Liberating the cat

Posted on 30 Oct 2008 by The Manufacturer

As Jaguar Land Rover begins to flex the muscles of its new found autonomy, CEO David Smith talks to Gay Sutton about the challenge of transforming the company into an independently minded and future embracing business

What brings an economist with an MA from Cambridge into manufacturing? It’s not the most common career choice. High flying graduates tend to have their eyes fixed on a
short high earning 10 year stint in the City followed by a life of luxury. But not so for David Smith, CEO of Jaguar Land Rover (JLR). He is one of a very rare strain of economists for whom banking holds no lure – and considering the turmoil in the City at the moment, that may have been a very wise choice. “I really wanted to work in a productive industry, and the car industry is a great one because it has so many disciplines to it: finance, marketing, R&D, design and of course manufacturing.”

Smith has been a Ford man for most of his working life. His arrival at the top job caring for what can only described as two of the most well loved and respected English car
brands seems to have been charmed. He travelled the world with Ford, has worked in the US, opened a joint venture operation in Turkey, has been director of finance and strategy for Ford of Europe and the Premier Automotive Group, and eventually led the sale Aston Martin. “I worked really hard on that to find the right solution for Aston, which
I think we did.”

He then started the same process for JLR, “and did a lot of the upfront work, including meeting Mr Tata in the early stage.” But when it became likely that he would remain with
JLR after the sale, he withdrew from the negotiations. But by then it was too late, he had already made an impression on what was to be the new management.

The deal was signed, JLR was sold to Indian industrial giant Tata in June this year, and Smith became chief financial officer for JLR under Tata. But within weeks of his arrival tragedy struck and the CEO Geoff Polites died. Smith described the subsequent events modestly: “Tata put me in as a temporary CEO, and eventually made the
appointment permanent in June.”

It was an excellent choice for the job, as Smith has embraced the challenge, and his style is to lead with a positive dynamic, and to lead from the front. “One of the things I’m encouraging my team to do is grab this opportunity. We’ve run our business in quite a bureaucratic way in the past. This new autonomy gives us chance to think afresh.” And of course, as a small player in the market, JLR is well positioned to be more urgent and responsive. “There are plenty of goliaths out there,” he said. “We should be much
more nimble. I want to take decisions quickly, then get on
and do it.”

To lead this change, Smith has laid down a personal pledge to all his staff. “I’ve said I’ll give anybody an answer in 24 hours. It’ll be yes, no, or I need some more information to
take the decision.” It has been hard and will continue to be hard. He admits that coming from a finance background he’s had to develop an entirely new way of thinking, one that is far more focused on the customer and on the product. But he wants everyone in the company to adopt this responsive problem solving ethos. “It’s going to be quite a challenge for all of us, but a really interesting and exciting one. And people are beginning
to grab it already.”

Migrating the company away from the tightly meshed management and industrial structure of Ford was never going to be easy. “We had a plan for day one,” Smith said.
“Just like Y2K, we were all set up with contingency plans but nothing went wrong. We didn’t miss a beat in going from Ford ownership to Tata.”

Like two trees that have grown up side by side, however, JLR’s roots and branches are still inseparably enmeshed with those of Ford, and Smith acknowledges that the separation will be a lengthy and intricate business. “We now have a complex plan to complete the separation,” he said. “For instance, the IT separation is going to take us a couple of years. Most of our overseas operations were in some way integrated with either Ford or Volvo. And there are some functions that Ford performed, like financial,
accounting, tax and treasury that we will now have to create a new capability for.”

Perhaps the most long winded element of the separation will be the product development and manufacturing sides of the operation “We have technology sharing agreements that
support the business for quite a few years yet. And it makes sense for us to cooperate on programmes that we’re already a fair way down the road on: electronics and safety systems and so on.” And of course JLR buys all its engines and some of its components from Ford or its joint venture with Peugeot. “The intention is to continue that well into the next decade. That will provide continuity of supply for us, and security for the Ford plants at Dagenham and Bridgend.”

So the situation appears to be win-win, and Smith is proud of the fact that there is a huge amount of good will for JLR at Ford, from the top all the way through to the technical staff who will still need to work with his design and manufacturing
teams. “It’s important that we keep that going,” he said.

Having been a closely meshed element of the US automotive group, life as part of Tata could not be more different. “Tata want us to operate as an autonomous business within their group – that’s how they operate all of their businesses.” Gone are the shared initiatives, the linked administration, and closely linked corporate strategy.

JLR now operates with a very small strategic board that consists of Ratan Tata, chairman of Tata, Ravi Kant, managing director of Tata automotive division, and of
course Smith himself. “We will meet every couple of months to look at the strategic decision making around the business. But they’ve delegated all the day-today operating authority to me, and I have an executive committee that runs the business on a day-to-day basis from the UK.”

There are a few areas where JLR has engaged with Tata. For example, it is using one of the Tata IT businesses to help with the IT transition, and is looking for opportunities
for technology sharing across the automotive division. “But at the moment we have the best of both worlds, we’re autonomous, we’ve the right strategic dialogue
going on, we’ve got a good relationship with Ford.”

Smith has a very clearly defined vision for the future of the company and its iconic brands. “Put simply, it’s all about design: bringing the very best of British design to producing sports cars and sporting sedans, and the finest all-terrain vehicles. If we can do that then we can really unlock the potential in the business. And we deliver this through the products and through environmental innovation.”

JLR has already been cutting its carbon footprint by around four or five per cent a year across the manufacturing operations, and has invested a considerable amount in developing a wide range of new environmental technologies to improve the performance of its vehicles.

Smith sees this as essential, and wants to position the company at the forefront of developing the technologies of the future. “It’s a truism at the moment that there aren’t
any silver bullets around, and we have to keep working on a variety of technologies,” he said. “The change going on in the industry is huge. It’s moving from the technology of the internal combustion engine that has been static for a number of years, to something that’s moving rapidly towards the electrification of vehicles. But in between there’s a lot of intermediate technology, and we’re working on delivering that.”

To stimulate and encourage entrepreneurial and creative thinking across the business, Smith has set his entire workforce a challenge, to improve the environmental performance of the product and of the business by 25 per cent over the next few years. “Once you give engineers a very specific target, that’s when they start getting really innovative.”

Although not an engineer himself, it’s obvious he finds the innovation in technology fascinating.

The company is currently working on a large number of projects. The next generation of small Land Rovers are expected to deliver around 60 mpg through the use of JLR’s new ERAD (electric rear axle drive) system, a diesel electric hybrid that does not lose out on four wheel drive capability. But the research does not stop at the engine, it reaches into all areas of automotive technology from the transmission and clutch systems through to the use of fly wheels to recapture the energy
used on braking.

“It’s interesting how much engineers are finding in the detail, in what we collectively call parasitic losses,” he explained. “If you can get a one or two per cent improvement there, it all adds up. One really fascinating thing that we’ve found, for example, is that there’s a log of redundancy in the electrical systems within vehicles. The power systems are on but not doing anything. So with smart switch-off systems, we believe we can reduce the power usage by up to three quarters.”

Jaguar has, of course, been pioneering the use of aluminium to reduce vehicle weight, and Smith is keen for this to happen across all brands. But the concept is now being pushed to the next level in a project with the Technology Strategy Board to produce
sheet aluminium from recycled material rather than from original aluminium ore which is a very high energy process. There are enormous banks of recycled aluminium cans around the country, and transforming them into sheet aluminium requires only one fifth of the power that primary smelting requires.

There are also increasingly strong financial arguments for using recycled materials with the cost of transport, power and raw materials rocketing. But Smith is, fundamentally, an economist and I asked him for his crystal ball view of the current global financial crisis and what it will mean for JLR. “We’re going to go through a very tough period. We’ve already taken the decision to reduce production, and personally, I don’t see the situation improving before the middle or end of next year. There is a fundamental problem with confidence which will have to work its way through the system,”
he said. “But I think there’s a really great long term prospect for us.”

He is determined to protect the long-term future of the company in spite of the difficulties created by the credit crunch and consumer caution. He has just brought on
board 600 new graduates for the all important design and development side of the business and a new set of apprentices to support the manufacturing side. “I suppose
it’s quite a brave call at the moment to continue hiring graduates and apprentices, but it is hugely important that we continue to invest over this period to ensure a strong
long-term future.”

It appears that brave decisions and forward vision are not in short supply.