3	ICI In Its Changing Business and Economic Context

Any attempt made to examine ICI's efforts to change their strategy, structure, technology, organisational culture, and the quality of union–management relationships over the period 1960–83 has to recognise the significant changes in economic, business, and political context which have taken place over that period.

For large sections of the chemical industry in Western industrialised countries the 1950s and 1960s will probably be looked back on as the great era of capital expansion, sales growth, and dramatic increase in plant size. This growth period, based substantially on product and process discoveries in plastics and fibres, nurtured an ethos of optimism and expansion in the chemical industry. Unfortunately this enthusiasm fostered slow responses to the sudden and continued escalation of the price of oil triggered by the events of 1973; thus by 1980 much of the Western heavy chemicals industry was no longer talking of growth, but of maturity, contraction, and survival. The combination of large increases in energy costs, declining rates of economic growth, persistent inflation, and in the 1970s a large increase in the number of heavy chemical producers in Western Europe, all contributed to the falling away of prices and margins in the petrochemicals and plastics sectors, and eventually for some countries and firms more than others, the response of cutting out excess capacity and manpower.

In the main the UK chemical industry, followed the general pattern of 1950s and 1960s growth, 1970s falling away of growth, and 1980s contraction of the heavy chemicals sector. There is evidence, however, that during the 1950s and 1960s the UK chemical industry grew less substantially than its United States, German and French competitors, experienced a more pronounced decline in growth in the 1970s, and in the 1980s for jointly economic, political, and business reasons has been more active in reducing capacity and manpower than some of its Western European counterparts. The relatively poorer performance of the UK chemical industry compared with its North American and Continental Western European competitors is normally attributed to the weaker performance of the UK economy throughout the 1960s and especially the 1970s. Key UK economic indicators reflecting this poorer record include: lower growth rate of the economy; the relatively high rates of inflation, the accelerating wage demands and settlements made in the UK during the 1970s, the worsening competitive position of the UK chemical industry associated with the high interest rates and strong value of sterling in the period 1979–82, and the deeper recession of the UK economy between 1979 and 1984. These weaknesses in the pattern of demand and inflation in the UK economy from the late 1960s onwards are factors behind one of ICI's major strategic responses of the 1960s and 1970s, the intention to increase the proportion of the company's assets and sales in the faster-growing economic environments of Continental Western Europe and North America.

Given that the context for ICI's strategic and operational responses over the last two decades includes, amongst other elements, trends in the development of the world and UK chemical industries, and macro-economic and political developments in the UK, this chapter seeks to place ICI's own development in the context of those economic, industry, and political trends. Clearly whole books have been written on recent trends in the world and UK chemical industries and political and economic events and trends in the UK, thus the review that follows has to be highly selective in its treatment of such a vast subject-matter. The selectivity which does occur is guided by an attempt to highlight business and economic trends with particular significance for ICI's place in the UK and international chemical industry. The chapter begins with a section outlining general trends and characteristics of the world chemical industry since the 1950s. With the scene broadly set, the next part of the chapter reviews the development of the UK chemical industry over the period from the mid-1950s until 1983. The UK chemical industry is compared and contrasted with the pattern of development of some of its major counterparts in North America and Europe, and the differences which exist are connected to macro-economic developments in the UK over the past 2½ decades. The chapter ends with a necessarily brief answer to the question what is ICI? In addition to a summary description of ICI's business history and development over the last 20 years, including its size, structure, and relative business performance, the final section of the chapter also highlights some of the major corporate business strategies ICI have pursued since the 1960s in the light of changes in their economic, industrial and business environment.

TRENDS AND CHARACTERISTICS OF THE CHEMICAL INDUSTRY

Inevitably definitional questions arise when trying to compile meaningful time series analyses of what has been happening to the chemical industry over a 20-or 30-year period. A particular statistical difficulty is that for most of the 1960s production, sales, and employment statistics were compiled according to the 1958 edition of the Standard Industrial Classification (SIC), and the data for the 1970s and 1980s have been compiled from the revised 1968 edition of the SIC. A similar change in the pattern of compiling trade statistics for the chemical industry has resulted from a revision of the Standard International Trade Classification. Nevertheless, in the main the use of the term chemical industry in this book can be taken to mean the chemicals and allied industries, or the whole of Order V in the 1968 edition of the SIC. Thus the chemical and allied industries sector embraces a wide field of manufacturing activity and products, including paints, petrochemicals, plastics, fertilisers, pharmaceuticals, pesticides, dyestuffs, industrial chemicals, intermediates for synthetic textile fibre production, detergents, soaps, disinfectants, explosives, and polishes, cosmetics, and toiletries.

By way of summary, key trends and characteristics of the chemical industry can be pinpointed under the following headings:

1.  Size, pervasiveness, and criticality

2.  Rapid growth

3.  Capital intensity and scale of production

4.  High research and development expenditure

5.  International trade and competition

6.  Subject to cyclical economic effects

7.  Recent hard times in the heavy chemicals sector

Size, pervasiveness, and criticality

The chemical industry has been described as dynamic, innovative, and highly competitive – it is also large. In 1981 the chemical industry represented 7% of world GNP (Sharp and West, 1982:15). The chemical industry in 1980 had a turnover of some $550 billion in the non-communist world compared with $200 billion for steel, $80 billion for telecommunications, and $40 billion for aircraft. In 1976 in terms of value added the chemical industry ranked third among manufacturing industries both in the USA and the UK (Wittcoff and Reuben, 1980:17). International trade in chemicals is sizeable, and significant to national economies. For example, chemicals alone accounted for $138 billion of all OECD exports and $103 billion of OECD imports in 1980 (Nichols and Crawford, 1983).

The chemical industry is also an enabling industry. Davies (1982:41) argues that although the chemical industry in Western countries accounts for no more than 3–4% of GNP and employs under 1% of the work force, it has a strategic impact on perhaps 40% of the economies of those countries. The chemical industry is thus closely interlocked directly and indirectly with other industry sectors such as textiles, cars, health, agriculture, housing, and consumer durables, and if the general economic climate is good, then major sectors of the chemical industry have done and will develop favourably.

Rapid growth

The chemical industry in most developed countries has grown over the last quarter-century at around twice the rate of manufacturing industry as a whole; indeed the chemical industry has grown up to 10% per annum from the Second World War to the mid 1970s (Nichols and Crawford, 1983). Table 1 demonstrates the more rapid growth of the chemical industry compared with manufacturing industry generally in selected countries during the 1960s and 1970s. This great expansion in the chemical industry underscores the major position of the industry as a source of materials and ingredients for industry and commerce generally.

TABLE 1  Chemical industry output growth compared with growth in manufacturing output: UK, USA and West Germany in different time periods, 1963–79

Source: Vivian, Gray & Co. (1980).¹

Although many sectors of the chemical industry grew after the Second World War the dramatic expansion in the 1950s and 1960s is associated with the development of petroleum-based organic chemicals. The USA has been using petroleum and natural gas as raw materials for the chemical industry since the 1920s and 1930s, and the restricted trading conditions from 1939 to 1945 gave a tremendous stimulus to the replacement of many essential raw materials such as rubber, fats, and oils by synthetic organic products. The Western European development of petroleum-based chemicals started during the Second World War but remained small until the consumer boom of the late 1950s, 1960s and early 1970s vastly increased the demand not only for base materials such as olefins and aromatics, but also for new products in the plastics and fibres sectors. As the process technologies in petrochemicals, plastics, and fibres manufacture were developed, and much larger plants afforded greater economies of scale, so the economic advantage of substituting plastics and synthetic fibres for natural materials such as wood, metal, and glass became more pronounced. The cost base of the chemical industry was also favourable at this time because the industry was highly capital- rather than labour-intensive, and crucially because the price of oil (in real terms) dropped steadily between 1950 and 1971. However, the continuing expansion of new production capacity in petrochemicals during the 1970s (due to optimistic growth expectations), and the dramatic increase in the price of hydrocarbon feedstocks in 1973 and 1979 completely altered the economics of the petrochemicals industry and contributed to the falling margins and lack of profitability faced by many producers in the early years of the 1980s.

Capital intensity and scale of production

Parts of the chemical industry have had their periods of using batch production processes, and some sectors still use batch processes, but the modern chemical industry is known for its use of capital-intensive continuous processes. The pattern is to manufacture very large quantities of homogeneous materials, frequently liquids or gases, which can be produced, processed, and shipped most economically on a large scale. Wittcoff and Reuben (1980:246) talk of chemical engineering coming of age after the Second World War, with tremendous increases in the size of plants. For example between 1952 and 1968 the growth of capacity of a single naphtha cracker in the UK was from 70 million lb of ethylene year^–1 to 1 billion lb year ^–1. Since 1968 crackers have been built with a bigger capacity than 1 billion lb year ^–1, but even before the European petrochemicals industry found itself in 1981 with 32% overcapacity, there was already a levelling-off in the rate of increase in ethylene plant capacity (European Parliament Working Document 1–1108/83).

Corollaries of capital intensity for the chemical industry have, of course, been high capital investment, often relatively low returns on capital, compared with other industries low labour intensity and therefore salaries and wages contribute relatively little to total costs. Since in profit terms, at least in their growth era, the major chemical firms have been able to accommodate to salary and wage movements, labour relations in the chemical industry have been generally good compared with some of their more labour-intensive and less stably profitable industry counterparts (Wittcoff and Reuben, 1980).

High research and development expenditure

Between 1959 and 1970 figures for West Germany and the UK show that cumulated investment in the chemical industry was 19–20% of the total for manufacturing. With this scale of capital spending has come an equivalent scale of spending on research and development (R&D). Data on R&D for the OECD countries show that over 20% of the scientists and engineers working in the manufacturing sector were employed by the chemical industry. In this respect, chemicals were surpassed only by electronics (United Nations, 1981). In the United States in 1976 only the aerospace, electric machinery and communications, and machinery industry groups spent more on research than the chemical industry. Wittcoff and Reuben (1980:2) report that it is quite common for major chemical companies to spend 3–4% of sales on research, with the major pharmaceutical and specialty chemical companies sometimes spending up to 10–15% of sales on research.

The pattern of R&D expenditure in the chemical industry seems to have changed since the early 1970s. The view of chemicals now as a mature industry focuses on the fact that “there have been no major innovations in the industry since the 1950s, only refinements and exploitations of existing compounds” (Duncan, 1982:22). During the 1970s the direction of research has changed, with greater emphasis on improving existing production processes and on applied research at the expense of more basic research. There has also been an added emphasis to more product-oriented research, particularly in pharmaceuticals. For example, in the UK by 1975, pharmaceuticals, along with synthetic rubber, resins, plastics, paints and varnishes, absorbed almost one-half of the chemical industry's R&D expenditures (United Nations, 1981).

The modern chemical industry's requirements for so much capital and research expenditure, and the availability of large numbers of well-qualified scientific, technical, and technician employees is one reason why, until recently, so much of the world's chemical industry has been confined to advanced countries with the necessary social, economic, and intellectual infrastructures. Wittcoff and Reuben (1980:23), reporting on 1976 data on the world's 100 largest chemical companies, note that 55 of these were US companies, and another 42 were divided between Japan (12), West Germany (10), U.K. (5½)², France (5), Italy (4), Switzerland (3) and the Netherlands (2½).²

International trade and competition

Reporting on conditions at the beginning of the 1970s Reuben and Burstall (1973:121) comment that in the world chemical industry it is the big, highly industrialised countries which count. Countries containing 30% of the world's population produce 90% of the chemicals; six countries (USA, West Germany, UK, France, Italy, Japan) account for 75%. Furthermore, trade in chemicals occurs largely between countries of the developed world. Table 2 show the pattern of world chemicals production and consumption in 1977.

Thus, these three regions accounted for 91% of free world production and 87% of free world consumption of chemicals in 1977. Put another way, Table 2 suggests that consumption of chemicals per capita was extremely low for the 2000 million people in the underdeveloped and less developed countries, and the growth and share of that market for chemicals in less developed countries must be a major strategic issue in the 1980s both for the big Western chemical producers and for the rising new Middle East and Far East producers.

But returning to the history of the competitive structure of the world chemical industry, the break-up in 1945 of the pre-war cartels and agreements was a turning point. No longer could the big American, West German companies, and in the UK largely ICI, divide the world into controlled markets and allocate product. ICI, as we shall see in this book, did encounter substantial managerial difficulties in coping both with the rate of technological change and heightened international competition that they and others faced from about the mid-1950s onwards. Although companies like ICI appear to be, and in certain product areas are, monopolists in their own countries, a combination of the large economies of scale of the chemical industry which make exporting of surplus product an economic necessity, the variety of processes available to produce many chemicals, and the limited effectiveness of patent monopolies have all ensured that trade in chemicals has been, and will continue to be, international, even given the difficulties and dangers of exporting certain bulk chemicals, and the still limited geographical spread of the large and powerful producers.

Subject to cyclical economic effects

There seem to be two major reasons why large sections of the world chemical industry have experienced boom periods and slump periods even in amongst the predominant pattern of output growth over the last 25 years. One important factor explaining these cyclical effects is the enabling and interlocked character of the chemical industry. Grunewald, the chairman of Bayer AG, has recently written “that no other industry, whether it is involved in raw materials, investment goods, or consumer goods, is as closely interlocked with every other industrial sector as is the chemical industry” (1982:91). Thus, if, for example, the car industry is in a buoyant period then the rubber and plastics sectors of chemicals will do well, and if the agricultural industry is in a good period then fertilisers and pesticides are likely to do correspondingly well. Similarly if the construction industry is doing badly and the number of housing starts are down, then home textiles, furniture fabrics and dyestuffs may also have a difficult time.

One way of measuring the cyclical character of the chemical industry is to look at the changing pattern of industrial production in the industry over time. Table 3 sets out the percentage increase in chemical production for the UK, West Germany, and France over the period 1960–80. Apart from showing the stronger rates of growth of the West German and French chemical industries over the UK, Table 3 also clearly indicates across all three countries, but especially in the UK, the falling away of production in 1961, 1966, 1971, 1975, and dramatically in 1980. These dates correspond, of course, to the low points in the general economic cycle over the period 1960–80.

TABLE 3  Percentage increase in chemical production, UK, West Germany, France, 1960–80

	UK	West Germany	France
1960	11	15	31
1961	1	5	7
1962	5	12	9
1963	7.5	10	9.5
1964	9.9	12.9	9.1
1965	4.5	10.9	9.0
1966	3.7	9.2	9.2
1967	4.7	9.0	7.9
1968	6.9	16.9	9.0
1969	6.6	15.1	19.0
1970	6.0	5.9	10.0
1971	1.9	7.0	9.0
1972	5.6	6.2	12
1973	11.8	15.1	15.9
1974	4.9	2.8	4.6
1975	–9.4	–12.3	–14.7
1976	10.3	14.9	12.6
1977	1.6	0.8	5.1
1978	0	5.2	4.4
1979	0.8	5.1	8.9
1980	–8.9	–4.4	–1.3

Sources: OECD, The Chemical Industry, and the UN Handbook of International Trade and Development Statistics.

Wittcoff and Reuben (1980:28) describe the other input into the cyclical pattern in the chemical industry as the problem of feast or famine, of the market swinging like a pendulum from glut to shortage and back again. What has tended to happen during the 1960s and for part of the 1970s is a pattern of counter-cyclical investment, with investment peaks occurring in years such as 1962, 1966, and 1970 when the level of output in the industry was at one of its periodic lows. Wittcoff and Reuben (1980) explain that this process has been fuelled by the economies of scale, capital intensity, and relative ease of market entry in the chemical industry if you can afford to buy other people's available technology. What has happened is that economies of scale and expectations of profits lead producers to install more capacity than is needed, and hope that growth in home and export markets will absorb the surplus. But the need to run plants at near to full capacity pushes more product onto the market than the market will stand and prices fall. As prices fall producers with less economic, perhaps older, plant, shut down capacity in the face of falling profitability; as a result the supply of product decreases, purchasers fear shortages and try and build up inventories to meet anticipated supply difficulties, and a true shortage in the market place is created. The price rises, and purchasers, fearing further rises, stockpile more product until their storage capacity is exhausted and the price level deters buyers. Purchasers meantime begin to consume inventory and reduce demand, and the price declines again.

After a while the chemical industry, or that part of it particularly associated with petrochemicals and plastics became used to the feast or famine phenomenon and the 4.5–year business cycle. But what was very much more threatening to price stability and profitability for the heavy chemicals end of the industry was the activities of OPEC, and especially the massive increases in the price of feedstock which occurred in both 1973 and 1979.

Recent hard times in the heavy chemicals sector

A long-term glance back at the development of the chemical industry indicates that, prior to the advent of petrochemicals, producers mainly supplied intermediate products to other industries. While the supplying of intermediates is still an important part of trade in the industry the emergence of petrochemicals as a second phase of the industry's development involved the creation of new product lines based on synthetics – tyres, textiles, paint, and clothing intended mainly for the final consumers rather than for industrial customers. As we have already noted, this second phase in the chemical industry's evolution is associated with the growth era of the 1950s to the early 1970s which left, by one estimate, petrochemicals having just below 50% share in the total output of the industry (United Nations, 1981).

Table 4 clearly shows the rapid growth in chemicals output in developed countries over the period 1960–67; with the exception of developing countries, the beginnings of a drop in output growth between 1967 and 1973; and the substantial drop in growth rates in energy-poor Western Europe in the period 1973–79. A glance back at the output data in Table 3 for the UK, West German, and French chemical industries shows that there was negative growth in 1980; what the table does not show is that this negative growth has continued into the 1980s for some parts of the heavy chemicals sector of the industry, and is the clear signal of a new phase in the chemical industry's development into the 1980s.

TABLE 4  Average annual growth rates (percentage) of chemicals output by economic grouping and region, 1960–79

	1960–67	1967–73	1973–79
Developed market economies	8.8	8.3	3.8
Western Europe	10.0	8.8	2.5
North America	7.7	7.1	5.6
Centrally planned economies	12.9	9.9	7.6
Developing countries	7.6	11.3	5.7

Source: United Nations (1981).

This falling away of chemicals output in the 1970s and 1980s is normally attributed to a combination of market saturation, rising energy costs, environmental considerations, and technology and policy trends, all of which add up to the labelling of the chemical industry as now mature. What is now foreseen as the next phase in the industry's evolution is a renewed effort by chemical firms in the developed market economies to increase the proportion of their assets and sales in higher added value specialty chemicals at the expense of the lower added value commodity chemicals; moves by chemical firms generally to become more market- or user-orientated and less technology- and output-orientated; and attempts by established chemical firms to create and exploit demand for chemicals in developing countries, whilst coping with the increased tendency of feedstock-rich developing countries to develop their own chemical industries and export their large surpluses to the developed market economies.

In the section which follows on the UK chemical industry and the UK economy and ICI's place in it, further details will be given on why and how the UK petrochemicals and general commodity chemicals faced such hard times in the late 1970s and 1980s, and how eventually those hard times were perceived and responded to through restructuring and manpower losses. For the time being it is sufficient to note in Table 5 the evidence for a general tendency in the 1970s for major European companies to move from bulk commodity low added value products to specialised low volume but high added products such as those produced in the pharmaceuticals, specialised organic, and agrochemicals sectors.

SOME TRENDS AND CHARACTERISTICS OF THE UK CHEMICAL INDUSTRY AND ITS ECONOMIC CONTEXT, 1960–83

The UK chemical industry has a significant place in the world industry; it is currently the fourth-largest in the world by turnover, and plays an even more crucial role in the UK economy. Chemicals is the fifth-largest UK manufacturing sector in turnover, accounts for around 20% of all fixed investment and R&D in manufacturing industry, and in the period 1973–79 had an output growth of 13%; only the very much smaller instrument engineering sector achieved a faster growth rate than this in the UK over that period. In addition, in 1980 UK chemicals exports were £6000m and the industry's balance of payments surplus was £2100m, nearly two-thirds of the entire surplus achieved by all of the manufacturing industry. In 1979 of the £1500m balance of payment surplus earned by the chemical industry, about 40% of this was accounted for by the activities of ICI. Both the UK chemical industry and ICI are important figures in UK industry, and in the performance of the UK economy.

A glance at Figure 2 shows how the output of the UK chemical industry has consistently grown at a faster rate over the period 1959–82 than the output of UK manufacturing industry generally. In this series chemicals output peaked in 1979, with a percentage increase from 1959 to 1979 of 187%, whilst manufacturing output peaked in 1973, with a percentage increase of only 60% between 1959 and 1973.

As we have already noted in Table 3 there has been a tendency for the UK chemical industry to mirror the cyclical development in the UK economy. Figure 3 illustrates both the significantly higher growth rate achieved in chemical output than in GDP, the tendency of both GDP and chemicals output growth to decrease in the 1970s as compared with the 1960s, and the peaks and troughs in both GDP and chemicals output. The evident troughs in GDP and chemicals output in 1961, 1966, 1971, 1975, and 1980–82 were also mirrored in ICI's performance at those times, and the conduct of managerial behaviour in ICI around those periods.

Table 6 makes the connection between trends in UK employees in employment and chemicals employment over the period 1959–82. Overall the table demonstrates that employment in the UK chemical industry maintained its levels more consistently against the backcloth of the cycles in the UK economy than did employment in UK generally. Table 6 uses an index where 1975 = 100, but in terms of actual numbers employed the UK chemical industry, with minor fluctuations, had a total manpower complement of around 430,000 between 1959 and the very substantial drop which occurred in 1980. Table 6 shows that there was steady growth in UK employees in employment until the 1966 recession. The shake-out of labour which followed this recession continued slowly until the reflationary economic policies of the Heath Government in 1972/73 gave a boost to employment in general. The dips in employees in employment and chemicals employment associated with the recessions of 1961, 1966, 1971, 1975, and 1979 and 1982 are very evident in Table 6.

FIGURE 2  UK Chemicals output and UK Manufacturing output, 1959–82

FIGURE 3  UK Chemicals industry output and UK GDP output, 1960–82. Percentage growth per annum.

Although Figures 2 and 3 and Table 6 demonstrate that, generally speaking, the UK chemical industry has developed more favourably than the UK economy and UK manufacturing industry throughout the 1960s and 1970s, the issue for the UK chemical industry is its international competitive position. Here the pattern of development of the UK chemical industry, and as we shall argue its principal representative firm ICI, compares rather unfavourably with some aspects of international competition. Earlier in this chapter the data on relative chemical industry growth rates in Table 1 indicated that the UK chemical industry performance did not match the rate of output growth achieved by the US and West German chemical industries over the period 1963–79. Figure 4 also demonstrates that notwithstanding currency fluctuations against the US dollar, the UK chemical industry has generally speaking not matched either the USA, West Germany, or Japanese chemical industries in capital investment over the period of the 1960s and 1970s.

TABLE 6  UK employees in employment and UK chemical industry employment, 1959–82 (Index 1975 = 100)

	Employees in employment	Chemical industry employment
1959	94.3	99.8
1960	96.4	102.8
1961	97.9	103.3
1962	98.9	102.3
1963	99.1	101.6
1964	100.5	101.4
1965	101.6	103.3
1966	102.4	105.3
1967	100.4	103.7
1968	99.8	98.8
1969	99.6	102.8
1970	99.0	103.0
1971	97.4	101.9
1972	97.4	99.1
1973	99.8	99.3
1974	100.3	101.2
1975	100.0	100.0
1976	99.2	98.6
1977	99.6	100.9
1978	100.2	102.6
1979	101.7	102.8
1980	100.6	100.1
1981	95.5	93.4
1982	93.4	88.7

Source: Economic Trends Annual Supplement

FIGURE 4  Yearly investments in the Chemical Industry; selected countries, 1958–80.

It is clear from Figure 4 not only that West Germany and Japan invested at a substantially higher rate than did the UK chemical industry in the 1960s, but also that this discrepancy in rates accelerated in the 1970s. In a 1977 report on the UK chemical industry the General and Municipal Workers’ Union, GMWU (1977), indicates that the percentage annual growth rate of capital investment in the Japanese, West German, French, United States, and UK chemical industries over the period 1963–73 were respectively 13.3%, 10.4%, 7.2%, 7.1%, and 5.4%.

Table 7 demonstrates that on top of a lower growth in output and a lower rate of capital investment, the UK chemical industry is less productive. Table 7 describes the value added per employee in US dollars for the chemical industries of the UK, USA, West Germany, and Japan over the period 1961-80, and shows that for the 1960s and early 1970s the value added per employee in US dollars for the UK chemical industry was below their major international competitors. The GMWU (1977) report indicates that the rate of growth of value added per employee in US dollars over the period 1963–73 for the West German, Japanese, and UK chemical industries was respectively 10.5%, 7.9% and 8.9%. By the end of the 1970s value added per employee had risen substantially, and is still rising because of the capital investment peak in the UK around 1978–80, and because of the manpower reductions made between 1979 and 1982, but the UK has a long way to go to catch up with the efficiency of the US and West German chemical industries.

A variety of reasons have been assembled to explain the relatively poorer growth, capital investment, and productivity record of the UK chemical industry. These include the fact that the UK was not in the EEC until the 1970s, an overvalued £ sterling prior to the 1967 devaluation, custom and practice and inertia which had stabilised a pattern of overmanning in British industry which was held in place by a balance of large and small “p” political power which favoured the trade unions, the lower rates of economic growth in the UK during the 1960s and 1970s, and the very much higher rates of price inflation in the UK, particularly in the 1970s. By 1975, when the lower growth of the UK economy was well established into the 1970s, and when the percentage increase of the UK retail price went up 7% from 1974 and the chemical price increase went up a staggering 27.3% from 1974, it seemed that faster growth for chemicals would not come from home growth, but could only materialise from export-led growth. Unfortunately, although there was a clear recovery of output and exports in the UK chemical industry after the 1975 recession, by 1979 a combination of overcapacity in the European heavy chemicals industry, continuing high levels of inflation in the UK, and the rapid strengthening of sterling, all put pressure on the international competitiveness of UK industry, and together with the home market slump occasioned by the 1980 recession, all contributed to drastic reduction in demand for the chemicals and products of certain sectors of the UK chemical industry. Figure 2 shows one result of this process, a very substantial drop in UK chemicals output between 1979 and 1980 which was sustained into 1981 and 1982, and Table 6 shows the consequential impact on job losses in the UK chemical industry between 1979 and 1982. Manpower in the UK chemical industry actually dropped by 78,000 (17.6%) from end of year 1979 until September 1983.

TABLE 7  Value added per employee in the chemical industries of UK, USA, West Germany, and Japan, 1961–80 (In US dollars)

	UK	USA	West Germany	Japan
1961	5350	17,200	6550	n.a.
1962	5610	18,930	7470	3270
1963	6020	20,160	7770	4430
1964	6690	21,810	8330	5080
1965	6980	22,340	9130	5770
1966	7430	23,810	9700	7860
1967	7700	23,650	10,890	8980
1968	8100	24,760	11,350	9460
1969	8550	27,210	12,020	10,810
1970	8370	23,860	13,270	12,610
1971	9510	n.a.	14,180	13,510
1972	12,190	n.a.	17,390	16,290
1973	13,940	34,870	23,600	n.a.
1974	17,750	42,520	31,450	24,740
1975	18,990	n.a.	32,460	22,720
1976	16,190	60,390	34,600	27,100
1977	18,620	n.a.	38,650	n.a.
1978	19,800	58,820	46,220	33,600
1979	27,190	73,510	58,820	n.a.
1980	31,190	84,150	61,820	n.a.

Source: OECD, The Chemical Industry.

The drop in output and employment in UK chemicals in the 1979–82 period had a disproportionate impact on some sectors than others. Between 1979 and 1982 the percentage decline in output of inorganic chemicals was 31%, dyestuffs and pigments 24.3%, plastics and resins 18.6%, and organics 9% (GMBATU, 1983). Given that inorganics and petrochemicals in 1980 represented nearly 40% by value of all chemicals sold in the UK, and that ICI, the dominating firm in the UK chemical industry, had majored in petrochemicals, plastics, and certain inorganics, it was little wonder that job losses in UK chemicals, and ICI were so high over the period 1979–82.

THE RECENT BUSINESS HISTORY, CULTURE, AND PERFORMANCE OF ICI

The previous two sections of this chapter have emphasised the major changes in business and economic context faced by the world's major chemical firms over the past 25 years. But in the context of those changes what or who are ICI, and how have ICI responded to such changes in their business and economic environment?

From its foundation – by a merger of the four largest British chemical companies in 1926 – ICI has always been a major force in the world chemical industry. Indeed in 1972 ICI was not only Britain's biggest industrial company, it was, according to the prevailing rates of exchange, the biggest chemical company in the world. Throughout most of the 1970s ICI contributed about 25–30% of the sales of the UK chemical industry. By 1981 its sales (in US dollars) made ICI the fifth-largest chemical company in the world after DuPont and the three big German firms Hoechst, Bayer, and BASF. In 1983, in terms of market capitalisation (share price multiplied by the number of shares) ICI was the fifth-largest company in the UK after British Petroleum, General Electric Company, Shell Transport and Trading, and Glaxo Holdings. (Financial Times Top 500, 12 November 1983).

Although by the end of the 1970s ICI was active in all major industrial and most non-industrial countries, as the “Imperial” name implies its traditional market focus and production strength had been in Britain, and in the countries of the former British Empire. Crucially, in culture and management ICI was and still is a substantially British-based and managed multinational company. There was a reduction from 52% to 43% in the percentage of total group sales attributed to UK customers between 1963 and 1973, but between 1973 and 1981 that percentage fell only another 4% to 39%. In 1973, 66% of ICI's worldwide employees were working in the UK divisions and notwithstanding interests in North America and Western Europe, the main board of ICI were heavily preoccupied with the UK divisions. ICI in the early 1970s was often referred to in the press as Britain's largest manufacturing company, and today the financial fortunes of ICI are regarded as a barometer for more general upward and downward movements in the stock market. Certainly outside ICI there was the view that ICI was a British institution, and had to behave, and be seen to behave, in an appropriately ethical, regulated, and stable fashion.

ICI is a vast conglomerate that majors in chemicals production ranging from products which are sold in tens of thousands of tons, such as ethylene or caustic soda, to products in the dyes and pharmaceuticals fields which can be sold in units of less than an ounce. “Chemical” covers a vast range of products from basic industrial chemicals through fertilisers and fibres to paints, plastics, herbicides, and explosives. The single most important strength of the company has been in its development of and investment in advanced chemical and engineering technology. A concomitant of this has been the relative lack of emphasis on marketing as compared to companies more heavily involved in consumer goods and with a history of less protected markets. At the same time there exists a long tradition of progressive personnel policies, of relatively stable industrial relations and considerable company loyalty among managers and workers.

The power centre of ICI was, and at the time of writing (Spring 1984) still is Imperial Chemical House, Millbank, London SW1. The main board and executive directors are resident at Millbank and maintain strategic control at the centre over the UK divisions and subsidiaries through two main elements of reserve powers. The main board has final say over the investment decisions that determine ICI's future shape, and also are the final arbiter of personnel policy. In 1983 ICI was divided into eight divisions, largely autonomous and profit accountable, answering to the main board and monitored through a system of planning budget controls.

One highly synoptic way of sketching the broad changes in ICI over the past 20 years or so is to look at ICI along a number of indicators in 1960 compared with 1982. In terms of size ICI has increased its sales in pounds sterling of the day 13-fold (£558m to £7358m) and its total assets 8-fold (£694m to £5379m) also in pounds of the day. However, ICI has reduced its numbers of UK employees from 113,699 in 1960 to 67,300 in 1982, a drop of 41%. Over that same period the number of UK divisions has declined from 13 to 8 (plus Nobel Explosives Ltd). The 8 divisions remaining in 1984 are Agricultural, Fibres, Mond, Organics, Paints, Petrochemicals and Plastics, Pharmaceuticals, and Plant Protection. As has been noted, ICI have managed to change the distribution of their sales, calculated according to territory where the customer is located, over the period of the last 20 years. From 1963 to 1981 the proportion of sales to the continent have increased from 11% to 18%, to North America from 11% to 19%, and to Australasia and the Far East from 9% to 16%. There has been a corresponding decline in the proportion of sales to UK customers from 52% to 39%.

The ICI main board has also changed in size and mode of operation over the past two decades. In 1960 the main board was made up of a Chairman, 3 deputy Chairmen, 14 executive directors, and 6 non-executive directors. In 1983 the much streamlined main board is a Chairman, 7 executive directors, and 6 non-executive directors. There have been 5 Chairmen of ICI since 1960. They and the present Chairman are:

Sir Paul Chambers	January 1960–March 1968	8 years in post
Sir Peter Allen	April 1968–March 1971	3 years in post
Sir Jack Callard	April 1971–March 1975	4 years in post
Sir Rowland Wright	April 1975–March 1978	3 years in post
Sir Maurice Hodgson	April 1978–March 1982	4 years in post
John Harvey-Jones	April 1982–present

This list indicates a number of features of British culture, and indeed the culture of the ICI main board over the period since 1960. In terms of the British culture the Chairman of ICI is an important post, and this is reflected in the fact that all recent Chairmen have been knighted during their tenure of office. In terms of the recent culture and mode of operation of the main board, the other characteristic to note in the above list is the planned short tenure in office of all the Chairmen since Sir Paul Chambers. Prior to the present Chairman's election, for reasons discussed later, that pattern of short tenure has been changed. In addition, John Harvey-Jones, unlike his predecessors, is also the principal executive officer of the company – ICI's rather careful and sanitised way of describing the position of a chief executive officer.

What is not evident from the above list of top leaders of ICI, is the fact that the two Chairmen who have played the most consistently up-front role as innovative leaders in ICI have been the first and the last men on the list. The reasons for this may relate to the characteristics of the men and the needs for change which were recognised in their era in office. It is also of interest to note that neither Sir Paul Chambers nor John Harvey-Jones were lifelong ICI career men. Nor were they chemists or engineers, ICI's traditional source of managerial talent. Sir Paul Chambers joined ICI in 1947 as a main board director, after a successful career in public service mainly in the Inland Revenue. Chambers was then 43 years old, and his educational background had included an economics degree from the London School of Economics. John Harvey-Jones does not have a degree. His background is Dartmouth, and the Royal Navy. He joined ICI in the late 1950s at the age of 31, and worked up through the ranks from being a works study officer in Heavy Organics Division, to being chairman of Petrochemicals Division in 1970, a main board director in 1973, and ICI Chairman in 1982.

ICI’s corporate strategy and corporate culture in the 1960s

Before the Second World War ICI “were in every cartel that was going”. Immediately after the Second World War, with the cartels and agreements dissolved, and in the 1950s a wide range of new and expanding entrants into the world chemical industry fast building new and larger plant, ICI found themselves in a more international and a more competitive industry. Spurred by the increasing success of the large US chemical companies in European markets, the platform for growth in the Continental Western European industry's fortunes created by the birth of the EEC, pressures from within ICI for innovation from some of the newer divisions and activities such as organics, plastics, synthetic fibres, and pharmaceuticals, and some inauspicious financial results in 1958 and 1961, ICI began the decade of the 1960s in an atmosphere of challenge and change.

At the forefront of ICI's attempts to create strategic change in the early 1960s was Paul Chambers – the first “outsider” ever to become Chairman of ICI. In an article in The Sunday Times of 27 September 1964, Michael Shanks describes Chambers as an instinctive reformer, an intellectual, and a rationalist, and someone who seems to make things more difficult for himself by not preparing the ground in advance – as in ICI's abortive attempt in the early 1960s to take over Courtaulds. In that same article Chambers describes his vision for change in ICI:

We must see . . . that our whole organisation is sensitive to growth and sensitive to change. We have changed from a narrow technical approach to a broad commercial approach.

In fact, like many an instinctive reformer Chambers’ optimism for speedy change was ahead of his own or other senior managers’ capacity to create it. As a result many of the changes in top management culture sought by Chambers in the early 1960s were still being pushed by John Harvey-Jones and others throughout much of the 1970s. Indeed almost 8 years after the September 1964 analysis of ICI in The Sunday Times, there appeared another more critical review of ICI, still not yet very profitable after a decade of unprecedented growth for the world and UK chemical industries. The 16 July 1972 Sunday Times article entitled ‘The case of the missing catalyst’ used the following quote from an ICI senior manager to emphasise that whatever changes had gone on in ICI during the 1960s they were not in 1972 an important part of the company culture:

We suffer from the problems of size.
We employ too many highly-paid people to check and cross check other men's figures.
We are an over-educated company.
We still have a technical bias. We are not breeding people with an entrepreneurial flair.
The Chairman has the old belief that the company can only change slowly.
But I think you could have a dynamic effect with proper leadership.
Of course one main trouble is that the ICI Board is selfperpetuating.
Dick Beeching³ would have changed it entirely – he knew exactly what he wanted to do – but they never let him have a chance.

The journalists who wrote the 16 July 1972 investigative article on ICI concluded that

if ICI is to snatch and exploit the opportunities of the future, it needs to be flexible and quick reacting, enterprising and risk taking, on a scale beyond anything it has yet reached . . . The catalyst to release ICI's great potential has still to be found.

However, to be fair to ICI, although the style and mode of operation of the main board and the broad corporate culture of ICI were remarkably resistent to change throughout the 1960s and 1970s, major strategic change did begin in the early 1960s. These strategic changes in the spheres of technology, labour productivity, market focus, and management organisation are dealt with in depth later in this book. At this stage it is sufficient to note that in the 1960s ICI made great strides in constructing and eventually commissioning new, larger, and more efficient plant. The capital expenditure programme of the 1960s which was initially driven by needs for modernisation and the productivity gains which would come from larger plants and greater economies of scale, continued with interruptions into the 1970s and was guided by some broad principles for expansion. In particular ICI has concentrated on developing those product areas where it has a strong market position rather than continually attempting to enlarge the product range. In Europe, for example, expansion has been confined largely to low-density polyethylene, polyester fibre, polypropylene, and crop protection chemicals, all products in which ICI developed a dominant UK position in the latter end of the 1960s and early 1970s. ICI also focused strategic concern in the 1960s on labour productivity, and sought to implement their own variant of the fashionable 1960s productivity bargain which was initially called Manpower Utilisation and Payment Structure (MUPS) and later amended to the Weekly Staff Agreement (WSA). In 1960 began the long, and in 1984 still incomplete process of moving their sales and capital away from the old markets and manufacturing sites of the UK and the British Empire towards initially Western Europe, and then belatedly the United States. Paul Chambers also made a start in trying to change the organisation and culture of ICI from its concern with conservatism, rationality, and technology, and towards greater market focus, commercialism, and financial accountability. Chambers encouraged a number of organisation changes which made division chairmen more accountable and led to the dissolution of many of the old functional organisations in the divisions and their replacement with product-business area/functional matrix organisations. In this respect he was aided by the organisation studies of a main board organisation committee, and the services of the McKinsey consultancy firm.

ICI’s performance in the period 1960–83

ICI’s performance over the past two decades will be examined first of all in an overall sense by cataloguing the pattern of the company's sales and the ratio of trading profit to sales. An analysis of ICI's business performance in those terms also indicates the extent to which ICI's record follows the cyclical patterns in the UK economy, and how after a peak in the company's total UK manpower in 1969, attempts by ICI management to reduce that manpower coincided with low points in the performance of the UK economy generally and in ICI in particular. Attention is then focused on the relative importance of the various business classes to ICI's turnover and trading profit, and the geographical evolution of ICI's sales and profits over the period from 1973 to 1982. This section then ends with a report on the changing pattern of ICI capital expenditure over the period from 1970 to 1983, and reveals the increasing tendency to place new capital in the United States and Continental Western Europe rather than the United Kingdom.

Table 8 shows ICI's sales, trading profit, and ratio of trading profit to sales from the low point of 1958 up to 1983, and the percentage growth per annum of GDP output from 1960 to 1982, and shows how throughout the 1960s the sales and trading profit of ICI showed slow but steady growth against the cyclical background of the UK economy. Vivian, Gray and Co. (1980) report that in the 11 years from 1960 to 1971 (years of excellent sales growth for the chemical industry) ICI managed to increase real pre-tax profits by only 2.5% per annum compound. The problem was pressure on margins which declined from 11.8% in the 1961 trough to 9.5% in the 1971 trough. Using a measure of after-tax profits as a percentage of capital employed Reuben and Burstall (1973:92) note that ICI only achieved 4.5–7.4% over the period from 1962 to 1971. This performance, they note, was about average for large European chemical forms at that time, but comparable US chemical companies averaged 8–13% after-tax profits as a percentage of capital employed over the period 1962–71.

TABLE 8  ICI group sales, trading profit, and ratio of trading profit to sales percentage, 1958–83 in £m GDP output percentage growth per annum, 1960–82

	Total sales	Trading profit	Trading profit as percentage of sales	GDP output percentage growth per annum
1958	463	51	11.0	n.a.
1959	508	80	15.7	n.a.
1960	558	93	16.6	5.5
1961	550	65	11.8	1.8
1962	579	73	12.6	1.5
1963	624	85	13.6	3.2
1964	720	113	15.7	6.2
1965	816	113	13.8	2.8
1966	885	99	11.2	1.7
1967	979	122	12.5	1.8
1968	1237	175	14.1	4.4
1969	1355	190	14.0	1.9
1970	1462	159	10.9	1.8
1971	1524	130	8.5	1.5
1972	1694	141	10.0	3.1
1973	2166	329	15.2	5.9
1974	2955	461	15.6.	–1.7
1975	3129	325	10.4	–1.9
1976	4135	514	12.4	1.8
1977	4663	545	11.7	2.7
1978	4533	497	11.0	3.2
1979	5368	634	11.8	2.6
1980	5715	332	5.8	–4.0
1981	6581	425	6.4	–2.1
1982	7358	366	5.0	1.1
1983	8256	693	8.4	n.a.

Sources: ICI Annual Reports and Economic Trends Annual Supplement.

Table 8 also indicates the high and low points in ICI's business performance since 1958, and the extent to which ICI's record has followed the cyclical development of the UK economy. Thus ICI's troughs have been in 1958,1961, 1966, 1971, 1975, and 1980–83. A glance at the percentage growth per annum of GDP in the UK economy since 1960 clearly shows ICI's poor years were also years of insignificant or negative growth in GDP output. Exceptions to this trend were the years 1974 and 1979 which were excellent years for the chemical industry and ICI but relatively poor years for GDP output growth.

Profits and margins in ICI soared in 1973 on the back of a demand boom, and rose even more exceptionally in 1974 as in the aftermath of the 1973 oil crisis and the shortages of petroleum-based raw materials, customers were willing to pay high prices to maintain and build stocks. However, the extent of the 1974 stockbuilding feast accentuated even more the expected 1975 recessionary famine. Post-1975 demand picked up again but in 1977 and 1978 overcapacity in fibres and plastics led to price cutting and a squeeze on ICI's margins. Although early 1979 saw a minor stockbuilding boom caused by anxiety over Iranian political and economic difficulties, a combination of a large increase in petroleum feedstock costs after July 1979, the overvalued sterling, high interest rates in the UK, and now massive overcapacity in the European heavy chemicals industry all contributed to ICI's substantial fall from grace in the period 1980–83.

Table 9 describes ICI's total numbers of UK employees from 1965 to 1983, worldwide employees from 1968 to 1983, and UK employees as a % of total employees over that period. The table reveals that the peak of ICI's UK employment was in 1969, and worldwide employment was in 1974. The large drop in UK employees between 1976 and 1977 was due to their sale of Imperial Metal Industries, and the sizeable increase in worldwide employees between 1971 and 1972 was a result of ICI's acquisition of Atlas, the US chemical company. ICI reduced their UK employees by 83,200 from the peak in 1969 to 57.4% of that in 1983. Since 1968 the percentage of ICI employees working in the UK as a percentage of total ICI employees declined from 74% to 52%. In fact the figures for 1984 will reveal that for the first time ever ICI, once regarded as the flagship of British manufacturing industry, will employ more people overseas than inside the UK. This trend has followed ICI's explicit policy objective of increasing the proportion of their business and assets overseas. Finally, Table 9 also reveals that ICI have tended to be most effective in reducing their numbers of UK employees in the years when they could argue their business performance was not good. Those years have clearly been 1970–72 and 1979–83.

TABLE 9  ICI total employees UK 1965–83, worldwide employees 1968–83, and UK employees as a percentage of total employees, 1968–83

	UK employees	Worldwide employees	UK employees as a percentage of total employees
1965	126,000	n.a.	–
1966	124,000	n.a.	–
1967	128,000	n.a.	–
1968	139,000	187,000	74.3
1969	145,000	197,000	73.6
1970	142,000	194,000	73.2
1971	137,000	190,000	72.1
1972	135,000	199,000	67.8
1973	132,000	199,000	66.3
1974	132,000	201,000	65.7
1975	129,000	195,000	66.1
1976	125,000	192,000	65.1
1977	95,000	154,000	61.7
1978	92,000	151,000	61.0
1979	89,400	148,200	60.3
1980	84,300	143,200	58.9
1981	74,700	132,400	56.4
1982	67,300	123,800	54.4
1983	61,800	117,900	52.4

Source: ICI Annual Reports.

In terms of business areas or classes ICI is one of the most diverse chemical companies in the world. However, capacity to gauge the relative importance and performance of ICI's business classes over time is limited by the fact that ICI has only published figures on the performance of its business classes on a worldwide comparable basis since 1973. Table 10 describes ICI's performance by business classes for 1973–79, and again in 1982 to reveal the impact of the 1979–82 recession on the relative importance of ICI's various business areas to total sales, profits, and margins. Some indication of the internal weighting of ICI's business classes in 1979 is given from the fact that in that year the four major business classes – Petrochemicals, General Chemicals, Agriculture and Plastics – together accounted for 60% of Group sales and 72% of Group trading profits. The dangers of ICI's high dependency on their heavy chemicals businesses became apparent when in the period 1979–82 trading conditions for the heavy chemicals sectors of the industry deteriorated. By 1982 the percentage contribution of ICI's Petrochemicals and Plastics, General Chemicals, and Agriculture business classes to Group sales had declined to 56%, and to Group trading profit to 45%. By 1982 three of ICI's business classes, Petrochemicals and Plastics, Organics, and Fibres, were making losses; Petrochemicals and Plastics alone lost £139m. The company thus became highly dependent on its Agricultural, Pharmaceutical, and oil business which between them contributed 76.2% to trading profit in 1982. Also of significance in Table 10 are the consistently high trading margins in the Pharmaceutical area of ICI's business, a common feature of the drugs industry.

The geographical sources of ICI's sales and trading profits for the period 1979–1982 is summarised in Table 11, which reveals that in spite of a policy objective to the contrary, ICI's UK production accounted for a consistent 55–59% of Group sales in the years 1973, 1976, 1979, and 1982. More significantly, over that same period the proportion of total Group profit accounted for by UK production remained 70% or more up until the difficult UK conditions of the early 1980s. However, the average trading margin by region over the period 1973–79 reveals that trading margins are clearly and consistently best in the UK and Australasia, and weakest in Continental Western Europe and the Americas, the two territories for which ICI had the most ambitious expansion plans. The average trading margins between 1973 and 1979 are 14.1% UK, 2.3% Western Europe, 6.8% Americas, 9.2% Australasia, and 12% other. By 1982, ICI's earlier decision to major in plastics and fibres in its European production programme, plus the unfavourable trading conditions for the general chemicals being produced at ICI's big manufacturing site at Wilhelmshaven, meant that ICI were making losses on their European manufacturing operations.

TABLE 10  ICI: contribution of business classes to Group sales, Group Trading profit, and trading margins, 1979, 1982 and 1973–79

* ICI merged their Petrochemicals and Plastics business classes and UK divisions in 1981.   Source:Viviyan Gray & Co., and ICI Annual Reports.

† Figures in parenthesis refer to negative results.

TABLE 11  ICI sales and trading profit by region, 1973, 1976, 1979, and 1982 (percentage)

Source:Viviyan Gray & Co., and ICI Annual Reports.

TABLE 12  ICI capital expenditure and capital authorization, 1970–1982, £m, and capital expenditure by region, 1970–1982, £m

Source:Viviyan Gray & Co., (1980) and ICI Annual Reports.

Finally Table 12 indicates the pattern of ICI's total capital expenditure and capital authorisation over the period 1970–82, and the distribution of that capital expenditure by region for the same period. Apart from the enormous scale of capital expenditure and capital authorisation shown in Table 12, another evident feature of ICI's pattern of capital spending is the fact that it peaked during the 1975 trough, and then rose substantially in authorisation in 1977 and 1978 and in expenditure in 1979. Also noteworthy is the dramatic slowing-down of capital authorisation and spending in the poor years 1981–1982.

Looking at the years 1970–80 by region of capital expenditure, the proportion of total spending in the UK declined from 69% to 54%, while ICI's strategy of increasing the company's manufacturing presence in Western Europe and the USA was reflected in an increase of 16% to 20% of total spending going to Europe over the years 1970–80, and an equivalent increase of 7% to 16% in the Americas. In the bad years of 1980 and 1981 ICI were spending nearly 30% of their total and now diminished capital in the Americas, and around 20% in Australia and the Far East.

ICI COMPARED WITH SOME MAJOR COMPETITORS, 1967–81

There are many difficulties and dangers involved in making comparisons between firms operating in different countries, accounting in different currencies, using different accounting conventions, and with different product mixes, and the brief analysis and interpretation which follows should be regarded as tentative and broadly indicative only.

Using the ratio of trading profit to sales, and the ratio of pre-tax and interest profit to net assets, there is a clear tendency for ICI's performance in the 1970s to lie somewhere between the better average margins of the selected US companies and the lower margins which seem to be characteristic of the performance of the major German chemical companies. On both ratios indicated in Tables 13 and 14 ICI improved its relative performance in the latter part of the 1970s.

Measuring capital expenditure as a percentage of sales usefully removed distortions due to differing inflation rates, thus the data in Table 15 give a good indication of the trends in capital investment between ICI and six of its major competitors over the period 1967–81. Table 15 reveals that ICI's capital expenditure lagged its competitors in the late 1960s and early 1970s but approximated the best international levels during ICI's capital spending spree in 1978 and 1979. The German companies invested heavily at the start of the 1970s, but cut back their expenditure in the light of falling growth rates and the growing awareness of European overcapacity. In general the American companies invested more than their European counterparts, and with the possible exception of the big spender Dow, also reduced capital expenditure after the 1975 trough. ICI seem to have cut back on capital expenditure most savagely in 1980 and 1981.

TABLE 13  Trading profit to sales percentage: ICI and selected competitors, 1970–78

* Vivian, Gray & Co., estimate.

Source:Viviyan Gray & Co.,(1980)

TABLE 14  Ratio of pre-tax and interest profit to net assets percentage: ICI and selected competitors, 1970–78

Source:Viviyan Gray & Co.,(1980)

TABLE 15  Capital expenditure as a percentage of sales: ICI and selected competitors, 1967–81

Source:Source: Chemical Age,200

TABLE 16  Sales, investment, and total remuneration per employee: ICI and selected competitors, 1978

* Gross fixed assets. †Total wages and salaries including benefits. Source:Viviyan Gray & Co.,(1980)

Throughout the 1960s and 1970s ICI has been unfavourably compared with its competitors in the sphere of productivity; indeed our discussion of productivity differences between the UK chemical industry generally and its counterparts showed the UK in a less than favourable light. Table 16 reinforces this notion by comparing sales, investment and total remuneration per employee for ICI and its major competitors. The figures have been converted at the exchange rates ruling at end–1979 and are shown in $000. In interpreting Table 16 Vivian, Gray & Co. (1980) acknowledge that continental chemical companies employ more outside contract labour for maintenance and repairs than ICI, nevertheless ICI's position is at the bottom of each ranking. Vivian, Gray & Co. also remark that it is not possible to deduce from the above figures whether ICI's poor productivity reflects overmanning or underinvestment; however ICI's behaviour between 1979 and 1983 in reducing UK employees by 27,600 (a 30.8% reduction) indicates ICI believe the problem is more one of overmanning than it is of underinvestment. Unfortunately ICI's recent attempts to improve their productivity is being matched by some of their competitors, some of whom such as BASF, Monsanto, and Du Pont are ahead of them anyway, and others who are now behind them in sales per employee – Bayer, Hoechst, and Montedison, are working hard to catch up (Chemical Insight, 254, September 1982).

SUMMARY

In the early 1960s the corporate strategy of ICI began to crystallise around four major areas of strategic change. These were the attempt to bring ICI's technology up to the sophistication and scale of international competition at that time; the attempt to improve the manpower productivity of their UK assets; the attempt to change the geographical distribution of ICI's assets and sales away from the UK and the old British Empire towards the faster-growing markets and economies of Continental Western Europe and then the Americas; and finally the attempt to change the company's top management organisation and corporate culture in order to make ICI more adaptable and commercially minded.

The preceding review and commentary on ICI's development from 1960 to the early 1980s has indicated that ICI made significant progress in carrying through and implementing major elements of these strategic changes. As a result of these changes (particularly in technology and market focus) one might argue that at the end of the 1970s ICI had the following competitive advantages. It was firmly placed in the top half-dozen of the world's chemical companies, had strong market positions and shares in the UK, Australia, Canada, and South Africa, and had increased its investments in the USA and Western Europe. Its capital expenditure and R&D expenditure were up to the best international levels and the company operated world-scale plants with, in some cases, its own world leading technologies. Its product spread was wide and its dependence on any one product sector not crucial. ICI had big export businesses and was well placed in cash flow and in self-sufficiency of feedstock from its North Sea oil investments. ICI also had a cheap source of natural gas feedstock in the UK until at least 1984.

However in the late 1970s ICI also found itself with a number of competitive disadvantages. Chief amongst these was the fact that ICI's home market was only 6% of free world consumption and had a history of relatively poor realised and anticipated growth. Yet in 1979 ICI still depended heavily upon its UK production (57% of Group sales) as well as its UK customers (42% of Group sales). In addition the company's UK productivity remained low and no substantial attempt had been made to reduce manpower since the 1971–72 recession. ICI's CCA returns were poor and declining, and the margins realised in Western Europe and the USA were inadequate. Further in 1979 and 1980 ICI suffered from the overvalued pound against the US dollar and the Deutschmark. It also was becoming painfully aware that its earlier concentration of investment and sales in fibres, petrochemicals, plastics, and organics meant that in the worsening market demand for those commodity chemicals, the company was out of balance for the likely market conditions of the 1980s. Finally, as will be demonstrated later, the same criticisms that were being levelled about the constraining effect of ICI's conservative, overmanned, and slow-to-adapt corporate culture were still being made as vociferously in the late 1970s by those eager for change, as they had been made in the early 1960s and early 1970s.

So in sum the period 1960–83 was one of change and continuity inside ICI, with the emphasis for too long perhaps rather more on continuity than change. In what follows we now examine, at both the corporate and divisional levels, some of the forces in and around ICI which either accelerated or dampened changes in technology, productivity, management and organisational culture, whilst ICI grappled to live in a world which refused to stand still.

¹ Throughout this chapter I draw on, and where possible expand, the excellent analysis of ICI published by Vivian, Gray and Company in 1980.

² Royal Dutch Shell is a joint UK/Holland venture.

³ In late 1967 Beeching, then an ICI deputy chairman, made an unsuccessful bid for Chairman of ICI; both his bid and the change ideas that went with it were rejected.