42 Degrees - Business from a different angle

Archie Norman's new offices may be in Mayfair, the swanky area of central London favoured by the international mega-rich, but they certainly don't look like the headquarters of a business with up to £30bn to spend over the next decade.

But then Norman doesn't look or behave like a man with up to £30bn in his back pocket. Like his offices, he is open, understated and completely lacking in embellishment.

"We've got £500m annual equity capacity which means we could afford to service perhaps six times that in debt – £3bn a year, although we probably will use only a fraction of that," he explains in his precise, clinical manner as if he were discussing nothing more scary than a leasing deal on a new company car.

With such huge sums at his disposal you might think that Norman is either in the venture capital game or else embarking on a career as hell's own corporate raider. Certainly every company in the FTSE 250 is within his range, as are many of the FTSE 100.

In fact, the former MP for Tunbridge Wells is simply planning to do more of what he has done better than any other British businessman: turning around failing businesses.

Through his firm Aurigo Management he plans to buy one or two ailing companies a year, "the bigger the better," he says, build them up, and here's a twist, he then plans to keep them.

"Unlike private equity firms we like to say that what we buy, we buy for life. We'll take responsibility for our businesses. We are not a laid-back bunch of passive investors, we want to add value. So in early stages I'll take control. But my objective is to build great management teams that can live without us."

The focus will be on people businesses that can be influenced by leadership, such as retail, creative, consumer and financial services. "We're much less interested in asset-backed businesses. We're not financial engineers," says Norman.

Looking back, his is a truly remarkable record of business performance at the highest levels. At 28, he became the youngest partner at management consultant McKinsey. At 33, Norman helped to double the market value of Woolworths in just four years. He then rescued grocery giant Asda from near bankruptcy and sold it to Wal-Mart for £6.7bn.

In 1997, he entered parliament as a Conservative MP and rose to deputy chairman. Then in 2002 he became chairman of telecoms company Energis. In 1999, it was worth £8bn. Just three years later it was in administration. By 2005, he had persuaded Cable & Wireless to acquire the company and its £740m debt for £780m.

Each of these turnarounds was different and each had its own lessons says Norman. The problem at Woolworths, for instance, was lack of focus and coherence. "The business was just a terrible muddle. It lost its way. It used to be one of the biggest food retailers and now it had everything from clothing to gardening and beyond," says Norman. Nobody it seems, including Woolworths, knew what Woolworths was supposed to be.

"We had buying scale and not much else to compete with, no fantastic stores or amazing service," he adds. The solution was to concentrate on doing a few things very well and be the biggest in the sectors the company chose to compete in. "We wanted to be the number one confectioner, number one in entertainment and market leader in children's clothing," he explains.

Asda, however, had very different issues. Norman describes it as "a broken company." "It was originally created by a group of northern dairy farmers as a value-driven, large-scale food and general store, with big spaces," he says.

But during the 1980s it lost direction and became a bureaucratic, demoralised, over-diversified organisation with hierarchical management, a company jet and no direction. "By the time I arrived, its prices were the same as everyone else, and it was in danger of defaulting on its borrowing," he says.

The good news was that it was still very clear what the Asda brand should be about: everyday low prices. After slashing overheads – the jet had already gone, closing buildings, cutting back middle management and overseeing the departure of nearly a tenth of the workforce, Norman started work on rebuilding the company culture.

This, he says, was key. "All failing organisations need a sense of direction. The new general is expected to know which way to march. Even if the strategy is completely unclear people need new confidence, a sense of direction – you've got to say. 'we march towards the sound of battle'."

He applied similar thinking to Energis, although the telecoms provider had a completely different set of difficulties. It saw itself as a provider of telecoms infrastructure. "It had 7,000 kilometres of fibre optic cabling and it thought that all it had to do was fill it up," says Norman. But he realised that customers don't really care about infrastructure, they just want their phones to work well.

So along with Chief Executive, John Pluthero, he slashed the number of customers from 6,000 to 1,300 – retaining only the biggest and most profitable accounts, he reduced the workforce from 2,400 to 1,500, although crucially he recruited 700 new staff as well, and he set about transforming Energis into a service company targeting the upper end of its market.

Although keeping costs under control is obviously vital, and he admits that you win no popularity contests when turning around a business, Norman says the key lesson he has learned from 30 years in business is the importance of people.

"Service businesses depend entirely on the attitude and commitment of their people," he explains. "That's why in organisations where you can't change the people you have a big problem. I've always changed large numbers of people, then built the new company round new sets of attitudes."

That's all very well, but does any of this have relevance to companies that don't employ thousands of people? In Norman's view the answer is an emphatic "yes". "I don't think there's a massive distinction between big and small companies. In a big company you have more resources and sophisticated advisors. In a small one you do it yourself. But the principles are very similar."

"If you take a big company such as Asda, in a sense the objective is to make it like a small company. You have to be as close to the front line as if you owned one shop."