Thursday, 30 April 2015

* François Michelin: a worthy role model if idiosyncratic entrepreneur

Financial Times

John Ridding and Gordon Cramb

François Michelin, who has died aged 88, was one of the leading French industrialists of the era following the second world war. Through vigorous expansion and an emphasis on technology and innovation, he built his family-controlled company into the world’s largest maker of automotive tyres.
For all the familiarity of the Michelin marque, he maintained a veil of secrecy about his personal life and the workings of his company. A mathematics graduate, he was not a product of the elite civil service and engineering schools that have traditionally produced the backbone of the French political and business establishment.
He preferred to devote his time to the development of the group from its headquarters in Clermont-Ferrand, deep in provincial France, where he was born on June 15 1926, the grandson of its founder.
In the few interviews he gave during his career, Michelin emphasised his strong attachment to the town that the company made its own since the first tyres left its factory at the end of the 1890s. He resisted even the relatively short journey to Paris, seeking instead to bring bankers and investment analysts to Clermont-Ferrand for their infrequent meetings.

Michelin also stressed the need to maintain tight confidentiality about the workings of his company. “Leaks are suicidal,” he told Le Monde in 1991. “It takes us years to develop a new tyre or a new machine. But in five minutes a competitor could copy an idea or innovation.”

If Michelin’s management style was characterised by disciplined discretion, the landmarks in his career, as well as his vision for the company, are clear. After taking control of the group in 1959, when he became gérant, or manager, he sought to expand market share in a rapidly consolidating industry.

In 1960 Michelin was the world’s 10th biggest tyre manufacturer. A decade later it had climbed to the number six spot following an ambitious investment programme involving the establishment of 14 new factories from Burnley in northwest England (which closed in 2002) to Ballymena in Northern Ireland and from Vannes to Vietnam.

The most audacious move, however, came in 1989 with the FFr4bn acquisition of Uniroyal Goodrich. The purchase of the US tyre group propelled Michelin to the top of the industry with a market share in excess of 20 per cent.

Michelin was not alone among French industrialists in making significant acquisitions, particularly in the US, during this period. But, like others, it was to suffer the consequences of launching expensive takeovers at the peak of an economic cycle.

The cost of the Uniroyal Goodrich acquisition and the restructuring expenses needed to increase efficiency at the US operations represented an Achilles’ heel. The debt burden grew to the equivalent of 40 per cent of annual sales and by 1990 had pushed Michelin into a loss. For the first time, management came in for sharp criticism from bankers and shareholders.

The chief executive, however, had no qualms about his strategy. In a consolidating industry dominated by a handful of companies and facing ever increasing pressure from car manufacturers to reduce prices and margins, it was vital to attain a critical mass, he claimed. “We were like an aeroplane that is trying to take off,” he told the Financial Times in 1991. “You have to keep all the engines going until you achieve take-off speed.”

The emphasis on market share and a worldwide presence echoed the approach pursued by Japanese electronics and automotive groups as they sought international dominance. (By 1998 Japan’s Bridgestone had taken over Firestone of the US.) Another similarity lay in Michelin’s commitment to technology, research and development.
The creator of the radial tyre, which revolutionised the industry after its launch in the 1950s, Michelin continued to invest heavily in innovation. In 1993 the company launched its “green tyre”, aimed at reducing fuel consumption through reducing resistance with the road. Increased automation boosted productivity.

Yet if Michelin’s emphasis on technology remained constant, the debt burden and fierce competition forced him to implement a series of painful restructuring programmes. Nowhere was the impact of restructuring more profound than in its home town. The workforce in Clermont-Ferrand halved, undermining a belief in the community that a post at Michelin was a job for life — and plunging the city into recession.

In addition to attacking the cost base of his empire, François Michelin turned increasingly to reforming its culture. A higher emphasis was placed on responding to the needs of suppliers and customers as the company sought to shed a reputation for arrogance. In the US in particular, Michelin introduced more flexible working practices in a move away from a rigid shopfloor hierarchy and patriarchal management methods.

The efforts bore results. In 1994 the group returned to profit, buoyed by efficiency gains and the revival in the international car industry. 
Le gérant also took steps to prepare for his succession. In 1991 he designated Edouard, his fourth son and fifth child, as heir apparent. Edouard had been prepared for his position through a series of posts within the group’s operations, particularly in the US, which came to account for one-third of its sales.
But a deep blow came when Edouard, who took over the top job in 1999, died in a 2006 fishing accident at the age of just 42. Only the fourth to head the company, he had been working hard to fill the shoes of his father, who was seen by most as an effective if idiosyncratic industrialist.

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