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strategy and business
Published: August 27, 2013
 / Autumn 2013 / Issue 72

 
 

An Uncommonly Cohesive Conglomerate

The company’s name for its approach to learning from itself, which was coined about a decade after that phone call from Osaka, is Achieving Competitive Excellence, or ACE. It took 10 years for UTC’s leaders to fully develop the methods that Ito and others taught them, to make those methods their own, and to extend the resulting approach across the company and the rest of its value chain. Today, UTC continues to invest in, refine, and renew ACE as a key source of its competitive advantage. When they are asked what enables the company’s momentum, UTC leaders tend to credit ACE first—describing it not as a program or as a set of quality practices, but as the corporation’s all-encompassing way of doing business.

“ACE is repetitive, formal, disciplined—and it doesn’t change,” said George David in 2007, speaking at MIT’s Sloan Management School. (David retired from the chief executive position the following year and was succeeded by UTC’s current CEO, former Pratt & Whitney president Louis Chênevert.) “It is the basis of more than half the shareholder value increase in UTC.… There is no force more powerful in modern business than productivity. You do it or die. It is what gives goodness to life. Make no mistake, it is productivity underneath everything.”

From Methods to a Discipline

Perhaps the most pivotal moment in UTC’s story came soon after that 1986 confrontation with Matsushita Electric when George David sought out Yuzuru Ito to ask if he could help Nippon Otis address its quality problems. Ito agreed, and began by teaching two methods to Nippon Otis’s factory employees. First, he taught shop-floor teams to use statistical analysis to diagnose production problems and deduce the fundamental root causes (which were not always obvious). For example, a statistical review of elevator control module failure might reveal that the established sequence for soldering components was flawed, leading the elevators to travel to undesired floors. By changing that sequence, the team could stop the failures. Second, Ito showed workers how to set up quality clinics, the manufacturing equivalent of a hospital team making diagnostic rounds. These practices were successful enough that Nippon Otis went from being an embarrassment to being a source of pride.

When Ito retired from Matsushita in 1991, he consulted with Otis and then other UTC companies in the United States. In 1994, David persuaded him to join UTC as its top quality officer and to move to Connecticut, where the company is headquartered. Meanwhile, Otis’s sister company Pratt & Whitney had its own quality initiative under way, and in 1992 had hired a firm called Shingijutsu Consulting, whose founders were protégés of the late Taichi Ohno, Toyota’s former chief engineer (and technical architect of the famous Toyota production system). The early 1990s were the heyday of the quality movement in the U.S., and the UTC companies rapidly achieved gains on the shop floor. They reduced waste, consolidated space and tooling, and improved manufacturing results.

But UTC also faced larger competitive issues, which struck Pratt & Whitney in particular with full force in the early 1990s. After the fall of the Berlin Wall, U.S. government military spending declined at the same time that worsening economic conditions reduced commercial jet engine demand. The aircraft engine manufacturer had to cut its 11 million square feet of factory space by 25 percent.

One facility slated to be closed was a turbine components plant in North Berwick, Maine, which had been set up a decade earlier to experiment with flexible manufacturing concepts. Though it had consistently high quality levels and low costs relative to Pratt & Whitney’s other factories, it had the disadvantage of being in a remote location, and the company gave the plant leaders six months to wind it down. Instead, they decided to use that time to show what they could achieve—by integrating and implementing everything they had learned within their walls.

 
 
 
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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.