Glaxo Chief Named As Top Industrialist in Captains of Industry Survey

Introduction

• This report presents findings from the 1998 version of the annual survey conducted by MORI (Market & Opinion Research International) among Britain's Captains of Industry. The survey is sponsored by a number of participating clients.
• This volume contains some of the general findings, a section of attitudes towards the use of consultants, and specific question areas approved for release by the sponsoring client:
  • Business regeneration (on behalf of PricewaterhouseCoopers)
  • Innovation (on behalf of 3M)
• Finally, the report contains Captains' nominations for the 'most impressive industrialist' in Britain.

Business Regeneration

• Over 10% of sales by leading UK companies "destroy shareholder value" warns PricewaterhouseCoopers.
• Eleven per cent of total sales by leading UK companies are generated within business units that are earning less than the cost of running them, thus destroying shareholder value, according to research among directors of 97 UK companies commissioned by the Business Regeneration team at PricewaterhouseCoopers.
• The research, part of MORI's recent Captains of Industry survey, examined the scale, causes and treatment of underperformance in UK companies. Of those directors interviewed, 19% had no idea what percentage of sales in their organisations derived from under-performing business units and 26% stated that the organisation had no under-performers.
• Of the remaining 54%, the most frequent estimate of sales in under-performing units was in the range 1% to 15% of total sales. The average across all directors giving an estimate was 11% of total sales. The average number of under-performing business units was three.
• "These survey results confirm that under-performing business units are a common and persistent problem in large companies. And this is in spite of a constant stream of business unit disposals: around 700 took place in the UK in 1997" notes John Soden, co-leader of the Business Regeneration team.
• Identifying the causes of under-performance, the directors interviewed mostly pointed to deteriorating market conditions combined with inadequate management skills in the business unit. Seventy-seven per cent attributed under-performance to external factors. Of these, 73% blamed competitive/market conditions while 23% mentioned exchange rates.
• Fifty-five per cent attributed under-performance to internal factors. Of these, 49% blamed under-performance on lack of appropriate skills in the business unit; 53% mentioned poor fit to the parent organisation; 36% considered the unit to be too small; and 32% considered it to be a peripheral activity.
• The following actions are believed by UK directors to be most effective in improving performance:
  • would improve the business unit strategy, 49% by achieving a tighter focus and 32% by establishing a different market and operational position.
  • would improve control of costs and assets, 45% through general cost reduction, 25% by rationalising products and services and 13% by tightening management of working capital.
  • would change management, 30% by bringing in outsiders, 21% by bringing in insiders from the parent group and 15% by adding functional skills.
  • would stimulate growth, 28% by speeding up innovation and 13% by investing in new products or new markets.
  • would improve systems, 17% by tightening controls, 15% by giving management increased autonomy and 15% by installing more complete or suitable performance metrics.
  • would sell some or all of the unit.
• John Soden comments: "The wide range of responses confirms our experience that there is no silver bullet. Radical improvement in performance usually requires firm and simultaneous action on several fronts".
• The survey identified ways in which under-performance has been treated in the past:
  • In 68% of cases no outside help was used.
  • In 27% of cases problems were sorted out internally but using external expertise.
  • In 36% of cases, the troubled unit was sold off in a trade-unions sale.
  • In only 5% of cases were problems addressed through disposal by MBO.
• John Soden observes: "The limited use of outside help is surprising given that the causes of difficulty frequently include lack of the right skills. The judicious use of outside help brings objectivity and the resources to take fast, expert decisions and action."

Innovation

• 3M UK plc sponsored some questions to investigate Captains' views on innovation.

Most Proud Innovations - Spontaneous

• Captains of Industry are twice as proud of new product innovations than any other innovation. The next most popular areas of innovation are IT systems and financial products/investments.
• Brand development, cost effectiveness and upgrading of financial and accounting systems are not as prominent as one might expect.
• Popularity varies across industry types with new product development more predominate among Captains from manufacturing and service/retail firms. In contrast, banking and financial services firms, and to a lesser extent, service/retail firms are more proud of financial products/investments.