United Technologies Corporation Strategic Analysis

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Introduction

Multinational companies such as United Technologies Corporation develop strategic plans through the analysis of the various aspects of their business. These analysis range from financial analysis, internal environmental analysis, and external environmental analysis. This paper intends to describe the nature of the above analyses through the case study of United Technologies Corporation (UTC). The paper will provide detailed background analysis of the company and its internal environment. In addition to this, the paper will outline the overall strategic analysis of UTC plus the tools involved in the strategic management. A financial analysis is to enhance the strengths of the company.

Background Analysis

The company was initially named as “United Aircraft” but with good leadership, the name was changed to United Technologies Corporation in 1975 in order to refer to the variety and diversification into many high tech fields apart from aerospace (United Technologies, 2018). This changed was influenced by the strategy of growth and diversification that was initiated by Harry Gray after he took the stewardship of the parent corporation in 1974. According to him, it was risky to solely depend on military business and instead check the overreliance with civilian business (Boritz, and No, 2008). The company has a significant research facility called United Technologies Research Center (UTRC) which facilitates all the company’s activities toward developing new technology systems and designs.  

United Technologies Corporation has a record of good business revenue and profit record with the 2017 fiscal year being one of the most prosperous ones. The company reported annual earnings of $4.552 billion while the revenue for the year was $59.837 billion (United Technologies, 2018). This year the company has been ranked at number 51 by the “Fortune 500” list of the largest American corporations based on total revenue. UTC also engages in public activities through involvement in government and global affairs, appearances in Congress and industry organizations.

United Technologies Corporation’s mission statement states that “Every day we deliver smart, sustainable products and services that meet the demands of an evolving world” (United Technologies, 2018). When the international aerospace and building systems community look at ideas and solutions to the emerging challenges, the global community turns to the United Technologies Corporation. The company is dedicated to having sought-after investors and strives hard to be a host of the highly educated team with workers recruited from all corners of the world. UTC remains focused on delivering products and services in aerospace community, space exploration, travel industry, military and rescue applications. The company, however, does not have a clear vision statement, but its corporate values have ensured its prosperity since it was incorporated (United Technologies, 2018). The values state that “United Technologies Corporation embodies a commitment to positive behaviors that build trust, promote respect, and demonstrate integrity.”  The company is keen to honor those values, ensure open communication, and be accountable for all its endeavors. The stakeholders, especially employees remain aligned through the focused mission statement and cohesive corporate core values.

Internal Environment Analysis

Internal environmental analysis helps United Technologies identifying its strengths and weaknesses in order to determine what to capitalize on and what to overcome during strategy formulation. The company’s resources, culture, policies and values, plans and objectives are its key strengths. UTC combines those strengths perfectly when formulating, implementing, and evaluating its significant strategies.

Company policies and Mission Statement

United Technologies Corporation’s corporate policies and core values provide guidance and direction on how the organization should operate and how each situation should be addressed. The company policies and core values are closely related to its mission statement which states that “Every day we deliver smart, sustainable products and services that meet the demands of an evolving world” (United Technologies, 2018). Those policies also act as the reference for decisions at any level of the organizational structure. The strategic planning team is guided by the mission statement, corporate policies and core values which enable it to remain focused throughout the whole process. UTC is aware that its company policies define its organization’s personality and therefore calls for the adherence up to the last bit.

Financial Analysis

For the purpose of strategic management and analysis the following ratios computed from the 2017 financial statements published by United Technologies Corporation will be used in the financial analysis.

Current ratio

The current ratio is computed as follows: Current Assets ÷ current liabilities (Penman, 2015).

$ 4000 ÷ $4867 = 0.82×

This shows that the company may have difficulty in paying its current liabilities in the short term.

Cash ratio

Cash ratio is calculated as follows: (cash + short-term marketable securities) ÷ current liabilities

$ 5631 ÷ $4867 = 1.16×

This ratio indicates that the company is able to cover all its current liabilities with an excess of 16%.

Net Profit margin

 Net profit margin ratio = net income ÷ net revenue

$4920 ÷ $59837 = 8.2%, 0.082

This ration compares the UTC’s net income and its net revenue. The shareholders make $0.082 of every $1 of its revenue generated.

Return on assets

Return on assets ratio = net income ÷ total assets

$4920 ÷ $96920 = 0.05, 5%

This figure suggests that for every $1 of assets, UTC generates $0.05 in net income.

Asset turnover ratio

Asset turnover ratio is calculated as net sales/revenues divided by the total assets. United Technologies as at the end of 2017 fiscal year had total assets of $96920 million while the net revenues were $59837 million. Therefore;

Asset turnover ratio = 59837÷ 96920 = 0.617×

This ratio indicates that the company generates $0.617 for every $1 of its assets.

The long-term debt ratio

 This is computed as long-term debt ÷ total shareholders’ equity

$27093 ÷ $31421 = 0.86, 86%

Return on equity ratio

ROE is calculated as follows: net income ÷ total equity

$4552 ÷ $31421 = 0.14, 14%

This figure suggests that for every 1 US$ of shareholders capital, UTC generates US$0.14 in net income.

Debt-to-equity ratio

This is calculated as follows: total debt ÷ total shareholders’ equity

$27485 ÷ $31421 = 87%

This indicates that the company uses 0.87× shareholders capital of the debt capital to finance its operation.

Quick ratio

This is calculated as (cash +short-term marketable securities + accounts receivable) ÷ current liabilities (Penman, 2015).

$5631 ÷ $8467 = 0.665×

This indicates that UTC can only pay 66% of its current liabilities with its available cash.

Total debt ratio

This is calculated as follows: total debt ÷ total shareholders’ equity

$27485 ÷ $31421 = 87%

This indicates that the company uses 0.87× shareholders capital of the debt capital to finance its operation.

Strategy Analysis

The grand strategy of United Technologies Corporation is growth and diversification that was initially pursued by the founding company chairman, Harry Gray. The company has always embraced the culture of growing and operating through strategic planning. It aligns all of its strategies in accordance with the mission, policies and core values of the company. The company has a functioning strategic team that is comprised of competent and capable strategists and strategic managers that work closely with the company’s top management in ensuring the strategic planning process is successful.

The company’s culture of embracing future plans facilitates change processes and obtaining employees’ support toward the implementations of those plans. Some of the personnel play significant roles in the strategic planning and therefore are considered as the strength of the company since the efficiency and effectiveness of the process solely depends on them. United Technologies Corporation has vast financial and physical resources that are prudently utilized in the strategy formulation, implementation and evaluation processes. The UTC leadership ensures that there the funds are available whenever needed from the retained reserves, bank loans, or issuance of new shares.

Corporate level strategy

United Technologies Corporation has grown from a mere United Aircraft factory to a multinational conglomerate due to corporate level strategies. These strategies have made it gain competitive advantage through acquisitions, selection and merging smaller businesses competing in similar and different industries. Its corporate level strategy can be described as mergers and acquisition strategy because of its previous takeovers including to those unwilling but vulnerable companies.

The company’s current corporate level strategy is to acquire Rockwell Collins for a total of US$23 billion was formulated and published in September 2017. Financial analysis indicates that United Technologies Corporation will take over the US$30 billion net debt for a price of US$500 million of the expected returns within four years because of synergies (Ivanisevic, 2018). The company has now obtained final regulatory approval for the Acquisition of Rockwell Collins. This is an American multinational company with its headquarters in Cedar Rapids, Iowa. UTC is confident that acquisition of Rockwell Collins will help it in its objectives of redefining aerospace and overall information technology system.

This strategy is in line with its mission that states that that “Every day we deliver smart, sustainable products and services that meet the demands of an evolving world.” Rockwell Collins is committed to providing products and services in the aerospace community and will, therefore, it will, therefore, help United Technologies Corporation advance its mission and goals. The strategy is also closely associated with the company’s grand strategy of diversification and growth with great emphasis on growth. Combining its businesses with those of the Cedar Rapid-based company to be ready to provide solutions to challenges facing the aerospace community and meet the growing demands of the evolving world. The capabilities of both companies will complement each other toward enhancing individual business operation. One of the major weaknesses that currently constrain United Technologies is cost control which the management is optimistic that the synergies of the acquisition will reduce.

Business unit level strategy

United Technologies Corporation acknowledges that its success is attributed to its commitment and great focus in providing products and services in the aerospace and building systems that are best in the market and which meets the unique needs of every customer. Therefore when developing its business-level strategies, the strategic team always has the customer in mind other than just the competitive market. The customers in the aerospace community especially have to change needs due to the evolving world which they expect the companies in the industry to meet them. Working closely with the company’s engineers, the strategic team has seen the development of High-Resolution SWIR camera specifically designed for the Office of the Naval Research. The imaging sensor and camera will be launched in the January 2019. The state of art gadget has made it hard and costly for competing companies to develop. For this reason, the U.S. Office of Naval Research (ONR) has entered a contract with United Technologies Corporation for the production and installation of the almost-perfect and efficient equipment.

The high-end gadget is equipped with a higher fidelity inspection sensor for both of its collection modes and autonomous identification of objects. These features enable the Office of Naval Research to identify any suspected object that is detrimental and in turn disseminate information directly and timely to warfighters. The cost leadership strategy adopted by UTC helped in winning the contract over its rivals by minimizing its development costs of production and overheads to a level that the competitors could not achieve. The vast resources of the company especially the research facilities, infrastructure, funds, and technical know-how enabled the company to pledge favorable deadlines for the contract which have been met. The company has also been successful in its business unit level strategies through focused differentiation that requires the company to manufacture systems and products with unique features and specialization that meets the equally unique customers’ needs. United Technologies Corporation is therefore very keen to fund and support the research facilities where innovative ideas are nurtured.

Functional level strategy

 As seen earlier, United Technologies Corporation uses both functional and divisional organizational structures and therefore it needs functional level strategies to ensure that it runs smoothly. For UTC functional level strategy determines the success of the business unit level and corporate level strategies. This is because the resources and especially the employees and funds are apportioned appropriately to the various functional areas that are involved in either strategy formulation, implementation, or evaluation processes (Wolf, and Floyd, 2017). Some of the popular functional units at United Technologies Corporation include marketing, human resources, information management, public relations, and finance. Environmental commentators have always criticized the company of being among the highest American corporate producers of air pollutants. Such reports could severely hurt the image of the company. For this reason, the public relations department has come up with a corporate social responsibility strategy which seeks to make United Technologies Corporation the environmental leader through its eco-friendly operations and products.

The public relations department advances the company’s commitment to the belief that environmental responsibility and profitability are positively related. The functional area has formulated a plan that ensures environmental sustainability through the use of materials that are eco-friendly and manufacture efficient products without compromising on the quality and availability of the resources. The strategy is based on the compliance to the regulations of the environmental authorities, conservation, focus on value chain processes, and eventually eliminate the adverse effects of its operations to the environment as well as those of its rivals. The focus on the value chain aims at determining the impacts of the current products and operations and influencing the development of new product designs that meet the environmental requirements.

The public relations department is expected to work closely with the research and development team to conduct intensive research and perform objective experiments in order to determine the specific areas that the company needs to improve on in relation to compliance and conservation. The environment program is planned to be rolled out in February 2019 and maintained thereafter to infinity. The funds for this strategy have already been determined; US$50 million and has been allocated in the next fiscal year’s temporary and permanent budgets. The formulation process for this strategy started in November 2017 while the implementation will commence in February 2019 until the foreseeable future. The strategic management will evaluate the program on year after it is first rolled out and after every six months thereafter.

Technique Analysis

The management of United Technologies Corporation makes every strategic decision upon a critical analysis of its major strengths and weaknesses. UTC considers the positive traits and its vast resources as the strengths that ensure its success while the negative traits and other internal factors that limit its ability to achieve some of its goals are the weaknesses. The diagram below explains the current strengths and weaknesses of the United Technologies Corporation.

Strengths

Weaknesses

  • Availability of resources to develop differentiated and unique products and systems that rivals cannot match.
  • A working and proven organizational structure that helps in the strategic process.
  • The company is committed to its mission statement, corporate policies and core values.
  • Good public relations through corporate social responsibility.
  • Resource constraints toward compliance and conservation of the environment.
  • The diversification policy is making the company lose its focus on the provision of products and services that meets the demands of customers in the aerospace community and building systems.

The above outlines the company’s strengths against its weaknesses. The strengths have ensured that the technology giant achieves its goals in all of its strategies. For example, the business level strategy of products differentiation and the creation of unique products such as the high-resolution SWIR Camera is made possible by the availability of vast resources. The company’s mix organizational structure is convenient for the aerospace and the general information and technology industry. The strategic process is efficient due to the collaboration of the various functional areas that make up the country. Additionally, adherence to the corporate policies and core values and commitment to the mission statement is also a valuable strength towards the attainment of strategic goals. However, the second quadrant describes the weaknesses that constraints that limit United Technologies Corporation in reaching greater heights. Lack of elaborate programs to ensure compliance and conservation of the environment in the past has made the company become an easy target by the environmental commentators. However, the multinational conglomerate has rolled out 2019 to infinity environmental strategy that will ensure the company becomes the environment leader in the industry. Internal business analysts have also warned against the acquisition of corporate that are not in the aerospace or technology business. In the past years, the company has had to sell some of its business units at loss due to lack of proper management for those subsidiaries that are not in the aerospace industry or building systems.

BSG Matrix

The United Technologies Corporation’s business portfolio operates in industries that are expected to experience in demand with new markets emerging in developing and the developed countries. The aerospace especially will experience a higher in increase due to various militaries around that intend to acquire sophisticated airplanes, aircrafts and also renovate their aerospace structure. The BCG matrix below explains the leading competitive position of UTC which makes the biggest beneficiary of growth in the market. Building systems is also a rapid growing industry. UTC will strive to expand with the relative market growth.

QUESTION MARKS

Retrenchment

Liquidation

Increase Investment

STARS

Market Penetration

Market Development

Horizontal integration

DOGS

Retrenchment

Divestiture

Mergers and Acquisition

CASH COWS

Product Development

Increase Investment

Diversification

IFE Matrix

The IFE Matrix below quantifies the strengths and weaknesses described in partial SWOT analysis above. The major strengths are rated at 4 while the minor ones at 3. The UTC’s major weaknesses have a rating of 1 while the minor weaknesses have 2.

Strengths

Weight

Rating

Weighted Score

  • Largest producer of airlines in the market
  • Best talents in the market
  • A working Organization Structure
  • Loyalty among the employees
  • Most reliable suppliers in the market
  • Good public relation
  • Availability of capital for expansion
  • No historical records of employee strikes
  • Commitment to comply with regulations
  • Elaborate company mission and policies

15%

6%

9%

6%

10%

10%

5%

3%

4%

9%

4

4

4

3

3

4

3

3

3

4

0.6

0.24

0.36

0.18

0.3

0.4

0.15

0.09

0.12

0.36

Weakness

  • Lack of focus on major SBUs
  • Environmental concerns

 

12%

10%

1

2

0.12

0.2

TOTAL WEIGHTED SCORE

100%

3.12

The above IFE matrix and BCG matrix is used by UTC in developing their QPSM which will be used to determine between mergers and acquisition strategy and market development.

QPSM of United Technologies Corporation

Market Development

Mergers and Acquisition

Strengths

Weight

AS

TAS

AS

TAS

  • Largest producer of airlines in the market
  • Best talents in the market
  • A working Organization Structure
  • Loyalty among the employees
  • Most reliable suppliers in the market
  • Good public relation
  • Availability of capital for expansion
  • No historical records of employee strikes
  • Commitment to comply with regulations
  • Elaborate company mission and policies

15%

6%

9%

6%

10%

10%

5%

3%

4%

9%

4

4

4

3

3

4

3

3

3

4

0.6

0.24

0.36

0.18

0.3

0.4

0.15

0.09

0.12

0.36

4

3

4

3

3

3

3

4

3

4

0.6

0.18

0.36

0.18

0.3

0.3

0.15

0.12

0.12

0.36

0.12

Weaknesses

  • Lack of focus on major SBUs
  • Environmental concerns

12%

10%

1

2

0.12

0.2

1

2

0.2

0.4

TOTAL WEIGHTED SCORE

 

100%

3.12

2.99

The above QPSM shows that the company should put more emphasis on the strategy of market development (3.22) instead of mergers and acquisition strategy (2.99).

Grand Strategy Matrix

The grand strategy matrix below represents the feasible strategies formulated by the strategic team along with the partial SWOT analysis above that the United Technologies Corporation uses as a reference during the strategic planning. The company currently operates at Quadrant I which indicates a good strategic position. The right top quadrant of the matrix is excellent because it represents positive rapid market growth and strong competitive position (Wolf, and Floyd, 2017). The current strategies outlined for the next fiscal year and beyond are all found in the first quadrant and include focus differentiation, focus value chain analysis, mergers and acquisition, and diversification and growth. These strategies are formulated upon the critical analysis of the strengths and the weaknesses stated above. In the future, the company should strive to operate at the quadrant I due to its superiority and competitive advantage that come with the implementation of those strategies.

Quadrant II

Quadrant I

     Product development

     Selling business units

     Horizontal mergers

     Product imitation

     Focus Differentiation

     Focus Value Chain Analysis

     Mergers and Acquisition

     Diversification and Growth

Quadrant III

Quadrant IV

     Reduction of business units

     Liquidation

     Vertical mergers

     Liquidation

     Retrenchment

     Request take over

Conclusion

 United Technologies Corporation has achieved so much success due to its efficient strategic process and internal environment as demonstrated in the discussions above. The company capitalizes on its strengths while formulating its ideas through SWOT and Grand Matrix Analysis. The paper has indeed described in detail how a multinational conglomerate such as United Technologies can strategize on the three levels of strategic planning in order become the leader in the global market. Despite in a few areas the analysis of this company has shown that despite the industry in which a company operates its internal environment and strategic management are the main factors that contribute to its success. This paper could help other firms from all sectors to embrace the culture of continuously analyzing their internal environment and strategies for them to prosper in the changing world.

References

  • United Technologies (2018). Retrieved from: http://www.utc.com
  • Ivanisevic, A. (2018). United Technologies gets final regulatory approval for Rockwell Collins acquisition. Des Moines Register.Retrieved from: https://www.desmoinesregister.com/story/money/business/2018/11/23/united-technologies-final-approval-rockwell-collins-acquisition-cedar-rapids-iowa-industry-china/2093624002/
  • Boritz, J. E., & No, W. G. (2008). Auditing an XBRL instance document: The case of United Technologies Corporation. University of Waterloo.
  • Sáenz-Royo, C., Gracia-Lázaro, C., & Moreno, Y. (2015). The role of the organization structure in the diffusion of innovations. PloS one, 10(5), e0126076.
  • Penman, S. H. (2015). Financial Ratios and Equity Valuation. Wiley Encyclopedia of Management, 1-7.
  • Wolf, C., & Floyd, S. W. (2017). Strategic planning research: Toward a theory-driven agenda. Journal of Management, 43(6), 1754-1788.

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