with Sean Smith, Regional General Manager, Honeywell South Africa
Back in the 1990s you ran your own business. How has this learning experience shaped you as a current leader at Honeywell in South Africa?
There is nothing tougher than being a single contributor, when running a small business you are responsible for everything. One gets an understanding of what cash-flow really means, and how to strategically manage personal and business priorities. However, in the corporate world, your priorities change significantly, it is always about people, customers, quality, and safety however you now must consider 400+ staff members and their well-being. It becomes a very different kind of responsibility. Having run my own business, I have developed a very good understanding of what is really important. As there is only a limited amount of time, it is not possible to delegate. Consequently, you learn to prioritize very quickly. In the corporate world, one discovers a completely different set of issues that need to be handled. Compliance and social responsibility are very important, but are less of an issue when operating as a single contributor.
What attracted you to make the switch into the corporate world?
Circumstances; it was never my intention to work in a large corporate. One does a good job and then somebody wants to collaborate, the business grows and consequently someone wants to buy you out.
There are some definite advantages of working in a large corporate. Hiring someone specifically to do strategic marketing, for example, is not a luxury that one can afford as a small, self-funded business.
There are also challanges; the control and the global expectations that one is obliged to live up to. Nevertheless, it is a very rewarding world once you are able to acclimatize. It takes a while to adjust to new priorities; compliance, safety, corporate responsibility, shareholders, and management.
At some stage you have to make a conscious decision; learning the financial side of the business, corporate responsibility etc., continuing with technical execution does not happen naturally. Of course, you never stop being an engineer and the tendency to think that absolutely everything can be fixed remains. However, I have been doing this for 15 years now and I am quite enjoying it!
When you joined in 2009 the global economic situation was in turmoil. How did this affect your priorities? Were there specific measures that you had to take?
Corporates develop an impetus of their own, the train is very large and it is not easy to turn or stop. There was a short period between the departure of the previous regional general manager and my arrival.
However, my responsibility nonetheless was to refine and implement the strategies that we were already pursuing. We have a five-year planning cycle that we are committed to delivering.
In fact, sometimes from a leadership point of view, the challenging times are sometimes more interesting? Before the financial crisis everything was great, but not very exciting! South Africa is the regional hub for Honeywell and is certainly the easiest to service Sub Saharan Africa from.
Geographic expansion is one of our strategic priorities, not only in Africa, but globally. Most US corporates want to have global coverage and revenue. In that respect, Honeywell’s business is currently around 60% outside of the US. We are following the global company’s strategic plans and for Africa that means opening more offices and getting more regional representation in Africa.
In 2009 we opened offices in Nigeria and Angola. These are not simple countries to start new operations, and require an initial human and capital investment. However, the results have proved it was a wise choice; those two offices will represent 20% of our business and over 40% growth this year, thanks to robust investment and support from corporate headquarters.
You mentioned strong support from corporate. David E. Cote came here two years ago and was very pleased to see sales doubling in 3 years.. Did this result in more recognition from HQ for this region?
Thinking strategically, Honeywell designates some markets as mature and treats them in a certain fashion, while others are considered emerging. By comparison, Africa certainly is an emerging market as it will still take many years before Africa moves the needle and makes a significant contribution to the world GDP. Currently Africa’s GDP only constitutes around 3% of the world total, howeverin spite of this six of the top ten growth economies in the world are in this region.
The South African office is responsible for Sub-Saharan Africa. Honeywell as a corporate embraces the high growth regaions strongly. A very good definition is to consider places where GDP per capita is above USD 30,000 dollars as mature and those where it is below USD 10,000 as emerging. If a company can operate in a below USD 10,000 environment, it can do very well in an above USD 30,000 one. When we look at the high growth regions, they are clearly defined. They are also cooperative and interlinked, which is positive and supports our strategy.
Obviously, India and China are hugely significant and it would be foolish not to be operating there. Brazil, Mexico, South Africa, Sub-Saharan Africa, Russia and Indonesia, are all places in which companies need to be developing their businesses. Those countries, with the exception of Mexico, Russia and Brazil are all below USD 10,000 GDP per capita. We learned to operate in these regions and it is possible to apply what one has learned elsewhere. Honeywell has a significant investment plan and a high expectation in what are called the high growth regions. Africa is key to this plan.
You mentioned that the operations are coordinated from South Africa, you have spoken of rates of growth in Angola and Nigeria of over 40%; this is very high. The same is not true of South Africa because the infrastructure is already more developed. How do you see this balance playing out between the two?
South Africa is the anchor. There are also economies that are becoming very strong in Africa; these include both Nigeria and Angola. Additionally, Botswana seldom receives attention, but in fact it has had the fastest GDP per capita growth rate for 50 years worldwide and is a true African success story.
Angola is also going to become a strong player in West Africa; it overtook Nigeria in terms of oil exports for approximately 6 months while there was trouble in the Niger delta. It does not have the social complications of Nigeria, which have 150 million people to look after. The size of Angola’s population is much more manageable and development is progressing steadily. As a consequence of a shared language, they continue to have a good relationship with Portugal, a developing relationship with Brazil and could become a ‘big brother’ to Mozambique.
Although Ghana is not yet a major player, Honeywell sees a good opportunity due to their good legal system and very amicable people.
In comparison to South Africa with 2-4% growth, it is not in the oil and gas sector, the refining sector, manufacturing sector or the mining sector; it is in infrastructure. It is great if you are selling concrete or steel but we will not be a direct player in the majority of that market although our building business will be involved, but as secondary, supporting players.
In Angola and Nigeria we will be key players. If there is a refinery, we will not support the people who make the cable for that refinery; we will run it. In South Africa, however, we will still drive single-digit growth but we will never expect a 30 or 40 percent rise. We are aware that we have been here a very long time and we have had very good growth in the country, but the rate of growth will without doubt decline.
Supporting the companies that are already here is the future and we already do that; they are good customers and we are good suppliers. However, our most substantial area of growth will be in mining, minerals and metals. South Africa will not be the focal point for this; we mine less gold here now than we did during the1990’s.. Growth will occur in emerging economies, for example, Zimbabwe with a platinum refinery. In the future, Africa will be a preeminent player in the area of oil and gas. There will be expansion in refining and then the lights will be turned on in the rest of Africa. The infrastructure, the power, the use of gas, the local beneficiation, providing people with clean water: that is where we believe the growth will be seen.
While executing that infrastructure, you are going to meet the EPCs. South Africa cannot help Brazil, they have EPCs and lots of capability there, Africa cannot help China; they have enough engineers of their own, likewise for India and Western Europe. However, South Africa can certainly help the rest of Africa and the SADAC region in particular. The same technical standards, the same thought process, the same Language, etc. means that there is the capacity to perform. South Africa is the hub, but growth will come from our expansion into the rest of the continent.
This is surprising; when we talked to Energy Minister Dipuo Peters, she said that refineries in South Africa are decaying. Is this not an opportunity for Honeywell to play a role in the modernization?
With the exception of the Cape Town refinery, all the control systems for the South African refineries were supplied by Honeywell. The South African refiners have done well: 500,000 barrels of installed capacity, but we need closer to 600,000 barrels for consumption.
Neighboring countries all have double-digit growth, yet none have refining capabilities. Not only is South African consumption expected to grow, but regionally the South African refiners play a significant role. Generally speaking, refining margins are very thin now globally. The South African refiners are in a very difficult position today: a 100,000 – 180,000 barrel refinery does not have the volume to be globally competitive.
Mega refineries are necessary, and their capacity has to be around 400,000 – 600,000 barrels before they are economically viable. The capital difference between these and the 100,000 – 180,000 barrel refineries is not just simply 3 times more, due to economies of scale.
The planned Coega refinery will produce approximately 400,000 barrels. I am not sure that the government can afford to build such capacity alone with so many competing social and investment programs requiring support. They are looking for partners, Petronas has been mentioned, and perhaps some investors from Namibia would be interested. However, raising the money is difficult for new refineries globally. The proposed Lobito refinery in Angola, for example, cannot be built because it would be too expensive. Sonangol cannot afford it alone and does not have to build two power stations at the same time, like South Africa does.
It seems unlikely to us that such refinery will be built without the support of foreign investors.. The Clean Fuels Specifications are also causing considerable difficulties with our vehicles. Some German car manufacturers are unable to launch some of their vehicles here and in fact have to de-tune some of them. Service intervals in Europe allow a car to be serviced at 25 000 KM, while here it is 10 000, which is not sustainable.
There is also the expense of the pipelines from the Coega refinery inland to be considered. They will cost an estimated USD 11 billion. We have not yet seen an integrated transportation, storage or distribution network, leaving the refinery. There is also the question of the feedstock into Coega, as it is not certain that we have the reserves to support the refinery in this sense, so still some work to be done, but should it go ahead, we have offered and committed to supporting the development of a world class refinery and will bring our global expertise to the table.
Honeywell brings state-of-the-art technology to South Africa. Yet, as Technology VP Jason Urso mentioned at last year’s user group meeting in Barcelona: there are different rates of adoption in the different markets. Is the continent ready to receive the latest Honeywell technology?
There are two answers. On the one hand, the African customers are very keen to adopt. Everyone starts by saying they want world class technology. The more difficult question, on the other hand, concerns the customers’ readiness to receive technology. Consider the quantity of installed capacity of anything in Africa and look at how many power stations are broken today. The same is true of water infrastructure. Generally speaking, the people here are willing to build and they want the best, but the well-being and longevity are not being given the same attention as the construction.
When we engage with customers, we make it clear that we do not want to drop something in their backyard and then leave. Local contact and local support is very important for us. What is lacking is long term maintenance and operating experience. A refinery is a sixty-year investment, not something that will only operate for 5 years. It has to be maintained from month one through to month 720 and it is impossible to operate it any other way.
When you describe expats as bringing a wealth of experience able to provide training for recruits around the world, what training programs do you have in place?
We have a localization practice where we aim to fill as many vacancies as possible locally. We will only consider expats if we cannot find someone locally. In Angola for example, we have only one expat; the manager (who by the way is actually Angolan by birth) , who is there to teach compliance and what it is like to work for a US corporate. In fact, his aim is to make himself redundant in three or four years for a local country manager to take over his responsibilities.
We have a technical training scheme called the Junior Engineer Training (JET) Program. It is a very disciplined one-year program for university graduates who have studied mathematics and sciences, electrical, chemical or light current engineering. Each year we have a different flavor; one year we will take chemical engineers, the next electrical, etc. We have approximately fifteen of those in progress on a constant basis. Trainees spend three months in a European training facility, after which they spend 9 months under the guidance of a more senior engineer. They learn the discipline; they learn what quality, longevity and engineering excellence are about. We have 8 or 10 people in Nigeria and Angola at any one time
There is a huge opportunity to up skill and train engineers across the African continent. We seek to address this through our social responsibility programs. We sponsor a place that trains mathematics and science teachers for example. We pay for the last few years of education for the brightest students at that school, who then proceed to a teacher training college. In return, they sign a contract to return to teach mathematics and science. We believe that will be very beneficial structurally.
In Nigeria we sponsor a school that has shown promise in this field of education we have also installed around 40 PCs, and provide training there on an on-going basis. Honeywell also has a global program called ‘Educators’, for children of Honeywell staff. This program covers the cost of the last few years of their secondary education; they also go to the US for a two-week maths and science program at the NASA space agency. We do the same for teachers. Teachers write a 500 word essay which is then assessed by a panel. The chosen ones also get sent to NASA. This benefits about 200 teachers worldwide and takes place twice a year.
On a personal note, you are responsible for 300 people here in South Africa; what makes you the right man for the job?
Africa is not for the faint-hearted and therefore one of the most important skills in such a job is to be able to translate that, to persuade people who otherwise would not give Africa any thought. This is a primary skill for an African manager in a global organization. Regardless of what I am asked to present, I always open with an African fact. For example, geographically, Africa is actually the size of the US, Europe, China and the whole of India combined. One billion people live here, therefore it is a good consumer market. If you intend to grow an African business, you have to be an incredibly good translator.
I further like to think I have the skills to identify the right DNA to populate the business and leverage synergies between totally different cultures, from South African through to Nigerian. It is about creating the right mix of people. That is the starting point for a leader.
The DNA of the company is made up of the DNA of the individuals. If you have the right individuals, there is no need to force things, they happen naturally. We only hire people who are growth-oriented. If I interview someone, I want to know what the fastest thing they have ever grown is. I also ask them about the mistakes they have made. Someone who has never made a mistake has never done anything really challenging. Our goal is to find some common DNA across cultures, languages and upbringing.
In order to motivate your employees you need to set the example. What keeps you motivated?
It sounds a bit cliché, but it is our customers and our staff. We exist for our customers. Of course, we want to give a good return on our shareholders’ investment, but without customers and without staff we are nothing.
How would you like your customers and staff to perceive Honeywell in Africa in the future?
The same way we perceive ourselves: as a good business partner, and as a company that will look after the safety and sustainability of their business. Productivity is also a very high priority for us and for our customers. I would like people to say, “You know those people at Honeywell? They care about us. They help us make more money, they are available to support us in the middle of the night, they help us with optimization, etc.” Profit is important, but profit is the result of effort. You cannot make something profitable if it is not sustainable. If we get those things right, we will be successful.
Sub-Saharan Africa today is where India and China were 30 years ago. Our aim over the next five years is to establish a foundation in order to be where they are now and to play our rightful role in helping Africa use technology as India and China have. This region is important for the company headquarters as it is the next area for global expansion after China, India and Brazil.
We have traditionally been a South African company, although we have had the responsibility for the rest of Sub-Saharan Africa, we have not done as much there. Over the last two years, we have walked some of the harder yards, but we would still like to see double-digit growth in South Africa. We have to take market share in order to grow more than 5%. There are, however, some strong competitors.
It is crucial for us to have a strategic landing pad for Honeywell in Africa. There is no reason why we should not grow 40%-50% in Africa every year for the next 10 years as we come off a low base. There is 8-10% GDP growth and a significant proportion of that comes from development in infrastructure, which we can play a major role. Africa is becoming more stable,new leadership approaches are starting to appear and there is more economic integration across the continent.
Do you have a final message to our readers regarding Honeywell’s commitment to South Africa and the so-called African renaissance?
Honeywell is committed to Africa; we see it, we feel it. We are receiving significant investment and assistance. You mentioned David E. Cote, our CEO, who is on President Obama’s advisory board. He has made two visits to us in the two years that I have been here, one of which encompassed a visit to Nigeria with me. They are also sending another senior management figure here to visit this year. Their commitment, in particular to Sub-Saharan Africa is an indication that we are serious. We have global customers and other global International Oil Companies (IOCs) that know when they arrive we will support them.
The big differentiator for us is that we will be a local player. We are not intending to export everything from Houston or Aberdeen, our traditional two main centers for our oil and gas business, on a permanent basis. We are strongly committed to localization and local requirements. Of course, there are ‘baby steps’ and you have to operate remotely until they become established. We are global but are operating with local best practices.
Our manufacturing is so flexible that in China we can manufacture a control system specifically for that market. We are now doing research in order to adapt products to meet the specific needs of the African market.
Honeywell runs an initiative called Velocity Product Development. This is a key differentiator for Honeywell globally. The aim is to share developments between business units as quickly as possible so that that new products can be brought to market. David E. Cote has done that in our business worldwide and it is a true differentiator.