Just under a year before what is now the Carrier Global Corporation was to complete its spin-off from United Technologies, David Gitlin was elevated to the position of president and CEO of Carrier. And in the final months before that spin-off was completed, the world shut down in the face of the COVID-19 pandemic. It was a challenging start to a new CEO’s tenure by any measure, despite Gitlin’s previous senior leadership roles in aerospace and manufacturing. Today, Gitlin is chair and CEO of Carrier, and the company has repositioned itself as a global leader in intelligent climate and energy solutions. In this episode of the Inside the Strategy Room podcast, McKinsey Senior Partner and North America Chair Eric Kutcher speaks with Gitlin about maturing as a CEO in a time of crisis and directing Carrier toward a cleaner, more energy-efficient future.
This is an edited transcript of their conversation, which took place on March 31. For more discussions on the strategy issues that matter, follow the series on your preferred podcast platform.
Eric Kutcher: What’s it like right now to navigate a period of such great uncertainty as chairman and CEO?
David Gitlin: The degrees of variability are just so high, and for us, the uncertainty sits in a few categories. One is tariffs—we need to be prepared for how they play out, including how they affect economies. Consumer spending impacts our businesses almost in real time, given we’re on a very short cycle. This means tariffs could affect our residential business here in the US, our light commercial business, and also our customers’ capital spending. All of that adds up to what could be an acute impact on us that could arrive very quickly, and it could occur as an upside or a downside.
Another area of uncertainty for us is that many other types of government policy affect our business, too. For example, subsidies for transitioning to heat pumps can easily affect our business in countries such as Germany, Poland, and France. The key for us is controlling the controllables and purposely remaining quite cautious about spending and similar decisions.
Eric Kutcher: You became CEO of Carrier around the time of the pandemic and Carrier’s spin-off from United Technologies. In addition to all that upheaval, you also made a substantial shift to focus on sustainability. What was the thinking behind that shift?
David Gitlin: The number-one reason we became very focused on sustainability was because that’s what our customers wanted, so it drove good business results. Much of what differentiates us in our business is our ability to drive energy efficiency and lower our customers’ energy bills. This change in focus is also good for us because it galvanizes our 50,000 people around doing what’s good for the planet. Also, many of our customers had already made their own commitments around Scope 1 and 2 greenhouse gas emissions, and we could help them achieve their objectives. But the biggest motivating factor was that it helped us win a lot of new business. We continue to invest quite a bit in sustainability differentiation, and we’re seeing results from it.
Eric Kutcher: What was your transition to CEO like after having led various business units in other industries?
David Gitlin: I think I underappreciated the new aspects of being a CEO versus a segment president. Part of it was how we think about working with our board. We’re blessed with a phenomenal board that’s tremendously supportive, engaged, and collaborative, but learning how to work with a board requires thought. We put a fair amount of thought into how we engage strategically with our board and also into how we think about dealing with ratings agencies, investors, and capital markets. And then what made my transition to CEO even more exciting, shall we say, was that we did the spin-off right as the pandemic was hitting. That was incredibly challenging, but it forced me to mature faster as CEO, as it did our entire leadership team—it really put our maturation on steroids because we had no choice but to step up as a team.
We spun off with $11 billion of debt and $1 billion of cash. We were down 25 percent in our first quarter as a public company because the world stopped for the pandemic lockdowns. Honestly, it was a bit dicey. But we started holding daily meetings seven days a week, and we would always start with our people—are our people safe? Then we would go to our customers, and then operations, et cetera. Everyone kind of forgot about their titles. It was just a group of leaders galvanizing around our people, our customers, and the company to try to get us through a really tough time. It was all mission over self.
…what made my transition to CEO even more exciting, shall we say, was that we did the spin-off right as the pandemic was hitting. That was incredibly challenging, but it forced me to mature faster as CEO, as it did our entire leadership team—it really put our maturation on steroids because we had no choice but to step up as a team.
Eric Kutcher: The Carrier of today is not the Carrier you spun off with—how did you get the entire team reoriented toward a new focus, so that your people would think, “I get why we’re doing this, and I want to be part of it”?
David Gitlin: I have tried to think consistently about our shift as having three phases. The first phase, starting back in 2020, was about building the foundation. We had a unique opportunity, and we said, “This is a new lease on life.” And we really focused on thinking about our culture, our operating system, our teams, how we’re structured, and the operating cadence we have. Out of that, we launched the “Carrier Way,” which we take tremendously seriously. It’s our culture, codified, and it’s very important to us. We use it in sentences: “Did you exhibit the behaviors of the Carrier Way today?” We also launched an initiative called “Leading People the Carrier Way” to help us focus on leadership. And we talked a lot about Carrier Excellence, our fundamental operating system, which is similar to what we had at United Technologies but a bit more agile.
That foundational work helped us create more of a performance culture, which set us up for the second phase, from 2023 to 2024. And that was an enormous portfolio shift—we had three segments, and we effectively sold one and a half of those segments. And we did a $13 billion acquisition of a Germany-based heating company, Viessmann Climate Solutions, and brought their CEO, Max Viessmann, onto our board. That $13 billion was about a third of our market capitalization at the time, so it wasn’t a small bet. I think what inspired people around that whole portfolio transition is that they could see why it made sense and that we wanted to be a much more balanced and focused portfolio. Today, we are purely HVACR [heating, ventilation, air conditioning, and refrigeration]. We got out of fire and security. We got out of stationary refrigeration. We’re not tied to any one vertical or geography. And we are now much more of a recurring-revenue, higher-growth company. People saw the logic of it and why it would unleash a lot of value for not only our investors and our people but also our customers, which really excited folks.
And now we’re in our third phase, which is all about execution and customer-centricity.
Eric Kutcher: People tend to have five sources of meaning: What does it mean for me personally, for my customers, for my team, for my community, and for shareholders? Your second phase seems to touch on most, if not all, of these.
David Gitlin: I think all five of those are intertwined. Your stock price is the result of doing many other things really well, for example. I believe that trying to drive the stock price up in the wrong way is not sustainable. It is not galvanizing for an organization to say, “We’re going to put all hands on deck to get the stock price to $100 a share.” That is the result—the outcome of doing a whole bunch of things really well. But, “We’re going to be number one for our customers” does make sense to people. It lets our people see purpose, value, and respect, and it makes them feel seen so that they feel they’re a part of something that’s really special. We do play a role in our communities. We have an impact on the planet. So, yes, there’s an interplay between all those types of meaning you mentioned.
Eric Kutcher: Let’s talk about the third phase. What does it mean to be customer-centric, especially in a world where an awful lot goes through a third party? Your relationship with many of your customers is through someone else.
David Gitlin: We spend a lot of time worrying about customers at all levels of that value chain. We need and want to keep our distributors and our dealers very happy. But we also think about our branding and how we impact homeowners and whether new digital tools can engage the end homeowner in a valuable customer experience. We also focus on how we keep all of those aspects tied into our ecosystem so that our customers never feel they want to go look for someone else. We have studied other companies that have created a differentiated customer experience, where you feel so content and so pleased with a supplier that you never even think to turn to a competitor—or to become one. Customers are tied into our ecosystem in a way that drives more recurring revenues and drives this intimacy, where they know that when they need someone the most, we will just be there, period.
Also, the way we interact with customers has changed. A decade ago, for a scale customer such as a major retailer that has worldwide facilities, we would go meet with their head of the southeast region of Florida, for example, to sell some rooftop units to them. Now we meet with the CEO because we can do things like connect all of their chillers for thousands of sites all over the world and provide high-value data on them. We can look at their carbon emissions and their energy efficiency and answer questions like, “Why do my facilities in Country A have lower energy efficiency than my facilities in Country B?” What can we glean from that? Is there a quick fix? We’re not trying to sell you a bunch of new chillers, but maybe it’s a fix for the air control system. It’s about being shoulder to shoulder with your customer and trying to create value.
Eric Kutcher: Technology underlies everything we’re talking about. How does it fit into your strategy?
David Gitlin: We think about technology in three big overarching categories: There’s the product, there’s digitally enabled life cycle solutions, and then there are systems. We spend a lot on technology differentiation for the product: Are we going for a magnetic-bearing chiller design? How do we create a refrigerant solution for residential systems in Europe or in the United States that is more energy efficient and has a low global warming potential? How do we create cold-temperate heat pumps that are just as efficient in Maine as in Florida?
We also spend a lot on digital. We have 5,000 engineers, and we’ve been looking a lot at our skills matrix for our engineering organization because we obviously still have a lot of mechanical and electrical engineers, but we’ve had a big shift to software engineers and put a lot of effort into creating digital connectivity with customers.
The new frontier for us as a company is driving differentiation through systems. If you think about data centers, for example, you have two types of cooling: traditional cooling, with a chiller and air handlers, and a new type of cooling—liquid cooling—in which a liquid such as water is used to directly cool components. And we’re now offering both together. We’re basically connecting those two loops with a single control system to provide differentiation at a systems level. AI, of course, is very exciting for us as well, and we have a number of AI projects that focus on customer interfaces and productivity.
Eric Kutcher: What are the things that you wish you’d known when you stepped into this role that you’d want to pass along to those who come after you?
David Gitlin: You have to be tremendously purposeful about how you allocate your time. That’s true for any leader, but it’s more so as a CEO because the title on your business card gives you a lot of degrees of freedom to create value. If you get too mired in doing other people’s jobs and micromanaging, you’re not only failing to build leaders and help the overall organization but also suboptimizing the access the title gives you to create outsize value. You need to be very purposeful in how you allocate your time to constituents that the CEO uniquely needs to engage with—your investor base. How purposeful are you about targeting certain investors globally and thinking about the attributes of the investor base you’re looking to build and how you create value for them? Also, how do you engage with your board on an individual level and as a group? How do you create a dynamic that’s healthy for the board and for the management team? And how do you think about the balance sheet?
There’s a real tendency to surround yourself with people who are a lot like you and, often, people who tend to agree with you. I’ve tried to get much better at avoiding this, but I still have work to do, because those conversations are always reassuring. You say something, and everyone nods their head. But that’s not what you want. You need to be around people who don’t have the same skill set as you and who are willing to disagree with you. But that’s not easy, because it can be tiring to be challenged all the time. Yet, it’s important to experience these different points of view.
Eric Kutcher: Is there a particular mistake you’ve made since becoming CEO that you’d want others to avoid making?
David Gitlin: The biggest mistake that I think I’ve made, and that I still need to get better at, is allowing too broad a focus for myself. We tend to want to do many great things, and almost always, less is more. I need to be willing to say “no” more often. I’ll see a great opportunity and want to pursue it. It’s happening right now with an opportunity that we see overseas, but even though it’s a really exciting opportunity, we need to be willing to just walk away and not prioritize it. Because the minute that you breathe oxygen into one issue, it takes you away from some other opportunity. And that’s something I’m working on getting better at.
Eric Kutcher: What have you been most proud of since becoming CEO?
David Gitlin: It’s really all about the team, so for me, I would say I’m proud of our culture. When we launched the Carrier Way, we wanted to create a culture where people were very proud to work here and be a part of something that was very special. I think we’ve energized the organization. Our people see that we can have an enormous impact on people’s lives all over the world and a big impact on our customers and the planet for generations to come after us. And because people believe in the culture and our mission and purpose, I think they apply themselves more to doing great things. Again, it’s a journey, and we’ve come a long way. I think there’s a real hop in people’s steps about why we are on this earth and the impact that we can have.
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