Structure Breeds Success

Dec. 21, 2004
AlliedSignal's year-2000 growth plans include $3 billion to $4 billion in new products.

Over the next three years, AlliedSignal Inc. plans to grow revenues 8% a year through internal growth -- not including the potential acquisition of AMP Inc., the $5.75 billion industry-leading connector manufacturer. Most of that growth will come from new product development, boosting revenues to $18.5 billion by 2000. Based on the company's performance since Lawrence A. Bossidy became CEO in 1991, the lofty goals seem well within range. When Bossidy took the reins, AlliedSignal's $11 billion of revenues were scattered over a disparate array of 52 businesses, some as small as $5 million. What's more, nearly 90% of the businesses were mature or cyclical. During the next six years, Bossidy transformed AlliedSignal into a $14.5 billion (1997 yearend) portfolio of 11 business units under sectors of aerospace, automotive, and engineering materials, with 65% of the businesses competing in high-growth, high-margin arenas. Then a year ago even the sector organizations were dissolved, leaving the Morristown, N.J.-based company as a lean, mean General Electric-like profit-making machine of 11 independent businesses, each with revenues of more than $1 billion, reporting directly to a corporate structure. The new growth plan, driven by innovation, provides the answer to the question "what's next?" after the classical reorganization. "Innovation is the underpinning of perpetuating an organization," says Bossidy. "People like to work on the future of the company. You get esprit de corps and terrific fulfillment. That's where the excitement is. So in my view, when I think of innovation and new-product development, it's crucial to sustaining the enterprise." Additionally, new products will continue to spread the company's base in industries such as aerospace as one method to moderate business cycles, Bossidy says. To support and invigorate this innovation effort, AlliedSignal has established a unique corporate growth function, focused its innovation activities on a select few growth programs, established new executive management incentive plans with growth at their core, increased upper-management review and support of priority projects, and continued to expand the impact of its Six Sigma improvement initiative to all processes including design and development. "Over a relatively short time we have brought a lot of change to growth, innovation, and new-product development at AlliedSignal," says Frederic M. Poses, chief operating officer. "Our focus on 8% internal growth, selection of 150 critical projects resourced appropriately, better processes to execute against our goals, increased management attention, and reward and recognition all contribute to achieving our objectives." With the dissolution of sector organizations, management established several unique corporate functions designed to tie some of the key business efforts together. These include a corporate learning capability; a corporate productivity function, which seeks a 7% year-over-year increase in productivity, with primary focus on improving manufacturing and quality processes; and a corporate growth function and chief growth officer (CGO), challenged to support the 8% growth objective, with primary responsibilities for marketing, technology, and product development. "We want to bring all of the growth functions and growth processes in the company in terms of marketing, selling, technology development, product development, engineering, and new-business generation under one roof and try to get them to be coordinated to drive growth in the corporation," says Barry Siadat, CGO. Organizationally, leaders of technology, marketing, and new-business development/new ventures in each of the businesses report both to Siadat as CGO and to the presidents of their respective businesses. This matrix is designed to improve work processes, develop and capture synergies and diffuse them across businesses, and improve the competencies of the three functions, Siadat says. Lumping technology and marketing under the same corporate umbrella also satisfies another AlliedSignal tenet to get marketing and technology working hand-in-glove during the innovation process to increase customer focus. To pinpoint its resources applied against technology development, the company reviewed its pipeline of some 1,500 projects and programs with the objective of focusing on those with the most significant payback opportunities. What it found was that 10% of the portfolio represented 80% of the value opportunity. This exercise led to the selection of the top 100 growth programs picked for their immediate and direct short-term impact, plus another 50 strategic projects based on "killer" technologies, destined for more long-term contribution. "At any one time hundreds of new-product ideas are floating around the company, all being resourced to some extent," says Bossidy. "In the early stages, it isn't easy to see which will fly and which won't, but from now on we are going to focus our human and financial firepower behind the most promising growth projects, with the best chance of success. Periodic reviews will distinguish those worthy of continued funding from those that should be discarded. This will help us identify potential strikeouts early and facilitate proliferation of home runs." To select the 100 shorter-term programs, AlliedSignal applied net-present-value (NPV) calculations to programs that were already reasonably mature or ready to be commercialized. Although NPV also was applied to longer-term opportunities, the key in selection of the 50 strategic programs was the opportunity they opened up to dominate a marketplace. These were determined by what Siadat refers to as a "road map" approach. "First we plot the future of a market as we understand it and look at our own strategy as to where we want to be in that future picture," he says. "Then we ask, 'What products should we be providing to that market to create that picture?' That way you build a product road-map and then can look at underlying strategic technologies you need in order to succeed in those products. "We called each of these a 'killer' technology in the sense that if you control it you'll be in the driver's seat and if the competition controls it you'll be in tough shape. That's where you make your decision to develop, acquire, or license the technology, and that sets the ball in motion. We've put focus on actually 30 or so killer technologies that make up much of the remaining 50 strategic projects. "Of course this is not accomplished in isolation. Customers are involved in these decisions for two reasons. First, customers then can have input on ultimate designs, but secondly, we are creating advance demand for the eventual product by exposing customers to what the future can be, so they can dream along with us." A classic example of the road-map approach of creating a vision of a future marketplace and working back to a suite of technology underpinnings is AlliedSignal's Safety in the Skies initiative, a drive to be the No. 1 provider of safety from an avionics standpoint. "We had a meager, basic position in the area, but we thought about what we wanted to be when we grow up and created a 10-year technology road map," says Frank Daly, vice president and general manager of air-transport and regional avionics, Electronics & Avionics Div., Redmond, Wash. "We actually did a rigorous analysis, talking with customers and drawing on industry and our own surveys, of what hurts people, what hurts airplanes, and what causes anxiety when people fly. "Then we looked at the technologies we possess . . . technologies we might need to create or pull in from other industries to solve customer problems in a value-added way. That begins to form the core of the road map. "In the old days we used to fall into the trap of building a product simply because we had the technology and wherewithal to do so. And that does not always meet the customer's needs. The man who said 'If you build a better mouse trap the world will beat a path to your door' was poorly informed. You may not have mice, and you may not need that mouse trap." The aerospace-industry study confirmed that the main reason people are hurt and airplanes damaged is still "controlled flight into terrain," in other words, under-control flight into a mountain or into the ground where there is no airport. "The challenge," Daly says, "was to get more detailed information to the flight crew sooner to avoid an accident." To attack the problem, AlliedSignal began with existing technologies, licensed terrain database acquisition and digitization technology, and took advantage of low-cost memory and processing power to "put a digital map of the planet in a box and enough computing power to help draw the conclusions needed by the flight deck," says Daly. The result was AlliedSignal's new enhanced ground-proximity warning system which has grown from zero to $200 million in two years with some 7,000 planes outfitted. "So the technologies are not necessarily esoteric, but are key enabling technologies that are combined in a unique manner, as a result of some thought process that leads to the product as we know it today," says Daly. The same thought process was applied to the No. 2 priority, clear air turbulence (CAT), which causes anxiety in flying and is the leading cause of nonfatal accidents in flight, Daly says. "You don't hear that much about CAT, but as recently as December a woman was killed on a flight coming over from Japan." Working back to technologies required, AlliedSignal has deployed a four-pronged effort based on its own radar, infrared sensing technology the company will develop itself, laser-based radar technology it will acquire, and ground-based weather and terrain information acquisition through a partnership with NASA. Allied currently is working with airline partners who are contributing in-kind services worth millions of dollars in the form of aircraft, fuel, flight crews, and flying time. "Now we have sort of a consortium," says Daly. "But this did not occur spontaneously. It was the result of the road-map process of looking to where we wanted to be, what's it going to take to get us there, now let's go out and find it." The potential for a cost-effective CAT-alert system in the tens of thousands of dollars could reach 40,000 units, Daly predicts. "We have proven with demonstrated financial results that intelligent utilization of a process, with sufficient latitude tailored to the situation, can and does result in compressed product-development times . . . and products that have a much higher hit rate, that is, are more successful in the marketplace." In addition to generating new sales, the Safety in the Skies initiative helps achieve CEO Bossidy's goal of reducing the cyclical nature of Allied businesses. Both enhanced ground-proximity warning and CAT-identification products present new market opportunities not tied to OEM plane production, with significantly greater opportunity, in fact, in the aftermarket. "Innovation plays two roles in a cyclical marketplace," says Siadat. "One is to smooth out cyclicality by identifying adjacent areas of opportunity to where we are today, such as our service business. Second, when a cyclical business comes up out of the cycle, it is extremely profitable, so you condition yourself to take advantage of that with new-product innovations. By balancing our aerospace business among OEMs, aftermarket product sales, and end-user service capabilities, I think we are going to reduce cyclicality because the dynamics of these three parts of the business are complementary." Reaping the rewards of new-product innovation is yet another piece of the puzzle put in place in the last year. "More of our leaders' compensation today is tied to growth," says Poses. "We instituted a three-year program in which 50% of long-term compensation is driven by growth."

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