JJ Churchill is a high-precision engineering SME business in the aerospace, powergen, defence and high-horsepower diesel engine sectors.  Products include the development and production of advanced gas-turbine blades and complex diesel engines assemblies.

During the last recession JJ Churchill decided that it was imperative to continue to re-invest. This stood us in good stead at a time when many of our competitors were freezing investment decisions. These investments have meant that we achieved profitable growth of 25% in 2011 and we are now looking ahead to the next step in our 7-year business plan, that of overseas expansion.

Setting up a manufacturing facility in a foreign country is a daunting step for any business, especially an SME. But our customers – such as Rolls Royce and Siemens – expect their first-tier suppliers to offer them a local service in Europe the Americas and Asia.

The company’s need to grow, alongside this pressure to regionalise, meant we needed to enter the market for high volume gas-turbine blades (rather than just the development and spares market). Without the move into the high volume market, our strategic plan to become a £50m business by 2019 risked stalling.

But here’s the ‘rub’. When it comes to the manufacture of high volume gas-turbine blades there are two principle costs: the cost of constantly re-investing in advanced capital equipment; and the cost of skilled labour.

JJ Churchill has been able to use technology to balance the cost of labour and drive consumer value in the relatively competitively un-constrained developments and spares market. But this model breaks down when it comes to high volume gas-turbine production. The UK has the ideal skills present for this work, but the UK's investment environment is not competitive.

Advanced machine tools now cost ten-fold what they did 15 years a go. At the same time their competitive life (not to be confused with their productive life) has come down from around 10 to five years.

The UK government’s approach to capital allowances has simply failed to stay synchronised with manufacturing reality. At the same time other economies have gone out of their way to attract inward manufacturing investment.

Without a much more attractive investment environment, high technology, high-value added manufacturing will not be sourced in the UK.

JJ Churchill’s decision to expand overseas is exciting and will ultimately secure our growth plan and consequently jobs in the UK. The UK will remain the source of our approach towards gas-turbine blade manufacturing process innovation and spares supply. So in one sense our move to manufacture overseas is no loss to the UK and therefore ‘invisible’ to the government.

But the pity is that if the rhetoric of ‘re-balancing the UK economy towards manufacturing’ (oft heard from both the previous and current governments) had more substance – including a full overhaul of the tax treatment of capital to better reflect the life-span of modern machinery – then this ‘invisible’ story of overseas investment could very easily have been a good news story for the UK.

On Monday, we published the EEF/Infor report Investing in Recovery - Innovation Monitor 2010. In our 2009 Innovation Monitor, Andrew Churchill, Managing Director at JJ Churchill Ltd, talked about making 'counter-cyclical' investments in innovation. For him, the investment made sense, not only because he thought it could lift the company during downturn, but because the company would have suffered without it. One year on, JJ Churchill has been named Rolls Royce's Global Aero Supplier of the Year and Andrew gives us an update on the company.

During the recession a strong, cogent strategy for sustainable growth in a high-labour cost environment gave JJ Churchill the confidence to aggressively re-invest counter-cyclically to the market.

Such counter-cyclical investment may have been counter intuitive, but it was absolutely aligned with our long-term strategy to become a major player in a very innovative, capital-intense niche.

Developing this highest technology area of our business proved to be the catalyst to ending our own experience of recession and challenged our customers’ pre-conceptions of us as a small, high quality, but fairly staid business.

Our top-level business plan is built on an explicit drive for innovative solutions and takes a five to ten year view, bridging the typical business cycle.

So just as we didn’t hold back on process innovation and the supporting investment as the recession commenced, as the recovery has strengthened through the year our innovation strategy has remained largely un-altered.

The next step is applying the innovative processes we developed during the downturn across our other, existing product ranges and question the received wisdom on their methods of manufacture. And at the same time we are continuing to push the technical boundaries with the introduction of further, new innovate processes and technologies.

Cash management in this growth phase is therefore essential. 

As the high technology sectors we’re targeting are incredibly capitally intensive, improved cash-flow is important to continued capital investment and innovation. Process innovations that, for instance, help improve material flow or reduce machining cycle times all contribute to improved cash-flow and reduce our demands for borrowing. 

And whilst having the first-of-a-kind machine tool in the UK is exciting, the sort of customer-lead development projects ideal for this type of equipment demand multiples of our existing capacity.

The principal challenge we face now is managing the potentially awkward transition from an SME to a medium-sized company. To do this, we need to consolidate our new-found recognition into not just improved profitability, but also substantial business growth.

JJ Churchill Ltd. is a 72-year old precision engineering business. Looking forward, as a family business of 100 people, perhaps the most straightforward course of action during the recovery would be to either to not take too many risks by continuing in our current markets (aerospace, diesel engines, defence and cutting tools), or to give-up and sell-out. 

But neither of those options would see the company getting close to what it could achieve with a little investment, vision and decent strategic planning.

So instead, we’ve recognized what were good at – innovation – and are using it to our advantage.  On the one hand, SME or not, we compete in a global environment and our customers usually have choice of supplier, but at the same time we operate in a high labour cost economy and are not about to re-locate to China.  So unless we know we can be the cheapest (we aren’t), innovation is our only way forward.

Of course, as a sub-contractor it would be easy to assume that as the designs we manufacture to aren’t ours, we can’t innovate – but this is lazy. 

We’ve made massive strides forward in process improvement, we’ve identified the markets in which we really have an advantage and we’ve invested aggressively to move up both the technology and value-add curves.  To have the confidence to do this – and that’s meant substantial counter-cyclical capital investment – we needed a rolling strategic plan that looks forward 5 years and sets our stall out.

This, I think, is what makes the difference: a good plan gives management confidence and clarity of purpose, it is the standard to which all investment decisions are assessed.

But just as important, it provides the foundation for regular communication with the bank (through good times as well as bad).  After all, the banks are also a business, and for them, a credible business plan is a lower lending risk – and that should equal a lower interest rate. 

My plea then is that every manufacturing business, no matter how small, should invest real effort ensuring they have a decent strategic plan, that it has resonance with their stakeholders and that it really is going to take them to where they should be aspiring.

Andrew Churchill
Managing Director
JJ Churchill Ltd