Select Committee on Science and Technology Minutes of Evidence

Examination of Witnesses (Questions 2 - 19)




  2. Mr Bryant, Dr Edington, Mr van Duyne, thank you very much indeed for coming along today; and, Mr Bryant, may I say, on behalf of the Committee, that we are pleased that you are feeling better today, and maybe the trains have been kinder too, and you have been able to make it. On the occasion that you were not able to make it, I had a constituency engagement, so it is my gain that I am able to be here when you are here today, and thank you very much for coming. I think you know the background to our inquiry. We are the Science and Technology Select Committee, we are not the Trade and Industry Select Committee, so all that we are doing is focused towards research and development, and science and technology. And we wish to ask questions on this occasion about the effect of your merger on research and development within your new organisation, and while I imagine that we shall verge slightly towards the industry as a whole we shall try not to; we shall try to stay strictly within research and development. Now, before I ask the first question, would you like just to tell us your position within the organisation and introduce your two colleagues to us?

  (Mr Bryant) Thank for, first of all, for your wishes. I think my own recovery was a lot more rapid than the transport system, and I am still here. I was Chief Executive of British Steel, which is one of the two companies that created Corus, and my colleague, Mr van Duyne, was the Chief Executive of Hoogovens, which was the other company, and we are now Joint Chief Executives of Corus, and have been since it came into existence in October of 1999. In sharing what is a collective responsibility for the overall fortune of the company, we focus in on certain areas, in that I am responsible for the operational businesses, and Mr van Duyne focuses on HR, technology, finance and strategy; so that is the way in which we split things, but it is very much a shared, collective responsibility, I think, overall, for the company. Dr Edington is the Executive Director, a colleague of ours on the executive committee, with a responsibility for technology, which currently covers information technology, research and development and environmental performance. Dr Edington was the Technology Director in British Steel, and had been from 1992; prior to that he had worked in the aluminium industry, and also in academia. Dr Edington is retiring at the end of this year, at the age of 61, and his responsibilities for research and development at that point will report directly to Mr van Duyne, so that the research and development aspect of it will report to him. So I think that is where we are.

  3. Thank you very much indeed. I shall direct my questions, as other Committee members will, Mr Bryant, to you, but if you feel it is more appropriate that they go to somebody else, then please indicate, and if Mr van Duyne or Dr Edington want to make a comment, if they would kindly catch my eye, we will make sure that they can do so.
  (Mr Bryant) We are very happy with that.

  4. You kindly gave us some written evidence in April in which you told us that R&D is very important to Corus. I would like to know: is that statement still true, and if it is true how do you demonstrate that in your corporate strategies?
  (Mr Bryant) It is very important to Corus, as it was to each of the previous constituent companies, and we try, in Corus, as I think both the companies had beforehand, to move towards raising our products to being higher value and to being something where we can offer our core customers something which is more than the normal material properties, and so the commitment to R&D remains as strong as we would have intended. Of course, events since then; in putting the companies together, a part of the activities of Hoogovens and a part of the activities of British Steel directly overlap, and that is in the carbon steel business, in the flat-rolled area of the carbon steel business, which is a very major part of the company, and that was an area where we knew there was a lot of duplication, and duplication as far as administration was concerned and duplication as far as other areas, including research and development. And so, at the time of the merger, we said that we expected to see substantial synergies arising from the merger, and one of those would have been, in part, the elimination of duplicated research and development but also refocusing some research and development so that we were getting the benefit of the best parts of that between the former Hoogovens organisation and British Steel. And, I think, one of the things, we sent an addendum to the evidence, which is that we have announced a restructuring of research and development in the UK, which would mean focusing our research and development activities on to one site in the UK, so that for the new company we would have one site in Holland and one site in the UK, and that site will be located in the Sheffield area.

  5. Following that second part of my question—how can this be demonstrated in your corporate strategy—in the same document that you sent us in April you pointed out that, typically, metals industries companies spend 1 to 1.5 per cent of their revenues on research and development, and yet we understand, from looking at your accounts, that Corus expect to spend only 0.9 per cent on R&D this year, which is 10 per cent, or 60 per cent less than typical metals industries spend. Why is that, and how does that square with your strategies?
  (Mr Bryant) I think part of that is the nature of the spend on research and development, and I will ask Dr Edington to expand if I jump over some things. But, certainly, I think, what I have seen in research and development over my time in the steel industry is that there has been a move from heavy process research and technology more towards product and more towards market, so that we have moved more towards market sectors where we are seeking to grow. There was a time when a lot of research and development was on the basic processing, and we in British Steel had moved quite markedly away from that approach towards something that was focused on the customer. And I think that what that means is, in terms of what was previously process research, a lot of the process research is now transferrable technology around the world, where if one is looking, for example, to incorporate the best form of technical equipment, in some basic equipment, that is available by some form from elsewhere, in some cases by licensing from other people; so there is a change in the nature of it. And in basic process research we do spend less than we would have done before. But then, when you come to look at it from the market point of view, some of the market sectors that we have will command a much higher proportion of research and development expenditure. In the case of Corus, where we are not just involved in carbon steel but we are also involved in aluminium, the automotive sector is one which is very demanding, both technically and from a developmental point of view; so that our research and development expenditure would be disproportionately high in the case of aluminium and carbon steel in support of that particular market sector, albeit the total sector may only be 20 per cent of our total turnover. And there are then, conversely, products which in themselves do not require a great deal of technology, because they represent more of the run of the mill activity.

  6. Obviously, I wish to invite other members of the Committee to put their questions, but one final one from me, and, I hope, probably a brief answer. Accepting that your spend this year is likely to be 0.9 per cent on R&D, and you have answered why that might be, what do you think it might be in the financial year starting in April 2001 and the financial year starting in April 2002? What I am trying to get at is: is this ability to license likely to drive R&D spending down, or is the demand for specialist products likely to send R&D up?
  (Mr Bryant) That is a very big question. If things remained exactly as they are today then I think the R&D expenditure in 2001 and 2002 will be at a similar level, in percentage terms, of turnover that we have there; it might be, for the reasons I have said, of overlap and synergies, marginally lower, but it will be in the range of 0.8 to 0.9. The reason, I think, that I hesitated a little is that we have to look at where we can grow the company in profitable areas, and so, for us, we are in, at the moment, a period where we are looking to see what that means in terms of our ability to be profitable, because, for us, all research and development is about ensuring that the company is profitable. I have to say, and you will see this in our accounts, that really now for the last two years, the UK-based activities of what was British Steel and what is now Corus have been unprofitable, and that is something which is of concern, quite clearly, to us, it is of concern to others. And during the course of the last year we have had to take some measures, in trying to improve our cost base, which move away from research and development to other areas, where we have announced during the year some 5,000 job reductions in the UK, at that stage without affecting any capacity in the UK, because we were striving to maintain our productive capacity. But you may have seen that in October we announced some capacity reductions where we removed two blast furnaces, one in Scunthorpe and one in Llanwern, in South Wales. And, whilst they are driven by short-term stocking reasons, that there is too much stock around, there is a concern, looking forward, in terms of the ability, particularly within the UK, to service a UK market. And each time you see a report in the press about one of the big car companies talking, for example, about questioning their level of investment here then that does have implications back for us, because the strength of our home market, in the UK, is vitally important to the future success of the company.

  Chairman: Thank you very much.

Dr Gibson

  7. Mr Bryant, excuse me, because I grew up active in the eighties on the national executive of a union called ASTMS, of which Clive Jenkins was the General Secretary, and I spent my life listening to the same argument, in that period, as you are putting forward now. And that is that we have to drive down research and development because that is an area where we can make the cuts, basically, and that is where we can make the savings and we will be profitable, and then we will all be happy ever after; well it did not happen that way, did it, in most of the industries? The people we talk to now, who showed the entrepreneurial spirit and went for research and development, have survived in the global markets, be they pharmaceutical, or whatever. Now you are almost talking down your industry, in a sense, to the eighties, where mergers come about but at the end of the day the industry disappears and it develops in some other country, like Japan, and so on. The amount you are putting into research and development, 0.9 or 1.5, does not compare, it is probably the worst, I think, of any industry in this country; and what do you say to that argument that you are in your death throes?
  (Mr Bryant) Certainly, I would not agree necessarily with your choice of language, in terms of it. In terms of Corus, what we have is, at the time of the merger we put together what was the third largest steel company in the world, and that represents something; and now, after other mergers, it is the fourth largest steel company in the world. Compared with our peers in the steel industry around the world, we are very much at an average level of spend, as far as research and development is concerned. And I think you may be addressing questions in relation to the nature of other industries, in that if you took the pharmaceuticals industry then the product itself, as an element within the turnover of the company, the actual production cost of the element is very small, and the research and development and the promotional activity and the testing, and everything else that goes with it, is very high. We are concerned, certainly in the carbon steel industry, the actual cost of our product is very, very high, in terms of what is the market price that we sell it for; by "very high" I mean it is often in the nineties, and if you are in a loss-making situation it is more than 100 per cent, which is the position that we have been in. And it is almost the nature of the industry, I think, that, globally, the steel industry is very, very competitive, because it is possible to move material around from location to location. So that, where I would completely agree with you, steel companies that are able to differentiate themselves from the rest, by going for niche business and by focusing on that, generally have been successful; but that is not something that is associated then with bulk production and the large investments that are associated with that. And I will make just one other comment, in relation to your comment about the eighties; the one thing that British Steel did, and, from talking to my colleague, it is a similar story in Hoogovens, what we did through the eighties was very, very much to try both to maintain the best quality of people that we had, that when we were faced with some of the restructuring that had to be done we tried very, very hard to maintain those people, to encourage them to come and work for us. And you will find that our track record, I think, with the universities in the UK, in attracting the best people into our operations, into our commercial activities, in terms of our R&D activities, is very, very high, to a point where our requirements for recruitment were beginning to outstrip the total production that was coming from UK universities, of suitable graduates. And so what we have done, over the period, is actually move in not just with our own sponsored students but we have created initiatives, like the engineering doctorate scheme, which is in universities, where we are promoting the development of graduates.

  8. Were they entrepreneurial though, these bright young things you brought in, or did you just stick them around with a clip-board, and their grey suits. What did you do with these brains, when you got into that situation?
  (Mr Bryant) Again, I will just say, the nature of the industry is that you need a combination, I think, of the brains that are best suited for all activities that we have got. If you are responsible for running things like blast furnaces and steel plants then, frankly, we do not want people to be too entrepreneurial, we want people who really do have a deep technical understanding of what they are doing, and make steps in a very careful, considered sort of way. I think, when you are dealing with somebody who is looking for opportunities for the product, in terms of seeing new opportunities to grow, then you are looking for those sorts of entrepreneurial skills, and generally they are a combination of commercial skills as well as technical.
  (Dr Edington) It is probably worthwhile saying a little bit about how research is conducted in the drugs and pharmaceuticals industry versus our kind of industry. We are a physical sciences-based industry, and physical sciences have been developed over a long period of time and there is a lot of theory, there is a lot of mathematics, and so the process of doing research is quite efficient, you do not have to do so many experiments because you can work closely with theory and get to the result quicker, so the process of doing research is not so people-intensive. If you go to drugs and pharmaceuticals, it is quite different; there is not much theory, it is a massive experimental activity which starts off with thousands of compounds and winnows it down to one or two over a period of years, so it is very people-intensive. So you end up with a more expensive, fundamentally more expensive, R&D activity to get the same kind of result; so it is quite a different process.

  9. I can accept that, but there is a lot of similarity. Let me ask a final question then. So a merger came about; what drove that merger, and what difference would that make to research and development, given that you have said that it is important, just a tiny bit is important? It is not really what you are after, though, is it, in that merger?
  (Mr Bryant) I will deal, I think, with just two or three points there. First of all, in terms of what drove the merger, it was, first of all, I think, overall, something where we saw the two companies' objectives as being quite similar, and that we thought that both were looking to be more in what we said was creating solutions for customers, which meant that we were wanting to put resource working with our customers, some of that is technical, some of that will be research and development, and some of it will be commercial experience as well. So that was it. In particular terms, for Hoogovens, I think a big driving force was that they were a very efficient, medium-size, carbon steel company, with a very sizeable aluminium interest; but they felt that they had reached a stage where they would be better off linking with somebody who was bigger in carbon steel, and, for them, I think their preferred partner was British Steel. For British Steel, which has been primarily a UK-based company from the point of view of manufacturing our products, and over the time, from the seventies to the eighties to the nineties, we have moved from being something where, at one stage, 80 per cent of what we made in the UK was consumed in the UK, to where we are today, where what is made in the UK more than 50 per cent of it is exported from the UK. And so, for British Steel, Hoogovens, as a manufacturing unit in mainland Europe, offered some great attraction in terms of having a better balance of operations. So those were the factors that drove it. And I have to say that, when Fokko van Duyne and I were first meeting and talking on that, the thing was driven very much by a similar outlook technically, and, if you like, the opportunity to save money on research and development was a very, very low factor, as far as the merger was concerned. The merger was driven much more by creating a large international company that would be capable of giving our customers a much better service than they had had before, very much driven by service.

Dr Kumar

  10. Mr Bryant, Dr Edington is still the Group Director of Research on the main board; when he was appointed it was a great achievement, certainly, historically, for an executive director to be on the board. Now that he is leaving, many would say that your importance to research and development is being downgraded, because his responsibilities are being transferred to Mr van Duyne, and research and development is no longer seen as important as it was once upon a time. What would you say to those people?
  (Mr Bryant) Factually, there is a slight difference, I have to say. In the former British Steel, Dr Edington was on the main board, but since the merger was formed he has not been on the main board, he is on the executive committee and is an executive director but he is not on the main board. And, in the structure of the new company, at the time of the merger we had only five executive directors on the new board, of whom two were Mr van Duyne and myself, and it was our colleagues, John Rennocks, the Finance Director, and Tony Pedder, and at the time Aad van der Velden; now Aad van der Velden retired in the summer, and so today we have only four executive directors on the board of Corus. The second thing is, in relation to the position of technology, when Dr Edington joined British Steel in 1992 he succeeded Dr Fitzgerald, who retired, and Dr Fitzgerald was also on the main board of British Steel, and Dr Edington remained on that until the new merged company. And what we have done, we had ten people on the executive team within Corus, we felt that we were a bit more effective by reducing the numbers there and being more productive, so that when Mr van der Velden retired in the summer we did not replace him on the executive committee, and when Dr Edington retires at the end of the year we will not replace him, so that the executive committee will reduce to eight. But the responsibility for technology and research and development is today the responsibility of a man called Hans de Wit, and he reports to Dr Edington, and when Dr Edington retires Hans de Wit will report to Mr van Duyne; so that the position of R&D within the company is seen to be reporting in at the highest level.

  11. But, surely, the Corus merger that has gone ahead, while the old British Steel had seen R&D far more important, would you not say, than the Corus merger, because actually you had taken out the position of Dr Edington compared with British Steel, does not that demonstrate that actually you do not see R&D as important as British Steel had seen it previously?
  (Mr Bryant) I think my colleagues may both want to come in, but what I say is, I think no, because, in an earlier question, I think to Dr Clark, I referred to a move that I had seen in British Steel and in Hoogovens, where you move closer to the customer and you become an organisation that is much less a manufacturing organisation and more a customer-driven organisation. But if you went back to the old days of the nationalised industry in British Steel, it was a very functional, manufacturing-driven organisation, and so each of the functions tended to report in at the board level. What has happened, I think, in our company, as with others, is it is much more a business-driven thing, and so that our company now is structured not with functional lines but we have got a series of Business Units, which are profit centres in themselves, for which research and development centrally is a service which those businesses use. So I would say that, to some extent, we are reflecting perhaps a more modern way of running businesses with some devolved profit centres.
  (Dr Edington) I am actually quite relaxed about it, and I think it is a step forward; and my reasoning behind that is, it is extremely important for technology to be embedded in the business decision-making processes. And to have technology reporting to Fokko, who is a CEO, and to have information technology reporting to an executive director, and to have environment reporting to an executive director, means that these technologies are deeply embedded in the decision-making processes of the businesses. And I think that is critically important when you are in a market-driven company, which we are trying to become. I think, historically, when we were process-driven, R&D sat there as a separate entity and it was not deeply integrated with what went on in the business, quite honestly, and I think that was a bad thing. So I am quite relaxed about it. It is not perfect, I can think of ways to improve it, but the fundamental reporting position of R&D and other forms of technology, I think, is better like this, in our kind of industry.

  12. You would not say that R&D is a sinking ship and it no longer matters?
  (Dr Edington) No, absolutely not; absolutely not.

  13. You would not say that; and that is not the reason why you are leaving?
  (Dr Edington) I get quite emotional about it; if I thought that was happening, I would not be leaving.

  14. You would stay?
  (Dr Edington) Absolutely, and straighten these guys out.
  (Mr van Duyne) I would like to add one little thing, and it is that the position of R&D within the Hoogovens organisation was a very strong one, and the reason for that was that we have combined the reserves from our aluminium activities and the steel activities into one entity. And we felt that, in order to support our customers better, we needed an enlargement of that, and that was one of the reasons that we merged with British Steel; and in the combination of the two the relationship to our sales went up because of the combination of the two. And we, from Hoogovens, have always had an enormous direction of reserves, and we found, in British Steel, let us say, the strength which could push us up in that relationship. So I would like really to stress that, although Dr Edington is leaving the company because of his age, I think that the focus of the company—


  15. I would remind you, Mr van Duyne, he is four years younger than I am; so you might like to phrase that another way in the transcript?
  (Mr van Duyne) I have to be careful, I know, because it is very sensitive. I think what is really happening is that the organisation of Corus is really more strongly committed towards research and development than, as I say, in the separate position of the two companies prior to that, because we were looking for a broadening of the base instead of a reduction of the base. And now what we are trying to do is to do that research more efficiently, and that is what was described by John Bryant.

Dr Kumar

  16. Mr Bryant, when the merger was first announced between Hoogovens and British Steel, great claims were made; it was in the press, a new dawn was going to emerge, great success, and wonderful things were said, and everybody was delighted, up and down the country. But would you say, since then, it has been an absolute disaster, as far as R&D is concerned? And I know what you said to the Chairman of the Committee earlier. Because here we have a situation where three technology centres in the UK—the Teesside, the Welsh and the one in South Yorkshire—are being merged together, and 230 jobs are being lost; scientists, technologists, engineers, metallurgists, some of the most able people in our country actually are being told to go and join the dole queue. Now would you say that that is still a wonderful dawn? It is a great beginning for R&D for a new company; given that we are trying, as a Government, to say that education is our priority and trying to educate our young people and to have more scientists and engineers, would you see, six months down the road, that merger as a great achievement?
  (Mr Bryant) Certainly, the primary rationale for the merger, which I think I recounted earlier, the conditions there remain as valid today as they were then. I think one has to say that the conditions, some 18 months on from when we announced the merger, for manufacturing in the UK and for basic, primary manufacturing that you recount, I would say, is not necessarily the best place to be. For a company which does 90 to 95 per cent of its business in Europe, we are exporting beyond that, but from the UK in Europe, the continued strength of the pound and weakness of the euro has massive significance, as far as the operations in the UK are concerned, and that is something which we have said repeatedly, publicly and privately, but it is a fact that cannot be ignored. In common with other manufacturing industries which rely on exporting products which consist, in the main, of materials and labour from the UK, which do not in themselves contain a very high level of knowledge, we are finding life extremely difficult in the UK. That is my first point. The second is, in relation specifically to R&D, our recruitment plans, the way in which we recruit people, all the way through, has been that we look to recruit the best technologists, materials scientists, who will come and work for us. The rationalisation that we are making now, in terms of creating one modern Technology Centre, is one where we are looking to retain people who are prepared to move, and, in realistic terms, if we are talking about having one centre in Sheffield, it does mean that people in Wales, or for people in Teesside, there is either an opportunity of moving to a new Technology Centre, or there is an opportunity of moving into the works which is alongside them, or then, for the individual, there is a problem. But what I will say is that we are actively trying to retain and encourage people to be mobile, and mobility, I think, is at the core, as far as that is concerned. Can I also make just one point, as far as when you referred to the Government; we are at the heart of manufacturing, where it is the physical sciences that mean a lot to us. And I have to say this as a source of concern, there is a real concern that we have seen through the last ten years, which is the progressive deterioration of the standards as far as the physical sciences are concerned, both in the schools and in the universities. We recruit, as I am sure you are aware, at 16, at 18 and at 21, and even the basic core, as far as the physical sciences are concerned, physics, is, for the company and for me personally, a real source of concern for the future; because without a firm foundation in physics, which is the core of any engineering or manufacturing approach, then life will be very tough in the future for other manufacturing concerns. And I do not think people should pretend that the state of teaching in physics in this country is anything to be proud of at the moment. Where you have a situation where there is only one physics teacher between two schools, which is the case in parts where we operate, that is a serious problem.

  17. But, you see, you say all these things, Mr Bryant—I hear, but, you know, your closure of Teesside labs hardly generates any confidence, in Teesside, in a company like Corus, because you have actually closed a viable lab, which was very successful. And I could say the same thing about the Welsh Technology Centre, because that was a centre which was taken out of research then it was put back in again, and nobody understands to this day the logic of that. And now you are saying to me that actually three technology centres are going to be merged into one. Actually, you may have some sense of trying to put them together, logically, because it may rationalise, it may reduce; 230 jobs are going; you accept that as a fact, and well-skilled jobs as well. But nobody understands; how does that generate confidence in the areas where the businesses are, because if you are trying to link in your business with your research, and yet close three centres down, how does your strategy fit in with that, because I fail to see it?
  (Mr Bryant) I think that, if you look at what we have at the moment, which is a company which has four Technology Centres and we are bringing those down to two, there is huge scope to use the accumulated expertise and the knowledge which exists in Holland to spread across the UK. We are also looking to use what we have in the UK, focused on one Technology Centre, to be used across the whole of Corus. I think one of the things that Dr Edington led, when he joined the company in 1992, British Steel that is, was that we were much too focused on research for its own sake and we were not using the skilled resources we had to develop things within the works. And so what happened was, in the three or four years immediately after Dr Edington joined, we had a substantial movement of resources that were previously in Research Centres that we moved in closely in support of manufacturing operations and our customers. Which is one of the reasons why, in the narrow field that we measure of R&D, we may come out with one measure, but if you looked at what we have in the way of technical resources and qualified technical resources that are now working on groups within our manufacturing works, they are quite substantial. And the other thing that I think we have found is that, if you look at having three Research Centres, the technologists are a large part of it, but the administration, the service costs and everything else associated with it are also high, and so if you bring that down to one unit you will have the same administration cost for one as you previously had three times over with the three; so that it is not all about getting a reduction in technologists. I will say what I have said before, we will actively try to recruit and retain skilled technologists; they are the life-blood as far as a company like us are concerned.

  18. Let me read to you what the Steel and Industrial Managers Association said to us; they said the R&D personnel are "forced to uproot their families and relocate, in many cases to a foreign country . . . The choices they face cause stress, desperately low morale, and the work output and quality is suffering as a result." That is what the Steel and Industrial Managers Association said to us. What have you got to say to that?
  (Mr Bryant) I can imagine that that is a view that people who are in a position—

  19. Do you share that view?
  (Mr Bryant) The people who are in a position where they are not able to move, or they do not have the ambition to move, would take. I could give you the converse, which is that when you are recruiting young, talented, able people in the UK, the fact that they now have the prospect of working in a foreign country, when they join the company that is called Corus, is attractive. There are some people who are looking to work in the foreign parts of the company that we have, in—

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