Interview

Ravi Kumar S., President, Infosys, interviewing James M. Loree, CEO and Donald Allan, Jr., CFO, Stanley Black & Decker

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  • Ravi Kumar S.
    00:10
    Ravi Kumar S.

    Hello everyone my name is Ravi Kumar, I’m president at Infosys. Welcome to the next chapter of Trailblazers. On this chapter we have two distinguished guests from Stanley Black & Decker, Jim Loree, the CEO and President of Stanley Black & Decker and Donald Allen, the Chief Financial Officer at Stanley Black & Decker. Jim Loree is the President and CEO and has been at Stanley Works since 1999, and he's seen the company grow from 2 billion to 14 billion approximately in 2018, done a variety of acquisitions on this journey, grown organically and redefined the vision of Stanley Black & Decker as a company with a global footprint in industrials, as they call it, and Stanley Black & Decker is focused around enabling the makers, the doers, the thinkers and the protectors to innovate in a better world. Jim had been at General Electric before he came to Stanley Black & Decker and as a part of his leadership journey, Stanley Black & Decker has been voted among America’s most admired employers for diversity, Fortune’s most admired companies and the Balance Sustainability index. Donald Allen, Don as we call him, is the Chief Financial Officer at Stanley Black & Decker, before that he was the Vice President and the corporate controller and prior to playing that role he worked at a variety of firms, Lockheed Corporation, and then before that Ernst & Young. So thank you Jim, and thank you Don, for being part of this talk series. I’ve always been very inspired by what you're trying to do with making Stanley Black & Decker a very relevant firm in the digital age we are all in. I'm gonna get the first question up to you Jim. I love this vision of how Stanley Black & Decker is going to enable a future world of thinkers, doers, protectors, as you call it and how you enable them with digital tools. Tell us a little bit about this vision and it's a very diversified set of brands you are actually now a part of.

  • James M. Loree
    02:44
    James M. Loree

    Well thanks Ravi, it goes to our purpose and our purpose is something that we defined about three years ago, right about the time I came into the job, but we looked at the time at 173 years of history, three industrial revolutions, now we're in the fourth, and we were trying to figure out what has made this company so resilient and so successful over that long long period of time and I won't go through the entire process about how we came up with a purpose, but suffice to say that it took a lot of a lot of work, especially from looking at it from the independent third parties, looked at our history, looked at where we were today and where we might be going in the future and what was required of this company to continue to be successful. And we came up with this purpose and the purpose is for those who make the world, key word ‘make' and also ‘for those.’ In other words, we are for the people who make the world. And so that could be through, there are many different means. Through our tools you know is the most obvious one but actually through our healthcare business, through our engineered fastening business, our security business and so forth. So when I took over, we created this purpose, and it became very inspirational for the people I think in this company. We had always had the purpose but we never really identified what it was and so that I think it has really taken root and it's been very successful.

  • Ravi Kumar S.
    04:13
    Ravi Kumar S.

    And if I may ask you one follow-up on this, how do you enable digital technologies into your product so that these products become so relevant in a digital age where making will be driven by an interface of physical and digital?

  • James M. Loree
    04:30
    James M. Loree

    So you know being as traditionally mechanical as we have been over many many years, the digital revolution is a serious step change function in how we operate and how we incorporate digital into our products, our processes, our business models and all those different things, and so we started about four or five years ago when I was The Chief Operating Officer, and we started making it a priority. We started bringing subject matter experts into the company, working with third parties outside the company, trying to understand, trying to show people the power of digital because if you can demonstrate the power of digital then people assimilate that into their everyday, even people that don't have a lot of experience, and they hire the subject matter experts and you know the rest is a self-fulfilling prophecy.

  • Ravi Kumar S.
    05:23
    Ravi Kumar S.

    Donald, you know, switching gear, I know you have a variety of roles in the firm being a Chief Financial Officer as one of your big responsibilities, you manage the IT, you manage the global supply chain, data analytics and I also know that you directly run the securities business for the firm as well, and you’ve overseen like literally from two billion to fourteen billion dollars of revenues of M & A activities which was a part of that journey. What's the role you spend the most time on?

  • Donald Allan, Jr.
    04:25
    Donald Allan, Jr.

    Well I would say that I probably spend the most time on some of the things that are more transformational today in our company, which would be IP IT organization, the advanced data analytics organization, Industry 4.0 and then security, our business security, those four areas are in a serious state of transformation in different levels and in the IT organization we're looking at how we really digitize certain things and really focus at what we're good at in the world of IT and then use partners like yourself and other companies to help us do other activities. Industry 4.0 is really about automating the supply chain and the manufacturing footprint and digitizing it as well, and so we started that initiative about two and a half years ago, we built the Center of Excellence here in Hartford Connecticut, and we're starting to drive value across that supply chain here in 2019, and we expect that to really ramp up in 2020 as well and it's really about how we change the way that we manufacture products and use digital tools and automation to do in a much more efficient and effective manner, but we also have to upskill and train our employee base as well as those changes are happening, very transformational for our company. And then our security business is going through a kind of a business model transformation which is really how do you take a business that provides security to a large commercial building but be able to offer solutions that have data insights and information that help those customers run their business or their operations more effectively and improve the growth rate of the business and the profitability along the way. And then the last area I mentioned was advanced data analytics which really helps all those things, which is the center of excellence at Boston that we've created that is driving data analytics across our businesses across the three areas I mentioned and across our other functions as they become more effective and efficient at what they do.

  • Ravi Kumar S.
    07:57
    Ravi Kumar S.

    Fantastic. So Jim switching gear, and actually Don touched upon it, with the global trade conflicts, there is a distinctive need to diversify your supply chain and you were one of the few who called it out and you made an attempt to do that. What are the few things you have done to diversify your supply chain and deal with this kind of trade conflicts which you don't have control over?

  • James M. Loree
    08:27
    James M. Loree

    So about four years ago, even before all the trade noise started to erupt, we embarked upon a strategy for our supply chain which we call ‘make where we sell’ because it turns out that the types of customers, especially in the tool business that we have, the tradesmen for example, they really appreciate and prefer buying products and using products that are made locally in the country that they reside in, so that was the genesis. We were also concerned about our concentration particularly in China but also in Mexico and so it just so happened that right about the same time this was occurring that the Industry 4.0 movement started to take root and over the last four years the Industry 4.0 movement has gained such tremendous momentum in Asia and in in Europe and is starting to gain momentum in the United States now and it factors very nicely into the supply chain strategy that we have because we can now cost-effectively manufacture in developed countries. So we opened up a plant in the UK recently which is unheard of, would have been unheard of, you know in the last 50 years. We opened up several plants in the U.S, we've gone from 20% of products that we made in the US up to over 40% and we're on our way to 60%. So those are just some examples but the economics of manufacturing have changed for us as a result of Industry 4.0.

  • Ravi Kumar S.
    10:02
    Ravi Kumar S.

    And, if I may just follow up on this, how do you offset the cost? Is it a part of hyper productive Industry 4.0 technologies, the embrace of that on your shop floors, is that going to change the economics and offset the supply chain diversification if I may, or am I being naive to say that?

  • Donald Allan, Jr.
    10:26
    Donald Allan, Jr.

    Absolutely, that’s a big driver, being able to automate and digitize our plants particularly in the United States for the example that Jim was giving, really allows us to be highly productive in the manufacturing of those products and drive much more higher levels of efficiency across those plant systems and as a result you have that benefit then you also have a reduction in your freight costs because you're not shipping products from other parts of the world and so that's kind of an offsetting benefit to that bit of an increase you see in the United States.

  • Ravi Kumar S.
    10:55
    Ravi Kumar S.

    And is it more to do with robotics or is it is it any other advanced manufacturing?

  • Donald Allan, Jr.
    11:00
    Donald Allan, Jr.

    It's really robotics and it sits around digitization of the plant in the sense of providing data and information to the individuals in the plant so they can actually make decisions before something occurs, such as a piece of equipment that might break down. They can actually have predictive analytics that say this piece of equipment will break down in three days you need to do some maintenance work otherwise you'll have downtime of six hours versus a downtime of 30 minutes. It's those types of tools and digitization allows them to be much more efficient.

  • Ravi Kumar S.
    11:31
    Ravi Kumar S.

    And Jim if I may ask you do you see Industry 4.0 as an inflection point for re-shoring manufacturing back to the United States, because it kind of gives you the cost leverage an d the efficiency leverage to redo what happened for offshoring manufacturer facilities, you kind of bring it back.

  • James M. Loree
    11:55
    James M. Loree

    Well it absolutely is an inflection point you know it's an enabler. Without it, it would be economically challenging if not impossible, and we also have the benefit of tremendous organic growth and so those jobs that are coming, you know, back from China in particular but also Mexico and other locations, we're not displacing a lot of workers because we have the growth [RK: Yep] and you know the workers are, the company is growing at such a rate that you know there's plenty of work to be done, question is how do you do it efficiently and technology is enabling us to do that in developed markets like never before.

  • Ravi Kumar S.
    12:38
    Ravi Kumar S.

    And how does that tie up to reskilling, in the sense you know blue collar reskilling or factory worker reskilling, whatever you call it, seems to be one of the biggest gaps for digitization of large landscapes in manufacturing. I think everybody has a magic formula for white collar jobs and reskilling, very few firms have figured out what to do with factory worker to re-skill and you seem to be ahead of the curve on that in your thinking and the way you're trying to bring in a framework to digitize all your factories.

  • James M. Loree
    13:15
    James M. Loree

    Yeah I mean it's an absolute imperative because you know the biggest enemy of Industry 4.0 is fear and it's fear in the eyes of the workers and also in the management teams, the traditional management teams that have no experience with this, and so we have to combat the fear through education, training and so forth and that we're doing we’re doing through a more digital approach where we're actually providing training to the hourly workers, but we’re also undertaking some significant local relationships with academic institutions in particular, for instance, community colleges and four-year colleges where the training is being provided that is specific to that location [RK: Yep] because a lot of these plants are in remote locations [RK: Yep] and the people aren't going to go move somewhere and so you have to do the training locally and so we're running some experiments. We run a big one in Jackson, Tennessee, we've run one in Dallas with a company called Generations, and we're seeing great success with this. And I think the other thing is that Industry 4.0 technology has to become, the user interfaces have to be simplified and I think in conjunction with more training at the local level, it's simplified user interfaces that is how we are going to address the opportunity and I'd say on top of that there's just a level of digital proficiency that's required by all workers, it's white collar, blue collar, new collar or whatever you want to call them there's a level of digital proficiency and there has to be a willingness on the part of the organization to embrace lifelong learning because it's just one chapter right? I mean there's gonna be more and more chapters and the chapters are gonna come at us faster and faster and we're all going to have to learn how to absorb information and increase our individual and our organizational bandwidth.

  • Ravi Kumar S.
    15:17
    Ravi Kumar S.

    Absolutely I always say this, lifelong learning is about how to learn, learn to unlearn and learn to relearn. [JL: I say that a lot too!] It’s a very fascinating journey about how the lines between blue and white are going to blur in the digital age and you are going to find new age jobs.

    You know there's one other thing, for all the digitization needed in your landscape, you need a lot of financial capital to do that and I know that you're transforming your landscape to create financial capital, if I may, and you've already announced to the street that you’re going to actually take out financial capital from optimizing your operations. Tell us a little bit about that journey.

  • Donald Allan, Jr.
    16:05
    Donald Allan, Jr.

    Yeah I think there's there's actually a bubble that you have to go through for a period of time where you're probably gonna spend more capital on some of these technologies, and we've seen that in the last two or three years in our company where if you think about capital from a couple of different perspectives, one is just capital, like fixed assets and acquiring technology and then there's things like joint ventures and acquisitions you can do. If you focus on the first one, you know as a percentage of revenue for capital expenditures, we spent about 3 to 3.5 percent of our revenue today. You look at our history back about 5-7years, we'd spend about 2 to 2.2 percent and so we've ramped that up dramatically to invest in some of these technologies. And I think that bubble is probably going to continue for another three to four year and then I think you're gonna see it start to level out but one of the things that you have to be really careful of and there's this journey that any company takes is that you don't try to take capital away from some of the things that are critical to the core business, such as innovation investments that you make on your own products, because if you start to make those types of swaps you might be okay for a period of time but ultimately you're gonna cause a problem for your growth rate in the future. And so balancing that and recognizing that you will have to make a higher level of capital investments for a period of time and maybe three to four years down the road you see that start to level off yeah but it's difficult to predict though where that will go, it just may be a reality of the world.

  • Ravi Kumar S.
    17:27
    Ravi Kumar S.

    And you know I had one last question for both of you, and you were so bang on on what you just mentioned about financial capital and human capital. I think these are the two things needed to scale digital and very few firms have figured out how to do both. I think for financial capital, some have done it, human capital everybody is grappling with it. I just had one common question to both of you - what's the call for action for manufacturers? What would you advise them, the ones which are embracing for 4.0 industry or 4.0 technologies and are digitizing their business models?

  • James M. Loree
    18:07
    James M. Loree

    I think the most important thing a manufacturing company can do once it has embraced Industry 4.0, if you don't embrace Industry 4.0, I think you're gonna become extinct [RK: Irrelevant] right. So after you've embraced it, I think the most important thing, one of the most important things you can do is to make sure that your approach to people is a very human-centered approach because machines are very impersonal, algorithms are very impersonal, and they can bring bias into the system, the decision-making system, and so we have to make sure we have a governance system to avoid bias. We also have to try to be as empathetic and understanding of the human element as possible.

  • Donald Allan, Jr.
    18:55
    Donald Allan, Jr.

    Yeah, I would add to what Jim said. I think he's right on the mark with his comments but I think when you think about it from a business model perspective, Industry 4.0 is a way to really differentiate yourself and create a value proposition as a company that's unique and different versus your competitors. And so if you're attacking that right now you can be ahead of your competitors and if you continue to invest in that space, in that technology, then it's a way for you to really continue to differentiate going forward, which is really what this is all about. How do you treat your employees with the level of respect that they deserve, the way that Jim was describing, and then also make sure that your company continues to have a value proposition that's really differentiated versus who you competing.

  • Ravi Kumar S.
    19:37
    Ravi Kumar S.

    A lot of us get confused about the fact that this is not about just people or machines it is people amplified by machines, [JL and DA: Yeah] so you're bang on. Thank you, again I think I’ve learned a lot from this conversation, you're leading that wave of Industry 4.0 for manufacturers and all of us are looking forward to seeing you progress in this journey. Thank you

  • James M. Loree
    20:02
    James M. Loree

    It’s an exciting journey, thank you, Ravi. Thank you for all the good things you do, great things you do at Infosys, great organization, we much appreciate it.