1 e r 1 1 CLOSING CASE Productivity Improvement at United Technologies Corporation In 2007, George David, the long-time CEO of United Technologies Corporation (UTC), re- tired. He could look back upon a very impressive 15 years at the helm of a company, during which time revenues tripled while net profits went up ten- fold. Today, UTC is a $60 billion per annum diver- sified manufacturing enterprise whose businesses include jet-engine maker Pratt & Whitney, air- conditioning business Carrier, and Otis Elevators. A major source of the profit surge over the last 15 years has been productivity improvements. At the heart of these improvements is a pro- gram known as Achieve Competitive Excellence (ACE). This program was the result of collabora- tion between George David and a Japanese qual- ity consultant, Yuzuru Ito, who at one time was a quality expert at Matsushita, the Japanese con- sumer electronics giant. David recruited Ito in or- der to figure out why Otis' elevators performed so poorly compared to those from rival Mitsubishi. Otis products required a building owner to call a mechanic an average of 40 times per year, while Mitsubishi's elevators required service only 0.5 times a year. What Ito uncovered was a range of problems including poor design, poor manufactur- ing practices, and a lack of quality control inside Otis' factories. Ito explained to David how poor quality damaged employee productivity, because time was wasted building defective products. Poor as misplaced bolts, to a co-worker's fatigue from staying up with a newborn all night. ACE evolved out of the experience at Otis and was subsequently rolled out company wide. The main thrust of ACE is built around the belief that every person should be involved with continuous improvement, from top executives to the most junior workers. ACE "pilots" are production-line workers who learn a quality improvement process in just days, and then are empowered to implement Kand lead their work groups through that process. They learn to pinpoint potential problems, ranging from fundamental design flaws in a product, such As the program was implemented across the company, the results were impressive. At Carrier, the number of employees decreased by 10%, the square footage assigned to manufacturing was reduced by 50%, and, despite these decreases, production increased by 70%. At Pratt & Whitney, dramatic Case Discussion Questions 1. How did poor quality at United Technologies' Otis unit damage the company's financial performance and competitive position? 2. Why do you think quality was so poor at Otis? quality also hurt demand because customers were less likely to buy products from a company with a poor reputation for quality. The solution to these problems at Otis in- cluded: designing elevators so that they were easier to manufacture, which led to fewer errors in the assembly process; reconfiguring the manu- facturing process; and empowering factory-floor employees to identify and fix quality problems. For example, by changing the placement of el- evator parts, and allowing assembly line workers to access them more easily, Otis took $300 off the cost of each elevator, which led to worldwide annual savings of $27 million. In addition, the production processes was streamlined, requir- ing fewer steps, less reaching and movement for workers, and easier access to parts-all of which boosted productivity. 3. What did UTC learn by repairing the quality problems at Otis? How did it leverage this learn- improvements in the quality of jet engines were registered. The average time between part-failure in a jet engine went from 2,500 hours to 170,000 hours a huge improvement resulting from better design and manufacturing processes. Customers noticed these quality improvements, and increased their purchases of United Technologies Corporation products, driving forward revenues and profits.46 ing to improve the performance of the entire corporation? 4. What general principles about competitive ad- vantage and strategy can be drawn from this case?