Carrier
Assembly Line
He turned down the chance to run Boeing—now he’s the best industrial CEO in America
Gitlin’s go-go mindset is what he calls “humble but hungry.” He radically changed the comp plan so that “you have to outcompete your peers to get rewarded.” Half of the long-term awards are in regular stock options; the other half in performance share units or PSUS. Fifty percent of those deliver the maximum payout only if Carrier’s total return outstrips the average gains posted by the top three-quarters of 29 industrial peers over three years. The brass get an equally sumptuous slug of PSUs if they hit the highest benchmark by achieving compound EPS growth of at least 12%, over the same extended interval. If Carrier’s shares flatline and its EPS rises in the sub-6% range, the execs get zip, and if the stock increases just a bit, and they miss the competitive benchmarks, they pocket relatively puny payouts.
The second plank incorporates a big productivity initiative. For Carrier, Gitlin and his team custom-refined a version of UTC’s lean manufacturing framework, itself based partly on the Toyota Production System Gitlin so admired as an MBA student. The idea behind Carrier Excellence: Centralize functions to reduce costs and raise purchasing power, and spread manufacturing best practices found in one factory across all of Carrier. When he arrived, Carrier was doing neither. “We had 140 different ERP [enterprise resource planning] systems that did cash management, payroll, tax services, and other functions,” says CFO Patrick Goris. “Businesses were all doing it separately, some outsourcing, some doing it internally.” Under CE, Carrier moved all of the activities to six “centers of excellence” located mainly in low-cost cities, including Monterrey, Mexico, and Hyderabad, India. The shift contributed greatly to large dollar reduction in G&A expense.
On the manufacturing side, prior to Gitlin’s arrival, Carrier’s plants, numbering 47, were all purchasing the likes of compressors, motors, steel, copper, and aluminum on their own. As a result, they relied too heavily on small, relatively high-cost local contractors known as “tail suppliers.” Carrier has consolidated all of its buying into six hubs that include Palm Beach Gardens and Viessmann’s base in Allendorf. Each does all the global purchasing for a set group of components and materials. By massing that buying clout, Carrier lowered its total production spend, running at around $10 billion a year, by 4% last year, according to global operations chief Adrian Button. In addition, the CE drive has raised the efficiency of the formerly laggard, non-lean plants to the level of its champions—by sharing what works. “We set a standard of how we do something and do it everywhere,” says Button. Example: AGS or automation robots were doing a great job ferrying parts, right on time, to workstations at the plants in Japan and China, so Carrier is now deploying the super-efficient couriers-on-rollers all over the world.
Carrier Announces Portfolio Transformation to Create Global Leader in Intelligent Climate and Energy Solutions
Carrier Global Corporation (NYSE: CARR) today announced strategic actions that will transform the Company’s business portfolio and establish Carrier as a pure-play, global leader in intelligent climate and energy solutions.
Carrier will acquire Viessmann Climate Solutions, the largest segment of Viessmann Group, in a cash and stock transaction valued at €12 billion, subject to working capital and other adjustments. The value represents approximately 13X synergized projected 2023 EBITDA. A privately held company with a 106-year legacy of innovation, Viessmann Climate Solutions provides Carrier with an iconic, premium brand in the highest growth segment of the global heat pump and energy transition markets. In addition, Carrier announced plans to exit its Fire & Security and Commercial Refrigeration cabinet businesses.