt that set UCC back half a million pounds (the project ulti-mately cost £1.1 million). 'We would be foolish if we said we are going to get all our new products right,' says Batting. 'We can afford to try but there are going to be times when we don't get there, the product's not right or the market's not right.' The flip side, of course, is carte blanche to 'price the product at what I think is the market price', says Batting. 'It isn't anything to do with the manufacturing price. Because you lead, you can set your own price. That's the upside of having your own R and D.' Batting points out that profits from the new condition monitoring products have compensated for a fall-off in UCC's core business during the latest economic downturn.

'Without this group of products UCC would have found it difficult to make profits during the recession,' he admits. 'That's what new products give you.' There are lessons here, Button feels, for other industries: 'People say, "There's a recession, what are we going to do?" It's no good saying that then. You have got to be doing that all the time ... We're always looking at new technology. It's critical. If we have got nothing new, where are we going to go?' The company's location in Norfolk has been an unexpected advantage in developing new products: the expertise UCC lacks in-house can usually be found in the science-rich surroundings of nearby Cambridge.

'In the Cambridge area alone we have 20 outside con-tractors doing work for us at any one time,' explains Button. 'We are not strictly speaking a manufacturing company,' he adds. In fact, 38% of UCC's employees are involved in manufacturing/assembly against 27% in sales, 15% in product development and marketing, and 20% in support. 'We develop ideas, assemble them and sell them,' he continues. 'That gives us more flexi-bility. We can use all sorts of technologies that you can-not have in-house unless you are a very, very large company.' This means that UCC's own factory can seem disappointingly lacking in hi-tech machinery: most products, being low volume, are assembled and packed by hand.

Another significant factor in helping UCC to develop and introduce new products like the CM20 is the solid support it has from all 120 employees at the Thetford plant. 'Here we have the backing of all our employees. There's a large element of pride,' states director and general manager John Home. If he is right (a low staff turn-over indicates that he is - UCC reckon to have lost 'no more than two' people they wanted to keep in the last 30 years), it is down to more than the good nature of Norfolk folk: everyone at UCC, from director level to tea lady, gets a monthly sales-related bonus which is allocated in units (the number of units reflecting positions within the company) and which can amount to 15-20% of an employee's income. The more the company makes each month, the fatter the bonus; the thinner the profits, the slimmer the pay packet. 'It's all about incentives,' says Button. 'Why should incentives apply only to sales people? Everyone who comes to work needs to be motivated. You like a bit of motivation - the thing that puts you in gear.

Here, everybody gets the monthly bonus and everybody knows what the figures are.' All the more reason, he stresses, to pay the full bonus every time, no matter how good the month's sales have been. 'There should be no limit. If you get a fantastic month, you have got to pay for it. It's important you don't fiddle around with it.' The more Button pays out in bonuses each month, the happier he is: 'I love it.

If they are doing well, we are doing well. It's the biggest motivating factor on the shop floor and it means that everyone is trying to help our sales guys, trying to co-operate.' Home agrees: 'The whole thing is geared up to sales. Everyone on the shop floor understands that if they make something and it comes back as a customer return, that means a credit note and of course that affects their income.' In addition to the bonus scheme there is a 'no-us-and-them' policy. 'We don't have white-or blue-collars,' says Home. 'No one clocks on. And we have very few directors here who stand on ceremony, who aren't prepared to roll up their sleeves. I don't have a secretary and no one does my filing because I think they've got better things to do.' Combined with the bonus scheme, Home believes that this approach has a knock-on effect on customer care, which is key to UCC's approach. Apart from the 'upfront' attitude to entertaining (the Rolls, the box at nearby Newmarket racecourse, and at one time UCC even tried running its own hotel for visiting clients), the company credo is that taking care of the customer is the best way to take care of business. 'I want 10 out of 10 from my customers, and a gold star,' says Home. To achieve this, he has set his staff some 'single-minded' targets: to turn next-day delivery in the UK to same-day delivery for orders received before 10am, for instance; to respond to all faxes and letters - currently acknowledged within one day - within the hour. Telephone calls are answered within four rings by 'someone who understands that the next call might be our biggest-ever order ... If we can satisfy the customer each time, as soon as possible, he'll come back and he's also likely to listen to us if we go to him with a new product. It sounds trite, I know, but if you satisfy the customer and get it right first time, you don't even have to worry about the bottom line. So it's a never-ending process of trying to make things better.' It's a company ethos that genuinely seems to permeate the organisation but without doubt it begins with Button: 'He'd be a hard act to follow,' says Home. 'All David is trying to do is satisfy the customer. All he wants to know is "where's the bloody product"?' 'We're always turning the wheels,' concludes Button, 'always asking ourselves how we can do better. We've got to, because we're taking on not just UK companies but French companies and German companies and Jap-anese and Swiss and American companies. Phoof.'

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