My Biggest Mistake: David James

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David James, 55, has been chairman or chief executive of more than 70 companies since 1973, when he was a consultant to Cork Gully in the rescue of Cedar Holdings. After a south London schooling interrupted by ill-health, he began his career at Lloyds Bank. From 1974 to 1981, he was managing director of three Rank Organisation subsidiaries, and since 1982 has been a 'company doctor' at, among others, Eagle Trust, Davies & Newman and LEP Group. He has also served on various committees at Lloyd's of London since being appointed an external member last November.

Perhaps all bad decisions should be divided into two categories: those which could, and should, have been foreseen at the outset; and those that only become clearly wrong in the light of subsequent economic factors. One case stands out in my memory as an example of the former - a real error of judgement on the facts - and it provided an experience from which I learnt much.

Early in 1977 I was asked by the Rank Organisation to take over as the fourth managing director in four years of a troubled subsidiary, English Numbering Machines. Based in Enfield and employing about 950, ENM was formed in the 1930s. Its original office product range had been diversified to include anything with a counting control function. In doing so, however, it had become a wholly self-sufficient production unit, with its own tool-making, foundries, machining and R & D.

By January 1977 ENM was recording serious losses. The market for its traditional products had shrunk, while its later developments were effectively only sub-components that went into other companies' products. For example, ENM's crop-seed distributors were all sold direct to tractor manufacturers; if tractor sales were down, ENM had no alternative market for this line. ENM was over-dependent on somebody else's marketing success to keep running a factory that had more than its share of problems.

Its four separate, unconnected buildings represented a capacity far in excess of the existing market's demand. The answer seemed simple enough: cut the production overhead drastically by integrating the four units within one smaller unit. In the process, we would create greater production flexibility by cutting out a lot of the engineering processes and relying more on sub-contracting from outside.

Rank agreed to fund the pounds 2m of new capital needed and, 18 months later, we opened the doors of our new, purpose-designed factory. The union's co-operation had meant we were able to reduce the workforce to only 480, due to the huge increase in productivity. ENM's future looked assured. Instead, the result was a near-disaster. Why?

The problem was that, however advanced the new production facilities might be, they were still useless unless there was an actual demand for what it had to offer.

It had been a wrong decision to restructure ENM's production operations in the absence of any obvious solution to this problem. Of course, we had hoped the new factory would create scope for new product developments. Sadly, this could not happen in time. Rank later decided to sell ENM to FKI, and the new factory was closed down.

The experience of ENM carries a message to this day. The fundamentals of an investment decision must be based upon the matching of an economically sustainable production capacity to a reasonably accessible and adequate market. Nearly every troubled business that has come under my responsibility since has had the roots of its problem in failing to achieve this balance. The mistake I made at ENM is still perhaps the most common, and the most serious, in British industry today.

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