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Published: August 27, 2013
 / Autumn 2013 / Issue 72

 
 

An Uncommonly Cohesive Conglomerate

How United Technologies Corporation—owner of Pratt & Whitney, Otis Elevator, and a wide range of other businesses—became one of the major corporate success stories of the past two decades. See also “The Story of UTCʼs Success—In Pictures.”

Right from the start, the service call was unusual. In a business-to-business manufacturing company like Otis Elevator—or its corporate parent, the United Technologies Corporation (UTC)—field engineers are supposed to be heroes. They swoop in when there’s a technical problem too complex for anyone else to solve. But when two of Otis’s best field engineers were dispatched from their U.S. headquarters near Hartford, Conn., to Osaka, Japan, to fix a pair of malfunctioning elevators at Matsushita Electric, they weren’t brought to the problem site. Instead, they were ushered into a conference room where their customers, Matsushita’s corporate leadership, sat stone-faced around a table.

The year was 1986. Matsushita’s recently completed Osaka headquarters had been outfitted with the latest Otis elevators, which were repeatedly failing. This wasn’t an ordinary customer. Matsushita and Otis had formed a joint venture called Nippon Otis, which provided the elevator maker with the credibility it needed to sell its equipment in Japan. However, the Otis failure rates were damaging Matsushita’s reputation. Matsushita’s vice president of quality, Yuzuru Ito, along with a member of the Japanese company’s board, had visited Otis president George David in Connecticut a year earlier to complain about quality issues. Otis’s corporate leadership had listened to them politely, but the quality had not improved.

Now, in the conference room, Matsushita’s managers insisted on talking about root causes—a central concept in quality management, less familiar in the West. Abashed and uncertain, the field engineers placed a hurried call to headquarters that reached George David. The Otis president might have been expected to push back or deny the problem, but instead he listened intently. During the next few months, he did something uncharacteristic for Otis—and similarly out of character for the rest of UTC and most manufacturing companies. David asked Ito and others at Matsushita for help. Over the next two decades, David and Ito would become so close that he would eventually say Ito was like “a second father” to him.

The story of that phone call and its aftermath is retold regularly throughout UTC, as one of several incidents that marked the beginning of a fundamental shift in attitude and practice. Over the years, this shift would affect virtually all of United Technologies Corporation’s managers, employees, corporate partners, suppliers, and customers. It would eventually turn UTC into the highest-performing Fortune 50 company (in the years from 2000 to 2011) and one of the very few conglomerates to sustain a successful diversified enterprise (see Exhibit 1).

UTC is a large conglomerate that designs, manufactures, and services a broad range of engineered products, including air conditioners, elevators, jet engines, and helicopters. It is best known for its leading industrial brands: Otis Elevator, Pratt & Whitney (maker of aircraft engines and gas turbines), Sikorsky Aircraft (the first mass-production helicopter company), Carrier (air conditioning and heating), Kidde (controls), Chubb (security), and Hamilton Sundstrand (aircraft). In all, UTC employs nearly 200,000 people and has a market capitalization of more than US$75 billion and revenues (in 2012) of $57.7 billion; it is number 44 on the Fortune 100 list.

What has enabled UTC to sustain high performance during a decade when many comparable corporations lost ground? Those inside the company credit a deeply ingrained, broad-based, carefully established form of management proficiency. UTC is a conglomerate that learns from itself. This is partly a matter of operational excellence; as much as any other large U.S. company, UTC is credited with putting quality and lean management precepts to work. But operational excellence is just one of several management capabilities that UTC has brought to scale across its diverse member companies. Others include statistical control, flexible manufacturing, customer-focused feedback, and UTC’s own intensive approach to learning and development. Individuals are explicitly connected, through innovative training and ongoing collaborative routines, with the company’s overall strategic direction, as set by its top leaders.

 
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Resources

  1. Ann Graham, “Too Good to Fail,” s+b, Spring 2010: Profile of India’s Tata Group, another successful conglomerate with a very different strategic orientation.
  2. George Roth, “United Technologies Corporation: Achieving Competitive Excellence (ACE) Operating System Case Study,” (PDF) LAI Case Study (Nov. 30, 2010, released Mar. 7, 2011): The in-depth case study, representing three years of observation and interviews, on which this article is based.
  3. Robert E. Spekman, “United Technologies Corporation: Supplier Development Initiative,” Darden School of Business, July 19, 2001: More detail on the supplier initiative, capstone to the ACE program.
  4. James P. Womack and Daniel T. Jones, Lean Thinking (Simon & Schuster, 1996): Describes many of the threads of theory and method underlying UTC’s quality work. Chapter 8 discusses Pratt & Whitney’s advances in the early 1990s.
  5. For more thought leadership on this topic, see the s+b website at: strategy-business.com/strategy_and_leadership.
 
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