The Company

The company employed approximately 100 staff with a high proportion of technical design engineers. They employed a variety of technologies to manufacture their product and were particularly proud of their small, lightweight printed technology that was attractive to the defence community. All products were custom-designed with 90% of the sales output going to the defence market. Production was small volume batch production with high margins when in serial production. Sales revenue and profitability closely followed production orders that were irregular and resulted in an approximate two-year cycle of boom and bust.

The Assignment

The company was in a bust section of the boom/bust cycle referred to above and required a ‘get-well/survival' plan.

Analysis/Diagnosis

Initial analysis revealed the following. The company had a good technical and sales reputation in the marketplace. It had adequate infrastructure with an emphasis of doing as much as possible in-house. It had a top-heavy R&D department. The engineering department designed electronic components (e.g. amplifiers) and sub-systems (complex combinations of several integrated components). The resultant designs were inexact but as production quantities rarely exceeded 100 pieces of any one type they were always nursed through by engineering, as this was perceived as an easier/less boring option than refining the design procedure. The manufacturing department was always in crisis because there was no ‘design-for-manufacture' philosophy. However, it was able to produce the components at a good margin (with engineering assistance) but was unable to achieve any margin on the sub-systems where complexity and interaction defeated rework and fudging. They were in the ‘bust' section of the business crisis because component orders were low and subsystem orders were high.

The Solution

Initial Activities

Due to the lack of management resource and the magnitude of the sub-system design problem against the background of significant order cover the company was re-organised into two divisions; components (including design re-vamp) and sub-systems.

With management focus the sub-system group was able to create a structured approach to its design and integration process that fed through into high yield and positive margins.

The component design software was equipped with a dedicated team that divided the problem into three parts:

• Refining the basic models used including the incorporation of external software

• Adding an optimisation routine to the design suite

• Collected design/manufacturing variance data and feeding this back to refine the modelling suite.

The component sales problem was analysed further and revealed;

The chairman was persuaded to licence his technology in the USA via a joint venture. This created real competition for all his competitors and derived the company an income via its JV shareholding. This was achieved within three months.

The best salesman was taken from the existing sales effort and charged with identifying non-defence business only. In addition, and to ensure viability, he was constrained to identify business that would require only credible steps from the company's current customer-type base and turnover volume. Mobile phone infrastructure was identified within 4 months and lead to a major expansion of the component activity.

Further Activities

Within twelve/eighteen months the sub-systems group had resolved its problems, the design software was vastly improved and the potential for the non-military component business was identified as enormous. Therefore, it was decided to restructure the company to reflect the new trading position and to maximise the potential of the entire activity. Two separate operating companies were created under the existing company umbrella, a military products company and a commercial products company.

In addition the potential for obtaining a public offering to fund the substantial growth of the commercial product company was identified and acted upon.

Benefits

A successful public offering and a listing on the London Stock exchange for the commercial company. This permitted the VCs to exit and the two, now separate companies, to expand profitably in their chosen different directions.