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Randy Wilcox: Ethics and Manufacturing

85_WilcoxMeeting the Challenge in a Global Environment

Randy Wilcox retired from his position as president for the Americas, Otis Elevator Company, a division of United Technologies, in March of 2014. He was named to this role in 2007 and was responsible for $3 billion in sales and 12,000 employees throughout the U.S., Canada, and Latin America.

Previously, he lived in Hong Kong, where he served as president of Otis South Asia Pacific Area for five years. In this position he was responsible for operations across 20 countries in Asia and the Arabian Gulf.

Randy joined Otis in 1981 as a sales trainee in San Francisco and served in various sales and management roles throughout his career, including regional general manager and regional vice president, both located in Seattle.

He received his bachelor’s degree in business administration from Cedarville University in Ohio, where he has since also served as a trustee. He received his MBA from the University of Denver.

This conversation between Randy Wilcox and Al Erisman took place during a car ride between Hartford, Connecticut and Boston in June 2013 while Randy was still president, Americas at Otis. It was originally to be posted December 2013. Because of obligations of the editor, however, it has been delayed more than a year. We have left the quotes as they were in 2013, but have added two questions at the end to update the document in March 2015.

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Working with a global company in an international setting can offer ethical challenges that many leaders don’t face. Could you illustrate this for us?

We had a very troubling experience in India, where we had an old plant that we’d essentially shut down; it hadn’t produced anything for several years. We’d opened up a new, much larger plant in another part of India that employed many more people, but there were about 150 people left idle in the old plant. India did not allow involuntary restructuring if you had over 100 employees, and the union was insisting on a very, very large “facilitating” payment in order to allow us to reduce the workforce.

We were prepared to give a generous severance package on a voluntary basis, but the union had blocked this in fear that the remaining employees would fall below 100. The unions in India are aligned with political parties, which makes appealing an unreasonable demand very difficult. In this case their interest was in securing a substantial “fee” and not in negotiating a generous severance for the workers.

The troubling thing about this case was that we wanted to give a generous severance that would have amounted to approximately two years’ wages. There is no real safety net in India and some of the employees that were left would have struggled to find similar employment. Unfortunately, the union was asking for something that would have clearly broken our own ethics policy and was of questionable legality for a U.S. company.

Ultimately we found a solution that resolved the issue. It was in strict compliance with our rules, but it wasn’t very satisfying, and I occasionally wonder about it even today. We essentially sold the facility to a developer whose political power likely allowed him to avoid paying the union. We sold the plant in the same way you would sell a property that had an environmental problem, because it had a liability that came with it. The liability was the employees. We did everything we could to try to get assurances that the new owner would treat the employees like we would. And we included the economics in the deal. The solution was much more expensive than paying the union and giving a generous severance to our employees.

In the end, we paid a significant premium to avoid violating our ethics policy, but I suspect the cost to the employees was much greater. Corruption is insidious because even when you try and avoid it, it can exact a cost on the most vulnerable.

Corruption is insidious because even when you try and avoid it, it can exact a cost on the most vulnerable.

The Business of Elevators

Certainly we have all ridden in Otis elevators, but most of us (including me) don’t know much about the elevator business or the sophistication of elevators. Tell us first a bit about the company.

In 2012 the company celebrated 160 years (in business), and we are in 200 countries. In many of those countries we have been there for a long time. Some think of China and India as emerging markets, but we’ve been in Shanghai since the 1920s, and sold our first elevator in India in the late 1800s. At one time we were listed on the Indian stock exchange, until we went completely private.

It is not just India and China. When cities began to grow at the turn of the 19th century, Otis established a presence, or made an acquisition, in many places around the world. When high-rises are constructed, they need elevators, so we would go to these growing cities either to begin our business or to buy a local company. We had all the challenges of managing a global enterprise in a very different era.

Early in our history, the president would go on a steamship with his family and spend six months travelling the globe. When he returned, another senior executive would do the same thing the following year. This was a time when you truly had a lot of autonomy when you were managing in a remote location.

Otis also has a great history following the principles on which it was founded. The company was started by Elisha Graves Otis. While there had been elevators in use going back to the Egyptians, the early ones were perilous contraptions, primarily used to haul goods. The rope would break and there would be an accident. But Mr. Otis was a serial inventor, and he invented a safety break for an elevator. He demonstrated it at an exposition in New York very dramatically. With an elevator 30 feet up in the air, somebody cut the rope and the elevator didn’t fall. His first customer had had a serious accident, with a fatality, and placed that first order based on safety. So the company was essentially born out of solving a safety problem.

… the company was essentially born out of solving a safety problem.

That foundation informs our values today. Safety remains our most important absolute and it is more important than profit. We take safety very seriously. In the past 15 years, we’ve made a 10-times improvement around the world in safety performance measured by accident rates, lost time rates, and severity rates. We believe we’ve made a contribution to improving the overall safety of the construction industry around the world.

Ethics and Safety

How do ethical practices relate to elevator safety?

An elevator is actually the safest form of transportation. It is even safer than walking down the street. But there are a large number of units that are out there, and some of them are older. We are constantly gathering data and looking for issues that might relate to design, installation, or maintenance, with the goal of keeping the product safe. Elevators can be in service over many decades, and over time, codes, technology, and passenger expectations change. In addition to designing safety into new products, the company is constantly evaluating when to issue corrective action bulletins for units that may have been installed 50 years ago. We have a lot of controls in place in our company to avoid risk to public safety, quality performance, or any number of things that could put the brand at risk. This certainly comes with a cost, but there is broad recognition in the company that the cost of an accident is always much greater. In the area of safety, an ethical lapse can result in an accident or a fatality. Therefore the training and controls we have in place for both managers and those who install and maintain elevators are the most rigorous in the company.

What were the factors that caused the company to become global so early?

A lot of it was timing. The founder died right before the Civil War and only a few years after establishing the company. At the time, his interest was diverted by other inventions and by his primary passion, which was the abolitionist movement. He actually used the proceeds from one of the first elevators to buy a canon for his militia. Fortunately, his two sons who took over a very struggling business in 1861 turned out to be very gifted businessmen. And as cities grew, and buildings in cities grew tall, there was a demand for the product. There were many elevator companies starting up to meet this need, and Otis began to make acquisitions. These were either companies that were creating similar products, or that were installing our products. After the start of the 20th century, there was an explosion of growth in cities, and Otis put together an aggressive business plan at a time when the world was in need of elevators.

Staying in Business

What is the key to longevity for Otis? There are not that many companies 160 years old. When you look at the list of top companies even 60 years ago, many of them are gone.

That’s a good question. But here are some factors. The early establishment of a global presence created efficiencies of scale, and enabled us to make the investment in technology that has sustained the company. We made the investments enabling us to move from hydraulic lifts to electric powered lifts, and then to automated systems that did not require operators. That was very innovative at the time. Over the past 160 years, scale benefit enables us to capitalize on innovation from outside our organization as well. At every step the company has been at the forefront of technology.

… we are also in an industry where industry codes play such an important role.

But we are also in an industry where industry codes play such an important role, and that means innovation is adopted more slowly with careful testing before it is accepted.

So during this time we could also play the role of being a fast follower of technology. In telecommunications, every couple of years your company can be leapfrogged by somebody who comes up with a new idea. That’s a very difficult thing to do in our business because of the scale of the investment and regulatory issues. So it has allowed us to benefit from technology even when the technology does not originate with our own organization.

Technology and Environmental Issues

In addition to product efficiencies, you have created innovation allowing your products to be more environmentally friendly as well. Tell us about this.

The elevators we sell today are regenerative; they can put energy back on the grid. A traction elevator has a counterweight and a cab, and whenever there’s an imbalance you’re either using energy to overcome that imbalance, or that imbalance can create energy. If you have a lightly loaded elevator going up, the counterweight is heavier than the elevator, and our equipment actually generates electricity. And it’s actually clean electricity that goes back into the building grid. This makes the elevator very efficient in its electrical use. Thus the electrical use of an elevator tends to be a very small percentage of the overall energy use in the building.

If you are the only passenger on an elevator going up, you are likely putting energy on the grid. And on a loaded elevator going down, you are also putting energy on the grid. There’s also a lot of technology around eliminating the need for lubrication as we move away from using hydraulic systems to a very efficient green traction system.

If you are the only passenger on an elevator going up, you are likely putting energy on the grid.

This is an important part of our value proposition in many places in the world. Outside of the U.S., there’s an even greater demand for this capability. In Europe, for example, green products are very important, so we’ve tried to respond to that demand and innovate in these areas.

Do you ever put up signs by your elevators saying, “Ride the elevator to save the environment”?

We ought to! People sometimes walk for the exercise, but it doesn’t always save the environment.

Innovation

Let’s talk about some other innovations. In some places in the world, after I have pressed the button I am notified immediately which elevator I will be taking. Most of the places in the U.S. when I press the button I need to wait in the middle since I don’t know which door will open. How does that technology work and why is it not more widespread?

This technology has been around for a little while, and is gaining traction because of some other dynamics. It requires users to become comfortable with this different way of interfacing with the elevator. It was adopted in some cultures (such as Japan) because people in those cultures seemed to value the certainty of knowing which elevator they would be using. This approach is used less in the U.S. because it is slightly less efficient than adapting the next elevator by accounting for delays at one floor, for example, which might allow another one to arrive and pick you up earlier.

But this same technology, built on the power of information technology, is now being incorporated into a broader solution called “destination dispatch.” The idea works like this. You have a key to your hotel room and when you call the elevator, you are grouped with other people going to the same floor. You don’t need to push a button for the floor, because the system has read your key and takes you where you are going. In an office building, you may have your offices on the 15th floor and may only be authorized to go to that floor. You would be grouped with other people going there based on reading your security card as you passed through the turnstile on the way to the elevator. This provides another level of security for the offices on the different floors of the building.

This system can also separate populations before entering the elevator. Those going to the law firm are all on the same elevator — more direct service and greater security. For a VIP coming in for a meeting, you tell them on a screen when they come in that they’re going to go to a particular floor, even a particular conference room. It’s less today about the elevator and more about the building being able to control the movement of its employees, inform the employees, and integrate that with security. That’s the latest thing. Most of what we’re doing in high-rise construction today around the world takes advantage of this technology.

… the elevator [is] more about the building being able to control the movement of its employees, inform the employees, and integrate that with security.

Five years from now it will be much more common to go into a new building, get into the cab, and the elevator already knows where you want to go. You won’t find a button. The RFID card in your wallet has already worked it out with the elevator.

So what if you’re going to visit a colleague on another floor, how does it adapt? (Laughter)

There may be a keypad you can push, or a voice command where you could say, “cafeteria.” But the key idea is that it will be integrated into the security system of the building. If you want to go some non-standard place, it might ask you for some ID or credentials.

Managing an Ethical Culture

Let’s move from technology to ethical practices. In an era where there have been so many ethical scandals, how does Otis view and manage ethics in the business?

First of all we’re part of a much larger company. Otis itself is a big company, about $13 billion in revenue and in 200 countries around the world. So we’re the most global company within United Technologies, which is our parent company. About half of United Technologies is aerospace, and the other half is Otis, Carrier [heating and air conditioning] and some other brands in the security space, making up the building services part of the business. But as a large defense contractor whose customer is the U.S. government, the importance of integrity, compliance, and trust is huge. It’s really part of our DNA.

Being a global company under that umbrella, and meeting the same standards expected of a defense contractor by the U.S. government, means that Otis is under a self-imposed, very strict set of compliance guidelines. Ethics is also extremely important to the company, because we’ve had, over our history, some mistakes that have been very costly. In fact, I owe my own move to Asia to an ethics problem. A position opened up when we divided Asia into two regions to get more control following a large fraud issue in the Philippines. When we were running Asia as one entity, much of the focus was on China, and the fraud in the Philippines became a problem before it had the proper attention. We changed our structure there in response to this to improve oversight.

About a decade ago, our industry had an antitrust problem in Europe and collectively we paid, what was at that time, the largest fine levied by the EU. It was extremely expensive for our company and had implications for the brand at a cost of hundreds of millions of dollars. We had been operating in many different countries and emerging markets for a very long time, where the workforce was local with people who had been working together for generations. A very small group of employees continued a practice of colluding that began many years ago when it was a more accepted part of the culture of some European countries. The irony is that the impact of the collusion was to create complacency and stifle the competitive energy of the local teams, and the margins were actually lower in the countries where this occurred.

In the U.S., we have some of the highest expectations of a company in the world. And while this is a good thing. it can also be a real challenge for a U.S. company with over 80 percent of its business and workforce outside the U.S. In addition to potential fines, missteps by even a single employee can have big implications for your brand. So out of this very costly failure involving antitrust activity, we had to make some fundamental changes in training and compliance to ensure a global standard in every country where we operate, regardless of what might be accepted practice in any particular country. We already had a very rigorous ethics policy, but we had to find a way to make it fail-safe. Taking a high compliance culture globally is a real challenge, and that was our initiative. We needed to instill a common ethical culture across the company, no matter where we operated.

Taking a high compliance culture globally is a real challenge, and that was our initiative.

Our safety culture has also had a strong influence on our ethical culture. We have a global safety standard that doesn’t change regardless of where we’re operating. We have been able to achieve very high safety standards for our employees and our passengers everywhere in the world. In a large, decentralized global company, this is a huge challenge, but it is a fundamental part of our company DNA. Some of the same principles apply to bringing a high compliance, ethical culture. It means moving beyond meeting the basic requirements of the law, to a culture that values ethical behavior no matter where we are in the world. This is backstopped by an effective compliance program that includes extensive global compliance audits.

I’ll share an anecdote that reflects my own personal growth in this area. Very early in my career I made what I would now consider a mistake and a learning opportunity. As a young manager, I had a subcontractor in the U.S. who was, by a very narrow interpretation of the contract, not meeting the specifications. The project manager for the customer had the authority to determine whether we and our subcontractor would need to spend a lot of money to replace the work we had completed. One of our employees told me that the project manager had suggested a specific gift to him would make the problem go away. I responded that we would not get involved in anything like that but I also said it was our subcontractor’s problem and not ours. Ultimately, the problem was resolved favorably. To this day I don’t know if the subcontractor did anything unethical. Today, I would have responded differently and taken the extra steps to ensure our subcontractor was not tempted to do anything unethical.

Today my expectation of our employees, and certainly the expectation throughout our company, is that our ethical standards extend through the supply chain. We have to hold ourselves accountable for their actions. So there’s a lot of work around making sure that our partners and subcontractors, or, in some places in the world, the agents acting on our behalf, are held to that same standard. That can be a real challenge working across some 200 countries with different standards for doing business. It’s extremely important to our company for many, many reasons.

Ethics Training

What kind of training do you do for your employees? Does it go beyond compliance?

The company provides a tremendous amount of ethics and business practice training. And while there are certainly some required courses, depending on your position, there’s a huge offering which extends from general business practices to very technical rules around export controls, government contracting, etc. Like most companies, we offer training around harassment, but also treating each other with respect, appropriate ways of treating customers, and so forth.

It’s one thing to create a compliance culture in a very centralized organization. But in a very decentralized organization, like our company, it is tougher. We have 110 locations in the U.S. and about 60 in Latin America, for example. Each of these different organizations has separate profit and loss statements. When you are managing this collection of organizations, the expectations around ethics have to go well beyond compliance. It’s about how you operate as a business. Equally it is about how you engage your employees. It goes hand-in-hand with the other good management principles. You must have engaged employees who are aligned with what you are trying to accomplish and the products you are trying to develop. It includes how you are treating your customers, strategies for gaining market share, whatever it might be. Without this alignment with the strategies of the company and the way they are executed, you will have difficulty with compliance and ethics because there isn’t alignment. In a decentralized organization, it means you must have shared values. So a lot of the focus is on that, because frankly it is very difficult to be effective by simply policing the organization.

It’s one thing to create a compliance culture in a very centralized organization. But in a very decentralized organization, like our company, it is tougher.

One thing that works in our favor in this area is that we have many long-term employees, particularly in our field organization. This often includes second- and even third-generation employees. We have a lot of passion for the company because people have worked here a long period of time. Most of my direct reports have been with the company 20-plus years. Most of us started with the company and spent our entire career here. So we’re a throwback in some respects to a different time. But that also happens in the field, where we have a lot of long-term mechanics. In the U.S., the job of a mechanic is a high-wage, a high-skilled, very good job. This means these employees often stay with us for their full career. In this case they have a passion for the company, and that is strong lever. If you create alignment, it’s wonderful.

But sometimes this longevity can be a challenge. You can have the situation where the mechanic, or the frontline employee doesn’t agree with management’s direction, and puts their energy toward saving their company from what they believe are management’s misguided initiatives. And so it can cut both ways. The passion for the organization, and the longevity of employees, has to be harnessed.

This calls for excellent communication, explaining the why of what you are doing. Even this can be a problem when you are talking about efficiency and technology that creates competitive advantage by allowing you to add volume with less labor. In the end you’re creating opportunity, but at times you’re actually reducing the number of hours, let’s say, that goes into a particular activity. That’s fraught with misunderstanding, and there are many ways that management can miscommunicate. This is a very important issue where there are no simple answers.

A Challenging Global Issue

Can you tell us about a challenging global problem you encountered where you think you made the right call in a tough situation?

Our company was pursuing the modernization of a tall building in Southeast Asia. The opportunity for us was huge, and the account manager from our team had a lot on the line, as did our whole team. After lengthy negotiations, we gained a “handshake” agreement on a multimillion dollar deal. Interestingly enough, the account leader on our team was a devout Muslim woman, and a trained engineer, which was unusual for that part of the world. After reaching the handshake agreement, she needed to review this with the leader of the company we were contracting with. This leader was a powerful businessman in this large Asian city, so powerful that in some ways he could be considered above the law. The meeting was going to be a formality, since the deal had been agreed to by his employees. But, before approving the deal, this powerful boss made an inappropriate personal request of her.

… before approving the deal, this powerful boss made an inappropriate personal request of her.

This was a culture where these requests were not uncommon, and the typical response in such a situation would probably have been to say “Yes,” given the dynamics of the situation and the huge disparity in power. But the woman simply responded that she couldn’t and wouldn’t do what was requested of her. She was shaken, and was very concerned about losing the contract. She was also concerned about the personal retribution to her and the impact of losing the job for our company, both financially and by reputation.

Her first phone call was to the managing director and his response was, “It’s great that you called. Forget about the job, forget about the customer, forget about everything. You did the right thing, we’re absolutely at your back. Come back, let’s start working out how we can pull you out of this situation, how to protect you in this situation. We’ll handle the customer.”

The next call went from the managing director to the person who was managing Southeast Asia, who immediately backed up the managing director. The next call came to me, explaining the situation. In the entire management chain, there was no thought of the fact that we were losing the biggest job in that city. We were there to support our people in a very difficult situation. Our response made a big impact on the employee. She knew our rules, but she was very gratified to see how we supported her.

We went to the customer and we did something very unusual in that culture. As appropriately as we could, we said, “We’re standing by our employee. We felt this was inappropriate. And while we’re not going to bring any attention to this, you need to know where we stand.” An almost miraculous thing happened at this point that I had never seen before or since. This person initially, as you could imagine, was incensed. But over a period of about a week or two he actually came back and apologized. And we got the job.

I can’t overstate the “face” issues that were involved at the time.

I can’t overstate the “face” issues that were involved at the time, so that was truly a miraculous response. I suspect he just never expected this kind of response. He didn’t expect the woman to react that way with that much integrity. And he also didn’t expect the company to act with that sort of integrity. I think we were rewarded for it, because it really caused him to reflect and take an unprecedented action.

It was a proud moment for me to see how our team responded quickly to do the right thing even when they expected it would result in the loss of an important contract. Nobody talked about the cost or the potential loss of business. This was not an issue of simple compliance. Everyone in the chain instinctively did the right thing.

At the time you made these decisions, you didn’t know that you would achieve a positive outcome, did you?

No. I would estimate that one in a 100 of these situations would result in the ultimate favorable outcome that we achieved. We certainly didn’t know this outcome was even possible when we made our stand. The question was rather: “How do we extricate ourselves from this situation, how do we avoid bodily harm for our employee, how do we protect the reputation of our company? In other words, how do we get out without having more damage than simply losing a multimillion dollar job?”

Otis as a Part of a Larger Business

I know that Otis is part of a family of companies under the United Technologies umbrella. To what extent are these kinds of issues common across the different companies, and is there a sharing of best practices among these companies?

That’s a very good question. The UTC companies are quite different from each other and most of them have long histories and unique cultures. Further, the products these companies produce are quite different, as are the customers we sell to and often the channels we sell through. So on the one hand there is not much commonality. Some of the best practices may not be necessarily be applicable across the businesses. Designing, building and selling a helicopter to the military is quite a bit different from selling and installing an elevator.

But in spite of the differences, there are some things that are common, and this is where UTC adds value. One area is in creating a lean operating system, a quality operating system. We seek to create competitive excellence in all the principles you might expect around manufacturing. Supplier quality, and how you manage suppliers, transcends every division. Safety is something that is similar, the same expectation, the same metrics. Ethics is another area where the standard is the same across brands. There are different challenges in different organizations, so for the aerospace brands a lot of the focus is about satisfying one of their biggest customers, the government. So at Otis, we have the same standards when we do business with the government. Some of our biggest challenges come from having a very decentralized organization across many countries, particularly those with different business practices, and this bring other challenges, some of which we have talked about.

You’re probably very familiar with the Transparency International map of the world.

Yes. When I was working in Asia, I had some of the countries with the poorest standards by those measures. A very small misstep by Otis, let’s say, on export control, and it could create problems for UTC companies that do significant government business. To inadvertently do business for the embassy in a foreign country that we are not allowed to do business with would get us in a lot of trouble. From the U.S. we’re very unlikely to do business with Cuba, for example, but we also need to make sure that our Brazilian company doesn’t do any business with Cuba.

Manufacturing and Offshoring

Many companies moved their manufacturing out of the U.S. in order to find cheaper labor. Is your manufacturing done primarily offshore?

We are actually in the process of insourcing our plant that produces for North America. Our primary plant for the U.S. and Canada was just across the border in Mexico. And we’re in the process moving that back and colocating it with the engineering function that had remained in the U.S. We are relocating everything to South Carolina. Part of that decision was due to the complexity of managing the supply chain and the cost of logistics. Part of it is getting manufacturing closer to engineering to speed the product improvement process, allowing us to respond much faster to our customers’ needs.

We are actually in the process of insourcing our plant that produces for North America.

We have found there is more to the cost picture than simply chasing lower labor. We may have swung that pendulum to the point where the challenges around coordination and managing the supply chain require too much additional expertise, labor, and risk. Today companies are often looking at leaning out their supply chain. When you think about ethical risk, safety, and customer satisfaction, all are made more difficult by an overly complicated supply chain.

However, only 15 percent of our business is in North America, since our business mirrors the global construction footprint. For instance, we sell more elevators in China than we do in the rest of the world combined. That’s simply due to where China ranks in the global construction market. In 2013 we sold more elevators in Brazil than we did in North America. Part of that is because we have been in a bit of a downturn in the U.S. while Brazil continues to build infrastructure. We manufacture where the market is, and where large markets are, we optimize our supply chain around those markets. This means we have many plants located in countries that represent the largest markets, in addition to centralized plants that produce strategic, global components. This simplifies the logistics of shipping our product, but leaves us with a collection of global supply chains managed through various manufacturing sites around the world.

It is one thing to outsource manufacturing of the whole product, and quite another to outsource pieces of the product and then be faced with the complex task of integrating the pieces made by different manufacturers. This is a problem we faced in building an airplane.

Our products aren’t as complex as an airplane. But they are complex and, unlike an airplane that likely meets the same standard almost everywhere that it’s sold in the world, the standards for our products can vary from state to state in the U.S. and certainly around the world. It is a complex task to try and achieve efficiencies while delivering against these different standards, even in North America. It requires a sophisticated management system in the factory and the supply chain. There is a fine balance between keeping truly strategic components in house or with long-term, strategic partners, and constantly evaluating the rest of your components to optimize both outsourcing and insourcing. Early in the history of our company we literally made everything, then we outsourced more and more components, and now we are seeing some of that outsourced work come back inside the company. We can see an advantage, both in the manufacturing but also in keeping the component knowledge. There is always a pendulum moving back and forth in this area.

A Unique Assembly Problem

Is that also due to the fact that labor is not as big a part of the cost of the product as it used to be, due to both the technology on the product and the automation in manufacturing?

Yes, and another factor as well. One of the unique things about our business is an elevator isn’t actually made in the plant. Parts are manufactured and sent to the construction site and much of the elevator is assembled there. Unless you have an educated eye or you’re in construction, you might go on a construction site and see the big pile of material and not recognize it as an elevator. It’s essentially a customized product that is assembled and installed in thousands and thousands of jobsites around the world. This means we are actually trying to control many “factory” environments. A few for making our components and managing the supply chain, but many more locations where all of these components need to arrive at the right place, in the right sequence, labeled properly, in a way that allows for their efficient installation.

One of the unique things about our business is an elevator isn’t actually made in the plant.

In the U.S., about half of the cost of the elevator occurs at the installation site, where the biggest process variations occur. In developing countries, the cost of installation is a smaller percentage but the jobsite conditions are often more complex. Your workforce is literally scattered across the world, working with unique contractors under unique code authorities. The requirement is to have the planning the same, the process the same, and all safety issues dealt with properly across these many variables. So in our business, the complexity goes well beyond the supply chain and the manufacturing in our factories.

It sounds to me like you have a virtual workforce for assembling your product, with people scattered around the world. Does your philosophy extend to other workers who work from home or from other locations?

Obviously, when it comes to installing a product on the construction site, the employees need to be there. But like most employers, we try to be flexible around the needs of our office employees and sales force. Some people certainly do some of their work from home and we’ve experimented with hotelling to provide a shared office space when they need it, particularly for sales people who are generally on the road. We’ve invested in video conferencing that eliminates some travel. We do have some back office and a little IT development offshore. But many of our key processes, including getting the right product specified, the right instruction to the job site, the right approvals to the contractor, or meeting the right code requirements, require in-person meetings with the right constituents.

The Global Economy

Are you optimistic or pessimistic about the global business climate related to economics as well as ethics and values?

I’m generally optimistic. In the U.S. we’re seeing the construction activity increase and in some places it is approaching pre-crash levels.

China continues to fuel global growth, and we hope there isn’t a real downturn there. That would have a huge impact. For our company the biggest challenge today is really around what’s going on in Europe. Will Europe resolve the issues that are hampering their growth? There’s a huge installed base of elevators for us in Europe that we maintain, but new installation activity still hasn’t returned to what we saw earlier in this decade, particularly in Southern Europe. When Hong Kong was going through a real deflationary, tough period, I learned that extended periods of economic downturn can be very disruptive. It can be disruptive to your value proposition, and your pricing model. It can create a much more competitive environment as oversupply remains an issue and customers consolidate and cut back. A customer’s value expectations can be permanently changed.

I am also cautiously optimistic about global progress in ethics.

I am also cautiously optimistic about global progress in ethics. Clearly one of the biggest impacts the U.S. can have is supporting its multinational corporations that bring our standards to foreign markets. We certainly aren’t perfect, but I believe U.S. corporations and U.S. expatriates generally influence the global marketplace positively in this area.

Personal Career Track

Tell me a bit about your current position, and how you got there.

I have been with Otis for 32 years. I started as a sales trainee in San Francisco and took on a number of successive assignments in the company. I’ve been in my current role as President, Americas for six years. Before that I was in Asia for five years managing what we called “The South Asian Pacific Area,” which included the Southeast Asia countries along with others in the region including India, Hong Kong, Australia and New Zealand, and a few others. For a period of time it also included the gulf countries in the Middle East. During that period I lived in Hong Kong but traveled extensively. Along the way I’ve moved about nine times. I have lived in the western U.S. for much of my career, though I’m on the East Coast now.

What attracted you to the elevator business and to sales out of school? This was likely not your course of study!

I wasn’t looking for a sales role. I had just graduated and was actually working for our family construction business and interviewing with Burroughs (a computer company of that era) in Seattle. Many there ended up getting laid off when the company failed, but a number of them probably ended up at a small startup called Microsoft. That would have been interesting as well.

In the process of considering the Burroughs opportunity a recruiter called me about this job in sales in San Francisco, working for Otis. I didn’t know if I was interested in sales, but liked the idea of living in San Francisco and joining a six-month training program. It turned out to be a natural fit for my background in commercial construction in the family business, and my business degree.

I certainly wasn’t looking for Otis. I didn’t know anything about the company. But I was blessed to find a company that offered me so many opportunities.

Advice for Younger People

When you talk with young people today, what advice do you have for them as they begin their career? It is a very different world they are entering than the one you and I entered.

I was very, very fortunate to go to work for a strong company with a long history of success. Frankly I feel fortunate because I didn’t think about this when I started. It is a company with a legacy of customer service, but also a great history of safety and integrity standards that exceeded whatever the standard was at the time. I consider my ethical standards to be high, and they are matched by the company’s standards, which is a great feeling. They’re very serious about these things. We walk away from business around the world, because we’re not willing to compromise. At Otis if you compromise in safety or ethics you’re much more likely to lose your job than if you miss the numbers. And that is a great thing, particularly when you work for a company with a large global presence. I don’t believe it is the same at every large global organization.

So the first piece of advice is that the first company you work for can be more important than the first position you take. There may be some exceptions, but most people don’t consider the importance of this when considering their first job. Researching a company’s values, leadership, and track record is important.

… the first company you work for can be more important than the first position you take.

A second thing is finding some greater purpose in your work, beyond money and position. It is important that you struggle with that early in your career rather than waiting until later. “Am I doing something that is of greater value than making money?” It is not unusual to find a person in a western context, asking this question. But from my experience in an Asian culture, it is less likely to be a factor. Making money and being successful is an extraordinary high value in many cultures, particularly in Asia.

“Am I doing something that is of greater value than making money?”

And yet ultimately I think that that question is a fundamental question that transcends culture. And it’s a rich area for discussion.

There are certain positions that have remained difficult to fill, even in the job market of a few years ago. For example, engineers in particular disciplines with just the right skills have continued to have great opportunities. Strong financial skills are always in demand as well. You can always add the soft skills to a more analytical degree. It is difficult to do the opposite.

There was an article in The Wall Street Journal written by someone in the IT business. His message was in essence, “Congratulations to the graduation class of 2013; here’s why I’m not going to hire you.” He said, “I value a liberal arts education. But if you have no knowledge of programming, if you’ve not taken a single class, how do you use the capabilities of problem solving and thinking broadly, and working with teams, when you can’t make a contribution to these teams?” I believe there needs to be an approach to education that is much more than professional development. There is a value in a traditional liberal arts education. I encouraged my daughters to get a liberal arts education. But today, this must be married with enough knowledge of the analytical or digital world that allows you to at least speak the language. You have to have an understanding so you can contribute.

It’s not about throwing out English, history, and philosophy, it’s about marrying that to the challenges and tasks today. I believe that’s been the case forever. Many of the philosophers of old were tackling issues that were relevant to their culture. Well, to tackle today’s issues in technology, you need a philosophical understanding of the impact of technology, but you also need to know something about technology. That means someone in liberal arts needs to take some of the technology courses, or at least get a liberal arts degree that includes, or hones their analytical skills around current technologies.

… to tackle today’s issues in technology, you need a philosophical understanding of the impact of technology, but you also need to know something about technology.

Update

(The following questions were added in March 2015 to place a P.S. on this conversation.)

Since we completed this interview about 20 months ago, there have been some changes. First, tell us about your retirement and what you are doing.

I had been thinking about retiring early for a variety of reasons that included getting more involved in some charitable activity as well as moving back “home” to Whidbey Island, where I grew up. I had just turned 55, had been in my position for longer than anyone had prior to me, and the company was embarking on some very big organizational changes that would have required me to make another move. Instead I retired and have moved back to the place where we want to re-establish our roots. I’ve continued on in a consulting relationship with the company, which will end soon, and then I’ll probably add something part time to keep me in the game but also allow me to pursue some more “significant” activities. I feel extremely blessed.

Are there any changes in the way you see the world economic market since we talked?

Well … questions continue about China’s growth trajectory, as they have for some time. Today they are a bit different ,and there isn’t really consensus around what to expect. Still, barring a significant political event, the rate of urbanization should continue to keep it the dominant construction market. India continues to struggle to modernize its economy, which I think will continue to happen slowly, with resulting cyclical growth that somehow seems to push through all the barriers there. Brazil has definitely slowed down, but it looks like we might see some slow but broader improvement in construction across Europe, which is probably the most important improvement necessary for the global outlook.

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