IR's Mike Lamach: Building on a Strong Hand

Armed with globally recognized brands, Ingersoll Rand's CEO is betting on innovation-fueled growth and seeking opportunities in emerging markets.

Ingersoll Rand CEO Mike Lamach says he is feeling "pretty fortunate" as he approaches his one-year anniversary as head of the $13 billion diversified industrial. The three main goals he set for 2010 -- restore the balance sheet, drive productivity and increase revenue from innovation are all on track.

Ingersoll Rand expects to finish 2010 with revenues of $13.85 to $13.95 billion, a 6% to 7% increase, and earnings per share of $2.30 to $2.40 excluding a first quarter tax item. Lamach notes the company has reduced working capital to 3% of revenue, about a third of what it was two years ago, and is on track to deliver $1 billion in cash flow.

After a decade of restructuring involving the sales of its construction brands and the purchase of Trane in 2008, Lamach says the company has successfully pulled together around the vision of "creating and sustaining safe, comfortable and efficient environments" and is looking at ways to integrate its brands and drive productivity. IR has been generating 5% gross productivity for the past two years. The company closed 11 plants and divested two others over the past year, but also invested $54 million in restructuring and productivity improvements.

Mike Lamach, CEO Ingersoll Rand
Mike Lamach
CEO, Ingersoll Rand CEO

The company has also upped its innovation efforts. Ingersoll Rand expects to generate $2.5 billion in revenue in 2010 from new products and services. Lamach notes that rather than retrenching during the recession, the company spent an additional $100 million on new products and services in 2009 and is upping its innovation spend by $50 million annually for 2010, 2011 and 2012.

Lamach is taking a series of other steps to emphasize innovation. He is creating a new position of senior vice president for innovation and technology. One of that person's roles will be to drive the company's focus on a few technologies at which, says Lamach, "we believe we have to be the best in the world." While the company has been good at incremental innovation over its 140-year history, says Lamach, he intends to "allocate more of the investment toward a few well-placed bets and ideas that could potentially be game-changers for us."

Ingersoll Rand is not taking a one-size-fits-all approach to innovation. The company has established engineering and design centers in India, China and the Czech Republic. Those centers will support product development that is most relevant to both the local and regional markets. "You can't necessarily just take a global product and assume it is going to fit the situation in these emerging markets," he says.

Emerging Markets

In Ingersoll Rand's long-range plan, almost half of the company's revenue growth is expected to come from outside North America and Western Europe. Lamach says the company expects much of the growth to come from India, China, Brazil and eastern Europe.

Lamach had been back about a month from a trip to India when he spoke with IndustryWeek. For years, he says, he had "felt like India is always five years away from something." After this trip, though, he said "it felt like it's now." The company has 18 facilities in India, two plants and is building a third in 2011. It's fortunate planning that the company has built the Indian plants on a modular plan. Lamach said plants built with a capacity window of five years are running out of capacity in 18 months.

Ingersoll Rand's vision of creating and sustaining safe, comfortable and efficient environments fits well with the rocketing growth going on in China. Lamach said the Chinese are investing in products such as energy-efficient HVAC systems that are going into its building boom. But along with these new buildings, he points out, China is already facing an aging infrastructure ripe for new technology that offers a payback in 3 to 4 years.

The refrigerated transportation market also offers a huge opportunity in China, says Lamach. While the United States has approximately 250,000 refrigerated vehicles transporting food for 300 million people, China has only 5,000 refrigerated vehicles for quadruple the population. He says it is "just a matter of time" before China -- and India -- invest heavily in these refrigerated units.

Industrial Policy

While Ingersoll Rand is pursuing a policy of meeting global demand by investing in those regions, the company still has more than half its revenues and two-thirds of its employees in North America. When Lamach talks about U.S. policies toward manufacturers, there is more than a tinge of frustration in his voice. He says it is important for the Obama administration to understand the collective impact that individual policy initiatives such as health care reform and the Employee Free Choice Act will have on manufacturers. He notes that the United States has the second-highest corporate tax rate of the OECD countries, yet "we seem to be focused on increasing the tax burden on corporations."

"We have to hold a mirror up to every policy change being proposed and ask the question, 'How does this create a more competitive economy and an environment for business,'" Lamach says.


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