Commentary

Sir David McMurtry

Chairman & Chief Executive, Renishaw plc

"Our organic growth strategy has allowed us to build a continuously profitable business with an annual turnover in excess of £175m."

Renishaw fundamentally believes that success comes from patented and innovative products and processes, high quality manufacturing, and the ability to provide local customer support in all its markets, around the globe.

Differentiation through innovation

When I last wrote a commentary for the 2002 edition of this publication, I remarked how global competition is turning many products into commodities, and how this makes innovation essential to avoid being priced out of business. The only thing that has changed in the intervening years is the intensity of this pressure. It is no longer possible to succeed as a ‘me too’ producer based in the UK.

Throughout its 33–years’ history, Renishaw has pursued a simple and effective business strategy based on innovation. By pioneering a new market sector – touch–trigger probing on coordinate measuring machines (CMMs) – we ensured that our early patented products were unique. This allowed us to secure healthy margins, giving us the profits we needed to develop our sales, marketing and manufacturing facilities to meet growing demand and, importantly, to re–invest in R&D to provide further innovations.

Success soon gets noticed and our growth could have been quickly suppressed if a firm with greater resources had entered our market, reducing prices to commodity levels. Our patents, which we vigorously defended, provided us with the space we needed to build a global network of sales, service and support companies, which provided steady year–on–year growth in revenues.

Innovation as a long–term strategy for growth

Patented innovation remains at the core of Renishaw’s business strategy today. The key to our commercial success has been sustained investment in research and product development, which has provided a stream of inventions. Each successful product provides a flow of margins that fund the development of future products and processes.

Renishaw continues to apply innovation in its core markets – probing on CMMs and machine tools – to continually regenerate its products to keep ahead of the changing demands of its manufacturing customers. As each new generation of products replaces the last – most recently the revolutionary Renscan5TM 5– axis CMM scanning technology – it provides higher performance and productivity, whilst we benefit from existing and new customers seeking to further improve their manufacturing processes.

Profits from innovative products can fund expansion into new markets and enable a long–term perspective to be taken. A good example of this is our position encoder product line, which took more than five years to develop into a profitable business, but which is now a major contributor to current turnover and future growth.

In recent years, Renishaw has looked for new market sectors in which to apply our core skills of precision measurement and manufacturing. These include manufacturing applications such as semi–conductor fabrication, electronics assembly and packaging automation; medical fields such as cancer research, dentistry and neurosurgery; as well as diverse arenas such as forensic analysis, materials science and even art restoration. In many cases we work closely with leading UK research universities to develop practical applications of the new technologies that we generate.

Making innovations in the factory

Another pillar of our strategy is to manufacture and assemble as many of our products as possible ourselves. This goes against the grain of modern business practice, where manufacturing is often seen as a ‘non–core’ process to be outsourced. We take a different view – if you make products that are used by other manufacturers, it helps no end if you know how best to use them yourself. Consequently, process innovation is a vital element of our strategy, requiring regular investment in capital equipment and ongoing development of new manufacturing processes, ensuring that we keep costs on a downward path and that we are in full control of our quality.

Renishaw assembles many of its products in the UK, whilst core manufacturing processes such as CNC machining and electronics assembly are also based here. Such co–location with our R&D staff helps us to bring new products to market faster. However, we also recognise the need to control manufacturing costs, especially in labour–intensive processes, where the UK is no longer competitive. The company is now investing in new, wholly owned facilities in India to produce mature, lower–margin products in a cost–effective manner.

Influencing our own future

Innovation cannot insulate a company totally from competition, or from the business cycle, but it offers the best prospect of underlying growth in turbulent markets. Although the waters have been a little smoother in the last few years, many of Renishaw’s product markets are cyclical, and the distribution of business around the world is in constant flux. Despite this, our organic growth strategy has allowed us to build a continuously profitable business with an annual turnover in excess of £175 million of which over 90% is exported, that employs over 1,400 UK staff and an additional 600 in 30 countries globally.