What Transformational Leaders Do

David Cote, an unprepossessing leader, who came out of TRW and GE, overcame Honeywell’s dysfunctional culture while re-energizing it with a strategy of unifying ideas and technologies. Simple, but not so simple to do well.

David Cote’s Steps to M&A Success
Why David Cote?

How did you go about reconciling them?

We started focusing on five customer-centered initiatives to provide some direction. The 12 behaviors—a concept that underlies our big process initiatives, such as the Honeywell Operating System (HOS), Velocity Product Development (VPD) and Functional Transformation (FT)—took time to evolve and required a lot of staff input about how we should behave as a company.

Was there resistance to this?

One guy asked me, “Why are we wasting time on stuff like behaviors when we need to be making decisions here?” I replied, “I can make all the strategic decisions you want; but if nobody does them, it doesn’t matter. We must create a culture where we’re going to get things done so that, when we agree on something, it actually happens.”

Interestingly, it was that same guy who, two months later, had gone through the teamwork exercise [of] getting all the facts and opinions to team participants who wasn’t, himself, following the behaviors. It became clear he wasn’t doing it. So, I was able to call and say, “Remember that discussion we had about how we were going to work together to establish the kind of culture we wanted? Well, could you explain to me then why we agreed on this and it’s not happening in your business?” Sessions like this soon moved the needle.

Tim Mahoney and Roger Fradin described the Honeywell Operating System as a “Honeywellization” of the Toyota Lean Production System, which you had your people study. What precisely is the Honeywell element?

The big difference is cultural. I always tell security analysts that a culture is a lot more important than they ever give it credit for. When I try to talk to them about it, they say, “Yeah, yeah, yeah, interesting, but what’s next year going to look like?” This is changing now that they recognize the significance it’s had for us.

I’d always admired Toyota’s manufacturing. It’s the best in the world. So, we sent 60 or 70 people to Georgetown, Kentucky for a few weeks. As happens with that sort of thing, they all came back infused with the Holy Spirit. They wanted to get started right away. But I asked them, has this system been successful in a plant that isn’t new? Yes, but only at Nummi [a joint venture with GM that has since been discontinued] in California. But it required a significant infusion of resources to do it. The answer was that when tried in existing plants, the failure rate was really high. The fundamental reason for this is legacy behaviors. An 80-year-old plant, where the average worker’s tenure is 26 years, is not fertile ground to tell an hourly employee that next week we’re doing the Honeywell operating system and everything is going to be different. It just doesn’t work.

We devised an acculturation process that we tested and piloted in 10 plants. After nine months, it worked in five, but [it] didn’t work in five others. We worked through what proved successful in the three or four where it succeeded very well. [Then,] we took it to some 20 others, where we over-resourced it to really understand what works.

The big trick for us—the Honeywellization factor—is how do you do this in an existing plant versus how do you do it in a new one? This is why I say it’s necessary to go slow to go fast. We could have gone really fast on implementation and we’d have had a mess. Instead, we’re creating a 20-year sustainable advantage because we’re bringing the culture along at the same time.

Many incoming CEOs from outside eliminate a huge swath of executives to bring in their own people. Why didn’t you do that?

What’s funny about your question is that was used as a knock on me by a number of analysts in the beginning. I’ve never been a huge fan of that approach. I can understand where you might need it in certain circumstances, but I felt if you’re trying to build something—not just fix it and move on—there’s a lot of resident knowledge in the people [that] you need to figure out how to build upon. Just because a business hasn’t done well doesn’t mean all the people are bad. It could very well be [that] they just haven’t had the right direction, the right leadership or the right initiatives.

During my first few years for, say, the top 600 executives, we were hiring something like 45 percent or 50 percent externally. From about three years into my tenure to today, about 10 percent or 15 percent of those positions come from outside. If you are trying to build a culture, you want to promote internally to the extent that you can. My Tom Brady story illustrates this.

Drew Bledsoe, who was a good quarterback for the Patriots is playing 500 ball until he gets injured, forcing New England to look around saying, What are we going to do? Oh, we have a backup quarterback, Tom Brady. They put Brady in the game; he starts winning from that point on. They win the Super Bowl that year. Bledsoe ends up in Dallas, where he again plays solid football. But he gets injured and the team looks around and decides to go with [its] own Tony Romo. The Cowboys put Tony Romo in and he takes them not to the Super Bowl, but a long way that year.

Rather than always looking outside for the best guy, look for your potential Tom Brady, who is already in the company. Promoting internally also creates an updraft that opens up three other jobs in the company. This creates momentum for the good people in the organization that further reinforces the behaviors you are seeking—instead of having to bring in an outsider that, in our case, has to be “Honeywellized.”

How would you assess the outcome of your work with the
Fix the Debt campaign?

Thank God, we did it. However, at the same time, especially, having a lot of CEOs involved, all of us hate seeing a bunch of mini steps taken when, as a business, you would take one big step and just get it done. If we hadn’t started Fix the Debt, I really worry what would have happened at year-end. As anemic as the solution was, it was a hell of a lot better than going off the cliff. I’m not happy that we couldn’t get the whole thing done, which I would have much preferred. That being said, this is politics. Things don’t always work that way.

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