Government-owned, it was a disaster; in private hands, the aerospace supplier is a pacesetter.
A few years ago showing visitors around the Short Brothers aerospace factory in Belfast required ingenuity. The skill, says Rona Fairhead, Shorts' vice president (marketing and strategy), lay in devising a route that avoided the buckets. The buckets were there to catch the water that poured down from the leaky roof.
'It was terrible,' says Fairhead. 'There'd been no money invested. The average age of our machinery was more than 25 years and some equipment pre-dated the second world war.' It wasn't just the infrastructure and machinery that left a lot to be desired. The company had an owner - the Government - which seemed pathologically disinclined to take any decisions and managers who felt (and often behaved) more like bureaucrats than businessmen. It also had deeply disaffected customers. By the end of the 1980s both Rolls Royce and Boeing had warned Shorts that they were becoming exasperated. As a senior purchasing man at Boeing put it in February 1990 (Fairhead knows the quote by heart), 'I can't take any more "good news" from Shorts. If you guys don't want this business, just tell us.' Rolls had delivered a similar warning a year earlier. Shorts was supplying the nose cowls for the RB211 engine. 'They were very close to taking all the work away from us,' says Chris Melrose, vice president in charge of Shorts' Nacelle Systems Division, which makes the cowls and other bits of engine casing. 'They said our quality was a disaster, our programmes were a disaster, everything - our cost structure, our focus on the customer - was a disaster. We were late, poor quality, over cost - everything was bad.' Four years on the situation is very different. The company, which was privatised and sold to the French-Canadian transport equipment group, Bombardier, at the end of 1989, is nearing the end of a £200 million investment programme and instead of being a pariah is now held up as a role model for other aerospace industry suppliers. Its rating on Boeing's 100-point 'supplier satisfaction' scale is now 97%, compared with 52% a few years ago.
The transformation is reflected in the accounts. Persistent loss has become consistent profit: a 1988 loss of £47 million has been turned into profits in the last three years of £26.5 million, £28.5 million and £28.2 million respectively. Roy McNulty, Shorts' softly-spoken president who led the renaissance, remembers the bad old days very clearly. He has a favourite cartoon to remind him of them. It shows two men in a large none-too-busy-looking office, one of them explaining to the other, 'Basically my job is to receive the buck, make copies of it, classify it, cross-reference it, and then pass it on.' There is a grain of truth there, McNulty concedes. 'It's a travesty as a statement of what it was all like, but there was a bit of that in our mentality. When you're dealing all the time with the Government it's inevitable that you become like that.' To see the difference, he suggests, you only have to compare attitudes towards investment before and after privatisation. Under Bombardier, Shorts has rebuilt its machine shop at a cost of £35 million and is already getting an excellent return on the investment. In the previous 20 years management had submitted similar plans to the Government three times but without success. 'Always the answer, after a prolonged period of thought, was "Now is not the time". That sort of thing has a big effect on people's attitude to life ... If you know that no matter what case you put forward probably "now is not the time" then that has a very demotivating effect.' It left people with what Ken Brundle, vice president of the aircraft division, describes as a civil service mentality. 'The cultural attitude in the company was completely wrong,' says Brundle. 'The alignment of responsibility and accountability didn't exist. We operated as a centrally controlled company where decision-making all came from the top and there was a great belief in the company that, whatever we did, the Government could never close us down.' One of the surprises of the Bombardier takeover in October 1989 is that, recognising as they must have done that McNulty and his senior colleagues had lived under and accepted this sort of regime for many years (McNulty, for example, had been there since 1978), the French-Canadians did not throw them all out and start afresh. Instead Bombardier seems to have realised that it had an undervalued asset on its hands - a management team that wanted to be entrepreneurial and had the capacity to be so but had never been given the chance.
But perhaps it is not so surprising after all. Bombardier's history is one of buying companies not to change them but to let the management in place get on with the job.
'If you look at most other Bombardier acquisitions,' says McNulty, 'you don't see hosts of people parachuting in from outside.' The Bombardier team spent a lot of time talking to McNulty and his senior colleagues, trying to gauge whether they really knew how to turn the company round and whether they were committed. 'In the end their answer to both those questions was "yes".' A key piece of evidence in Bombardier's evaluation of Shorts was the game plan drawn up and already partially implemented by McNulty in the two years before privatisation. As managing director-designate in 1987 he was given a year to ponder Shorts' future.
Convinced that its problems were almost terminal, he proposed radical solutions: investment, of course; a total restructuring of the organisation into autonomous business units (aircraft, nacelles, defence) rather than the old functional divisions (manufacturing, sales, marketing, purchasing); and a massive total quality management (TQM) programme to re-energise jaded managers and workers and to reduce the cost of poor quality within the company.
At which point, ironically, the Government pulled out. 'In July 1988 we read in the newspapers, without any prior warning, that the Government had decided to dump us.' The Times report of the event talked of 'exasperated' ministers and officials and a 'bubble of complacency' that must be burst. McNulty smiles at the cynicism, the sheer effrontery of it all. 'This minister, off the record, briefed the journalist on "a management that leaves a lot to be desired" - which was us. It was really pleasing.' Bombardier saw things differently. It bought the company and backed McNulty. The early years' results would seem to have vindicated its faith. The re-equipment programme has totally changed the way Shorts operates. For instance, before 1989 almost all high value added work had to be done outside the company by specialist sub-contractors, nearly 130 of them in total. Shorts simply didn't have the facilities to cope with complex parts itself. Today, after re-equipment, it has cut the number of sub-contractors by three-quarters and now keeps most of the high value added work in-house. It has also arranged that many of the sub-contractors who remain are local, so Shorts always has them on a tight rein.
The effect of the policy has been to shorten lead times dramatically. For example, Shorts makes a complicated wing component called a sidestay bracket for the Dutch aerospace company, Fokker. Pre-1989, much of the work was done by sub-contractors, the component shuttling between Belfast, Birmingham, Blackpool and Liverpool. Today most of the work is done in-house.
'The total process used to take 78 weeks; today it's down to five,' says McNulty. 'That's not untypical. We were so lacking in the processes to do the whole job that almost every part was condemned to that mammoth journey in one way or another.' The investment programme was obviously a sine qua non of recovery, but it was only part of the turnaround strategy. Equally important was to change attitudes.
Some of that flowed naturally from the change in ownership, the alteration of the climate from that of a slow-moving, government-owned institution to a commercial, bottom-line driven company. But there was also a more directed, more calculated attempt to change the ethos of the company through the total quality initiative. This had in fact started in 1987, well before privatisation, and was beginning to gather pace by the end of the decade. It is now a main plank in McNulty's strategy for the future.
Philip McBride, manager of Shorts' total quality centre, estimates that in the six years since TQM was introduced the workforce (both management and shop-floor workers) have been involved in more than 1,300 TQ projects, resulting in cost savings of more than £46 million. TQ gives everyone a stake in the company, says McBride: 'We're trying to motivate our people, to tap into their talents and give them the relevant simple tools and techniques so that they can improve their part of the business. The workers know that in a lot of cases the processes are just not up to the mark and they can use their knowledge to actually fix those processes.' Recently, for example, a sheet metal worker and two of his colleagues in the aircraft division, frustrated by what they saw as the sheer inefficiency of the traditional method of drilling fuselage panels, devised a new one. The new approach cuts the man-hours needed to drill the components from 321 to 64 - an 80% reduction - which means a saving of £3,000 per fuselage.
A new element of the company's near-obsessional pursuit of quality is benchmarking which McNulty describes as 'the continuous improvement of what we do by learning how others do it'.
Shorts got into benchmarking about 18 months ago largely as a way of gauging how well it had spent the first tranche of its £200-million investment kitty and whether it needed to change tack at all.
'We started to look at where we were in the capital plan,' says Brian Little, vice president and general manager of the manufacturing division, who has been largely responsible for the programme. 'Roy McNulty wanted to look at where we were in terms of the money that remained to be spent, to ensure that we were spending it on things that we felt were still appropriate. In effect we started to look outwardly at what is world-class performance, what are the standards we should be competing with. It wasn't because we'd run out of ideas of what to do but because it was another way of re-energising the place. That's a big, big issue for us now.' The company has done two benchmarking studies so far, one on manufacturing processes, the other on corporate services. In the first it took seven key manufacturing processes, such as composites fabrication and metal bonding, and compared itself with 28 competitors worldwide. The survey showed that Shorts was 'world-class' in five of the seven areas but had some way to go in the other two.
Benchmarking is not simply a self-congratulatory exercise. Though he will not name the processes where Shorts failed to come up to scratch Little intends to use the information he gleaned to haul the company up to the best standards in those areas. In one of the two, he says, the message was, 'Here's an area where you can be world-class, but you're a million miles away from it and you need to do significant things to be able to be so.' It is not, incidentally, just the aerospace giants who provide Little with the data for his benchmarking exercises. He has also recently sent teams into a local bakery to study how they use their ovens - baking bread is, apparently, very similar to curing composites in an autoclave - and into a garment factory to study materials flow.
Little thinks that benchmarking has helped maintain the momentum for change that is essential if the turnaround at Shorts is to be sustained and consolidated. If anything, now, he thinks there may be a need to accelerate the momentum 'to make sure we don't believe that we have arrived and can just sit and relax'.
The consensus in the boardroom is that even if they wanted to they dare not ease off since there are hard times ahead in both their major markets - defence systems because of the worldwide cutback in defence spending, and aerospace because of the recession.
The airlines have gone through a tremendously difficult three years and aerospace is beginning, after a lag, to feel the effects, says Ken Brundle. 'Last year Boeing produced more aircraft than any aircraft producer has ever produced in a single year. This year Boeing, Airbus and Fokker - for us the three big players - have cut their programmes by an average of one third.' The challenge for Shorts, then, is to maintain the progress it has made though probably with less throughput in its plants.
'Our fixed overheads are still there. We've got to contain these. We've got to get leaner, we've got to get meaner, we've got to protect our competitive position.' But even that will not, in itself, be enough, says Brundle. 'Being a best-cost producer is a prerequisite for survival, but it doesn't ensure survival. You have to have a good business strategy to go along with that and in our terms that's our business relationships through alliances and partnerships.' Shorts is pressing ahead on several fronts simultaneously: direct contracts for major aerospace companies like Boeing; participation in Bombardier group projects like the Canadair Regional Jet and the Learjet 45 business jet; risk-sharing partnerships like that with Fokker of Holland and Deutsche Aerospace of Germany in the Fokker 100 jetliner; and, increasingly important, alliances with other specialists where complementary skills and technologies can be combined so that the whole is greater than the sum of its parts.
Such alliances will play a vital part in the future development of the company. The strategic alliance between Shorts and Hurel-Dubois of France to build nacelles is a good example. Boeing has the largest share of the nacelles market, followed by the Californian, Rohr. Up until now, Shorts has had only about six to seven per cent of the available market and has concentrated on what is known in the business as the 'cold end' - things like the fan cowls - while H-D has specialised on hot end technologies at the rear, particularly thrust reversers. Put the two together and you can offer yourselves to engine and airframe manufacturers as a single supplier. By offering the total nacelle Shorts believes it can probably get about 20% of the market within the next five to seven years.
Similar alliances are being developed in defence systems. Shorts is strong in very short-range air defence missiles, says Rona Fairhead, but it realised that customers were increasingly going to be looking not just for missiles on their own but for complete defence systems. It has formed a joint venture with the French company, Thomson-CSF, which is a leader in defence electronics and is now offering missiles, command-and-control facilities and automatic firing posts, all in one package. 'It's a multi-billion pound market,' says Fairhead, 'one of the few areas that's either remained stable or even grown slightly.' The next few years will test the post-privatisation Shorts. However tough it gets Roy McNulty is determined not to let the pace of change slip.
'One of our top priorities is to, if anything, accelerate the momentum of change. I believe there's nowhere else which in four years has changed as rapidly and as well as this place has. A lot of people who've visited us in the last year or so and who knew us in the pre-privatisation period are just staggered when they go round, not least when they meet the same people and see the difference in them and the difference in motivation and keenness to see the place improve.'
SHORTS' HISTORY
1901: the Short brothers (Eustace and Oswald) enter aviation, producing aerial balloons at Hove, Sussex.
1908: they are joined by elder brother Horace and the following year receive the world's first aircraft production contract - an order for six biplanes from US aviators Orville and Wilbur Wright.
1932: Shorts' Sarafand flying boat, the largest aircraft built to that date, is launched.
1937: Shorts, in conjunction with shipbuilders Harland and Wolff, establishes an aircraft factory on the shores of Belfast Lough.
1943: taken into government ownership.
1948: design and manufacture transferred to Belfast.
1952: first of the Shorts-built Canberra jets flies.
1957: maiden flight of the Shorts SC1, world's first fixed-wing, vertical take-off and landing aircraft.
1967: Skyvan 3 light transport aircraft introduced.
1989: acquired by French Canadian group Bombardier and returned to private sector.
A common-sense approach to sectarianism.
Shorts was not thrilled to be described by a Financial Times headline writer recently as a firm 'under Catholic ownership in a Protestant bunker'.
East Belfast is, of course, mainly Protestant, and Bombardier, which bought Shorts from the Government in 1989, is undoubtedly French-Canadian and many French-Canadians are Catholics.
But the implication that it was Bombardier's intercession that had significantly increased the proportion of Catholics employed at Shorts is wrong, says Shorts president Roy McNulty.
'We're owned by a company that's run by businessmen, not by people who have any particular religious bias either way. They're here to see this place become a successful business and that's their one and only interest in life.' The proportion of Catholics in the workforce has increased, but over a much longer period than the four years of the Bombardier ownership.
At the start of the 1980s, says Brian Carlin, vice-president (human resources), it was probably around 3 to 5%. Today it is about 13.5%. Catholics represent about 25% of the Greater Belfast population so there is still some way to go. What has been achieved to date, says Carlin, has come about not through quotas - holding open a specific number of jobs for the religious minority - but by ensuring greater equality of opportunity. For instance, in the old days anyone could walk in and get an application form for Shorts 'on spec'. Because news of vacancies often spread by word of mouth and the mouths were predominantly Protestant there was a bias. Today all vacancies are advertised in three established newspapers serving both communities.
Shorts has identified and eliminated other, less obvious barriers. For instance, Catholic schools used not to teach engineering drawing, yet Shorts required it as a qualification for school leavers - it doesn't any more.
For the most part, the troubles have passed Shorts by. There was one difficult incident - the so-called 'flags and bunting' affair in 1987 - when Shorts closed the works down for four or five days rather than let Loyalists continue to put up their traditional flags and bunting. The affair seems to have been a watershed.
'It would be fair to say,' says McNulty, 'that the whole phenomenon in Northern Ireland by and large has been kept out of the workplace. 'There's just a basic common sense that people realise that if this sort of thing gets started in the workplace it could destroy the company.'.
