Carclo’s story symbolises the rise and decline of British
manufacturing and the re-birth,of at least parts of it, over the last couple
of decades. For most of the post-war years it’s a story of high labour input and low value-added, of
fierce financial control generating cash to fund generous dividends for shareholders – but little or no
investment in the future. According to Treacy and Wiersema , winning strategies are built on
unrivalled world class performance in one of three key ‘value disciplines’:
- Operational excellence - Product leadership Nigel Hill
Delivering products/services to cus- Providing products that continually rede- Founder of The Leadership
tomers with optimum efficiency and fine the state of the art. Factor and editor of
minimum cost. As well as leading their field in one of the Stakeholder Satisfaction.
value disciplines, companies must reach Favourite social media:
Can’t really see the point
- Customer intimacy ‘threshold’ levels of performance in all three.
of spending half my life tweeting, but do
Dedicating the business to meeting the It’s no good understanding customers’ have a healthy texting circle with my
complete needs of carefully targeted requirements better than anyone else, for Manchester United and running club
customers and building ‘intimate’ long example, if you’re not capable of meeting friends (if that counts). I also use the tele-
term relationships with them. them efficiently or at a competitive price. phone when absolutely necessary.
www.stakeholdermagazine.com | February 2010 Stakeholder 13
Operational Excellence Customer Intimacy companies, often still run by the original fam-
“best total cost” “best total solution” ily. With no synergy, the acquisitions did little
to improve Carclo’s profitability or future
Figure 1: strategy. His last acquisition, however, was a
Threshold versus leadership in customer value Sheffield-based steel and wire business
called Arthur Lee and Sons. Although still
family managed, the Chief Executive, Peter
Lee, was forward thinking, recognised the
declining attractiveness of the steel market
and had diversified by making three acquisi-
tions in the high growth plastics industry,
Like Leighs Paints (see Stakeholder listed on the London Stock Exchange allow- including a business in the attractive medical
Satisfaction June 2009, http://stakehold- ing the families to realise capital. Like many market.
ermagazine.com/articles/), the story starts asset-rich quoted companies, the company
with undifferentiated products and com- went largely unnoticed until the late 1960s Now over 70, Ewart stepped down and
modity markets, and there are some when there was an upsurge of investors appointed Ian Williamson as CEO in 1995.
similarities such as strong focus on quali- (e.g. Slater Walker) who built stakes in dozy Williamson took over a £150m steel and
ty and on targeting growth markets. But, family companies valued at less than their wire company comprising five divisions and
Carclo’s transformation has been almost assets. 20 businesses, with an interesting GEC-like
totally driven by focus on one of Treacy corporate culture that was very focused on
and Wiersema’s strategic disciplines – In 1973 John Ewart bought a significant financial control, making it highly risk- and
product leadership. stake, soon gaining management control investment-averse. Every business, howev-
with the support of Slater Walker amongst er small, had a qualified chartered
A traditional British manufacturer others, and renaming the company Carclo. accountant who produced detailed monthly
He then used the cash flows to build a stake management accounts that were rigorously
Carclo’s origins date back to five family in Carclo’s competitor, English Card Clothing scrutinised at HQ. Every company was
owned companies around Huddersfield and (ECC), gaining control by 1979. This also independently financed with its own bank
Halifax supplying wire and belting products landed him ECC’s highly profitable Indian overdraft and adhered to a strict corporate
to the textile industry. Some even pre-dated subsidiary – Indian Card Clothing (ICC) capital-debt ratio, which encouraged
the industrial revolution – Carclo still having a which dominated the Indian textile market spending on capital items such as machin-
ledger dating back to 1780 for Joseph and soon generated half of Carclo’s profit. ery but deterred investment in off-balance
Sykes, one of the Huddersfield companies! The problem for Ewart was the virtual sheet assets such as new product develop-
These businesses were immensely wealthy, impossibility of repatriating the profits from ment, marketing or staff training.
often producing returns of 40% for their India thus making it increasingly difficult to Consequently, Carclo companies tended to
family owners in the 19th and early 20th fund a voracious appetite for dividends. So have plenty of production capacity but insuf-
centuries. In the early 1920’s the family com- ICC was sold – breaking up a world leading ficient skills to exploit it resulting in
panies merged to form Card Clothing and position in textile technology. Ewart used the businesses with poor organic growth, weak
Belting Ltd, and in 1959 the company was proceeds to again target old asset-rich market positions and declining profitability.
14 Stakeholder February 2010 | www.stakeholdermagazine.com
Cost base markets and invest to be competitive. The UK manufactured 25% of the world’s
acquisition of the plastics division of EIS in handsets. By 2002 we made none!
The company was also top heavy with 1997 gave Carclo a 10% market share of Marconi was a casualty, 300,000 jobs
plenty of managers and controllers and a UK technical plastics and transformed its were lost, but this annihilation of an entire
high wage – high benefits legacy. Carclo plastics business overnight. This was fur- industry went almost unreported.
was just not geared up to fund the inno- ther boosted by some smaller acquisitions
vation and added value which are the - Wipac (an attempt by Wolseley to pene- By 2002, Carclo had lost one third of its
essential elements of competitiveness. trate the automotive market) Coil, a leader sales, closed eight factories, had difficulty
in optical plastics, and Carrera – a US servicing its £49m debt and, like most
Take Joseph Sykes. Much had happened based technical plastics group. companies was hit with a pension deficit.
since that 1780 ledger, including plenty of With a lot of managers and employees on
innovation. The company had pioneered But acquisitions have to be paid for, so generous benefits living longer, the fall in
nylon coated wire (remember those Carclo had to sell its past to fund its asset prices after 9/11 plus the more hos-
coloured paper clips?), had dominated its future. In quite a coup Joseph Sykes was tile legislative environment of the 1995
market and still had only one major com- sold to Bekaert for £14 million - equivalent Pensions Act and the recently introduced
petitor. Unfortunately, the competitor, to a p/e of 23 and £ per £ on turnover. Lee tax on pension funds’ dividend income, the
Bekaert, was now 50 times its size. Steel Strip was sold for £21m but deficit had suddenly ballooned to £34m by
Sykes’ market position and margins were Williamson had to close some of the com- 2003. The combined debt was a big chunk
declining with nothing in the pipeline to panies and sell the assets – a process of sales, and many years’ profits.
reverse this trend. English Card Clothing’s that’s only been completed fairly recently.
technology was old, its margins eroding. Strategic response
At £32m, Lee Steel Strip had the highest However, the strategy seemed to be
group sales but was a minnow in a mar- working. By 2001 Carclo had a £100m Carclo had to do something radical. The
ket dominated by world players. The wire technical plastics business plus a £25m Board’s response was to make several
rope businesses were loss making, and automotive business and a futher £35m in excellent decisions.
the automotive cable business was in a a collection of smaller companies includ- 1. They didn’t sack the CEO!
tough market. Only the medical plastics ing optical plastics and an aerospace Many public companies would have, but
business (turning over £6m) was operat- cabling business. Carclo’s shareholders were supportive,
ing in an attractive market, growing at probably because Williamson had always
10% p.a. From 1996 the pound started Disaster and debt been honest, open and prepared to meet
rocketing against the Deutschmark, and them rather than communicate through
most of the businesses began to lose It was now that disaster struck. Co-inci- the broker.
money. dent with 9/11, but not caused by it, the 2. They resolved never to be so vulnerable
UK mobile phone handset industry col- to a single market in future.
From metals to plastics lapsed. Over-payment for 3G licences 3. To quickly halve debt, the last of the fam-
devastated mobile operators’ finances. ily silverware, English Card Clothing, was
To Williamson, the strategy was clear. No longer able to buy market share, they sold as well as cable business Gills and sur-
Carclo had to target attractive growth slashed handset subsidies. In 2000 the plus property assets.
www.stakeholdermagazine.com | February 2010 Stakeholder 15
tomer. So far, Carclo had invested only
£30k in ‘conductive inkjet technology’ and
it might have ended there but Williamson
recognised the technology’s potential in
applications such as RFID (radio-frequen-
cy identification) antennas. But Williamson
4. This helped with the fourth decision - to (where Carclo Precision Products’ Wipac realised that to fully exploit the technolo-
trade out of the crisis through organic business is now market leader) and low gy’s wide potential complete control was
growth, not acquisition. cost point-of-care diagnostic devices for necessary, so by 2005 Williamson had
5. The final decision was a very big one, the medical market through Platform bought Xennia’s share of the joint venture,
and the main indicator of the Board’s Diagnostics Ltd which Carclo owns jointly appointed Chris Malley as CEO and
backing for Williamson. At a time when with Inverness Medical Innovations. Other tasked him to turn an R&D company
the debt was nearly as much as the new technology products successfully (essentially little more than some promis-
turnover, the company would allocate developed and commercialised include ing intellectual property), into a successful
15% of capital expenditure into high risk LED optics, active inhalers and RFID commercial business.
but potentially transformational invest- antennas, which combine an antenna and
ments in real cutting edge IPR-type sensor and can be used for applications Commercialisation of CIT
innovation. This last decision would shape such as intelligent tags that monitor the
the company’s future. temperature of goods in transit. But the Malley, an accountant by training, who
real jewel in the crown was CIT (conduc- had joined the Carclo steel division in
The road to recovery tive inkjet technology). 1998, knew that British manufacturing
had often failed to turn promising innova-
Ian Williamson’s background was in elec- Out of adversity…. tions into sustainable businesses. His
tronics R&D. Looking for and developing strategy for avoiding this trap was:
new technology is what he was trained to Carclo’s optical plastics business uses 1. Gain complete control of the technology
do. So he appointed (internally), a specialised coatings to create glass-like Carclo owned the company and the intel-
Business Development Manager and sent surfaces on plastic mouldings. Applying lectual property, but the R&D was still
two managers by Easyjet to the Czech these coatings is expensive and difficult. based at Xennia and Carclo was working
Republic to look for new opportunities, fol- One of the first R&D projects Carclo initi- with other partners to develop and manu-
lowed shortly by similarly low cost ated was to use inkjet digital printing to facture the inks and the machinery. Malley
expeditions to India and China. This result- apply the coatings. Motorola asked realised you couldn’t sell a technology if
ed in the development of a global supply Carclo to investigate the feasibility of using you didn’t understand everything about it.
base and, more crucially, the identification the technology to print its logo onto To do that you have to use it so he moved
of some new technologies that would be mobile phone windows. Working with CIT into its own premises with six employ-
growth market-orientated and could, if inkjet specialist Xennia, they developed an ees and a production line for small runs,
successfully commercialised, transform innovative solution but when Motorola prototyping and development work.
Carclo. These included2 the development closed its UK factories, Carclo was left 2. Focus on delivery
of high power LED lighting for supercars with an infant technology and no cus- Faced with the vast potential of CIT, you
16 Stakeholder February 2010 | www.stakeholdermagazine.com
Please note Carclo are in
no way involved in the
design and development
of the Apple iPhone.
could get carried away with what it might applications, one or two really will offer a need. It is currently installing the machin-
do rather than focusing on what it already massive return. The supreme test of good ery to manufacture circuits on polymer
can do. Customers were identifying management in technology-led compa- film down to 5 microns, slashing the cost
potential applications, but even if CIT nies is to achieve the deliverables whilst and power requirements of touch screens
received development and prototyping allowing a controlled amount of time and for mobile devices.
fees, they didn’t cover the opportunity resource to pursue the blue sky possibili-
cost of neglecting more immediate oppor- ties and, from the many blue sky options On December 8th, Carclo announced an
tunities for the technology. So Malley to identify and focus on one big prize. The agreement with NASDAQ quoted Atmel
narrowed the company’s potential to final step in Carclo’s transformational jour- Corporation, a worldwide leader in capac-
focus on delivering a defined technologi- ney from Victorian metal basher to the itive touch screens. Under the terms of
cal output – a fully functioning ‘Metaljet knowledge-led British manufacturer of the the agreement, Atmel is making a $1 mil-
6000’ production line, which was future is the story of this big prize. lion payment to CIT to secure preferential
achieved by the end of 2008. access to CIT’s production capacity and
3. Achieve six sigma reliability Touch screens technology to develop and manufacture a
Although Carclo had worked with the best product for use in mobile phones and
inkjet printers and machinery manufactur- Dating back to the 1960s and first com- other electronic devices. CIT will be
ers in the world, it was becoming clear mercialised in the 1980s, it’s only in the last installing a new production line at its
that inkjet printing wasn’t delivering decade that touch screens have proliferat- Cambridge facility to produce touch
enough reliability for the printing of elec- ed, mainly on high cost equipment such as screen sensors which will be operational
tronic circuits. For graphics, occasional kiosk and EPOS systems. More recently in the second half of 2010 enabling vol-
malfunction of a nozzle doesn’t matter they’ve appeared on small electronic ume production to commence in 2011. To
because the flaw isn’t visible to the human devices like tablets, PDAs and mobile preserve its preferential access to this
eye. In electronics, it means a break in the phones. There are two problems with the capacity, Atmel has agreed to minimum
circuit and a product that’s not fit for pur- ‘projected capacitive touch’ (PCT) tech- annual volumes for 2011 and 2012.
pose. Even if the system could print nology used in these gadgets. First it’s very
hundreds of flawless circuits before the expensive. Not an insurmountable prob- The next big growth market for touch
lapse occurred, that level of quality wasn’t lem for high margin innovators like Apple screens is likely to be laptops. Rumours
adequate. In 2008, another Cambridge but potentially a show stopper for mass suggest that Apple is on the verge of
company, Xaar, developed a new print market competitors. Second, and a major launching a product. Windows 7 is touch
head with the reliability for single pass negative for portable devices, it’s very hun- screen enabled so the mass market
printing. CIT modified its equipment to gry for battery power. Windows-operated manufacturers such
incorporate the Xaar technology, but all as Dell will have to follow suit. But for lap-
this delayed the full commercialisation of CIT could revolutionise touch screens but top screens the problems of cost and
the project until the latter months of 2009. since inkjet printing couldn’t reliably print battery consumption are multiplied many
4. Go for the big prize below 100 microns, (too visible for display times over with the larger screen formats,
This might seem contradictory to the pri- applications), Carclo developed a way of making CIT’s technology a potentially
ority of focusing on delivery, but out of using UV light to cure its inks, producing industry-changing solution.
those hundreds of potentially exciting the much finer features that touch screens
www.stakeholdermagazine.com | February 2010 Stakeholder 17
On January 27th 2010, Steve Jobs
launched Apple’s new iPad, which he
described as "so much more intimate than
a laptop and so much more capable than
a smartphone." With a 9.7 inch touch-
screen it will be a strong driver for the
adoption of the technology across a much
wider range of personal computing
devices. Watch this space.
You’ve probably seen this but here’s the link to
the Apple site
Managing innovation divert resources into managing the part- looked customer intimacy. With such
nership rather than the innovation. ground-breaking technology, CIT staff
Carclo has demonstrated that you can 5. You have to have teamwork could easily see customers and especial-
manufacture in the UK and that British Innovation works best in small units where ly potential customers, as an unwelcome
companies can commercialise technology staff take ownership, work as a team and distraction. Chris Malley ensures that they
as well as invent it. Although they hadn’t live the dream. Top management has only treat everyone as a valuable customer
read the book, it’s a text book example of 2 roles. First, lay down very clear objec- from the outset, because eventually that’s
using Treacy & Wiersema’s product lead- tives and boundaries - budgetary, time exactly what they want them to be.
ership strategy to transform a business. frames etc, and make sure staff adhere to
So what can we learn about product lead- them. Second, give help if they ask for it. Ian Williamson points out that he’s an
ership from the Carclo story? Capable and motivated people thrive on unusual animal. An engineer leading an
1. You have to invest maximum accountability and minimal engineering company, and sees that as a
Since 2002 Carclo has invested consider- interference. big strength. But Chris Malley’s an
able sums in potentially transformational 6. You have to be ambitious accountant. Harvard would place attitude
innovation – recently around £1m per If the innovation is genuinely leading edge ahead of skills and I agree. I think their
annum in CIT alone. you must become an enabling rather than success is down to two primary factors.
2. You have to pursue development and a substitute technology - the latter com- First, having the guts to take the long term
income petes on price, the former on added view, shifting the objective from a cash-
The £1m has to come from somewhere. value. Hence the change of emphasis at rich present to a sustainable future.
Whilst the tendency of many British and CIT to UV curing and touch screens. Second, transforming the culture from
American plc boards has been to pursue 7. You must protect IP centralised command and control to a lib-
short term profits, the temptation for the Despite the cost and time involved you erated collection of entrepreneurial
innovation-led business is the opposite. must patent everything that might protect business units, small enough to build
Staffed by scientists (around half of CIT’s or enhance the commercial value of your motivated teams striving for clearly under-
staff have PhDs), they’re inclined to focus innovation, track other people’s IP and stood objectives. Whatever the answer,
on break-through innovation as an end in monitor infringements. Carclo’s share price has tripled in the last
itself. What you have to do is find specific 8. You must never compete on 12 months. S
applications for it then a specific customer innovation alone
who’s sufficiently interested to get Back to where we started this article. You References:
involved and make a commitment. have to be the best in your industry at one 1. Treacy and Wiersema (1995), “The
3. You have to take risks thing. If that’s product leadership all the Discipline of Market Leaders”,
Because it is potentially ground-breaking, above 7 rules apply, but they’re not Perseus Books, New York
Carclo’s innovation has also been risky, enough because you also have to achieve 2. For more details of Carclo or CIT go
especially since the investment has been consistently high levels of performance on to www.carclo.co.uk or www.con-
a significant percentage of its cash flow. operational excellence and customer inti-
4. You have to have control macy. At CIT they’ve built six sigma levels
Partnerships may reduce risk but they of operational excellence and not over-
18 Stakeholder February 2010 | www.stakeholdermagazine.com