Heart of glass

The cracks were there for all to see. Pilkington, the respected brand name responsible for producing 15 per cent of the world's glass, was losing money at a time when demand for its product was growing healthily. Enter Paolo Scaroni as chief executive; exit 8,000 employees in two years ...
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The Independent Online

PAOLO SCARONI has spent two years making 8,000 people redundant, but he wakes up in the morning believing that he has reversed the decline of Pilkington, which makes one-seventh of the world's glass. The chief executive is even daring to believe that one of Britain's most high-profile businesses is ready to grow again. "For the last two or three months I have started to think about this. I am now really planning growth," he says.

PAOLO SCARONI has spent two years making 8,000 people redundant, but he wakes up in the morning believing that he has reversed the decline of Pilkington, which makes one-seventh of the world's glass. The chief executive is even daring to believe that one of Britain's most high-profile businesses is ready to grow again. "For the last two or three months I have started to think about this. I am now really planning growth," he says.

Mr Scaroni insists that being Italian has made no difference to sorting out the mess at the quintessentially British company. That is debatable. To bring Pilkington back to respectability, the 52-year-old has been as uncompromising in his attack as a Roman general. But despite his passion about cutting costs, he will calmly explain that in some businesses economies of scale are not the most important thing.

"Have few ideas," is his advice to any young manager fantasising about becoming a turnaround guru, which Mr Scaroni could well become. "Choose the two or three ideas you believe are key. Convince the top 10 people in your organisation of those ideas. If they are not convinced, fire them."

This is how Mr Scaroni got to work at Pilkington, when he took over as chief executive in May 1997, the pinnacle of a career in business which began at McKinsey, the management consultants. Pilkington, he says, should have been a world leader. It had everything going for it. But it was loss-making. In the financial year to 31 March 1993, the group's margins were so thin, just 3 per cent, it was barely profitable. In 1995, an exceptional disposal write-off of £392m sent it £248m into the red. This was despite licensing the float glass process to more than 40 manufacturers in 30 countries, with a combined output of about 3,500 miles of glass a day.

"There was nothing wrong with the market. Demand for glass is growing at 4 per cent per year. Here was Pilkington, the company with the most global reach, the best technology, the best products, the best brand name - losing money. It was really a mystery looking in from outside."

Having sorted out the top tier of management - 22 out of the current top 33 weren't there when he arrived - Mr Scaroni went evangelising. "Once you have the first line of management convinced of your ideas, you start selling them, which means going round all over the place and repeating them again and again. I repeated my message a thousand times. I prepared a tape. Repeat, repeat. And if you find resistance somewhere, you eliminate it."

If this sounds drastic, remember Pilkington was in a terrible state. In a growing market, its turnover had almost halved since 1991. Pilkington's rivals were making returns of 20 per cent, having recognised that glass was a commodity and that the cost base mattered above everything else. Pilkington, on the other hand, was looking to expand its so-called speciality, high-margin glass products. Although the shares have recovered from a dismal all-time low of 50.5p earlier this year, they are still worth less than half their 1996 peak of 222p.

"When I joined Pilkington in 1996, its float glass production lines each employed at least 300 people. In 1982, the company's rivals were constructing float lines which needed fewer than 200 people. We had four people when we could have had two," says Mr Scaroni.

His attack on the costbase - "you have to be a maniac about costs" - in the past two years has won him a fine reputation in the City. Mr Scaroni joined Pilkington in November 1996 as head of its automotive products division. His hard-hitting approach had previously caught the attention of Sir Nigel Rudd, the chairman, during his tenure as head of a joint venture between Pilkington and Techint, an Italian company. Mr Scaroni recalls a visit from Pilkington's London-based executives who flew in to hear Mr Scaroni present on the joint venture's progress.

"The Pilkington people had this strange kind of reasoning. At the time the price of glass was very high, and my presentation was based around the fact that that was unsustainable. I told them what our results would be like if the glass price was half that level, and I saw these faces around the table saying it could never happen, saying it would be a nightmare. But for me it was very much a possibility. It got to that level two years ago."

The joint venture created opportunities for Sir Nigel to get to know Mr Scaroni. Soon Mr Scaroni, in what must be one of the fastest ever promotions, had the top job.

Pilkington's problem, Mr Scaroni says, was that it had grown by acquisition but failed properly to integrate the companies it had subsumed. It had become a confederation of autonomous companies, each with different technological standards. "If the technology is different how are you going to get the synergies from scale?" he asks. "You are never the number one - you are five times the number five."

Mr Scaroni's attitude to acquisitions is uncompromising. "I know by experience that when you acquire a company, you must change everything the first day - and from the first day I mean the first 24 hours. So you have a telephone which answers with a different name, you paint the building a different colour, you change the letterhead. You really take possession of the company.

"If you don't do that and you leave the company living its previous life, then six months later it is much harder to change it. People expect a lot of things in the first 24 hours. So if nothing happens, they think, OK, life as usual."

It is a lesson Mr Scaroni learnt working for Techint in Argentina during the early Nineties, when President Menem was opening up the country to privatisation and creating lots of opportunities for acquisitions. "I was certainly not a cost cutter then, I would not describe myself as a cost cutter in general, though that's what I am at Pilkington," he says.

"I had never made acquisitions before, so I learnt by making mistakes - the best way to learn. I twice made the mistake of not doing things in the first 24 hours of an acquisition. Always now, when somebody comes to me proposing an deal, I say, what would you do in the first 24 hours? We sign midnight on Friday, what happens Monday morning at 8 o clock? If they say, nothing, I don't buy. At McKinsey you don't learn these things."

One reason Mr Scaroni is thinking about acquisitions at Pilkington - and emerging markets are the target zone - is because everyone has embraced his cost-cutting culture. "I could leave Pilkington tomorrow, go away, and this cost consciousness would stay. They are more convinced than me - more royalist than the king - that keeping costs down is the name of the game." But there's another factor. "The point is that we didn't deserve to grow before now," he says.

Pilkington's annual glass production today stands at 3.5m tonnes. There's still restructuring to be done, however. Mr Scaroni is now aiming to replicate the European cost cutting in the US. His game plan here betrays his acute sensitivity to national differences. "What I have is a team in America, led by an American, but an American team convinced of my message. It has to be managed in an American way. American managers' expectations are very different to those of European managers. They expect, when they achieve exceptional results, to be compensated in an exceptional way. We have to accept that, and do it the American way."

This is not surprising coming from an Italian previously playing second fiddle at Saint Gobain, the French glass company. Some analysts say Mr Scaroni must have thought it would have been unusual for the French company to appoint an Italian to the top job, hence the attraction of Pilkington. This is unfair.

"I am somewhat an Anglophile. When foreigners look at your education system, they like it for reasons you don't even see. You say it's academic; in fact, British children know less than they would in Continental Europe," he explains. "But they become different people here. In Italy you never learn how to stand up and give a speech at a wedding or a party. It's the reason we send people here - the 'English gentleman' way of behaving."

Mr Scaroni not only praises the presentational flair of British chief executives, he also shares their exasperation over graduates' disdain for careers in industry. "Here, it's government, universities, and the City that attract the brightest people. The biggest problem I have is attracting good British people. People don't want to work for industrial companies.

"Elsewhere it's different. If you're in McKinsey on £400,000 and Siemens offer you £200,000, you take the offer. The marginal value of more money at that level is nothing next to entering into the board of directors of, say, Fiat or Siemens. In Italy, or France, being in industry carries a huge difference in status. It means you are an important part of your country. I don't have the impression that this is the same here."

At the end of this month Mr Scaroni will report Pilkington's half-year results; the message is likely to be that the company is at last primed for growth. Emerging markets are one avenue. Using the Internet to build consumer awareness of the Pilkington brand is another. "We want the consumer, who doesn't know what the alternatives are, to know that we can supply everything in glass to satisfy his needs."

Persisting worries are not to do with Mr Scaroni but with the challenges the company still faces. Mr Scaroni has cut the workforce from 38,900 to 31,100 already, and the current target is to bring it down to 28,500.

"One is cognisant of Scaroni's age," says an analyst. "This is his last roll of the dice. But it's rather a ho-hum situation. If he doesn't get it right, he can ride off into the sunset with everyone saying, we told you Pilkington was incurable."

"He's the best Pilkington's had," says another analyst. "He's given the company confidence. They can hold their heads up in the world now. His greatest strength is that he's focused. He set targets and very rigidly stuck to them. But Pilkington's balance sheet is still a mess. There's definitely still a job to be done."

Mr Scaroni, it would appear, is not in the clear just yet.