On the money

It started off by making clocks and then instruments for the motor industry
but now supplies state-of-the-art kit to the aerospace, defence, health and
security industries.

Smiths is still based in Britain but two-thirds of its sales are overseas and
two-thirds of its shares held by non-British investors. But the real story is
how the business has managed to survive. According to Keith Butler-Wheelhouse,
its chief executive, there are two key ingredients.

The first thing that makes the company special is ruthless self-examination,
applying the techniques typically employed by private equity predators to
determine, without sentimentality, whether to stay in any particular business or
sell it off. As a result a quarter of the business has been sold in the last 10
years, with the revenue raised redeployed to more attractive industries.

The second strand is to separate each layer of business activity and put it
where it can be done most effectively. Typically, the design and technology will
be in one place (still often the UK), the fabrication somewhere else (often
Asia), and the packaging marketing and distribution close to the customer (often
in North America). This makes the cost and competitiveness of different
activities transparent, so efficiencies can be maximised.

It all prevents the good parts of the business being dragged under by the
uncompetitive parts, as Rover Group was. Even after Rover’s eventual collapse,
there was still world wide interest in buying the design and technology skills
hidden inside the unattractive whole.

The Smiths message is that Britain can do manufacturing – but only by
harnessing it to state-of-the-art financial skills.

Anthony Hilton is finance editor of the Evening Standard

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