David Cote Turbocharges Honeywells Performance - globaladvisors.biz/inc-feed/20140815/david-cote-turbocharges-honeywells-performance/ David Cote became CEO of Honeywell in February 2002. The high-tech conglomerate in everything from aerospace to autos was in a tailspin. That years revenue declined 6% to $22.3 billion, with Honeywell shares flopping along with the market. David Cote grew up in New England, built a solid reputation at GE and TRW, and took over Honeywell in 2002, overseeing a 350% stock rise. Honeywell View Enlarged Image There was a fierce onslaught of people coming from different directions who wanted dramatic changes right away, Cote (pronounced CO-tee) told IBD. I not only needed to first understand the origin of the problems, but the company needed a new culture that would support solutions. I told them that I could make all the brilliant decisions they wanted, but if they dont get implemented what good is it going to do? Since then, Cote has turbocharged Honeywell. Last year it had revenue of $39.1 billion, up from $31 billion in 2009. Meanwhile, Honeywell stock has rebounded 350% since 2002. This is one of the great CEOs of our time, yet hes stayed below the radar, CNBC host Jim Cramer told Fortune. Cotes Keys CEO of Honeywell. Overcame: Chaos and decline when he took over. Lesson: A successful company needs a unified culture. Your job as a leader is to be right at the end of the meeting, not at the beginning. New Hampshire Rise Cote, 62, grew up in Suncook, N.H. His father owned a service station where David worked, and he admired his dads ability to stay calm and think clearly in the face of upset customers. Unsure of what career to follow, he went from high school graduation in 1970 to Michigan to work at a car wash and as a carpenters apprentice. He returned to his home state to enter the University of New Hampshire the next year, but before graduation he bought a boat and tried fishing for a living. He didnt make much money, so he sold the boat, married and returned to college, graduating with a business degree in 1976. Having worked the night shift at a General Electric plant as a student, he took a job as an internal auditor at GEs Lynn, Mass., facility. Then he spent the 1980s as a financial analyst at GEs Fairfield, Conn., headquarters. In 1985, CEO Jack Welch was hunting for the idiot who was wasting managers time with exhaustive questionnaires and eventually was pointed to Cote. The 33-year-old explained that he was doing the best job he could with his assignment and refused to bad-mouth his superiors. Later, Welch learned Cote had argued against the survey, and the boss decided to jump him three levels into management. In 1996, Cote was made senior vice president in charge of GEs appliance business at a time when prices were falling. He did a good job, but didnt see a way to rise much higher. So in late 1999, he left to become president and chief operating officer of TRW, the Michigan-based maker of car products. Two years later he was CEO. I learned a couple of important things at TRW, said Cote. Im New Hampshire frugal, and TRW had a huge amount of debt, which required a difficult daily struggle, so I vowed not to be put into that situation again. The other was about the critical importance to long-term success of having great positions in good industries. By February 2002, Cote had been recruited to fix the troubles at Honeywell in Morristown, N.J. The fundamental problem was a clash of three cultures due to poorly integrated acquisitions. The big one: AlliedSignal in 1999. Executives at the aerospace firm emphasized hitting quarterly targets, no matter what. Honeywells leaders stressed pleasing customers immediately, but that often meant overpromising and underdelivering. A third culture involved Pittway, a home security company acquired in 2000. Its staff continued to act independently, ignoring headquarters. What Cote first needed to do was build a companywide culture that would help get the company back on track to deal with business challenges, he said: No one internally or externally wanted to hear this. I kept hearing, Why are you fooling with this when we have real strategic problems? I told them that unless we can get sustainable changes, we will never get to our goals. It took a relentlessness of purpose to unify 12 behaviors: growth and customer focus, leadership impact, getting results, making people better, championing change, fostering teamwork and diversity, having a global mindset, intelligent risk-taking, self-awareness, effective communications, integrative thinker, and technical or functional excellence. We use the same 12 behaviors today that we agreed upon more than 12 years ago. These criteria were used to hire and train new employees. In his early years as CEO, around half of Honeywells top execs were recruited from outside. He says now its under 15%, which means more internal promotions to those who exceed the companys performance and behavior metrics. We do more than 100,000 appraisals a year to measure how everyone is doing against these behaviors and we hire the kind of people who fit our culture, he said. Soon after he took over Honeywell, Cote wrote off $8 billion, much of it from poorly performing acquisitions prior to his tenure. He had his managers focus on lowering labor costs without major layoffs. The company has over 130,000 employees today. Production Shift The firm Honeywellized — his term — Toyotas lean production system that organizes workers in the most efficient way. The official title for the process is the Honeywell Operating System, which drives productivity throughout Cotes outfit. Meanwhile, he restructured his company, shedding 50 units that brought in $6 billion, while buying 80 companies for $11 billion, none for more than $1.4 billion to spread out the risk. Many of those sold had not been well-integrated or didnt fit with Honeywells technology. For mergers and acquisitions over $50 million, Cote monitors integration closely for the first 90 days, then assesses quarterly for at least a year. I had the new person running M&A analyze the deals that had been done over the prior 10 years before I arrived to determine what made the successful ones and why the others didnt work out, Cote said. Over the next half-year, we developed a process of due diligence, valuation and integration, with detailed steps to achieve these more rigorously than Ive seen anywhere else. We didnt fall into the trap of telling ourselves we were just good at this; were just as paranoid about mistakes as we were when I came on over 12 years ago. Cotes strategy was to expand the companys footprint in faster-growing and emerging markets focused on key global macrotrends such as energy efficiency, clean energy generation, safety and security, expanding global wealth per capita, and customer productivity. In The Money Honeywell expects over $40 billion in revenue in 2014 generated by its three business segments: • 1. Automation & Control Solutions enables customers to manage everything from building energy use to manufacturing. Cote says that if America adopted all of Honeywells conservation products, it could immediately reduce energy consumption by 20% to 25%. • 2. Aerospace is a leader in avionics — from air traffic control to flight safety. It includes Transportation Systems, with turbocharger technology that captures exhaust to boost engine power without increasing fuel consumption. • 3. Performance Materials & Technologies is a leader in refining petrochemicals and making advanced fibers for the military. Honeywell is growing globally, with 55% of revenue coming from outside America vs. about 40% when Cote joined the company. The CEO sees a bright future. He recently announced plans for 2018 sales reaching $46 billion to $51 billion, with improving margins. Honeywell is targeting $10 billion in acquisitions over those next five years, which could add $5 billion to $8 billion in sales. Hes a visionary and exceptional leader, said David Sokol, chairman of the Horatio Alger Association, which inducted Cote last November into the organization, which encourages entrepreneurship. Honeywell is making scholarship and internship opportunities available to young people to study science and technology while the company helps address the cost of higher education. On the personal side, Cote dresses casually and listens to a wide array of music, from Jay-Z to Neil Diamond, the opposite of the slick, buttoned-down corporate boss. He works out two or three days a week and gets away to scuba, ski and fly-fish — and has his share of low-stress fun when hes working hard.
Posted on: Fri, 15 Aug 2014 06:24:12 +0000
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