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Owen Green’s balanced performance system

Owen Green’s obituary appeared last week in the Daily Telegraph. He was the Chief Executive of BTR and took the company from an obscure enterprise to one of the most successful organisations of his day.

During my early career, I worked for Serck and we were bought out by BTR in one strike to which the company had no possibility of responding. We had just fought off a takeover bid from Rockwell, a major competitor, when BTR appeared. Rockwell still owned some 30% of our shares, so Owen Green took an option on those shares, bought the next 20% in the market and by the time the takeover bid was announced he was in control of the company. They had to change the stick exchange rules after that one.

But what I really remember him for was the way he ran his subsidiary companies, and I got a first-hand example from a colleague who joined us for a short period at Cambridge University. He had been a senior manager in BTR and ran one of the divisions for Owen Green. He told us that he wasn’t that well paid, but he could bank on the share price increasing by a pound a year and he used this in his share options to justify his salary. He also told me he sold all his options as fast as he could the day Owen Green retired.

So how did Owen Green do it?

A very simple system called the three legged stool. Each year you were given the task of improving the firms performance by 3%, but you could only do this in a balanced way. You had to

  1. Reduce internal costs by 1% through efficiency savings
  2. Reduce bought in costs by 1% through purchasing savings
  3. Increase your selling costs by 1% over inflation (remember inflation!)

So to do this you had to improve the performance of the business. You had to know how to improve your operations. You had to keep a keen eye on your purchasing and find ways of improving the input costs. And you had to run a good business and look after your customers. If you didn’t, you couldn’t get the price increase through.

Try to do it on one or two legs of the stool and Owen Green would have you. He believed in balance and in doing the improvements slowly, so the competitors couldn’t see what was happening and nor could the suppliers. He bought businesses where the company wasn’t the main cost for their customers, so again the increase was often kept under the radar.

Eventually he did relent and when margins reached 15 or 16% he would allow companies to stop improving their margin each year, enough was enough. But he created and ran a very successful business.

The system was simple, and divisional Managing Directors could understand it. So they knew what they had to do. The story is that after he retired the system was refined and the finance directors had to get closely involved to understand the subtleties of the process. This was the point at which clarity was lost and my former colleague sold up. The rest is history.

Simple systems are the best. But they are so rare these days. Why is that?

Maybe we simply want to appear sophisticated — but don’t we also want to perform?

Mike Bourne

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