Winning Now, Winning Later

Winning Now, Winning Later Plot Summary

Introduction

In the high-stakes world of corporate leadership, executives face a seemingly irreconcilable dilemma: should they focus on delivering quarterly profits that please shareholders today, or invest in growth initiatives that may not bear fruit for years? This question haunted David Cote when he arrived at Honeywell in 2002 to find a company in far worse shape than advertised – burdened with environmental liabilities, an underfunded pension system, and a toxic culture where short-term thinking dominated every decision. The prevailing wisdom in business has long held that companies must choose between short-term performance and long-term investment. However, through his transformative work at Honeywell, Cote demonstrated that this is a false choice. Over sixteen years, he led the company from near-failure to extraordinary success by developing a unique approach built on three principles: scrubbing accounting practices down to what was real, investing in the future without sacrificing too much in the present, and growing while keeping fixed costs constant. This journey offers valuable insights for leaders at any level who seek to achieve both immediate results and lasting impact, creating organizations that can win today while building foundations for tomorrow's success.

Chapter 1: Setting the Foundation: Intellectual Discipline and Strategic Planning (2002-2004)

When David Cote took the helm at Honeywell in 2002, he immediately recognized that the company's problems ran deeper than surface appearances suggested. What outsiders saw as a struggling but viable company was actually teetering on the edge of collapse, with billions in unresolved environmental liabilities, pension underfunding, and an organization torn apart by cultural warfare following a botched merger. The financial situation was so precarious that within weeks of becoming chairman, Cote had to lower earnings projections twice, infuriating analysts and investors. At the heart of Honeywell's troubles was an intellectual laziness that pervaded the organization. In meetings across the company, executives would present elaborate, lengthy reports designed to impress rather than inform. When Cote asked probing questions about core business issues, he was often told to wait until later pages in the presentation or, worse, met with resistance for disrupting the carefully choreographed show. This pattern reflected a deeper problem: the company had developed a culture where appearing knowledgeable mattered more than actually understanding the business. To combat this, Cote instituted what he called "blue book sessions" – periods where he would sit alone with a blue notebook and think deeply about the company's challenges. During these sessions, he developed the Three Principles of Short and Long-Term Performance that would guide Honeywell's transformation: scrubbing accounting practices down to what was real, investing in the future but not excessively, and growing while keeping fixed costs constant. He also began modeling a new kind of intellectual rigor, demanding that every leader understand their business in detail and be prepared to answer tough questions. Simultaneously, Cote tackled the company's broken strategic planning process. Previously, Honeywell's planning had been performative – leaders would set unrealistic targets to please superiors, then resort to accounting tricks to hit quarterly numbers. Cote eliminated "make the quarter" meetings and banned one-time transactions designed solely to boost earnings. He insisted on three-to-four-page executive summaries of strategic plans and scrutinized every word. When leaders claimed their businesses couldn't grow further, he challenged them to find opportunities in the vast markets they served. This foundation of intellectual rigor and honest strategic planning created the conditions for Honeywell's turnaround. By pushing leaders to think more deeply about their businesses and to plan for both short and long-term success, Cote began shifting the company away from the desperate scramble to hit quarterly numbers toward a more balanced approach that would enable sustainable growth. Though painful at first, these changes allowed Honeywell to begin addressing its legacy issues while also investing in its future.

Chapter 2: Addressing Legacy Challenges and Process Transformation (2003-2006)

By 2003, Cote had identified several severe threats to Honeywell's long-term viability that previous leadership had neglected. The company faced billions in environmental liabilities, including contaminated sites like Onondaga Lake in New York, which had earned the dubious title of "America's most polluted lake." Additionally, Honeywell confronted mounting asbestos-related lawsuits, with a potential liability of over $1 billion from just one small company it had owned decades earlier. The pension fund was woefully underfunded, and safety issues plagued facilities worldwide, as evidenced by a fatal accident at a Baton Rouge chemical plant. Rather than continue the tradition of kicking these problems down the road, Cote took decisive action. He set aside $1.5 billion to settle asbestos claims, increased annual environmental cleanup funding from $80 million to $250 million, and allocated nearly $900 million to properly fund the pension, with an additional $4.5 billion invested during the Great Recession. Recognizing that these issues couldn't be resolved overnight without destroying short-term performance, Cote adopted a strategic approach that balanced immediate financial needs with long-term remediation. To handle environmental issues, Cote rebuilt Honeywell's Health, Safety, and Environmental (HSE) function from top to bottom, bringing in leaders like Kate Adams and Evan van Hook who commanded trust from regulators. Instead of fighting legal battles, the company began approaching regulators and communities to negotiate creative, long-term solutions. In Baltimore's inner harbor, for example, Honeywell partnered with the city on a $100 million cleanup that transformed a contaminated site into Harbor Point, a vibrant waterfront neighborhood with modern office buildings, parks, and residential units. Simultaneously, Cote launched a company-wide process improvement initiative called the Honeywell Operating System (HOS). Inspired by the Toyota Production System but adapted for Honeywell's unique needs, HOS was designed to reorganize how work was done at facilities worldwide. Unlike previous improvement efforts that had failed to stick, HOS was implemented methodically, starting with pilot plants and expanding gradually. The system empowered employees to continuously improve processes, standardized operations across the company, and integrated safety and environmental considerations into daily work. The results were remarkable. In typical plants, HOS reduced costs by 15-20%, improved safety, inventory management, and quality, and allowed facilities to operate with 20-30% less floor space. At the company's Atessa, Italy plant, defects decreased by 80% while on-time delivery improved seven percentage points. Importantly, HOS also dramatically improved environmental performance, with the frequency of incidents declining by 93% between 2005 and 2018. Cote extended process improvement beyond manufacturing to corporate functions like IT, legal, finance, and HR through an initiative called Functional Transformation. By challenging these departments to reduce costs by 50% as a percentage of sales while improving service, Honeywell saved over $170 million between 2004 and 2006 alone. Over the next decade, the company doubled in size while reducing functional costs by about $1 billion, or 44% as a percentage of sales. These initiatives illustrate how Honeywell balanced addressing legacy issues with improving current operations. By taking a measured approach to resolving environmental and legal liabilities while simultaneously transforming processes, the company strengthened its foundation without sacrificing short-term performance. This period of clean-up and transformation set the stage for the robust growth that would follow.

Chapter 3: Building the High-Performance Culture and Leadership (2002-2007)

When Cote arrived at Honeywell in 2002, he encountered a company divided against itself. The 1999 merger between AlliedSignal and Honeywell had created deep cultural rifts, with employees identifying themselves as either "blue" (AlliedSignal) or "red" (legacy Honeywell). These factions maintained separate and dysfunctional cultures, with AlliedSignal employees focused exclusively on making quarterly numbers at all costs, while legacy Honeywell employees talked about "customer delight" but struggled to deliver. Meanwhile, employees from Pittway, acquired in 2000, ignored everyone else and ran their business as they always had. Recognizing that this cultural warfare was undermining performance, Cote made building a unified culture one of his top priorities. Working with his team, he defined what he called "One Honeywell" culture through Twelve Behaviors and Five Initiatives. The Twelve Behaviors included focus on customers and growth, getting results, making people better, fostering teamwork, adopting a global mindset, and thinking integratively. The Five Initiatives provided strategic focus: growth, productivity, cash, people, and operational enablers like Six Sigma and HOS. Cote didn't just define these cultural elements; he embedded them throughout the organization. The Twelve Behaviors were incorporated into training programs, performance evaluations, and compensation decisions. When conducting management resource reviews, leaders evaluated how well managers demonstrated these behaviors. During hiring, candidates were assessed for cultural fit. Even hourly employees were screened through questionnaires designed to identify those who would thrive in the HOS environment. To reinforce the importance of culture, Cote devoted about a quarter of his time to cultural initiatives. He transformed the annual senior leadership meeting from a one-day event in the headquarters cafeteria to a prestigious three-day gathering that brought together leaders from different businesses and geographies. He attended every training session he could at headquarters, typically two or three a month, to reinforce the cultural messages. Most importantly, he modeled the Twelve Behaviors himself, demonstrating a learning mindset by acknowledging his own weaknesses and showing how he worked to mitigate them. Simultaneously, Cote worked to strengthen Honeywell's leadership corps. He tightened up performance reviews, requiring bosses to evaluate their reports rather than having employees write their own appraisals. Leaders who were delivering numbers but undermining the culture were removed. The company increased internal hiring for leadership positions from 35% to 85%, building continuity and reinforcing cultural norms. By paying leaders well – particularly through long-term compensation like stock options and restricted stock – Honeywell retained top talent while aligning them with the company's long-term success. By 2005, the cultural transformation was showing results. The color wars faded as employees united around serving customers and achieving the Five Initiatives. Decisions throughout the organization increasingly reflected the Twelve Behaviors. Perhaps most tellingly, when the Great Recession hit in 2009 and Cote proposed cutting Honeywell's 401(k) match to avoid layoffs, his leadership team independently came to the same conclusion and volunteered to take zero bonuses themselves. This moment of solidarity convinced Cote that One Honeywell had become real – the company had evolved from a collection of warring factions into an organization where people believed in something larger than themselves. The cultural and leadership transformation laid the groundwork for Honeywell's sustained success. With a unified culture focused on both short and long-term performance, and a strengthened leadership corps aligned behind the company's goals, Honeywell could execute its strategic initiatives more effectively and consistently. As Cote observed, culture isn't merely a nice-to-have – it yields results and helps sustain them.

Chapter 4: Strategic Growth Initiatives and Portfolio Management (2004-2014)

Having established a strong foundation of intellectual discipline, process improvement, and cultural unity, Honeywell was positioned to pursue more aggressive growth. Cote recognized that growth couldn't come solely from cost-cutting – the company needed to invest strategically in multiple growth vectors while maintaining short-term performance. Between 2004 and 2014, Honeywell pursued four key growth initiatives: enhancing customer experience, revitalizing R&D, expanding globally, and upgrading its business portfolio through mergers and acquisitions. Customer experience became the foundation for all growth efforts. When Cote arrived, Honeywell talked about "delighting" customers but often failed to deliver. An audit of plant performance metrics revealed widespread gaming of the system – facilities claimed near-perfect delivery rates by excluding orders that didn't arrive within specified lead times or weren't properly entered by salespeople. Cote instituted more robust metrics and focused the organization on truly serving customers. This shift in mindset enabled other growth initiatives to succeed, since even the best new products or global expansion would fail if customers weren't satisfied. R&D transformation represented another critical growth vector. By 2004, Honeywell was significantly underinvesting in new products, and what little it spent wasn't deployed efficiently. Engineers operated in silos, disconnected from business needs and customer requirements. Cote systematically increased R&D spending from 3.3% of sales in 2003 to 5.5% in 2016, but more importantly, he improved how that money was spent. The company expanded R&D in low-cost countries like India and China, introduced Velocity Product Development to streamline product creation, and launched the Honeywell User Experience initiative to improve product usability. In Aerospace, the company balanced long-cycle projects (like new cockpit designs) with short-cycle ones that could generate revenue within months. Geographic expansion, particularly in high-growth regions, formed the third pillar of Honeywell's growth strategy. In 2004, China generated only $350 million in annual revenues for Honeywell and was growing at just 4% – well below the country's 11% GDP growth rate. Under the leadership of Shane Tedjarati, Honeywell launched an initiative called "Becoming the Chinese Competitor." Rather than simply importing Western products and practices, the company developed local leadership talent, sourcing, and R&D capabilities. This approach allowed Honeywell to compete effectively in the middle market, not just the high end. By 2017, China had become Honeywell's largest market outside the United States, with $3 billion in sales and 13,000 employees (only 75 of whom were expatriates). Portfolio management completed Honeywell's growth strategy. Under Cote's leadership, the company developed a disciplined approach to acquisitions and divestitures, focusing on businesses with "great positions in good industries." The acquisition process emphasized building a robust pipeline, performing thorough due diligence, avoiding overpayment, and carefully integrating acquired companies. For divestitures, the company took time to improve businesses before selling them, maximizing their value. During Cote's tenure, Honeywell acquired about 100 companies (adding $15 billion in sales) and sold 70 businesses (representing $8.5 billion in sales) – transforming a $22 billion company through $23.5 billion in transaction activity. These growth initiatives yielded impressive results. From 2002 to 2017, Honeywell's revenues rose from $22 billion to $40 billion, with $11.5 billion of that growth coming organically. The company established leadership positions in numerous markets, from commercial cockpit avionics to refinery technologies. Most importantly, Honeywell achieved this growth while maintaining strong short-term performance, creating a virtuous cycle where current success funded future expansion.

Chapter 5: Managing Through Crisis: The Great Recession (2008-2010)

The Great Recession that began in December 2007 posed the ultimate test of Honeywell's balanced approach to short and long-term performance. While many companies responded to the economic crisis by slashing costs indiscriminately and abandoning long-term investments, Cote recognized the opportunity to strengthen Honeywell's competitive position during the downturn. His response to the recession demonstrated how intellectual rigor, proactive decision-making, and a long-term perspective could turn crisis into opportunity. Unlike many executives who were caught off guard by the recession's severity, Cote began preparing Honeywell months before the crisis fully materialized. In late 2007, despite strong financial performance and reassurances from bankers that the subprime mortgage problem was contained, Cote harbored doubts. Recalling how the Asian financial crisis of the late 1990s had spread globally, he remained alert to warning signs. By mid-2008, with economic predictions turning increasingly dire, Cote took preventive action. In July 2008, Honeywell sold its Consumable Solutions business for $1.05 billion, booking a $623 million pre-tax gain. Rather than returning this money to shareholders, Cote directed about $200 million toward restructuring - consolidating plants and reducing headcount by about 3,000 employees. He also instructed business leaders to base their 2009 budgets on the assumption of significant sales declines, even as some divisions reported strong order volumes. When the recession hit full force in October 2008, Honeywell was better positioned than competitors to weather the storm. As sales continued to decline throughout 2009, Cote faced difficult decisions about cost-cutting. His guiding principle was to avoid compromising Honeywell's long-term capabilities. First, he protected customer relationships by maintaining staffing levels and materials needed for delivery. Second, he continued funding process improvement initiatives like HOS and new product development. Third, rather than conducting mass layoffs that would destroy the company's industrial base, he implemented furloughs - having employees stay home without pay for periods of time. This approach wasn't without challenges. As furloughs continued through multiple rounds, employee morale suffered. Some workers sent anonymous notes suggesting that laying off 10% of the workforce would be preferable to continued uncertainty about income. Business leaders begged for reprieve from additional furlough rounds. Yet Cote remained firm, believing that preserving jobs would position Honeywell better for the eventual recovery. Beyond furloughs, Honeywell reduced labor costs through cuts to bonuses and benefits. Cote himself took a zero bonus, and his leadership team voluntarily followed suit. The company reduced its entire bonus pool by two-thirds and cut the 401(k) match by 50%. Through these measures, along with operational improvements, Honeywell saved $1.5 billion while maintaining its workforce and investment capacity. Perhaps most remarkably, even as the recession deepened, Cote was already preparing for recovery. Recognizing that suppliers throughout the value chain had dramatically reduced capacity, he instructed business leaders to work with key suppliers to secure priority when demand returned. The company negotiated better payment terms, price reductions, and long-term deals that would prove advantageous as conditions improved. Honeywell even increased M&A activity during the recession, acquiring companies like Sperian ($1.4 billion) and Metrologic ($720 million) at attractive valuations. The results validated Cote's approach. From 2006 to 2012, Honeywell's earnings per share rose 78%, more than doubling the average increase seen among competitors. When demand surged during the recovery, Honeywell outpaced rivals because it had maintained its industrial base and secured supply chain priority. The company's aerospace commercial spare parts business, for example, grew about 50% faster than competitors in 2011-2012 due to better supplier relationships. The Great Recession demonstrated how Honeywell's balanced approach to short and long-term performance created resilience and competitive advantage. By taking early action, protecting core capabilities, and preparing for recovery even during the crisis, the company not only survived but emerged stronger than before. As Cote told future Honeywell leaders in a 2011 memo, "If there is ever a time when the company needs you the most, this is it."

Chapter 6: Successful Leadership Transition and Sustainable Growth (2014-2018)

As Cote approached the final years of his tenure, he faced perhaps the greatest challenge to Honeywell's continued short and long-term success: ensuring a smooth transition to new leadership. Many industrial companies had fumbled CEO transitions, with sell-side analysts warning that Honeywell's stock was being discounted in anticipation of similar struggles. Determined to avoid this fate, Cote implemented an extraordinarily thorough, decade-long process to select and integrate his successor. Beginning in 2007, approximately ten years before his planned retirement, Cote and his team identified potential internal successors who could serve for at least a decade. Looking beyond senior executives who were close to his own age, they focused on promising leaders around forty years old. Over several years, they gave these candidates progressively larger responsibilities to assess their capabilities, discussing their performance with the board's Management Development and Compensation Committee without publicly designating them as succession candidates. By 2014, the selection process had narrowed to a few finalists, including Darius Adamczyk, who had joined Honeywell through the 2008 acquisition of Metrologic. Rather than relying on conventional selection criteria, Cote and the board evaluated candidates on six key qualities: an intense desire to win, intelligence, independent thinking, courage, curiosity, and the ability to motivate and build culture. In late 2015, each finalist was asked to prepare a strategic plan for the company and present it to the board, allowing directors to observe how the candidates' minds worked. Following unanimous board selection, Cote implemented a carefully structured two-year transition. During the first year, Adamczyk served as Chief Operating Officer, working alongside Cote in adjacent offices. He spent the initial six months meeting leaders across the company and assessing Honeywell's portfolio, then gradually took over formal meetings while Cote provided daily mentorship. In the second year, Adamczyk became CEO while Cote remained as executive chairman in a limited capacity, continuing to offer guidance while emphasizing publicly that Adamczyk was in charge. The transition succeeded because both men approached it with the right mindset. Cote was genuinely ready to step back and transfer decision-making authority, recognizing that Adamczyk would spot opportunities and threats he had missed. Adamczyk was eager to learn while also beginning to implement his own agenda. Both put their egos aside for the company's benefit, functioning as a team and building trust throughout the transition. To further facilitate Adamczyk's success, Cote took several steps to "leave the place clean." He addressed potentially contentious issues like Honeywell's work-from-home policy before departing, sparing his successor from immediate controversy. He also timed the transition so Adamczyk would show strong financial results immediately, absorbing a $500 million expense hit in 2016 that positioned the company for profit growth in subsequent years. The true test of the transition came in February 2017, when activist investor Third Point Management urged Adamczyk to spin off Honeywell's aerospace business. Drawing on the portfolio analysis he had conducted as COO, Adamczyk confidently proposed an alternative plan to spin out parts of the Homes and Buildings Technologies business and the Turbocharger business instead. This plan won investor support and sent Honeywell's stock price soaring 32% in the following twelve months, compared to the S&P 500's 19% gain. The episode demonstrated that Adamczyk was firmly in control and capable of making bold, independent decisions while benefiting from Cote's experience. Under Adamczyk's leadership, Honeywell has continued to thrive, achieving a total shareholder return of 55% during his first two years as CEO (compared to 32% for the S&P 500). The successful transition ensured that the foundations Cote had built – intellectual discipline, process excellence, strong culture, and growth initiatives – would continue supporting Honeywell's performance long after his departure.

Summary

The remarkable transformation of Honeywell under David Cote's leadership challenges one of the most persistent myths in business: that companies must choose between delivering short-term results and investing for long-term success. Over sixteen years, Cote demonstrated that with intellectual discipline, process rigor, and cultural transformation, organizations can achieve both objectives simultaneously. By scrubbing accounting practices to reflect reality, investing strategically in the future without compromising too heavily on present performance, and growing while keeping fixed costs constant, Honeywell evolved from a company on the brink of failure to an industrial powerhouse with market capitalization that increased sixfold. This journey offers profound lessons for leaders at all levels. First, intellectual laziness is the enemy of balanced performance – leaders must challenge themselves and their organizations to think deeply about their businesses, asking probing questions and demanding substantive answers rather than accepting comfortable narratives. Second, legacy issues cannot be ignored; addressing environmental liabilities, pension shortfalls, and other long-standing problems creates a stronger foundation for future growth. Third, process excellence matters enormously – the seemingly mundane work of improving how things get done can dramatically boost both efficiency and effectiveness. Finally, leadership transitions deserve extraordinary care and attention, as even the best-run organizations remain vulnerable during periods of change. By applying these lessons with discipline, consistency, and courage, leaders in any organization can break free from the tyranny of short-termism while building sustainable success that benefits employees, customers, communities, and shareholders alike.

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David M. Cote

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