"So, how does one use phonics to pronounce "drought", "nought", "worchestershire" and "colour"?"
You learn them the way you learn an idiomatic expression - by exposure. And memorization; those words are exceptions.
My daughter was taught exclusively with "look and say" and it held her back immeasurably. Straight phonics is the way to go, IMHO.
Well, if there are exceptions and memorization, then it isn't "straight phonics". I think reading should come with a good foundation of phonics in the early stages, with sight identification of works coming as the reading material gets more complex, say around the time chapter storybooks are introduced.