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Essentials of Strategic Management

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United Technologies Corporation (UTC), based in Hartford, Connecticut, is a conglomerate, a

company that owns a wide variety of other companies that operate in different businesses and
industries. Some of the companies in UTC’s portfolio are more well known than UTC itself, such Snap a photo from your
as Sikorsky Aircraft Corporation; Pratt & Whitney, the aircraft engine and component maker; Otis phone to post a question
Elevator Company; Carrier air conditioning; and Chubb, the security and lock maker that UTC We'll send you a one-time
acquired in 2003. Today, investors frown upon companies like UTC that own and operate
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companies in widely different industries. There is a growing perception that managers can better
manage a company’s business model when the company operates as an independent or stand- 888-888-8888 Text me
alone entity. How can UTC justify holding all these companies together in a conglomerate? Why
would this lead to a greater increase in their long- term profitability than if they operated as
By providing your phone number, you agree to rec
separate companies? In the last decade the boards of directors and CEOs of many a one-time automated text message with a link to
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conglomerates, such as Greyhound- Dial, ITT Industries, and Textron, have realized that by
holding diverse companies together they were reducing, not increasing, the profitability of their
companies. As a result, many conglomerates have been broken up and their companies spun off
to allow them to operate as separate, independent entities. My Textbook Solutions
UTC’s CEO George David claims that he has created a unique and sophisticated multibusiness
model that adds value across UTC’s diverse businesses. David joined Otis Elevator as an
assistant to its CEO in 1975, but within one year Otis was acquired by UTC, during a decade when
“bigger is better” ruled corporate America and mergers and acquisitions, of whatever kind, were
seen as the best way to grow profits. UTC sent David to manage its South American operations
Essentials of Fundamental The Science
and later gave him responsibility for its Japanese operations. Otis had formed an alliance with Strategic... s of... and...
Matsushita to develop an elevator for the Japanese market, and the resulting “Elevonic 401,” after 3rd Edition 7th Edition 7th Edition

being installed widely in Japanese buildings, proved to be a disaster. It broke down much more View all solutions
often than elevators made by other Japanese companies, and customers were concerned about
its reliability and safety.

Matsushita was extremely embarrassed about the elevator’s failure and assigned one of its
leading total quality management (TQM) experts, Yuzuru Ito, to head a team of Otis engineers to
find out why it performed so poorly. Under Ito’s direction all the employees— managers,
designers, and production workers— who had produced the elevator analyzed why the elevators
were malfunctioning. This intensive study led to a total redesign of the elevator, and when their
new and improved elevator was launched worldwide, it met with great success. Otis’s share of
the global elevator market increased dramatically, and one result was that David was named
president of UTC in 1992. He was given the responsibility to cut costs across the entire
corporation, including its important Pratt & Whitney division, and his success in reducing UTC’s
cost structure and increasing its ROIC led to his appointment as CEO in 1994.

Now responsible for all of UTC’s diverse companies, David decided that the best way to increase
UTC’s profitability, which had been falling, was to find ways to improve efficiency and quality in all
its constituent companies. He convinced Ito to move to Hartford and take responsibility for
championing the kinds of improvements that had by now transformed the Otis division, and Ito
began to develop UTC’s TQM system, which is known as Achieving Competitive Excellence, or
ACE.

ACE is a set of tasks and procedures that are used by employees from the shop floor to top
managers to analyze all aspects of the way a product is made. The goal is to find ways to
improve quality and reliability, to lower the costs of making the product, and especially to find
ways to make the next generation of a particular product perform better— in other words, to
encourage technological innovation. David makes every employee in every function and at every
level take responsibility for achieving the incremental, step- by- step gains that can result in
 innovative and efficient products that enable a company to dominate its industry— to push back
the value creation frontier.

David calls these techniques “process disciplines,” and he has used them to increase the
performance
Chapter of all UTC
7, Problem companies. Through these techniques
3CDQ Bookmarkhe has created
Showthe extra value for
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UTC that justifi es it owning and operating such a diverse set of businesses. David’s success can
be seen in the performance that his company has achieved in the decade since he took control:
he has quadrupled UTC’s earnings per share, and in the fi rst 6 months of 1994 profi t grew by
25% to $1.4 billion, while sales increased by 26% to $18.3 billion. UTC has been in the top three
performers of the companies that make up the Dow Jones industrial average for the last 3 years,
and the company has consistently outperformed GE, another huge conglomerate, in its returns to
investors. David and his managers believe that the gains that can be achieved from UTC’s
process disciplines are never- ending because its own R&D— in which it invests over $2.5 billion a
year— is constantly producing product innovations that can help all its businesses. Indeed,
recognizing that its skills in creating process improvements are specifi c to manufacturing
companies, UTC’s strategy is to only acquire companies that make products that can benefi t
from the use of its ACE program— hence its Chubb acquisition. At the same time, David only
invests in companies that have the potential to remain leading companies in their industries and
so can charge above- average prices. His acquisitions strengthen the competencies of UTC’s
existing businesses. For example, he acquired a company called Sunderstrand, a leading
aerospace and industrial systems company, and combined it with UTC’s Hamilton aerospace
division to create Hamilton Sunderstrand, which is now a major supplier to Boeing and makes
products that command premium prices

Collect some recent information on UTC from sources like Yahoo! Finance. How successful has
it been in pursuing its strategy?

Step-by-step solution

Step 1 of 1

U Technologies is a blue chip company. It has been following unrelated diversification strategy.
Its management is shareholder friendly. It has always shown above average growth. The
company is operating five different business units currently.

Top management of the group has very efficient leaders. GD was CEO of the company before LC.
GD won numerous recognitions as one of the best business leaders. The company has shown
exceptional growth record in the business over many years. Its stocks have shown an
appreciation double that S&P 500. Company has given dividend every year for 19 consecutive
years.

During recession in US the company has shown good endurance. It has shown impressive
performance during two recessions. Since 2001, the company has been growing at 9.5% CAGR.
Company has divested unprofitable segments and acquired many new businesses in emerging
markets.

United Technologies is known for research and development. Company has invested billions of
dollars on it. Its R&D has given many innovations to the company. These innovations have paid
off the company impressively. It has been quite helpful in sustainable impressive performance of
the company.

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