Denniston's approach to the growing cryptanalytic challenge
The rest of the 1920s and early 1930s were relatively tranquil for GC&CS. During this period, GC&CS was probably the most effective cryptanalytic bureau the world has ever seen. The only cipher systems of important target countries which were not read were those using 'One-Time Pads' (unfortunately, as it turned out, German, and from 1927, Soviet diplomatic).
In the 1930s, especially after the Italian occupation of Abyssinia and the start of the Spanish Civil War, GC&CS began to expand, and the naval, military, and air sections began to claim a larger share of the organisation's resources. From 1936, Enigma was being used for real, and while Dilly Knox was able to break by hand the simple modified commercial system being used by the Spanish nationalists and their German and Italian allies, the scale of cryptographic challenge posed by the German armed forces was beginning to become apparent.
Although protected from much of the inter-departmental skirmishing which 'C' carried out on behalf of GC&CS, Denniston was not able to use his position as Chairman of the Y Committee to establish coordination, never mind control, of the interception and analytical capabilities of the three services. A man who valued consensus and persuasion, he was not able to fight them, particularly in areas which they considered their own and nothing to do with civilians, whose job was simply to supply cryptanalytic capability on demand.
In 1938, Denniston was responsible for two things, which taken separately and together mark him out as a man of vision. First, he recognised that war was inevitable and that GC&CS did not have the talent it needed to be effective against the German military target. To infuse the organisation with new blood, he used contacts at universities across the UK to identify "men of the professor type" who had the mindset and the skills for the work of GC&CS. Those identified would be given an introduction to cryptanalysis and, if both parties agree, would at the outbreak of war join GC&CS rather than the armed forces. Among those recruited this way, Alan Turing and Gordon Welchman stand out.
Second, and despite rather than because of Admiral Sinclair, Denniston established a warm relationship with the French. This partnership would lead to an Anglo-Franco-Polish meeting in July 1939 which was decisive in enabling GC&CS to break into Enigma and to construct electromechanical devices to support cryptanalysis. Many speculate that had France not fallen so suddenly in 1940, an integrated Anglo-French attack on Enigma would have evolved.
The significance of these two actions would only become apparent with hindsight - but they were central to the eventual success of Bletchley Park.