Heating Up

Ajita Rajendra (MSIA 1978), the Executive Chairman of A. O. Smith Corporation, notes that you don’t see many 145-year-old manufacturing companies that are still thriving. Rajendra, who served as CEO of A. O. Smith from January 2013 through August 2018, was hired in 2005 to run its water products division. He built a team and developed the strategy that has resulted in the company’s current success in water technology.

A. O. Smith’s products are ubiquitous. Its water heaters, which have been sold under Whirlpool, Kenmore, and other brands, in addition to the A. O. Smith brand, account for about 40 percent of the residential market in the United States, and it has more than a 50 percent share of the commercial market in buildings such as hotels, restaurants, and schools.

While he was CEO, in recognition of A. O. Smith’s growth in market capitalization, Fortune magazine named Rajendra to its 2016 list of 50 businesspeople of the year, a list that included Mark Zuckerberg of Facebook and Jeff Bezos of Amazon. Rajendra credits his success to a leadership philosophy cultivated at CMU.

“One of the things that CMU stresses is working within teams,” he said. “Collaboration is a big part of my leadership style. I like to create an environment where people feel comfortable expressing their opinion, pushing back, and even challenging what I’m saying. At the same time, it’s not a democracy. At the end of the day, once I have heard all the viewpoints, I make the decision and we move forward, as a team. The buck stops with me.”

Four Pillars of Leadership

Rajendra names four pillars of his leadership approach: strong values, an outstanding team, an obsessive focus on the customer, and investment in technology and innovation.

Rajendra said his own emphasis on strong values, such as honesty, integrity, and treating everyone with dignity and respect, is matched in A. O. Smith’s written guiding principles and in the culture the Smith family established. The company is aggressive in the marketplace, and business associates are treated fairly.

Rajendra stresses the importance of hiring the right people. A strategically aligned and inspired team always makes the difference between success and failure. If an employee is not a good fit, the first step is acknowledging that changes need to be made and then seeing whether the person can make those changes. If not, he said, it’s better for both parties to separate sooner rather than later.

Rajendra requires his team to have an “obsessive” focus on the customer. That means that every employee, from the most senior person at corporate headquarters to someone who runs a machine in a remote factory, understands that the team must do its best to care for each customer and fulfill its promises to them. He recalled a specific example in 2010, when A. O. Smith’s biggest factory, in Nashville, was under water because of flooding. The company cranked up its other North America factories and communicated with customers every day about what they would be able to deliver and when.

“Every person in the organization had to really work with the customer to make that happen, and because of the team’s hard work and dedication, we didn’t lose a customer,” he said.

In addition to having the right team in place and building a customer-focused culture, Rajendra said it is critical to invest in technology and capabilities to ensure that you have a competitive advantage in your products and processes. As a recent example, Rajendra said the company invested in sensor technology, which has given it an advantage in water and air purification products.

I like to create an environment where people feel comfortable expressing their opinion, pushing back, and challenging even what I’m saying.

Success as CEO

When Rajendra joined A. O. Smith as president of the water products group in 2005, water products accounted for about 45 percent of the company’s revenue.

At that time, the water division was suffering from operational problems that had resulted in a loss of growth and profitability. After assessing the situation, Rajendra assembled a team that had a mix of internal and external talent, and together they developed a strategy to restore growth and improve profitability. He set aggressive goals and ensured that the team was aligned in support of the strategy. The team went on to execute the strategy with great success. A. O. Smith subsequently divested its motor business and focused on water products.

Rajendra was promoted to COO in 2011 and to CEO in 2013. Under his leadership, A. O. Smith has undergone significant growth, acquiring five companies since he joined in 2005, including two water treatment companies in North America while he was CEO.

The process of acquiring other companies can become a competitively driven need to win, but Rajendra said he always takes a step back to ensure that the acquisition supports A. O. Smith’s strategy. He seeks opportunities for the newly acquired company to create value that provides an adequate return for A. O. Smith’s shareholders.

“A lot of times the decision not to make an acquisition is just as important as the decision to make one,” he said.

Rajendra partly credits his experience at the Tepper School for helping him develop his collaborative, yet demanding style of leadership along with an analytical and quantitative approach to problem-solving.

“You need to be strategic and have instinct and gut feel, but you also need to back it up with facts and data,” he said. “In God we trust. Everybody else bring numbers.”

During his tenure as CEO, earnings per share grew at a compound annual rate of over 20 percent, and the market capitalization of the company grew from $3 billion to over $10 billion. Rajendra credits a clear strategy and the outstanding performance of his team for this outcome.

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Relationship with Current CEO

In September 2018, Rajendra became Executive Chairman, and A. O. Smith promoted then-President and Chief Operating Officer Kevin Wheeler to CEO. Now, Rajendra runs the board of directors and serves as a mentor and sounding board for Wheeler. Rajendra had a similar relationship with the CEO who preceded him, and he said it’s a great way to make a seamless CEO transition.

Rajendra’s current role as executive chairman is not permanent; eventually he will become an independent board member at A. O. Smith. He also serves on the boards of Donaldson Company Inc. and The Timken Company. As a board member he brings the perspective of a former CEO. When he gives advice, it’s grounded in real-world experience. —

You need to have instinct and gut feel, but you need to back it up with facts and data.

Industry Titan profiles an outstanding business leader from the Tepper School alumni community and presents their views on successful leadership.

by Tricia Miller Klapheke