Enterprise, Management and Innovation in British Business, 1914-80

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS, 1914–80 Edited by R.P.T.Davenport-Hines and Geoffrey Jones

FRANK CASS

First published in 1988 in Great Britain by FRANK CASS AND COMPANY LIMITED Gainsborough House, Gainsborough Road, London E11 1RS This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” and in the United States of America by FRANK CASS AND COMPANY LIMITED c/o Biblio Distribution Center 81 Adams Drive, P.O.Box 327, Totowa, NJ 07511 Copyright © 1988 Frank Cass & Có. Ltd. British Library Cataloguing in Publication Data Enterprise management and innovation in British business, 1914–80. 1. Great Britain. Business enterprise, 1914–80 I. Davenport-Hines, R.P.T. (Richard Peter Treadwell), 1953– II. Jones, Geoffrey, 1952– III. Business history 338.6’0941 Library of Congress Cataloging in Publication Data Enterprise, management, and innovation in British business, 1914–80 edited by R.P.T.Davenport-Hines and Geoffrey Jones. p. cm. Includes index. 1. Industrial management—Great Britain—History—20th century 2. Business enterprises—Great Britain—History—20th century. 3. Technological innovations—Economic aspects—Great BritainHistory-20th century. I. Davenport-Hines, R.P.T. (Richard Peter Treadwell), 1953– II. Jones, Geoffrey. HD70.G7E58 1988 338.7’0941–dc19 88–9501 CIP ISBN 0-203-98818-3 Master e-book ISBN

ISBN 0-7146-3348-8 (Print Edition) This group of studies first appeared in a Special Issue on Enterprise, Management and Innovation in British Business, 1914–60 of Business History, Vol. XXIX, No. 4. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form, or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of Frank Cass and Company Limited.

CONTENTS

Editorial Introduction R.P.T.DAVENPORT-HINES and GEOFFREY JONES

iv

Failings and Achievements: Some British Businesses 1910–80 D.C.COLEMAN

1

British Business and the Transition to a Corporate Economy: Entrepreneurship and Management Structures T.R.GOURVISH

19

Modelling the Growth Strategies of British Firms DIANE HUTCHINSON and STEPHEN NICHOLAS Consumer Marketing in Britain 1914–60 T.A.B.CORLEY

67

Science and Technology in British Business History D.E.H.EDGERTON

87

Privatisation: The Triumph of Past Practice over Current Requirements MARTIN CHICK

109

Index

123

EDITORIAL INTRODUCTION

‘A general introductory text on British business history’, declared Professor Donald Coleman in an important public lecture published in 1987, ‘has yet to be written’.1 This lacunae is extraordinary, given Britain’s role as the birthplace of the Industrial Revolution and its possession, even in the late 1980s, of the world’s sixth largest Gross Domestic Product.2 It is even more odd given that business history in Britain is almost a ‘sunrise’ industry: every year several scholarly company histories are published, although these volumes remain largely unread by business people, business scholars and economists. Coleman identified three avenues of advance for British business historians from this impasse: first, to focus less on writing individual company case studies and more on specific themes; second, to persuade companies to sponsor research on specific issues; and finally ‘to start to draw conclusions from their existing work on company histories’.3 This collection of essays explores this third option. It is not the first assault on these lines: Bernard Alford recently used several company histories in a fine study of the impact of the First World War on British business.4 But it is the first time that such an exercise has been attempted on such a wide scale. The chronological focus of these essays is the period from 1914 until the 1960s, although some authors have been compelled to discuss events either before 1914, or beyond the 1960s. This period saw a marked trend improvement in Britain’s economic performance, compared to the dire decades before 1914 when productivity increases were small or even negative.5 The inter-war years saw the creation of giant corporations like ICI, with improved management structures. There were significant advances in industries such as chemicals, motor cars and electricity, where Britain had lagged before the First World War. Nevertheless the relative economic performance of Britain continued to pose a problem. The improvement on past performance in some sectors did not result in accelerated industrial growth. It is debatable exactly when, after 1945, British living standards were passed by those of France, West Germany, the Benelux economies, Japan and Italy, but it cannot be disputed that substantial relative economic decline occurred.6 Indeed much of the pretext for the ‘Thatcher revolution’ of the 1980s has lain in the claim that it was challenging the root causes of this relative economic retardation. The need is for business historians

v

studying the era before the 1980s to explain both the dynamics of the substantial growth which did occur, and the factors which constrained British business from growing as fast as its competitors. In order to explore this problem, the editors commissioned six authors to write on specific themes in British business after 1914: entrepreneurship and management structures; marketing; government/industry relations; innovational research and development; business strategies; and the criteria for failure or success. These themes are not comprehensive: two topics which are not covered, international comparisons and labour, are of such fundamental importance that they will be the subject of separate collections of essays which will be published under the editorship, respectively, of Richard Davenport-Hines and Geoffrey Jones in 1988, and of Charles Harvey and John Turner in 1989. We asked our authors to base their accounts on a ‘basket’ of company histories. The companies selected were ICI and its predecessors (chemicals); Courtaulds (textiles and artificial silk); Bowater (paper); Pilkington (glassmakers); Colvilles (steel); Harland & Wolff (shipbuilding); Kenricks (hardware); British Rail, the National Coal Board and electricity supply before and after nationalisation; W.D. & H.O.Wills (tobacco); W.H.Smith (retailing); and the Midland Bank. This methodology has considerable limitations. The selected companies are not a cross-section of British industry. They were chosen on the grounds of the quality of their published histories. Each of the books chosen is first class in its scholarly treatment, independent in tone and substantial in its factual content. In some sectors and industries such studies are rare or non-existent, and it seemed foolish to ask writers to base serious analytical studies on the public relations brochures which are available.7 Inevitably, however, this has meant that such major British industries as motor vehicles, engineering, cotton and electronics are not explicitly treated in this study. We also excluded British enterprises which were primarily active overseas. Although some of these companies, such as British Petroleum or Burmah Oil, have first-rate histories, we felt that the problems which they faced were so distinct as to merit separate analysis. We have also excluded the British subsidiaries of foreign multinationals. Even by 1914 such subsidiaries dominated the British electrical industry.8 By the 1980s foreign companies controlled large swathes of British manufacturing, from electronics and domestic electrical appliances to motor vehicles. Much work remains to be done to understand why these firms were more successful and dynamic than their indigenous competitors.9 Several of the contributions refer to the drawbacks which occur in trying to generalise about such a basket of company histories. The studies were all commissioned by the companies concerned. In each case there was considerable longevity. With the exception of Kenricks, they were all large companies, or became large companies. The industry distribution is skewed towards industrials, and is weighted towards nationalised industries (which have commissioned some excellent books covering the period since 1945) as against retailing, finance and services (where good histories are rare). British business in the twentieth century

vi

has been (and remains) particularly weak in manufacturing: our sample is therefore skewed towards failure.10 This basket of case studies is not ‘representative’ in any rigorous sense. Moreover, several contributors found that some of the assigned books were silent on their themes, and have been obliged to look elsewhere for information. As Edgerton observes (p. 85), no British company history yet published has a sustained treatment of research, development, or innovation. Those reading and using this volume need to keep these reservations in mind. Yet the essays do demonstrate that it is possible to abstract and use the large body of data available in existing company histories. For themes such as R & D, where a few large companies such as ICI or Pilkington are decisive, both in spending and policies, to the historical character of Britain’s commercial R & D, there are few if any disadvantages to a firm-based approach. It would be inappropriate for this brief Introduction to repeat the specific conclusions of each essay, but there are several points which deserve emphasis. The pioneering work of Alfred D.Chandler has encouraged business historians to stress the importance of changes in corporate size and management structures, and to investigate their relationship to markets and technologies.11 This was the focus of Leslie Hannah’s The Rise of the Corporate Economy, which for some time served as proxy for a proper textbook on twentieth-century British business history. Hannah argues that inter-war Britain ‘caught up’ with many of the managerial changes which had begun to appear in the United States before 1914, especially the growth of large enterprises, the spread of vertical integration and the emergence of new managerial hierarchies. After 1945 this catching-up process was completed.12 The essays in this collection raise serious doubts about such a view of British business history, Gourvish (pp. 27–8) is unimpressed by the changes in British management structures in this period. He refutes Hannah’s claim that ‘ICI had adopted a multidivisional structure by the late 1920s’,13 yet ICI was the British company that came closest to emulating American managerial patterns in the inter-war years. Elbaum and Lazonick have indeed identified major institutional constraints, combined with managerial backwardness, which they believe continue even today to handicap British manufacturing. According to this view, British industry still has not ‘caught up’ in terms of structures with the United States.14 More fundamentally, however, many of these essays refer to a continuity of business attitudes despite changes in management structures, and the impossibility of relating attitudes and policies to any single organisational form. Coleman (pp. 8–9) emphasises a long-term resistance to change in British business, observing how professional managers often thought and acted in very similar ways to their family firm predecessors. New managerial hierarchies did not automatically mean new marketing strategies. Nor was there a direct correlation between ‘modern’ business structures and spending on research and development. The conventional emphasis on structures and hierarchies needs to

vii

be supplemented by attention to business culture and attitudes. Significantly, the Japanese multinationals which have invested in British manufacturing industry since the 1970s succeeded in raising productivity by changing managerial attitudes and culture: for example, by abolishing status-related differentials within firms, encouraging consultation at all levels of the workforce, and raising quality and scheduling standards.15 This leads to a related and overly neglected point which emerges strongly from these essays: the diversity of British business performance in this period. As Hutchinson and Nicholas observe, all the industrials in the basket of case studies grew by vertical integration and diversification into new products or geographical areas, but their success was not uniform. There was a range of success and failure: and the success stories of one generation, such as Schumpeterian entrepreneurs like Sir Eric Bowater, became, through their legacies, the problems of the next generation. If, as Corley argues (p. 80), a close examination of company histories demonstrates the continual importance of individual entrepreneurs, then this diversity of experience is unsurprising. It does warn us, however, against facile generalisations about what was ‘wrong’ with British business in this period, or what should be done about it now. It also highlights the need for business historians to re-scrutinise their concepts of entrepreneurship. A few years ago the publication of a New Economic History of Britain caused considerable stir, its essays using econometric techniques to challenge many conventional interpretations. The value of their contribution to the study of business history is shown by Edgerton (p. 85). Hopefully, in the next few years, a New Business History of Britain can be compiled. There are important building blocks still to be put in place. There is research to be done on neglected themes and industries, especially British twentieth-century success stories such as retailing, services and agriculture. It will require an astringent methodological basis. We hope this collection of essays will facilitate discourse on the new business history, and provoke the emergence of new texts. London School of Economics NOTES 1. Donald Coleman, ‘The Uses and Abuses of Business History’, Business History, Vol. XXIX, No. 2 (April 1987), p. 149. 2. OECD estimates of GDP at 1986 average exchange rates place Britain behind the USA, Japan, West Germany, France and Italy. 3. Coleman, ‘Uses and Abuses of Business History’, p. 149. 4. B.W.E.Alford, ‘Lost Opportunities: British business and businessmen during the First World War’, in N.McKendrick and R.B.Outhwaite (eds.), Business Life and Public Policy (Cambridge, 1986), pp. 205–27. 5. This is the fundamental conclusion of R.C.O.Matthews, C.H.Feinstein and J.C. Odling-Smee, British Economic Growth, 1856–1973 (Oxford, 1982).

viii

6. See, for example, ‘Not such an undeveloping Britain’, The Guardian, 26 Aug. 1987. 7. The comprehensive guide to British company histories is Francis Goodall, A Bibliography of British Business Histories (Aldershot, 1987). 8. A first-hand account of German attempts to colonise the British electrical sector before 1914 is R.P.T.Davenport-Hines, ‘Two Autobiographical Fragments of Hugo Hirst’, Business History, Vol.XXVIII, No.1 (1986), reprinted in R.P.T.DavenportHines (ed.), Speculators and Patriots (London, 1986), pp. 124–33; cf. I.C.R.Byatt, The British Electrical Industry 1875–1914 (Oxford, 1979). 9. There are few company histories of the British subsidiaries of foreign companies. The most useful is M.Wilkins and F.E.Hill, American Business Abroad: Ford on Six Continents (Detroit, 1964), which contains valuable information on Ford in Britain.P. Young, Power of Speech: A History of Standard Telephones and Cables 1883–1983 (London, 1983) covers the British subsidiary of Western Electric and later of ITT. There is a general examination of the role of foreign multinationals in British manufacturing in Geoffrey Jones, ‘Foreign Multinationals and British Industry before 1945’, Economic History Review, Vol.41 (1988). 10. For Britain’s post-1945 weakness in many manufacturing sectors, but strength in sectors such as food, raw materials, fuel and services, see R.E.Rowthorn and J.R.Wells, Deindustrialisation and Foreign Trade (Cambridge, 1987). 11. Alfred D.Chandler, Strategy and Structure (Cambridge, MA, 1962); and Chandler, The Visible Hand (Cambridge, MA, 1977) are the two key works. 12. Leslie Hannah, The Rise of the Corporate Economy (London, 2nd edn., 1983). 13. Leslie Hannah, ‘Visible and Invisible Hands in Great Britain’, in A.D.Chandler and Herman Daems (eds.), Managerial Hierarchies (Cambridge, MA, 1980), p.57. 14. Bernard Elbaum and William Lazonick (eds.), The Decline of the British Economy (Oxford, 1987). An extended application of this thesis to the British motor industry is Wayne Lewchuk, American Technology and the British Vehicle Industry (Cambridge, 1987). British productivity remains poor even after the improvements in management structures in the 1960s and 1970s. According to the National Institute of Economic and Social Research, output per head in British manufacturing in 1986 was 37 per cent that of the USA, 48 per cent of West Germany’s, 56 per cent that of France and Japan, and 64 per cent that of Italy. 15. John H.Dunning, Japanese Participation in British Industry (London, 1986).

List of Company Histories used in this Volume Bernard W.E. Alford, W.D. and H.O. Wills and the Development of the U.K. Tobacco Industry 1786–1965 (London, 1973) William Ashworth, The History of the British Coal Industry, Volume 5, 1946–82: The Nationalized Industry, (Oxford, 1986) T.C.Barker, The Glassmakers: Pilkington, 1826–1976 (London, 1977) R.A.Church, Kenricks in Hardware (Newton Abbot, 1969) D.C.Coleman, Courtaulds. An Economic and Social History (Oxford, Vols. 1 and 2, 1969; Vol. 3, 1980) T.R.Gourvish, British Railways 1948–73: A Business History (Cambridge, 1986)

ix

L.Hannah, Electricity before Nationalisation (London, 1979) and Engineers, Managers and Politicians (London, 1982) Anthony R.Holmes and Edwin Green, Midland: 150 Years of Banking Business (London, 1986) M.Moss and J.R.Hume, Shipbuilders to the World: 125 years of Harland and Wolff, Belfast 1861–1986 (Belfast, 1986) P.L.Payne, Colvilles and the Scottish Steel Industry (Oxford, 1979) W.J.Reader, Bowater: A History (Cambridge, 1981) and Imperial Chemical Industries: A History (London, Vol. 1, 1970; Vol. 2, 1975) C.H.Wilson, First with the News: A History of W.H.Smith 1792–1972 (London, 1985)

x

FAILINGS AND ACHIEVEMENTS: SOME BRITISH BUSINESSES, 1910–80 By D.C.COLEMAN

Nothing succeeds like success; nothing fails like success. Each adage has its appropriate measure of truth. Achievements turn into failures; failures stimulate achievements. Amongst the diverse enterprises whose histories have been drawn upon for the purpose of this essay, those in the private sector have survived to face the problems of the twentieth century from the experience of a Victorian past.1 Those in the public sector have faced similar problems—and exhibited some similar failings and achievements— influenced the while by pasts contained within different organisational structures. In both cases, however, the internal difficulties, as well as the failings which were exhibited, owed much to the legacy of the past. In the interest of historical continuity, therefore, it would seem appropriate to consider the failings before the achievements. I In the shaping of that legacy a favourite figure of British business history often played a leading part. The dynamic Schumpeterian entrepreneur was responsible for creating the structure of many dominant firms. His achievements have been lauded, and rightly so. But the problems which he generated for his successors and the extent to which he was, directly or indirectly, responsible for subsequent failings have perhaps been less emphasised. Such men tended almost inevitably to create highly centralised styles of management with hierarchies which ossified as success was consolidated. These characteristics can be found in small family firms such as Kenricks where, in the 1920s and 1930s Sir George Kenrick, supported by his cousins, ruled in an aloof and autocratic fashion, failing the while to recognise or carry out the reforms needed to prevent the company’s decline.2 Likewise, they appear in big family firms such as Bowaters, totally dominated by Eric (later Sir Eric) Bowater from the 1920s until his death in 1962. The business had grown as the personal creation of a man who was little inclined to share or delegate power. His death thus left a vacuum at the centre just at the time when the firm was facing difficulties, some of which were attributable to his own obsessive urge for expansion.3 The newsagent empire of W.H.Smith & Son, from its nineteenthcentury foundation and throughout the first half of the twentieth century,

2 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

remained in effect a partnership run as a paternalistic autocracy by members of the Smith family or close relatives thereto.4 The shortcomings of such a management in the changed circumstances of the 1960s became only too apparent. A complex pattern of family relationships provided the background for the extraordinary domination exercised over the big Belfast-based shipbuilding firm of Harland & Wolff by William (later Viscount) Pirrie from 1900 until his death in 1924. His ingenious but ultimately disastrous system of building ships on commission for a club of shipping lines, pursued by secretive, centralised and highly autocratic methods, left an appalling financial muddle when the shipping boom collapsed in the 1920s. Demanding consultation on all decisions and tolerating no deviations, Pirrie bequeathed a legacy which bedevilled the company for many years to come.5 Family firms may thus have provided fertile soils for managerial autocracy and its attendant failings but they were not alone in so doing. Imperial Chemical Industries was ruled over by Harry (later Lord) McGowan, especially after the death of Alfred Mond (later Lord Melchett) in 1930, in a manner which owed nothing to family connections. It had, however, all the familiar features including the creation of an organisation which lacked the power to adapt to changing circumstances.6 Nor was such a pattern confined to the central direction of a company. Within ICI, the giant Billingham works developed a separate authoritarian style of management. Bigger than many firms (its payroll rose from 12,500 in 1939 to 17,000 in 1960), it acquired its own functional and hierarchic structure, dominated by engineers and totally unfitted to meet the market challenges of the 1960s.7 In Courtaulds the company’s rayon yarn mills came to be the private fief of one managing director, Harry Johnson, wholly unrelated to the family. From his initial success as manager of the new Coventry plant just before the First World War and until his death in 1938, Johnson came to rule over an expanding yarn mill empire in the provinces. Neglecting, resenting or impeding the feeble efforts of the London-based board to bring about change, he too left a legacy of problems for his successors.8 These general features of the autocratic style of management often had associated with them certain specific failings which exacerbated the difficulties encountered by those who had to clear up sundry messes. By its very nature, this sort of regime constricted the role of other directors or of management generally, or at best left it inadequately specified. In the family glass-making firm of Pilkington, management and organisation in the 1920s had changed little since the nineteenth century. Those outside the family were given only limited responsibility and still less right to determine policy.9 At Bowaters, where organisation was rudimentary and there was little in the way of systematic recruitment or training of managers, Eric Bowater picked on individuals who for one reason or another appealed to him and gave them duties of an often indeterminate nature.10 The interrelated directors of Smiths from the 1920s to the 1950s continued to occupy an undivided partners’ room at their London office, with no clear dividing lines of responsibility.11

FAILINGS AND ACHIEVEMENTS 3

A concomitant failing in organisation was the existence of poor promotion prospects for managers, conducive thereby to resentful or inadequately motivated performances. At Pilkingtons, for example, even after various reforms had been put in train in the 1930s, avenues of promotion for sales and other managerial staff remained very restricted.12 Johnson’s highly personal rule over the Courtaulds’ yarn mills in the inter-war years generated cliques of cronies. Promotion was confined to a favoured few who resembled their boss in being old-style mill foremen, limited in capacity and antagonistic to change.13 Restricting promotion or recruitment to a group of familiar faces was, of course, widespread in British business. It operated in determining the membership of boards of directors; and it was by no means confined to those ignorant of scientific and technical matters. A conflict between technical men and commercial men was rife alike in the Central Electricity Board (CEB) in the 1930s and in its successor, the British Electricity Authority (BEA) in the 1950s. The resulting dominance of the engineers adversely affected the promotion of commercial men and indeed an understanding of commercial matters.14 In ICI, just as the engineers ruled Billingham so university-educated scientists were the elite at the Winnington plant, ensuring thereby a management style which looked down upon, or remained ignorant of, the commercial needs of the business.15 Ignorance seems indeed to have been only too common a failing in the direction of British enterprises. Sometimes it was a failure to communicate within the organisation; sometimes it took the form of decision-making without adequate information or even without any awareness that such information was desirable. Sometimes it was sheer secrecy, maintained deliberately at various levels within the organisation. The maintenance of secrecy especially applied to costs. At Harland & Wolff, Pirrie received financial information from his chief accountant but not even his managing directors were given access to the central accounts which were kept by Pirrie in London. They did not know which ships were built on commission or were built at a loss; nor did they have the requisite information to estimate costs. Moreover, they could not estimate completion dates because Pirrie would change work schedules without consulting them.16 At about the same time, Pilkingtons were preserving a high degree of secrecy which the family associated with the mysteries of glassmaking. The Cost Department was forbidden to compare notes with Sales; telegrams were sometimes sent in code between Liverpool and St Helens. It was all a family matter: ‘the less anybody knew about what was their private family concern, and especially about trade secrets, the better’.17 Throughout the inter-war years Courtaulds preserved a wall of secrecy surrounding the profits and the true value of their wholly-owned subsidiary, American Viscose Corporation (AVC). In the longer run the maintenance of that secrecy in the USA did the company no good whatever in the circumstances of the enforced sale of AVC in 1941. At a rather lower level within the organisation, it was Johnson’s policy not to ‘divulge costs to plant managers’; and he showed no enthusiasm for the attempts belatedly initiated by his chairman, Samuel Courtauld, to collect and disseminate statistical data.18

4 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

Even when deliberate secrecy was not involved, management at all levels of British industry seems too often to have been making ill-informed decisions. At Kenricks in the 1930s, production decisions were being made with inadequate data on costs and with a general lack of statistical information on sales and stocks; there was little information to permit proper budgetary and financial control. As a consultant’s report observed, the members of the family who ran the concern ‘did not appear to have acquired a knowledge of business methods as practically applied in modern industrial organizations’. Despite subsequent reforms similar complaints can be heard again in the 1950s.19 In bigger enterprises, such as Bowaters, Courtaulds and ICI, centralisation (not to speak of grandiose head-off ices) often went with a lack of communication between departments and between centre and periphery. At ICI in 1949 S.P. (later Sir Paul) Chambers, then finance director and later chairman, neatly summarised some results of mutual ignorance: We do not know what total capital to be raised will be because we do not know…the likely demands from Divisions for capital. Divisions do not know whether projects should be put forward because they do not know what the policy of ICI is or whether the capital will be forthcoming.20 In the public sector an even larger organisation suffered from similar failings. The huge British Transport Commission, with over 870,000 employees in 1948, soon found that internal changes had not facilitated better flows of information and understanding. The cumbersome dinosaur created and paraded by General Robertson, chairman between 1953 and 1961, proved in particular to be singularly incapable of fostering improved communication between the centre and the regions in running the railways. Relations between Area Boards and the Commission remained muddled; such information on costs as was garnered often failed to reach the appropriate people or to stimulate pertinent action. Later, in the 1960s and despite Lord Beeching’s reforms, there was deficient co-ordination between the operating and commercial functions of the railways as well as between divisions and regional headquarters.21 Ignorance of a rather different sort was evident in another public undertaking. The CEB’s praiseworthy concern to supply more electricity to domestic consumers at lower prices had led to a pricing policy which had been evolved in the 1930s but which, in the constrained circumstances of the later 1940s, merely exacerbated its own difficulties. The advent of the cheap electric fire stimulated a huge peak demand for domestic space-heating encouraged by low charges (based on historic average costs rather than on marginal costs) but incapable of being met by the generating capacity of a system severely limited by wartime and post-war restrictions on capital investment. The controversy created by the consequent fuel crises and power cuts, notably in 1947 and the early 1950s, might have been resolved had either the CEB or, later, the Area Boards of the BEA known what their own costs were in meeting specific loads. Internal research on costing was hampered, warnings

FAILINGS AND ACHIEVEMENTS 5

went unheeded, and obscurantist attitudes insisted that ‘judgment and wisdom’ were sufficient to determine prices.22 II Whatever the routes by which they arrived—dominant autocrats, family firms or centralised giants—such particular failings compounded into some bigger and more serious deficiences. Too many directors spent too much of their time on executive minutiae and too little on corporate policy. Organisations based on functional departments often ensured, as at Pilkingtons during the inter-war years, that, as consultants put it in 1933: ‘the Managers collectively do not form the Management’. Busy with their own departments, the board members concerned themselves with all sorts of detailed matters and gave little time to broad issues of policy.23 Likewise, at Courtaulds little thought was given to the fashioning of an effective structure of command. Some functional committees were set up in 1928 but a decade later senior members of the board admitted that the company’s organisation was weak and that the directors and the board were ‘too much concerned with detailed administration’.24 Tinkering brought no fundamental reforms. In the 1940s and 1950s there were the same complaints: the board was excessively involved in departmental management at the expense of ‘general lines of policy’; delegation was hampered by ‘lack of men of suitable calibre’ amongst existing managers (thereby reflecting past recruitment policies).25 At Smiths in the 1920s the owners and partners spent little time on matters of policy; such concern as they had outside day-to-day matters was with stability rather than growth. Although falling profits in the 1930s stimulated some thought and discussion by management about ‘the fundamental structure of their activities’, the impact in practice was slight.26 Nor was it always immediately evident in other enterprises, large or small. At ICI neither the long rule of McGowan, tempered by committees and finally brought to an end in 1950 (when he was 76) nor that of another autocratic chairman, Chambers, from 1960 to 1968, had facilitated the development of effective strategic planning. It needed the cash crisis of 1966 and poor performance in the 1970s to change the image of the ‘slumbering giant’ and persuade the ICI board to move away from an obsession with capital expenditure and cash management and to set about directing the strategy of the whole enterprise.27 At the other end of the scale of size, the same complaints can bse heard of Kenricks in the 1930s and 1950s alike: an absence of ‘considered policy’ thus allowing the company to drift along with its board too involved in executive detail to permit of effective development planning.28 Too few British managements paid regard to the need for continuous technical advance aided by properly directed research and development programmes. Technical backwardness in such British industries as cotton, coal and steel from the later nineteenth century onwards has been much publicised. The histories of

6 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

the undertakings here under review show that at one time or another during the present century, they too have failed to keep abreast of technical progress. Samuel Courtauld was at least aware of this failing when, in 1936, he circularized his board with a memorandum saying that the company had ‘rested too much on its laurels’ and had failed to develop new techniques in rayon, let alone having been overtaken by others in developing synthetic, non-cellulosic fibres.29 The Railway Executive’s decision to embark on a programme of constructing steam locomotives, 1948–53, testified, if not to a romantic attachment to the past, at any rate to a neglect of other and better sources of power.30 The prevalence in the 1920s of a large number of small generating plants was no doubt a result of the inappropriate way in which electricity supply had originally been organised in Britain; but it also meant a generally less efficient technical usage than in Germany and the USA. Three decades later the conservatism of the leading British Electricity Authority engineers was ensuring the continued installation of types of generating sets which lagged behind the latest and most efficient designs.31 Kenricks clung to outdated foundry techniques, based upon individual craft skills, in the 1920s.32 Harland & Wolff, under Pirrie’s successor, Frederick (later Sir Frederick) Rebbeck, had a justified reputation for making handsome and up-to-date liners but by the 1950s they were standing out against new techniques in shipbuilding.33 Blast furnaces and related plant at Colvilles, and indeed elsewhere in the Scottish steel industry, were damned by American consultants in 1929 as out of date.34 Thirty years on, and ICI’s Billingham plant was struggling to face competitive pressures with an outmoded technology.35 And at about the same time Courtaulds were trying to find means of escape from the legacy of too much investment in the declining fibre, rayon, and too little in the newer synthetics which they hasd earlier failed to develop.36 Pilkingtons and Courtaulds both provide examples of the inadequate regard for research and development by British firms during the inter-war years as compared with American business.37 Too many managements exhibited a hidebound, or at best unimaginative, attitude in industrial relations generally and, in particular, in their dealings with another equally hidebound power group, British trade unions. At one extreme, this took the form of the anti-union policies as exemplified by Courtaulds’ attitudes taken over from their nineteenth-century silk mills and perpetuated by Johnson in their twentieth-century rayon yarn mills. Not until after his death in 1938 was the situation there radically improved.38 Probably rather more common, however, was the sequence of compromise deals between management and unions which resulted in over-manning followed later by strikes when, under the pressure of falling profits, management tried to change labour practices and manning levels seemingly sanctified by long usage. At Harland & Wolff, Pirrie had developed good relations with a large, and indeed inflated, labour force (over 20,000 in 1915), leaving the demarcation disputes so characteristic of British shipbuilding, to be settled by the unions themselves. The perpetuation of a similar style of management under Rebbeck, through slump and recovery,

FAILINGS AND ACHIEVEMENTS 7

meant that attempts to tackle the crises of the 1960s and 1970s, by a programme of radical modernization, sparked off serious labour troubles.39 The familiar sequence was perhaps even more apparent in British Rail where for much of the 1950s and 1960s industrial relations remained largely unreformed. Traditional attitudes persisted on both sides, sustaining ancient practices, a complex and cumbersome negotiating machinery and much over-manning; and virtually ensuring a series of strikes as management grappled with falling revenues and profits.40 The existence of oversized workforces, with low productivity, could be found in Bowaters paper mills in the 1960s; in Courtaulds expanded empire after its numerous take-overs between 1957 and 1965; and in BEA in the 1950s where its chairman, the former trade union leader, Lord Citrine, permitted restrictive practices and ensured ‘abysmally low productivity’.41 High costs and low productivity were to be found at one time or another in many of the enterprises here considered. At Kenricks, despite a phase of postwar recovery, the 1950s brought yet another consultant’s report on high overhead costs and a low volume of sales; and urged a detailed analysis of costs.42 The cash crisis which hit Bowaters in 1961–62 stimulated new directors to investigations which revealed costs higher than they should have been both in newsprint production and in the grandiose head-office and centralised administration set up by Eric Bowater.43 In the 1950s, technical conservatism, inadequate financial controls, and low labour productivity combined to produce high costs in electricity generation and distribution.44 Throughout the whole period of the British Transport Commission, 1948–62, the performance of the railways was bedevilled not simply by rising costs but by imbalances between costs and charges in different sorts of traffic as well as by inadequate or tardy perception thereof by management. Even after the reforms of the 1960s the financial viability of British Rail remained elusive.45 During the 1940s and 1950s, high running costs and low profits continued to dog Smith’s too numerous railway bookstalls.46 The most remarkable example, however, of the continuance of high costs and low (and sometimes non-existent) profits comes from Harland & Wolff. Throughout the inter-war years numerous ships were built at a loss; the yard’s costs were higher than those of their rivals; poor financial control and deficient costing prevailed. To give but one example: in 1937, of the 19 vessels delivered 12 lost money. The legacy of a management which thus neglected proper control of costs and productivity was further trouble with high costs in the 1960s and 1970s as new competitive pressures brought the company to the verge of bankruptcy from which, like other British companies in quite other industries, it was rescued by government support.47 III No one single cause explains these various failings, common as they were, to these diverse enterprises. Though not present all the time in all the undertakings, they recurred pervasively. They are not explicable simply in terms of

8 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

personality. Such achievers as Pirrie, McGowan or Bowater left massive impacts, for good and for bad; but the catalogue of defects was far from confined to their legacies. Nor can they be put down to mere errors of judgment of the ‘play of the contingent and unforeseen’. Certainly such mistakes were made. Pilkingtons’ investment in the wrong techniques of flat glass manufacture in its big new plant at Doncaster in the 1920s, Bowaters’ over-expansion of newsprint capacity in the UK, ICI’s excessive investment in fertilisers at Billingham or their subsequent enthusiasm for extracting oil from coal:48 these were errors of judgment which could perhaps have occurred under any management. Governments were periodically responsible for some failings. Solving the very real economic problems of the railways was not always aided either by the intrusion of politics or by the ‘plethora of select committees, advisory groups, committees of enquiry and consultants’ which investigated the business from the 1950s to the 1980s.49 Pay pauses, incomes policies, price control, wage freezes: by whatever name, they all unquestionably exacerbated the difficulties both for British Railways and for Harland & Wolff at various dates from the 1950s to the 1970s.50 The expansion of nuclear-powered electricity generation, foisted by the government on the BEA after 1957, resulted in ‘one of the major blunders of British industrial policy’.51 On the other hand, for none of the private firms here considered did those very different manifestations of state power, the two great wars, give rise directly to any severe and insurmountable difficulties. Generally speaking, output and profits held up reasonably well, for some especially so, for example, Smiths, Kenricks and Harland & Wolff in both wars.52 Of course, there were far more important indirect and longer-term consequences: loss of overseas markets, difficulties in the repair and maintenance of plant, curtailment of capital expenditure on new equipment. The last of these was of particular consequence to the two capital-intensive public enterprises, electricity supply and railways, the latter being in a particularly bad technical condition on nationalisation in 1948.53 One theme, however, seems to recur too frequently and too widely to be ignored. It cannot be easily or precisely delineated in any of the enterprises, but it could perhaps be described as an attitude of mind antipathetic to building change into the system. Such an attitude was not necessarily resistant to particular changes but, having sanctioned or instituted them, it then sought to establish continuity, to maintain, without much further consideration, what was seen as a stable and satisfactory position. It was a modified conservatism which, while permitting change, drew strength from the existing ‘culture of the firm’, itself derived from the internal perception of the history, distant or very recent, of the enterprise. Such and such a way of making and selling goods or services had proved profitable; let us keep it so with only those changes which are necessary to maintain or, with luck, improve those profits. This was not necessarily a recipe for idleness; it could involve the work of expansion on proven lines. But it skirted or even excluded entirely the discomfort of incorporating radical change, of whatever sort, as a means to survival.

FAILINGS AND ACHIEVEMENTS 9

This implicit and unacknowledged obeisance to the god of continuity found unambiguous expression in the 1952 memorandum of John (later Sir John) Hanbury-Williams shortly after succeeding to the chairmanship of Courtaulds, praising the ‘Gentlemen’s Club atmosphere in the Board Room’ which he saw as part of the goodwill of the company and needing to be safeguarded.54 It had lain behind the tardiness with which his predecessor, Samuel Courtauld, suspicious of competition and disposed to compromise, had earlier tried to change the policies which had once succeeded with rayon but which were becoming increasingly inappropriate.55 It had consistently informed the interlocking family partnerships which ruled W.H.Smith, preserving and extending in the first half of the twentieth century a pattern of enterprise which had proved profitable to its nineteenth-century founders.56 It determined the foolish policies—commercially complacent and technically wayward—pursued by the Kenrick family in the inter-war years, resisting or delaying pressures for change.57 It coloured the ethos of Harland & Wolff under Rebbeck’s chairmanship, 1931–62, continuing a tradition of autocratic management, technical perfectionism and financial ineptitude. The period of relative stability, 1946–61, bred complacency; when crisis came and Rebbeck went, his departure ‘symbolised the demise of a whole shipyard culture’ and of an hierarchy of ‘bowler-hatted directors, management and foremen’.58 It undoubtedly determined the continuance of centralised administration, technical conservatism and doing things ‘by the book’ which dominated the first decade or so of nationalised railways. Generated in the great railway age of the nineteenth century, the long-standing ‘culture of the railroad’ permeated management and unions alike.59 And, finally, it received a variant form of adherence in McGowan’s stated disbelief in ‘the theory…that competition is essential to efficiency’. He was led thereby to devise financial deals and cartel agreements which did nothing to help ICI deal with the crises which afflicted Britain’s biggest manufacturing firm in the 1960s and 1970s.60 IV So much for some failings. What of the achievements which preceded or followed them? One of the more evident achievements of a firm already in business is the search, crowned by success, for a new profit opportunity. Such an achievement may spring from the expansionary zeal of some typical entrepreneur or, in more recent times, it may be the result of a well-judged take-over by a corporate raider with a sharp nose for assets to be stripped or exploited. It can equally emerge from a well-led board geared to planning and receptive to market signals; and it has assumed various forms in the enterprises here considered. Of these various forms one is the successful development of a new product, related to a firm’s interests but quite outside its existing resources and expertise. Two striking examples amongst our sample of businesses were both very largely the work of individual entrepreneurs. The silk manufacturing company of Samuel

10 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

Courtauld & Co. was totally transformed by two decisions taken by one of its managing directors, H.G.Tetley, and forced through a reluctant board: first, to purchase in 1904 the UK patent rights to a method of making and spinning what was later to be called rayon; and, secondly, in 1909 to buy the corresponding US rights. By 1920 Courtaulds Ltd. had become the largest rayon producer in Europe and its wholly-owned American subsidiary was the biggest in the world. The crucial decision had been made, not in the interests of cost reduction nor of competition within the existing industry but because of a perceived and articulated need to find ‘some new source of profit’.61 The other example, provided by Bowaters’ move into newsprint production, is more akin to the well-known practice of backward integration. The family firm of London-based wholesale stationers and paper merchants had made some tentative moves towards papermaking by buying land in Kent in 1914 for the possible erection of a mill. But it was the conviction of the youngest family director, Eric Bowater, that the firm was not big enough to continue to support six members of the family, which prompted his decision, taken in 1923, to move into newsprint manufacture. Despite having no practical experience of this particular sort of papermaking, Bowaters, by 1938, had become the world’s largest newsprint manufacturers and a decade later were an international organisation controlling both forestry sources and newsprint production on both sides of the Atlantic.62 These two achievements were essentially products of opportunistic gambles. Other instances followed rather more from the inner logic of the business and were not peculiarly attributable to entrepreneurial risk-taking. Some arose from successful company research. ICI’s development of ‘Perspex’ and polythene comes into this category; Pilkington’s float glass process is a striking example of it; and Courtaulds’ evolution of their own brand of acrylic fibre, ‘Courtelle’, was an outcome of a decade of greatly improved research capabilities in the company.63 All were profitable and provide some examples of major twentieth-century R & D achievements by British companies. The acquisition of a new product which readily fitted into a firm’s existing resources and expertise has often been done by a licensing agreement. A crucial element in Kenricks recovery after the Second World War was the decision to manufacture Shepherd castors under licence. It was made by the ‘new men’ who had taken over from the old brigade and it brought a surge in profits 1954–63 by which time this one item accounted for about 70 per cent of turnover.64 Similarly, Pilkingtons move into toughened glass proceeded initially by the licensing route. Their entry into glass fibres and optical glass, however, provides instances of horizontal expansion or integration.65 Vertical or horizontal integration in search of profits has a chequered history but sometimes it has brought success. Courtaulds’ moves, during the 1950s and 1960s, into the running of pulp-producing forest resources in South Africa and their acquisition of paint manufacturing capacity— both related chemically to their other productive activities—proved successful (as their attempts at vertical integration in Lancashire textiles did not).66 W.H.Smith’s earlier forays into

FAILINGS AND ACHIEVEMENTS 11

vertical integration—for example, printing and binding—had not been notably profitable; but their horizontal moves into wider and more diversified forms of retailing proved a successful achievement, transforming their shops in the course of the 1960s and 1970s along with their old image as newsagents.67 The Schumpeterian entrepreneur has not of course been motivated simply by profit. The deeds for which he must be given credit testify to an obsession with work and a yearning for power as well as that imprecisely specified psychological creature, ‘the urge for achievement’. In the building up of Harland & Wolff to ship-building pre-eminence Pirrie clearly found a satisfaction in the exercise of power; and he is said to have ‘adored the pageantry of public life’.68 His dedication to work provoked dicta well fitted to rank alongside those of Lever, Nuffield and other devoted workaholics, real and fictional: ‘Work is my pleasure. There is no pleasure like work. I am never idle. I work all day.’69 Sir John Craig, the devout Presbyterian who successfully dominated Colvilles after the deaths in 1916 of the two Colville brothers who had hitherto run the firm, saw himself as a trustee for the family; and when he finally retired, aged 82 in 1956, he provided a similar encomium on the merits of work: ‘Find your pleasure in work and your work in your pleasure, and most problems will be solved.’70 Apparently less prone to such homilies but even more devoted to power was Eric Bowater whose optimism and skill as a negotiator went far to create the international corporation which bore his name; and there can be little doubt that he relished the ‘display of personal and corporate magnificence’ which he deployed at the apex of his career in the mid-1950s.71 The work of Frank (later Lord) Kearton in revivifying Courtaulds between his becoming managing director in 1957 and his leaving the chairmanship in 1975, whatever the faults of direction subsequently revealed, was a major achievement of personal entrepreneurial activity.72 So likewise was that of John (later Sir John) HarveyJones in awakening the slumbering giant of ICI in the 1980s.73 His achievement was as real, in its totally different way, as had been that of his forerunner, McGowan, co-operating with Mond in the creation of ICI. Their aim had been in effect to create a British equivalent to I.G. Farben. McGowan and Mond both wanted a large concern with the power to deal on roughly equal terms with other international chemical firms. To a considerable extent, at any rate for about a couple of decades, the result, largely McGowan’s creation, achieved that end even though it did not produce either a high rate of return or a big flow of inventions and innovations from its large expenditure on research.74 Technical achievement may reasonably be considered as one of the evidences of success, though clearly they have sometimes been bought at an excessive price thus rendering them questionable as business achievements. In recent memory Rolls-Royce provides an only too well-known example. Likewise at Harland & Wolff the converse of financial ineptitude was a remarkable record of greatly admired shipbuilding excellence maintained from the 1920s and culminating in 1960 in the launch of the Canberra just when the era of great passenger liners was ending.75 The creation of the national grid by the CEB in

12 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

the 1930s was a major technical achievement; it transformed the operational control of power stations and brought greater efficiency, closing the gap between British power stations and their American equivalents.76 Similarly, Courtaulds international dominance of rayon in the inter-war years embodied a substantial technical achievement; and even before the advent of float glass, Pilkingtons massive plate glass plant, however expensive in space and energy, was admired as ‘a remarkable feat of engineering’.77 Achievements of a different and less publicised sort are those which consist essentially of clearing up the failings of past achievers or otherwise paying heed to matters previously given inadequate regard. As will have been evident from what has already been said, the enterprises here considered provide several examples of the need for such activities. Fortunately, they also offer some instances of success in these areas. The reduction of costs and the improvement of productivity became in time a prime concern of, for example, British Railways. Before 1960 a small increase in productivity was secured but thereafter the gains were significantly larger. The elimination of steam locomotives by 1968, the closure and/or consolidation of engineering workshops, the near-halving of the labour force between 1962 and 1973, the securing of greater control over operating costs, and the closure of unremunerative lines and stations: by such means, as well as through the removal of long-cherished labour demarcation practices, real costs were brought down and output per head pushed up.78 At Harland & Wolff a return to profitability in 1938 continued to 1960 but thereafter it needed the drastic exercises in cost control and improved accounting methods introduced under Sir John Mallabar’s chairmanship 1966–70 to make any impact on deeply embedded practices—and even then too many loss-making years soon reappeared. But something had been achieved and a more efficient firm survived.79 Similar achievements were registered at Smiths in the 1960s and 1970s. Large numbers of small loss-making bookstalls of a traditional sort were closed (reduced from 944 in 1951 to 287 in 1972); costs were cut, the labour force fell, turnover and profits rose.80 At Colvilles between 1925 and 1938 significant increases in productivity were registered, well above that to be found elsewhere in the UK steel industry.81 Similarly, at about the same time the national grid was lowering costs in electricity supply; and that industry was coming to be seen as ‘the industry par excellence of increasing returns to scale in both generation and distribution’.82 Both in the inter-war years and in the decade following the Second World War Courtaulds secured substantial falls in the real costs of producing rayon, not by any one single means but by the introduction of various productivity-raising methods.83 Diversity of method was indeed an important feature of the routes by which improved performance was reached. Sometimes it was commercial strategy that provided a crucial element in achievement. In electricity supply during the 1960s the new structure of Electricity Council and Central Electricity Generating Board (CEGB), new men in the persons of R.S. (later Sir Ronald) Edwards and

FAILINGS AND ACHIEVEMENTS 13

Christopher (later Lord) Hinton, and a new insistence by the Treasury on improving financial performance, all combined to bring great improvements. They owed much to a ‘fundamental reappraisal of commercial strategy under Edwards’.84 Courtaulds’ viscose rayon success before the First World War was based commercially on their skilful exploitation of marketing opportunities which enabled them both to defeat the continental European cartel and to get in behind rising US tariff barriers.85 Changes in labour relations, in methods of wage determination, and the elimination of sundry restrictive practices played their part not only at British Railways but also at ICI and Harland & Wolff after the crises of the 1960s and 1970s.86 Such changes were supplemented by a parallel attempt to improve management recruitment and training. At the CEGB the intake of graduates rose from seven in 1955–56 to 41 in 1959–60.87 Colvilles under Craig’s leadership maintained a good internal promotion policy and took pains to foster managerial talent as well as enjoying excellent industrial relations.88 At Pilkingtons, after the crisis of 1931, drastic new efforts were made to improve the training and efficiency of the management in this still family-dominated firm.89 Awareness of pre-war failings in both management and research stimulated Courtaulds in the 1950s and 1960s to a big intake of science graduates, to a massive increase in R & D expenditure, and to some real achievements in management recruitment and training.90 One of the main props of Beeching’s achievements was to introduce new men to managerial posts in an industry hitherto notably in-bred: in 1961–63 some 40 new officers were brought into railway managerial positions from various outside companies. Not all were successful, but others unquestionably helped to introduce new ideas and initiatives.91 V When we ask how and why these and similar achievements came about, the most obvious candidate for responsibility would seem to be organisational change. Managerial and structural changes—some more, some less revolutionary— abound amongst the enterprises under review. They appeared on a comparatively small scale at Kenricks in the 1950s and 1960s and on a very large scale in British Railways and ICI between the 1960s and 1980s. The separation of major policy-making from executive or operational management has been an important theme throughout, though with numerous variations of detail. The growth of corporate planning can be traced in the history of such diverse entities as W.H.Smith and British Rail;92 the elimination of numerous committees and the creation of decentralised product-divisions as profit centres can be seen in varying forms at Pilkingtons, Harland & Wolff, ICI and Courtaulds from the 1960s to the 1980s.93 The successive organisational changes represented by the CEB, BEA, Electricity Council and CEGB totally transformed (and greatly improved) British electricity supply and distribution from the rambling structure of private and municipal enterprises of the 1920s.

14 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

Diversification and decentralisation radically changed Bowaters in the 1960s and 1970s.94 The exception which seems to prove the rule is Colvilles. This firm never evolved into the favoured multi-divisional structure but remained (before becoming part of the nationalised steel industry) a centralised and functionally departmentalised entity with, however, in about 1939 ‘one of the most efficient managements in the British steel industry’.95 If these various examples seem to testify to the interdependence of strategy and structure along Chandlerian lines, it remains important nevertheless to stress the indeterminacy, alike of sequence and causation, still evident in the historical record. As has long been observed, multi-divisional structures are neither guarantees of success nor necessarily appropriate to every sort of business activity.96 Any one of the routes to success noted here may have been necessary but it was clearly not sufficient. Improved productivity, vertical or horizontal integration, better marketing or financial control, technical innovation: none was enough without an impetus imparted by a managerial drive which was capable of breaking down the barriers to change and which could battle against all those with a vested interest in stability. Achievement was thus ultimately a tribute to the simple historical fact that change is the unavoidable cost of survival in a competitive economic system. Recognition of that banal but inadequately heeded truth is crucial. It can be seen in the new attitudes and approaches which came into the railways through the Beeching revolution and its successors; in the new sort of rule brought to Colvilles by Craig; in the reorganisation of Smiths, largely engineered by C.H. (later Sir Charles) Troughton in the 1960s and 1970s; in William Kenrick’s ending of the exclusive family management after the Second World War; in the upheavals within Courtaulds wrought by Kearton and other ‘new men’ and continued, albeit on differing lines by Christopher (later Sir Christopher) Hogg; in the ‘very cold wind indeed’ which swept through Bowaters in the 1960s and 1970s; in the successive reorganisations of Harland & Wolff, Pilkingtons and the electricity supply industry between the 1930s and 1980s; and, not least, in the successful attempt to introduce new attitudes and new structures into ICI in the last two decades. All bear witness to an ability to recognize and break away from a business culture which inhibited radical change. Often the recognition came only when the danger signals of declining profits were very evident. The greater achievement was to foresee and provide for change before the lights went red— and that achievement has perhaps not been as conspicuously evident as could have been wished. Pembroke College, Cambridge NOTES 1. In alphabetical order of enterprises, the works used were: W.J.Reader, Bowater: A History (Cambridge, 1981); T.R.Gourvish, British Railways 1948–73: A Business

FAILINGS AND ACHIEVEMENTS 15

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33.

History (Cambridge, 1986): P.L.Payne, Colvilles and the Scottish Steel Industry (Oxford, 1979); D.C.Coleman, Courtaulds. An Economic and Social History (Oxford, Vols.1 and 2, 1969; Vol.3, 1980); L.Hannah, Electricity before Nationalisation (London, 1979) and Engineers, Managers and Politicians (London, 1982); M.Moss and J.R.Hume, Shipbuilders to the World: 125 years of Harland and Wolff, Belfast 1861–1986 (Belfast, 1986); W.J.Reader, Imperial Chemical Industries: A History (London, Vol.1, 1970; Vol.2, 1975) and A.Pettigrew, The Awakening Giant. Continuity and Change in ICI (Oxford, 1985); R.A.Church, Kenricks in Hardware (Newton Abbot, 1969); T.C.Barker, The Glassmakers: Pilkington, 1826–1976 (London, 1977); C.H.Wilson, First with the News: A History of W.H.Smith 1792–1972 (London, 1985). Church, Kenricks, pp. 144–6, 222–30. Reader, Bowater, pp. 89–90, 173–4, 225, 288, 314–16, 341–3. Wilson, W.H.Smith, pp. 263, 270, 319–20, 346–52. Moss and Hume, Harland & Wolff, pp. 66–7, 93, Ch.6 passim, 228–51. Reader, ICI, Vol. 2, pp. 26–30, 131–6, 234–6, 461. Pettigrew, Awakening Giant, pp. 120–33. Coleman, Courtaulds, Vol. 2, pp. 53–7, 230–35, 348–9, 497–8. Barker, Glassmakers, pp. 320–28. Reader, Bowater, p. 90. Wilson, W.H. Smith, p.347. Barker, Glassmakers, pp. 333–5. Coleman, Courtaulds, Vol.2, pp. 234–5, 443–5. The consequences were only too evident to new directors, appointed after the Second World War, who commented on second-rate mill managers and on an uncooperative attitude—Vol. 3, pp. 19–20, 295–7. Hannah, Electricity, pp. 152–3; Hannah, Engineers, pp. 95–107. Reader, ICI, Vol. 2, pp. 70–72; Pettigrew, Awakening Giant, pp. 320–34. Moss and Hume, Harland & Wolff, pp. 173–4, 234–5, 239. Barker, Glassmakers, pp. 260–63. Coleman, Courtaulds, Vol.2, pp. 152, 256, 322–3, 384–5, 490, 498–9; on Johnson, pp. 234–5, 420, 497–8. Church, Kenricks, pp. 207–11, 252–3. Reader, ICI, Vol. 2, p. 463. Gourvish, Railways, Ch.5 passim, also pp. 197, 495–6. Hannah, Electricity, p. 327; and Engineers, pp. 81–8. Barker, Glassmakers, pp. 320–26. Coleman, Courtaulds, Vol. 2, pp. 232–4. Ibid. Vol. 3, pp. 28–35. Wilson, W.H.Smith, pp. 319–29. Reader, ICI, Vol. 2, pp. 234–46, 445, 461; Pettigrew, Awakening Giant, pp. 387– 91. Church, Kenricks, pp. 212, 275. Coleman, Courtaulds, Vol. 2, p. 229. Gourvish, Railways, pp. 87–9. Hannah, Electricity, pp. 84–93; Engineers, pp. 104–9. Church, Kenricks, pp. 171–3, 205–7. Moss & Hume, Harland & Wolff, pp. 304, 321, 375, 392–5.

16 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

34. 35. 36. 37.

38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63.

64. 65. 66. 67. 68.

Payne, Colvilles, p. 171. Pettigrew, Awakening Giant, p. 133. Coleman, Courtaulds, Vol. 3, Chs. 8 and 9 passim. Barker, Glassmakers, pp. 339–43; Coleman, Courtaulds Vol. 2, pp. 226, 229–32; Vol. 3, pp. 17–21; D.C.Mowery, ‘Firm Structure, Government Policy and the Organization of Industrial Research: Great Britain and the United States, 1900–50’, Business History Review, Vol. 58, No. 4 (1984), pp. 504–31. Coleman, Courtaulds, Vol. 2, pp. 437–59. Moss and Hume, Harland & Wolff, pp. 168–72, 186, 410, 417–18, 452–60. Gourvish, Railways, pp. 120–33, 214–48, 529–62. Reader, Bowater, pp. 295–6; Coleman, Courtaulds, Vol. 3, pp. 289–91; Hannah, Engineers, p. 137. Church, Kenricks, pp. 252–5. Reader, Bowater, pp. 266–7, 288–96, 308–11. Hannah, Engineers, pp. 94–110, 139–48. Gourvish, Railways, pp. 91–120, 173–213, 398. Wilson, W.H.Smith, pp. 396–9. Moss and Hume, Harland & Wolff, pp. 261–3, 267, 290, 303–5, 313–18, 400, 458– 60. Barker, Glassmakers, pp. 264–9; Reader, Bowater, 250–53, 274, 322; Reader, ICI Vol. 2, pp. 98–114, 162–81, 264–5. Gourvish, Railways, p. 569. Ibid., pp. 244–8, 472–7, 481–6; Moss and Hume, Harland & Wolff, pp. 452–3, 468– 70. Hannah, Engineers, pp. 228–44, 285. Wilson, W.H.Smith, pp.274, 450; Church, Kenricks, pp. 134–7; Moss and Hume, Harland & Wolff, pp. 182–5. Gourvish, Railways, pp. 4–5. Coleman, Courtaulds, Vol. 3, p. 24. Ibid., Vol. 2, pp. 211–22. Wilson, W.H.Smith, pp. 270, 316, 318 and passim. Church, Kenricks, pp. 201–30. Moss and Hume, Harland & Wolff, pp. 313, 390–94. Gourvish, Railways, pp. 576–81. Reader, ICI, Vol. 2, pp. 7, 425–6: Pettigrew, Awakening Giant, pp. 121–55, 258– 83, 376–91. Coleman, Courtaulds, Vol. 2, p. 28 and Chs. 1–6 passim. Reader, Bowater, pp. 16–25, 79, 154, 183–4. Reader, ICI, Vol. 2, pp. 346–62; Barker, Glassmakers, pp. 416–20 and ‘Business Implications of Technical Development in the Glass Industry, 1945–65: A CaseStudy’ in B.E.Supple (ed.), Essays in British Business History (Oxford, 1977), pp. 187–204: Coleman, Courtaulds, Vol. 3, pp. 180–88. Church, Kenricks, pp. 240–70. Barker, Glassmakers, pp. 346–77. Coleman, Courtaulds, Vol. 3, pp. 112–16, 149–53, 156, 166–7, Ch. 12 passim. Wilson, W.H.Smith, pp. 4, 21, Chs. 18 and 19 passim. Moss and Hume, Harland & Wolff, p. 221.

FAILINGS AND ACHIEVEMENTS 17

69. Ibid., p. 207. For some other specimens of such dicta, see my ‘Historians and Businessmen’, in D.C.Coleman and P.Mathias (eds.), Enterprise and History: Essays in Honour of Charles Wilson (Cambridge, 1984), pp.28–9, 39. 70. Payne, Colvilles, p. 357. 71. Reader, Bowater, pp. 224–8. 72. Coleman, Courtaulds, Vol. 3, pp. 317–9 and passim. 73. Pettigrew, Awakening Giant, pp. 376–8, 393–436. 74. Reader, ICI, Vol. 1, pp. 452ff; Vol. 2, pp. 7, 465, and passim. 75. Moss and Hume, Harland & Wolff, pp. 265–6, 282, 297, 304, 311, 321, 391–2. 76. Hannah, Electricity, p. 136 and Ch. 4, passim. 77. Coleman, Courtaulds, Vol. 2, passim; Barker, Glassmakers, p. 357. 78. Gourvish, Railways, pp. 120, 460–62, 549–65 and Ch.10 passim. 79. Moss and Hume, Harland & Wolff, pp. 421–33. 80. Wilson, W.H.Smith, pp. 396–408. 81. Payne, Colvilles, pp. 250–52. 82. Hannah, Electricity, pp. 146–8, 161. 83. Coleman, Courtaulds, Vol. 2, pp. 253–4, 336–42, 366–8; Vol. 3, pp. 53–4. 84. Hannah, Engineers, pp. 193–207, 209, 216, 245–65. 85. Coleman, Courtaulds, Vol. 2, pp. 61–119. 86. Pettigrew, Awakening Giant, pp. 176–99, 230–38 etc.; Moss and Hume, Harland & Wolff, pp. 400, 410, 416–19, 452–3, 478, 490. 87. Hannah, Engineers, pp. 195–8. 88. Payne, Colvilles, pp. 357–9. 89. Barker, Glassmakers, pp. 328–35. 90. Coleman, Courtaulds, Vol. 3, pp. 295–300. 91. Gourvish, Railways, pp. 337–47. 92. Wilson, W.H.Smith, pp. 416–19; Gourvish, Railways, pp. 379–81, 519–20, 527–9. 93. Barker, Glassmakers, pp. 420–22; Moss and Hume, Harland & Wolff, pp. 434, 479– 80, 491; Pettigrew, Awakening Giant, pp. 376–424; Coleman, Courtaulds, Vol. 3, pp. 246–7, 320–21. 94. Reader, Bowater, pp. 314–40. 95. Payne, Colvilles, p. 246. 96. See L.Hannah (ed.), Management Strategy and Business Development (London, 1976), especially Ch. 9, pp. 184–200.

18

BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY: ENTREPRENEURSHIP AND MANAGEMENT STRUCTURES By T.R.GOURVISH

Business historians, in their work on the single firm—its birth, growth and, where appropriate, decline—have naturally included sections dealing with entrepreneurial response, organisational forms, and, if relevant, the separation of ownership and control and the emergence of managerial hierarchies. That this writing is often, if not invariably, divorced from a more general, theoretical, approach should not surprise us. There is, of course, no obligation on the historian of an individual business to theorise; indeed, many of such studies are commissioned histories, with all the constraints on subject matter which they impose, whether directly or indirectly. Nor is theorising a straightforward matter. For example, conventional neo-classical economics offers little comfort to those who wish to emphasise the role of the entrepreneur and organisational structures in the dynamic process of business development. Moreover, the situation still persists, notwithstanding the theoretical heritage of Schumpeter and Penrose; the behavioural school of Barnard and Simon; the transaction costs approach pioneered by Commons and Coase; and the imaginative attempts to build constraints into profit-maximising assumptions in micro-economic theory.1 For many years scholars, whether economists or historians, have often complained that much more empirical work is required before confident generalisations on entrepreneurship and organisational change can be attempted. At the same time, theoreticians remain critical of what they deem the blinkered approach of historians of single business entities.2 The behavioural and managerial emphasis of organisation theorists offers some instructive insights into the perceptions of managers, the goals of firms, and the relationship of both to business decision-making. However, where this approach merely replaces the profit-maximisation objective with the maximisation of some other element—whether turnover, capital assets, prestige or whatevers—it can be as deterministic and difficult to apply as the conventional neo-classical model. Furthermore, much of this rather eclectic work has the additional weakness of downgrading the consideration of any economic phenomena, such as market changes, technological innovation, and protection. For the business historian, the most useful applications of the ‘behavioural school’ derive from the concept of ‘bounded rationality’, that is the notion that within organisations intended rational choices or responses are constrained both

20 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

by uncertainty and by the limited capacity of human beings for computing and processing information. This is important in that it sets defined limits to an efficiency-based model of corporate behaviour, and gives prominence to a study of the activities of individual entrepreneurs and managers, where game theory and conflict models have an obvious relevance.3 Penrose has offered business historians numerous insights into the dynamic experiences of the firm, although her discursive treatment certainly does not amount to an integrated theoretical model of either the firm or its growth. On the other hand, she does emphasise the importance of the historical process and the value of using specific case studies, thereby combining the theoretical approach of the economist with the historian’s recognition of real situations. Furthermore, her work on diversification strategies and their relevance for an extension of a firm’s growth possibilities, and on the managerial costs of and limits to growth, have been major contributions to an understanding of the dynamics of corporate growth. They have been built on and extended by others, notably Marris.4 Penrose gave considerable attention to the ability of management to cope with the growth process, and this is an area which has been explored in considerable depth by Chandler. His work represents the best example of a quasi-theory attractive both to historians and to other students of corporate development. In Strategy and Structure and The Visible Hand he focuses upon the emergence of the ‘corporate economy’ in the USA, characterised by the market dominance of large, multi-divisional companies and their complex managerial hierarchies. The approach is plainly historical, in that detailed case studies are used to demonstrate that entrepreneurial and organisational responses were firmly linked to technological change and market development. The American market expanded in the nineteenth century with the coming of the railroads, which pioneered new organisational structures to cope with the operational complexity arising from size and dispersion and with the separation of ownership and control. They also provided the infrastructure to encourage manufacturing businesses to adopt mass production techniques and vertical integration. The diversification strategies of these growing firms then put pressure on the centralised, departmental or ‘unitary’ form of organisation, which had been inherited from the early railroads. In the 1920s this produced a structural response in the shape of the multi-divisional or M-form organisation. For Chandler, the organisational structure followed on from the strategy of growth and diversification.5 An historical approach is also evident in Hannah’s Rise of the Corporate Economy, which identifies merger activity in manufacturing as the major element in corporate development in the UK.6 The ‘business history’ approach, as Oliver Williamson has dubbed it, has a great deal to offer as a basic framework for the study of particular firms and industries, and has helped to identify specific issues, notably the central importance of managerial resources, and the impact of the external economic environment upon those resources. Its relevance is strongest in twentieth-century applications, of course, where with the emergence of large-scale enterprise the

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 21

‘invisible hand’ of the market began to be replaced by the ‘visible hand’ of management. Whether, as Williamson has asserted, the work of business history can be usefully combined with a transaction costs emphasis is a matter for argument. The assumption that firms will seek to supersede market transactions and the price mechanism until the cost of organising an additional transaction internally equals the cost of transacting in the market is clearly an important one. It has obvious relevance for an understanding of business organisation, particularly when modified by reference to institutions as well as markets. The approach can be employed to analyse decisions to integrate production and selling functions, and it has been used successfully in the study of multinational enterprise, where the highlighting of information costs, uncertainty avoidance, and the relationship between principal and agent is of key importance.7 At the same time, the information cost emphasis reduces the role of technology in determining the operations of firms inside and outside markets, while the transaction cost model appears to be rather difficult to handle empirically in historical contexts, particularly if quantitative precision is desired.8 Nevertheless, the work of Chandler, Williamson et al. probably offers the best set of ground rules presently available for an analysis of the transition from small familyowned and dominated firms to the giant enterprises and more concentrated industrial structures of ‘managerial capitalism’, and the increased presence of multinational enterprise.9 II This article draws upon the editors’ selection of British company histories in order to explore some of the main themes in corporate development advanced by Penrose, Chandler, Williamson et al. These are: (i) the type of organisational structure employed, the causes of managerial innovation, and the adaptability of management to expansion, technological change and transformed market conditions; and (ii) entrepreneurial and organisational factors in Britain’s apparent ‘corporate lag’, namely, the delay in emulating, for example, American developments, with particular reference to the persistence of a ‘family’ presence in management. Equally important, though given less prominence here, are: (iii) the supply of managerial resources and its implication for the pace of change from entrepreneur-dominated to manager-dominated enterprises; and (iv) the relationship between organisation and performance, with particular reference to the role of individuals, the relative merits of centralisation and decentralisation strategies in securing control of large businesses, and ‘profit’ versus ‘service’ conflicts in public sector enterprise. The considerable bias in the selection of companies and corporations has been pointed out elsewhere. The 13 businesses to be studied are, with the exception of

22 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

Archibald Kenrick & Sons of West Bromwich, large concerns. They are still trading, and have an exceptionally long life. Omitting the nationalised enterprises established by legislation in 1946–47, three of the remaining ten companies had roots in the eighteenth century, three were founded before 1837, and three were established in the period 1861–81. All are identifiable today, although Colvilles is now part of the British Steel Corporation, Wills is part of the Imperial Group (itself part of Hanson Trust), and Harland & Wolff has been government-owned since 1975. There is a strong emphasis on manufacturing, where ten of the companies are located. Finally, all have been the subject of a commissioned history. Despite the usual protestations of the authors about ‘independence’, this fact lays them open to some suspicion at least of restraint in the handling of business behaviour and the role of personalities.10 However, for our immediate purposes the problem should not be exaggerated. While it must of course be conceded that to rely solely on such examples would be to underestimate the importance of failure and of disappearance by merger in business progression, the company attributes of longevity and, ultimately, large size are useful in any examination of the transition from small to large, from entrepreneur-dominated to manager-dominated enterprise. Indeed, it is prominence in the UK economy, coupled with a sense of tradition, that has encouraged these firms to display a statesmanlike attitude to archive-gathering and the commissioning of serious business histories.11 III Our first task is to analyse the evolving organisational structures of the case studies (Table 1 provides an outline analysis). The impression they leave is that before 1914 British firms made very few significant organisational changes to match their growth, technological change, and a competitive world increasingly shaped by the corporativism of the United States and Germany. One searches in vain in our selection of commissioned histories for organisational charts to match those reproduced by Chandler for the USA. ‘Organisation’ receives comparatively little attention from our authors; indeed, the word is absent from the index of most of the books dealing with the pre-1945 period.12 What is important, and this emerges clearly, was a general move to limited liability status, a process begun in the 1880s. By 1900 seven of the nine businesses then in existence had registered, three in 1880–85, four in 1891–95; only Bowater and W.H.Smith remained as private partnerships (see Table 1). The new entities were de facto private companies, although the legal distinction between ‘private’ and ‘public’ was not made until the Companies Act of 1907. They kept the number of members small, applied restrictions on the transfer of shares, and usually made no appeal to the public for funds. If money was required, it was raised by the issue of non-voting loan stock. The controlling ordinary share capital was retained by the participating partners and their families. These moves were part of a general tendency in Britain to adopt the limited liability form. About 132,000

TABLE 1 SAMPLE OF BUSINESSES, WITH OUTLINE INFORMATION ON STRUCTURE

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 23

companies were registered in London in the period 1880–1914, and the bulk of them was ‘private’. Of the 63,000 on the register in 1914, 48,500 or 77 per cent were of this type.13

Key: * British Electricity Authority (1948–55), Central Electricity Authority (1955–57), Electricity Council and Central Electricity Generating Board (1958–) ** British Transport Commission (1948–62), British Railways Board (1962–)

24 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

Why was the decision to register taken? Certainly, by the 1880s the environment was more conducive to incorporation, with the expansion of the financial sector, the adoption of lower share denominations, and the appearance of specialist

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 25

intermediaries. But a common theme was the concern about future viability after the mid 1870s. Difficulties experienced in the climate of falling prices and squeezed profit margins led firms such as Kenricks (1883), Harland & Wolff (1885), and Courtaulds (1891) to seek the shelter of limited liability. Furthermore, the collapse of the City of Glasgow Bank in 1878 not only encouraged banks to move from unlimited to limited liability (the Midland, then known as the Birmingham & Midland, did so in 1880), but also persuaded firms in several industries that the advantages of limited liability outweighed the disadvantages.14 In some cases, growth was the spur. For Wills (1893), Pilkington Brothers (1894), and David Colville & Sons (1895), the context was sustained growth and the need to secure its financing. Limited liability status was a means to increase the number of partners in order to cope with the problems of expansion, an example of response to Penrose’s managerial limits to growth. For Wills in particular, the move followed the successful exploitation of new technology—the Bonsack cigarette-making machine.15 Moreover, the classic case of incorporation to finance growth—brewing—is unrepresented in our case studies. Here, a wave of company registrations in the 1880s and 1890s was both a response and a prelude to growth based on the acquisition of breweries and tied houses.16 Finally, entrepreneurial or family factors should not be overlooked. The conversion of both Courtaulds and Colvilles to limited liability status owed much to personal circumstances. For Courtaulds it was the death of Harry Taylor in 1890 and the prediliction of George Courtauld III for country life; in Scotland, it was the age of the founder, David Colville, 82 in 1895, and his eldest son’s interest in politics.17 Limited liability per se did little to transform organisational forms and management practices. By the turn of the century, a ‘corporate lag’ was becoming evident, in the sense of a slowness to adopt large-scale corporate organisations in comparison with the faster rate of change in the United States.18 But some of the elements which, according to Chandler, stimulated the emergence of ‘managerial capitalism’ in America, namely the revolution in transport and communications and the creation of urban markets, which unlocked technological opportunities for the integration of mass production and volume distribution, did encourage tentative organisational changes in Britain. Thus, both Wills and Courtaulds adopted public company status at the turn of the century, and at Colvilles and Harland & Wolff business pressures were reflected in a degree of managerial adaptation. In tobacco, the prelude to change was the threat of an ‘invasion’ of the domestic market by the giant American Tobacco Co. Wills, with a 40 per cent share of that market, led the response of British firms in creating in 1901 the Imperial Tobacco Co. of Great Britain and Ireland, a public concern amalgamating the interests of thirteen leading firms in Bristol, London, Glasgow, Liverpool and Nottingham. Four more manufacturers were added in 1902.19 The new company, with an issued capital of £17.5 million (in 1905), was the largest in Britain outside the railway industry, and its creation may be seen as

26 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

an inevitable shift to oligopolistic competition in tobacco. Cigarettes were ideal for low-cost, high-volume production and distribution, and some of Imperial’s early moves were entirely consistent with the vertical integration strategy of Chandler’s typology, notably the acquisition in 1902 of a key printing/packaging firm, Mardon, Son & Hall, and a large firm of multiple wholesalers and retailers, Salmon & Gluckstein. On the other hand, there were distinct limits to this ‘corporate revolution’. In many ways the new giant was a glorified family firm. The Wills family supplied seven of the nineteen Board members and held 70 per cent of the equity capital. Although steps were taken to centralise certain functions, such as tobacco leaf buying and overall financial strategy, action fell far short of the American model, with its central headquarters and complex management hierarchy. Imperial remained essentially a federation of firms, with production and sales policy largely determined by the constituent manufacturers. It was a corporate giant in legal rather than in managerial terms.20 The re-registration of Samuel Courtauld & Co. as a public company in 1904 followed a decade of difficulties, including a decline in domestic crape sales and a writing-down of capital. But the change was probably inspired by the decision to move into artificial silk. Viscose patents and licences were acquired in the same year, and a paid-up capital of £600,000 formed the basis for investment in a new factory in Coventry in 1905, and a period of expansion and profitability. Indeed, within ten years profits were high enough to encourage a further reconstruction as Courtaulds Ltd in 1913, with an issued share capital of £2 million. The company also became a multinational enterprise by establishing the American Viscose Corporation in 1910.21 Nevertheless, as with Wills, Courtaulds still represented a hybrid form of corporate development in comparison with the American model. Although the control of the founding families was diluted considerably, the business was a long way from the complex organisational structures of integrated, functionally departmentalised American companies such as Du Pont and Armour, and of companies moving towards the multidivisional form before the 1920s, such as United States Rubber.22 The modesty of British management changes prior to 1914 can also be seen in the histories of Colvilles and Harland & Wolff. At Colvilles, ownership was widened in 1901–2, but more interesting was the offer of a token shareholding to a number of young managers. The decision gave them a personal stake in the business and was a means to promote the more promising among them to the Board. Indeed, only fourteen years later, in 1916, one of them, John Craig, the son of an iron puddler, emerged as Chairman and Managing Director.23 In Belfast, Harland & Wolff grew to become the world’s leading shipbuilding firm, under the leadership of William (later Viscount) Pirrie, an owner-entrepreneur in the grand manner, who became Chairman in 1895. The firm’s rapid growth, together with the industry’s complex links with shipping, steel, armaments and marine engineering, encouraged a series of both horizontal and vertical mergers. The need to safeguard supplies of heavy steel forgings and a desire to buy into turbines led to a merger with the Sheffield steel firm of John Brown in 1907.

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 27

This took the form of an exchange of shares, with 52 per cent of the equity being transferred to the Sheffield concern. The move was one of a series of financial mergers which culminated in Harland & Wolff s conversion to a public company in 1924 and membership of the Royal Mail Shipping Group. However, there is no suggestion that the company’s growing complexities produced any significant changes in organisation. Day-to-day management was delegated to a committee of six managing directors, but strategy and financial control remained firmly in the hands of Pirrie.24 Thus, corporate change in Britain before 1914 was more legal and financial than managerial, with an emphasis on the retention of control by founding family groups. Business organisation was essentially simple, as far as one can see, based upon a few functionally-structured departments. Policy and planning roles and, in many cases, routine decision-making too, were left to dominant personalities such as Pirrie, and Henry Tetley of Courtaulds, who inspired the move to public company status. Training for management was rare and recruitment could be ‘astonishingly casual’ in view of the size of the companies concerned.25 Only in the railway industry is there any indication of ‘managerial capitalism’ in the sense of dispersed, complex organisations, the separation of ownership and control, hierarchies, and management development by means of training programmes. Even here, the organisational structures themselves remained fashioned upon the departmental model common to both British and American railways in the 1850s and 1860s. In the UK there was little change in response to the move to larger company size and more oligopolistic conditions after 1870, and no fundamental transformation before the government-sponsored mergers of 1921–23.26 IV The inter-war period is generally seen as a fruitful area of study in terms of British corporate development. First, the enthusiasm for ‘rationalisation’ apparent during the First World War among prominent business leaders was perpetuated in peacetime, although its precise meaning was uncertain. It was used to support strategies ranging from intervention in the organisation of work—the elimination of restrictive practices, for example—to purely defensive reactions to the harsher realities of the post-war economy, from horizontal mergers with minimal change to vertical transformations following the economic hiatus of 1919–21.27 Second, in manufacturing, a significant merger ‘boom’ can be detected. As Hannah has shown, the number of firms which disappeared in this way increased significantly in the 1920s, and activity remained at a high level in the following decade.28 A number of prominent new business entities emerged, not least of which were Imperial Chemical Industries in 1926, Associated Electrical Industries in 1928, and Unilever in 1929. The largest change was outside manufacturing, with the government-sponsored merger of most of the railway industry to form four giant regional enterprises in 1923. This said, how far was

28 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

the period one of genuine organisational, or managerial innovation? Our case studies point up the steps taken by some of the established or leading firms, but everywhere there is an indication that conservative management practices persisted. The merger wave itself was essentially either (i) defensive, with the aim of stabilising competition and prices, rather than part of a conscious strategy to control the market; or (ii) emulative, inspired by the threat of intervention by leading foreign firms, or encouraged by foreign entrepreneurs active in the British economy. There was real growth, based on new investments such as Ford’s at Dagenham in 1932, but more often corporate growth was a matter of ‘joining together existing assets’.29 The major example of a large-scale merger in manufacturing, fully documented by Reader, is that of ICI. At first sight, there are similarities with the Imperial Tobacco case a quarter of a century earlier. The amalgamation of the four largest chemical firms—Nobel Industries, Brunner, Mond, United Alkali, and British Dyestuffs Corporation—was devised by Sir Harry McGowan (Nobel), in conjunction with Reginald McKenna (Chairman, Midland Bank, 1919–43) and Sir Alfred Mond (Brunner, Mond). While all were rationalisation enthusiasts, the move was prompted by the threat to the British chemical industry presented by the newly-formed German giant, IG Farbenindustrie—and, as in tobacco, was both emulative and pre-emptive in nature. There was no evidence of technological or financial considerations.30 In a sense there was direct German influence on ICI via the Mond family with its Cassel origins, and German entrepreneurs were also prominent elsewhere, O. Philippi of J. & P. Coats in textiles, Sir Hugo Hirst of GEC in electricity. American influence was also evident in the establishment of AEI in 1928 and in the British motor industry.31 But how far did British management change in the period? ICI began by moving firmly towards centralised control, led by the two Managing Directors, Mond (Chairman, 1926–30) and McGowan (President, 1926–30). Using Nobel’s holding company model, the first ICI Board presided over an issued capital of £56.8 million with eight executive directors drawn from only two of the constituent companies, Nobel and Brunner, Mond. This was quite different from Imperial Tobacco’s ‘loose federation’ of 1901. Indeed, the evidence suggests that centralisation was taken too far, with the executive directors spending too much time on the routine management of individual constituents, and within four years the company had adopted a more decentralised, multidivisional structure, based on Nobel’s Metals Group of 1928, with eight product-based manufacturing groups. It is safe to regard ICI as one of the British pioneers of the Chandlerian modern corporation, and certainly, the organisational steps of 1927–31 ensured that there were no managerial ‘limits to growth’, in Penrose’s formulation. But it is equally clear that these steps, and notably the establishment of a Central Administration Committee and a General Purposes Committee, were designed to strengthen the position of the managing directors, and after Mond (Lord Melchett)’s death in 1930, McGowan dominated the company as Chairman and sole Managing Director until 1937. The bold, energetic Scot, with his high salary

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 29

(averaging £57,000 p. a., 1931–37), epitomised ‘managerial capitalism’, but his dictatorial stance, and the continued concentration of authority for finance, marketing and pricing at the centre, ensured that the leaders of the manufacturing groups were merely production directors lacking ‘bottom-line’ responsibility for commercial performance. ICI, then, fell short of the full multidivisional form. And the early structure of the company was no safeguard against strategic mistakes, as the investment of £20 million in fertiliser plant at Billingham indicates. This was quite simply ‘a disaster’.32 The ICI example was not taken up enthusiastically in the rest of the UK economy and, in comparison with the USA there were few ‘managerial enterprises’. In Corporate Economy Hannah refers to three further companies which moved towards a multidivisional form before 1939 by creating regional or product-based divisions—Spillers (milling), Dunlop (rubber) and Turner & Newall (asbestos). Elsewhere he notes that Channon listed only 12 British multidivisional concerns for 1950, eight of which were part of either North American or European multinationals.33 One of these, Unilever, was the product of a 1920s merger, when the soap and edible fats businesses of Lever Brothers and the Dutch Margarine Unie coalesced in 1929 in ‘one of the biggest industrial amalgamations in European history’.34 The new company, though outside our selection of studies, is a highly instructive example of the transition from ownerdominated to manager-dominated enterprise in a large-scale business. Three necessary ingredients can be found: the determination to maintain family control; the limits to individual control as the firm expanded, contributing to crisis; and the role of crisis in forcing a managerial response. Lever Brothers Ltd., a public company from 1894, could be regarded in its latter years both as a leading multinational and as a rather ramshackle collection of companies led by an owner-entrepreneur of failing strength. The move after 1912 to an executive board with functional responsibilities and a committee structure did not dent the autocratic rule of William Lever, Lord Leverhulme. His controversial company acquisitions in the early 1920s, not least of which was the Niger Company purchase, at a time of falling prices, produced a crisis; and this was exacerbated by the high gearing of Lever’s stock, itself a reflection of the founder’s determination to retain control. Liquidity problems forced him to turn to an outsider as manager—Sir Francis D’Arcy Cooper, an accountant from Lever’s auditors, Cooper Brothers. It was Cooper, adviser from 1921, ViceChairman in 1923, and Leverhulme’s successor as Chairman in 1925, who orchestrated the separation of ownership and control and ultimately the Unilever merger. 35 Thus, crisis produced managerial change, but the process was more complex in that a fundamental shift of company strategy was also involved. Leverhulme’s emphasis on internal competition between constituent companies and growth by proliferation was replaced by a policy of retrenchment and a determination to rationalise productive and marketing capacity. In this transformation, organisational adjustment tended to follow, rather than lead, strategy.36

30 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

Nevertheless, changes were made. In Unilever, the challenge posed by two large business empires was met by the creation of two holding companies, with identical boards (though not identical officeholders), a move based upon the experience of Van den Burghs within the Margarine Unie group. Decisionmaking at the centre, which focused on finance and marketing, was operated through a small Special Committee, an early 1920s innovation at Lever Brothers (introduced in 1921 to act as a check on Leverhulme). Under Cooper as Chairman (1930–41), Unilever Ltd. and Unilever NV pursued more systematic marketing and production strategies. For example, a rationalisation scheme for the multiplicity of UK soap units, each with its own sales organisation, was introduced under the guidance of Geoffrey Heyworth, another accountant turned successful manager. The firm also encouraged more graduate recruitment to management. There were limitations, of course. The constituent companies, with their world-wide ramifications, took some containing, and the divisional structure was a mixed one, comprising both geographical and product-based units. It took a considerable time before the process of rationalisation was complete. The impression of pre-war Unilever is of a fairly loose federal structure, and as the company’s commissioned historian has observed, ‘management still had a long way to go before it made radical changes in traditional moulds’.37 But a measure of what a professional management could achieve in a corporate structure was the bold reorganisation of the company’s assets in 1937. In order to adjust for the growing dominance of the UK partner, its non-Empire assets overseas were sold to Unilever NV. The rivalries of the participating families were overcome.38 Relatively few firms moved towards a decentralised, divisional form, of course, and by no means all companies responded to the inter-war crisis of recession and over-capacity by adopting manager-dominated organisations. In many cases, family control was maintained, and a crisis did not always provoke managerial change. When organisational adjustments were made, these were often tentative, falling far short of a radical change along Chandlerian lines. Certainly, among our case studies, a number of changes in company form were made. Harland & Wolff (1924), Bowater (1926) and Colvilles (1930) became public companies, and all three experienced managerial or financial crises which necessitated reconstruction—Bowater in 1932, Colvilles in 1930 (after a decade of being controlled by Harland & Wolff), and Harland & Wolff in 1937. The last two were a consequence of the collapse in 1930 of the infamous Royal Mail Shipping Group, a loose conglomerate of financial interests in shipping, shipbuilding and metals built up by Lord Pirrie and maintained, until disaster struck, by Sir Owen Phillips, Lord Kylsant.39 The period also saw the end of the last partnership in our list, when W.H.Smith & Son became a private limited company in 1929. This might be seen as a belated acceptance of the shortcomings of the partnership form for an expanding national business, but the change was not made for organisational reasons but because there was a need to respond more flexibly to the financial problems left by the death of a principal

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 31

partner, Freddie Smith. In all four cases, owners continued to participate fully in management, although power was shared with managers. The same is true of Pilkingtons, which survived a management crisis in the early 1930s by restructuring its organisation while retaining strong family control.40 The progress, or lack of it, made by our selection of ten companies is set out in Table 2. The assessment must be tentative in view of the reluctance of some authors to conceptualise about organisational form and managerial authority. Nevertheless, the broad picture is fairly clear. Using a crude ranking based on labour force estimates, it can be seen that even the larger companies (those employing 20,000 or more) failed to emulate ICI and Unilever. Harland & Wolff, Imperial Tobacco and Courtaulds all exhibited considerable limitations in organisational capacity and managerial status. Imperial Tobacco and Courtaulds had certainly moved to a larger board of directors, with functionally-structured departments, and some element of managerial hierarchy. But behind these simple delineations, weaknesses were apparent. At Courtaulds, organisational difficulties were fully revealed as the company expanded. The Board retained a complacent, Victorian character in the 1920s and 1930s, increasingly out of step with the company’s shift into chemicals and multinational activities. Led by Samuel Courtauld IV, it contained two family members in a group of seven in 1921, and four in an expanded membership of 18 in 1939. Representation was almost exclusively internal, favouring textile production men at the expense of technical experts. The only outside appointment was that of Francis Rodd (Lord Rennell), a banker, in 1935; unsurprisingly, he became one of the sharpest critics of the organisation. Steps were taken to improve matters in the late 1930s, with an expanded board membership, the appointment of commercial experts and accountants, the creation of a small advisory group at the centre, and some graduate recruitment. But there was still no clear managerial hierarchy, and, according to Coleman, the company ‘was still being run in the manner of an autocratic family business’. A conscious acceptance of the company’s shortcomings came with its decision (in 1937) not to take over the rest of the UK rayon industry. This was a clear example of a firm recognising that it was not in an organisational position to reap the benefits of horizontal merger. It took a sharper crisis than the difficult market conditions of the 1930s to provoke further change: this was produced by the enforced sale of Courtaulds’s lucrative American subsidiary, AVC, in 1941.41 Alford’s principal concern is with the operations of the Wills branch inside the Imperial Tobacco group, and he provides comparatively little about the workings of the holding company. However, he indicates that before 1955 very little was done, nor were external market factors pressing enough, to disturb a loose, quasidivisional structure based on a very large board (33-strong in 1939), recruited, in the main, from the owners of the constituent companies. The Wills family itself gradually surrendered control of Imperial Tobacco as Wills’s dominance of the UK tobacco market declined, and the position of John Player & Sons strengthened. There was an organisational response to this change in the balance

Notes 1. Estimate of Christine Shaw/Lewis Johnman: Business History, XXVIII, No. 2 (April 1986), p. 239. 2. Bowater and Lloyd. 3. Chandler’s typology, namely Based on Personnel: owners dominate Family: owners and managers share power Financial: managers and representatives of investors/banks share power Managerial: managers dominate 4. Typology: Internal: Directors appointed from owners, company managers. Mixed: Directors include both internal and external appointments.

TABLE 2 COMPANY STRUCTURES, 1939

32 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 33

of power, in the extension of the central advertising function and the creation of a new committee to consider inter-branch matters before they reached the Executive Committee. But the company remained a federation of ownermanagers and their firms.42 Harland & Wolff is more difficult to categorise. The company’s financial weakness in the 1920s, exacerbated by its purchase of Colvilles, was a key factor in the Royal Mail collapse. The crisis was by no means avoidable given the difficult conditions experienced by shipbuilding and steel after the war; but there is little doubt that the scale of the problem was produced by Lord Pirrie’s dictatorial pursuit of financial integration, a strategy in marked contrast to the organisational integration of best-practice American firms. Pirrie’s death in 1924 left Harland & Wolff both financially and managerially insecure. Since 1907 there had been managing directors on the board, working through a committee, but they had little knowledge of the business outside the production process. The initiative passed to Lord Kylsant as Chairman, and the company was forced to go public. Kylsant, assisted by Craig from Colvilles and Sampson from John Brown, concentrated upon finance. Although they exhorted the managing directors to improve tendering and cost control, they had little success. The company was in the worst position of having an overcentralised and compartmentalised control of finance and an inadequate control of production. In 1930, voting trustees were appointed to represent Royal Mail Group creditors, and they installed Frederick Rebbeck as Chairman of Harland & Wolff. An engineer and former works manager, he sought to manage the business as autocratically as his predecessors. The firm cannot be considered a ‘managerial enterprise’, nor was it an entrepreneurial one. It is best seen as a financial enterprise, in Chandler’s typology. The trustees, representing creditors such as the Treasury and the Midland Bank, sought to dictate overall policy and organised the financial reconstruction of 1937. But they failed to control Rebbeck, who exhibited all the defects of the engineer turned manager, in his preference for quality and technical progress over budgetary control.43 As for the remaining companies, diversity was the keynote. At one end of the scale there was the Midland Bank which, having expanded in the 1920s by bank affiliations and branch building, developed a more centralised, collectively responsible organisation (from 1929) to control its comparatively large, dispersed labour force. The Board was large, but effective leadership was provided by Reginald McKenna, Chairman, 1919–43, and executive directors such as Frederick Hyde, though there were signs of weakness by 1939. The management style was less assertive than that of Sir Edward Holden, Chairman and Managing Director, 1908–19, but the business was now much larger, the economic environment more treacherous. The Bank appears to have responded to problems of control by improving central accounting, introducing a fully mechanised book-keeping system, and using microfilm in cheque-clearing. The move to a more cautious management was followed by a loss of leadership to Barclays, but it did not mean ossification.44 At the other end of the spectrum, the

34 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

owner-dominated Black Country firm, Kenricks, displayed all the classic weaknesses of the personal enterprise: faltering leadership, weak commercial strategies, and the divorce of marketing and production.45 Colvilles was different again. The firm became a managerial enterprise from 1916 when led by John Craig. The owners withdrew to become rentiers, and Craig’s position, supported by full-time salaried directors, survived the company’s purchase by Harland & Wolff in 1920 and subsequent membership of the Royal Mail Group. But reorganisation in 1930, when David Colville & Sons merged with James Dunlop & Co. to form Colvilles Ltd, produced a new board structure which saw a reassertion of owner-participation in the shape of Sir James and Henry Lithgow. The company therefore reverted to a family enterprise, with shared power.46 The results in Table 2, drawn from a narrow range admittedly, indicate a continuation of the unitary or departmental form, a preference for internallyrecruited directors, and the retention of owners in entrepreneurial positions (the term ‘entrepreneurial’ is used here to denote strategic decision-making, for example about resource allocation and future growth). Company organisations did develop in the inter-war period, sometimes consciously to improve long-term growth prospects, though more commonly, it seems, as a reaction to crisis. But only two companies in our list had achieved ‘managerial status’ by 1939, with salaried managers dominating key decision-making at the top, supported by a structured hierarchy below. Even large companies, such as Courtaulds and Imperial Tobacco, retained owners in top management roles, and the holding company form was often seen as the remedy for post-merger complexities. Some companies with control problems, such as W.H.Smith, Bowater, and Colvilles, were able to develop managerial hierarchies without deserting the ‘family’ enterprise.47 All this suggests that there was a ‘corporate lag’ in Britain compared with the USA before the 1950s, although its extent should not be exaggerated.48 Why it occurred is difficult to explain convincingly, and it is impossible to summarise the various arguments in a few lines. A number of macro-economic generalisations, for example about market size and the relative efficiency of communications and capital markets, have their attractions, and not least is Lance Davis’s emphasis upon the retarding influence (on concentration) of the ease of obtaining external funds in the UK.49 It may well be that the external pressures to effect change—and specifically, to adopt the M-form of organisation—were not strong enough before the 1950s; certainly, companies such as Courtaulds appeared reluctant to diversify their production before them. It may be that the immature managerial hierarchies which developed in ownerdominated enterprises were not sophisticated enough or powerful enough to pose the kind of control problems which Williamson identifies as forcing a move to the M-form in order to reassert central control over resource allocation and profitability.50 But at the root of much of Britain’s more cautious response to corporate growth was the persistence of traditional attitudes in top management, whether that management was dominated by owners, or salaried managers, or

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 35

neither. The ‘club’ atmosphere of most boardrooms was a key factor influencing attitudes to organisational change. It also provides an explanation for the general diffidence in manufacturing about management training and development in comparison with practice not only in American manufacturing but also in the British railway industry. Some progress can be detected in the inter-war years. ICI established a Central Staff Department in 1927, Pilkingtons introduced a traineeship scheme in 1933, the Midland Bank placed greater emphasis on examinations and entry qualifications in the 1930s. But these rather limited responses were far from typical.51 Education and training of managers remained separate activities, and even large companies retained a cosy amateurishness. Both must be associated with ‘corporate lag’ before they were challenged in the post-war years.52 V In post-war Britain the larger enterprises gave much more attention to their organisational structures. There was first of all a move to the holding company type, for example by Bowater in 1947, and by W.H.Smith on taking up public company registration in 1949 (see Table 3). The M-form then gained ground, such that by 1970 four of the nine private sector enterprises in our list had adopted it to some degree (Table 3). Colvilles, which had been nationalised in 1951 and denationalised four years later, also moved to a multidivisional form, in 1963, shortly before it was renationalised in 1967. The task of analysing these developments in detail is hampered by the considerable variation in treatment given to the post-1945 period. There is a whole volume on Courtaulds, covering the quarter-century to 1965, but at the other end of the scale, Reader’s history of ICI ends in 1952, and the treatment of post-war Wills (Imperial Tobacco), Pilkingtons and W.H.Smith is far from extensive. What seems to emerge is an acceptance that changed circumstances—the impact of market forces, new technology, etc.—merited a determined organisational response, with new structures, an injection of management theory, and the appointment of ‘new blood’ managers. Often, these changed circumstances involved policies of acquisition and diversification which placed existing managements under pressure. For Courtaulds, for example, an aggressive merger policy—there were no less than 29 ‘main acquisitions’ in 1957–64, including British Celanese (1957) and Lancashire Cotton Corporation (1964)—was accompanied by the adoption of a hybrid form of holding company, with separate operating units, and product- and process-based divisions. Important changes at Board level followed in the wake of an unsuccessful take-over bid from ICI in 1961. Board committees were streamlined, and two ‘Executives’, one for Operations, the other for Policy, were established. Both were dominated by Frank Kearton, Chairman from 1964.53 Several companies brought in management consultants to advise on necessary changes. The most popular was McKinsey, which invariably recommended a

36 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

move to a non-executive, planning Board and a multidivisional form. It was on McKinsey’s advice that Bowater pursued a diversification strategy in the 1970s; the same company also offered advice to ICI, the Midland Bank and British Rail, though with less success.54 As organisations changed, there was a significant erosion of the family-dominated enterprise. In Table 2 above, seven firms are listed in the family/personal categories in 1939, but by 1970 it is difficult to use these terms for any but Kenricks. This is not to say that family influences were swept away entirely. Members of the Pilkington and Smith families continued to serve as directors, and to act as chairman. It was not until 1967 that W.H. Smith’s chairman, David Smith, renounced his legally established right to nominate .a successor.55 In many ways the most challenging, and certainly the most publicised, problems of organisation and management in the post-war period concerned the industries taken into public ownership. Not only did nationalisation create sudden and substantial difficulties in controlling such widely dispersed activities as railways and coal-mining, but it also made the debate about the relationship between the type of organisation employed and performance more strident due to the government’s close involvement in both. Manpower statistics reveal the scale of these newly-constituted undertakings. In 1948 the British Transport Commission, dominated by the railways, employed 873,000 and the National Coal Board 776,000. Even the more capital-intensive electricity industry had a workforce of 151,000 (231,000 by 1963), which put it comfortably above that of the manufacturing giant, ICI, with 120,000.56 From the start, the choice of organisational form was very much a matter for government, and intervention persisted as arguments about the respective merits of centralisation and decentralisation in large enterprises intensified. The problems confronting nationalised transport, coal, electricity, gas and steel were not identical, of course, but certain common features may be identified. First, the legacy of prenationalisation structures created enduring headaches for the new corporations; second, the role of individual managers was often decisive in shaping both the organisation and its performance, even in these extremely large enterprises; and third, the government-industry relationship complicates an assessment of management, not only because of state intervention in such areas as pricing and labour relations, but also because governments appointed the senior managers and set (and frequently adjusted) corporate goals. It is quite clear that the legacy of the past influenced the way in which the organisations of nationalised industries functioned and developed. Coal, in particular, was handicapped by the lack of unity in a large and ‘bewilderingly diverse’ industry. Although there were large companies in the pre-war period— 14 of them employed about a quarter of the workforce—most colleries were small and independent. The National Coal Board inherited a considerable dispersion, in terms of both ownership and location, with 1,470 colleries and over 800 firms. Unlike the railway and electricity industries, there was no

TABLE 3 ORGANISATIONAL CHANGES, 1939–70

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 37

existing administrative structure to work with and, according to Ashworth, little planning for future operation after the war. A dearth of management skills, noted in the inter-war years, was made worse by the unwillingness of many managing directors of private concerns to join the new enterprise. The results were seen in an enduring organisation, a complex and rather remote hierarchy of five/six tiers, which was not substantially modified until 1967; a long span of command; a

Key: U unitary Hc holding company MD Multidivisional on products MG Multidivisional on geographical units

38 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

reluctance to introduce the reform of management techniques; and initial difficulties in controlling the lower tiers (and the Area General Managers in

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 39

particular) with existing managerial resources, a point noted by the Fleck Committee Report on organisation of 1955.57 Electricity was initially better placed, in that the industry had moved a long way towards public ownership both in generation, which before nationalisation had been organised by the Gridowning Central Electricity Board (established in 1927), and in distribution/ selling. There was also more support for nationalisation among the senior managers. Nevertheless, there remained the task of taking over nearly 600 concerns, and the experience of the past was reflected in the tension between Area Boards and the British Electricity Authority, since the former’s chairmen were recruited primarily from the old public electricity authorities and supply companies and were anxious to retain their autonomy. There was also an appeal to the past by the Conservatives when they encouraged more decentralisation in the 1950s, with the hiving-off of the South of Scotland Electricity Board in 1955 and the separation of generation and distribution elsewhere with the creation of the Central Electricity Generating Board in 1958.58 The experience of nationalised transport fell somewhere between coal and electricity. The railways, much the largest element in the British Transport Commission of 1948, had been reorganised into four oligopolistic concerns in 1923. The organisational structures of these companies and in particular the power of the General Manager as chief executive proved difficult to dislodge; and the problems were compounded by the initial organisation of the Commission, a small body which wanted to assume functional responsibilities but which was ill-equipped for more than a planning role.59 The post-war experience of these industries, and especially the railways, raises the question as to whether they were too large and too complex to be managed effectively as single enterprises. But they were not beyond the capabilities of the gifted individual to lead and reform. The three commissioned histories identify managers whose role was crucial. In the coal industry, it was Alfred Robens who inspired the reform of the NCB organisation in the 1960s; on the railways, Richard Beeching presided over the break-up of the BTC and the modelling of the new British Railways Board from 1963; in electricity, the centralising tendencies of, first, the BEA, and later, the CEGB were very much identified with the personal initiatives of Lord Citrine and Sir Christopher Hinton. At the same time, some of the organisational weaknesses can be traced to a failure of effective leadership: General Sir Brian Robertson’s BTC organisation in the mid-1950s is a case in point. The ‘managerial revolution’ in the nationalised industries in the 1960s was real enough, and in many ways the public sector outpaced the private in developing investment appraisal techniques and the move to ‘corporate planning’. But this ‘revolution’ was as much about importing singleminded personalities, men such as Beeching who came from the private sector (ICI), as about applying the dictates of business consultants and the management manuals of the business schools. It was also associated with a change in the government’s attitude to nationalised industry, in which service goals were subordinated to the need to perform in a ‘commercial’ manner.60

40 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

How far, then, had the corporate economy proceeded by c.1970? The 1960s saw an intensified merger wave, and a substantial proportion—72 per cent according to Channon—of the largest companies had adopted the M-form organisation by the end of the decade.61 The diversification strategies noted by Chandler for an earlier period in the USA had certainly emerged in Britain by this time. The recruitment and training of managers was also given greater attention. In the public sector the complexities of the relationship with government, confusion as to goals, and the legacy of the past should not be allowed to obscure the management gains made in these industries. As stated earlier, it is often difficult to analyse the progess made by the enterprises in our selection with any confidence. In general, the literature at our disposal does not place organisation or management at the centre of the analysis. In studies such as those of Harland & Wolff and the Midland Bank, for example, organisational elements emerge at intervals in a rather dense chronological text. Where organisation is given more prominence, for example in the work on Courtaulds and Pilkingtons, there is a reluctance to theorise outside simple Chandlerian formulations of strategy and structure. Elements of an earlier age of British management clearly survived, in the private sector in W.H.Smith and Pilkington, for example, while the traditional approach to railway management proved difficult to reform, as Beeching found in the 1960s, and Peter Parker discovered two decades later. Hybrid forms of the multidivisional approach were adopted in ICI and Courtaulds, and it is clear that in Britain there was a tendency for divisional managers to become involved in strategic decision-making normally reserved for the central headquarters. How far such developments were related to the performance of the enterprise is a vital question, but one which has not been satisfactorily resolved. It is frequently difficult to associate improvements in market performance with organisational type, and evidence for the motor industry suggests that family firms were just as successful as those organised in a more complex fashion. Equally, public bodies such as the British Transport Commission displayed some of the worst traits of the family enterprise.62 Hypothetical gains from the move to the M-form may be clear enough, but are difficult to prove beyond doubt in an empirical context.63 VI We must guard against the temptation to exaggerate the significance of our findings. It is a common complaint that the case-study approach is limiting. For example, a fair amount of the debate among economists and historians on multinationals centres on the representativeness of case studies drawn from archival material.64 Here, Penrose’s advice remains instructive. While warning that consistent examples were not an automatic proof of a general argument, she suggested that ‘the theory of the process of growth’ (her italics) was ‘susceptible to empirical testing against the experience of individual firms’. It is in this spirit, and with a clear understanding of the nature of the material used, that this article

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 41

has been written.65 What conclusions should be drawn from the survey? The belated move to complex management hierarchies and, more specifically, the Mform should be given closer attention by business historians. Certainly, the postwar adoption of multidivisional structures appears to have been associated with diversification in many cases, although which came first is more difficult to ascertain, and it may well be that both were a joint response to factors such as market failure and technological change. There are also exceptions to the rule that the move to the M-form was linked to diversification strategies. British Rail, for example, moved towards a product-based or ‘business-led’ management by ‘sectors’ after 1982, following the shedding of most of its diversified products, such as hotels, shipping and hovercraft, which were lost in the government’s privatisation drive. Another key issue is the nature of an explanation for Britain’s ‘corporate lag’. This phenomenon may simply be a matter of the comparative number of firms with a diversified product-range and geographically dispersed activities. After all, organisational innovation in the USA was clearly stimulated by the challenge presented by such factors—factors which surfaced on a broader front than in Britain. On the other hand, entrepreneurial explanations focus upon the continuing presence of family members on the boards of many of Britain’s major companies. The influence of family participation should not be exaggerated, and it is quite clear that ‘family’ and ‘failure’ cannot be closely aligned. But if the term ‘family’ is broadened to encapsulate the clubby, gentlemanly approach to such elements as management recruitment, staff development, and the application of organisational science to business, then there is much in the thesis that British businessmen displayed a slow corporate response before the 1960s.66 University of East Anglia NOTES This article is a revised version of a paper given at the Business History Conference held at the University of East Anglia in September 1987. The author would like to thank the participants for their reactions. He is also indebted to Keith Burgess and Stephen Davies for their useful comments. 1. Joseph A.Schumpeter, The Theory of Economic Development (Cambridge, MA, 1934), and Capitalism, Socialism and Democracy (London, 1943); Edith T.Penrose, The Theory of The Growth of the Firm (Oxford, 1959, 2nd. edn., 1980); Chester I. Barnard, The Functions of the Executive (Cambridge, MA, 1938); Herbert A.Simon, Administrative Behavior: A Study of Decision-Making Processes in Administrative Organization (New York, 2nd edn., 1957); and Models of Man (New York, 1957); Ronald H.Coase, ‘The Nature of the Firm’, Economica, new series IV (Nov. 1937), pp. 386–405; Richard M.Cyert and Charles L.Hedrick, ‘Theory of the Firm: Past, Present, and Future: An Interpretation’, Journal of Economic Literature, Vol. X, No. 2 (June 1972), pp. 398–412.

42 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

2. It is a common pastime to raise such issues. Cf. Roy A.Church, Kenricks in Hardware. A Family Business: 1791–1966 (Newton Abbot, 1969), pp. 325–6, citing Ronald S. Edwards and Harry Townsend, Business Enterprise: Its Growth and Organisation (London, 1958) and Richard M.Cyert and James G.March, A Behavioral Theory of the Firm (Englewood Cliffs, NJ, 1963); Leslie Hannah, The Rise of the Corporate Economy (London, 2nd edn., 1983), pp.4–5 and ‘New Issues in British Business History’, Business History Review, Vol. LVII, No. 2 (Summer 1983), pp. 165–74, and, most recently, Donald C.Coleman, ‘The Uses and Abuses of Business History’, Business History, Vol. XXIX No. 2 (April 1987), pp. 111– 56. 3. Simon, Administrative Behavior, pp. 79–84; James G.March and Herbert A.Simon, Organizations (New York, 1958), pp. 136–42, 203–4; Oliver E.Williamson, ‘The Modern Corporation: Origins, Evolution, Attributes’, Journal of Economic Literature, XIX, No.4 (December 1981), pp. 1541–2, 1544–6; Cyert and Hedrick, loc. cit., pp. 399–400. 4. Penrose, op. cit. and see in particular the useful preface by Martin Slater, pp.viixxx; Robin L.Marris, The Economic Theory of ‘Managerial’ Capitalism (London, 1964); Robin Marris and Adrian Wood (eds.), The Corporate Economy. Growth, Competition, and Innovative Power (London, 1971). Note also the work of Philip W.S. Andrews, for example, Manufacturing Business (London, 1949), and On Competition in Economic Theory (London, 1964). 5. Alfred D.Chandler, Jnr., Strategy and Structure: Chapters in the History of the Industrial Enterprise (Cambridge, MA, 1962) and The Visible Hand. The Managerial Revolution in American Business (Cambridge, MA, 1977). 6. Hannah, op. cit., and note the discussion in Scott Moss, An Economic Theory of Business Strategy. An Essay in Dynamics Without Equilibrium (Oxford, 1981), pp. 13, 19–28. 7. Cf. Armen A.Alchian and Harold Demsetz, ‘Production, Information Costs and Economic Organization’, American Economic Review, LXII, No. 4 (Dec. 1972), pp. 777– 95; Oliver Williamson, loc. cit. and see also his ‘What is Transaction Cost Economics?’, in Economic Organization. Firms, Markets and Policy Control (Brighton, 1986), Corporate Control and Business Behavior. An Enquiry into the Effects of Organisation Form on Business Behavior (Englewood Cliffs, NJ, 1970), and Markets and Hierarchies: Analysis and Antitrust Implications (New York, 1975). For some applications see Stephen Nicholas, ‘Agency Contracts, Institutional Modes, and the Transition to Foreign Direct Investment by British Manufacturing Multinationals Before 1939’, Journal of Economic History, XLIII, No. 3 (September 1983), pp. 675–86, and Peter Hertner and Geoffrey Jones (eds.), Multinationals: Theory and History (Aldershot, 1986). 8. Moss, op. cit., pp. 98–103; Mark Casson, ‘General Theories of the Multinational Enterprise: Their Relevance to Business History’, in Hertner and Jones, op. cit., pp. 49, 59; Peter J.Buckley and Mark Casson, The Economic Theory of the Multinational Enterprise (London, 1985). On the need to match the theory employed to the task to be tackled see the seminal article by Fritz Machlup, ‘Theories of the Firm: Marginalist, Behavioral, Managerial’, American Economic Review, Vol. LVII, No. 1 (March 1967), pp. 1–33. 9. Note, in particular, Chandler’s contributions in: Herman Daems and Herman Van Der Wee (eds.), The Rise of Managerial Capitalism (Louvain and the Hague,

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 43

10.

11.

12.

13.

14.

15.

1974); Harold F.Williamson (ed.), Evolution of International Management Structures (Newark, NJ, 1975); Leslie Hannah (ed.), Management Strategy and Business Development. An Historical and Comparative Study (London, 1976); Alfred D.Chandler, Jnr. and Herman Daems (eds.), Managerial Hierarchies: Comparative Perspectives on the Rise of the Modern Industrial Enterprise (Cambridge, MA, 1980); Alfred D.Chandler, Jnr. and Richard Tedlow, The Coming of Managerial Capitalism. A Casebook on the History of American Economic Institutions (Homewood, IL, 1985); and Kesaji Kobayashi and Hidemasa Morikawa (eds.), Development of Managerial Enterprise (Tokyo, 1986). See also his ‘The Growth of the Transnational Industrial Firm in the United States and the United Kingdom: A Comparative Analysis’, Economic History Review, 2nd series, Vol. XXXIII, No. 3 (Aug. 1980), pp. 396–410, and ‘The Emergence of Managerial Capitalism’, Business History Review, LVIII, No.4 (Winter 1984), pp. 473–503. All this should not be taken to preclude criticism of the strategy-structure argument. Cf. for example Bernard W.E.Alford, ‘The Chandler Thesis—Some General Observations’, in Hannah, Management Strategy, pp. 52–70. ICI has also been the subject of a non-commissioned history—Andrew M.Pettigrew, The Awakening Giant. Continuity and Change in Imperial Chemical Industries (Oxford, 1985)—but its author was very much an insider. Many commissioned works have failed to see the light of day following the withdrawal of company support. Turnover date for 1985–86 reveals that of the 12 companies considered (that is, excluding Midland Bank), seven were in the UK’s top 50, each with sales exceeding £1,900 million, and ten were in the top 107 companies. The Times 1000 1986–1987: The World’s Top Companies (London, 1986). The companies are: ICI, Electricity Council, Imperial Group, British Steel Corporation, British Railways Board, Courtaulds, British Coal (top 50); Bowater, Pilkington, W.H.Smith (top 107). Some writers do refer, however, to ‘management structure’, ‘direction and management’, etc., but the lack of prominence of such entries is still revealing. An obvious exception to the rule is William J.Reader, Imperial Chemical Industries: A History, Vol. II. The First Quarter-Century 1926–1952 (London, 1975), Figures 3, 5, 6. James B.Jefferys, ‘Trends in Business Organisation in Great Britain 1856–1914’, London Ph.D. thesis, 1938 (reprinted, New York, 1977), p.130, and cf. Philip L. Cottrell, Industrial Finance 1830–1914. The finance and organization of English manufacturing industry (London, 1980), p. 163 (gives figures for 1915:73 per cent cos =private), and Peter L.Payne, ‘The Emergence of the Large-scale Company in Great Britain, 1870–1914’, Economic History Review, 2nd series, Vol. XX, No. 3 (Nov. 1967), p.520. Anthony R.Holmes and Edwin Green, Midland: 150 Years of Banking Business (London, 1986), pp. 60–63; Church, op. cit. p. 71; Donald C.Coleman, Courtaulds. An Economic and Social History, I (Oxford, 1969), pp. 150, 274; Michael Moss and John R.Hume, Shipbuilders to the World. 125 Years of Harland and Wolff, Belfast 1861–1986 (Belfast and Wolfeboro, NH, 1986), pp. 52–3. Bernard W.E.Alford, W.D. & H.O. Wills and the Development of the U.K. Tobacco Industry 1786–1965 (London, 1973), pp. 183, 466–8; Theodore C.Barker, The Glassmakers. Pilkington: The Rise of an International Company 1826–1976 (London, 1977), pp. 169, 171; Peter L.Payne, Colvilles and the Scottish Steel

44 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

16. 17.

18. 19.

20.

21.

22. 23.

24. 25. 26. 27.

28. 29. 30. 31. 32.

Industry (Oxford, 1979), pp. 77, 85–6. Cottrell, op. cit. p. 162, suggests that fears of company law reform stimulated company registrations in the 1890s, but this is not mentioned in the case studies. T.R.Gourvish and R.G.Wilson, ‘Profitability in the Brewing Industry, 1885–1914’, Business History, Vol. XXVII, No.2 (July 1985), pp. 146, 152. Coleman, op. cit. I, pp. 152–3, 175–83; Payne, op. cit., pp.85–6. In Bristol, too, limited liability status for Wills was seen as a way of strengthening family responsibility in the business: Alford, op. cit., pp. 119, 181–6, 280–82. Payne, loc. cit., pp. 520–24; Chandler, ‘Emergence of Managerial Capitalism’, loc. cit., pp.496–7. The four included Ogden’s of Liverpool, which had been bought by American Tobacco in September 1901. Its sale to Imperial was part of a deal which involved the transfer of Wills’ export business to a new company, British-American Tobacco, dominated initially by the Americans (stakes: • American Tobacco, • Imperial). Wills also set up a separate manufacturing enterprise in Australia in 1901, a move consistent with the ‘uncertainty avoidance’ exhibited by emerging multinationals. Alford, op. cit., pp. 219–20, 250–69, 272. Ibid., pp.263–4, 272–6, 309–11; Alford, ‘Strategy and Structure in the UK Tobacco Industry’, in Hannah, Management Strategy, pp. 38, 73–4, Payne, loc. cit., pp. 535, 539. Coleman, op. cit., I, pp. 191–3, 220–22; II, pp. 24–32, 37–9, 104–23. In the process the shareholding of the founding families fell to 58 per cent (Courtauld family 32.5 per cent), with 18.5 per cent in the hands of Henry Tetley and Thomas Latham, salaried managing directors who had been brought into the business in 1893. Ibid., II, p. 122, and see Coleman’s entries on ‘Sir Thomas Paul Latham’ and ‘Henry Greenwood Tetley’ in David J.Jeremy and C.Shaw (eds.), Dictionary of Business Biography, III (London, 1985), pp. 662–4; V (London, 1986), pp. 470–72. Chandler, Visible Hand, pp. 391–402, 433–41. Payne, op. cit., pp.87–8, 132–3. Kenricks did much the same thing when Frederick Ryland was given one share in 1883: Church, op. cit., pp.78–9. However, the firm’s capital structure is presented in a very confusing manner, and the precise details of ownership are not clear. Moss and Hume, op. cit., pp. 92, 96–7, 132–3, 135, 173–4. This phrase was used to describe recruitment to the Pilkington board before 1914: Barker, op. cit., p.241. Terence R.Gourvish, ‘The Railways and the Development of Managerial Enterprise in Britain, 1850–1939’, in Kobayashi and Morikawa, op. cit., pp. 187–90. See Hannah, Corporate Economy, pp. 29–50, and note also John Turner (ed.), Businessmen and Politics: Studies of Business Activity in British Politics 1900–1945 (London, 1984). Hannah, Corporate Economy, p. 178. Ibid. p.62. Reader, op. cit., I, pp. 451–66, 476–7; II, pp. 3–21. Hannah, Corporate Economy, pp. 37–8. William J.Reader, ‘Personality, Strategy and Structure: some Consequences of Strong Minds’, in Hannah, Management Strategy, p. 122. See also Reader, op. cit., II, pp. 21–30, 133–44; Hannah, Corporate Economy, pp. 81–5; R.P.T.Davenport-

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 45

33.

34. 35.

36. 37. 38. 39. 40. 41.

42. 43.

44. 45. 46.

47.

Hines, ‘Harry Duncan McGowan’, Dictionary of Business Biography, IV (1985), pp. 21–6. Derek F.Channon, The Strategy and Structure of British Enterprise (Boston, MA, 1973), pp. 67–9; Hannah, Corporate Economy, p. 85, and see also his ‘Strategy and Structure in the Manufacturing Sector’, in Management Strategy, pp. 185–6. The 12 companies were: Vauxhall, Ford, Esso, Mars (US subsidiaries), MasseyFerguson (Canadian); Nestle, Philips (European subsidiaries), Unilever (European connections); and Smith’s Instruments, Spillers, British-American Tobacco, and ICI. Economist, 27 Dec. 1930, cited in William J.Reader, Fifty Years of Unilever 1930– 1980 (London, 1980), p. 17. Charles Wilson, The History of Unilever. A Study in Economic Growth and Social Change (London, 1954), I, pp. 207–10, 243–312, II, pp. 301–8, and note also his ‘Management and Policy in Large Scale Enterprise: Lever Brothers and Unilever, 1918–1938’, in Barry Supple (ed.), Essays in British Business History (Oxford, 1977), pp. 124–40; David K.Fieldhouse, Unilever Overseas. The Anatomy of a Multinational 1895–1965 (London, 1978), pp. 24–63; and entries by Reader on ‘William Hesketh Lever’ and John R.Edwards on ‘Sir Francis D’Arcy Cooper’ in Dictionary of Business Biography, III (1985), pp. 745–52; I, pp. 781–5. This is Wilson’s emphasis rather than Fieldhouse’s. Cf. Wilson, in Supple, op. cit., p. 124, and Fieldhouse, p. 36. Wilson, in Supple, op. cit., p. 135. Wilson, op. cit., II, pp. 312–15. Edwin Green and Michael Moss, A Business of National Importance. The Royal Mail Shipping Group 1902–1937 (London, 1982). Charles Wilson, First With The News. The History of W.H.Smith 1792–1972 (London, 1985), p. 346; Barker, op. cit. pp. 320–45. Coleman, op. cit., II, pp. 222–43. The quotation is from p. 237. Rio Tinto also identified and acted to improve its organisational structure: Charles E.Harvey, The Rio Tinto Company: An Economic History of a Leading International Mining Concern 1873–1954 (Penzance, 1981), pp.207–23. Alford, op. cit., pp. 330–34, and Alford, ‘Strategy and Structure’, loc. cit., pp. 75–7. Moss and Hume, op. cit., pp. 244–50, 270, 278, 282–3, 285–321, and see also entries by Peter N.Davies on ‘Owen Cosby Phillips’ and Michael Moss on ‘Sir Frederick Ernest Rebbeck’ in Dictionary of Business Biography, IV (1985), pp.672– 4, 853–5. Holmes and Green, op. cit., pp. 122–4, 153–7, 173–4, 190–91, 194–6. Church, op. cit., pp. 144–6, 200–30, and see also ‘Family and Failure: Archibald Kendrick and Sons Ltd., 1900–1950’, in Supple, op. cit., pp. 103–23. Payne, op. cit., pp. 188–9, 238–49. See also John Scott and Michael Hughes, The Anatomy of Scottish Capital: Scottish Companies and Scottish Capital, 1900–1979 (London, 1980), p.85. Wilson, op. cit., pp. 223–6, 280–81, 347–8; Reader, Bowater, pp. 90–92, 148–50; Payne, op. cit., pp. 243–9. For the observation that not all firms with managerial hierarchies were manager-dominated, and not all manager-dominated firms possessed hierarchies, see Gourvish, in Kobayashi and Morikawa, op. cit., pp. 282– 5.

46 BRITISH BUSINESS AND THE TRANSITION TO A CORPORATE ECONOMY

48. The US lead in diversified firms, M-form companies, and the dominance of managers over owners should not be overplayed. Cf. John Scott, Corporations, Classes and Capitalism (London, 1979), pp. 60–65. 49. Lance Davis, ‘The Capital Markets and Industrial Concentration: The U.S. and U.K., a Comparative Study’, Economic History Review, 2nd series, XIX, No. 2 (Aug. 1966), pp. 255–72. 50. Williamson, Corporate Control. 51. Reader, op. cit., II, pp. 74–81, 311; Holmes and Green, op. cit., pp. 133, 193; Barker, op. cit., pp. 323, 330–33. 52. Cf. William Lazonick, ‘Strategy, Structure and Management in the United States and Britain’, in Kobayashi and Morikawa, op. cit., pp. 101–46. 53. Donald C. Coleman, Courtaulds. An Economic and Social History. Vol. III. Crisis and Change 1940–1965 (Oxford, 1980), pp. 164, 173, 241–54, 271, 310–11, 321. 54. Reader, Bowater, pp. 331–5; Holmes and Green, op. cit., pp. 281–8; Terence R. Gourvish, British Railways 1948–73. A Business History (Cambridge, 1986), pp. 368–88. 55. Wilson, op. cit., pp. 391–2. 56. Gourvish, op. cit., pp. 567; Leslie Hannah, Engineers, Managers and Politicians. The First Fifteen Years of Nationalised Electricity Supply in Britain (London, 1982), p. 294; Ministry of Fuel and Power Statistical Digest 1952 (London, 1953), p. 39. 57. William Ashworth, The History of the British Coal Industry, Volume 5, 1946–82: The Nationalized Industry (Oxford, 1986), pp. 5–8, 31–3, 138–42, 191–7, 612–29. 58. Hannah, Engineers, Managers, pp. 2–4, 7–22, 60–63, 162–3, 183–4. 59. Gourvish, op. cit., pp. 31–60. 60. Ashworth, op. cit., pp. 628–9, 637ff.; Gourvish, op. cit., pp. 144–70, 308–25, 330– 43; Hannah, Engineers, Managers, pp. 10–11, 42–3, 139–48, 186–90, 264–5. 61. Hannah, Corporate Economy, p. 152. 62. Roy Church, ‘Family Firms and Managerial Capitalism: The Case of the International Motor Industry’, Business History, Vol. XXVIII, No. 2 (April 1986), pp. 165–80; Gourvish, op. cit., pp. 31–3, 171–2. 63. Cf. Peter Steer and John Lake, ‘Internal Organization and Profit: An Empirical Analysis of Large U.K. Companies’, Journal of Industrial Economics, XXVII, No. 1 (Sept. 1978), pp. 13–30. 64. Cf. Hertner and Jones, op. cit., pp. 5–6, 12–13, 60. 65. Penrose, op. cit., p. 3, and cf. Hannah, Corporate Economy, pp. 4–5, where the warning is put more strongly. 66. These remarks have been influenced by the comments of Donald Coleman and Stephen Davies on an earlier draft.

MODELLING THE GROWTH STRATEGIES OF BRITISH FIRMS By DIANE HUTCHINSON AND STEPHEN NICHOLAS

Part of the underlying motivation for writing and reading business histories of individual firms has been the promise to gain understanding of general factors in the growth of the industry or the whole economy. In assessing the significance of business history, Barry Supple argued that company histories should provide insights about the wider economic world.1 More specifically, Leslie Hannah has suggested that ‘business history has an important part to play in the explanation of economic growth’ and Roy Church has endorsed Peter Payne’s view that business history is the ‘grass roots approach to economic history’.2 Asa Briggs included amongst his reasons for writing business history the illumination of many general points both in economic and social history .3 The worry of one of the most respected American business historians, Harold Williamson, was that business historians tended to take the position that they were users and not producers of generalisations about business activity.4 Recently, A.D. Chandler identified the development of non-historically specific generalisations and concepts of use to other scholars as one of the most important single tasks of business historians.5 In a public lecture which stimulated this volume, Donald Coleman voiced the opinion that by aggregating business histories and then generalising, business history could help reverse the decline in the British economy through a deepened understanding of the economy’s most important organisational unit, the business company.6 Coleman’s policy prescription raises two issues: the need to aggregate a sample of case studies; and second, the need for a viable theory to analyse the collective experience of the aggregated case studies. For Coleman, theory provides the ‘appropriate criteria of analytical consistency in asking questions of the historial evidence and drawing conclusions therefrom’.7 We address both these issues in turn, before proceeding to derive generalisations about the growth strategies of British industrial firms using the histories selected for this collection of essays. II The need to aggregate individual business histories before drawing economywide generalisations was raised by British historians concerned with

48 MODELLING THE GROWTH STRATEGIES OF BRITISH FIRMS

entrepreneurial failure in the late Victorian economy. S.B.Saul was one of the first business historians to criticise the ‘vague generalisations’ about British economic performance derived from the example-counter-example approach to late nineteenth-century British technical and managerial backwardness.8 The alternative, in Roderick Floud’s phrase, was ‘aggregate business history’, the well-recognised approach described by Asa Briggs as ‘the accumulation of dozens of business histories, dull though many of them are bound to be, which makes possible a more rewarding economic history and a more realistic economics’.9 The appeal of aggregate business history is its ability to draw inferences about a large unknown population from a small sample. The aggregation of case studies is the business historian’s sample. The experience of a single firm, no matter how carefully written the firm history, is inimical to such economy-wide generalisations. This is widely recognised by business historians. In Roy Church’s words, The dangers of attempting to generalise on the basis of a single firm are self-evident’, yet generalising from a larger sample is also fraught with danger.10 Drawing generalisations about firm growth, and the larger economy, using a number of different firms may appear justified by the vague appeal to the law of large numbers. Unfortunately, this statistical law is only valid if the sample is randomly selected. Simply increasing the sample size does not overcome the danger inherent in generalising from a single unrepresentative firm. A study of one firm which is near the population mean in structure, performance and growth will provide more accurate generalisations than those which are derived from a sample of the six largest or smallest firms in the industry or economy. To draw unbiased generalisations the sample must be randomly selected. However, business history research precludes the selection of a random sample of firms. The writing of non-commissioned histories of less successful firms is seriously limited by access to source material. The business records of failed firms are seldom preserved. Those firms that commission their histories or give historians access to their records are survivors. More importantly, they are generally large and successful. There are exceptions: the history of Kenricks shows that firms can perform poorly over a long period before achieving the measure of success and confidence to commission their history. While not all commissioned histories are of consistently successful firms, most are of firms which have become successful. The use of a sample of large, ultimately successful firms is a non-random selection of all firms in the economy. Accordingly, the generalisations from such samples provide biased indicators of the strategies and performance of all firms in the economy. However, a large enough sample of business history case studies may provide a reasonable proxy for the population of big, successful firms. It is these firms which have come to dominate the economy, accounting for a large share of total profits, assets, employment and output. By selecting a random sample from the top 100 firms, useful generalisations could be derived about the

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 49

growth strategies of these large and powerful firms. In this way business history could contribute to the debate on the causes of the current and past malaise in the British economy. The sample of 13 case studies in this collection is both too broadly based and too small to identify the general process of growth for the largest firms in the economy over the last 100 years. While there are eight industrial firms of varying sizes, there is also one bank and one newspaper retailer, the electricity supply industry, British Rail and the National Coal Board—the last three being nationalised enterprises for at least part of the period covered by their history. As the authors of some of these histories recognise, the problems and opportunities confronting both non-industrials and public enterprises differ from those faced by industrial firms.11 To reduce the breadth of the set of case studies, we focus on the eight industrials. While more narrowly focused, this sample is still too small to provide the basis for robust generalisations about the growth strategies of all large British industrials. Of course the editors did not try to select a comprehensive sample of all firms from which robust generalisations about growth strategies could be derived. Rather, the case studies were selected to facilitate surveys of the six broad themes in British business history identified by the editors in their introduction. Our sample of eight industrials does allow us, in keeping with the editors’ aims, to derive preliminary generalisations about the growth of British industrial firms. III The eight case studies present a uniform picture of growth strategies: the sample firms grew by vertically integrating and diversifying into new product or geographic markets. Of course business historians have recognised these broad based strategies as typical growth paths for large firms. The Chandler ‘model’ focuses on these strategies, and Chandler’s recent attempts to expand his American model to encompass Europe and Japan and the widespread acceptance of the Chandler framework by British business historians suggests that the firms in the sample are representative of a wider population of firms.12 Of course, the Chandler framework of vertical integration and diversification is not so much an explanation as a description of firm growth. As some of the company histories in the sample show, British business historians have emphasised exactly the same growth strategies, without being informed by Chandler’s work. The real challenge is to explain the underlying causes of successful vertical integration and diversification. We need a theoretical model which, in Coleman’s words, enables us to question the historical evidence and draw general conclusions explaining these growth strategies. Business historians have never worked within the paradigm of the neoclassical theory of the firm. Static and deterministic, the neo-classical theory of the firm is especially ill-suited to the needs of historians interested in firm growth

50 MODELLING THE GROWTH STRATEGIES OF BRITISH FIRMS

and change. At the heart of orthodox theory lies the emphasis on equilibrium analysis, the efficiency properties of markets, the assumption of perfect information and the belief that economic actors are rational. Recognising that none of these assumptions apply in practice, business historians have rejected orthodox theory as an organising framework for writing firm histories. In place of orthodox economic theory, the historians of individual firms have identified the entrepreneur as the active determinant of firm growth. According to Coleman, ‘the firm is given its character and continuity by the men who erected and continued it and the imprint of the dominating man or groups upon the highly successful firm goes far to determine the style of behaviour of that firm’.13 For example, dominating leaders, in Eric Bowater and members of the Pilkington and Wills families, transformed their family firms into owner-controlled but manager-managed entrepreneurial enterprises, the first two stages in Chandler’s model of firm types. In contrast to these highly personalised firms with autocratic centralised organisations, Coleman hypothesised that very large managerial controlled corporations (Chandler’s third category of firm) might not rely on the great entrepreneur. Individuals would give way to hierarchies.14 Yet when Coleman returned to write volume three of Courtaulds, now a very large firm, impersonal hierarchy did not replace the entrepreneur. His methodology was to examine the ‘changing composition and outlook of a body of about eighteen men, comprising the board of Courtaulds’.15 While Barker’s history of Pilkingtons has been described as a view from the boardroom, Courtaulds’ history, Coleman admitted, was a view of the boardroom. In Courtaulds’ successful struggle for survival in the 1960s, Coleman identified the ‘right sort of man’ willing to gamble, risk-take and subjugate all to profits; in brief, that familiar figure of business history, the entrepreneur’.16 Colvilles, Payne argued, was unusual. It passed from being a family firm to a managerial corporation in 1916 without experiencing an entrepreneurial enterprise phase.17 Yet even as a managerial firm, Colvilles’ growth and performance rested on the policies of a single business leader, John Craig. ICI was ‘Big Business’ from the first, and Reader emphasised that it did not follow the conventional growth path from family firm to entrepreneurial enterprise and then to managerial firm. But men, not impersonal economic forces, also formed the centrepiece of Reader’s analysis of ICI’s growth. In describing his purpose and method, Reader stated ‘the backbone of my narrative is the intricate diplomacy of the international chemical industry…and what I conceive myself to be writing is political history…rather than economic or social history, concerned with the description and analysis of impersonal forces and conditions’.18 In his second volume, the allusions to political leaders, statesmenship and diplomacy are evident in Reader’s chapters on ‘McGowan’s Dictatorship’ and the ‘Barons’ Revolt’. Such an emphasis on individuals in business history is natural since historians focus largely on entrepreneurs’ responses to crises. Business historians are concerned with change, but that change is episodic rather than continuous. The outcome of policies adopted to meet immediate problems, whether merger,

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 51

diversification, or overseas expansion, distinguishes the successful entrepreneur from the failed leader. This emphasis on the entrepreneur as the major organising concept in individual firm histories creates an aggregation problem. There is no established economic theory of the entrepreneur and business historians have not directed their attention to providing one.19 The business historian’s concept of an entrepreneur is of an individual with priviledged perception or insights. Each case is unique, and there is no obvious way of aggregating the sample to isolate the regular and systematic factors common to all firms. An alternative approach is to shift the focus to the underlying economic factors upon which entrepreneurs base their decisions. The factors generating opportunities for growth are regular and systematic across large firms and, once isolated, provide a basis for analysing an aggregation of case studies. They are the factors which it is the entrepreneurial function to identify and, by framing appropriate policies, turn to the advantage of the firm. Below we derive a theoretical model which identifies these underlying systematic factors accounting for the growth of firms. IV For Britain’s largest firms, growth has been achieved typically by both an increased market share and an expansion into new activities. In each case the success of the strategy depends on the firm’s competitive advantage, especially its proprietary skills and knowledge. This skill and knowledge is firm-specific, often team-embodied, know-how relating to products, production processes, plant design, marketing, distribution and management. The firm’s know-how may accrue naturally—almost involuntarily— when the firm’s managers react to changes in their environment; know-how may also accrue as a result of a longterm strategy to cope with a changing environment, when for instance a firm devotes resources to the development of new products. In some cases the firm may also be able to buy exclusive rights to patented know-how. But in many industries, the competitive advantages based on R & D are less important than the accumulation of small changes in products and processes which accrue as a by-product of competing in the market.20 Both the incremental changes in know-how through learning by doing and the conscious creation or purchase of new know-how allow the firm to increase its market share. Historians have focused on cost advantages or superior marketing techniques as the means of achieving increased market share. While this is correct, we emphasise the underlying body of know-how which allows the firm to improve cost efficiency, or to successfully introduce a differentiated range of products. Competitive advantages in being more cost efficient or a better marketer are derived from the firm’s know-how. In these cases, the firm grows by doing more of what it has always done.

52 MODELLING THE GROWTH STRATEGIES OF BRITISH FIRMS

The other growth path involves the firm expanding into new activities by vertical integration and product and geographic market diversification. The new institutional theory of the firm, transaction cost economics, offers an explanation for these strategies. When combined with a recognition that the firm has a body of know-how, transaction cost economics provides powerful insights into vertical integration and product and geographic market diversification.21 It also provides a deeper understanding of why firms grow by doing more of what they have always done. Applied to the growth of the firm, transaction cost theory asks why firms use their competitive advantages themselves rather than selling their knowledge in the market. In answering that general conceptual question, transaction cost economists have specified a theory of firm growth. But, the question is easily trivialised. Firms do not seek to sell know-how related to small changes in production techniques, plant layout or product branding in arm’s length markets. There is no market for such firm-specific knowledge because it is too costly to transact with second parties. Specifically, there are transaction costs related to discovering second parties with which to trade and to forming contracts. These costs preclude arm’s length contracting. In the absence of a market for firm-specific knowledge, the internal use of know-how provides the firm’s competitive advantage. Frequently, however, a simultaneous strategy of vertical integration is required to fully exploit that knowhow. Vertical integration is best analysed as a transaction cost problem, with transaction costs precluding spot or longer-term contracts with independent distributors or suppliers of inputs. This may occur because transaction costs make second parties unwilling to trade; that is because there is no market. For example, to undertake investment in a more cost efficient plant, the firm may require the assurance that raw materials will be available to operate the plant at the required level. If the future level of demand is difficult to predict, this means the firm would require a long-term flexible price and quantity contract. An independent supplier may be unwilling to contract for raw material supplies on these terms because of the risk which the contract would pose to its own operations.22 Rather than entering into second best market alternatives such as spot market purchases or long-term but rigid contracts, the firm vertically integrates. Similarly, scale economies in production frequently require vertical integration into distribution, rather than market contracting, in order to co-ordinate the increased flow of output to final buyers. So too does the know-how of product differentation which forces the firm to vertically integrate into marketing. Of course, in many of the situations outlined above second parties are willing to contract and arm’s length markets are an obvious alternative to vertical integration. Here, vertical integration occurs because of transaction costs facing the firm rather than the absence of a market. Transaction costs arise when the firm engages in a contractual relationship with an agent, licensee, franchisee or supplier. These contracts for products or

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 53

services are necessarily incomplete since it is impossible to draw enforceable agreements which cover inter-party behaviour for all contingencies. This means the agreement is subject to opportunism or the potential for the other party to cheat on the spirit of the contract. Cheating is particularly serious if the firm has idiosyncratic investments in physical or human capital specific to the transaction with a low or zero scrap value. It is this idiosyncratic investment which exposes the firm to the risk of costly hold-up by an opportunistic agent or supplier. For example, where a firm invests in idiosyncratic national advertising, branding and product differentation, it faces the risk of an opportunistic agent ‘blowing’ the firms reputation by shading product or product service quality. To avoid opportunism, the firm has to engage in costly monitoring and enforcement of the incomplete contract. Vertical integration internalises the transaction within the firm, attenuating the transaction costs in arm’s length markets. The transaction cost model is dynamic. Internalisation is not always superior to arm’s length markets. Transaction costs vary with the level of idiosyncratic investment, the frequency of transacting and the ease of monitoring. For example, a contract which is efficient with one well-known agent may become inefficient when a larger number of geographically dispersed agents are required, because of the increased monitoring costs. Proprietory know-how and transaction cost theory are also the relevant tools for explaining geographic and product market diversification. Where the firm’s know-how is not market or product specific, it can provide the basis for successful expansion into new areas. This is labelled an economy of scope. An economy of scope refers to an economy in jointly producing two or more products compared to separate production.23 A key feature is the use of a sharable or quasi-public input, such as marketing knowledge, in the production and distribution of two or more goods. Scope economies are not always derived from know-how. They can also arise when underutilised physical plant is employed to produce a second product line. However, scope economies are likely to be derived more often from know-how since knowledge can be employed in different uses without congestion more readily than physical plant. In either case, the cost of transacting explains why the firm uses its underutilised asset internally to expand into new product and geographic markets, rather than selling the rights to a specialist. The entrepreneurial function is to identify the firm’s competitive advantages and to determine whether market contracting or internalisation is the most efficient way to utilise them. If no market exists or if the contractual arrangement is too costly to sustain, the market is internalised. Growth, therefore, involves the expansion of an existing function, sometimes with the addition of other functions either forward or backward in the marketing channel (vertical integration) or the expansion into new product or geographic markets (diversification). The firm also has to assemble other resources which, along with its competitive advantages, are needed to compete in the new product or geographical market.

54 MODELLING THE GROWTH STRATEGIES OF BRITISH FIRMS

For example, in the case of geographic expansion, the firm must acquire market specific know-how and physical inputs to supplement its product-specific scope economy. In the case of diversification into new product markets, the firm must acquire product specific know-how and physical inputs. These acquisitions may take the form of discrete purchases leading to the establishment of a new ‘greenfield’ operation, either as a joint or solo venture, or the acquisition of these resources as a package by taking over a going concern. Take-over of a going concern offers the firm the advantage of acquiring an established team with product or market specific skills and knowledge which would otherwise take time to develop. The reasons firms opt, where possible, for the acquisition of a going concern or enter joint ventures are the same as those which explain why firms exploit their own competitive advantages internally: it is easier to purchase know-how in the form of a going concern or joint venture than to assemble a large number of discrete skills through market contracting. The reliance on opportunism and imperfect knowledge (contract incompleteness) in the model must be supplemented by the concept of bounded rationality. Bounded rationality recognises that individuals are intendedly rational, but only limitedly so. Individuals, in our case entrepreneurs, have so much information that not all of it can be physically processed, and the information is incomplete since knowledge is imperfect.24 Not surprisingly, entrepreneurs make mistakes. Not all growth strategies correctly value the efficacy of the firm’s competitive advantages. When integrated with the concept of competitive advantages, the transaction cost approach offers an explanation for failure as much as a model for success. Below we employ this model to illuminate some of the growth strategies adopted by firms in the sample. V Growth in market share resulting from the purchase, licensing or development of superior production techniques is the best developed explanation for firm growth in the sample of firm histories. For example, Wills’ increasing market share in the second half of the nineteenth century is explained by its product differentiation and its lower cost structure derived from superior technology.25 This superior technology was achieved in a variety of ways including internal invention and innovation, liaison with its printing supplier and the purchase of superior technology developed externally. One of the major instances of purchased technology was Wills’ purchase of the exclusive UK rights to the Bonsack cigarette machine. Perhaps the best example in the sample of growth due to internally developed technology is Pilkingtons’ develop ment of the float glassmaking process. It is this process which, Barker concluded, ‘placed the company ahead of all its rivals’ in float glass production.26 This type of strategy is well known and easily understood. The role of vertical integration in allowing the firm to derive a competitive advantage, and hence an increased market share, requires a more detailed

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 55

examination. In Wills’ case, vertical integration into distribution played an important role in determining the firm’s ability to engage in product differentiation. Wills employed travellers rather than relying on independent distributors to push sales of its tobacco to retailers in the local Bristol region. Product branding followed, allowing the firm to sell through retailers with no special knowledge of tobacco blending. Quality assurance was provided by the firm’s brand identification rather than by the retailer, diminishing the role of the retailer in determining the level of repeat purchases of Wills’ products. Since this reduced the level of retailer monitoring Wills had to undertake, the firm was able to expand sales to more distant localities, using franchised retail agents. Once Wills developed a national network of retail agents, its expanding force of salaried travellers began to play an important part in furthering the firm’s product differentiation. These employees provided the firm with information on the performance of different brands and the need for new brands, as well as on the use of special discounts to meet local conditions. Alford correctly placed considerable importance on the role of salaried travellers in providing Wills with information which allowed the firm to differentiate its products as early as the 1850s. Of course once the firm began to produce cigarettes this flow of information became even more important.27 Alford singled out Wills’ success in identifying and catering for individual segments of the national market, along with its cost efficiency, as the major reasons for the firm’s remarkable growth in market share from the 1850s. But vertical integration played an important role in enabling Wills to derive this marketing advantage. With arm’s length distributors, Wills would have faced either costly monitoring to ensure the quality of information it received, or the costly errors of ill-directed product differentiation. Backward integration was important in enabling other firms in the sample to increase their market share. The experience of the steelmaker, Colvilles, is illustrative. On the eve of the First World War, Colvilles was vulnerable on two fronts: its alarming dependence upon the notoriously fickle shipbuilding industry, and its almost complete lack of integration either backwards towards its raw materials or forwards towards its major customers.28 It was simply an extremely efficient steelmaking and rolling concern. Major backward integration waited until 1936 when Colvilles secured ownership of a reliable supply of coking coal. Payne’s description of the Colvilles’ motives for integration into coking coal provides a textbook application of the transaction cost model. With the decision to lay down new pig and steel plant the company realised the need to first gain control over supplies of coal for coking. Coke ovens formed an integral part of Colvilles’ expansion of pig iron and steel capacity, yet it was too dangerous to undertake this investment without a secure source of coal since the firm would be vulnerable to ‘hold up’. Its expensive investment in coke ovens could be held to ransom by the threat of withholding coal supplies. According to Payne, this was perceived as a real threat: ‘Colvilles believed that they could not rely upon being able to purchase such a large quantity of coking coal in the open market.’29

56 MODELLING THE GROWTH STRATEGIES OF BRITISH FIRMS

When there is a need for a recurrent transaction in raw inputs and the firm has large investments in specific assets, then vertical integration is usually preferred over market contracting. This was Colvilles’ experience. Forward integration also formed part of Colvilles’ growth strategy. Colvilles had always been dependent on the shipbuilding industry, and they merged with the shipbuilders, Harland & Wolff in 1920. Both Harland & Wolff and Colvilles had large specialised investments in capital-intensive plant and both were each other’s largest customer.30 The typical pattern was for shipyards and steel firms to merge. Both these firms were unique in not being vertically integrated. The historians of both firms quoted the same concern over opportunistic hold-up to explain their vertical merger in 1920. According to Payne, ‘to keep his “big combine” going [John Craig] had to have a market’ and Moss and Hume reported that ‘with such a colossal volume of business on the books [Lord Pirrie] was anxious that nothing should hinder production’.31 Both Payne and Moss/ Hume use the phrase ‘long friendship and close working condition’ to explain the relationship between the two firms prior to 1920.32 Yet, co-operative contracts do not adequately guarantee uninterrupted supplies, especially when both firms had substantial investment in idiosyncratic plant. Vertical integration does. Certainly Pirrie believed it did; after the merger he told his managing director that he expected ‘never to hear of our being delayed through lack of material, as only the exercise of foresight in anticipating our requirements should be necessary to ensure the supplies as required and at the proper time’.33 Pilkingtons also integrated back into coal-mining. Again, coal was a major input for Pilkingtons, since it took approximately eight tons of coal to produce a ton of glass. According to Barker, vertical integration into coal-mining ‘offered the prospect of ensuring supplies during strikes’.34 This conclusion seems to be based on the timing of the move into coal-mining by the St Helen’s glass-makers. They began investigating vertical integration during a strike by the newly unionised local miners which almost exhausted coal stocks. One glass-maker was able to turn to disused workings within its grounds. Yet for others including Pilkingtons, the lead time involved in opening a new colliery meant that their vertical integration into coal-mining could not alleviate shortages during the 1844 strike. Even as a long-term insurance, ownership of a mine would not prevent strike-induced disruptions to coal supplies. There is no reason to suppose that, unlike independent mine owners, the glass-makers would be able to employ non-unionised miners who would not strike. The link which Barker draws between the strike and vertical integration is only partially correct: it is more likely that vertical integration was pursued to insulate the glass-makers from raw material shortages due to other reasons, with the strike simply providing the catalyst. That is, it is likely that the strike made Pilkingtons aware of the effect of raw material shortages on continuity of production in its newly expanded plant. Transaction costs explain why Pilkingtons could not achieve the necessary assurance of raw material supplies by contracting with independent mine owners.

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 57

Pilkingtons’ vertical integration into coal-mining is an interesting example because for the 1870s Barker identifies a different source of advantage which is often assumed to be the rationale for vertical integration. This was the advantage of cheap fuel supplies.35 However, Barker’s analysis indicates that, rather than representing a general case, this advantage resulted from the nature of the shareholding in Pilkingtons’ collieries at the time. When the coal-mining and glass-making operations were wholly owned, preferential internal pricing of coal would simply have changed the origin of the firm’s profits. However, outside shareholders were brought into the mining operation by merger in the 1870s. By adopting preferential rates for internal coal purchases at this time, Pilkingtons was able to shift profits from a partially-owned to a wholly-owned operation. This is an unusual case and one which outside shareholders would not be expected to sanction for long. Besides vertical integration, growth was also achieved by an expansion into new product and geographic markets for a number of firms in the sample. For the hollow-ware producer, Kenricks, growth through product-market diversification took some time to materialise. Kenricks’ competitive position in cast-iron hollowware began to deteriorate in the late nineteenth century. This was compounded by a switch in demand from cast iron to steel and aluminium in some of Kenricks’ product lines. Kenricks attempted to diversify into other cast-iron products, but Church concluded it did so from a position of internal weakness. Not surprisingly, these diversification strategies were unsuccessful. During the Second World War, Kenricks won a tender to supply grenade centre pieces and mortar bomb tails. These components were produced from a zinc alloy, using a diecasting process for which Kenricks had to acquire a new plant and different skills to those employed in the production of its cast-iron hollow-ware and other products. In developing the new die-casting specific expertise Kenricks was able to gain economies of scope from its general metal casting know-how. With the end of the war, Kenricks sought a civilian product which could be produced with the die-casting plant and skills acquired in a protected wartime environment. In 1949 the firm found such a product when it purchased the rights to a new type of die-cast castor. This marked the beginning of a new phase in Kenricks’ history. Although internal organisational and management changes played a role in reviving Kenricks’ fortunes, Church emphasised the role of the accumulation of the necessary die-casting know-how and the purchase of rights to a product innovation to explain Kenricks’ success.36 Successful diversification into fibreglass formed part of Pilkingtons’ growth after the Second World War. The move into fibreglass was initially undertaken by another glass-maker, Chances, in 1930, although Pilkingtons subsequently recognised the potential of this step. It entered into a joint venture in fibreglass with Chances in 1938, before acquiring Chances in 1945. Barker indicates that it was the need to more fully employ its underutilised Glasgow plate glass plant (in our terminology, a physical scope economy) which led Chances to investigate fibreglass in the early 1930s.37 However, it seems unlikely from Barker’s

58 MODELLING THE GROWTH STRATEGIES OF BRITISH FIRMS

description that the same equipment finally was employed to produce both products. Plate glass production employed coal and gas fired furnaces, while fibreglass was made by heating scrap glass in an electric furnace and then drawing it off through holes in the cuppola onto a drum roller, which suggests that new plant was required for fibreglass production. Fibreglass production may have offered a use for the glass-maker’s scrap but, by reading between the lines of the Pilkington history, economies of scope in the use of technical expertise at the Glasgow plant emerge as the major reason for Chances’ initial and Pilkingtons’ subsequent success in fibreglass. Not all diversification strategies exhibiting scope economies were successful. Diversification into fertilisers was a disaster for ICI, seriously weakening the firm in the first years of its life.38 Since 1919 Brunner, Mond had been developing a fertiliser plant at Billingham based on the advanced high-pressure technology of ammonia synthesis. When ICI succeeded Brunner, Mond as owners of Billingham in 1926, the first major investment decision involved a massive increase in capital expenditure to expand fertiliser capacity. Billingham and fertilisers were targeted as the growth centre for the newly-formed company. In a domestic market which took 160,000 tons of sulphate in 1926, Billingham’s planned output of 210,000 tons created a large oversupply of nitrogenous fertilisers at home. The plant was designed to serve, and subsequently became dependent on, the export market. Unfortunately, the spread of ammonia synthesis to South Africa and Czechoslovakia, and within the United States and Germany, meant overproduction world-wide. This undermined ICI’s decision to invest heavily in fertiliser plant designed to meet rising world export demand. With the onset of the agricultural depression, Billingham was unable to produce at full capacity at any conceivable price level, and in 1930 much of the plant was shut down. Beginning in 1931, ICI started a massive, and painful, programme of writing off the capital invested in Billingham. The Billingham fiasco was reflected in the firm’s balance sheet, in its rate of return on capital employed (which had sunk to four per cent in 1931) and in its lack of strategic direction. Since the earliest days of the merger, ICI’s investment policy had been directed to making the fertiliser plant at Billingham the company’s main profit-centre. Now Billingham was the weakest group in ICI. In the wake of the Billingham failure, senior management turned to a strategy of diversification, seeking a solution to ICI growth problems in the hydrogenation of coal to produce petrol. But diversifying into petrol from coal did not provide ICI with a viable growth path, in spite of the ability to call on two broad-based scope economies. While the capital value of ICI shrank from £102.5m. in 1930 to £91.6m. in 1936 with the writing off of the fertiliser plant, the physical capital remained at Billingham, leaving ‘a factory for the manufacture and working up of hydrogen’.39 If the hydrogen plant was no longer needed for fertilisers, it could be employed making petrol. Billingham was an underutilised physical asset which could be turned to hydrogenate coal without reducing the plant’s existing output of

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 59

fertiliser. According to Reader, the value of plant saved in utilising Billingham’s existing excess capacity was among ICI’s strongest motives for undertaking an investment which was unacceptable on usual commercial grounds.40 Second, an intangible scope economy also made the diversification into petrol attractive. The hydrogenation of coal to produce petrol had the advantage of relying on much of the same high-pressure technology as amononia synthesis. It was this technical expertise which led ICI to invest heavily at Billingham first in fertilisers and then in petrol.41 The strategy of diversification, in spite of the scope economics available in the unused physical capital at Billingham and the technical knowledge of synthetic ammonia production was flawed. The commercial justification, in so far as a case could be constructed, rested on grounds of public policy. Hydrogenating petrol from coal would help the ailing coal industry and contribute to the defence of the Empire. The government supported ICI’s case, providing a preference of 8d. a gallon for four-and-a-half years in favour of petrol produced in the UK from British coal. In return, ICI agreed to restrict profits from the enterprise to a rate of five per cent before tax. There was never any real prospect that the costs of hydrogenation would be brought low enough to compete with the extremely low production costs of the petroleum companies working from oil. As Reader reported, hydrogenation would not pay.42 The existence of an underutilised physical asset and relevant expertise was not sufficient to ensure ICI’s success. The failure was not due to the unsuitability of the scope economy, but rather it was because the technical process of hydrogenation could not compete economically against alternative production techniques. ICI’s failed diversification into petrol was not unique. In 1959, Bowater’s American subsidiary, Southern, used its technical knowledge of wallboard production to diversify into hardboard for industrial users, chiefly in the furniture trade.43 Reader thought the hardboard venture was ‘a dreadful warning of the dangers of diversification: that is, of diversifying into a market already occupied by powerful and efficient competitors’.44 While Reader is undoubtedly correct to argue that the hardboard market was never ‘thoroughly understood’, the merits of the scope economy based on wallboard production in the UK was an equally important contributary factor in the failure of Bowater’s diversification strategy.45 Not only did Southern take nearly five years to adapt their existing technical knowledge of wallboard to hardboard production, but ‘unforeseen difficulties with the process, leading to unforseen capital expenditure and to unreliable quality in the product’ suggest that the scope economy was not easily (or successfully) transferred.46 If Kenricks and ICI had viable scope economies and Bowater a partial scope economy, then much of Harland & Wolff s diversification since 1965 was based on chimerical scope economies. Facing a declining shipbuilding market, Harland & Wolff sought growth through a wide-ranging diversification strategy, experiencing mixed results. During the 1970s and 1980s the move into closelyrelated product lines, such as the construction of roll-on-roll-off ferries and oil

60 MODELLING THE GROWTH STRATEGIES OF BRITISH FIRMS

rigs based on the firm’s proven shipbuilding skills and the use of underutilised physical shipbuilding capacity were classic examples of successful diversification.47 So to was the firm’s diversification into marine engines. In contrast, attempts to diversify into fabricated woodframe houses using the skills of the men and the machines of the woodworking department after the collapse of passenger shipbuilding or to diversify into motorcycle accessories utilising the idle fibreglass facilities and electroplating plant were totally unsuccessful.48 Some of the wilder schemes reflected management compliance with the government’s insistent urging that Harland & Wolff ‘initiate “old style” projects relating to existing facilities, manpower and skills’. By 1981 the government-sponsored diversification review team reported that ‘there was little chance of diversifying on any sizeable scale and that the Company’s energies should be directed to improving its effectiveness in the construction of ships and marine engines’.49 The presence of scope economics also helps explain the performance of firms which attempted to expand into new geographic markets. Through the purchase of rights to the artificial silk process in 1904, Courtaulds diversified out of the declining market in crepe and into the new viscose (rayon) market. After only 12 years in viscose, Courtaulds was the most successful of the viscose producers, due largely to the scope economies related to its existing textile business.50 Courtaulds was the only firm of those which purchased the viscose spinning rights to possess experience in textiles. Here was the basis of the firm’s remarkable success. Courtaulds’ experience with woven goods allowed them to assess the evenness and regularity of viscose when used in their own fabrics, and their network of agents at home and overseas helped sell the new viscose-cotton fabrics. The scope economies derived from the successful production of viscose at home allowed Courtaulds to diversify abroad through the American Viscose Corporation which began production in 1911. Coleman noted that ‘A.V.C. began with the enormous advantages derived from its parent company’s six years experience with viscose spinning at Coventry’.51 When the head chemist and manager of the American branch spent time at Coventry, production knowledge developed at home was passed to the American operation with spectacular success. As early as January 1911, Henry Tetley, Courtaulds’ managing director, reported that ‘the factory at Marcus Hook is doing so well, that I hardly know how to write about it’.53 While other factors such as the UK tariff impinged on the decision to invest abroad, the success of the venture rested on the technical knowledge derived from Courtaulds’ production experience at home. Bowater broke into the American market under similar circumstances. Besides an agency business, in the years before the First World War, Bowater also engaged in export packing, hydraulically baling surplus newspaper for the Eastern market where they were used for wrappings, wallcovering and the protection of young tea plants. In 1914 Bowater layed down plant in New York ‘for the Press Packing of News etc., similar to the business in London and Glasgow’.54 While the Hudson Packing & Paper Co. was small (as were all the

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 61

Bowater enterprises in those days), the company returned a dividend of 15 per cent in the first year, and established a base for future transatlantic operations on a large scale. Like Courtaulds’ much larger investment in AVC, Bowater’s American operation was modelled on its British plants, utilising the scope economies related to the same technology, production know-how and distribution channels. Pilkingtons successfully expanded overseas in each of its major product lines. The strategy was highly successful, largely because Pilkingtons attempted overseas expansion only after developing a competitive advantage in its home market. Sheet glass, safety glass and fibreglass plants were successfully established overseas between 1940 and 1965 on the basis of its scope economies related to firm-specific know-how in these areas. In plate glass where Pilkingtons took longer to develop a competitive advantage at home, the move overseas came later. Pilkingtons’ competitive advantage in plate in the home market rested on the development between 1952 and 1962 of the float-glass process. Since this process could be patented, Pilkingtons initially sold to other overseas firms the rights to employ the float-glass process. Patented know-how is easily transferred to second parties by contract and the contracts themselves are legally enforceable. This means the transaction costs are lower than with other forms of know-how. Pilkingtons only began exploiting its know-how internally by establishing its own float-glass plants overseas after it had begun to make further cost reducing developments in the process which quite likely were more difficult to patent or to specify in enforceable arm’s length contracts.55 By itself, a broad-based scope economy was not sufficient to ensure successful diversification and multinational expansion. Bowater’s diversification into hardboard was frustrated by the existence of efficient, well-established and aggressive competitors and ICI’s move into hydrogenation by an uneconomic technical process. More typically, the diversifier lacked marketing knowledge, specific technical know-how or control over raw inputs. Entry into new product and geographic markets by acquisition allowed diversifiers to purchase industryspecific advantages, increasing the likelihood of success. For example, ICI’s diversification into plastics depended not only on the scope economies which flowed from its ‘heavy’ chemical expertise, but also on the ‘goodwill and an immediate footing in the market’ gained through the purchase of Croydon Mouldrite.56 Bowater’s take-over of the New Zealand Tasman Pulp and Paper Co. in 1959 delivered an integrated plant incorporating newsprint, pulp and timber mills, supplementing the firm’s expertise in production and newsprint selling. Joint ventures secured the same result. Courtaulds’ viscose technology which allowed it to make viscose into film instead of filament, explained its diversification in 1930 into viscose film. However, competition with ‘Cellophane’, a brand name obstacle to the selling of Courtaulds’ ‘Viscacelle’, saw the formation in 1935 of British Cellophane, a joint company with the Cellophane Co. and its French parent, CTA.57 In diversifying from ‘Andrex’

62 MODELLING THE GROWTH STRATEGIES OF BRITISH FIRMS

toilet tissue into other tissue products, Bowater formed a joint company, Bowater-Scott, to gain access to the marketing skills needed to advance into the growing market for facial tissues and paper towels. Similarly, when ICI’s chemical base spawned synthetic fibres, ICI joined with Courtauld to form British Nylon Spinners, capturing Courtaulds’ ‘expertise in making and selling textile fibres’.58 British Nylon Spinners was not a successful joint venture, perhaps clouding ICI’s decision to ‘go it alone’ in pharmaceuticals. Reader suggested that advancement in pharmaceuticals would have been more rapid had ICI taken over an existing business, bought information or sought a licence.59 Joint ventures were also a common way to diversify geographically, ICI’s joint 1911 investment with du Ponts in Canada reflected ICI’s technical superiority and du Pont’s potential role of spoiler in the Canadian market. Here, as with the joint investment in Chile in the mid-1920s and the amalgamations in South Africa, geographical expansion occurred within the context of international cartels.60 According to Coleman, Courtaulds’ expansions into other geographic markets were strategic moves in a game of international rayon politics.61 Yet by focusing on ‘international diplomacy’ cartels have been viewed as institutions which limit competition, fix prices and protect markets. But Coleman and Reader neglect the economic rationale for Courtaulds’ and ICI’s overseas expansion via cartels: their technical expertise and the need to gain knowledge. For example, the joint ventures with VGF in the viscose yarn factory at Cologne in 1925 and La Soie Antiticcielle de Calais in a similar factory outside Calais in the same year brought Courtaulds the country-specific knowledge which reduced the costs of making foreign direct investments. Technical interchange and patent agreements which formed part of the Courtaulds’ joint European investment also brought useful information on technology and staple fibre.62 The tendency to analyse the ICI’s and Courtaulds’ overseas investments as merely political alliances and strategic moves, neglects the obvious fact that the bargaining strength and success of geographic expansion required scope economies. By limiting competition, dividing international markets and fixing international prices, the cartels were devices which helped guarantee the successful transfer of marketing and production scope economies to the new and very different overseas markets. VI In the business history literature transaction cost factors actors are neglected but important elements in the explanation of vertical integration and diversification. In the above examples, the transaction cost model provides powerful insights into the growth strategies of the sample firms. However, it is difficult to evaluate how general is the explanatory power of the model. In many other instances of vertical integration and diversification by the sample firms, insufficient evidence meant that the model could not be applied. As Coleman has argued, narrative company histories are not well-suited to comparative analysis because of the

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 63

absence of a consistent set of questions addressed by the authors to their varied source material. This inconsistency, Coleman continued, stems from the absence of any appropriate theoretical structure.63 Until British business historians begin by asking the same questions of their raw data as we are asking of the finished histories, the general applicability of the model will remain unknown. The real strength of the transaction cost approach is in ordering the raw material for explanatory purposes and its use to reinterpret finished business history does not fully utilise the theory’s descriptive and analytical power. In spite of these problems, we contend that there is clear indicative support for the model in the company histories examined, and that the application of this model illuminates the nature of the growth of these firms. With a larger and more representative sample, the theory would provide a basis for generalising about the relative importance of different strategies in the growth of all large firms in Britain. The first set of questions to be addressed would concern the relative frequency with which the sample firms relied on the various types of proprietary know-how to generate growth and the frequency with which vertical integration acted as a corequisite in attaining this growth. The second set of questions relate to growth through the application of propriety know-how to new markets. In particular, the relative frequency with which various types of know-how were applied to new product markets, and new geographic markets, and the extent to which each type of know-how was employed in the firm (including joint ventures) or through the market, could be calculated. The answers to these questions would provide a picture of the relative importance of the major growth strategies for British firms, which is the first step in understanding the development of the most powerful business institutions in the post-1870 British economy. University of Melbourne University of New South Wales NOTES 1. B.L.Supple, ‘The Uses of Business History’, Business History, Vol. X, No. 1 (1968), p. 86. 2. L.Hannah, ‘Introduction: Business Development and Economic Structure in Britain Since 1880’ in L.Hannah (ed.), Management Strategy and Business Development (London, 1976), p. 1; Roy Church, ‘Business History in Britain’, Journal of European Economic History, Vol. 5, No. 3 (1976), p. 210. For a similar statement see B.W.E. Alford, ‘Entrepreneurship, Business Performance and Industrial Development’, Business History, Vol. XIX, No. 2 (1977), p. 116. 3. A.Briggs, ‘Essays in Bibliography and Criticism: Business History’, Economic History Review, Vol. 9, No. 3 (1957), p. 488. 4. H.Williamson, ‘Business History and the Theory of the Firm’, Explorations in Entrepreneurial History, Vol. 4, No. 1 (1966), p. 13.

64 MODELLING THE GROWTH STRATEGIES OF BRITISH FIRMS

5. A.D.Chandler, ‘Business History: What Is It About?’ Journal of Contemporary Business, Vol. 10, No. 1 (1982), pp. 49–52. 6. D.C.Coleman, ‘The Uses and Abuses of Business History’, Business History, Vol. XXIX, No. 2 (April 1987), pp. 141–56. 7. Ibid., p. 18. 8. S.B.Saul, ‘The Market and the Development of the Mechanical Engineering Industries in Britain, 1860–1914’, Economic History Review, Vol. 20, No. 1 (1967); S.B.Saul, The Myth of the Great Depression 173–1896 (London, 1969), p. 68. 9. Briggs, op. cit., p. 488; R.Floud, The British Machine Tool Industry 1850–1914 (Cambridge, 1976), p. 6. 10. Roy Church, Kenricks in Hardware: A Family Business 1791–1966 (Newton Abbot, 1969), p. 307. 11. Gourvish, for example, emphasises the strategic constraints which government placed on British Rail, see T.R.Gourvish, British Railways 1948–73 (Cambridge, 1986), pp. 580–82. 12. A.D.Chandler, The Visible Hand (Cambridge, MA, 1977); A.D.Chandler and Herman Daems (eds.), Managerial Hierarchies (Cambridge, MA, 1980); Hannah, op. cit. 13. D.C.Coleman, Courtaulds: An Economic and Social History, Vol. 1 (Oxford, 1969), pp. 493–4. 14. D.C.Coleman, Courtaulds: An Economic and Social History, Vol. 2 (Oxford, 1969), p. 454. 15. D.C.Coleman, Courtaulds: An Economic and Social History, Vol. 3 (Oxford, 1980), p. 317. 16. Ibid., v–vi. 17. Peter L.Payne, Colvilles and the Scottish Steel Industry (Oxford, 1979), p. 240. 18. W.J.Reader, Imperial Chemical Industries: A History, Vol. I (London, 1970), p. xii. 19. Mark Casson, The Entrepreneur: An Economic Theory (Oxford, 1982), p. 9. 20. See David J.Teece, ‘Towards an Economic Theory of the Multiproduct Firm’, Journal of Economic Behaviour and Organisation, Vol. 3, No. 2 (1982); Sherwin Rosen, ‘Learning by Experience as Joint Production’, Quarterly Journal of Economics, Vol. LXXXVI, No. 3 (1972). 21. This model is derived from the growing body of literature on transaction costs, including Teece, op. cit., O.E.Williamson, Markets and Hierachies (New York, 1975), O.Williamson, The Economic Institutions of Capitalism (New York, 1985); B.Klein et al., ‘Vertical Integration, Appropriable Rents and the Competitive Contracting Process’, Journal of Law and Economics, Vol. II, No. 2 (1978); B.Klein, Transaction Cost Determinants of Unfair Contractual Arrangements’, American Economic Review: Papers and Proceedings, Vol. 70, No. 2 (1980); B.Klein and K.B.Leffler, ‘The Role of Market Forces in Assuring Contractual Performance’, Journal of Political Economy, Vol. 89, No. 4 (1981). On the dynamic aspects of the model, which are discussed below, see O.Williamson, ‘Transaction-cost Economics: The Governance of Contractual Arrangement’, Journal of Law and Economics, Vol. 22, No. 2 (1979); S. Nicholas, ‘The Theory of Multinational Enterprise as a Transactional Model’, in P. Hertner and G.Jones (eds), Multinationals: Theory and History (Aldershot, 1986).

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 65

22. The reasons for these contracting risks are explained below, from the perspective of the firm. 23. Teece, op. cit., see also David J.Teece, ‘The Multinational Enterprise: Market Power Considerations’, Sloan Management Review (Spring 1981). 24. Williamson, Economic Institutions, op. cit., pp. 44–7. 25. B.W.E.Alford, W.D. and H.D. Wills and the Development of the U.K. Tobacco Industry 1786–1965 (London, 1973), pp. 137, 156, 232–3. 26. T.C.Barker, The Glassmakers: Pilkington. The Rise of an International Company 1826–1976 (London, 1977), p. 410; see also pp. 416–20. 27. Alford, ibid., pp. 109, 159, 160. 28. Payne, op. cit., p. 117. 29. Ibid., p. 238. 30. Ibid., p. 144; Michael Moss and John R.Hume, Shipbuilders to the World: 125 Years of Harland and Wolff, Belfast 1861–1986 (Belfast, 1986), p. 219. 31. Payne, op. cit., p.144; Moss, op. cit., p. 219. 32. Ibid. 33. Moss, op. cit., pp. 219–20. 34. Barker, op. cit., p. 112. 35. Ibid., p. 118. 36. Church, Kenricks, op. cit. 37. Barker, op. cit., p. 376. 38. W.J.Reader, Imperial Chemical Industries: A History, Vol. II (Oxford, 1975), pp. 98–109. 39. Ibid., p. 128. 40. Ibid. 41. Reader, Vol.I, op. cit., pp. 360–71. 42. Reader, Vol. II, op. cit., p. 128. 43. W.J.Reader, Bowater: A History (Cambridge, 1981), p.283. 44. Ibid., p. 298. 45. Ibid., p. 258. 46. Ibid., pp. 235, 298. 47. Moss, op. cit., pp. 465–76. 48. Ibid., p. 415. 49. Ibid., p. 471. 50. Coleman, Courtaulds, Vol. 2, op. cit., p. 66. 51. Ibid., pp. 111–12. 52. Ibid., p. 112. 54. Reader, Bowater, op. cit., pp. 15–16; see also pp. 20–21. 55. Barker, op. cit., p. 420. 56. Reader, ICI, Vol. 2, op. cit., pp. 344–5. 57. Coleman, Courtaulds, Vol. 2, op. cit., pp. 372–3. 58. Ibid., p. 67; Reader, ICI, Vol. II, op. cit., pp. 369–78. 59. Reader, ibid., p. 460. 60. Reader, ICI, Vol. I, op. cit., pp. 379–423. 61. Coleman, Courtaulds, Vol. 2, op. cit., p. 61. 62. Ibid., p. 377. 63. Coleman, ‘Uses and Abuses of Business History’, op. cit., p. 14.

66

CONSUMER MARKETING IN BRITAIN 1914–60 By T.A.B.CORLEY

Introduction The present essay is necessarily different in scope from the others in this series, since for reasons of space it looks at only part of the allotted theme. Consumer marketing needs to be distinguished from industrial marketing, which concerns intermediate goods supplied to other businesses. Industrial marketing requires different techniques from the consumer variety: advertising is often in trade and/ or technical journals, rather than in the general press; technical representatives may be used; and sales promotion is along specialised lines. Only consumer marketing is dealt with here. Since export salesmanship again has quite distinctive characteristics, it will not be considered below. Moreover, the marketing of services is neglected, as is industry-wide marketing, of the ‘Beer is Best’, ‘Drinka Pinta’ and ‘A Bath in Every Home’ types. This restricted scope is partly dictated by the present state of the art. No overall academic study of the subject seems to exist, that might have provided a framework within which to fit our case studies. Hence to concentrate on the 13 texts—covering such widely disparate goods and services as coal, banking, rail transport, glass and ships—would have produced findings that were far too general to yield any useful lessons. However, the discarding of some texts, especially those concerned with firms on the borderline between producers’ and consumers’ goods, is particularly regretted, as it would have been interesting to follow up some evidence provided there. For instance, ICI, which made paints and lacquers, in our period refused to advertise to the general public, so as not to annoy professional decorators and their suppliers.1 Kenricks, which made baths and other hollow-ware, had a sales policy between the wars described as ‘rigid and unimaginative’, thanks to a chairman who was insensitive to the wishes of customers.2 Hence we are basically left with the histories of Courtaulds, Wills and (to a minor extent) Bowaters. These have been supplemented here by cases from many other company histories, of which one of the most helpful has been Wilson’s history of Unilever. The third volume, covering 1945 to 1965, has a whole chapter on marketing, important both for its portrayal of the firm’s

68 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

marketing developments and for its general discussion. ‘For some curious reason’, Wilson writes, the marketing problems of business ‘have never been examined or valued as much as the associated technological virtues’.3 In the absence of more authoritative work, therefore, the present article can make only an imperfect stab at this topic. Having begun with a definition of marketing, it will discuss in later sections the progress of consumer marketing in Britain for various sub-periods between 1914 and 1960. It will end with a few provisional conclusions. What is Marketing? A recent definition by a company historian, Bernard Alford, may help to set the scene. ‘Marketing, in modern terms, involves deciding marketing objectives in relation to a firm’s products and then integrating research, production, advertising, selling and distribution into a policy and programme designed to secure these objectives’.4 Thus the marketing programme is the instrument for seeking the firm’s overall objectives. Since firms customarily have competitors and face uncertainty, the most useful techniques are those which serve to reduce that uncertainty. As an element in this programme, advertising needs to be divided into two forms, ‘push’ and ‘pull’. If the production and distribution process is seen as a vertical sequence, the producer can either appeal directly to final consumers and induce them to exert a pull down the distribution line, or else itself take action to push these products down the line. In the former category falls media advertising, and the latter includes incentives to retailers and point-of-sale publicity, such as special displays and offers. How, and how far, have British consumer goods manufacturers adapted themselves to present-day ideas about marketing, as new techniques have become available and outside pressures have mounted? Were many of these firms production-orientated at the outset; that is, concerned merely with turning out what the firm wanted to produce? Had they got far by 1960 with becoming marketing-orientated, in Alford’s sense of adopting a business strategy which combined all the firm’s activities in the paramount task of providing what the consumer wants? With these definitions and questions in mind, we can now explore where consumer marketing stood in the Britain of 1914. The Marketing Scene in 1914 From the available evidence, British marketing in 1914 must have been less skilful and effective than it had been during the industrial revolution. In Wilson’s words, the ‘personal hunch’ and ‘commercial flair’ of the earlier entrepreneurs had by then ‘given way to a more bureaucratic and complex organisation’.5 Kindleberger attributed such a decline to the advancing social status of the controlling families, who held salesmanship in low esteem. The commercial

CONSUMER MARKETING IN BRITAIN 1914–60

69

ability [which had been] so crucial to the innovator—more important than technical capacity—was downgraded as firms grew and became bureaucratic.’6 Chandler has helpfully made a distinction between entrepreneurial and managerial firms, the one type being manager-manned but owner-controlled and the other manager-dominated. By 1919, he found the former category was still the most common in Britain, with the latter being far rarer, as were personallyrun firms of any size.7 When applied to our topic, his scheme suggests that marketing standards must have been weakened because the owners, in pursuing social aims, spent time away from the firms and handed over to men who as subordinate managers concentrated on keeping the routine going. However, firms cannot always be pigeon-holed in this fashion. Take the most outstanding motor car manufacturer of the day, well described as the only Briton before 1913 who had ‘successfully displayed a sensitivity to the commercial needs of the motoring public’.8 Percival (later Lord) Perry, a marketing man, saw clearly that, once Britain produced small and cheap cars in long runs, British motoring could be transformed from a luxury pastime of the few into something to be enjoyed by the many. He persuaded Henry Ford in the US to let him become first of all the dealer for Ford cars in Britain, and from 1912 onwards the assembler of those cars here. William Morris (later Lord Nuffield) also started as a car dealer and grasped the possibilities of mass marketing. Like Perry, he began volume production by assembling bought-in components, thereby minimising overheads, and built up a network of retail agents.9 By contrast, Herbert (later Lord) Austin was more of an inventor and produced fewer and less standardised cars. Yet he was the first to establish showrooms and to publicise his models through a regular journal.10 If the Austin and Morris organisations were personally run, Ford was successful as a personal-cum-managerial firm. Among consumer goods firms, marketing skill or neglect depended not so much on size as on the way in which the firms were organised. By 1914 Cadburys and Huntley & Palmers employed nearly 7,000 each and Frys, Rowntrees and Reckitts between 4,000 and 6,000 each; all were unitary firms. Huntley & Palmers was highly bureaucratic, each department being run by a family director with complete autonomy. As the most influential directors were production or engineering men, the sales department merely sold what was produced.11 The larger English breweries, too, were mostly run along rigid bureaucratic lines, with a consequent lack of co-ordinated business policy. A market leader, Allsopps, was erratic in its strategy: at first it refused to acquire tied houses, and then under severe competitive pressure bought up pubs at ‘insane’ prices. It later entered disastrously into the lager trade with next to no preliminary research. By 1914 it was on the brink of collapse.12 In other firms, of varying size, top management really managed. George Cadbury, William S.Clark, Joseph Rowntree, Sir Joseph Beecham and the Carr brothers of Peek Frean—the main

70 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

rivals to Huntley & Palmers—in 1914 all dominated their respective firms, and showed many of the traditional marketing skills. Were the number of different brands offered by many such firms a sign of weakness? For example, Huntley & Palmers produced 400 varieties of biscuit in 1914. Yet it never considered deleting any of these. It was Peek Frean which weeded out its slowest sellers, while aggressively launching new varieties to gratify changing consumer tastes. Huntley & Palmers’ failure to do likewise encouraged the more progressive Scottish and Irish firms (McVitie & Price, Macfarlane Lang, Jacobs) by 1914 to open branch factories in England, nearer to their principal domestic markets.13 Sometimes, however, a range of variations merely reflected the characteristics of the product. W.S.Clark offered no fewer than 720 types of footwear; however, men’s and women’s shoes were not interchangeable and the large number of sizes, widths and styles were necessitated by the fierce overseas competition in high-quality shoes. Clark had a remarkably sophisticated view of marketing. To keep up with technical progress, he introduced US machinery and the American team system and also geared production to orders and sales, thereby keeping stocks to the minimum and avoiding over-production. He relied largely on information from his well-trained representatives.14 By contrast, Howlett & White of Norwich early in 1914 launched a national advertising campaign for its Norvic shoes. The production side was quite unprepared for the sheer success of the campaign, and huge backlogs were only liquidated after the outbreak of war.15 Despite handling over 700 lines in 1914, Cadbury remained sensitive to consumer tastes, quickly modifying recipes when products failed to catch on, and discontinuing obsolescent lines.16 By 1914 several textile entrepreneurs had shown great initiative on the marketing side, where customers were increasingly demanding novelty goods. Sir Frank Hollins changed over distribution from wholesalers to retailers: once nearer to the final consumer, his relatively small Preston firm had grown important enough to take over the much larger Horrockses and later Crewdson as well, and enhanced their already good names with a range of prestige products. His brother Henry, who ran William Hollins of Nottingham, from the 1890s onwards marketed good-quality and highly-priced Viyella garments and hosiery. He used a combination of ‘push’ and ‘pull’, also by-passing wholesalers. His travellers gave specialist advice to drapers’ shops and mounted point-of-sale displays. ‘Pull’ involved placing in the more expensive papers and magazines advertisements which stressed the warmth and non-shrinking properties of Viyella.17 Courtaulds, too, was in a declining market; in its case that of coloured silk and mourning crepe. In 1904 it acquired the manufacturing rights of an artificial silk later known as rayon. By 1914 it had not only overcome the considerable technical problems of a novel process, but had harnessed the firm’s century-old commercial experience and marketing skills— more, it seems, on the ‘push’ than the ‘pull’ side—to build up a good volume of sales.18

CONSUMER MARKETING IN BRITAIN 1914–60

71

As the popularity of Viyella had shown, although the carriage trade had affected to spurn goods that were advertised, that prejudice was fast breaking down by 1914. The well-established consumer goods advertisers, such as Beecham of the pill firm, had set a trend with frequently changed and lively advertisements designed to capture readers’ attention and to amuse. These used the new popular newspapers and poster hoardings.19 Thomas Barratt of Pears soap and Lever with his soap also went in for very conspicuous publicity. For their ‘fun’ advertisements, the Bovril makers used Samuel Benson, a former employee who had set up an advertising agency. Benson also advised many other prestigious firms, such as Rowntrees.20 Rowntrees was important for two reasons. First, social surveys carried out by (among others) Joseph’s son Seebohm Rowntree helped to establish the methodology of sampling techniques on which market research was later to be based. Second, the firm used a relatively advanced marketing strategy for its Elect cocoa. For instance, it despatched samples to those returning newspaper coupons, thus gaining some detailed information about the market.21 Peek Frean’s intensive advertising in the halfpenny newspapers, and schemes such as sending out 200,000 picture postcards to housewives annually, making a free offer, forced the reluctant Huntley & Palmers into becoming more publicityconscious.22 Although Beechams, Bovril, Lever and Pears were all spending at least £100, 000 a year on advertising, in 1914 that activity was still largely a hit-and-miss affair. Despite a massive use of publicity devices, Lever admitted that one-half of all advertising expenditure was wasted, but the trouble was that no one knew which half. To him the most effective method of reducing uncertainty was to stifle competition by establishing a soap trust through mergers.23 Opinion in the US before 1914 was that British marketing methods, while producing advertisements of commendable originality and often of high artistic merit, lacked any consistent principles; the average British advertiser was content merely to ‘throw his bread upon the water’.24 Not surprisingly, by 1914 American ad-men had ‘invaded’ Britain, in search of commissions from British firms to prepare copy and suitable designs. To the US, Britain owed such marketing innovations as mail order, door-to-door selling and hire purchase trading. Not that the hard sell always worked: the British tended to be qualityconscious over reputable goods, whereas the Americans looked first at the price. Hence ambitious schemes to capture markets in Britain by drastic price cuts often failed.25 British advertising thinkers were also active at this time. S.H.Benson’s manuals stressed the importance of carefully studying the product concerned in relation to the customer, the industry and rival firms, and of judging that the product was right for the market before committing resources to its promotion.26 Likewise Thomas Russell, by 1914 an advertising consultant and a leading British authority on the subject, made a point of studying the precise nature of each client’s business and then recommending the most appropriate form of

72 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

advertising.27 The fact that these experts needed to proffer such advice indicates the rudimentary condition of British marketing at that time. One firm which used Russell’s expertise was the manufacturer of Glaxo milk powder. Like Horlicks and Nestlé, it directed its publicity not only at the general public but also at doctors and nurses. In 1919, Russell gave the first-ever academic lecture course in Britain on advertising, at the London School of Economics, to his regret not taken up elsewhere. He emphasised as an indispensable adjunct of advertising the need for research, based on economic and statistical principles. To conclude this section, a great deal of consumer marketing in 1914 must have been poor, amateurish and unimaginative. However, good and bad marketing cannot easily be associated with any particular category of firm. Some large and some small companies had able entrepreneurs who were receptive to consumers’ wishes and prepared to sink large sums in publicity. Through their efforts, marketing could well ‘take off in subsequent decades. War and the Inter-War Years 1914–39 The demands of what soon became a total war after 1914 largely halted marketing in Britain. Many consumer goods, from footwear to army biscuits and cigarettes and tobacco for the forces, were contracted for by the government. Controls and later consumer rationing severely reduced the amounts and ranges of goods available to private buyers. Advertising had to be greatly curtailed, with the size of newspapers much reduced and the government taking a great deal of the remaining space for official notices and for propaganda. From the marketing viewpoint, the vital aspect of Britain’s inter-war economy was the 30 per cent rise in UK consumers’ real expenditure per head between 1921 and 1938–39. That increase created substantial opportunities for consumer goods firms, with the later help of general tariffs and ‘Buy British’ campaigns. Firms also stood ready to benefit from extensions in the range of advertising. Among the mass-circulation papers, the popular range increased their circulation between 1910 and 1938 from 3.5 million to 7.6 million.28 The new continental radio stations, especially Radio Luxembourg and Radio Normandie, started up from 1930 onwards. Cinema advertising, although then in its infancy, was used by firms such as Unilever in the 1930s.29 A further innovation was the arrival in Britain of scientific market research. That involved both analysing already available data and collecting new data through sample surveys. In 1924, for instance, the Daily Sketch helped to publish a Survey of the British Market and the agency J.Walter Thompson a Population Handbook of Great Britain.30 Some individual initiatives can be traced back before 1918, such as Rowntree’s systematic study of reactions to its various publicity schemes and Cadbury’s installation in 1917 of a punch-card system for collating its sales data.31 Even so, experts later differed on whether British firms had carried out any genuine market research before 1930. Mark Abrams believed

CONSUMER MARKETING IN BRITAIN 1914–60

73

not;32 the British Market Research Bureau was aware of examples, but unfortunately did not cite them.33 Perhaps surprisingly, the large number of consumer firm mergers, especially in the food and drink industries, seldom led to group marketing activities or to the rationalising of product ranges; the sales departments in the merged units continued to compete against one another. Even go-ahead companies followed this trend. Reckitts after 1918 diversified out of its pre-war range of starch, grate polish and so on, into goods more suitable for servantless households. These included Windolene, Karpol (for cars), Harpic and the disinfectant Dettol. It employed medical representatives to popularise Dettol among doctors. In 1937 it merged with Colmans; yet before 1960 the combine took no effective steps to merge its units or its marketing activities.34 In the British Cocoa and Chocolate the Associated Biscuit combines respectively, Cadburys competed against Frys until the 1930s and Huntley & Palmers against Peek Frean until as late as the 1960s. As to soap products, Lever insisted on sales rivalry between his units to keep them on their toes: the result was, in Wilson’s words, that in his combine ‘he seemed to be dissipating his energies in the manufacture of many brands in differing quantities (some very small) instead of making large quantities of a few successful brands’. Not until Lever’s death did his successor in the late 1920s gradually impose central control on the units with a group advertising agency. By the 1930s Unilever, as it had become, started up market research in its own agency Lintas.35 Within Imperial Tobacco, the leader Wills directed its marketing efforts partly against other units, especially Players. Although Wills had a committee to collate marketing intelligence, that gave insufficient attention to the new and growing demand by women for cigarettes; meanwhile Players used advertising skills to become by 1938 almost as popular as Wills.36 Among breweries, the main weaknesses were often complacency and a tendency to take for granted the captive market in tied houses, with predictable results. Bass, for instance, under the egregious John (later Lord) Gretton, was convinced that its beers were good enough to sell themselves anywhere, and refused to follow other brewers in making its pubs more attractive: it soon followed Allsopps into decline and eventual take-over.37 The Dublin firm of Guinness, on the other hand, had no pubs of its own. Its chairman, Lord Iveagh, saw no justification for the expense of a powerful advertising campaign. Once he was dead, however, in the late 1920s Guinness launched a series of memorable poster and newspaper advertisements; its stout became so popular in Great Britain that it was brewed in London as well from 1936 onwards. Yet it carried out no market research to determine the scope of its market; like Wills, therefore, it failed to appreciate the importance of the women’s market. On the ‘push’ side, Guinness offered free samples to doctors and sought their testimonials.38 Clarks, on the other hand, did not neglect women’s demand for shoes. In 1927 it decided to produce medium-priced but well-styled shoes, and seven years later launched its first national advertising campaign.39 That was noticeably more restrained

74 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

than the publicity of Arthur W.Barratt of Northampton, whose avuncular presence graced all his highly personalised advertisements, urging people to ‘Walk the Barratt Way’.40 Then in the mid-1930s Clarks followed its competitors by acquiring retail outlets. As to textiles, Hollins failed to hold the pre-war level of consumer demand for Viyella. Not until 1923 did a newly-appointed chairman, free of departmental interests, strive to put new vigour into marketing; he introduced a cheaper version of Viyella named Clydella, stepped up advertising and streamlined the sales force to improve the feedback of market trends. However, in 1936 the board refused to engage a market research specialist, and by 1939 profits had virtually evaporated.41 Although far more powerful—being Britain’s fourth largest manufacturing company—Courtaulds had also lost some of its impetus. The immense popularity of rayon had provoked intense competition among manmade fibre manufacturers at home; its most energetic rival was British Celanese, run by the brilliant ‘outsider’ Henry Dreyfus, whose flair for pushing his firm’s underwear and other garments ensured that in 1930 (according to a survey) 98 per cent of women were aware of celanese. By contrast, 35 per cent had never heard of Courtaulds, whose dowdy publicity was aimed at older age groups and whose dominant chairman Samuel Courtauld frankly despised advertising. Only in 1936 did Courtaulds appoint an advertising manager and engage a leading agency. An imaginative campaign soon sought to dissipate the former public ignorance and direct a cogent appeal to men and women of all ages. British Celanese gradually lost its impetus, and in 1957 was taken over by Courtaulds.42 Some very well-known sweet-making firms more or less ably gratified the British taste for confectionery. Cadburys, as leader, increased its sales force, offered specialist advice to retailers, and reduced the number of lines to 240 by 1939. Rowntrees, by the 1930s sunk in the doldrums, with a product range described as ‘elaborate and undistinguished in both quality and concept’, under the gifted George Harris built up a series of hugely successful novelty products, from Black Magic chocolates to Kit Kat, Aero and Smarties, kept before the public by striking and sophisticated advertising.43 Mackintosh kept ahead in toffees with big advertising campaigns, especially on the front pages of national and provincial papers. After acquiring the Caley chocolate firm, it lucratively combined toffees and chocolates in the popular Quality Street and Rolo lines. Rarely for those days, it seems to have integrated its units’ marketing organisations.44 Between the wars the established biscuit makers promoted little memorable marketing. It was left to a Canadian newcomer, W.Garfield Weston, to combine transatlantic production and marketing skills in flooding the British market with sixpenny biscuits, sold through cut-price chain stores and retail outlets; by 1939 his biscuit tonnage was equal to that of Huntley & Palmers and Peek Frean combined. The English Meredith & Drew similarly marketed the cheap Betta biscuit, and achieved a volume of output not far below Weston’s.45

CONSUMER MARKETING IN BRITAIN 1914–60

75

In motor cars, Morris had by the 1920s become the leader, quadrupling the number of dealers and using sales promotions, and in 1933 launched the largest advertising campaign ever seen in Britain. He also stressed after-sales service and forced his dealers to make standard charges for repairs and maintenance. Described as a ‘prince of commerce, because he had an instinct to know what the people wanted’, he kept market research out of his firm before 1945. Austin, despite less flamboyant publicity, successfully pushed some very good and reasonably priced models such as the Baby Austin, and built up a market share only just below Morris’s. By comparison, Ford then made a poor showing in the British market. Competition in petrol really began in the early 1920s, when petrol pumps were introduced into Britain. Standard Oil’s subsidiary, selling Esso, typically sought maximum sales at keen prices. The two British majors merged their UK distribution in 1932 as Shell-Mex and BP Ltd. While each spent proportionally the same on advertising, the Shell publicity had by far the greater impact; that was despite the BP emphasis on the Britishness of its petrol, in harmony with current ‘Buy British’ campaigns.46 The unchallenged leader in lubricating oil was Castrol, the brain-child of C.C. (later Lord) Wakefield. By 1939 Castrol was used in more than half the two million cars and nearly 500,000 motor cycles on Britain’s roads. Wakefield always placed the customer first, promoting intensive research efforts to keep his firm technically well ahead of rivals. His advertising publicised the many successes in car and air races where Castrol had lubricated the winner.47 Such growth as took place in sales of domestic electrical appliances was helped by the establishment of the Central Electricity Board in 1926 and the later standardisation of supplies through the national grid. Yet, as Hannah has pointed out, many private houses had at the most one power point. Although, therefore, the British Electrical Development Association and the Electrical Association for Women strove to popularise electricity for heating and cooking, their gas rivals— helped by the attractive advertising symbol Mr Therm—remained ahead.48 A number of electrical appliance firms did, however, show initiative in pushing their products. Hoover used American marketing methods, including door-todoor salesmen, to sell vacuum cleaners; the Swedish Electrolux was successful with refrigerators. Morphy Richards made fans and irons from 1936 onwards: by the mass assembly of components made outside, it achieved economies of scale which permitted low prices. Soon after television transmissions began, in 1938 the Austrian-born (Sir) Jules Thorn entered the market with Ferguson sets.49 These and other firms’ appeals to the British consumer, at a time of growing affluence, were interrupted by the six-year hiatus of a second total war. Second World War and Recovery 1939–55 From the outset of the Second World War, the government objective was to depress the living standards of ordinary people so as to be able to transfer the

76 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

maximum volume of national resources to wartime use, so that marketing once again enjoyed a very low priority. Among official measures was the concentration of output in areas of plentiful labour, a zoned distribution of many consumer goods, the utility scheme to standardise, for instance, clothes and furniture, and the pooling of such products as margarine and soft drinks.50 This control apparatus was maintained for some years after 1945, during which there were official restrictions on advertising. Not until 1948 were individual brands of soft drinks reintroduced. Schweppes’ directors prepared for their relaunch by sending sales teams to the US, in order to learn the latest marketing techniques. Under Sir Frederick Hooper, Schweppes later embarked on years of embarrassingly fanciful advertisements at home, which were much inferior to the more direct publicity which took the US by storm. Not until Hooper’s rigid personal control had ended, in 1962, did the firm even have a marketing department.51 Biscuit rationing was not abolished until 1949. McVitie & Price had the previous year merged with Macfarlane Lang under the holding company United Biscuits, but without setting up group marketing. However, McVitie & Price did boldly put almost the whole of its ingredients allocation into the three most popular brands, notably the Digestive. Reinforced with some strong publicity, this high-risk strategy paid off, and by the early 1960s United Biscuits had captured nearly a quarter of the British biscuit market, or roughly twice the share of Associated Biscuits.52 In tobacco, the brand leader Wills for the first time recognised that, to maintain and increase its market share, it needed to undertake market research before embarking on costly advertising. That advertising was necessarily defensive—and still aimed at other units in the combine—as regular tax increases blunted the price weapon; moreover, the market shares of individual firms were subject to tight quotas.53 By contrast, post-war marketing in soap products was extremely lively. Detergents had been marketed in Britain by Unilever and the US-owned Thomas Hedley since the 1930s. As soap was rationed until 1950, these detergents became widely used, the base materials being available from the growing petrochemicals industry. In 1950 Hedleys introduced Tide, developed by its US parent Procter & Gamble. Hedleys’ managing director, Robert Craig Wood, soon built up a strong market share. Unilever, technically behind until 1952, then launched its rival Surf brand, with a very expensive ‘push’ and ‘pull’ strategy, including free samples to retailers and coupons sent to six million housewives, and later drastic price cuts to reinforce advertising. Even so, Hedleys remained ahead in these detergent powders, although in soaps and liquid detergents the more diversified Unilever was well ahead.54 In 1954 Wood left Hedleys and joined Beechams. There Leslie Lazell— perhaps the most distinguished British marketing entrepreneur in the post-war era —was managing director. Having learnt his marketing expertise before the war in Macleans, the toothpaste makers subsequently acquired by Beechams, Lazell

CONSUMER MARKETING IN BRITAIN 1914–60

77

was converting the latter firm into one of the foremost marketing- and sciencebased companies in Britain. Among its other leading products by then were Brylcreem, Eno’s fruit salts and Lucozade, for which Lazell used both individual market research and the weekly grocery survey compiled by the firm A.C. Nielsen. Wood’s task was to reorganise Beecham Foods into an effective division. As it happened, Wood’s plans for both ‘push’ and ‘pull’ campaigns proved too ambitious even for Lazell, who concluded that soap-type marketing was not after all suitable for foods, and Wood resigned.55 As to textile firms, the post-war period was good for some but painful for others. Clothes rationing persisted until 1949 and the official utility scheme until 1952, and priority had to be given to the export drive. As Viyella and other brands had been largely unobtainable during the war, there was a very big pentup demand for them. Yet neither the organisation of Hollins nor its publicity moved with the times. Viyella advertising was fossilised in a long-vanished Edwardian secure world, while the firm returned to the pre-war practice of spinning yarn and making it up rather than buying it as necessary, with the consequent risk of trade fluctuations and the need for holding heavy stocks. Hollins did deceptively well until 1955, after which it suffered the penalties of an outdated strategy.56 Courtaulds, on the other hand, enjoyed the advantages of size and of making rayon which was cheaper than natural textiles and as a utility item was free of purchase tax. A new product, made by an ICI-Courtaulds joint venture, British Nylon Spinners, was nylon. In the early 1950s demand for nylon, especially in the form of stockings, men’s socks and fabrics, was built up by a large marketing effort. However, the equally popular terylene was made by ICI, and Courtaulds itself was faced with the growing obsolescence of rayon.57 Clarks, being a rural firm, had benefited from the official concentration scheme for shoes, maintaining its productive capacity and therefore being strongly placed to meet post-war demands. Its advertising strategy then involved linking its best-known brands of shoes with emphasis on the Clark name. It also made a determined bid for the teenage market; ahead of its rivals, in the very early 1950s it realised the commercial possibilities of appealing to this newly affluent group. While not as yet undertaking market research, it was concerned at the absence of precise data about the sizes and shapes of British people’s feet. It therefore carried out measurement surveys, at first locally, on which to base its efforts to satisfy customers’ exact needs.58 Other products benefited directly from the ‘domestic revolution’ of the 1950s: a spectacular growth in national demand for consumer durables, most notably for domestic electrical appliances. By 1960 nearly two-thirds of British households had television and nearly one-third a car. One in two had a washing machine and one in three a refrigerator. This development was triggered off by higher disposable incomes created by full employment and a million increase during that decade in women at work. Other factors were a steady growth in home ownership, the widespread provision of new council houses—with multiple

78 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

power points —and the electrification programme which brought electricity to almost all of the nation’s homes.59 The appliance leader was still Hoover, which in 1948 diversified into washing machines; by 1954 it was selling one-and-a-half times as many in Britain as all its rivals combined. Later on it added other products. Under Sir Charles Colston as chairman, it concentrated on three aspects: continuous technical research, intensive selling by possibly the largest sales force in Britain, and emphasis on efficient servicing. Policy differences with the US parent led to Colston’s resignation in 1954.60 Under Sir Jules Thorn, the Thorn firm became the largest producer of television sets; having acquired Tricity Cookers Ltd. in 1951, he was soon one of the leaders in electric cooker production as well. His ability to spot changes in consumer preferences and a constant emphasis on high quality and competitive prices made him perhaps the most go-ahead appliance manufacturer. It was noted that the medium-sized firms—including Morphy-Richards with its range of good appliances—had more success in this very volatile field than the electrical giants such as GEC, AEI and English Electric. As to motor manufacture, Austin and Morris between them still held about 40 per cent of Britain’s car market. In 1952 they merged as the British Motor Corporation (BMC). For a time BMC was the largest vehicle manufacturer in Europe; its subsequent history will be related below. At the same time Ford, under Sir Patrick Hennessey, was investing massively in productive capacity, and also promoted with imaginative advertising some stylish and highly reliable models. These efforts raised Ford’s share of the market to 27 per cent by 1955; BMC’s share was down to 39 per cent.61 In the decade to 1955, then, British consumer firms had recovered more or less satisfactorily from the war. However, their marketing problems were to mount in f ar less f avourable conditions during the next five years. Era of the Television Commercial 1955–60 The second half of the 1950s saw a number of significant economic trends in Britain combining to give a jolt to British consumer firms’ attitudes towards marketing. Since corporate attitudes cannot be shifted overnight, the transformation of these firms still had a long way to go by 1960. A key factor was the end, or the beginning of the end, of the sellers’ market in Britain. Imports from Germany, Japan and other rival countries were increasing, helped by tariff reductions. At the same time, the home market for many goods was becoming saturated, as people— even with their higher purchasing power— began to seek other goods. This trend was noticeable in motor cars, domestic appliances, foodstuffs such as biscuits and confectionery, and footwear; shifts in demand were taking place to, say, convenience foods and foreign holidays. The most considerable consumer goods industry, with a very variable degree of marketing skills, was that of motor cars. BMC showed no hurry to integrate operations. Austin and Morris continued virtually as separate companies, and the

CONSUMER MARKETING IN BRITAIN 1914–60

79

earlier inter-unit rivalry was even exacerbated when an Austin man, Sir Leonard Lord (afterwards Lord Lambury), became chairman and managing director. However, helped by his deputy Sir George Harriman, Lord did spend huge sums on expansion and modernisation and promoted some new models, including the Mini in 1959. Even then each unit produced its separate version, which did nothing either for production economies or integrated marketing.62 It was Ford which continued to progress, remaining responsive to the consumer market with a limited range of models. In the 1950s it enjoyed a high degree of independence from its parent, greatly reduced after 1960. For domestic appliances, too, the mid- to late 1950s were the years when consumer resistance began to set in. Although the giant electrical firms sought to offer a large range of products, their performance remained lack-lustre. Then AEI decided to fight back by appointing Craig Wood, lately resigned from Beechams, to run its subsidiary Hotpoint. Wood was given complete freedom to mount a resolute campaign. He anticipated that appliance manufacture in Britain would follow the lead of the motor industry and become concentrated in the hands of a very few specialists. Wood reduced Hotpoint’s output from 20 to two appliances: washing machines and refrigerators, which he had completely redesigned. He also used market research, still a rarity in the industry. Having narrowed down his market and modified the distribution pattern to favour retail outlets, he then advertised on an unprecedented scale for the industry. By 1959 Hotpoint’s share of washing machine sales had risen sharply. His incursion into the market, together with those of two other ‘outsiders’, A.J.Flatley and John Bloom with their much cheaper appliances in 1960 and onwards, left the appliance industry in a state of disorganisation.63 A further significant new departure was the arrival from 1955 onwards of commercial television, with advertisements which from the outset profoundly influenced both the general public in their buying patterns and retailers who became anxious to stock advertised goods. Britain’s rather antiquated distribution system was shaken up by the abolition in 1956 of collective re-sale price maintenance and by the coming of large self-service stores; at first confined to groceries, these supermarkets soon sold almost all consumer goods. A product highly responsive to the distribution changes was the biscuit. By 1960 biscuit demand was reaching a plateau, and effective sales partly involved getting varieties on to supermarket shelves. Huntley & Palmers at first reacted poorly to this innovation, having a weak sales organisation and no market research. It enjoyed far greater success in the 1960s, after Associated Biscuits at last became fully integrated. United Biscuits was meanwhile acquiring more biscuit firms and diversifying into snack foods, but by 1960 had not yet integrated its scattered production and marketing operations. Cadbury, again facing low growth and intense competition in confectionery, likewise started to diversify and rationalise its operations, later merging with Schweppes.

80 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

In 1960 Unilever amalgamated its units’ sales organisations into a single force. That allowed the group to revive the ‘push’ aspect of its operations and concentrate on large outlets. As advertising and the test marketing of products were increasingly costly, market research and allied techniques would save both time and money in the launching of new products. For instance, now that nearly one-third of married women in Britain had jobs outside the home, convenience foods had a promising future. In 1957 Unilever acquired a leading manufacturer, Birds Eye Foods, and built on that firm’s already well developed use of television commercials to publicise the time-saving qualities of frozen and easily prepared comestibles. Advertising also assisted the launch of a higher quality margarine, which halted the drift towards butter.64 Like Unilever, Clarks was by 1960 introducing computers as marketing tools. Changing economic conditions also affected intermediate goods firms such as the newsprint maker Bowaters, which in the mid-1950s diversified into related consumer products, for instance paper tissues. In 1955 it purchased the makers of Andrex, a soft toilet tissue. Despite the derision of the satirical magazine Private Eye at the coy Andrex advertisements, by 1963 that product had taken the lead, with 25 per cent of its market. In 1956 Bowaters established a partnership with the US Scott Paper Company, makers of the Scotties tissue. The autocratic chairman, Sir Eric Bowater, was one of the last surviving ‘hunch’ men in British industry, and resented the introduction of management and marketing skills, then lacking in his own company insisted on by the American partner. Most notably, he maintained his scepticism about the value of market research, which Scott Paper used as the core of its marketing strategy. In the early 1960s Andrex and Scotties contributed healthy output and profit levels to the otherwise languishing Bowater group.65 At a time when home cigarette sales were steadily declining from 1955 onwards, Wills was losing out heavily to the more dynamic Players. Wills learnt from a thorough internal investigation that its sales system had not in essence changed since the nineteenth century. It therefore concentrated its marketing efforts on the most hopeful segments of the market. To obtain the best results from its television advertising, it promoted market research and appointed specialist advertising teams for each major brand. In the 1960s it managed at last to halt the decline in both its sales and market share. Guinness, like a number of firms over the years, had since the 1930s fallen into a lengthy period of relative stagnation, and needed a strong entrepreneur to bring the firm, as it has been put, ‘firmly into the second half of the twentieth century’. Sir Hugh Beaver, managing director until 1960, was not a marketing but an organisation man, seen at his best in the major restructuring of Guinness which he master-minded. However, in the late 1950s he did promote the introduction of Harp Lager, at first in Ireland and later in a consortium throughout Great Britain; this product quickly became the market leader and one of the first beneficiaries of the developing lager boom. He also had the original idea for the Guinness Book of Records, a marketing spin-off as characteristic of

CONSUMER MARKETING IN BRITAIN 1914–60

81

its age as the earlier music folios and almanacs of other consumer goods firms had been.66 Beechams in this period was still relying for turnover and profits on its consumer products; antibiotics were not yet important to the group. Building on Craig Wood’s earlier efforts, Lazell sought to give Beecham Foods as efficient a system of outlets as, say, Unilever had: the latter’s depot network distributed its soaps, detergents and canned goods with both speed and economy. Whereas Clarks had been among the first to advertise on television, Lazell held back until he felt the medium was well established; he then began advertising with much benefit to his group.67 An ICI man once called Lazell (and himself) ‘barrow boys’: an unflattering epithet which coincidentally the Castrol people applied to themselves. Yet Castrol, while seemingly merely to dress up its base oils for sale on its ‘barrow’, was as highly professional as Beecham both in research and in an appropriate mix of ‘push’ and ‘pull’ marketing; during 1953, for instance, it produced the first multigrade oil sold at normal prices.68 Beechams and Castrol were then perhaps the two most noteworthy market-orientated consumer firms. In common with many British textile firms, by the late 1950s Courtaulds was suffering from a decline in profits. Then in 1957 it was able to acquire British Celanese, which gave it a dominant stake in both rayon and celanese. It soon afterwards diversified into paint and packaging, which in 1959–60 led to a dramatic jump in profits. A newly set-up marketing division co-ordinated the sales and promotion activities of all units. Hollins strove likewise to steamline and concentrate its marketing efforts, and also to diversify; it wooed—but lost— Tootals, an important cotton textile firm which had moved also into plastics and paper products. Stagnant sales and declining profits indicated that Hollins had reached the limits of expansion in its own product lines. In 1960 it therefore merged with a much smaller textile company headed by Joe Hyman, a gifted ‘outsider’ who took over control of the new combine Viyella International, and based his strategy on the conviction that the textile industry was overdue for a thorough overhaul. That the bleaker economic conditions in Britain needed to be faced by an altogether more professional approach to management generally—and to marketing in particular—was by the late 1950s being increasingly recognised. Some independent management colleges such as Ashridge and a sprinkling of higher education courses represented about the only management training available in Britain; the prestigious Administrative Staff College at Henley, while having business executives on its courses, taught no marketing. By then some distinguished business men such as James W. Platt, a retired Shell director, came together to press for management eduction to be introduced at university level: in 1960 the Foundation for Management Education was set up. The new decade was to see a number of path-breaking initiatives, including the establishment of the London and Manchester business schools: a lesser known— but still flourishing—project was a six-week Advanced Management Programme

82 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

given annually for senior executives by Harvard Business School professors in Britain. The first AMP, held at Durham in 1964, included a course on marketing administration; that proved somewhat more frustrating for participants than the perhaps more familiar subjects of business policy, administrative practices and finance. A widespread undercurrent of discontent, inflamed by the assertion in one of the American textbooks that ‘marketing delivers a higher standard of living’, erupted in class one hot afternoon during an uphill struggle with Bayesian tree diagrams, when one participant declared, ‘Marketing is a load of bullshit’. The Harvard professor forbearingly described that statement as ‘very, very interesting’: although the author of the outburst was in fact a technical man (an engineer with the Central Electricity Generating Board), he found a good deal of quiet sympathy among his fellow participants.69 Some of these went on to become chairman or directors of leading companies; the business histories of the next century may reveal how far their attitudes to marketing may have been modified in later years. Conclusion Few hard and fast lessons can be drawn from the present partial survey. These must await the far more rigorous investigation that is so badly needed. However, the cases cited above do leave a strong impression that marketing developments, or shortcomings in this area, could almost always be traced to individual business men. Occasionally institutional factors, such as inappropriate bureaucratic structures, had some influence; yet throughout this period there was a flow of able men who could surmount any such barriers and, in often far more difficult market conditions, emulate the entrepreneurs of the heroic age in commercial flair and a sharp instinct for what the customer wanted. This may seem a profoundly disappointing outcome to those who dismiss the entrepreneur as being of little significance in economic change compared with other forces. Yet business historians in general are not inclined to underrate the entrepreneur’s role. To Coleman, changes in business strategy do not spring from committees or bureaucracies, but from ‘men who combine intelligence with daring ambition which endows them with an exceptional capacity for hard work’.70 Reader, too, sees business history as the interplay between men and events, in which very powerful personalities have striven—not always successfully—to impose a pattern on events.71 The economist Aubrey Silberston, in summarising case studies of the growth of British firms, has remarked how often ‘great men’ have influenced the success or failure of their firms.72 Mark Casson, also from a dynamic and evolutionary viewpoint, has expressed the hope that one day ‘it may be possible to combine the theory of the entrepreneur with a theory of rational social behaviour to provide a unified theory of economic and social process’.73 To such a synthesis, a future systematic survey of marketing as a whole in Britain over this period could well make an important contribution.

CONSUMER MARKETING IN BRITAIN 1914–60

83

University of Reading NOTES I am grateful to Richard Davenport-Hines and to Geoffrey Jones for comments on an early draft, and to Bernard Alford for some information. However, responsibility for the information and views expressed in this article rests entirely with myself. To save space, references concerning individual firms are not repeated when the source is clear. Virtually all the entrepreneurs referred to here have entries in David J. Jeremy (ed.), Dictionary of Business Biography (henceforth DBB), Vols. I–V (London 1984–86). These can usually be consulted with profit, even when not specifically noted below. 1. W.J.Reader, Imperial Chemical Industries: A History Vol. II: The First Quarter Century, 1926–1952 (London, 1975), p. 335. 2. R.A.Church, Kenricks in Hardware: A Family Business 1791–1966 (Newton Abbot, 1969), p. 223. 3. Charles Wilson, Unilever 1945–1965 (London, 1968), p. 91. 4. B.W.E.Alford, ‘New Industries for Old? British Industry Between the Wars’, in Roderick Floud and Donald McCloskey, Te Economic History of Britain since 1700 Vol. 2:1860 to the 1970s (Cambridge, 1981), p. 328. 5. Wilson, Unilever 1945–1965, p. 91. 6. Charles P.Kindleberger, Economic Growth in France and Britain 1851–1950 (Cambridge, MA, 1964), p. 125. 7. Alfred D.Chandler, ‘The Development of Modern Management Structure in the US and the UK’, in Leslie Hannah (ed.), Management Strategy and Business Development (London, 1976), p. 28. 8. Roy Church, Herbert Austin: The British Motor Car Industry to 1941 (London, 1979), p. 188; Mira Wilkins and Frank Ernest Hill, American Business Abroad: Ford on Six Continents (Detroit, 1964), pp. 23ff. 9. R.J.Overy, William Morris, Viscount Nuffield (London, 1976), pp. 31ff; Kenneth Richardson, The British Motor Industry 1896–1939 (London, 1977), pp. 72ff. 10. Church, Herbert Austin, pp. 89ff. 11. T.A.B.Corley, Quaker Enterprise in Biscuits: Huntley & Palmers of Reading 1822– 1972 (London, 1972), pp. 155ff. 12. T.R.Gourvish and R.G.Wilson, ‘Profitability in the Brewing Industry 1885–1914’, Business History, Vol. XXVII, No. 2 (July 1985), pp. 152–3. 13. Corley, Quaker Enterprise, pp. 134, 161. 14. P.W.Kingsford, ‘The Pioneers of Modern Management: William Stephens Clark’, The Manager, Dec. 1956 and Jan. 1957. G.B.Sutton, A History of Shoe Making in Street, Somerset: C. & J.Clark 1833–1903 (York, 1979), on the other hand, sees W.S.Clark’s marketing policy as cautious and failing to keep abreast of the latest developments, p.190. 15. F.H.Wheldon, A Norvic Century, and the Men Who Made It (Norwich, 1946), p. 74. 16. Iolo A.Williams, The Firm of Cadbury 1831–1931 (London, 1931), pp. 84ff.

84 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

17. A.C.Howe, ‘Sir Frank Hollins (1843–1924)’, in DBB, Vol. III, pp. 313–18; F.A.Wells, Hollins and Viyella: A Study in Business History (Newton Abbot, 1968), pp. 88ff. 18. D.C.Coleman, Courtaulds, An Economic and Social History Vol. 2: Rayon (Oxford, 1969), pp. 1ff. Before tackling this wordy volume the reader is advised to study Coleman’s abbreviation, ‘Courtaulds and the Beginning of Rayon’, in Barry Supple (ed.) Essays in British Business History (Oxford, 1977), pp. 88–100 and Douglas C. Hague, The Economics of Man-Made Fibres (London, 1957), pp. 21–8. 19. A scholarly history of advertising in Britain is badly needed. E.S.Turner, The Shocking History of Advertising! (London, 1952) and T.R. Nevett, Advertising in Britain: A History (London, 1982) can in the meantime be consulted. 20. T.R.Nevett, ‘Samuel Herbert Benson (1854–1914)’, in DBB, Vol. I, pp. 289–92; Peter Hadley (ed.), The History of Bovril Advertising (London, 1972). 21. P.H.Chisnall, Marketing Research (3rd ed., London, 1986), p. 8; Francis Goodall, ‘Marketing Consumer Products before 1914: Rowntrees and Elect Cocoa’, in R.P.T. Davenport-Hines (ed.), Markets and Bagmen: Studies in the History of Marketing and British Industrial Performance 1830–1939 (Aldershot, 1986), pp. 16ff. 22. Corley, Quaker Enterprise p. 162; idem., ‘Arthur Carr (1855–1947)’, in DBB, Vol.I, p. 595. 23. Wilson, Unilever 1945–1965, p. 92; idem., The History of Unilever Vol. 1 (London, 1954), pp. 44 (for Lever’s idiosyncratic views on the function of advertising), p. 76. 24. The American Illustrator (undated, c. 1904) in Beecham archives, St Helens. 25. John H.Dunning, American Investment in British Manufacturing Industry (London, 1958), p.265. 26. Nevett, ‘S.H.Benson’, DBB, Vol. I, p. 290. 27. D.J.Jeremy, ‘Thomas Baron Russell (1865–1931)’, DBB, Vol. IV. p. 992. 28. David Butler and Gareth Butler, British Political Facts 1900–1985 (6th ed., London, 1986), p. 494. 29. Wilson, Unilever 1945–1965, p. 99. 30. The history of market research in Britain calls out for a systematic survey. J.Walter Thompson, Lintas and the London Press Exchange carried out probably two-thirds of all market research in Britain before 1939: Mark Abrams, Social Surveys and Social Action (London, 1951), p. 55n. 31. Cadbury Brothers Ltd, Industrial Record 1919–1939 (Bournville, 1945), p.32. 32. Abrams, Social Surveys, p. 61. 33. British Market Research Bureau Ltd., Readings in Market Research (London, 1956), p.xxii. 34. Basil N.Reckitt, The History of Reckitt & Sons Ltd. (London, 1953), pp. 71ff. 35. Wilson, Unilever 1945–1965, p. 92. 36. B.W.E.Alford, W.D. & H.O. Wills and the Development of the UK Tobacco Industry 1886–1965 (London, 1973), p. 341. 37. R.P.T.Davenport-Hines, ‘John, first Lord Gretton (1867–1947)’, DBB, Vol.II, pp. 660–63. 38. F.G.Wigglesworth, ‘The Evolution of Guinness Advertising’, Journal of Advertising History. 39. Kenneth Hudson, Towards Precision Shoemaking (Newton Abbot, 1968), pp. 35, 55.

CONSUMER MARKETING IN BRITAIN 1914–60

85

40. Keith Brooker, ‘Arthur William Barratt (1877–1939)’, DBB, Vol. I, pp. 184–8. 41. Wells, Hollins and Viyella, pp. 149ff. 42. Coleman, Courtaulds Vol. 2, pp. 217–18, 271, 343, and idem., ‘Henry Dreyfus (1882–1944)’, DBB, Vol. II, pp. 178–80. 43. R.A.Kaner, ‘George James Harris (1895–1958)’, DBB, Vol. III, pp. 70–74. 44. David J.Jeremy, ‘Harold Vincent, first Viscount Mackintosh (1891–1964)’, DBB, Vol. IV, pp. 41–9. 45. James S.Adam, A Fell Fine Baker: The Story of United Biscuits (London, 1974), pp. 5, 79–80. 46. R.W.Ferrier, ‘Petrol Advertising in the Twenties and Thirties: The Case of the British Petroleum Company’, Journal of Advertising History, Vol. 9 (1986), pp. 29– 51. 47. Castrol Ltd., Wheels, Wings and Water (privately printed, 1974), pp. 68–71. 48. Leslie Hannah, Electricity Before Nationalisation (London, 1979), pp. 186ff. 49. Sue M.Bowden, ‘Sir Jules Thorn (1899–1980)’, DBB, Vol. V, pp. 507–10. 50. A.J.Youngson, The British Economy 1920–57 (London, 1960), pp. 141ff. 51. Douglas A.Simmons, Schweppes: The First 200 Years (London, 1983), pp. 78ff. 52. Corley, Quaker Enterprise, p. 257; Adam, Fell Fine Baker, p. 26. 53. Alford, W.D. & H.O. Wills, pp. 407ff. 54. W.J.Corlett, The Economic Development of Detergents (London, 1958), pp. 161ff; H.R.Edwards, Competition and Monopoly in the British Soap Industry (London, 1962), pp. 208ff. 55. H.G.Lazell, From Pills to Penicillin: The Beecham Story (London, 1975), pp. 101ff. 56. Wells, Hollins and Viyella, pp. 221ff. 57. D.C.Coleman, Courtaulds. An Economic and Social History, Vol. 3 (Oxford, 1980), pp. 55ff. 58. Hudson, Towards Precision Shoemaking, pp. 82ff. 59. T.A.B.Corley, Domestic Electrical Appliances (London, 1966), pp. 16ff. 60. Susan Bowden, ‘Sir Charles Blampied Colston (1891–1969)’, DBB, Vol. I, pp. 756– 7. 61. David Burgess-Wise, ‘Sir Patrick Hennessy (1898–1981)’, DBB, Vol. III, pp. 168– 9. 62. Richard Overy, ‘Leonard Percy Lord, Lord Lambury (1896–1967)’, DBB, Vol.III, pp. 858–9; G.T.Bloomfield, ‘Sir George William Harriman (1908–73)’, DBB, Vol. III, pp. 66–8; Derek F.Channon, The Strategy and Structure of British Enterprise (London, 1973), p. 105. 63. Corley, Domestic Electrical Appliances, pp. 50–59; Robert Jones and Oliver Marriott, Anatomy of a Merger: A History of GEC, AEI and English Electric (London, 1970), pp. 240–41. 64. Wilson, Unilever 1945–1965, pp. 98ff. 65. W.J.Reader, Bowater: A History (Cambridge, 1981), pp. 239ff; Richard Ingrams (ed.), The Life and Times of Private Eye 1961–1971 (Harmondsworth, 1971), p. 48. 66. Tom Corran, ‘Sir Hugh Eyre Campbell Beaver (1890–1967)’, DBB, Vol. I, pp. 234– 6. 67. Lazell, From Pills to Penicillin, pp. 113, 158; Hudson, Towards Precision Shoemaking, p. 82.

86 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

68. Lazell, From Pills to Penicillin, p. 200; T.A.B.Corley, A History of the Burmah Oil Company Vol. 2 (London, 1988, forthcoming), Ch. XII. 69. T.A.B.Corley, ‘Management Education and the Universities: Problems and Prospects’, Moorgate and Wall Street (Autumn 1965), pp. 58–72. The author attended the 1964 AMP at Durham as an academic participant. 70. Coleman, Courtaulds, Vol. 3, p. 317, quoted in Leslie Hannah, Engineers, Managers and Politicians: The First Fifteen Years of Nationalised Electricity Supply in Britain (London, 1982), p.189. A somewhat negative view of entrepreneurship, which interestingly sees ‘good old straightforward “business history”’ as having ‘been for some time one of the deadest of all historical dead ends’ is given by Alan S.Milward, in a review of Vol. 7, Parts 1 and 2 of the Cambridge Economic History of Europe (Cambridge, 1978), in English Historical Review, Vol. 94 (1979), p. 886. 71. W.J.Reader, ‘Personality, Strategy and Structure: Some Consequences of Strong Minds’, in Hannah (ed.), Management Strategy, p. 108. 72. Aubrey Silberston, ‘Factors Affecting the Growth of the Firm—Theory and Practice’, in D.Currie, D.Peel and W.Peters, Microeconomic Analysis: Essays in Microeconomics and Economic Development (London, 1981), p. 344; cf. comment by Richard Allard in Ibid., p. 359. 73. Mark Casson, The Entrepreneur: An Economic Theory (Oxford, 1982), p. 395.

SCIENCE AND TECHNOLOGY IN BRITISH BUSINESS HISTORY By D.E.H.EDGERTON

I The place of science and technology in the British economy and society is widely seen as critical to our understanding of the performance of British business this century. Clichés such as ‘Britain is good at inventing but bad at developing’, the ‘low status of engineers’, the ‘Two Cultures’, the ‘anti-industrial’ and ‘antiscientific’ spirit of elites, are granted great explanatory power.1 Despite this our historical understanding of the relationship between science and business in Britain is rudimentary: historians of the British decline are as indifferent to science and technology as the businessmen and the politicians they pillory. One could be more specific: much of business history has ‘failed’ for much the same reason as British businesses have allegedly ‘failed’. Rather than speculate whether the reasons might be similar it may be more profitable to link the neglect of science and technology to the neglect of economic and social theory by British economic and business historians. We should note, for example, that the connections between science and technology and business are central to theoretical accounts of ‘industrial’ and ‘capitalist’ society: is the modern corporation the organisational embodiment of scientific, technical and economic rationality, or is today’s science and technology the product of the specifically capitalist corporation?2 Consideration of arguments such as these would result in greater attention to science in business. Consideration of broad theoretical questions would also have the effect of forcing historians to be more explicit about their assumptions. Much of the ‘decline’ literature, for example, is distinguished by an inverted Whiggism, finding in the past the seeds not of progress but of decay. Behind such chronicles of failure lies the assumption that Britain has not adapted to the logic of industrialism or capitalism; the country seems to have fallen short of some theoretical standard, or the standards of more ‘modern’ nations.3 For example, Donald Coleman and Christine MacLeod conclude their recent survey of British businessmen’s attitudes to new techinques with the comment:

88 SCIENCE AND TECHNOLOGY IN BRITISH BUSINESS HISTORY

When the British Empire reached its apogee around 1900 its economic power was being supported by British businessmen operating a system that was already becoming archaic. The true message of industrialism had eluded many of them; and they continued to follow some well-trodden paths in a paradoxical world of a culturally conservative society which without ever quite understanding how or why, had embraced a revolution that demanded continuous technical change for which scientific research was increasingly necessary.4 What the true message of industrialism actually was is never spelt out, which leaves us, as in much such literature, without a fixed reference point. In this context evidence that Britain failed—to move away from supposedly technicallyinert ‘old’ industries, to invest in science and technology, to develop an economic, social and political elite imbued with a scientific spirit—feeds on itself, building up a picture of a Britain in which no change was possible. Too often the explanations of Britain’s relative decline are arguments which would account for absolute decline. It is at industry sector level, the province of economists, that the historiography of innovation has escaped from this kind of argument, it must be said, as the result of an American academic challenge. Whatever criticisms may be made of neo-classical production functions and their application, the New Economic Historians have done a great service. The American system of economic history has led to an important discussion about the diffusion of innovations and the choice of technique in British industry (although not the creation of technology and the role of firms in this). Their explicit assumptions have stimulated the formulation and application of alternative theoretical approaches to the historical study of innovation. Such approaches, deriving from Marx and Schumpeter in particular, have linked discussion of the British economy to wider analyses of capitalism and industrialism, enriching both.5 One particularly important effect of these studies is to have made the study of technical innovation historically-specific. The New Economic Historians have tended to be seen in Britain as ahistorical,6 but by relating innovation to factor prices, they have necessarily taken us some way to historical specificity. Treatment of innovation in the context of capital-labour relations at the workplace, and in the context of firm structures is similarly specific.7 This is important because there has been a strong tendency in historical writing on science, technology and economic development to see the unfolding of a manifest technological destiny,8 one in which Britain has not fully taken part since the industrial revolution,9 but to which it has since been forced to adapt.10 We can get away from manifest destiny by studying the historically specific contexts of innovations whether national, sectoral or the individual firm.11 Indeed, it could be argued that for most of this century the individual firm is the most appropriate context for the study of innovation.

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 89

Unfortunately no British business history has provided a sustained treatment of research and development or innovation and its place within the firm. Nor do we have specialist studies of industrial research and development like those recently produced by American scholars.12 Business histories tend to deal with single firms, they tend not to be organised thematically, and there is little if any engagement even with other business histories. It is true that in the history of some businesses the question of research, development and innovation were not central issues; examples include W.H.Smith and W.D. & H.O. Wills after its highly successful innovation of machine-made cigarettes. In other firms, however, such as ICI, Courtaulds, Harland & Wolff, the National Coal Board, British Rail, Colvilles, the electricity utilities, Kenricks, Bowaters, and Pilkington, scientific and technical choices were important in their development. In none of their histories do we find an adequate account of these. Some of the books disclaim any intention to deal with technical matters, for example the histories of British Railways and of Colvilles.13 However, for the decades before the First World War, the historian of Colvilles makes an exception: This is not a technical treatise, nor can the author pretend to any metallurgical expertise, but as the economic historian often makes international—or even interregional—technological comparisons (usually in order to substantiate or even to ‘prove’ his judgements on entrepreneurial performance), a brief and necessarily selective survey of the major developments in steel works’ plant in Scotland …may be permitted’.14 Surely this argument extends to all periods. Remarkably the index to this work has no entries for science, technology, research, laboratory, engineering, or even metallurgy, despite the fact that, for example, ‘the exigencies of war demanded mainly technical expertise’,15 and that it was Sir Andrew McCance DSc, FRS, for many years chairman and managing director who with his predecessor, Sir John Craig, ‘guided, some would say ruled, Colvilles for nearly a century’.16 Where business histories do not exclude technical matters, treatment is often cursory, omitting such basic data as numbers of research staff, expenditure on research and number of patents produced. This is particularly to be regretted because the social and economic history of science and technology in Britain has also neglected industrial science. A good deal has been written on the relationship between civil science and the state, but the contributions of business and military departments to the funding of R & D has not been sufficiently recognised. This is despite the f act that in this century military and business support of science has been much larger than state support for civil science. The neglect is easily explained: first, there is a liberal bias towards seeing science as essentially civil rather than military; second, business support for science has been assumed to be deficient—what needed to be explained by historians was the f ailure of the British state to support civil

90 SCIENCE AND TECHNOLOGY IN BRITISH BUSINESS HISTORY

science to the required level.17 Even though Sanderson noted, in 1972,18 the disproportionate attention which had been given to state supported civil science, the bias in the literature has, if anything, become more pronounced since, through the expansion of historical work associated with contemporary science policy studies.19 Furthermore, although the importance of political, ideological and religious factors in the history of arguments for state support of science have been clearly demonstrated,20 too often the advocates of state support of science in the nineteenth century are seen as prescient promoters of the requirements of industrial society; the first in a long line of rebuffed critics of the status quo.21 It is clear that, given the deficiencies in the literature any generalisations about British industrial science and technology are likely to be unsafe. In this essay, and in two appendices, I have tried to draw together some new evidence, adding to that adduced by Sanderson and extending the timespan to about 1960. II Some difficulties in reaching conclusions about the role of science and technology in British industry are illustrated by considering David Mowery’s study of R & D in British industry between 1900 and 1950.22 He argues that British industrial R & D was low and inefficient, by comparison with the United States. Using estimates of employment in R & D compiled in the 1930s and 1940s, he shows that manufacturing R & D intensity, in this case R & D employment as a proportion of total manufacturing employment, was significantly lower than in the United States. For 1933 US research intensity in manufacturing was 0.18 per cent, Great Britain 0.030 per cent; for 1946 US 0.39 per cent, Great Britain 0.080 per cent.23 Secondly, he argues that ‘historically, the development of industrial research has required a range of complementary changes in the structure and organisation of firms and markets’, meaning the rise of the American-style giant enterprise, and he goes on: ‘where these changes have not occurred, industrial research has proceeded at a lower level of effort and efficiency’.24 Given the failure of British firms to develop in the same way as American firms he concludes that British industrial R & D was less efficient than American. Several criticisms may be made. First, the British figures for employment in R & D are underestimates, as Sanderson has shown.25 Second, since British labour productivity was considerably lower than American the figures do not give good comparison of intensity in terms of output, unless British R & D was less productive in the same proportion. Third, and most important of all, there are problems in using intensities as a measure of commitment to research.26 A high research intensity may simply indicate that production is low, not necessarily that R & D is low. The British aviation effort of the 1940s and 1950s was highly research intensive, more so than that of the United States, but this was rightly seen as the result of failure to sell aircraft.27 There is a strong case for taking absolute quantities, rather than intensities, of R & D expenditure as the basic

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 91

indicator for comparative purposes. It is reasonable to assume that more R & D leads to more and better new products and processes. But such a procedure would be far from straightforward: should we take national, sectoral or firm or technology-level absolute R & D spending as measures for comparative purposes? To take a hypothetical example, American R & D expenditure in one sector may be, say, ten times greater than the British equivalent. But it may be that there is one firm in the British sector and ten in the American doing equal amounts of research. Which sector is more innovative remains an open question: the American firms may dedicate their research to blocking each other’s patents, or they may collaborate, or indeed specialise. Thus, the extent of concentration, specialisation and collaboration in R & D may be very significant in determining the contribution of R & D to economic performance.28 There are reasons to expect very wide variations in the efficiency of R & D spending. Whether the giant American firm did research significantly more efficiently than other types of firm needs to be argued historically. We need evidence of research output independent of the comparative performance of the British and American economies. It may be, for example, that the large corporation produces innovations which have higher private returns (in relation to social returns), than do smaller firms, which is efficient from the firm’s point of view, but not from the point of view of the economy.29 Indeed it could be argued that, given the disparity in absolute levels of R & D expenditure between Britain and the United States, British R & D was very efficient. In computers, for example, very small British research teams held their own against the massive research resources of the large American corporations.30 Given the failure, or inability, to commit resources to development and production, it might be argued that Britain overinvested in R & D, that is, contrary to Mowery, British R & D was too high and too efficient! We should not short-circuit our historical investigation of R & D efficiency by assuming that one form of R & D organisation was much more efficient than all the others; we should be prepared to find large variations in efficiency, both across countries, sectors and firms as well as over time. III In what follows business histories are drawn on to explore particular themes in the history of R & D in British industry between 1914 and 1960: overall expenditures and employment, the concentration of research, the relationship between R & D and diversification, R & D and the relationship between firms, and the place of scientists and technologists within the firm. Our knowledge of the overall levels of R & D expenditure in British industry before the 1960s is very limited. There are figures from private surveys in the 1930s and 1940s, and from government surveys in the 1950s, but these should be treated with great caution. Sanderson has warned that these figures are underestimates, and he compiled an impressive array of evidence to support this view.31 For the period before the 1950s we have no sectoral breakdown of R & D

92 SCIENCE AND TECHNOLOGY IN BRITISH BUSINESS HISTORY

expenditures. What we do have, which is not available for later years, is a breakdown of R & D expenditure and employment by firm, drawn from business histories and other sources (see Appendices 1 and 2). These figures broadly confirm the picture of research increasing in the 1930s, with an acceleration in the 1940s and 1950s.32 The figures also reveal the great concentration of research in a few firms in the electrical and chemical sectors for the interwar years. From the crude figures in Appendix 2 we may note that in the late 1930s ICI alone accounted for about a fifth of all R & D expenditure by industry. In terms of concentration by firm in a particular sector we may note that in the mid-1930s Metropolitan-Vickers were spending around £200,000 while the average expenditure per research-doing firm was £7,500 p.a.33 For the mid-1930s we may note the following firms which employed more than 100 graduates or qualified staff on R & D: ICI (ca. 400); Metropolitan-Vickers (ca. 100); GEC (ca. 150); British Thomson-Houston ((ca. 100). We might also note high levels of concentration by research project. In the late 1920s and early 1930s ICI’s research expenditure on oil-from-coal was running at £300,000 p.a.,34 about three times as much as Metropolitan-Vickers’ entire research effort, and very crudely about one-sixth of industry’s research expenditure at the time. ICI’s organic chemistry research in the late 1930s employed nearly 200 graduates on one site in Manchester.35 On the face of it these seem high levels of concentration. Whether such concentration resulted in economies of scale we do not know, but there was a tendency to increase the size of individual research laboratories, as is apparent in Appendix 1. We also have evidence of the geographical concentration of R & D. Already by 1946 private R & D establishments were heavily concentrated near London. Fifty-two per cent of private establishments were in the south-east, south-west or East Anglia. Between 1944 and 1948 74 private firms or research organisations sought to establish or enlarge R & D facilities, and 66 per cent of these were to be located in these same areas, overwhelmingly (48 total) in the south-east.36 Three reasons were given: closeness to corporate headquarters of firms; London was the centre for intellectual and commercial contact, including other research facilities; and, the preferences of scientific workers. The government was not concerned to disperse R & D activity, though it did disperse production. ICI, Courtaulds and AEI all established fundamental research laboratories near London in the 1940s (see below). This marked geographical concentration raises the important but neglected theme of external economies in research, the ‘Silicon Valley’ effect.37 The industrial policy of firms was connected to their research policy. Sanderson has suggested that diversification provided a stimulus to R & D in the inter-war period in such cases as Colman, Crosse & Blackwell, Heinz, United Dairies and Glaxo.38 There are also examples of research-led diversification such as ICI’s move into pharmaceuticals in the late 1930s.39 In 1948 Bowater set up a company to undertake the duties of the Planning and Development Department and the Research and Technology Division, and this new company was

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 93

concerned with making new acquisitions.40 There is another side to this question. Was the diversified firm more innovative than the non-diversified firm? In photography the diversified firm had many advantages over the non-diversified firm in that a wide range of technologies had to be brought together to produce colour photographic processes.41 Sanderson has suggested that in the inter-war years research collaboration between firms led to important new products, but did not speculate as to the advantages a diversified firm might have through exploiting connections between research in different areas within the firm. Certainly ICI Groups collaborated with each other, for example in plastics, developed across four groups in the 1930s, but co-ordinating machinery was established with difficulty because of inter-group rivalries.42 Polythene, discovered in the laboratories of Alkali Group, was produced by this group and not passed to the control of Plastics group until the 1940s.43 Competitive and co-operative relations between firms greatly affected the extent and direction of R & D. In some cases a competitive threat to a firm led to the establishment of research, sometimes not on the firm’s own products, but on potential or actual substitutes. Thus, potential competition to Courtaulds from acetate yarns led to their establishing a research laboratory in Clapham in 1918 to investigate cellulose acetate.44 Pilkington’s greater concern with research in the mid-1930s was ‘undoubtedly a response to ICI’s marketing of Perspex’.45 Pilkington made a deal with ICI in 1935, by which safety glass including Perspex would only be marketed through Triplex, while Pilkington would not manufacture plastic.46 The expansion of Pilkington’s research was largely in plastics, rather than in glass. Co-operative relations between firms also affected the degree of diversification of research. ICI in particular avoided many areas of research because these corresponded to fields controlled by other firms, often its large customers. It eschewed fibres in the 1930s, but went into nylon jointly with Courtaulds with the formation of British Nylon Spinners. As noted above it did not compete with Pilkington. In weedkillers and pesticides too there was a demarcation agreement.47 Agreements with Unilever and Distillers Co. Ltd. also limited research.48 In the case of Distillers, ICI stopped research in certain kinds of solvents. Reader comments: Manoeuvres like this, in which promising scientific work was used as a negotiating weapon, and dropped when it had served its purpose, was exasperating and discouraging to Slade and others concerned with research, especially when they were accused of not doing enough original work to justify their keep. No doubt such tactics confirmed scientists in their poor opinion of the use made of science in industry, particularly if their political views were towards the Left. Nevertheless, the use thus made of research was commercially eminently justifiable.49 R.E.Slade, ICI’s Research Controller in the 1930s, argued repeatedly against this policy.50 Its effects on the efficiency of R & D at the level of the whole economy

94 SCIENCE AND TECHNOLOGY IN BRITISH BUSINESS HISTORY

are unknown. Avoidance of duplication amongst some of Britain’s largest firms may well have been beneficial; on the other hand it may have prevented the consolidation of different sciences and technologies in a particular firm. Overall we know far too little about effects of competitive and cooperative relations between firms on the direction, organisation and distribution of research among firms, whether in the national or the international context. Links with government also had important consequences for the research policy of firms. Government support for research in dyestuffs during the First World War was very important to the British Dyestuffs Corporation. Brunner, Mond and ICI’s two largest research programmes of the inter-war years, synthetic ammonia and coal hydrogenation, came out of state programmes.51 During the Second World War ICI bid to take over civil nuclear power: by 1944 it had spent £870,000 on nuclear research, paid for by government.52 But nuclear power, like nuclear weapons, would remain firmly in the province of public agencies, first the Ministry of Supply, then the Atomic Energy Authority, which would have much influence over the BEA and the CEGB, though less than the nuclear lobby hoped.53 The 1950s policy of going nuclear also affected the modernisation plans of the railways.54 Again we still know too little about the effect of civil science policy and especially military science policy on the development of research in British industry. Much is still clouded in secrecy: not until the 50th anniversary of television broadcasting in Britain was it revealed that the military had pushed the BBC to speed up development so as to increase the availability of specialist manpower and equipment for radar on the outbreak of war.55 Some research-doing firms had one research laboratory; others acquired a number on merger or created additional ones. In ICI in the mid-1920s research was undertaken in nine, mostly small, laboratories.56 By 1928 most of the research was going on in 5 laboratories. Like other multi-laboratory firms ICI faced problems of co-ordination. A Research Committee was established in 1934, and a Research Controller was appointed in the following year,57 but despite arguments in its favour from the early 1930s no Central Research Laboratory was established until 1946, at Welwyn.58 In 1955 this small laboratory was named ‘Akers Research Laboratory’—after Sir Wallace Akers FRS, ICI’s first board member responsible for research, appointed in 1941.59 In the 1940s Courtaulds too established a fundamental research laboratory at Maidenhead; this was closed in 1962.60 AEI, which owned Metropolitan-Vickers and British Thomson-Houston, did not centralise its research in the 1930s and 1940s, and we have little idea how research was coordinated. It too opened a new fundamental research laboratory: at Aldermaston Court in 1947;61 as in the cases of ICI, Courtaulds and the new National Coal Board central laboratories, away from the principal operating sites and close to London.62 What then of the industries nationalised in the 1940s? After all, part of the rhetoric of nationalisation was the need for centralisation, research and investment, especially in the case of coal.63 In the coal industry the ‘regrettably

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 95

few research bodies’, public and private, were incorporated into the NCB, and new establishments were created, including a Central Engineering Establishment which from the mid-1950s developed mining equipment to prototype stage, thereby avoiding reliance on the R & D—deficient equipment supply firms.64 In nationalised transport there were conflicts between the British Transport Commission and the Railway Executive which also affected research. The BTC appointed a Chief Research Officer but the RE controlled the major facilities and appointed its own director of research.65 With the switch to diesel and electric traction, production shifted to private contractors, which presumably affected research.66 The British Electricity Authority relied for research on its suppliers, though less so after the formation of the CEGB in 1958. The BEA inherited the research facility of the pre-war CEB, but although it was expanded its research was limited mainly to transmission and distribution.67 In the years 1958–63 there was a quintupling of R & D expenditure and the creation of two new laboratories specialising in nuclear and power engineering work, partly as a result of decreasing confidence in the R & D capabilities of suppliers.68 IV It is tempting to paint a picture of anti-scientific ‘gentlemen’ running British firms while scientific ‘players’ laid, for example, ‘the golden viscose eggs’.69 Business history has provided wonderful accounts of the ‘gentlemen’, their idiosyncracies and prejudices; unfortunately it has told us very little about the ‘players’, and especially scientific ‘players’.70 We know next to nothing about them.71 But the whole image of scientists as ‘players’ and of ‘gentlemen’ as anti-scientific is misleading: there were ‘gentlemen’ as well as ‘players’ among British scientists, both in and out of industry. Class background, place of education and family connections were more important than subject studied. The distinction is quite clear in Reader’s contrast between ICI’s plant at Winnington in Cheshire and that at Blackley in Manchester. Oxford scientists created a socially exclusive set in the Alkali group while they treated the Blackley dyestuffs chemists with immense condescension. As one Winnington man put it in 1926: ‘Here [in Blackley] were such solecisms as butterfly collars and high tea and in the canteen men who had known each other for thirty years would say “may I trouble you for the salt, Dr Brown?”’.72 In Courtaulds too we can see similar kinds of divisions between the company scientists, led by the former Chief Chemist (given a seat on the Board in 1937) ,73 and Alan Wilson, brought in from Oxford after the war to expand and direct the firm’s research.74 Coleman also contrasts Wilson, who was chairmandesignate in 1961, with C.F.Kearton, a research chemist who rose to the chairmanship. Both were Fellows of the Royal Society, but while Wilson did not think there was much of a difference between academia and business, for Kearton there was all the difference in the world.75 As Coleman makes clear when comparing two non-scientist chairmen of Courtaulds, Samuel Courtauld IV

96 SCIENCE AND TECHNOLOGY IN BRITISH BUSINESS HISTORY

(Chairman 1921–46) and John Hanbury-Williams (Chairman 1946–62), gentlemen too differed in their attitudes to industry and to science: John Coldbrook Hanbury-Williams, offspring of the union of a MajorGeneral and a daughter of Emil Reiss of the merchant family of Reiss Brothers—was a snob, liked titles, married a Byzantine princess, and relished Court appointments. Samuel Courtauld— scion of the last of the Unitarians in his family—turned down a barony, disliked the society of the merely rich, collected Impressionist paintings, was a patron of music, and had the remnants of a Victorian Nonconformist conscience. Courtauld had learnt a great deal about textiles and rayon, knew the company needed better scientific personnel, and was idealistically attracted by the problems of the relationship between capital and labour. Hanbury-Williams knew little or nothing about production technology, despised technical men, remained ignorant of science, and wholly indifferent to industrial relations.76 ICI and Courtaulds were not unique in having gentlemen scientists. Pilkington had Lord Cozens-Hardy, an electrical engineer, in a powerful position on the board for many years. A number of the Pilkington clan studied science or engineering at Oxford or Cambridge, and other, mainly Oxbridge, science and engineering graduates were recruited.77 Unfortunately we do not have sufficiently rounded portraits of enough senior scientists or of engineers like Clive Kenrick,78 Sir Andrew McCance of Colville, or Sir Frederick Rebbeck, of Harland & Wolff,79 and others, to understand their outlook on business. Of the outlook and background of the mass of scientists and engineers in industry we know next to nothing. What was their class and educational background, what did they see their role in industry as, how did they view the accountants and other specialists? What do we know of the differences between scientists and engineers, graduate and non-graduate?80 Have they identified with their firms, the professional institution they might belong to,81 or to some ideal of the role of the scientist and engineer in society at large?82 In this context the mobility between firms of scientists and engineers acquires some importance. If there existed well-developed external labour markets for scientists and engineers, we might find an emphasis on very general skills, if mobility was low we might find very firm-specific or sector-specific skills developing. Again this is something we know very little about.83 There is an argument, accepted by the present government, that British scientists and engineers have not had the education or the outlook appropriate to work in industry. They are prone to financial and commercial irresponsibility; left to themselves they will produce flocks of white elephants. This sits rather uneasily with arguments that scientists, and especially engineers, have low status, and that, partly as a result, there have not been enough of them in industry. Without further definition of what is meant one cannot have it both ways: more scientists and engineers with higher status would surely have led to more

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 97

Concorde’s, AGR’s and so on. Unfortunately, the evidence available from business histories is not sufficient to resolve these questions. It seems, superficially, that the high period for the influence of scientists and engineers in British industry was between the Second World War and the early 1960s. This is shown in the changing composition of boards of directors and higher management in the 1940s and 1950s. In ICI the board, once weak in technology and strong in commercial skill, became strong on science and technology and weak on the commercial and financial side.84 In Courtaulds in the early 1950s ‘science graduates had a better chance of transfer to higher management than did such other specialists as accountants or even engineers’.85 The 1940s and 1950s, a time of rapid increase in industrial R & D expenditure and of supply of graduates, saw complaints about shortages from both Courtaulds and ICI.86 The modernisation and rationalisation of late 1960s and 1970s seems to have been accompanied by the rise of financial control, and the flattening out of industrial R & D expenditure in Britain. There was no longer, apparently, a direct correlation between the ‘scientific’ ethos of the corporation and ‘modernity’ of business structure. V To conclude it is as well to reiterate that we still know very little about R & D and innovation in British industry this century. Economic historians business historians and historians of science and technology have not made the contribution they might have.87 This is to be regretted given the widespread interest in the possible role of science and technology in the British ‘decline’. Too much of this discussion is carried on on the basis of ahistorical and anecdotal cliché. At the very least we need more empirical research, but this research should be informed by a theoretical framework appropriate to the matter in hand. There are good reasons why a firm-based approach to the history of R & D could be particularly valuable. The evidence discussed above shows the importance of a few large firms in R & D as a whole. The competitive and co-operative relations between firms shaped their research policies. Firms have particular scientific and technical resources; they operate in particular markets against particular competitors; and, they are able to shape technologies to suit their particular needs. Many innovations are based on combinations of different sciences and technologies, combinations which might be more easily identified where they were already part of the same firm or research laboratory. Thus firms with different patterns of diversification might well produce different kinds of innovations for the same market. It might well be that firms produce firmspecific scientific and technological theory which can then be used to develop new products in a particular way, while another firm might have different theory and innovate in a different way—it is not therefore a question of being first with a theory. To argue that a firm-based approach to the history of R & D and innovation would be valuable is not to say that the international, national, and

98 SCIENCE AND TECHNOLOGY IN BRITISH BUSINESS HISTORY

sectoral scientific, technological and economic environment is not important; the relationships need to be explored. But it is to suggest that we should pay attention to firm-specificity of innovation: this surely is central to the writing of business histories which provide more than case studies of innovation. University of Manchester Institute of Science and Technology NOTES I would like to thank the editors as well as colleagues in the Centre for the History of Science, Technology and Medicine, University of Manchester (Colin Divall, Bill Luckin, John Pickstone and Geoffrey Tweedale), for helpful comments on earlier drafts of this paper. Many discussions with Kirsty Hughes have contributed much to the arguments. 1. The locus classicus of the argument that elite culture is deficient is Martin Wiener, English Culture and the Decline of the Industrial Spirit (Cambridge, 1981), but see also Correlli Barnett, The Audit of War (London, 1985) and Perry Anderson, ‘The Figures of Descent’, New Left Review, No. 161 (1987), which complements and compliments both. 2. See D.F.Noble, America by Design (New York, 1979); H.Braverman, Labor and Monopoly Capital (New York, 1974). 3. Favoured comparisons vary with author and with historical period, but are usually limited to the United States, Germany and Japan. 4. D.C.Coleman and Christine MacLeod, ‘Attitudes to New Techniques: British Businessmen, 1800–1950’, Economic History Review, Vol. 39, No. 4 (1986), p. 611. 5. Here I have in mind the work of Lazonick on the British cotton industry, for example: ‘Production Relations, Labor Productivity and the Choice of Technique: British and US Cotton Spinning’, Journal of Economic History, Vol. 41, No. 3 (1981), pp. 491– 516; ‘Industrial Organisation and Technological Change: The Decline of the British Cotton Industry’, Business History Review, Vol. 57, No. 2 (1983), pp. 195–236. 6. See, for example, David Cannadine, ‘Thoughts on the New Economic History’, London Review of Books (15 April-5 May 1982), p. 16. 7. See, for example, Wayne Lewchuk, American Technology and the British Vehicle Industry (Cambridge, 1987). 8. J.M.Staudenmaier, Technology’s Storytellers: Reweaving the Human Fabric (Cambridge, MA, 1985); C.Sabel and J.Zeitlin, ‘Historical Alternatives to Mass Production: Politics, Markets and Technology in Nineteenth Century Industrialisation’, Past and Present, No. 108 (1985), pp. 133–76. For the dangers of this kind of thinking in policy-making see David Henderson, Innocence and Design (London, 1986). For the funny side see Joseph Corn, The Winged Gospel: America’s Romance with Aviation, 1900–1950 (New York, 1983). 9. The British industrial revolution is another period for which theory and history have been interwoven with great benefits to the study of science, technology and innovation. See in particular: Maxine Berg, The Age of Manufacturers (London, 1985), S.Marglin, ‘What do Bosses do?’, in A.Gorz (ed.), The Division of Labour

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 99

10.

11. 12.

13.

14. 15. 16. 17. 18. 19.

20.

(London, 1976) and D. Landes’ reply ‘What do Bosses Really do?’ Journal of Economic History, Vol. 46, No. 3 (1986), pp. 585–624; Sidney Pollard, ‘Capitalism and Rationality: A Study of Measurements in British Coal Mining, ca. 1750– 1850’, Explorations in Economic History, Vol. 20 (1983), pp. 110–29. ‘In the early nineteen-fifties…as in the early eighteen-seventies…a rising gale of technological change was sweeping through the world’s chemical industry. Under its force ICI was growing so fast and so variously as to oblige the Board to look deeply and critically at the course along which they were being hurried’, W.J.Reader, Imperial Chemical Industries: A History, Vol. II The First Quarter Century, 1926–1952 (London, 1975), p. 469. D.MacKensie and J.Wacjman (eds.), The Social Shaping of Technology (Milton Keynes, 1985). R.V.Jenkins, Images and Enterprise: Technology and the American Photographic Industry, 1839–1925 (Baltimore, MD, 1975); L.S.Reich, The Making of American Industrial Research: Science and Business at GE and Bell, 1876–1926 (Cambridge, 1985); D.Hounshell and J.Smith, Science and Corporate Strategy: Du Pont R & D, 1902–1980 (forthcoming). For example, Gourvish notes that the terms of reference for his history of the railways indicated that ‘the history should be concerned with “economic, financial, social and organisation matters, rather than with technical matters”’ (T.R.Gourvish, British Railways, 1948–1973: A Business History (Cambridge, 1986), p. xix), though no reasons are given. The introduction to Payne’s history of Colvilles regrets that sections of the history of labour had to be excluded; as far as technical matters are concerned the reader is referred to technical works on the steel industry (P.L.Payne, Colvilles and the Scottish Steel Industry (Oxford, 1979), pp. x-xi). Payne, Colvilles, p. 103. Payne, Colvilles, p. 259. Payne, Colvilles, p. 410. For levels of scientific activity in industry before 1914 scholars continue to base their analyses on unreliable figures. See Appendix 3. M.Sanderson, ‘Research and the Firm in British Industry, 1919–1939’, Science Studies, Vol. 2, No. 2 (1972), pp. 107–51. Recent work on state civil science includes: R.Moseley, The Origins and Early Years of the National Physical Laboratory: A Chapter in the Pre-History of British Science Policy’, Minerva, Vol. 16, No. 2 (1978), pp. 222–50; S.T.Keith, ‘Invention, Patents and Commercial Development from Government Financed Research in Great Britian: The Origins of the National Research Development Corporation’, Minerva, Vol. 19, No. 1 (1981), pp. 92–122; P.Gummett, Scientists in Whitehall (Manchester, 1980); I.Varcoe, ‘Co-operative Research Associations in British Industry, 1918–1934’, Minerva, Vol. 19, No. 3 (1981), pp. 435–63; Peter Alter, Reluctant Patron (Oxford, 1987). J.B.Morrell and A.Thackray, Gentlemen of Science: The Origins and Early Years of the British Association for the Advancement of Science (Oxford, 1981); Geoffrey Price, ‘Science, Idealism and Higher Education: Arnold, Green and Haldane’, Studies in Higher Education, Vol. 11, No. 1 (1986), pp. 5–16; Frank Turner, ‘Public Science in Britain, 1880–1919’, Isis, Vol. 71, No.4 (1980), pp. 589–608; P.G.Werskey, The Visible College (London, 1978).

100 SCIENCE AND TECHNOLOGY IN BRITISH BUSINESS HISTORY

21. For an example see Julia Wrigley, ‘Technical Education and Industry in the Nineteenth Century’, in B.Elbaum and W.Lazonick (eds.), The Decline of the British Economy (Oxford, 1986), p. 163. 22. David C.Mowery, ‘Industrial Research, 1900–1950’, in Elbaum and Lazonick, The Decline of the British Economy, pp. 189–222. 23. Mowery, ‘Industrial Research’, pp. 191–2. 24. Mowery, ‘Industrial Research’, p. 194. 25. Sanderson, ‘Research and the Firm’, passim. 26. For a discussion of this and other difficulties see K.S.Hughes, ‘The Interpretation of R & D Intensities—A Note’, Research Policy (forthcoming). 27. Report of the Committee of Inquiry into the Aircraft Industry, Cmnd. 2853 (1965) [Plowden Report]. 28. This discussion is a crude restatement of the questions that surround the ‘Schumpeter hypothesis’, that ‘bigness and fewness’ encourages innovation. See P.Stoneman, The Economic Analysis of Technological Change (London, 1983). 29. Unfortunately, Leonard Reich’s study of industrial research in GE and Bell does not address this important question even though he shows very clearly the extent to which these two firms controlled technical development in their fields (Reich, American Industrial Research). 30. John Hendry, ‘Prolonged Negotiations: the British Fast Computer Project and the Early History of the British Computer Industry’, Business History, Vol. XXVI, No. 3 (1984), pp. 280–306, and ‘The Teashop Computer Manufacturer: J.Lyons, LEO and the Potential and Limits of Diversification’, Business History, Vol. XXIX, No. 1 (1987), pp. 73–102. 31. Sanderson, ‘Research and the Firm’. 32. Of 30 research laboratories surveyed in the Greater Manchester region in the early 1950s, ten had been founded in the previous ten years (Industry and Science: A study of their relationship based on a survey of firms in the Greater Manchester area carried out by the Manchester Joint Research Council, 1950–1953 (Manchester, 1954), p.49. 33. Sanderson, ‘Research and the Firm’, p. 120. 34. Reader, ICI, II, pp. 85, 88. 35. M.R.Fox, Dye-Makers of Great Britain, 1856–1976: A History of Chemists, Companies, Products and Changes (Manchester, 1987), p. 190. 36. Carol E.Heim, ‘R & D, Defense, and Spatial Divisions of Labor in TwentiethCentury Britain’, Journal of Economic History, Vol. 47, No. 2 (1987), p. 371. 37. For the importance of external economies in innovation in Sheffield steel see G. Tweedale, ‘Science, Innovation and the “Rule of Thumb”: the Development of British Metallurgy to 1945’, in J.Liebenau (ed.), The Challenge of New Technology: Innovation in British Business (Aldershot, 1988). 38. Sanderson, ‘Research and the Firm’, p. 117. 39. Reader, ICI, II, p. 458. 40. W.J.Reader, Bowater, p. 186. 41. D.E.H.Edgerton, ‘Industrial Research in the British Photographic Industry, 1879– 1939’, in J.Liebenau (ed.), Challenge. 42. Reader, ICI, II pp. 343–9. 43. Reader, ICI, II, pp. 349–62.

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 101

44. D.C.Coleman, Courtaulds: An Economic and Social History, Vol. II, Rayon (Oxford, 1969), pp. 182–3. 45. T.C.Barker, The Glassmakers—Pilkington: The Rise of an International Company, 1826–1976 (London, 1977), p. 340. 46. Barker, Glassmakers, p. 341. 47. Reader, ICI, II, p. 455. 48. Reader, ICI, II, p. 303. 49. Reader, ICI, II, p. 325. See also pp. 324–7. 50. Reader, ICI, II, for example, p. 324. 51. W.J.Reader, Imperial Chemical Industries: A History, I The Forerunners, 1870– 1926 (London, 1970), Ch. 12, pp. 347–70; Reader, ICI, II, Ch. 10; A.N.Stranges, ‘From Birmingham to Billingham: High-Pressure Coal Hydrogenation in Great Britain’, Technology & Culture, Vol. 26, No. 4 (1985), pp. 726–57. 52. Out of a total of government funded research done by ICI of £1.5m (Reader, ICI, II, p. 293). 53. L.Hannah, Engineers, Managers and Politicians: The First Fifteen Years of Nationalised Electricity Supply in Britain (London, 1982), Chs. 14 and 19. 54. Gourvish, Railways, p. 258. 55. Jeffrey Cohen, ‘Military Manoeuvres’, Listener, 30 Oct. 1986; Barry Fox, ‘What Television did in the War’, New Scientist, 30 Oct. 1986. 56. Reader, ICI, II, p. 83. 57. Reader, ICI, II, p. 90. 58. Reader, ICI, II, p. 304. 59. Reader, ICI, II, App. III. 60. D.C.Coleman, Courtaulds: An Economic and Social History, III Crisis and Change, 1940–1965 (Oxford, 1980), p. 316. 61. On AEI research see Sir Arthur Fleming, B.G.Churcher and L.J.Davies, ‘The Research laboratories of Associated Electrical Industries Ltd.’, Proc. Roy. Soc. Lond. 210 A (1951), pp. 145–72. In 1951 the Aldermaston laboratory had 48 graduates, and would have had more but for ‘the great shortage of trained scientists’ (p. 146). 62. The NCB’s laboratory was in Cheltenham! (W. Ashworth, assisted by M.Pegg, The History of the British Coal Mining Industry, Vol. 5, 1946–1982: The Nationalised Industry (Oxford, 1986), p. 114). 63. Ashworth, Coal Mining, pp. 61–2. 64. Ashworth, Coal Mining, pp. 34, 114–15, 476. 65. Gourvish, Railways, p. 53. 66. Gourvish, Railways, p. 276. 67. Hannah, Engineers, Managers, pp. 118–19. 68. Hannah, Engineers, Managers, p. 262. 69. D.C.Coleman, Courtaulds: An Economic and Social History, II Rayon (Oxford, 1969), p. 206. 70. One scientific player has recently spilt the beans. See Peter Wright, Spycatcher: The Candid Autobiography of an Intelligence Officer (New York, 1987), and Noel Annan’s review in New York Review of Books, 34 (24 Sept. 1987), pp. 47–53. But note the involvement of the scientific gentleman, Lord Rothschild. 71. It may be possible to obtain some information from the writings of four quite untypical senior industrial scientists of the interwar years: A.P.M.Fleming, Director

102 SCIENCE AND TECHNOLOGY IN BRITISH BUSINESS HISTORY

72. 73. 74.

75. 76. 77. 78.

79.

80.

81.

of Research and Education at Metropolitan Vickers (A.P.M.Fleming and J.G.Pearce, Research in Industry: The Basis of Economic Progress (London, 1922); C.E.K.Mees, the English born director of research at Eastman Kodak (Mees, The Organisation of Industrial Scientific Research (London, 1920); Rainald Brightman, Chief Librarian at ICI Dyestuffs in the 1930s and 1940s (P.G.Werskey, ‘Nature and Politics between the Wars’, Nature, 224 (1969), pp. 462–72), as the main leader writer for Nature in the 1930s. For reactions by academic scientists to industrial research see: J.D.Bernal, The Social Function of Science (London, 1939); J.Huxley, Scientific Research and Social Needs (London, 1934). Reader, ICI, II, p. 72. Coleman, Courtaulds, III, p. 17. Pilkington brought in an ex-Oxford and Admiralty physicist to direct research in 1946 (T.C. Barker, ‘Business Implications of Technical Developments in the Glass Industry, 1945–1965: A Case-Study’, in B.Supple (ed.), Essays in British Business History (Oxford, 1977), p. 188.) The NCB also brought in an outsider to supervise research, Sir Charles Ellis, former Professor of Physics at Kings College, London, and another veteran of war work (Ashworth, Coal Mining, p. 124). Coleman, Courtaulds, III, pp. 318–19. Coleman, Courtaulds, III, p. 23. Barker, Glassmakers, Ch. 19. Clive Kenrick joined Kenricks in 1903 after studying engineering in Cambridge and Germany: ‘As an engineer he showed concern for the technical aspects of manufacturing, but made no concessions to consumers’ tastes if by so doing “unnecessary adjustments” to a product would be required; for him an article’s use was all-important, its appearance and detail seemed to him to have little significance’ (R.A. Church, Kenricks in Hardware: A Family Business, 1791–1966 (Newton Abbott, 1969), p. 144). This had disastrous implications for the firm. ‘One important factor enabling Clive to influence major policy was the lack of technical knowledge of his fellow directors’ (p. 228). Rebbeck, an apprenticeship trained engineer, joined Harland & Wolffin 1912 (M.Moss and J.R. Hume, Shipbuilders to the World: 125 Years of Harland and Wolff, Belfast, 1861–1986 (Belfast, 1986), p. 156). He led the company from 1930 until 1962. His son studied engineering at Cambridge and joined the company in 1935 (p. 356) later also becoming chairman (p. 434). Peter Young, in his history of STC, provides a wonderful example of the subtleties of the differences. One STC engineer had become dissatisfied pre-war with ‘the old school ties of ICI’; but on joining STC manufacturing he found that the chief telephone cable engineer argued: ‘The whole trouble is you’re a damned traitor, Gordon. You’re working in manufacturing with a university degree. You’re a traitor to the engineering cause.’ Further, the engineers in manufacture did not want university engineers (Peter Young, The Power of Speech: A History of Standard Telephones and Cables, 1883–1983 (London, 1983), p. 130). See J.Child, M. Fores, I.Glover and P.Lawrence, ‘A Price to Pay? Professionalism and Work Organisation in Britain and West Germany’, Sociology, Vol. 17, No. 1 (1983), pp. 63–78; K.McCormick, ‘Professionalism and Work Organisation: Some “Loose Ends and Open Questions”’, Sociology, Vol. 19, No. 2 (1985), pp. 285–94; C.A.Niblett, ‘Images of Progress: Three Episodes in the Development of Research Policy in the UK Electrical Engineering Industry’ (Ph.D. Thesis, University of

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 103

82.

83.

84. 85. 86. 87.

Manchester, 1980), Ch. 3; Geoffrey Price, ‘Professional Tensions in Science and Technology: The Case of the Colleges of Advanced Technology’, R&D Management, Vol. 9, No. 2 (1979), pp. 77–83; Roy and Kay MacLeod, ‘The Contradictions of Professionalism: Scientists, Trade Unionism and the First World War’, Social Studies of Science, Vol. 9, No. 1 (1979), pp. 1–32. We have no studies of the ideology of British engineers. For the United States see Edwin T.Layton, The Revolt of the Engineer: Social Responsibility and the American Engineering Profession (Baltimore, MD, 1986) and Noble, America by Design. For Germany see Jeffrey Herf, Reactionary Modernism: Technology, Culture and Politics in Weimar and the Third Reich (Cambridge, 1985). For the period before 1914 Saul has argued that the prevalence of consulting engineers had a negative effect on process innovations. S.B.Saul, ‘The Engineering Industry’, in D.H.Aldcroft (ed.), The Development of British Industry and Foreign Competition (London, 1968). For a case where a consulting engineer successfully encouraged a highly important process innovation see B.W.E.Alford, W.D. & H.O. Wills and the Development of the UK Tobacco Industry, 1786–1965 (London, 1973), p. 139ff. Reader, ICI, II, pp. 309–10. Coleman, Courtaulds, III, pp. 298–9, 132. Coleman, Courtaulds, III, p. 298; Reader, ICI, II, p. 467. But see the two following collections which suggest that interest is growing: Business History, Vol. XXVI, No. 3 (1984) and J.Liebenau (ed.), The Challenge of New Technology: Innovation in British Business (Aldershot, 1988).

104 SCIENCE AND TECHNOLOGY IN BRITISH BUSINESS HISTORY

APPENDIX 1 EMPLOYMENT IN RESEARCH AND DEVELOPMENT IN BRITISH MANUFACTURING 1930-64

Note: As is shown in the note on sources these figures are not comparable. The list is not exhaustive.

Note on Sources 1. Metropolitan-Vickers: Estimates for the total number of staff in the Research Department. In 1936 about one-third of the staff were graduates; in 1951 150 were graduates. Sources: 1930–50—C.A.Niblett, ‘Images of Progress: Three Episodes in the Development of Research Policy in the UK Electrical Engineering Industry’, (Ph.D. thesis, University of Manchester, 1980). 1951

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 105

—Sir Arthur Fleming, B.G. Churcher and L.J.Davies, ‘The Research Laboratories of Associated Electrical Industries Ltd.’, Proceedings of the Royal Society of London, 210 A (1951), pp. 145–72. 2. British Thomson-Houston: Number of ‘technical men’ in the Research Laboratory. Sources: 1930–35—H.A.Price-Hughes (compiler), BTH Reminiscences (Rugby, 1946), pp. 129. 1951—Fleming et al., loc. cit., p. 168. 3. General Electric Co.: 1936 ‘qualified staff’, 1946 ‘professional scientific and engineering staffs’ in the research laboratories. Sources: 1936—Association of Scientific Workers, Industrial Research Laboratories: A List (London, 1936). 1946— Sir Clifford Paterson FRS, ‘The Research Laboratories of the General Electric Company’, Proceedings of the Royal Society of London, 191 A (1947), pp.427–8. The laboratory was started in 1919 with 30 staff and in 1946 had a total staff of over 1,000. 4. Standard Telephone and Cable: Total staff in the laboratory at Hendon which was established in the mid-1920s. It was closed in 1931 and a new less grandiose laboratory was opened in 1946. Source: Peter Young, The Power of Speech: A History of Standard and Cable, 1883–1983, (London, 1983), pp. 67, 110. 5. Imperial Chemical Industries: ‘Technical officers’ in research. Source: W.J.Reader, Imperial Chemical Industries: A History, Vol. 2 The First Quarter Century, 1926–1952 (London, 1975), p.450. The British Dyestuffs Corporation had had a very significant research effort after the war. In 1920 it employed 80 chemists on research but this number was reduced to 30 in 1923 and later to only 15. ICI greatly expanded its dyestuffs and organic chemistry research from the mid-1930s, employing 194 graduates in 1938 (M.R.Fox, Dye-makers of Great Britain, 1856–1976: A History of Chemists, Companies, Products and Changes (Manchester, 1987), pp. 171, 190). 6. Courtaulds: Research ‘staff’. Source: D.C.Coleman, Courtaulds: An Economic and Social History, Vol. 3 Crisis and Change, 1940–1965 (Oxford, 1980), p. 295. 7. British Petroleum (Anglo-Iranian): Indicative figures for ‘research staff’ at laboratory at Sunbury. Source: R.W.Ferrier, The History of the British Petroleum Company, Vol. 1 (Cambridge, 1982), p. 662. 8. Ilford: Total number of graduates employed in all functions. The figure for 1930 includes graduates in firms controlled by Ilford, which were fully absorbed by 1931. Source: D.E.H.Edgerton, ‘Industrial Research in the British Photographic Industry, 1879–1939’, in J.Liebenau (ed.), The Challenge of New Technology (Aldershot, 1988), p. 119. 9. Kodak Ltd: Number of graduates in the research laboratory. Source: Edgerton, ‘Photographic Industry’, p. 122. 10. May & Baker and Wellcome: Graduates employed in research. Source: J.Liebenau, ‘British Success with Penicillin’, Social Studies in Science, Vol. 17, No. 2 (1987), p. 71.

106 SCIENCE AND TECHNOLOGY IN BRITISH BUSINESS HISTORY

11. Pilkington: Graduates employed in research. Source: T.C.Barker, ‘Business Implications of Technical Developments in the Glass Industry: A Case Study’, in B. Supple (ed.), Essays in British Business History (Oxford, 1977), p. 188. 12. Totals for UK and USA: ‘Research professionals’ in industry for 1932– 46. Source: David Mowery, ‘Industrial Research, 1900–1950’, in B.Elbaum and W. Lazonick (eds.), The Decline of the British Economy (Oxford, 1986), p. 191. 1955—Number of scientists and technologists in research and development in ‘private industry’ (manufacturing and construction). Source: Annual Report of the Advisory Council for Scientific Policy 1956–57, Cmnd. 278, Table III. 1959, 1962—Number of scientists and technologists in manufacturing research and development in establishments with more than 100 employees. Source: Advisory Council on Scientific Policy, committee on Scientific Manpower, Scientific and Technological Manpower in Great Britain, 1962, Cmnd. 2146, Table VIII. APPENDIX 2 EXPENDITURE ON RESEARCH AND DEVELOPMENT IN BRITISH INDUSTRY, 1930–64, £000s

(a) self-financed R&D by ‘private industry’. (b) R&D performed in ‘private industry’ Note on Sources: 1. Metropolitan-Vickers: Estimates in Niblett, ‘Images of Progress’, p. 43. 2. ICI: These are figures compiled after the war which are lower than contemporary figures. Source: Reader, ICI, Vol. 2, pp. 96, 502.

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 107

3. Courtaulds: Coleman, Courtaulds, Vol. 3, p.295. 4. United Steel, Glaxo and British Drug Houses: Association of Scientific Workers, Industrial Research Laboratories. 5. Ilford: Edgerton, ‘Photographic Industry’, p. 121. 6. Totals: 1930, 1935 and 1938—FBI survey figures in Mowery ‘Industrial Research’, p. 191. 1945-FBI survey of 420 firms cited by C.F.Carter and B.R.Williams, Industry and Technical Progress (London, 1957), p. 45. 1950—Estimate made by Carter and Williams, p. 44. 1955, 1958 and 1961—Cmnd. 1920, Table I.

APPENDIX 3 THE NUMBER OF SCIENTISTS IN BRITISH INDUSTRY BEFORE 1914 Our knowledge of the number of scientists employed in British industry before 1914 is even less than that for the inter-war period. However, some estimates made by Donald Cardwell have gained wide currency even though they are based on very limited evidence. Cardwell estimated there were between 180 and 225 graduate chemists working in British industry round 1902 (D.S.L.Cardwell, The Organisation of Science in England, 2nd edn. (London, 1972), pp. 204–8. The figures are cited in various forms in, for example, C.A.Russell, Chemists by Profession: The Origins and Rise of the Royal Institute of Chemistry (Milton Keynes, 1977), p. 191; R.Bud and G.K.Roberts, Science versus Practice: Chemistry in Victorian Britain (Manchester, 1984), p. 161; Peter Alter, Reluctant Patron: Science and the British State, 1850–1920 (Oxford, 1987), p. 225; Roy and Kay MacLeod, ‘The Contradictions of Professionalism: Scientists, Trade Unionism and the First World War’, Social Studies of Science, Vol. 9 (1979), p. 3). Cardwell obtained his estimate by scaling up figures obtained by a committee of the British Association for the Advancement of Science on the education of chemists employed in British industry. The committee had surveyed under 1,000 members of the Society of Chemical Industry ‘who so far as could be judged from the designations given in the list of members, occupy a position as manager or chemist in a works’ (‘Statistics concerning the training of Chemists in English Chemical Industries’, Report of the British Association for the Advancement of Science, 1902, pp. 97–8), about one-quarter of the total membership. 502 chemists replied, 107 of them graduates, 75 holding a British degree and 59 holding only a British degree. Sir James Dewar, in 1902 President of the BAAS, suggested the number of chemists in British industry to be 1500, which he regarded as a liberal estimate. Cardwell then scaled up the BAAS survey figures by three to find the number of graduates in industry. Sanderson has since pointed out that Dewar cannot be ‘Research and the Firm in British Industry, 1919–1939’, Social Studies of considered an authority on the state of science in industry (M.Sanderson, Science, Vol. 2, No. 2 (1972), p. 110).

108

PRIVATISATION:THE TRIUMPH OF PAST PRACTICE OVER CURRENT REQUIREMENTS By MARTIN CHICK

‘Can we afford to seem responsible if in fact we are powerless?’ A.J.Balfour, 18 August 19161 I The privatisation programme of the Thatcher governments is often presented as marking a sharp and radical development in British government-industry relations. To its supporters, ‘privatisation’ and ‘increased efficiency’ are viewed as being virtually synonymous2 and, at the very least, providing a break with the nationalised industries whose performance ‘by any criteria…has been disappointing’.3 Conveniently, many of the industries at the centre of the arguments on the respective merits and demerits of nationalisation and privatisation have also been the subject of extensive business histories.4 These volumes provide the business historian with an opportunity not only to examine the background to the privatisation programme but also to make some general observations on some of the problems which the privatisation programme is likely to encounter. In undertaking such an analysis in this article, it is also hoped to identify some of the main factors affecting British government-industry relations, to respond to Donald Coleman’s challenge to ‘draw conclusions from existing work on company histories’5 and to provide one example of the contribution which business history can make to current policy discussions. II At the heart of the debate on what is loosely termed as ‘privatisation’ are the two distinct, but not necessarily unrelated, issues of ownership and regulation. Government regulation of major industries is of long standing with war and the needs of public safety providing much of the early justification for such intervention. The First World War, for example, saw government intervention in a range of industries, including rail, coal, chemicals, textiles and oil,6 with a measure of this regulation continuing during the subsequent post-war years. The railways, for example, although remaining in private hands were regrouped and

110 PRIVATISATION

subject to further controls on pricing and marketing.7 Such government regulation intensified during the inter-war years in response to strong political demands from powerful sections of the electorate that government should act to mitigate particular grievances, notably those concerning the cost of living and unemployment. It was the dissatisfaction of domestic and industrial consumers with the price of electricity, for example, which in part precipitated the Baldwin government’s establishment of the Central Electricity Board in 1926.8 Again, it was the prospect of further unemployment in the coal9 and steel10 industries which prompted government intervention in both those industries. However, with an attachment to the rhetoric of the ‘free market’ and with a preference for non-intervention, government tended to intervene in particular industries only when the demands that it should do so had reached a particularly high pitch. This produced a style of intervention which has been dubbed as ‘reactive’11 and in keeping with a ‘crisis-oriented’ approach to industrial intervention. Yet the apparently ad hoc manner of much of this intervention, whether in coal in the 1930s or in British Leyland in the 1970s, should not obscure the consistent motivation behind much of the interventions. Government industrial intervention was predominantly a political response to intense pressure from powerful interest groups. As public expectations of what a government could and should do to ‘manage’ the economy grew, then so too did the incidence of government regulation of particular industries. While the motives for much of the government intervention and regulation of particular industries appear consistent, the nature and effect of such regulation was highly variable. In particular, governments do not appear to have had a consistent attitude towards the merits or demerits of competition within particular industries. For example, in the electricity industry, the Baldwin government actively promoted competition in the growing and capital-intensive industry by using its political power to break vested local monopoly interests and, through the establishment of the Grid, allowing market forces to achieve the twin and associated goals of reducing prices and improving productivity.12 However, in older, more labour-intensive industries like coal-mining, the effect of the Coal Mines Act of 1930 was to provide for the compulsory formation of cartels in each of the coalfields and the consequent move of the distributive side of the industry ‘into a web of social control’.13 Similarly, government regulation of rail and steel also served to decrease competition between firms. That government should have had a fluctuating attitude towards the virtues of competition is not surprising. Much of the actual and threatened unemployment in the coal industry, for example, was the direct consequence of the working of the international and domestic markets which exposed the uncompetitiveness of sections of the industry. Moreover, although the introduction of regulation was often accompanied by the rhetoric of ‘rationalisation’ and ‘efficiency’, such rhetoric was often at odds with the political interests of government in preventing further unemployment. With unemployment rates running at over 20 per cent— and at over 30 per cent and 40 per cent in the coal industry14—it was highly

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 111

unlikely that government would sanction the closure of many small coal pits which was implicit in any programme of rationalisation. Thus, the provisions in the 1930 Coal Mines Act for the establishment of the Coal Mines Reorganisation Commission, which the Liberals had insisted on in an attempt to ensure some improved efficiency in the new state-sponsored monopoly arrangements, proved to be ineffective. Proposals for the enforcement of the amalgamation provisions of the 1930 Act were resisted by the Secretary of State for Mines during the winter of 1933–34, on the grounds that regular employment in the industry had fallen by more than 20 per cent since the passing of the 1930 Act.15 The transfer of ownership from private to public hands involved in nationalisation was in part the logical extension of the previous practice of regulation. After the Second World War, the rising public expectation that government should secure a low cost of living and a low level of unemployment increased the government’s wish to control large basic sector industries. The nationalisation of the coal, gas, electricity and transport industries by the Attlee government, for example, were all accompanied by political promises that the output of these industries would be more widely and more cheaply available. The Attlee government also hoped that by controlling the level and timing of the capital investment programmes of these industries it would be able to influence the level of effective demand within the economy and hence the level of employment. The previous experience of regulation also made it more likely that the regulated industries would pass into public ownership, since the continued operation of state-sponsored protective arrangements with benefits accruing to private owners became increasingly difficult to justify. Moreover, with technical opinion in industries like coal arguing that continued private ownership would be an immovable obstacle to the necessary rationalisation of the industry, it made little sense for the state to continue to connive in arrangements designed to protect the small-scale, multi-firm structure of the industry. Thus, although nationalisation transferred the ownership of the affected industries to the government, much of the motives and mechanics of this intensified government industrial involvement had already been experienced and anticipated in the earlier regulation of these industries. While nationalisation was popularly viewed as embracing the two issues of ownership and regulation, they remained in logic distinct and separate issues. The major effect of the transfer of ownership was to increase the political responsibility of the government for the performance of the nationalised industries in particular, as well as for the economy in general. The performance criteria by which the government were most immediately going to be judged by the public remained the same as before the war, namely the cost of living and the level of unemployment.16 The assumption made by many supporters of nationalisation was that although nationalisation would increase the government’s responsibility for the performance of the nationalised industries, the transfer of ownership would also increase the govern ment’s ability to

112 PRIVATISATION

influence that performance. In fact, the extent of such influence was to prove to be inconsistent and variable. Given that concern with the cost of living and with the level of unemployment had often been the main motives behind regulation and subsequent nationalisation, it was hardly surprising that government exerted much of its efforts in influencing the pricing, wage and employment decisions made by managers in the nationalised industries. The business histories are riddled with examples of government efforts to limit or prevent price and wage increases and to reverse managerial decisions which would have resulted in unemployment or a reduction in services. Interference in the managerial pricing decisions was particularly acute in the railway industry. Both Conservative and Labour governments tried to stop or delay price increases,17 often successfully, interference which not only cost the industry money18 but also greatly impaired its attempts to reform its already complicated and cumbersome pricing structure.19 Since the government was held by the public to be responsible not simply for the prices charged by each industry but also for the cost of living in general, government interference with nationalised industry pricing policy became particularly acute during periods of inflation such as occurred during the 1970s.20 Concern with the effects of wage increases upon prices in labour-intensive industries like coal and rail,21 and a wider concern that nationalised industries should set an example of pay restraint during period of inflation, also occasioned much government involvement in wage negotiations in nationalised industries. The most notable instance of this common occurrence was the interference of the Heath government in the negotiations between the National Coal Board and the National Union of Mineworkers during the 1970s. Not only did government intervention undermine the authority and position of the Board, but the funding of settlements by government set a dangerous precedent in which the success of the National Union of Mineworkers strike action would depend on their ability to get the government rather than the NCB to meet their claims.22 There was also considerable political reluctance to sanction reductions in services23 or plant closures. Even the Thatcher government appears to have obstructed Ian McGregor’s attempts during 1982–83 to close the integrated steel plant at Ravenscraig.24 Earlier attempts by BSC to effect plant closures had led to clashes in the mid-1970s between Tony Benn and Sir Monty Finniston, with Tony Benn declaring that it was high time ‘to socialise existing nationalised industries’ and Sir Monty, supported by Alf Robens of the National Coal Board, protesting against ‘unwarrantable interference’ by government in the management of the nationalised industries.25 Although government was able to influence managerial decisions on pricing, wages and closures, its ability to influence longer-term decisions on matters such as fixed capital investment was much more limited. One of the major constraints on the government’s influence was its limited ability to collect, process and evaluate technical industrial information. Allied to this was an uncertainty on the

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 113

part of government as to how f ar it could and should go in influencing such decisions. The original nationalising legislation provided little guidance, saying only that a minister could intervene as he ‘sees fit’ or ‘as he may require it’.26 While immediate political considerations made governments willing to intervene on pricing and closure decisions, governments were less willing or able to intervene in fixed capital investment decision-making. During, the 1960s, for example, when government sought to strengthen its financial control over the coal industry, it became required practice for all of the National Coal Board’s capital investment projects to be submitted to the Ministry of Power for appraisal. Yet, as Lord Robens noted, these projects always came back unaltered because the Ministry ‘have not the technical people to indicate any changes’.27 Moreover, the Minister’s ability to fulfil his theoretical role of appraising projects was undermined further by the fact that the nationalised industries often only presented one project for his approval. In 1981, for example, when discussing with the British Steel Corporation plans for the industry’s survival, Keith Joseph complained that only a single plan, without any alternatives, had been presented to him by the Corporation.28 That this was so is not surprising since presumably the steel managers presented those proposals which they thought most likely to succeed. Resurrecting proposals which had already been dropped in order to provide a display of project selection and appraisal held little attraction for the industy. The matter was not pressed. Keith Joseph explained that to have asked the Corporation for an alternative plan ‘would have been to challenge their judgement’,29 an argument which failed to impress the Industry and Trade Committee which commented that ‘the appraisal to which the Plan was subjected was minimal’.30 Government encountered similar problems in its attempts to appraise the British Transport Commission’s Modernisation Plan in the late 1950s and early 1960s. Where highly specific information and the relevant appraisal ability might have been expected to cluster was in the government-sponsoring departments. Yet the role of these departments in the relationship between government and industry was ambivalent. In balancing the interests of the government as a whole against those of the sponsored industry in particular, departments often came down in favour of supporting their industry in the struggle for resources and priority. This stance became particularly explicit in response to the increased efforts of the Treasury to impose cash restraints and required rates of return on industries like coal and railways, the departments finding it easy to emphasise their traditional position of opposing the Treasury. The long-term consequence of such battles between sponsoring departments and the central Treasury, when fought in an environment of increasing difficulties in industries like coal, was the eventual diminution of departmental power. In the case of the coal industry, for example, the Treasury steadily displaced the Ministry of Power,31 and with the abolition of the Ministry of Power in October 1969, government supervision of the industry passed first to the rather amorphous Ministry of Technology and later to the new amalgam, the Department of Trade and Industry. In consequence,

114 PRIVATISATION

‘high level decisions had to be referred to people to whom the coal industry was far less central than had formerly been the case’.32 Nor were individual industries able to compensate for the declining influence of their sponsoring department by dealing directly with the Treasury. The Treasury had neither the inclination nor the specific knowledge needed to deal directly with industries and on occasions, as happened to Lord Robens of the National Coal Board, the Treasury actually refused requests from chairmen of nationalised industries for interviews.33 Some of the major effects, therefore, of government efforts to centralise responsibility for the performance of the nationalised industries under the Treasury were to diminish the influence and authority of the sponsoring departments and to reduce still further the government’s capability to assess the more technical decisions being made by the nationalised industries. Yet, centralisation of responsibility in the Treasury and the creation of new umbrella departments like the Department of Trade and Industry reflected concern not only with the financial performance of particular nationalised industries but also with the apparent inability of government to co-ordinate effectively the activities of the various nationalised industries. One of the main aims of nationalisation as advocated by Herbert Morrison, for example, had been to secure ‘improved coordination’ in sectors such as fuel and power and transport and communications. Such aims were never achieved. Effective co-ordination required either the effective exchange of information through the market or through the bureaucracy, or both. The information being provided through the market relating to prices and costs in both the fuel and power and transport and communications sectors was distorted, not least because of continued government interference with pricing decisions. For most of the 1940s and 1950s, pricing in the electricity and coal industries did not reflect long-run marginal costs, while the use of oil taxes blurred price and cost comparisons amongst primary fuels. The upshot in terms of sub-optimal use of national fuel resources was considerable, particularly during the 1960s when the British economy failed to exploit fully low international oil prices.34 Nor were such failures to use the market effectively in distributing accurate information to decision-makers compensated for by the efficient exchange of information between departments within Whitehall. Departments regarded one another as competitors for resources and with little in common between them other than their opposition to the Treasury.35 Even within departments such as the Ministry of Transport, industries such as railways and road freight carriers were often in fierce competition with each other. The increasing centralisation of responsibility for the nationalised industries within the Treasury was in part an attempt to provide a central co-ordinating body which could adjudicate between such rival interests. Yet, the Treasury’s primary concern with the financial performance of the nationalised industries meant that responsibility for other aspects of the industries’ performance continued to be dispersed between a number of other departments. This was particularly apparent when industries entered periods of contraction. At the same time as loss-making industries like steel and coal were being subjected to increased financial

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 115

supervision by the Treasury, the problems inherent in the contraction of the industries also forced the industries to deal with an increased number of other government departments such as the Department of the Environment and the Department of Employment.36 The difficulties experienced by government in appraising technical information had the effect of tilting the balance of power between the nationalised industries and government in the industries’ favour. To state that the possession of information forms the basis for the exercise of power may well be platitudinous, but it is none the less of importance in this context. The strong correlation between possessing information and exercising power had been evident since before the Second World War. The government’s reliance on the British Iron and Steel Federation to supervise the operation of the protective tariff in the 1930s, in large part because of the government’s disinclination and inability through a lack of adequate knowledge to do so, allowed the steel industry to establish a price and subsidy structure designed to protect all the existing firms within the industry irrespective of their efficiency.37 Although the government had expressed its usual hopes that rationalisation through regional and product amalgamations would be achieved, these hopes proved to be forlorn. As Steven Tolliday has commented, in the absence of a workable consensus about reorganisation within the industry, ‘the government [had] responsibility for the industry without power over it’.38 The complaints of leading Cabinet figures like Runciman and Snowden that the government had been ‘bamboozled’ by the steel industry were to be re-echoed by many other ministers through the succeeding decades.39 With nationalisation the extent of the government’s responsibilities increased considerably but without a commensurate increase in the government’s power or influence over the nationalised industries. Indeed, there is some evidence which suggests that the act of nationalisation, by increasing the government’s political responsibilities placed even greater political influence in the hands of the nationalised industries. When, in 1951, Hugh Gaitskell, as Chancellor of the Exchequer, threatened to sanction large cuts in the investment programme of the electricity industry, the chairmen of the Area Boards made it clear to Gaitskell that they would not hesitate to publicly lay the blame for such cuts at the government’s feet. With a General Election impending, the nationalising Labour government backed down being unwilling to enter into open conflict with a leading nationalised industry, especially when that industry could present itself as defending the interests of the consuming electorate against the proposed cuts of an austere government. Moreover, for the Labour government to have fallen into open dispute with one of its own nationalised creations would simply have damaged still further its prospects of being reelected. In general, governments were to find it easier to influence loss-making, money-seeking industries like coal and railways, than expansionist, high-growth industries like electricity. One possible means of curbing the expansionist drive of industries such as electricity was to appoint a Chairman whose thinking was similar to that of the

116 PRIVATISATION

government. In reviewing the difficulties which the post-war Churchill government experienced in controlling the gas and electricity industries, John Boyd-Carpenter outlined the benefits of making changes in the boardrooms of the two industries. In particular, to put it bluntly, I am quite sure that Lord Citrine has outlived whatever usefulness he may have had…. If we want these two industries to adopt a more prudent financial policy, I think we ought at least to try and see that people are appointed to these Boards who are inclined to pursue such policies.40 The Attlee government had already appointed the amenable John Elliot as Chairman of the Railway Executive in 1951, passing over existing members of the Executive. Yet, such appointments could backfire. The appointment of Christopher Hinton, a member of the Atomic Energy Authority, as Chairman of the CEGB to spearhead the government’s nuclear power programme, began to work against the government as Hinton became increasingly concerned at the commercial viability of the large nuclear programme.41 As was the case in later dealings with Monty Finniston of the British Steel Corporation, government subsequently found it difficult to argue against a chairman who so clearly knew a great deal about the technical side of the industry. Moreover, in time it became difficult to find individuals who were willing to accept the comparatively low executive salaries42 and the persistent criticism and government interference which accompanied the chairmanship of a nationalised industry like steel. In 1983, for example, having failed to secure Sir Alistair Frame of Rio-Tinto Zinc and being unwilling to promote the existing deputy chairman, Bob Scholey, the government had to appoint Robert Haslam, Chairman of Tate & Lyle, on a parttime basis. Robert Haslam was then required to divide his time between the needs of the sugar and steel industries.43 III Public and government dissatisfaction with the financial and operating performance of the leading basic sector nationalised industries became particularly intense from the mid-1970s. Government became increasingly concerned at the burden which the nationalised industries were placing upon the Public Sector Borrowing Requirement (PSBR), the nationalised industries’ call on public funds during 1974–75 amounting to over £2,750 million.44 The component parts of this funding comprised compensation payments to industries like gas and electricity in lieu of revenue they had foregone by complying with the Heath government’s price restraint policy, ‘social cost’ subsidy payments to industries like railways, and borrowings to finance future capital expenditure. The continual interference by government in the pricing decisions of these industries had contributed to this financial chaos. The BSC and the British Iron

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 117

and Steel Consumers Council, for example, estimated that government intervention on prices up to 1974 cost the corporation about £750 million of lost revenue, which it then had to borrow from the government at interest rates varying between 7.5 per cent and 16.75 per cent.45 Not only did this seriously obstruct managerial efforts to cover costs, but it also meant that the nationalised industries provided output at subsidised prices for much of the private sector. Indeed, in 1961 the government estimated that two-thirds of nationalised industry sales to the private sector had been at prices below cost.46 That such a use of public funds for the increase of private profits accorded with the ideology of either leading political party seemed doubtful. Extrapolating from the overall poor financial performance of the nationalised industries, it became publicly popular to refer to the entire performance of the nationalised industries as ‘inefficient’. Yet the evidence on productivity did not always bear out such sweeping criticisms. Certainly, between 1958–67, as the benefits of the earlier investment programmes began to be realised, the technical performance of the nationalised industries compared well with that of private industry and manufacturing.47 Moreover, in comparison with the inter-war performance of industries like coal-mining under private ownership and the failure of attempts at industrial restructuring in the privately-owned steel industry during much of the post-Second World War period until renationalisation, the achievements of nationalised industries like coal in raising productivity through the use of power-loading and self-advancing pit props, in establishing central and effective research facilities, and in overseeing the redeployment of redundant miners during the 1960s were considerable. It was during the third decade of nationalisation that nationalised industries like steel, rail, the bus groups and coal-mining began to encounter productivity problems. The knotty problem of the extent to which such problems were caused by any inefficiencies inherent in nationalisation or by the general difficulties of securing productivity increases in increasingly capital-intensive industries during a period of low demand and international recession, is difficult to unravel. Certainly, recent economic investigations into the productivity benefits of private versus public ownership are inconclusive.48 Yet, although public references were often made to ‘low productivity’ and ‘inefficiency’, it was the growing burden of the nationalised industries on the PSBR which was of greatest concern to the government. One of the government’s strongest areas of influence over the nationalised industries, namely their interference in the industries’ pricing decisions, had contributed to the losses being made by some of these industries. When even the strongest area of the government’s influence over the nationalised industries was contributing to the increasing unpopularity and criticism of the industries, then the time had come for the government to shed itself of political responsibility for the performance of industries over which it had limited control. Government concern to reduce the PSBR and government keenness to distance itself from the upheaval and unemployment which was likely to occur in many of the traditional basic sector industries, melded neatly with fashionable calls for wider share

118 PRIVATISATION

ownership and ‘market solutions’, to form the background to the Thatcher government’s privatisation programme. That the selling of shares in the formerly publicly-owned industries has been successful and popular seems undeniable. Even allowing for the prices at which shares were offered to the public, the offers of shares in British Aerospace, Cable and Wireless, British Gas and British Telecom were often heavily oversubscribed. Indeed, the high demand for shares begs the question of whether such companies were particularly ‘inefficient’ and therefore requiring privatisation, or whether they were a useful opening gambit in the government’s efforts to launch a successful privatisation programme. However, while the government has pleased the share-buying public, it has disappointed many economists and advisers who saw the privatisation programme as an opportunity to increase competition in many of these industries. The government’s commitment to increasing competition has faded as the privatisation programme has proceeded. While the 1980 Transport Act (deregulating express coaching) was enthusiastic about the merits of competition, the later privatisation of British Gas allowed the gas industry to remain intact as a monopoly. Similarly, opportunities to increase competition in the airline industry have been foregone and effective competition in the telephone industry remains low. As John Kay and David Thompson have recently lamented, ‘increasingly…the primary objective (of privatisation) has become the transfer of ownership’. Although the government continues to insist49 that ‘competition was still the primary consideration, …these words have not been supported by actions’.50 IV In retrospect, and having read many of the business histories examining the relationship between the government and the nationalised industries, the government’s wish to rid itself of political responsibility for nationalised industries over whose performance it has limited influence is not surprising. Moreover, the evidence of the business histories suggests that it is also not particularly surprising that the government has not maintained a genuine and steadfast commitment to the promotion of competition. Government has never had a consistent attitude towards competition. A sceptic might also add that it is easier to sell shares in monopolies, while preparing former monopolies for competition takes time and would slow up the pace of the privatisation programme. Yet, one of the major obstacles to the Thatcher government’s professed intention of introducing competition into former monopoly industries is likely to have been the strong opposition of the existing senior management of those industries. While welcoming a reduced degree of government interference in their decision-making, these managers are likely to have argued strongly against any moves to expose their newly-privatised industry to competition. As future managers of the industry post-privatisation, they are likely to prefer to operate in a monopolistic rather than a competitive market. Yet, for the

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 119

privatisation programme to proceed smoothly and quickly, the government has been (and still is) reliant upon the information, expertise and co-operation of these self-same managers. Once again, as in the steel industry over 50 years ago, managers have been able to use their expertise, information and the government’s dependence upon their co-operation to shape the future structure of their own industries. As such, the considerations shaping the privatisation programme are very similar to those which have shaped government-industry relations throughout the century. Far from being radical, the privatisation programme is consistent with much that has characterised government-industry relations throughout this century. Consistent in resurrecting the old issue of ownership; consistent in being motivated primarily by political considerations; consistent in its inconsistent attitude towards competition; and consistent in the ability of managers to determine the future structure of their industry. Both government and managers are likely to achieve their main aims. In the process, opportunities to improve the performance of many basic sector industries will have been missed. University of Edinburgh NOTES 1. A.J.Balfour, First Lord of the Admiralty in a note to the Asquith coalition Cabinet regarding increased British government involvement in the oil industry. Quoted in R.W.Ferrier, The History of the British Petroleum Company (Cambridge, 1982), p. 246. 2 John Moore, ‘The Success of Privatisation’ (1985), in J.Kay, C.Mayer and D. Thompson (eds.), Privatisation and Regulation: the UK Experience (Oxford, 1986), p. 95. 3. John Moore, ‘Why Privatise’ (1983), in Kay, Mayer and Thompson, Privatisation, p. 81. 4. The main texts used for this article were: W.Ashworth, The History of the British Coal Industry, Vol. 5 (Oxford 1986); L.Hannah, Electricity Before Nationalisation (London, 1979) and Engineers, Managers and Politicians (London, 1982); D.Burn, The Economic History of Steelmaking, 1867–1939 (Cambridge, 1940) and The Steel Industry, 1939–59 (Cambridge, 1961); H.Abromeit, British Steel (Leamington Spa, 1986); R.Bryer, T.Brignall and A.Maunders, Accounting for British Steel (Aldershot, 1982); T.Gourvish, British Railways 1948–73 (Cambridge 1986); and P.Payne, Colvilles and the Scottish Steel Industry (Oxford 1979). 5. D.C.Coleman, ‘The Uses and Abuses of Business History’, Business History, Vol. XXIX, No. 2 (April 1987), p. 149. 6. See B.W.E.Alford, ‘Lost Opportunities: British business and businessmen during the First World War’, in N.McKendrick and R.B.Outhwaite (eds.), Business Life and Public Policy; essays in honour of D.C.Coleman (Cambridge, 1986). 7. T.Gourvish, British Railways, p. 2.

120 PRIVATISATION

8. L.Hannah, ‘A Pioneer of Public Enterprise: The Central Electricity Board and the National Grid, 1927–1940’, in B.Supple (ed.), Essays in British Business History (Oxford, 1977), p. 209. 9. B.Supple, ‘Ideology or pragmatism? The nationalisation of coal, 1916–46’Z, in McKendrick and Outhwaite, Business Life and Public Policy. 10. S.Tolliday, ‘Steel and Rationalisation Policies, 1918–1950’, in B.Elbaum and W. Lazonick (eds.), The Decline of the British Economy (Oxford, 1987), p. 101. 11. P.Hall, ‘The State and Economic Decline’, in Elbaum and Lazonick, Decline, pp. 273–8. 12. Hannah in Supple, Essays, pp. 218–19, 222–3. 13. Supple in McKendrick, Business Life, p. 236. 14. Ibid., p.237. 15. Ibid., p.237. 16. Criticism of loss-making by nationalised industries was also to increase over time, although the connections between the pricing and employment policies of the nationalised industries and their financial performance were often missed or avoided. 17. Gourvish, Railways, pp. 101–3, 183, 186. Coal was also subject to a ‘gentlemen’s agreement’ in the post-Second World War period, although with the fall-off in demand for coal in the late 1950s such constraints on price increases became redundant. See Ashworth, Coal, p. 635. 18. Gourvish, Railways, pp. 476, 480. The delays and deferments occasioned by the need to refer all proposed price increases to the Prices and Incomes Board cost the Board approximately £1.4 million in net revenue foregone in 1965–66, and £4.5 million in 1966–68. 19. Ibid., pp. 102–4. 20. Ibid., pp. 484–5. 21. Ibid., p. 99. In 1948, for example, labour costs were 62 per cent of the nationalised railways total operating costs, though this was to fall over time. 22. Ashworth, Coal, pp. 644–5, 658. 23. Gourvish, Railways, pp. 211, 446–7, 451. 24. Abromeit, British Steel, p. 143. 25. Ibid., p. 134. See BSC, Daily News Summary, No.1731, 29 April 1975. 26. Ibid., p. 147. Ashworth, Coal, p. 630. 27. Ashworth, Coal, p. 643. See Report of Select Committee on Nationalised Industries, 1967–68, II, 44. 28. Abromeit, pp. 156–7. 29. Ibid., pp. 156–7. See Fourth Report of the Industry and Trade Committee, Session 1980–81, Effects of the BSC’s Corporate Plan, Vol. II, pp. 68ff. 30. Abromeit, British Steel, pp. 156–7. 31. Ashworth, Coal, p. 638. 32. Ibid., p. 243. 33. Ibid., p. 638. 34. Hannah, Engineers, p. 238. 35. Abromeit, British Steel, p. 93. 36. Ashworth, Coal, p. 637. 37. Tolliday, in Elbaum and Lazonick, Decline, p. 102. 38. Ibid., p. 102.

ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS 121

39. Ibid., p. 102. 40. PRO T229/687. Memorandum by John Boyd-Carpenter on ‘Pricing Policy in the Nationalised Industries’, 25 Feb. 1953. 41. Hannah, Engineers, p. 234. 42. Gourvish, Railways, pp. 35/7, 61, 322–4, 345, 360–61, 382, 573. 43. Abromeit, British Steel, p. 151. 44. R.Pryke, The Nationalised Industries (Oxford, 1981), p.261. 45. Abromeit, British Steel, p. 139. 46. Ibid., p. 99. 47. R.Pryke, Public Enterprise in Practice (London, 1971) p. 434. 48. D.Heald and D.Steel, ‘Privatising Public Enterprises. An Analysis of the Government’s Case’, in Kay, Mayer and Thompson, Privatisation, p. 69. 49. Speech by John Moore MP at the annual conference of City of London Stockbrokers, Fielding, Newson Smith, 1 Nov. 1983. 50. J.Kay and D.Thompson, ‘Privatisation: A Policy in Search of a Rationale’, The Economic Journal, Vol. 96, No. 381 (March 1986), p. 29.

122

INDEX

Akers, Sir Wallace, 94 Allsopp brewery, 69 American Tobacco Company, 25 American Viscose Corporation, 3, 25 31, 59 Associated Electrical Industries, 27 Attlee, 1st Earl, 111, 115 Austin, 1st Baron, 69

Cadbury, 69, 72, 73 Castrol Oil, 74, 80 Central Electricity Board, 3–4, 11, 12, 13, 74 Chambers, Sir Paul, 3–4 Citrine, 1st Baron, 6, 39, 115 City of Glasgow Bank, 25 Clark, William S, 4, 69–8 Coats, J&P, 27 Colston, Sir Charles, 77 Colville, David, 25 Colvilles, 5, 10, 12, 13, 21–2, 25–6, 31, 35, 39, 54–5, 89 Courtauld, George, 25 Courtauld, Samuel, 5, 8, 73 Courtaulds, 2–5, 8–10, 11, 12, 13, 23, 25–5, 31, 35, 39, 59, 61, 65, 70, 73 Cozens-Hardy, 4th Baron, 95 Craig, Sir John, 10, 12, 13, 26, 33, 39, 55, 89

Baldwin of Bewdley, 1st Earl, 110 Balfour, 1st Earl of, 107 Barratt, Arthur, 73 Barratt, Thomas, 71 Beaver, Sir Hugh, 80 Beecham, Sir Joseph, 69–9, 76, 80 Beeching, Lord, 3, 39 Benn, Tony, 111 Benson, Samuel, 71 Bloom, John, 78 Bovril, 71 Bowater, Sir Eric, ix–2, 6, 7, 10, 50, 79 Bowaters, 3, 6, 7, 9, 13, 21–2, 31, 58, 60, 61, 65, 79, 92 Boyd-Carpenter, Lord, 115 British Celanese, 35, 73 British Electricity Authority, 3, 4, 7, 94 British Leyland, 110 British Nylon Spinners, 76, 93 British Rail, 6, 7, 11, 12, 13, 35 British Steel Corporation, 21 British Thomson Houston, 94 British Transport Commission, 3, 6, 35, 94, 112 Brown, John & Co, 26

Distillers Company, 93 Dreyfus, Henry, 73 Dunlop Rubber, 28 Dutch Margerine Unie, 28 Edwards, Sir Ronald, 12 Elliot, Sir John, 115 Finniston, Sir Monty, 111, 115 Flatley, A.J., 78 Ford Motor Company, 27, 69, 77 Frame, Sir Alastair, 115 Frys, 69

123

124 ENTERPRISE, MANAGEMENT AND INNOVATION IN BRITISH BUSINESS

Gaitskell, Hugh, 114 Glaxo Laboratories, 71–72, 92, 106 Gretton, 1st Baron, 72 Guinness, 72, 80 Hanbury-Williams, Sir John, 8, 95 Hanson Trust, 21 Harland & Wolff, 2–3, 5, 6, 7, 8, 10, 11, 12–14, 21, 23, 25–6, 31–2, 55, 59 Harriman, Sir George, 78 Harvey-Jones, Sir John, 10 Haslam, Sir Robert, 115 Heath, Edward, 116 Hedley, Thomas, 75 Hennessy, Sir Patrick, 77 Heyworth, 1st Baron, 29 Hinton of Bankside, Lord, 12, 39, 115 Hirst, 1st Baron, 27 Hogg, Sir Christopher, 13 Holden, Sir Edward, 33 Hollins, Sir Frank, 70, 73, 76, 80 Hooper, Sir Frederick, 75 Horlicks, 72 Howlett & White, 70 Huntley & Palmer, 69, 71, 79 Hyman, Joe, 80 Imperial Chemical Industries, 2,3–5, 7, 8, 9, 12, 13–14, 23, 27–8, 31, 39, 57–9, 61, 65, 92–94 Imperial Tobacco Company, 25, 27, 31, 31 Iveagh, 1st Earl of, 72 Johnson, Harry, 2–3, 5 Joseph, Lord, 112 Kearton, Lord, 10, 13, 35, 94 Kenrick, Sir George, ix Kenrick, Archibald & Sons Ltd, 4–5, 7, 13, 21, 23, 25, 31, 56, 65 Kylsant, 1st Baron, 30, 31 Lambury, 1st Baron, 78 Lancashire Cotton Corporation, 35 Leverhulme, 1st Viscount, 10, 29, 71, 72 Lithgow, Sir James, 33

Mallabar, Sir John, 11 Mardon, Son & Hall, 25 McCance, Sir Andrew, 89, 95 MacFarlane Lang Jacobs, 70, 75 McGowan, 1st Baron, 2, 4, 7, 8, 10–11, 27– 8, 39 MacGregor, Sir Ian, 111 McKenna, Reginald, 27 Mc Vitie & Price, 70, 75 Melchett, 1st Baron, 2, 10–11, 27–8 Metropolitan-Vickers Electrical Company, 91, 94 Midland Bank, 23, 25, 31, 33–5 Morrison of Lambeth, Lord, 113 National Coal Board, 23, 111 Nestlé, 72 Niger Company, 29 Nuffield, 1st Viscount, 10, 69 Parker, Sir Peter, 40 Peek Frean, 71 Perry, 1st Baron, 69 Pilkingtons, 3, 4, 5, 7, 9–10, 12, 23, 25, 31, 39, 53–4, 55–6, 60, 93 Philippi, O., 27 Pirrie, 1st Viscount, 2, 3, 5, 6, 7, 10, 26, 30, 31, 55 Radio Luxemburg, 72 Radio Normandie, 72 Rebbeck, Sir Frederick, 5, 6, 8, 31–3, 95 Reckitt & Colman, 69, 72 Rennell, 2nd Baron, 30 Robens of Woldingham, Lord, 111–9 Robertson of Oakridge, 1st Baron, 3, 39 Rolls Royce, 11 Rowntree, 69, 71, 72, 73 Royal Mail Shipping Group, 30 Runciman of Doxford, 1st Viscount, 114 Russell, Thomas, 71–72 Salmon & Gluckstein, 25 Scholey, Bob, 115 Schweppes, 75 Slade, R.E., 93 Smith, Freddie, 30

125

Smith, W.H. & Son, ix–2, 4, 6–8, 10–12, 13, 21, 23, 31, 34–5 Snowden, 1st Viscount, 114 Spillers, 28 Taylor, Harry, 25 Tetley, H.G., 9, 26, 59 Thompson, J. Walter, 72 Thorn, Sir Jules, 74, 77 Troughton, Sir Charles, 13 Turner & Newall, 28 Unilever, 27, 65, 72, 75, 79 United Dairies, 92 United States Rubber, 25 Wakefield, 1st Viscount, 74 Weston, Garfield, 73 Wills, W.D. & H.O., 23, 25, 53–4, 65, 72, 79–9 Wilson, Sir Alan, 94