John Potter, managing director of operations at engineering group TI, has an eye for problem solving. This is just as well, since the divisions he oversees, Crane and Bundy, earn their money from that activity.
As Potter puts it: `If you’re in the middle of a jungle somewhere in Borneo and a seal goes on a pump, shutting down a process line could cost as much as $50,000 an hour. Letting noxious substances escape could have a much higher environmental cost.’
This is where, he says, the innovative and cost-effective solutions developed by TI come into their own. `A Crane seal with guaranteed supply within 24 hours will cost about $3,500.’ But price isn’t so important. `What matters is, does it work? Is it reliable? And can I predict maintenance?’
This is no idle sales pitch on Potter’s part: management experience at GKN, Westland Helicopters and Rockwell International, a US public company, has given him a keen understanding of customer needs and the demands of a global market.
Born in London in 1943, Potter took a diploma of technology at Willesden College before an engineering apprenticeship with Eaton Corporation. He joined TI in July 1988 as managing director of the European operations of Bundy, TI’s fluid carrying business. He became a main director of TI in 1992, and chief executive of TI’s John Crane engineered seals business in 1994.
His task, since being promoted to managing director for operations in January 1996, has been to accelerate the growth of Crane and Bundy, the group’s industrial businesses.
Together Potter’s charges contribute just under 75% of TI Group’s revenues, which in 1996 were £1.7bn, and just over 80% of its profits, which last year, pre-interest and exceptionals, were £216m. Between them they also bring to the group some of the biggest industrial customers, from DuPont and Shell to General Motors and Ford.
Both divisions are leading global concerns with operations in around 70 countries. Crane is a leader in engineered seal systems for the process and naval markets. Bundy supplies fluid-carrying systems to the major automotive and refrigeration markets.
Globalisation has been achieved by similar means – by setting up satellites in the case of Bundy and, with Crane, service centres. These assembly facilities, fed from the nearest manufacturing plant, are located close to the customer. Bundy has about 70 facilities, Crane about 125.
Driving the businesses are three factors Potter thinks are common to any industrial group: cost, globalisation and legislation.
With globalisation has come a migration from North America and Western Europe and towards investment in new capacity in Asia and the Pacific region. Health and safety and environmental legislation have also had a significant impact, he says.
The pressure is on for suppliers to deliver cost-effective services anywhere in the world. But while many small and medium-size companies have found this too much, Potter believes that following the customer is the only route for TI. `At the end of the day a customer pays for all the costs we incur so he is an important part of the equation. If you’re not prepared to support him anywhere in the world you put at risk the business you already have.’
One advantage Crane and Bundy have is that they are `critical’ parts. `You can’t buy a pump without a seal. Likewise you have to have brakes and a fuel line in a car.’
Since 1986 TI has focused on developing specialised engineering businesses in select niches. `Our decision to set up a manufacturing or service site depends on where our customer is and how we can best provide the service he wants,’ says Potter.
But labour costs and economic and political factors have some impact. `I would argue that it’s inefficient to manufacture anywhere in continental Europe, and has been over the past five to six years. It is difficult in terms of social costs, inflexible labour and working time. The UK and central Europe are fine.’
Despite the attractions of low labour costs in central Europe and other parts of the world, TI is careful about what products it makes where. `It’s possible we might choose to manufacture a low-technology seal, for example, in a low-cost country such as the Czech Republic, China or Mexico.’
Despite its global presence, TI’s industrial businesses are not heavily capital intensive. Last year TI’s total investment, including revenue investment, was £104m and is expected to remain around this level for the near future. Revenue investment is the most important as it covers expenditure such as financing engineers in customer facilities when bidding for new contracts. Growth will come from new products, alliances and partnerships and geographic expansion, particularly in Latin America, the Asia Pacific region and central Europe.
TI’s acquisition strategy is to look for a company which has a good product, the right technology, and good market share, but is either national or regional and without the resources to globalise. `Given the choice, future acquisitions would come in mechanical seals, polymers and then marine. The problem is that acquisitions are very opportunistic so might come first in automotive.’
This has been a tried and tested strategy for accelerating growth at TI for over 10 years. The future will be more of the same, says Potter: `We’re not going to do anything radically different because we feel we have a formula that works.’