- 10 minutes ago
In this interview with Editor-At-Large Maneet Ahuja, Honeywell CEO Vimal Kapur opens up about his career journey from sales manager in India to the corner office, and details the upcoming three-way split of the 100-year-old company.
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00:00The data which we have in our system is going to provide a substantial amount of productivity opportunity to our customer to solve the problems which we have not, so white space problem solving.
00:12Welcome, I'm Manita Hujia, Editor-at-Large at Forbes and founder of Iconoclast, and we're here at the NASDAQ market site.
00:19We're thrilled to be joined now by Vimal Kapoor, Honeywell Chairman and CEO, to talk about the three-and-a-half-decade journey with the company, your strategic vision for Honeywell's historic separation into not one, not two, but three publicly traded entities, and how this hundred-year-old industrial giant is innovating for the future.
00:41Vimal, thank you so much for joining us.
00:43Thank you for being here, Manita, and thanks for hosting me.
00:44Yeah, so it's a very interesting time in the world, and Honeywell is definitely a bellwether for how, you know, the entire global economy is operating.
00:55Tell us the latest about what's going on.
00:58You've been at the company for three-and-a-half decades.
01:00Walk me through your journey becoming CEO after building your entire career at the company.
01:06So, when I joined Honeywell, I never imagined I'll become the CEO of the company, so I started my career in the joint venture of Honeywell in India.
01:13And I think the first ten years were more around the front-end job, so I worked a lot as a sales manager, then a project manager.
01:24And then I would say the next inning for mine was where I started doing the general management roles, which kind of started from 2000 until around 2015.
01:32And then after that, I started running various global businesses in Honeywell, until I became a chief operating officer in 2022, and then took the CEO role about two years back.
01:44So, I've done different roles.
01:46I would say I learned a lot across different segments, but I always remind people the biggest thing I've learned is to live in three different countries.
01:54It's much harder than learning a new business.
01:57That's a fascinating leadership tip.
02:00We were talking yesterday with the dean of Wharton, dean Erica James, about her best leadership tips from running a world-class university.
02:08And that's one that I haven't specifically heard before, so I'm going to put that in the bank.
02:13Yeah.
02:13I mean, going certainly in a country at the age.
02:15I came to the U.S. when I was late 40s, so you have to adjust to a new culture and a new location at that age.
02:24And human mind is not flexible, so how do you adjust yourself and be curious and learn?
02:30And that's part of a skill which is then transferable to work.
02:32So, tell me about that moment, though, where you got the call that you were going to be the next CEO.
02:38Again, you spent three and a half decades at the same company, and you started off by saying you never thought that that would be the entrance.
02:45But, yeah, I mean, that's a once-in-a-lifetime moment.
02:50Tell us.
02:50It is.
02:51I would say I ran different segments in Honeywell.
02:56Honeywell is organized into four segments.
02:59So, I ran one segment, building automation, from 2018 to 2021.
03:03And then from 21, I was assigned another segment, performance material and technology, which is an energy segment.
03:09Sometime in early 22, my predecessor called me for his decision that he's going to retire.
03:16And I've been, you know, chosen a successor.
03:20Of course, I have to go through an elaborate interview process.
03:23So, obviously, I first felt he was joking because he's actually, we are the same age.
03:27But then, of course, I'm excited after you consume it because it's a once-in-a-lifetime opportunity to be an iconic company like this.
03:36And put my experience to use, more importantly.
03:38I mean, one unique benefit I bring is that I've worked in the same company pretty much all my life.
03:44The question is, so what?
03:45Now, if you understand your markets, understand your customers and your employees, you have to do something different with your knowledge.
03:53And that something is my mission, that what do I do with what I've learned to bring some transformation for our business, for our customers, and, you know, provide that experience to our employees.
04:02So, you talked about your diverse experience within the company and working within three different countries, all at the same firm.
04:10You also come from an engineering background.
04:13How does this inform your approach as a CEO?
04:16Usually, you know, a lot of CEOs have more of a traditional business or consulting background.
04:22I mean, you know, to me, the business is common sense.
04:26It's like you want to make sure that you're able to satisfy a customer need and you have to make money.
04:32And I think the common sense, because I started my earlier role into the selling jobs,
04:38I think ability to understand the business perspective was early innings.
04:43And I think Honeywell does a great job to train people through different roles to appreciate the needs of general management, leadership skills.
04:51And I think most part of it is you, I have a benefit of learning through my different roles.
04:57So, we talked a little bit in the intro about this pivotal moment for the company, right, in its 100-year history,
05:03with this ongoing separation into three publicly traded companies.
05:09How have you been leading the company through this process, including dealing with activist investors?
05:15I would say that the decision point, I'm going to go a little back before I answer your question.
05:22The decision point to consider to split into three companies was more driven by a fact that the circumstances are changing very rapidly.
05:30I started in the middle of 23, and at that time, aerospace industry was going through early innings of its cycle up.
05:39And what we understood was the cycle is up for several years ahead, and this business will double itself in less than 10 years.
05:47And at the same time, AI was in its early innings, and applicability of that in the sectors we serve in automation is pretty substantial.
05:55So, because those two facts change compared to the starting point, you have to do something about it.
06:00You can't say, okay, it doesn't really matter because these are major shifts, which made it a compelling proposition for us to consider to split into aerospace and automation.
06:10And then the chemical business was not really a direct fit between the two, and it's a compelling business in itself.
06:16So, we said it should be three-way split and another two-way split.
06:18Now, if you are clear on your long-term vision on what you want to build, then the process of separation becomes more of a project management.
06:28Because you're clear on what are you building, so every decision is informed by your vision, your clarity, and you're able to cascade that to your team.
06:36Because if you're confused, then you're changing your mind all the time.
06:39Now, I think we can try this and we can try that.
06:41So, fundamental difference is we are absolutely convicted on the future of each of these companies.
06:46Therefore, every decision is informed by the compelling future we are building.
06:50And we need to manage tactical tasks of creating public companies and separating our legal entities and IT system.
06:57But those are project management.
06:59You have resources.
06:59There are people who want to know how to do that.
07:01The harder task, in my view, is as a business leader, are you clear on what are you building?
07:06And is your team aligned with you so that all of us are not vacillating in different decisions, which can confuse people in execution?
07:14So, those who have not been following all of the news about Honeywell, let's take a step back to your point.
07:20Tell us what the separation Honeywell is going to look like post-separation into which specific entities?
07:26Yeah.
07:26So, three entities.
07:27The first one will come out in Q4 this year, which will be specialty chemical business, about a $4 billion revenue,
07:32about a billion, a bit, and then about a year from now, late Q3, early Q4 next year,
07:40we will be able to split Honeywell into two.
07:45And Aerospace will be a pure play aerospace company, which will be supplying systems in commercial business jets and defense,
07:54and will be competing for business with its customer, but also for shareholder dollars in aerospace and defense segment.
08:03And Remainco Honeywell will be a pure play automation company, which is focused on automation in mission critical segments,
08:11critical buildings, infrastructure, energy segment, and industrial.
08:15And it then allows shareholders to have a choice of a pure play automation, pure play aerospace, or a pure play specialty chemical.
08:25So, what comes out of it is three very compelling businesses, which are each of them is very capable.
08:30One little sidebar is we also realized in 23 when we were doing analysis that there is no one large cap of 100 billion market cap in automation anywhere in the planet.
08:42So, that became also, I won't get a mission or a passion to see why it's not that possible, why it does not happen.
08:49Because it's something which is so ingrained in our life, but somehow automation businesses are part of some big companies,
08:57and no standalone company is able to create that scale.
09:00So, we believe that with the starting point we have, when we exit, our revenue will be about $20 billion,
09:05a beta will be about $5 billion, rough numbers, that gives us a platform to dream big,
09:12and say that this can provide that platform, which did not exist before.
09:16So, exciting opportunity from employee standpoint, because we are able to transform into a very mission-specific businesses,
09:24but also for share owners to own something which they can clearly understand and grow with that.
09:29Yeah, not to compare different companies, but it feels a little reminiscent to General Electric in earlier eras before various spin-offs.
09:39And so, what you're basically saying is we're just being more concentrated for key efficiencies,
09:44that these companies will be operating more efficiently as three independent publicly traded entities.
09:50And also more oriented towards growth, with the purpose they have, with its own capital structure,
09:55with a focused management team, with a focused board of directors.
09:58So, rather than trying to manage a portfolio, you are managing for an outcome which you are driving.
10:05So, Honeywell wants to become a best-in-class automation company.
10:09Honeywell Aerospace will be best-in-class aerospace and defense company, and so on.
10:14So, I think that just puts in a very different pedestal.
10:17Makes each company more competitive.
10:19More competitive, more purposeful, versus, in an earlier model,
10:26large company-created efficiency through process excellence.
10:29That value has mostly been captured.
10:31So, you can't drive more process efficiency to create further value.
10:34So, the value is going to come more from growth.
10:37Therefore, getting a singular focus just allows you to drive that outcome.
10:41So, you mentioned that you have big dreams for Honeywell.
10:44So, looking ahead to 50 years, what role do you hope that Honeywell will continue to play in the future of global business?
10:51So, I would say the biggest opportunity from, you know, automation business perspective,
10:56which I would lead, is that how this business is going to embrace or benefit from the AI
11:03and take the AI into industrial world.
11:08Every time when we automate a building or a school or a hospital or a manufacturing facility,
11:15we create data.
11:17That data has not been used ever because there was no cloud five years back.
11:23There was no data science or AI.
11:26Therefore, the data was uncaptured or not used.
11:30But over the last, let's say, 18 to 24 months, we have understood that the data which we have in our system
11:37is going to provide a substantial amount of productivity opportunity to our customer to solve the problems,
11:43which we have not.
11:43So, white space problem solving.
11:45So, as we are connecting our customer to cloud, we are getting more and more data.
11:49We are able to solve the problems at enterprise scale, which were earlier not possible.
11:56So, how do we bring the capability of data and AI into an industrial world
12:01and really form a crossover between an industrial company, which provides equipment, products, services,
12:08but also building the deep capability of the software, AI, and data science
12:12and really provide that outcome to our customer is a compelling proposition for our employees
12:19to create that future, for our customers to benefit from that outcome,
12:23and for our shareholders to have a unique set of business in industrial,
12:27which you want to adopt software as a pathway of its growth.
12:32So, digging a little bit deeper on AI, as we mentioned, Honeywell covers a lot of buzzy trends.
12:37There's AI, automation, and digitalization, which may not be familiar to the everyday consumer.
12:44What should they know about the business from, you know, the consumer standpoint
12:49and more of the retail investor as well?
12:51And how does it impact day to day?
12:54So, I would say that, as I mentioned to you, the automation we do is on mission critical in markets.
13:01So, what we do touches our life every day, but we do not experience our systems because they're working behind.
13:08So, our systems are managing an airport.
13:11So, if you're going to an airport, there's a likelihood that environmental controls are being done by Honeywell
13:15or the safety in that is being done by Honeywell's system.
13:18Same will be true if you are buying fuel, gasoline in your car.
13:22Maybe the plant was designed with Honeywell's technology and so on.
13:26So, our products impact everybody's life and they are done in a manner that we are able to create both customer value and the shareholder value.
13:38And these mission critical segments are never going to go away.
13:40We have, over a period of time, you know, exited businesses where automation has become simpler, like in home automation or other forms where the mission criticality is lower.
13:53We've kept our focus on mission criticality because those customers look for outcomes.
13:58They're looking for operational excellence.
14:00They're looking for energy efficiency.
14:02They're looking for skills of people.
14:05And that's a common thread which we provide.
14:08So, companies like us have evolved from being a product company to being a solution or an outcome company.
14:14And that's what a layman has to really appreciate that this automation is all about improving human quality of life, which is working behind, you know, every day.
14:24I mean, all cars, another example, all cars are painted using our technology because you need to paint a car.
14:30You need a very precise temperature.
14:32You cannot have 10 pallets of red on your car.
14:36You're not going to like it.
14:36You want perfect.
14:37How do you do that?
14:38You need a very precise control in temperature.
14:40That's what we do.
14:41So, we touch your life every day.
14:44And people just don't realize that.
14:46Because we are serving our customers who are serving consumers.
14:50Right, right, right.
14:50So, we are one step removed there.
14:52Yeah.
14:52We're more B2B.
14:54We are all 100% B2B.
14:56Yeah.
14:57So, that's why we are not seen.
14:59So, fascinating.
15:00Yeah.
15:00Yeah.
15:00And so, you're going to run, at the conclusion of the spinoff, you'll be at the helm of the automation business.
15:06Absolutely.
15:07Which is exactly what we were just talking about.
15:09Absolutely.
15:10Yeah.
15:10So, we are in the process of truly forming each of these independent companies.
15:15And it's such a huge company.
15:17But as you continue to scale and you think ahead to the automation business, what sectors are you particularly focused on where you see growth potential?
15:24So, we serve three segments, buildings, process, and industrial.
15:30And within them, there are multiple end markets.
15:33So, I would say that at any kind of point of time, there's a high growth in each one of them.
15:39So, in buildings, high growth in data centers, high growth in hospitals nowadays.
15:44It's not a well-talked fact, but the board is building a lot of new hospitals.
15:47Because post-COVID, everybody realized there are not enough hospitals.
15:50And then the third vertical in buildings, which is doing very well, is hotels.
15:55The board is building a lot of hotels, casinos, stadiums.
15:58So, more of people want to go and have better quality of life.
16:02In the process industry, the highest growth is LNG.
16:07I don't have to explain that.
16:08But also biofuels.
16:10The board is slowly progressing towards moving from traditional fuels to biofuels.
16:15Which means your feedstock won't be a crude oil.
16:17It would be some other parts of the nature.
16:19We have those technologies.
16:21So, those are higher growth.
16:22And then in industrial sector, I would say utilities in particular is one big part of the growth.
16:27So, the benefit of our model is that end market choice changes over a period of time.
16:33Because what I told you today, if we met two years from now, this combination won't be exactly the same.
16:38Right, right.
16:38These seven, it may be still focused on seven.
16:41Maybe four are same and three are different.
16:43And that's the benefit we have because we are agnostics to what we serve because we are serving outcomes all the time.
16:49Right.
16:50And it also sounds like Honeywell touches all aspects of the global economy and infrastructure, supply chain, growth, LNG, utilities, you name it.
17:00So, I know we're just about out of time.
17:02But I want to talk about things for a moment from the investment perspective.
17:06If I'm an investor, what's the top thing I should know about Honeywell and why should I be investing in the company right now?
17:13So, it's a secular growth, while not tied to one mega trend like AI, but it's tied to the fundamentals of automation, which creates data.
17:23And automation is so ingrained in our life, there is no way it's not going to impact the human life.
17:28So, long-term secular trend of automation, which is here to stay.
17:33It's not only in the U.S., it's global.
17:34And a company like us, which has a 100-year history of driving operational execution, investing in our stock means you have a long-term growth of earnings, typically in a year high single digit, without dividend.
17:47We pay very attractive dividends, so net returns with the dividend yield are compelling.
17:53It's going to be a safe investment for a long period of time.
17:57Okay.
17:57And final question.
17:59I know we've touched on AI throughout the interview, but since you have such a unique perspective there,
18:03you've spoken about this AI-driven autonomy.
18:07Tell me what you mean by that and how you see it impacting the industry at large.
18:12So, autonomy, you know, the best way to think about it is we all experience cars and how cars have become from manual to automatic.
18:20Now, they want to be autonomous, right?
18:22We all talk about it.
18:23Think about that in context of industrial world.
18:26Can you have a plant running autonomously or a building running autonomously?
18:29The problem we are solving is not we're trying to eliminate humans.
18:33The problem we are solving there is lack of people available to run these operations, maintenance.
18:39But lesser and lesser skilled people want to do these jobs.
18:42So, autonomy for us is to automate some part of these processes so that you need, if instead of 10, you may be able to work with nine people or eight people.
18:50So, at the same time, more and more agents coming in and more and more autonomy coming in, lesser skilled people are able to perform the same work.
18:59So, to me, our autonomous journey is going to be fewer behinds compared to cars.
19:04But we are going to follow pretty much the same pattern of from manual to automatic to agent-based to semi-autonomous to full autonomous.
19:12It's a journey which has to go through.
19:14But that's the power of data and AI I mentioned earlier, which we are going to use to transform our business.
19:19And it sounds like that's going to create a lot of opportunity.
19:22Absolutely.
19:23That's what really excites us.
19:24All right, Vimal, thank you so much for joining us.
19:27I'm Anita Huja, Editor-at-Large at Forbes here at the NASDAQ Market Site.
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