United Technologies: Reaching for Profit Growth

How a myopic focus on margin expansion led UTC from a successful turnaround to underinvestment, accounting gymnastics, and eventual breakup.

Background

United Technologies had $20 billion in revenues by the mid-1990s, but operating margins of only 7%—less than half that of better-run industrials like GE. George David, who took over as CEO, was determined to close the gap.Jack Welch called UTC inefficient at an industry conference. George David was reportedly in the audience and walked out.

David implemented the ACE Operating System—lean manufacturing, statistical process control, and factory benchmarking—across all of UTC. Margins climbed from 7% to 15%. The stock rose 9x. But the metric that drove success would become the metric that drove destruction.