Plessey's evolving management philosophyT.G. Parry Rogers, M.A., C.I.P.M., F.R.S.A.

Indexing terms: Engineering administration and management

Abstract: The paper is a brief case study of the transition of a long-established business from 'manufacturingcompany' to 'marketing company', accompanied by improvements in productivity and profitability. Theearlier bureaucratic pyramid structure is replaced with a 'parent and subsidiary' relationship of tradingcompanies, linked to expansion internationally. The change in philosophy had a dramatic effect on themanagers of the individual business units, who now have greater authority and personal identification, leadingto a higher quality of management and improved motivation and performance. The Chief Executive Officeincludes four Deputy CE's, each with a portfolio of reporting companies, and performance is reviewedmonthly. New management skills and attitudes were needed and must be secured both by managementdevelopment, and by raising the quality of the intake from schools and universities.

1 Introduction

Plessey is an electronics company ranking in the top 100UK companies and is one of the top 10 European-ownedelectronics companies. It is the largest supplier of equipmentto British Telecom, and is a major supplier to the UKMinistry of Defence. It operates worldwide with manufac-turing facilities in 12 countries and sales operations in over100 countries. In 1979/80 its exports from the UKwere £97 million and its contribution to the UK balance ofpayments was £81 million. There are 48 000 Plesseyemployees around the world with nearly 38 000 of them inthe UK. In 1979/80, Plessey's total sales were £751million.

In product terms Plessey is very diversified across thespectrum of mechanical products, from electromechanicaldevices, electronic components and subsystems to largeelectronic systems and networks. Plessey spent £136 millionin 1979/80 on research and development rangingfrom basic research in electronic materials to advancedsystems development to meet market requirements.

Competition in the electronics industry is global withUSA, Japan, and Europe all struggling to secure or maintaina market share as technology continues to change at afaster rate than has ever been seen before. It is now clearthat electronics will pervade all aspects of civilised life, thatadvanced industrial countries must succeed in electronics orsee a decline in their standard of living, and that Third-Worldcountries will move into electronics manufacturing as fastas they can both to reduce their dependence on others andas a key element in the process of industrialisation.

It is against this background that this paper sets out todescribe Plessey's management philosophy and how Plesseyhas changed to equip itself for the present and the future.

2 Past developments

Before describing these changes it may be helpful to lookback briefly into Plessey's history. Plessey grew up essen-tially as a subcontract manufacturer making mechanical andelectromechanical products for other companies morecheaply than they could make them for themselves. Thisled logically into the electronic-components field and fromthere vertical integration into systems products followednaturally as the electronics industry developed. Defencework in the Second World War placed Plessey firmly in thedefence-equipment market, and its position in telecom-Paper 1082A, received 15th August 1980Mr. Rogers is Director of the Plessey Company Ltd., MillbankTower, London, SW1P 4QP, England

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munication was transformed in the early 1960s byacquisitions which made it the leading British supplier.

From its origins Plessey had developed outstanding skillsin manufacturing and in financial control of manufacturingoperations. To these it added design and development skillsof a high order, but the nature of its early business causedit not to have particular need for strengths in marketing anc1

planning. Another characteristic from its early days led to ahighly centralised organisation structure and decision-makingprogress.

Thus at the beginning of the 1970s it was apparent thatthe company needed to rethink its organisation andmanagement philosophy to adjust to the changes apparentand pending in technology, markets, and competition. Aglance at Fig. 1 will also show that all was not well infinancial performance; apart from a surge in profits to morerespectable levels in 1973 and 1974 the level of profitabilitywas unacceptably low. Although Fig. 1 shows a healthytrend in productivity improvement, not enough was beingachieved in sales or profits per employee, and performancelagged behind international competition.

The initial discussions on management philosophyproduced two fundamental conclusions; first that quality ofmanagement is the supreme consideration in companyperformance, and second that new kinds of skills wereneeded in management for the changed and changingsituation. On the first of these the question was asked: if a

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key customer somewhere in the world considering thechoice of a supplier met the appropriate Plessey man andthe persons representing leading US competitors, what sortof comparison would be made? The answer given was thattoo often the US company would be personified in thatsituation by a bigger man with more stature and presencewho was able to make decisions in front of the customer.

This obviously raised the question of how Plessey couldmove itself into the position so that it could match thecalibre of the man in front of the customer. What was itnecessary to do to attract into key jobs individuals whowould have the qualities to match this requirement. At thispoint the organisation concept that Plessey had at that timecame under scrutiny. Because the company had a centralisedprocess of decision making and was structurally a largesingle pyramid, jobs which in small companies were 'topmanagement' were, in the Plessey structure, right in themiddle of the organisation. The Plessey jobs were lessattractive and less satisfying, even though the scope of themin terms of sales, assets and people managed might be muchgreater than their opposite numbers in small companies.

This is a theme of wider interest in the consideration ofhow large companies can compete with small companieswho are necessarily more flexible, quicker on their feet,and normally able to achieve higher standards of industrialrelations because relationships are more personal.

3 Human factors in decentralisation

All these arguments point in the direction of decentralisationso that a large company ceases to be an immense bureau-cratic pyramid and becomes the holding company for alogical collection of small companies with maximum dele-gation of authority and responsibility to the managementof the small company consistent with the parent companyexercising proper control and responsibility on behalf ofthe ultimate shareholders. How this was, in fact, done willbe examined later.

The effect of such a change in philosophy on the managerof a small business unit can be dramatic. In the earliersituation he was effectively a department manager con-strained by manuals of regulations, his actions subject toapproval by line bosses and functional specialists. The bigdecisions were taken out of his hands, and when trouble hithim a team of corporate experts descended on him to 'help'him out of his difficulties, which sometimes were still thereonly worse when the corporate fire brigade moved on tosome new excitement. Painting the picture even moregruesomely, he was at the mercy of his divisional boss whomight take the credit for successes but stood back dis-approvingly from failures. His access to top managementwas controlled by this boss so that his career prospectsmight well depend on the quality and integrity of this indi-vidual, who might change every two years or so.

In contrast, after the decentralisation into separatecompanies, the department manager becomes the managingdirector of his business responsible to the board of hiscompany, with his management boss normally the chairmanof that company. He has a higher degree of delegatedauthority and he has a greater degree of personal identifi-cation. He also has a greater visibility to the top manage-ment of the group. The job of running a subsidiary companyin this way attracts higher-quality people than the depart-ment or division of the same size did within the oldorganisation, and so rapid progress is made in both achievinghigher management quality and better motivation andperformance.

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A good deal of thought has gone into the ideal size of a'trading company'. From a marketing point of view there ismerit in having a trading company to tackle each discretemarket segment. That is often not possible, and somegrouping of closely related segments may be a more suitablemarket place charter for a trading company. There are, ofcourse, also technology and manufacturing considerations.The perennial question of 'make or buy' also affects thesize of business units, and this is made more complex asmore of the added value in an electronic product goes intothe chip, causing semiconductor companies to market equip-ment products and equipment makers to establish in-housesemiconductor manufacturing facilities.

But perhaps the greatest change in thinking aboutcompany size stems from the human factors affectingsuccessful performance. In place of the 'economy of scale'arguments in the 1950s, it is recognised today that there isenormous performance and industrial relations benefitarising from keeping the size of units down so that the chiefexecutive of a company knows and is known to every indi-vidual who works for him. This would suggest a maximumsize of about 700 people. Where this is not possible somehigher ceiling number may be adopted to prevent unitsgrowing to proportions which are seen in today's world tobe 'unmanageable'.

What is abundantly clear is that the large multibusinesssites that were the product of business growth in the 1950sand the then prevailing 'big is beautiful' attitude need todayto be dismantled into more manageable units, and stepsneed to be taken to prevent units growing beyond thepolicy ceiling. This is a difficult philosophy to live with; thecost of establishing separate premises and of an additionaladministration when businesss growth takes a unit beyond apolicy number is hard to accept and it is easier to defersuch action. But there is an even greater price to pay in thelonger term if units grow to unmanageable size. Oneexample of this in the old Plessey situation was that,in multibusiness sites, pay negotiations were conducted ona site basis and usually by a personnel specialist. Thus abusiness unit within a multiple site found that it had littlecontrol over its employment cost even though this factormore than anything else determined profit performance.The manager of such a unit was being measured on profitswithout having control of the major variable affecting them.That situation is now changed so that in most cases tradingcompany managements negotiate pay settlements withinthe parameters of what they need to pay and can afford topay. In a small number of cases trading companies sharingsites with others are still tied in with sister company arrange-ments, but even in these cases there is full involvement ofthe managements concerned in fixing their future employ-ment costs.

It is Plessey's intention that all trading activities —buying, selling, contracting, and employing — should be inthe hands of trading subsidiaries, and this is very largely thecase today although some of the subsidiaries are thought tobe too large and will be further subdivided. It is at the sametime necessary that there should be co-ordination of relatedtrading companies. An example is that all telecommuni-cations subsidiaries need to be linked together to ensurecoherence in front of customers and to share common tech-nololgy. In such cases 'management companies' have beenformed in order to perform this task, and such companieshave a board of directors with a chairman, a chief executiveand other members who are usually either chief executivesof the related trading companies or staff directors of the

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management company. It is not intended that thesemanagement companies should have large staffs; theprinciple is that the resources to manage our businessactivities should be located in the trading companies withminimum manpower at both management and parentcompany levels.

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Fig. 2 Organisation modules

4 Parent and subsidiary companies

The next module in this organisation philosophy in the'holding company', which acts as the agent of the parentcompany in each country in which activities are based. Theshares of each subsidiary in the country are held by theterritorial holding company which provides financing,property and handles statutory and fiscal needs in thecountry in return for which the subsidiaries pay the holdingcompany financing costs, rent, and dividend.

This is necessarily a somewhat simplified statementbecause, with different fiscal, legal, and operational needsin each country, it is neither possible nor desirable toachieve precise uniformity across the world. The companyfunctions of 'trading', 'management' and 'holding' areidentified in each territory, but whether they are separatedinto statutory bodies or not is a pragmatic choice based onconvenience and local tax and legal advantage. Where astatutory company performs more than one of thecompany functions described above, it is referred to as a'hybrid company'.

Changing the structure of Plessey from a large centralisedpyramid to the network of companies described in thispaper has, of course, had profound implications on the waythe parent company is managed. An early conclusion in thestudy of the management task was that the role of the chiefexecutive in a company as diverse technically, geographi-cally, and in terms of its market spectrum cannot be handledin the traditional way by one man, and a decision wasreached to adopt a collective chief-executive function. Thisis in line with the 'office of the president' concept adoptedby many large US companies and with similarity to the

board 'portfolio' practice of ICI. Plessey therefore now hasa Chief Executive Office (CEO) composed of a ChiefExecutive and four Deputy Chief Executives (DCE); eachof the DCEs has a portfolio of reporting companies whichthey direct within the powers delegated by the Board andthe CEO.

The Chief Executive Office meets monthly to reviewtotal performance, discuss plans, make decisions requiringCEO approval, review matters requiring Board approval andto confer with each other to agree matters of mutualconcern and interest.

The board and CEO are served by a small number ofCorporate Staff Directors who review and comment onplans and projects, propose policies, and undertake studyand analysis on a wide variety of investment, disposal, andother business propositions.

The parent company Board is, of course, the finaldecision point in the company, reserving to itself specifickinds of key decisions and delegating authority and respon-sibility to the CEO and to subsidiaries. In this process ofdecentralisation there is a delicate balance to strike betweenthe need for the Board to be firmly in control of thecompany and its assets as the custodian of the shareholders'interests on the one hand, and the need to achieve highermanagement quality and satisfaction by positive delegationon the other. It is wrong in these circumstances for asubsidiary company to describe itself as 'autonomous'. Asthe wholly owned subsidiary of a public company it mustalways be subject to control by the parent company, andthis must mean that its performance is constantly moni-tored, its plans reviewed and subject to approval, and certainkey decisions reserved to the parent company. A subsidiarycomes nearest to autonomy when its performance is spec-tacularly good, its plans impeccably balance profit, cashflow and growth, and its cash generation enable it tofinance its own growth and pay a satisfactory dividend tothe parent company. The subsidiary managing directorknows what he has to do to be left alone to do his ownthing!

The second early conclusion referred to at the beginningof this paper was that new management skills were neededin Plessey to meet its changed circumstances. Plessey wasstrong in the manufacturing, technology, finance, andpersonnel functions. It was noticeably weak in marketingand planning.

Fig. 3 PDX (private digital exchange)

The PDX was developed by Plessey and Data Systems Ltd. On itsintroduction in 1978, it was the first digital telephone exchange ofits kind in Britain. It has attracted orders of over £2 8 million.

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5 Traoisotoom to market

The task of changing a company from being led by somecombination of finance, engineering, and manufacturing tobeing led by marketing is more than one of introducingmarketing techniques and specialists. As with every otherkind of change in management, it is primarily the task ofchanging attitudes, first at the top and then all the waydown, to encompass everyone in the organisation. All needto do their jobs in the knowledge that it is the customerwho pays their salaries, and if one supplier fails to give hiscustomers the satisfaction they expect there are othersuppliers ready and eager to take over. Plessey, at the timeof writing, is in a transitional stage from having been a'manufacturing company' in its management style andmoving towards becoming a 'marketing company'. In thefirst case top management focuses on the 'direct' factoryworker and sees the rest of the company as providingsupport to the 'directs'. In the second case the principalfocus of general management is the salesman and all otherelements of the business exist to help the salesman tosatisfy his customers and beat competition.

Becoming a marketing company means that the job of adevelopment engineer is to create a product whose character-istics have been specified by customer or market require-ments. The manufacturing manager needs to meet histargets on cost, quality and delivery so as to be competitivein the market place.

At the same time as becoming more professional inmarketing, Plessey has also made progress in developingmanagement attitudes and skills in planning. This hasbecome necessary as technology has moved faster andbecome more expensive and as the marketplace has grownin competitiveness. Plessey's earlier experiments with five-year planning were of limited value both because they wereto too great an extent just financial projections and becausethey lacked wholehearted commitment by the line manage-ment or trading units. This was changed by directingforward thinking to markets, products and technology,establishing the necessary choices and priorities in thesefields to determine, in each subsidiary, its planning assump-tions, and using these assumptions together with economicdata to make financial projections.

A key step in this change process was the decision thatthe director of planning should be a technologist rather

than an accountant or an economist, and he need particu-larly to be strongly identified with market analysis andproduct planning. As the group level it is conceived that thedirectors of planning, research and technology are a trio oftop quality technologists acting as advisers to the Boards ofboth parent company and major subsidiaries to ensure thatdecisions are made on product and market choices withmaximum understanding of the technical choices andimperative that lie ahead.

This reorientation through which Plessey has been passing isone totally dependent on the attitudes and skills of peoplein the organisation. There have been and are key require-ments in recruitment training and development in order tomake this change happen. Recruitment has embracedbringing in mature skills where the new needs could not bemet from within and the hiring of bright young men andwomen to train for the future. It is vital that wealth creatingindustry attracts a higher proportion of a nation's, talentthan has been the case in Britain in recent years. Much hasbeen said about the need to attract more young peoplefrom schools and universities into industry for that not toneed repetition; less forcefully stated is the need to raisethe quality of industry's intake since this is what in the longrun will produce the quality of management which is thecentral theme of this paper.

Management development and training falls into twomain categories: the provision of planned learning andexperience for those identified as high flyers for the futureand updating training for existing management at all levels.Substantial steps in management training of both kindshave been taken both in subsidiaries and on a centrallyorganised basis. A small central management developmentprogramme exists with similar activities in some subsidiaries,although it must be acknowledged that there is more to bedone, since the overriding priority in recent years has beenthe task of improving financial performance and of tacklingsuch fundamentals as productivity and organisation.

The process of change through which Plessey is going isnot an unusual one. What may perhaps make it of interestto the reader is that it had to be accomplished under thedual pressures of rapid technology change and highly com-petitive markets rather more rapidly than others have hadto do. Since the tempo of change continues to accelerate,it is perhaps a case study indicative of industrial change inthe rest of this decade. The recent sharply improved perfor-mance of Plessey arising in part from this change ofmanagement style adds weight to the conviction that themanagement thinking which led to these changes was valid.

Fig. 4 The Plessey Avionics & Communications 'Smalltalk' PTR1851 v.h.f. military pouch radio

This radio has eight programmable channels and covers 30-76 MHz

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T.G. Parry Rogers Mr. Rogers waseducated at West Hartlepool GrammerSchool and at Oxford University.Before he joined the Plessey CompanyLimited in 1974, Mr. Rogers was aDirector of IBM (UK) Limited. He hasbeen President of the Institute ofPersonnel Management and Chairmanof the Executive Committee of theInstitute of Manpower Studies.

At present, Mr. Rogers serves onseveral bodies outside his own company, including theClegg Commission, the Employment Appeal Tribunal, theEmployment Committee of the CBI, and the IndustrialRelations Committee of the Institute of Directors.

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