UTC Environment, Health and Safety Conference

I had occasion to speak to NASA's annual executive conference two months ago. The topic that day was fundamentally quality and especially in aerospace, but there was a lesson relevant to today, as you will see in a couple of minutes.

NASA Administrator Dan Goldin has been challenging the industry and its overseers to target a ten fold reduction in commercial carrier major accidents over the next twenty years, or alternatively we face the prospect of such a major accident every week by the year 2015 or so, given present traffic growth and accident incidence rates.

Speaking to that audience caused me to go back to historic accident rates to determine that we have already had almost a ten fold drop in incidence over the course of the jet age, down actually 86%. And, although our engines are not often involved in accidents -- about 8% of the time, to be precise, as even a contributing factor -- we have also gotten much better.

The early Pratt & Whitney JT9D's, the world's first high bypass large commercial jet engines, experienced in-flight shutdown rates of about forty events per 100,000 engine flight hours (EFH) in those early years. Work the math and it's about one in-flight shutdown per engine per year.

Today, the ETOPS standard is two events per 100,000 EFH, twenty times better than our performance three decades ago. This ETOPS standard applies to, among others, the new “big twin” aircraft, the Airbus A330 and Boeing 777. We have flown our engines for these aircraft already about 500,000 EFH over the first two years of flight operation. Against the standard, we should have had ten in-flight shutdowns and in fact we have had only three, and two were tragic misinstallations of lubricant shipping line plugs. So if we take just a little credit for these two events, our rate is a fifth of an event per 100,000 EFH or virtually two orders of magnitude (one hundred fold) improved over thirty years.

Why do I tell you this?

Well, I will let you in on a secret. Until seven or eight years ago, I didn't really appreciate the magnitude of compounding (as in compound interest) in operating improvements and gains in effectiveness of equipment of all sorts.

We all know about gains in information technologies. Take some other ones. Throughout his life, ending in 1953, the astronomer Edwin Hubble never saw resolution in one of his telescopes of better than one second of arc. For the non celestial and non navigator types here, there are sixty seconds of arc in a minute, and sixty minutes of arc in a degree, and evidently 360º of arc in a circle.

But now the resolution available with the telescope named in Hubble's honor is one thousand times more precise, which is why, among other things, astronomers began about six months ago confirming discoveries of many, many planetary systems just like our own.

Or, a softer and even more important statistic: only 8% of adult Americans had college degrees in 1960 and only 41% had high school diplomas, and today's college degree rate is 23% (3 times higher) and high school rate 82% (twice higher).

In your own field, 13,800 Americans died on the job in 1960, a rate of 21 fatalities for each 100,000 employed. And in 1994, 5,000 died, a rate of four per 100,000, or five times better.

Three classes of improvements have driven this compounding lesson home for me, and I expect for many other executives and Americans too.

First was process re-engineering: the amazing gains we have seen in our own plants, one after the other, consequent on process mapping, reductions in numbers of operations we employ to make a part, assembly or product, thereby minimizing handoffs between operations and operatives and therefore delays, inventories, distances travelled, and costs.

The fact of the matter is that the improved performance we see across UTC today is due substantially to process re-engineering.

The second amazing compounding we are seeing is in the quality of our products and services. Here, I believe, we are perhaps two years behind our process re-engineering efforts, but I am entirely confident that we are seeing and will see much more of the same kinds of gains.

In quality, just as in process re-engineering, there are defined, standard and understood techniques to make us better. They come fundamentally from Japan and are brought to us principally by our friend and mentor, Ito-san, the Corporate Quality Assurance Advisor to UTC's Presidents Council.

One is QCPC, or Quality Control Process Charting. This fundamentally converts operatives to self inspection, in the course of doing so typically expanding inspection points six fold and catching nonconforming material much faster and at source. Further, we train operatives to record, and to root cause correct -- typically by adjustment in their own processes -- defects.

A second quality methodology is 5S, the notion of a plant and a work flow so clean and so visually laid out that the process is totally clear not just to the operative, but to the casual observer.

The 5S's stand for sort (keep what you need and discard the rest), straighten (a place for everything and everything in its place), standardize (create an organized, logical work flow), sustain (keep it up), and shine (we know what that means).

You can tell from a long way away when a place has been 5S'ed.

A third quality methodology is relentless root cause analysis. This is an obvious discipline, which I'd like to illustrate with an example from many years ago.

In the early 1980s, I was responsible for Otis' business in the United States. We shipped then early generation electronic control elevators to Japan from the U.S. These were high speed elevators for tall buildings, because the U.S. was the tall building market in the world, and this was where we had concentrated development of these products.

One of our early Japanese installations was a Matsushita Electric facility. Matsushita is our partner in Japan and evidently a large and powerful and influential company.

Japanese elevator market standards allow you about a half a failure per elevator per year. American market standards are about four failures per elevator per year, and these elevators we installed for Matsushita were ten times worse than the American standard, about forty failures per year.

I learned something which truly surprised me at the time. The elevator business has employees called field engineers: long time field and technically trained employees who know every kind of problem an elevator can have post installation and know how to fix it. Our field engineers also generate TIPs, Technical Information Publications, which are essentially a guide to fix nonconforming product in field service. In a word, they're Band-Aids.

As the head of U.S. Otis, I sent immediately two of our best field engineers to Japan to fix these elevators. They called me and said they could not get their job done. The Japanese would not let them apply TIPs. Instead, the Japanese stuck them in a conference room and began detailed and relentless root cause analysis. The Japanese were entirely willing to tolerate nonconforming product to get to root cause.

Americans, I learned, are too quick with the field engineer; too quick with the Band-Aid. The Japanese can't stand things that don't get fixed at root cause and this is what my friend Ito-san brings to us.

Beyond quality and productivity, the third compounding is right in your own area -- Environment, Health and Safety -- and broadly and absolutely you can be just as proud of your achievements as others throughout UTC can be of theirs, and, importantly, just as confident in your future gains.

You will hear others recite these statistics over these two days, so I will be brief:

• lost work day injury incidence rate of 1.4 per 100 employees in 1996, 64% improved since 1992;
• injury severity worldwide down 71% since 1992;
• workers' compensation costs, which we measure only in the U.S., down more than half since 1992 and saving us happily $46 million annually even after paying for medical cost inflation;
• a rate of serious injuries so far this year across UTC at under a third of last year, the consequence of our machine guarding initiative being now 98% complete;
• U.S. hazardous waste generated last year 77% below the 1988 base year, and chemical releases to air and water comparably 84% below 1988;
• U.S. reportable chemical spills last year totalling 14, half of the lowest rate in any of the last five years; and
• zero fines, zero, to our U.S. regulatory authorities, a first since everybody began getting serious about the environment a decade ago.

Now our E,H&S record, while overall very good and especially in these rates of improvement, still has a ways to go. We know also that improvements always come from diagnoses of weaknesses, errors and omissions, and here are some of ours.

Our lost work day incidence gain in the U.S. is really not as good as we claim, for a little over half of the improvement isn't accidents that went away, they instead ended with employees coming back on restricted duty rather than having time away from work.

And our overall recordable accident rate, again U.S. only and defined as any accident requiring more than first aid, has dropped only 14% since 1992, hardly the 67% rate we like to cite for the same period for U.S. lost work day incidence, or the 64% I just cited for our global performance.

And peers are better, indeed in some cases much better: Allied Signal's lost work day incidence rate is 0.3 (less than a quarter of our own 1.4 rate), Dupont's (world best in class) is 0.04, 34 times better than we, and even the average rate of the ORC group of 39 larger companies of our size and type is 0.9, a third better than ours.

In other words, all these gains and congratulations and we are still below average.

The last set of errors and omissions is the tough one, the toughest one: fatalities.

We know the record, and we know the goal. The latter is of course zero, as it must be, but our progress is sadly zero too, and this fact is flatly unacceptable to any person in this room.

We did have 12 fatalities last year, and a total of 59 over the last five years. For comparison, we need to note only that we are number one on this measure among the 39 ORC companies, that the next nearest ORC company had 4 fatalities (a third of our own), and that we accounted for 34% of all ORC fatalities.

There may be some mitigation available, but I caution myself and all of us not to take much refuge here: one of our fatalities last year was motor vehicle related, and four arose in the truly tragic Sikorsky CH-53E helicopter crash, consequent on a nonconforming, critical vendor assembly.

But even with this mitigation, which is arguable anyway, we were still first on the ORC list for at least the fifth year in a row.

We have had some egregious instances, and I am going to be so forthcoming here as to cite these, for we will only improve by examining clearly and honestly our own mistakes and omissions, no matter how repugnant they may be to us.

At the end of 1995, an Otis employee in Brazil lost his life consequent on working with an electrically powered hand tool without adequate ground fault circuit interruption protection. This in spite of the facts that this is a clearly identified risk, that GFCI's have been mandatory for Otis companies since 1992, that Otis Brazil had committed to its own plan to have GFCI's in place by 1994, and that a UTC audit earlier in 1995 had identified to management Otis Brazil's noncompliance with its own GFCI plan.

Six months ago, an Otis Spain employee lost his life consequent on inadequate job site scaffolding and barricading. Again, management was certainly on notice of hazards and needs for improvement.

In early 1995, a UTC audit of Otis Spain identified “a priority issue: unguarded fall hazards and unsafe hoistway work practices at most construction and service job sites,” and concluded that “immediate measures are required to mitigate the probability and potential severity of an accident from the hazards and/or conditions identified in this review.”

Six months later, an Otis Spain employee fell and received multiple injuries. Another employee fell in February, 1996, resulting in a fractured skull. Then the fatal fall occurred at the end of last year, ten months later.

I do have here an unpleasant message for all of us. Several years ago, we said to ourselves that we needed policy and practice to be promulgated throughout our company, and to allow time and opportunity for adjustment and compliance.

Then we began to make incentive compensation adjustments in the face of problems. There were sometimes disputes about these, with UTC being normally more aggressive than operating management.

I believe we have come now to a need for harsher sanctions, most especially in the face of non-compliance with audit issues resulting in serious injuries or fatalities and where there has been time and opportunity for adjustment and compliance.

We just don't want management responsible for problems and behaviors like this to be part of our team. We will accordingly seek termination of employment where problems of this extreme degree develop, for management responsible for the development and execution of the safety compliance plan involved.

This harsh message being said, we may, maybe, be on the track to some gains this year with just two fatalities through today. Both were Carrier accidents, with one being in that arguably mitigating category, this time a small private airplane crash. But we charged ourselves because supervision authorized the flight.

Some improvements, but we know we have a long, long way to go.

Now I don't propose to advise us in detail today on how to achieve the gains I know we will achieve, just as we will continue exemplary achievements in quality and productivity and cost. But I will give you one tip, supplementing the many specifics you will be hearing over the next two days: look to our Japanese quality methodologies and especially to the 5S and relentless root cause work I outlined earlier. There are real lessons here, and they work, absolutely. Indeed, I need look no further than relentless root cause analyses in the fatality reviews we have conducted over the last seven years, and the impact these have had on our company, to be sure of this.

I do want to advise you on goals. Indeed, at that NASA conference, I readily and publicly signed us up for another ten fold reduction in Pratt & Whitney's in-flight shutdown rate, relative to today's ETOPS standard, over the next ten years. And I don't have the slightest concern about achieving this goal.

I comparably challenge you to ten fold improved E,H&S performance over the next ten years, just as you have substantially achieved ten fold gains in most areas over the last ten years.

This is what compounding is all about. What is absolutely different at UTC now, as compared to just a few years ago, is that we know that it works, for sure, and that we can do it, for sure.

Thank you very much.