In the space of a decade, Johnson Controls Inc. has made a dramatic shift to become the world's largest automotive interior-systems supplier. Last year, the Milwaukee company recorded $12.6 billion in sales, with $9.3 billion of that coming from its Plymouth, Mich.-based automotive systems group. The supplier also has become a leader in plastics molding — largely as the result of two headline-grabbing acquisitions of major parts suppliers: Prince Automotive of Holland, Mich., in 1996, and Becker Group Inc. of Sterling Heights, Mich., in 1998. JCI President and Chief Operating Officer John Barth discussed the motivation behind those purchases and the sweeping changes that have widened the role of an automotive supplier.
When you look at where we were a decade ago, Johnson Controls was a parts manufacturer. We made parts to print, and we had lots of waste and lots of inventory that we no longer have. It was a completely different industry at that point than it is today. In 1985, our controls business was twice as large as our automotive business. Since then, automotive became an explosive growth business for us, and we've moved rapidly from a components business to a systems-based business.
I think that part of what has happened is due to the continuing cost and pricing pressures on all of us. We realized that we could create opportunity by pooling our resources instead of performing the traditional commodity parts work that had been done. We decided that we could really help create greater demand for products.
All of a sudden, we had opportunities to create product benefits for multiple original equipment manufacturers that an individual automaker may not have been able to do with their own resources.
In addition, as our work has evolved, we've gotten a lot closer to consumers, focusing on seating and interiors. We've accumulated a tremendous amount of data, understanding likes and dislikes, different values and price points that we think can attract consumers. We can also feed that back to an OEM.
The interior — everything other than the seat — was a way for us to expand our goal to provide value to [carmakers] and was a natural extension of the seating business we were already in.
When you look at the interior — instrument panels, door panels, overhead systems, seating — all fighting for the same space in a vehicle, a company is used to dealing with four or five different suppliers within those major component groups.
But if [a carmaker] has a supplier who can manage the occupant environment in total, hopefully you can provide maximum value in comfort, safety and cost. That's what we were thinking when we grew in interiors and bought Prince and Becker. Prince really gave us two things. First, it brought to us some business and technical processes, creativity and innovation that really separated them from most interior suppliers. Because of that, as we looked at growing the business, we knew that we could be successful.
Also, we knew the Prince management team for a long time, and there were a lot of similarities in culture between the two companies.
Prince had decided to sell the business because the company recognized a need to team with someone on a global basis. What had helped them be so successful to that point really wasn't going to help them keep going forward.
So it was a mutual marriage. Even though Prince identified the normal number of possible candidates, it ended up that the company only talked to us. We were able to put together a merger that made sense to the Prince family and management of both companies.
We both had similar values in how we managed our companies and how we treated our employees and customers. Once we aligned our values, then the financial details were the easiest part of the negotiations.
When we look at an acquisition, the additional sales turnover we get isn't even counted. Instead, we look to the growth of the company. We need a strategy that answers the question: How am I going to make the combined company grow? We're really trying to figure out how to bring these organizations together and make them more than they would ever be by themselves.
When you look at the overall growth of Johnson Controls, you would see that 70-plus percent of the growth has come organically.
But the acquisitions have provided value. Prince gave us real credibility on the interior side here in North America to grow that business. And Becker has given us that capability in Europe. Without that credibility, we weren't going to be as successful there as we are here.
What we're trying to do is redefine interiors, blur the zones between door panels and [instrument panel] cockpits, and between center consoles and seats. All of a sudden, we can continue to create surprise and delight for consumers so they want to purchase a vehicle. We're now redefining what that environment will look like. We can develop seat systems and provide comfort data and input before the first prototype is even sketched.
The work has evolved. Now, the industry recognizes that the faster we can go and execute flawlessly, the better it is for everyone.
We're managing our business differently, too. Being in the innovation business is much different than being in manufacturing. At one point, we were manufacturers. Today, we're much more customer-driven.
You must have the mind-set to recognize that if you save $3 on a system, the first dollar has to go to your customers. And the second one has to go to the consumer, with the third dollar going back to Johnson Controls and its shareholders.
We're opposed to the mind-set that the first dollar is mine. With that approach, you're never going to get where you want to go.
With this industry approach, the consumer benefits a whole lot more in cost and value and new products. The bottom line is that they will purchase more vehicles, that they might not have been able to afford otherwise.