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

 
 

An Uncommonly Cohesive Conglomerate

The members of the ACE Council decided not to abandon the approach, but to double down and raise ACE’s influence further. They emphasized activities such as value stream mapping, which could suggest improvements involving multiple cells, and greater attention to relationships with suppliers. They began talking about a fully implemented corporate-wide operations strategy that would integrate high quality, improved processes, and inventory reductions across all the divisions. They estimated that this strategy could achieve more than $5 billion in annual savings.

But the division presidents, although they had agreed to ACE as a common program, opposed the idea of any corporate-wide strategy. Each division operated in different markets, and they saw further integration as a form of greater bureaucracy. The discussion continued at each Presidents Council meeting (and in many informal corridor conversations) for six consecutive months, until October 2002. Then, the division presidents finally agreed to an overall UTC strategy that they called Operations Transformation, with a stated goal of achieving synergies throughout the UTC system. The persistence of the advocates, and their own experience with integration so far, had, in the end, convinced them.

Operations Transformation had four elements: lean production flow, design for manufacturability, strategic sourcing, and talent development. Operations Transformation defined what they would do, and ACE specified how they would do it. This strategy was delivered to 350 top UTC leaders in January 2003 in a two-day conference in an aircraft hangar in East Hartford. (Similar conferences were subsequently held in Europe and Asia.) When George David opened the meeting, he noted that UTC’s operating margin had gone from 4 percent to 14 percent because of ACE, quality, and supply management efforts. At the end of the two days, after all of the division presidents and operations VPs described their specific achievements, David returned to say that he expected UTC, in the next six years, to achieve 20 percent operating margins and double its inventory turns. He closed the conference by asking all the executives to write him directly, stating what they would do personally to learn and apply the value stream concept. About 40 percent of the attendees put off responding for several weeks; they each received a note from David asking for their commitment. More than any other single move, this mandate made it clear: Every executive was expected to learn and use ACE in every aspect of the business.

Several weeks later, David himself spent a day in training at a Sikorsky helicopter factory. On subsequent visits to UTC facilities, he would look for the management team’s value stream maps, ask questions, and often instruct managers on finer points of the techniques.

To promote improvements on a broader scale, UTC made two other radical changes. First, about 300 managers were assigned to supplier improvement. They received specialized training based on ACE concepts and methods. UTC’s supplier improvement program soon became as effective as that of any Japanese company. Second, all the facilities across UTC worldwide were reorganized; top leadership divided the conglomerate into nearly 1,000 sites, each with its own performance improvement goals. These sites typically had at least several hundred employees, and they became the focal point of ACE certification; assessment was based on such criteria as leadership, improvement activities within cells, performance and interaction across cells, and reductions in environment, health, and safety problems. More methods were added to the ACE tool set, additional courses were developed, and the ACE curriculum was expanded to include business operations and engineering tracks for professionals in those fields.

Only now did the company fully standardize the ACE methods and certification processes across divisions. The impact was seen even in such traditionally self-contained parts of the company as engineering, where improvement programs had often been dismissed as superfluous or unnecessary. When the engineering leaders embraced ACE, it had a dramatic effect on budgets; instead of spreading engineering investment more or less evenly across all units to appease unit managers (like “peanut butter,” as critics said), the investment went to places where leaders were confident it would get results. For example, after using ACE methods to improve its processes, the turbine module engineering group gained additional investment—which ultimately led to an initiative to develop higher fuel efficiency, lower weight, and greater reliability for Pratt & Whitney’s engines. The group’s efforts were part of what enabled the development of a new, innovative line of turbo-fan jet engines that have given Pratt & Whitney significant competitive advantage among jet engine manufacturers.

 
 
 
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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.