Strategy Management for Core Sector Companies

Group 1
United Technologies: Are the Parts Worth More Than the Whole?

About United Technologies Corporation

• Originally called United Aircraft Company, an aircraft manufacturing company with 3

major subsidiaries: Pratt & Whitney, Hamilton Standard and Sikorsky
• The company’s strategy had been to expand into diverse areas and expand its
portfolio’s into numerous businesses which it did by a constant process of acquisitions
and mergers. Post the 1960s the company had shifted its strategy from military and
government contracts to more commercial contracts and expanding to markets beyond
the US
• Followed a policy of diversification of portfolio since the 1970s by acquiring a number
of firms from various domains eventually expanding to four broad business areas:
Elevators, climate controls and security systems, aerospace systems and engine
manufacturing
• Overall strategy was to maintain a balanced and diversified portfolio of businesses
where a wide range of customer types, geographic diversification and business cycles
formed the complete structure of the conglomerate
• Another important aspect of UTC’s business was to focus on innovation and cost
reduction for which it established the ACE-Achieving Competitive Excellence- directed
at improving the overall efficiency and eliminating bureaucracy that entails large
corporate processes

Issues emerging at UTC

• While UTC reported net sales and profits of $59.8 billion and $ 8.9 billion respectively
and invested heavily in R&D, the stock price was still low as compared to competitors
• The company showed strong organic growth prospects but not so much in the overall
margin improvement
• At the same time the company was facing the question of opting for a possible split or
not which meant understanding if the conglomerate as a whole was more valuable
than its parts or vice versa
• External investors and analysts suggested the split into 3 business units, highlighting
that a one size fits all approach might diminish value for other individual businesses
whereas splitting will lead to better resource allocation, flexibility and decision making
• On the other hand, the company leadership felt it might lead to an additional cost for
the company and result in dis-synergies as well as the dilemma of knowing which
option would overall be more valuable for the company

Recommendations
• Since the firm is operating in 4 diverse and different businesses, it makes sense to
split the company into 3 major divisions: Climate Controls, Aerospace and Elevators.
• The costs of the dis-synergies and divestment are a one-time cost. Each division can
expand and focus on its inorganic growth by mergers and acquisitions in their divisions