UK: JOHN WOOD - MAKS A MUCKLE. - Anita van de Vilet discovers how a small family firm was transformed into the UK's biggest indigenous oil-services company.

Last Updated: 31 Aug 2010

Anita van de Vilet discovers how a small family firm was transformed into the UK's biggest indigenous oil-services company.

'I have this corny notion that we, a Scottish company, could be an international force in the oil industry,' says Sir Ian Wood. 'There have been some great Scottish companies over the years, and we want to be one of them.' Wood is chairman, managing director and majority shareholder of the John Wood Group. A lanky, unaffected 52-year-old, he is also Scotland's leading entrepreneur and one of the country's most prominent industrialists. Over the past 30 years he has transformed what was a tiny family business into the UK's biggest indigenous oil-services company. And while the group's modest headquarters on the East Tullos industrial estate in Aberdeen are hardly reminiscent of the palatial splendours associated with the international oil industry, if you look instead at the group's growth record, Wood's dream of leading it into the world league does not seem corny at all.

The story of the metamorphosis of the John Wood Group is a story of vision, ambition, opportunism and determination, laced with a healthy dose of caution and good sense, and underpinned by sheer hard work. It nearly didn't happen at all. In the summer of 1964, the young Wood joined his father's ship-repair and fishing business, intending to stay for a few months to help out his father, who was unwell, and to see what business was really like, just in case.

He had a first-class honours degree in psychology from Aberdeen University, the offer of an assistant lectureship, plans for a PhD, and a mother who wanted him to become a professional. He also had certain preconceptions about business people: that they were 'soft, spent their time on the golf course and lived off the workers'.

In the course of the summer, both academic plans and prejudice melted away. 'I discovered that business was about making things happen, about changing things,' he recalls. It was about motivating people - precisely the interest which had prompted his field of study at university. 'I'm desperately interested in people,' he says. 'People like to be involved in discussions, in taking decisions. Everyone is an individual, and likes to know what part they're playing.' In his case, as an avowed workaholic, business was also about extraordinarily hard work - from the start he has worked a 16-hour day, apart from Saturdays and Sundays (his thinking time, he says), when he knocks off in the early afternoon. And it was about meeting the discipline of the bottom line, being measured and assessed by figures, which he found he enjoyed. He quickly picked up the principles of business. 'I never had any formal management training,' he says, 'but in the early days I learned about the commercial and financial side from Edwin Garret, our extremely able finance director until the mid-'80s.' His main adviser from outside the company was to be Ewan Brown, the second in command at merchant bankers Noble Grossart, who joined the board in the early 1980s. And in general, Wood adds, 'I'm never scared to admit that I don't understand something. I ask people to explain complex engineering ideas, for example; and if they can't make it clear it may be because it's not such a good business idea.' So it was, back in 1964, that his holiday job turned into an agreement to stay on for a year. By then, all thoughts of an academic career had faded for good. However, his interest in education has been channelled into his membership of the Scottish Higher Education Funding Council, one of Wood's many external responsibilities: he is very much an industrialist with a social conscience and, like many Scotsmen, with a sturdy loyalty to his region. 'It's not patronising or corny to say that we should all be trying to help the community we live in,' he says plainly.

He started expanding the company soon after he joined, and by the time he took over from his father as managing director, in 1967, he had increased the company's fleet of trawlers from six to 20, and multiplied the workforce of 90 by five. The next year he moved into fish processing, and then into general marine engineering. By 1970, he judged that it was time to regroup the four or five disparate companies which had grown up, dropping the slightly old-fashioned name of John Wood and Son, adopting the new name, the John Wood Group, and introducing the first board of directors. 'It meant that, from the first, the four or five senior managers were planning for the group as a whole, not just for their own companies,' he says.

That growth was about to flow in unexpected directions. In 1969, the first oil in the North Sea had been struck, followed by the discovery of the huge Forties and Brent fields over the next two years. But, Wood recalls, at the time the Aberdonians did not, on the whole, realise the extent of what was about to unfold. They heard reports of rigs rising offshore; they marvelled at the dollar-laden Texan drillers swaggering through their city; but they had no idea of the huge - and international - potential of the oil industry.

Wood himself thought the newcomers might bring in some useful work - a demand for accommodation and warehousing, perhaps, or equipment hire. Rather to his father's alarm, he bought a shipbuilding group, John Lewis and Sons, for £1.1 million - a huge sum for a small family company, he points out. 'The acquisition was quite a traumatic affair,' he comments, 'but it was also a real strategic move: we didn't want a shipbuilder, we wanted its quayside facilities and large workshops.' But it was only on a visit to Houston in 1972 that he really got some notion of the scale of the new industry. 'Houston was a revelation,' he says. I came back, and said, "Things are going to have to change. This isn't an add-on business - we're going to have to build new facilities, bring in new management, form new companies." ' He embarked on a drive to extend the range of oil services offered, to include engineering, fire protection and offshore contracting in addition to the logistical activities already provided. New companies were formed and new people recruited to run them. Entrepreneurialism reigned, encouraged by the emphasis on decent-ralisation. Comments group director Bill Carr, who joined in 1975 from Weir with the brief of leading the group into engineering: 'We paid the cost penalty for this decentralisation in the early days, paying five general managers to run five fairly small companies,' he says. 'But giving them real responsibility, meant that the companies grew more quickly.' This decentralised approach, he maintains, meant that the group attracted talented, ambitious people. 'We could offer them a challenge. We said, "Get in there, and make something happen. Build something, create something." ' And so, evidently, they did.

Wood's determined expansion into oil services was carried through, despite opposition from some quarters. On the one hand, the people still engaged in the company's traditional fishing and ship-repair activities were aggrieved to see all the attention - not to mention the higher salaries - going into the oil services side, particularly since they were providing every penny for the new investment. And even closer to home, Wood's father was unhappy about the new direction the family firm was taking.

Wood remembers taking him in 1975 to the first oil exhibition in Aberdeen, where the company had taken a big stand in its efforts to make a mark in oil services. His father stared, aghast, and asked how much it had cost. On hearing the price, he shook his head in dismay, pointing out that in his day he could have bought two fishing vessels for the sum. 'Do you really know what you're doing?' he asked his son.

Indeed, whatever the reply he gave then, Wood now disarmingly volunteers the information that his company did in fact enter the oil-services business in a spirit of 'ignorance and bravado'. (Some 10 years later, he adds, it entered the US market in the same mode.) It is only in the past four or five years, he says, that he and his colleagues have become genuinely knowledgeable, because the group has begun to lead in some areas of the business: 'We are world leaders in sub-sea and pipeline design, in engineering modifications - we played a role in rebuilding the Kuwait oil industry - and in gas turbine repair and electric submersible pumps.' In the early days, mistakes were made out of sheer enthusiasm - setting up the Wood-Weir joint venture for pump servicing in the early 1970s, for example, only to discover that it would be two years before the oil companies would be needing any such service. 'So we had to find other things to do, such as downhole technology and blow-out preventor stacks - things we'd never heard of,' recalls Carr cheerfully.

As this comment suggests, however, there may have been 'mistakes' but they were always recognised and usually turned to the company's good. Wood provides another example. In 1984, the group made its first acquisition in the US, when it bought 50% of Geolograph Pioneer. This was, he says, an acquisition made for the right reasons - namely, the pursuit of technology and of international spread - but 'in retrospect, it was not a clever choice', not to mention the fact that the First National Bank of Oklahoma, from which Wood had borrowed $8 million to finance the acquisition, went bust three years later. But after tortuous and tough negotiations, Wood managed to secure a deal whereby he repaid only $4.5 million, refinanced the company, entered into a joint venture, and eventually sold off Geolograph at a profit.'We did quite well out of it,' he remarks with a certain satisfaction.

Indeed, the only mistakes that may have left a lingering sense of regret are the opportunities missed rather than the excessive risks taken. Thus, after the collapse in the oil price in 1986, when everybody had lost confidence in oil, the group managed to stay profitable and could have made significant acquisitions, such as buying an oil-exploration company, Expro, for just £2 million (now due to float at a value of £100 million). But at that time there was no guarantee that the oil industry would recover, Wood points out. And prudence, which he describes as 'the Scottish streak in me', has served the group well, overall. First, there is the financial prudence that prevails in the balance sheet. The group invests very heavily in both tangible fixed assets and acquisitions - £16 million last year, £17.3 million the year before, £11.5 million the year before that - but has no net borrowings, ending 1993 with £3.6 million cash. Then, too, as Carr says, the group adopted a relatively cautious approach to moving into the oil-services business. 'Our real strategy was different from the other big companies, who concentrated on the large construction projects in the North Sea. These are subject to peaks and troughs; they bring the big rewards but also carry big risks. We wanted to go step by step, building up a full range of quality services.' The emphasis on quality was not as commonplace in the early days of North Sea oil as you might expect, he says. And when, after the 1986 collapse of the oil price, the oil companies started to contract out many of their activities, the group was well placed to pick up the business.

Wood believes that the group should double its sales every three or four years. 'Over the past 20 years we have increased our sales by a compound 20 or 25% a year,' he says. This sort of expansion brings with it the periodic need for restructuring. At John Wood Group, reorganisations are much more than paper exercises, he stresses. 'One thing we miss by being a private company is the switch around of managers across the group; so we have to produce our own stimulation. This comes from looking at our structure and trying to make it more effective.' So, although the company remains family-owned (Sir Ian and his family own 73% of the shares), the reorganisation in 1970 marked the transition towards behaving like a public company, with all the financial and management disciplines that this entails. The next realignment, in 1982, was equally significant. This demerged the John Wood Group, focused entirely on oil services, from the traditional ship-repair and fishing activities, which went under the new banner of JW Holdings. Both sides were eager for the separation, says Wood. With a new board established for JW Holdings, the company was 'back in control of its own destiny and investing new money again'. And the oil side of the business, meanwhile, was no longer seen as a fishing company that had somehow got into oil.

This year, the group has undergone another major reorganisation, aimed at fostering the international spread of the business and at boosting diversification (both key principles for the group). Wood and his colleagues have cut the former seven divisions down to four - engineering and logistics, the largest, which mainly serves the North Sea, although there is an international dimension in its design business; gas turbines; fire and safety; and drilling and production services. The last three are very much overseas-oriented. (The group now derives 18% of turnover from the US, and 11% from the Middle East and South East Asia) 'The North Sea division can now concentrate on the challenges of the North Sea, which are great,' comments Wood, 'while the diversified businesses are given separate attention.' Whereas formerly the group board did all the serious strategic thinking, now the four divisional boards are responsible for their own strategies. The new structure, in other words, reinforces the group's decentralisation philosophy. 'Now we ask each business how it is going to double sales in three to four years? There are four sets of thinking and planning. For the group to get up to sales of £500 million, we had to restructure,' Wood insists.

At the same time, careful provision has been made for communication across the four boards, through cross-membership. Flexibility and the ability to make fast decisions are invaluable, Wood says, in beating bigger competitors when making acquisitions. And acquisitions have been crucial to the group's growth. 'We've been very good at organic development acquisitions, of small-to medium-sized companies (chosen for their technology, expertise and management) where we can add value, through providing finance, marketing support or other specialist skills. We never buy anything just to get rid of the competition: that's simply negative.' In addition, he says, whereas in the early days there was a dash of opportunism in the group's approach (and opportunities to match), now the approach is more considered: 'You cease being opportunistic and say, these are the things we're good at, that's what we need.' The progress of the gas-turbine division under Tom Motherwell (also formerly a Weir man) illustrates the group's acquisition strategy well. Gas turbine repair and fuel systems were originally a small part of the group's engineering activities. In the late 1980s they were growing faster than the other oil-based services; and the growth forecast for the sale of new industrial gas turbines remains good for the next decade (7% compound growth). So in 1988 gas turbines were split out as a separate division; in 1989 the group acquired Lincoln Turbine Services in the UK; the following year, it bought a company in Connecticut, which handled fuel for flight systems and thus took the division into the huge aerospace market, if only in a small way as yet. A joint venture with Rolls Royce in 1990 boosted turnover (and the division's technical credibility); and by 1993 the division's turnover was close to £70 million (80% of this unrelated to the North Sea). As part of the drive to double this, it has this year acquired two companies: GTC, which takes it into the heavy industrial turbine repair business, the fastest-growing sector; and Shamrock, which specialises in repairing Solar turbines at the small end of the range. These two acquisitions extend the division's range, and add £28 million in turnover. The turbine division brings the new members of the group, particularly Shamrock, much greater marketing scope, says Motherwell.

This year, says Wood, the group has already spent £13 million on acquisitions. So far, there has evidently been no difficulty in funding them from retained profits. Should the occasion for a really sizeable acquisition arise, Wood would consider a flotation; but he is very conscious that 'going public brings huge responsibilities and, for most companies, shorter term horizons', and is not keen to rush into the fevered atmosphere of the stock market. He also believes that a serious flotation requires a company to make pre-tax profits of around £30 million, rather than the £19 million achieved in 1993.

And, what, meanwhile, has become of the family fishing business? Well, Wood remains chairman of JW Holdings, and the company remains close to his heart. This is partly for 'semi-sentimental reasons': my grandfather was a fishing skipper; we're very much a fishing family. And if you run it well, it's a good business to be in.' (JW Holdings today is one of the biggest fishing and fish-farming companies in Scotland, making around £1 million profit annually.) But Wood's allegiance to the company is also, he says, inspired by his belief in the vital importance of maintaining a diverse economic base in the north east of Scotland. 'I chair Grampian Enterprises, and its prime task is to get the most out of oil and to maintain a broad economic base in the region,' he points out. 'Our generation had this amazing opportunity with the discovery of North Sea oil, and we owe it to the next generation not to squander it.'

A tale of family, fishing and striking oil

1912: William Wood and Lex Davidson set up Wood and Davidson, an engineering firm servicing Aberdeen's fishing fleet.

1934: John Wood, William's youngest son joins the company.

1956: John Wood buys out Lex Davidson's 66% shareholding.

1964: Ian Wood, John's son, joins John Wood and Son.

1966-72: Group develops fishing-related activities, and buys Allan and Dey.

Establishes activities outside fishing. Buys John Lewis and Sons, an Aberdeen-based shipbuilding group with harbour facilities.

1973-80: Develops oil-industry activities. First major offshore contract, worth £6 million, awarded by Shell (1979).

1982: Demerges activities into two groups - JW Holdings (fishing-related) and John Wood Group (oil-related).

1982-94: John Wood Group develops in three areas: North Sea oil and gas, international oil and gas, and non-oil.

1994: Group restructures into four businesses: engineering and logistics, gas turbines, fire and safety, and drilling and production services.

Many a mickle

Turnover by division 1993 (£m):

Engineering + Logistics 141.0

Gas Turbines (inc.joint ventures) 76.6

Fire + Safety 14.8

Drilling + Production Services 56.6

Total 289.0

Turnover/profit by location of client (£m):

Turnover Profit

Europe 173.2 12.5

North America 42.9 2.8

Rest of the world 25.8 0.1

Assoc. undertakings, etc 47.1 3.7

Total 289.0 19.1

Number of employees 3,200.

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