WEBVTT - Building Solutions to Address Climate Change

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<v Speaker 1>This is Bloomberg Business Week with Carol Messer and Bloomberg

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<v Speaker 1>Quick Takes Tim Stinovic on Bloomberg Radio. Well, it is

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<v Speaker 1>a thirty billion dollar market cap company customers around the globe,

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<v Speaker 1>more than two thousand locations around the world, helping to

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<v Speaker 1>create so called intelligent buildings to help address our worsening

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<v Speaker 1>climate crisis. We're talking about Johnson Controls International, which is

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<v Speaker 1>also a company's got a great vantage point when it

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<v Speaker 1>comes to the global economy and corporate expenditures. Well, that's

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<v Speaker 1>exactly where I want to start with George Oliver, Chairman

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<v Speaker 1>and chief executive officer of Johnson Controls. George joining us

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<v Speaker 1>via zoom from Milwaukee. George, how are you. I'm doing

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<v Speaker 1>very well. Great to be with you today. Well, as

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<v Speaker 1>Carol mentioned, you do have such a great view on

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<v Speaker 1>what's going on here in the United States and around

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<v Speaker 1>the world. What is your view of the economy here

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<v Speaker 1>in the US. Yeah, when we look at what's happening

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<v Speaker 1>within our business, um, you know, we see unprecedented demand

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<v Speaker 1>for what we do within buildings. You know, let me

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<v Speaker 1>start by talking about what we do or smart solutions

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<v Speaker 1>are provider for buildings and infrastructure and uh, you know,

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<v Speaker 1>we did a merger five years ago which put together

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<v Speaker 1>to leadership companies in the space, Tycho and John's Controls,

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<v Speaker 1>and with our strategy of of taking the multiple you know,

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<v Speaker 1>building systems and then being able to deploy technology with

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<v Speaker 1>a data platform that enables us to be able to

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<v Speaker 1>significantly change the outcome of buildings. And those outcomes are

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<v Speaker 1>reducing energy demand, improving the indoor into our air quality,

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<v Speaker 1>and ultimately you know, making autonomous buildings. And so for us,

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<v Speaker 1>given the the the environment that we're in, we're seeing

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<v Speaker 1>very strong demand. We've got backlogs that are that are

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<v Speaker 1>wrecking high backlogs. Our challenges have been shorter term is

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<v Speaker 1>ultimately converting with the supply chain challenges on that demand.

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<v Speaker 1>And when you look at what we do within buildings,

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<v Speaker 1>you know, when you look at the global carbon footprint,

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<v Speaker 1>it represents about the of the overall global covernment footprint

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<v Speaker 1>buildings do. And then the opportunity that we have now

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<v Speaker 1>as a smart building solutions provider to significantly reduce the

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<v Speaker 1>energy that's consumed in the building at the same time

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<v Speaker 1>that we're upgrading the indoor equality and ultimately creating an autonomous,

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<v Speaker 1>autonomous building. So for us, we're watching the economy closely.

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<v Speaker 1>But given what we see now going forward, where now

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<v Speaker 1>buildings have become much more strategic UM. I think in

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<v Speaker 1>the past they buildings were built with multiple systems separating apart,

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<v Speaker 1>and now with the opportunity to bring that all together

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<v Speaker 1>into one solution set, we're seeing very strong demand. So

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<v Speaker 1>when we look at the market that ultimately is being

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<v Speaker 1>created with these new problems that our customers are trying

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<v Speaker 1>to solve, we see roughly accumulative about two d fifty

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<v Speaker 1>billion dollars of additional market over the next decade. So

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<v Speaker 1>we're watching it closely, but right now we're really focused

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<v Speaker 1>on being able to execute on the backlock to support

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<v Speaker 1>our customers. It's interesting when you talk about unprecedented demand,

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<v Speaker 1>strong demand, UM George, how much of it is because

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<v Speaker 1>of companies looking to cut costs and be more of fficient.

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<v Speaker 1>How much of is it because of regulatory changes or

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<v Speaker 1>the push towards you know, concerns about climate change and

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<v Speaker 1>being much more sustainable. How much of the demand is

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<v Speaker 1>new build Well when you look at let me start

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<v Speaker 1>with the commitments have been made on climate change or

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<v Speaker 1>decarbonization that have been made broadly across businesses as well

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<v Speaker 1>as with governments, and I think coming back from Davos

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<v Speaker 1>from last week, it's how do we take all of

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<v Speaker 1>the commitments that have been made and ultimately how do

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<v Speaker 1>we now you know, bring that together with a combination

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<v Speaker 1>that's shared between business and government and ultimately now capitalize

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<v Speaker 1>on what we see the opportunity to be So for

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<v Speaker 1>us with those commitments and recognizing now to get to

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<v Speaker 1>net zero, buildings are going to be an important part

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<v Speaker 1>that have to be addressed to get to the commitments

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<v Speaker 1>that have been made. So we're seeing that for instance,

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<v Speaker 1>in our in our sustainable sustainable solutions business, we we

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<v Speaker 1>see a pipeline now or let's say, about seven billion

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<v Speaker 1>dollars and will convert roughly a billion of that during

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<v Speaker 1>in the course of the year. So we are seeing

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<v Speaker 1>a significant demand for the type of solutions that we

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<v Speaker 1>can now provide. And we are uniquely positioned as Johnson Controls,

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<v Speaker 1>and not only do we have the building systems, but

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<v Speaker 1>now with our open Blue platform, which is a platform

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<v Speaker 1>that allows us to be able to bridge all of

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<v Speaker 1>the building systems together and then ultimately create outputs that

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<v Speaker 1>historically haven't been delivered all right, so help me out here.

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<v Speaker 1>So how much though is you know, in terms of demand,

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<v Speaker 1>if you had to put it into cuts of a

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<v Speaker 1>pie or percentage wise, how much of that demand is

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<v Speaker 1>new build how much of is it cause of regulatory change?

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<v Speaker 1>You know? How can you break it down a little bit.

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<v Speaker 1>I'm curious about what's the psyche of people who are

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<v Speaker 1>who are doing the spend. So Carola, what I would say,

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<v Speaker 1>it's both with the pandemic. When the pandemic hit, we

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<v Speaker 1>immediately saw our demand to be able to upgrade the

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<v Speaker 1>indoor air quality, which require upgrading systems and deploying digital

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<v Speaker 1>to be able to then optimize how you deliver a

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<v Speaker 1>clean air delivery rate within buildings. So we we saw

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<v Speaker 1>that which has really taken the built environment and being

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<v Speaker 1>able to elevate that built environment to solve for today's problem.

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<v Speaker 1>So a lot of retrofit, a lot of upgrade, a

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<v Speaker 1>lot of repair, leveraging our our technologies. Now at the

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<v Speaker 1>same time you've seen the new construction come back. You know,

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<v Speaker 1>when you look at Architectural Building Buildings Index and a

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<v Speaker 1>lot of the other metrics, you see where there has

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<v Speaker 1>been an expansion and a lot of that growth is

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<v Speaker 1>coming back. So for us, it's been both and it's

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<v Speaker 1>not only a significant demand for upgrading the existing built environment,

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<v Speaker 1>but at the same time fundamentally changing how buildings are

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<v Speaker 1>built that ultimately going to be able to deliver a

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<v Speaker 1>significant different outcome as it relates to energy consumed as

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<v Speaker 1>well as the environment that's created. One thing I want

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<v Speaker 1>to know, George, Um, you know, it's interesting we are

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<v Speaker 1>David Weston catching up with Larry Think over a black

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<v Speaker 1>rock and talking about we're gonna be living with more uncertainty,

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<v Speaker 1>saying the inflation problem isn't you know, it's policy related,

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<v Speaker 1>but that the feed isn't someone who can fix some

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<v Speaker 1>of these issues. Specifically talked about the supply chain, uh

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<v Speaker 1>and the supply chain problems. How is your supply chain?

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<v Speaker 1>Are you seeing any kind of loosening in some of

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<v Speaker 1>the snarls that have been out there? If you look

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<v Speaker 1>at what's happened over the last couple of years with

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<v Speaker 1>the pandemic and then the multiple shutdowns that have occurred

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<v Speaker 1>to contain the virus and now some of what we're

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<v Speaker 1>experiencing in China with the shutdowns there. I mean, then

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<v Speaker 1>at the same time with the Ukraine crisis and and

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<v Speaker 1>then with in our space, the unprecedented demands. So when

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<v Speaker 1>you put all of that together, we've we've had our

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<v Speaker 1>own challenges and we've it's really about resiliency, and so

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<v Speaker 1>not only with what we do to help our customers

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<v Speaker 1>with their buildings and infrastructure and creating resilient, much more

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<v Speaker 1>resilient buildings and communities, but also making sure that we're

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<v Speaker 1>working with our suppliers to create a much more resilient

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<v Speaker 1>supply chain globally. And that's what that's what we've been

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<v Speaker 1>doing in the last two years, and we've made a

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<v Speaker 1>tremendous amount of progress. Now what we're seeing is with

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<v Speaker 1>that strategy, we are seeing improvement um and and it's

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<v Speaker 1>across all of our commodities, whether it be microchips and

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<v Speaker 1>semiconductors or other other materials, and so we've been working

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<v Speaker 1>through it um. But resiliency in in in supply chains

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<v Speaker 1>and mean, George, what does that mean. Does it mean

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<v Speaker 1>you're shifting where you're doing it or what does that mean.

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<v Speaker 1>We've always had a strategy in our supply chain to

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<v Speaker 1>be local for local, and so when you are manufacturing footprint,

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<v Speaker 1>we have manufacturing footprint and all of the key markets

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<v Speaker 1>we support, and then we build local supply chains to

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<v Speaker 1>support those manufacturing plants with local supply and so there

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<v Speaker 1>are when you're building a global supply chain, there are

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<v Speaker 1>some products that are used across multiple markets and so

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<v Speaker 1>you can't predict you know, whether it be the environment

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<v Speaker 1>and natural disasters or pandemics or you know, these some

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<v Speaker 1>of the geopolitical challenges that that might exist. And so

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<v Speaker 1>our strategy has been to be local for local and

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<v Speaker 1>we've been developing not only the right product but also

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<v Speaker 1>having the local supply eye chain that creates resilience and

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<v Speaker 1>how are how we're able to then you know, be

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<v Speaker 1>able to support our customers and deliver for our customers.

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<v Speaker 1>So that with the idea that you have multiple sources globally,

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<v Speaker 1>so as you're going through some of this disruption, you've

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<v Speaker 1>got a supply chain that has multiple sources, so you

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<v Speaker 1>can source from multiple multiple locations. Um, all of that

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<v Speaker 1>comes together into having a supply chain that's much more resilient. George,

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<v Speaker 1>I'm really intrigued when you said you're seeing improvement in

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<v Speaker 1>the supply chain, where specifically are you seeing that and

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<v Speaker 1>you're seeing improvement when it comes to commodities as well

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<v Speaker 1>as it chips. Is it like? What is it? It's

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<v Speaker 1>been when we look at the work that we've done

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<v Speaker 1>to strategize our semiconductors and chips when making good progress

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<v Speaker 1>there across the globe UM, A lot of our supply

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<v Speaker 1>chain challenge was in North America. When we look at

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<v Speaker 1>our supply chain, we have multi tiered suppliers and a

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<v Speaker 1>lot of the challenges that we had with the disruptions

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<v Speaker 1>from from COVID shutdowns and then some of the labor

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<v Speaker 1>challenges UM not necessarily within our facilities, but within our

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<v Speaker 1>suppliers that UM and so we've worked very closely with

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<v Speaker 1>them and being able to address their their labor challenges

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<v Speaker 1>ultimately getting the supply chain back operating. So it's really

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<v Speaker 1>looking at all levels of the supply chain UM as

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<v Speaker 1>well as all when you look at the global footprint,

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<v Speaker 1>all regions, and we've been making part pretty much across

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<v Speaker 1>the board. Georgia, are you expecting a recession maybe later

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<v Speaker 1>this year or maybe next year? Are you? Are you

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<v Speaker 1>when you gather your management team do you say, guys,

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<v Speaker 1>this is what you know. We need to have the

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<v Speaker 1>playbook ready for Well, you can go back with the pandemic,

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<v Speaker 1>and I think we we we demonstrated this very well.

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<v Speaker 1>We've been creating a lot of agility with how we

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<v Speaker 1>operate as a company, and we've had an incredible opportunity

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<v Speaker 1>with the work that we do within buildings and infrastructure

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<v Speaker 1>to respond to these crisis like for instance, a good

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<v Speaker 1>example is in the early days of the pandemic, we

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<v Speaker 1>support critical infrastructure, which is healthcare, and we were on

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<v Speaker 1>the front lines building hospitals in a matter of days

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<v Speaker 1>that had the highest air quality and ultimately the resource

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<v Speaker 1>that they needed to be able to attend to those infected.

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<v Speaker 1>And so we've we've built, you know, we've been very

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<v Speaker 1>agile with what we do, not only responding to the

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<v Speaker 1>new demands and the crisis, but also agility relative to

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<v Speaker 1>understanding a little bit of what's gonna potentially happening and

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<v Speaker 1>make sure that we're always positioned to be able to

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<v Speaker 1>deliver for our customers, be able to solve their biggest problems,

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<v Speaker 1>and then ultimately make sure that we're taken into account

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<v Speaker 1>what we see happening on the horizon. So being agile

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<v Speaker 1>in case of whatever comes your way, so could be

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<v Speaker 1>a recession, could not is that is that fair to say. Yeah.

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<v Speaker 1>Like I said, right, our focus right now is delivering

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<v Speaker 1>on the backlog and delivering for our customers given what

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<v Speaker 1>we've seen here over the last about eighteen twenty four months. Obviously,

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<v Speaker 1>I think the demand that we see now solving the

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<v Speaker 1>biggest problems within buildings, which is indoor ear quality, making

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<v Speaker 1>making them much healthier and safer, and then also being

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<v Speaker 1>able to address the global carment footprint that domain is

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<v Speaker 1>going to continue because the commitments have been made and

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<v Speaker 1>ultimately our customers have to deliver on those commitments. So

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<v Speaker 1>we're working closely to make sure we understand how that

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<v Speaker 1>plays out and how we're positioned to support our customers.

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<v Speaker 1>At the same time that we're taking into account making

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<v Speaker 1>sure that we're we're gonna be agile with any downturn

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<v Speaker 1>that might might occur in some of the key markets

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<v Speaker 1>that we operated. But you know what, I it's really

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<v Speaker 1>all about making sure that we're not only supporting the

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<v Speaker 1>customer with the demand that we have today in the backlog,

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<v Speaker 1>but at the same time taken into account the factors

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<v Speaker 1>that we see that potentially could impact us longer term. George,

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<v Speaker 1>thank you so much for your time today. I really

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<v Speaker 1>appreciate it, George, all of our He is chairman and

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<v Speaker 1>chief executive officer Johnson Controls, joining us via Zoom from

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<v Speaker 1>Milwaukee