Building on innovation – JCB’s story
05 November 2012Follow @PwC_North
Innovation and sustainability are concepts we think of as integral to any modern business. But JCB has based its business strategy on these two cornerstones ever since the company was founded by Joseph Cyril Bamford immediately after the Second World War. His first product, a screw-tipping trailer, was an ingenious piece of pioneering engineering which used reclaimed, flattened Anderson air raid shelters for the steel trailer and the wheels from scrapped US Air Force Grumman Hellcat fighter planes. Innovation was born out of necessity.
Fast-forward 67 years, and JCB is now one of the world’s largest construction and agricultural equipment manufacturers, with a brand so strong that no-one in the building industry doesn’t know who JCB are and what their diggers can do. We’re all familiar with the yellow and black livery of their trademark construction machines, but what drives this private business forward and keeps it at the forefront of its industry? We sat down with its chairman, Sir Anthony Bamford, to talk about the advantages of being a private business, the need to export globally and the challenge of educating a new generation of engineering talent.
JCB started out as a family business in 1945 and remains a family business to this day. What was the original spur that drove your father, Joseph Cyril Bamford, to set up the business?
“There were two things that drove him to set up JCB: the first was that he’d been sacked from the family company, which was called Bamfords Ltd, based in Uttoxeter, and the second was that he had a young baby on the way, which was me. So he was encouraged to set up in business on his own, which was something he’d always wanted to do.”
JCB is still a private business. What are the main advantages you’ve found in keeping private ownership of the company? Are there particular benefits?
“I think it’s all benefits –I just don’t see any advantage for our business whatsoever in being public. We report to our shareholders and we have our audit done in exactly the same way worldwide. We have to abide by all the same laws. We don’t have to publish our figures quarterly or half-yearly, which public companies do. We’re not at the whim of short-termism and we’re not at the whim of short-term shareholders.
There is one thing you have to understand about our business. Although it does belong to my family it’s run by professional people. My son and I are the only people who are here because of nepotism. When I took over in 1975, JCB was still quite a tiny business and we’ve been carrying on doing the same thing since my father retired.”
The construction industry was hit hard by the recession. How has JCB coped with the economic downturn and do you feel that there are signs of the ‘green shoots’ of growth in the economy?
“We’re a global company. We manufacture and we’ve got 11 plants in Britain and 11 plants outside of Britain – so we cover the whole world. Although most of the world does seem to be in a downturn, there are some bright sparks. Europe is in a bad way, but Russia is doing fairly well and one or two other ex-Iron Curtain countries are as well.
We’re not seeing any green shoots in America, unfortunately, but America, when it gets going, is a real dynamo. I think it’s quite likely that it will get going slowly. In South America, Brazil is a very bright spark. We’ve just invested $100m in a new plant in Brazil which opened two weeks ago. In the Far East, China is in the doldrums right at this moment. In fact the market for construction machinery has come down severely, but I see that as temporary rather than long term.
In Britain we have JCB Finance where we partner with Royal Bank of Scotland. That business really knows what’s happening in the marketplace here in the UK – not long term but certainly six weeks to two months ahead – and things are not that depressed. I meet customers every day and they’re not depressed."
You’re an ambassador for UK Trade and Investment and recently produced a report for the Government on the future of UK industry. How healthy is British industry looking in 2012 and what does the Government need to do to support burgeoning UK industry?
“You can always do better, and we should do better. I do think Britain is not a bad place to invest. We keep reinvesting every year in our own business here in Britain. If we felt it wasn’t the right place, we wouldn’t invest here.
We could have done more as a country, I think, to promote products and to promote companies abroad. I think, to an extent, that businesses have forgotten how to be pioneering. They need to get out there more and stop moaning and complaining. There’s a whole world out there and in some cases it’s only 20 miles away on the other side of the Channel.
Years and years ago my father started exporting almost from the first few months of being in business. In his case it wasn’t because the market wasn’t big enough. He spoke French not too badly and he couldn’t afford to go anywhere in the Commonwealth. But it only cost £2.50 to go across the Channel, which is why he went to France first. So we’ve been selling into Europe for as long as I can remember.”
The future of any industry clearly lies in the next generation. You’ve set up the JCB Academy with the aim of educating, training and developing the UK’s next generation of industrial talent. Was that something you’d always wanted to set up?
“The JCB Academy is fulfilling a few aims. There’s a shortage of engineers in Britain and we are somewhat affected, but not dramatically, in our business. But there’s a shortage of engineers in every field. The idea behind the JCB Academy was to promote vocational training, which had almost become a dirty word.
We are producing young people who want to join the Academy and who are interested in engineering. They join at 14, so they’ve already been in secondary education. To some extent, some of the students we have were probably not academically so good at the schools they were in, but they’re bright, outgoing and interested in using their hands and their brains in a different way. And they’ve blossomed being at the Academy. Some of them are extremely bright and have even gone on to Cambridge University.
The Academy isn’t set up for JCB to benefit from it – if they want to join our company, that’s fine, but we have other partners who are involved, including Rolls Royce, Bentley, Toyota, Bombardier, Network Rail, Bosch Rexroth and National Grid. So at the end of the student’s period they can come to a company like us as an apprentice or they can go to university to do some form of engineering. But they’re not pushed to come to us, or any of the other partners.”
Having the right talent with the right skills is crucial to any company’s growth plans. How important is it to invest in your people, train them, instil the company culture in them and retain them in the business?
“It’s highly important and I believe very strongly in recruitment from within. Obviously there are some experts that join us as experienced hires at various levels, but essentially our business has grown with people who started maybe as apprentices and ended up as managing directors. It’s very much a meritocracy – we have a very active management who are thoroughly involved in the business.
I had lunch yesterday with some of our graduates, who have been with us for a year and a half, and they’ve all got proper jobs now. They came to us during their holiday periods and we paid them a proper salary. They then went to work in a part of the business that they already knew – they weren’t the tea boy when they came here. They are having fun doing what they’re doing and they’ve got real jobs at a far earlier age than if they’d just gone to university.”
You’re also a trustee of The Sir Anthony Bamford Foundation, which promotes and develops the science of mechanical engineering. Do you think the UK does enough to promote innovation and our research and development talent?
“I do think we have talent in the UK - Sir James Dyson is a very obvious example. But just look at Rolls Royce, 25 miles from us down the road in Derby. They have world class engineering with pioneering products, so the UK can do it. Sometimes we don’t pick things up quickly enough and there’s always scope for the Government to do more. But I do think that a lot of it is within people and within their companies. I think the Government should create the atmosphere – there are all sorts of things that could be done to encourage investment.
More promotion should be done by the people themselves. There’s been a sluggishness to do it and quite a bit of it is due to short-termism, being a public company and not being willing to take risks. Companies need to be more pioneering. We’re world-class in things like Formula One and there’s a whole class of small businesses who are brilliant at what they do.
I don’t think it’s the Government’s job to encourage businesses in that way. They should be doing things like reducing corporation tax – I think that was a good thing to do. They should encourage research so it can get bigger and be done more easily. It’s about creating the right atmosphere to encourage entrepreneurs with something like a reduction in longer-term capital gains tax, for instance. Tax does come into it. It’s also about removing lots and lots of legislation which really slows us down.”
Supporting your local community is an important part of every business’ corporate social responsibility. Is this kind of community support something that’s an integral part of JCB’s culture?
You’ve been chairman of JCB for nearly four decades now. Where do you see the business in another ten years?
“I always hold the view that we should be a good corporate citizen wherever we are. It’s more obvious abroad in places like India, Brazil and the USA because there are real things we can help with. I don’t believe in just giving money – our people getting involved is just as important. In Britain, it’s slightly different – we’re involved with the children’s charity NSPCC and we give money locally wherever we have plants.
In India we’ve adopted two villages where we’re very actively involved. My wife is involved in improving the schools, and in particular encouraging young women to become educated. In Brazil we’re involved in a soap factory that makes soap from the fat they collect from local restaurants. It’s a strange way to make money, but we put this money into the very poor people in the favela. But none of this is done to show off, or for publicity – but it’s all very real. We’ve donated machinery to disaster areas and we do it specifically to help after crisis strikes.
We’ve adopted the NSPCC as our principal charity in the UK and have been doing that for 25 years. We’ve given directly to a young people’s service centre in Newcastle-under-Lyme where they actively try to help stop the abuse of children. And the charity work is a good way of uniting our people too. All our businesses in the UK raise money and compete with each other. Rather than giving their money to something in London, they’re giving their money to something local that they can see, which I think is important.”
“I prefer to look five years ahead. I look at our business very positively, whether I’m here or not. We have a career development path and have very good people in their 30s and 40s ready to run the business. I’m 67 years old now and there are other people who are a lot younger than me who will be capable of doing very serious jobs in the business.
We have a very in-depth, five-year programme which includes products, plants, components, the future of hydraulics, the future of engine design; it’s a very involved thing and on a global basis now. We’re developing products not just in the UK, but also in America and India with plans to do the same in Brazil. So the next five years are more certain than the next ten years.
One thing I will say, though, is that the next ten years will be more of the same. We won’t be going into making pottery or making cars. We see that where we are is where we want to be, which is construction machinery, agricultural machinery and industrial machinery. It’s what we know and what we’re good at.”
You’ll be able to read a longer version of this article in the November 2012 edition of our Private Business magazine, which will be available on our Private Business website soon.