Remarks of United Technologies Chairman & CEO Louis Chênevert – As Prepared
Mumbai, India

It’s an honor to be here today. I’ll confess up front that my background is not in IT, which means I won’t be imparting any wisdom about cloud computing, server virtualization, or even the next cool app for your mobile phone. Instead, I’ll share my perspective as a consumer of IT services, and as the leader of a company that spent almost $1B on IT services last year. And, more broadly speaking, as the leader of a company that does business in 180 countries around the world, I’ll share my thoughts on some of the major forces that will shape the global economy over the next decade. Three themes you’ll hear throughout my remarks are innovation, globalization, and efficiency – all of which play a central role in how we do business at UTC.

Before I get too far into my remarks, I’d like to recognize the NASSCOM Executive Council for organizing this great event, and to once again express my gratitude for the Global Leadership Award, which I received last night. I am deeply honored to join the very impressive group of individuals who have won Leadership Awards from NASSCOM.

As I mentioned at the award ceremony last night, business leadership today – especially in a global company – involves creating a culture that engages and empowers employees to accomplish great things. And, that’s what we’ve done at UTC. So it’s appropriate for me to recognize both UTC’s experienced leadership team, and the 200,000 dedicated UTC employees around the world.

I’d also like to commend NASSCOM for its role in growing India’s software and services industry. NASSCOM’s efforts to create global awareness of India’s IT prominence have been very successful, and global organizations like United Technologies have benefited from India’s IT expertise – as well as its competitive cost structure.

United Technologies in India

As we begin 2011, I’m very encouraged by the strengthening of ties between the U.S. and India. In fact, I had the opportunity to see this first-hand, during my last trip to India where I participated in the US-India CEO Forum along with President Obama and Prime Minister Singh. With trade between India and the U.S. potentially reaching $50 billion this year – we will continue to see more win-win opportunities for businesses in both countries. I’ll also note that today’s event coincides with a visit from U.S. Secretary of Commerce Gary Locke who is leading a High Technology Business Development Mission to New Delhi, Bangalore, and Mumbai – again highlighting the many new opportunities for Indian and U.S. businesses.

One opportunity I’ll mention briefly involves the Indian Air Force’s purchase of Boeing C-17s. Our Pratt & Whitney division provides the engines for the C-17, a large transport aircraft that is often associated with humanitarian and peace keeping missions. The C-17 is a proven, durable, reliable aircraft, and this deal reflects the new level of cooperation and strengthening ties between India and the U.S.

Of course, the newest deals tend to grab the biggest headlines, but we shouldn’t forget the value of long-standing relationships. UTC has been doing business in India for a long time. We are certainly not new to the country. United Technologies has been in India for 100 years.

Today, we have almost 5,000 employees in India. Our Otis factory in Bangalore has produced more than 30,000 elevators since the 1990s. Our Carrier factory in Gurgaon produces 200,000 air conditioning systems per year. In addition, Pratt & Whitney engines power the aircraft of many Indian airlines, including Air India, Kingfisher, and Indigo – as well as more than 225 turboprop aircraft, business jets and helicopters in India.

From our perspective, this is really just the beginning of our relationship with India. Before talking about some of the big macro forces that will shape the global economy over the next decade, I’d like to share just a little data that highlights the size of the opportunities in both the infrastructure and aerospace markets. Last year, UTC’s sales in India were $500M. We expect this to grow to $2.5B by 2015. I’m confident in this level of growth based, in part, on the current per-capita consumption rates. As countries like India become more urban, consumption levels for air conditioners, security systems and air travel will increase toward the levels seen in more mature markets.

Global Partnership and Responsibility

I’ll spend just a minute here talking about our strategy for growth, which starts with developing a very strong and empowered local leadership team. I’d like to recognize one member of that team here today, Zubin Irani. Zubin is the Senior Managing Director for UTC’s Commercial Companies. In addition to developing a strong local leadership team, our Indian engineering centers are working to develop unique products for the Indian market, products that specifically address the demands of this market.

And, of course, additional growth will come from outside the company – through acquisitions, and through building strong relationships with a number of key partners and suppliers. The foundation of a strong relationship is a partner who shares the same expectations – not only related to performance, but also culture. So far, we have been fortunate to find partners in India who share UTC’s belief that the manner in which results are achieved is just as important as the results themselves.

For UTC – and our partners – this means a complete commitment to maintaining the highest ethical standards, providing a safe and healthy work environment for employees, demonstrating environmental leadership in operations and products, and, giving back to the communities where we do business.

We apply these same high standards everywhere we do business around the world, and our expectations don’t stop where our factory walls end. We expect our suppliers and partners to share our commitment to safety, ethics and to being a responsible corporate citizen. I’d like to briefly highlight one very successful partnership we’ve established in India – our relationship with InfoTech. Under the leadership of my friend, Mohan Reddy, InfoTech has become a critical supplier of United Technologies.

InfoTech supplies engineering services for some of our most advanced aerospace projects, including: Hamilton Sundstrand’s systems for the Boeing 787; and the revolutionary Pratt & Whitney Geared Turbo Fan engine. But, of course, none of this would have been possible were it not for InfoTech’s commitment to the same values and culture that defines United Technologies. Nor would it have been possible without InfoTech’s belief in innovation – which is another key part of our culture.

Power of Innovation – Steam Engines and Skyscrapers

I’d like to spend some time talking about the power of innovation – as it is clear to me that increasing global competition will result in tremendous pricing pressure, thereby increasing the value of innovation. When we look at some of the most significant turning points in world history, technological innovation has always played a critical role. For example, during the Industrial Revolution, the invention of the steam engine dramatically accelerated the production and transport of goods. Prior to the steam engine, power generated in factories mostly came from horses or water. The steam engine led to significant increases in output, but also to profound changes in wealth and quality of life. In the 200 years following the Industrial Revolution, the world per capita income rose 10 times, while the world population only increased six times, illustrating that innovation can – and does – change the world.

Another example of how innovation profoundly changed modern life took place during construction of the first skyscrapers. The Home Insurance Building in downtown Chicago, built in 1885, was actually one of the first skyscrapers ever erected. Though small by today’s standards at just 10 stories, it featured two innovations that eliminated technological barriers that had effectively limited the practical height of buildings. And this, of course, forever changed the skylines of modern cities around the world, setting the stage for buildings like: the Burj Khalifa in Dubai; and the Imperial Towers here in Mumbai.

The first innovation was the use of steel beams in the building’s skeleton. This design improvement provided the architectural stability necessary to build higher buildings than was previously thought possible.

The second innovation was developed by one of United Technologies’ founding pioneers, Elisha Graves Otis, who invented the first elevator that could safely carry people up and down these tall buildings.

Now it’s important to note that Otis did not invent the first elevator or lift. In fact, elevators have been in existence since construction of the Egyptian pyramids, where they were used to lift five-ton stones to heights of over 400 feet. However, what Otis did through the use of a safety brake was to make them safe.

Not long after the pairing of these two innovations, buildings were being constructed in Chicago – and around the world – that were 14, 15, and 16 stories high. And today, of course, high rise buildings are being built many times higher than the original limits. And, Otis elevators are carrying people to the top of some of the tallest skyscrapers in the world – and influencing the shape of today’s urban landscapes.

Power of Innovation – Air Conditioning

Air conditioning is another innovation that has transformed modern life. Back in the early 1900s, at age of 25, Willis Carrier invented modern air conditioning. His first air conditioning system – developed for a printing plant in Brooklyn, New York – reliably controlled heat and humidity, creating a stable environment for the printing presses. At the time, Carrier’s invention prevented paper from sticking together and presses from jamming. Of course today, Carrier’s heating and air conditioning units have the ability to keep people comfortable in any climate – and they are used around the world, including in the new terminal at Delhi’s Airport.

Innovation at Carrier continues today. For example, Carrier recently unveiled NaturaLINE, the world’s first natural refrigerant technology for container refrigeration. The system uses CO2 instead of the synthetic hydro-fluorocarbons more commonly used, which have higher global warming potential. These and other cold-chain advances will be critical as the world continues to urbanize. For example, an estimated 40% of fruits and vegetables produced in India are lost due to the absence of appropriate storage and cold chain technology.

Power of Innovation – Helicopters

Innovation has played an equally important role in the aerospace business. While Igor Sikorsky is not credited for designing the first helicopter, he is credited with inventing the first helicopter that worked. His VS-300 – which first flew un-tethered in 1940 – has become the model for all modern single-rotor helicopters.

The helicopter, of course, changed the world in a different way than the skyscraper and air conditioner did. This is because it not only improved modern life, but also because it helps save lives. Its unique ability to hover in a fixed location, maneuver through confined spaces, and land without need for a runway has made it an ideal aircraft for a variety of uses, including search and rescue and emergency response. For example, during Hurricane Katrina, Sikorsky helicopters used by the US Army, Navy, Air Force, Marine Corps and Coast Guard were responsible for saving approximately 35,000 lives.

Today, Sikorsky builds a wide range of helicopters, including the famous BLACKHAWK, and the S-92 pictured here. I’ll note that the cabins for the S-92 helicopter are manufactured in Hyderabad through a partnership United Technologies and our Sikorsky division have formed with the Tata Group.

For those of you not familiar with the S-92, it is an advanced medium-lift helicopter that can support a number of missions including offshore oil transport, executive transport, and search and rescue. Our partnership with Tata on the S-92 is one of many examples of how we’ve aligned ourselves with some of India’s most respected companies – also including Larson & Tubro and HCL – leveraging India's highly skilled aerospace workforce, and better positioning ourselves to respond to the growing global demand.

I’ve shared these stories about innovation at UTC not just because we are proud of our accomplishments – or to make a sales pitch for our company – but to reinforce the importance of fostering a culture of innovation. In today’s increasingly competitive global economy, the winners will be those who continuously evolve, innovate, and invest. Last year, we spent $3.6 billion in company- and customer-funded R&D. This year, we’ll spend even more. Today’s new inventions will become tomorrow’s commodities at an ever increasing speed. So, fostering innovation at every level will be critical to long-term successes. And, IT professionals will be expected to play a much bigger role in driving innovation.

Power of Innovation – Information Technology

So, I’d like to talk briefly about my expectations for IT leaders and professionals. I’ll start by saying that today, IT professionals play a vital role in supporting almost every aspect of our company – from product development and supply chain management, to optimizing our production lines. In fact, it’s safe to say we would not be able to operate anywhere near our current levels of efficiency – and on the same global scale – without the advances in connectivity and computing power provided from our IT team.

Last year, UTC spent close to $1B – or about 1.6% of sales – on IT services. To put this in perspective, this is more than the company spent on electricity to power our factories, or on legal fees, or on marketing and advertising. We make this large investment in IT because we believe investments in Information Technology can deliver significant competitive advantages.

Of course, the “nature” and “focus” of our IT spending has changed over the past decade. Ten years ago, our IT spend as percent of sales was higher – 3.8% – while the return on investment was much lower. Back then, the vast majority (84%) of our IT spend was devoted to infrastructure – wires, phones, PCs, servers – and maintenance. While infrastructure is still important, it will account for only about 50% of our IT spend this year, and we’d like it to be even lower in the future. Looking ahead, the best return for our IT investment will be in tools and systems that drive innovation and business growth.

Optimizing Network Efficiency, Reliability, and Security

At the most basic level, optimizing network efficiency, reliability, and security will continue to be an important focus area for UTC. I’ll share with you a few facts about UTC’s IT infrastructure to illustrate this point. Today, we operate 15 data centers and utilize 8,700 servers. We have 4,000 network locations, and we are connected to over 6,000 suppliers and partners. Our employees use 165,000 PCs, 27,000 hand-held devices, and generate over 1.8 million e-mails a day. Our employees also logged more than 17 million remote access hours last year.

Needless to say, any network disruption has the potential to significantly impact UTC, especially as we continue to increase our presence in developing markets around the world. In the past, if our network went down, employees might be inconvenienced by the loss of Internet and e-mail access. But today, a network disruption could significantly impact our business.

Here’s an example from our Sikorsky business. Sikorsky shipped 253 large helicopters last year, over half of which were Blackhawks. Each Blackhawk is assembled from approximately 33,000 components, and 5 million individual parts. Each of these parts has a number that is ordered, tracked, and delivered to precisely match our production schedule.

All of the work instructions and quality control sign offs on the shop floor are done electronically. If a single part doesn’t arrive on time – or fails to have the proper quality inspection certifications – the entire assembly line can come to a halt. This could delay shipments, impacting both our bottom line and credibility with customers. So, we cannot afford anything but a 100% reliable network.

As important as having the best safeguards, IT must also find better ways to connect us, allowing us to harness the collective knowledge and brain power of our 200,000+ employees around the world. I mentioned earlier, many of UTC’s businesses were started by individuals who transformed markets with innovative new products and technologies.

However, more and more innovations today do not come from a single person, but from groups of people who collaborate to solve complex problems – so connecting people, and allowing them to share best practices, has never been more important.

Whether through portals, mobile devices, or other applications, IT needs to find ways to fully leverage the company’s collective knowledge. This means allowing employees to quickly and efficiently communicate complex ideas and collaborate in real time – whether they sit 30 feet or 3,000 miles away from each other. Our engineers in Connecticut need to feel like they are side by side with engineers in India, as they share responsibility for developing our next generation products.

United Technologies faces very strong competitors in both our aerospace and commercial businesses. To win in these markets, we need to be both technology and cost leaders.
This means we need to push the limits of high performance computing capabilities to quickly design, develop and field the most advanced products at the lowest possible cost. Again, this is especially true in today’s global world, where new technologies are adopted by our competitors more quickly than ever, and high-value technologies can rapidly become “commodities.”

High Performance Computing – Jet Engine Application

One example is in developing the most advanced analytical tools to assess, design, and validate the numerous components, and systems that make up today’s jet engines. To give you some perspective of the challenges of designing a jet engine, you need to know that today’s jet engines operate at temperatures in excess of 1,300 degrees Celsius – hotter than the melting point of the metal in the engine. Today’s small engines have rotor speeds of up to 50,000 RPM, and pressure ratios equivalent to being almost 500 meters below the surface of the ocean. Moreover, jet engines must be designed to survive the ingestion of hot desert sand, ice, and even birds. Needless to say, today’s jet engines are highly engineered products.

Fortunately, advanced analytical tools have considerably shortened development times and reduced development costs. For example, the move from 2D, empirically-based modeling to 3D, physics-based modeling has allowed us to significantly reduce the overall engine weight by nearly 10%, and increase the durability of critical components by ~2X. 3D computational tools – validated by rig and engine testing – have also allowed us to significantly reduce fuel burned, increase aircraft range, lower the operation cost, and reduce noise.

The results can be seen in Pratt & Whitney’s new Geared-Turbo-Fan engine – pictured here – which will deliver unmatched fuel efficiency with significant reductions in noise, emissions and operating costs when it enters service. Before I move on, I’ll just sum up by saying that IT professionals will continue to play a vital role in our business – as long as they continue to focus on creating value and driving innovation.

Changing Global Economy

Let me turn now to discuss some of the major trends I believe will shape the global economy over the next decade. I’ll start with just a few words on globalization. For much of the last 100 years, the U.S. economy has been the driver of growth for companies all over the world. But with 95 percent of the world’s consumers and more than 70 percent of the world’s purchasing power now outside the United States, global companies no longer rely on the U.S. as the primary engine for growth.

In fact, over the past few decades, we’ve seen an increasing portion of our own growth come from outside the United States. In 1972, 24% of our sales came from international sales. In 2010, it was 61%. And we expect this shift to continue. While globalization has provided us access to new markets and new sources of talent, it has also meant new levels of competition on a scale never seen before – transforming many of our markets. One example is the large commercial aircraft market, which has been dominated by Boeing and Airbus for decades.

Today, newer players – including Bombardier, MRJ, and Embraer – are challenging Airbus and Boeing in the narrow-body aircraft segment. Looking further ahead, increasingly sophisticated manufacturing capabilities, and the growing demand for air travel in emerging markets such as China and Russia, has led to indigenous aircraft that could further transform the commercial aerospace market.

As we emerge from the global recession, I fully expect the pace of globalization to continue to accelerate, driven in part by increasingly sophisticated technologies that allow for better and faster connectivity. And, while there will be winners and losers, overall globalization will be a positive force in the world. It will lead to higher standards of education and living conditions around the world – allowing tens of millions of people to be lifted out of poverty. Globalization will also give rise to more resources to deal with some of today’s most serious global challenges – including the threat of terrorism, and environmental concerns.

Urbanization and Emerging Market Importance

As the world continues to “globalize,” it is also “urbanizing” – at a scale never seen before. Today, about half the world’s population live in urban areas. In 1975, there were only three cities with populations over 10 million. Today, there are 21. By 2025, that number will increase to 28. And if you look at cities one step down, with populations between 5 and 10 million, today there are 33; by 2025 there will be 45. This level of urbanization will drive unparalleled levels of investment in infrastructure, including the construction of roads, airports, schools, hospitals and hotels. I’m reminded of this whenever I return to India. Each time, I seem to arrive at a brand new, world-class airport – in Hyderabad, in Delhi, and I understand Mumbai is next, with more to follow.

For a company that makes elevators, air conditioners, refrigeration systems, fire safety and electronic security products, large-scale urbanization presents tremendous opportunities. I’ll share one example to give you some sense of the size of this opportunity. This year, the global new elevator market, including China, is expected to be about 500,000 elevators. In five years, China alone could be 500,000 units.

While most discussions about globalization and urbanization focus mainly on the BRIC countries, these forces are affecting many other countries, including South Korea, Vietnam, Mexico, Turkey as well as the Middle East and Africa. In fact, today’s middle class consumers include almost 2 billion people across more than a dozen emerging countries. And, as the global economy recovers over the next decade, the number of middle class consumers in these countries is expected to double, which again, presents tremendous opportunities.

This rapid urbanization, and the corresponding global construction boom, also creates an amazing opportunity to build better cities – cities that are more efficient, consume less energy and have a smaller impact on the environment. In a few minutes, I’ll speak more about the size of this opportunity for new buildings. But first, I’d like to highlight just a few opportunities where information technology can also help drive greater efficiency and solve some of the challenges that will arise from rapid urbanization.

These opportunities include using “smart” assets, such as video cameras and data analytics to manage traffic congestion, or improve the reliability of mass-transit systems. Another example would be the use of smart water grids, with embedded sensors to detect leaks and ensure that the water flowing through the system is uncontaminated. Effective metering could also be used to ensure appropriate incentives are in place to drive the most efficient water or energy usage. Turning now to energy efficiency…

Increasing Demand for Energy Efficient Solutions

With a rapidly expanding middle class and increased urbanization, global energy demand will grow at an unsustainable pace in the coming decades, placing an unsustainable demand on the earth’s limited resources. Awareness of these issues has been driving the demand for investment in clean and renewable technologies. And, while we need to make progress on cleaner energy generation and on renewable sources such as wind and solar, the most promising short-term answer is energy efficiency.

Energy efficiency is a vast and readily-available resource. In fact, opportunities to conserve energy through greater efficiency are virtually limitless. In the building industry, we know that buildings are responsible for 40% of the world's energy consumption – and nearly 40% of the world’s annual greenhouse gas emissions. We also know that technology exists to reduce building energy consumption by as much as 70% with a sizable portion (~50%) of this achievable at commercially viable financial returns.

This level of energy reduction is technically achievable, but achieving and maintaining it requires a more integrated approach to how buildings are designed, built, and operated. One of our greatest challenges is overcoming the mindset that the energy problem can't be solved through conservation and improved efficiency. It's human nature to think that things can't be done better.

However, our experience has shown that energy usage can be significantly reduced using existing technologies – again with reasonable financial returns.

Here are a few examples. Our energy services businesses regularly perform energy audits on existing buildings and inevitably find ways to reduce energy costs on average by 15%, with a one-year financial payback. Our Otis business sells an elevator with a regenerative drive that puts power back into the building during descent, saving 75% of the energy typically consumed by an elevator. Our Carrier business sells a non-ozone depleting HVAC chiller that is up to 40% more efficient than current industry part-load standards. Our Automated Logic building controls generate energy savings by integrating systems – such as HVAC, lighting and security – to recognize changes in conditions within a building, and only power HVAC and lighting as needed.

As IT professionals, I’m sure you are well aware that Information Technology’s share of the world’s environmental footprint is growing because of the increasing demand for IT capabilities and service. In fact, I’ve been told that the electricity used to power today’s data centers generates greenhouse gases on par with the output of countries like Argentina or the Netherlands – and that these emissions – left unmanaged – could well rise to 4X their present rate by 2020.

However, I’m confident that organizations like NASSCOM will promote more efficient solutions, just like UTC. I know that NASSCOM has already played a leading role in encouraging businesses to create energy efficient data centers, while employing responsible waste management when it comes to electronic equipment. I commend NASSCOM for their leadership on this issue, and encourage you to continue to use IT as an enabler of great energy efficient solutions.

There will also be many opportunities for IT professionals to support new “smart” technologies – integrating systems to further reduce energy consumption. For example, in buildings, where security and elevator systems are integrated, elevators can more efficiently route passengers, eliminating unnecessary trips. And when security and HVAC systems are integrated, time-based controls – like programmable thermostats – can be replaced with occupancy-based controls for heat or air-conditioning, providing the same comfort with reduced energy consumption.

In many ways, the cities of tomorrow – like those being built here in India – will have a distinct advantage when it comes to adopting more energy efficient solutions. They are in a position to leap ahead – and employ the latest energy-efficient technologies – without concern for dismantling existing systems, and with the potential to redefine the standards for energy use for the future.

Closing Remarks

Let me end my remarks this morning by saying that, over the last decade we’ve seen our economy transformed by rising competition from around the globe. We’ve also seen technology revolutionize the ways we work. I fully expect both of these forces will continue to shape the global economy and the way we conduct business, at an even greater pace over the next decade.

The winners in the next decade will be those who can adapt the quickest in this changing landscape. Being the first, the biggest, or even the best in a market today does not ensure success tomorrow. To remain competitive, we must continue to innovate – develop game changing technologies and drive greater efficiency. If we can execute in these areas, we will – just like the skyscraper of yesterday – reach levels previously unimaginable.