Episode Transcript
[00:00:03] Speaker A: Welcome to AINA Insights where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. INA Insights is brought to you by INA AI, a firm focused on working with industrial companies to make them unrivaled segment of One leaders. To learn more about INA AI, please visit our website at www.aina.AI.
[00:00:40] Speaker B: Hey everyone. Welcome to another episode of our Titanium Economy podcast series presented by INA Insights. Today we are thrilled to be joined by an exceptional leader and visionary in the manufacturing and Technology Space, Mr. Alok Muskara. Alok is the CEO of Lennox International, a global leader in energy efficient climate control solutions committed to sustainability and innovation. With over 25 years of leadership experience across industries like advanced materials, water treatment and H Vac, Alok has a proven track record of driving growth, fostering innovation and transforming organizations. Before joining Lennox, he served as a CEO of Luxfer holdings where he had led advancements in cutting edge materials and held senior roles at Pentair, General Electric and McKinsey and Company. Alok also serves on the Board of Directors of Franklin Electric. A global leader in water and fluid systems, his ability to align strategic objectives with long term value creation has made him a prominent figure in the industry. Alok, it's an honor to have you with us today. Welcome to the podcast and thanks for joining us.
[00:01:43] Speaker C: Hey thanks Mohit. Thank you for inviting me to the podcast. Great to be here. Always a big fan of INA and congratulations to AINA and FOURNV for all the ongoing successes.
[00:01:55] Speaker B: Thanks. Thanks so much Alok. So I want to start with an overview on Linux, right? So give us an overview of Linux International. What is the company's core mission? Key products and primary markets.
[00:02:07] Speaker C: Yourself.
Sure. So I think if you think of our company, our vision is to deliver perfect air, perfect air for homes, buildings and we do it through innovation and sustainable climate control solutions.
We are a company 130 years old, built on the core foundation of our values which are integrity, respect and excellence.
We are unique in quite a few ways. One is that we are very narrowly focused only on the North American market. So 100% of our sales are in US and Canada within the heating, venting, air conditioning and refrigeration end market which is commonly known as H vacr.
One unique differentiating strategy about Lennox is that we distribute our own products.
So unlike other manufacturers who would sell to a distributor who sells to a contractor or a dealer, we sell directly to the dealer or contractor which gives us some unique advantages especially in today's Age as digital becomes very important, AI becomes important. The fact that we are belly to belly with 10,000 contractors allows us to collect insights faster, deliver technology solutions faster, and essentially get market share faster as well. We are publicly traded, we are on New York Stock Exchange.
We have been public for 25 years.
Revenues a little over $5 billion, EBIT about a billion dollars and market cap of about 21, $22 billion. So that's who Lenox is.
[00:04:01] Speaker B: Thanks so much for that introduction, Alok. So you referenced the H Vac industry there, right? And we know that the industry is undergoing rapid transformations and there's a lot of emphasis on energy efficiency, sustainability, smart technologies, AI you mentioned already. So how do you envision these trends shaping the industry in the next five to 10 years? And what role do you think Linux would play in this evolution?
[00:04:27] Speaker C: Sure, the industry continues to evolve. I think energy efficiency is probably one of the greatest ones that we are facing. Lennox is known to make the most energy efficient air conditioners in the world. We also make the most efficient furnace in the world. And from that perspective, you're very well positioned. Other things such as if you just think from smart technologies, our company, we make our own sensors, thermostats, control devices. We don't outsource those things. And that gives us another unique advantage. Our products are known to have really good controls. Even being an old type industrial manufacturing company, we use AI in our thermostats already. We used to call it machine language. Now we use the word AI because it's more sexy.
But from our perspective, all industries are shifting. The status quo is just never an option. If you're not growing, if you're not advancing, you're declining. So in the next five to 10 years, I don't think there'd be any dramatic changes. Some key trends, such as electrification is becoming more the norm versus early indicators.
35% of the industry products are now heat pumps instead of furnaces. So you can see furnaces are declining, heat pumps are growing. I think those things all continue ten years from now. I think we'll be more energy efficient. We'll use more AI to drive energy efficiency, both in manufacturing, but also for a home owner or a building to be able to use it.
So pretty exciting times in our industry.
[00:06:07] Speaker B: Yeah, and I think Linux ambitions echo that. Right. So when we look at your 2026 targets, right, so you're trying to achieve $5.46 billion in revenue free cash flow equivalent or to 90% of your net income. So what specific initiatives or strategies are driving this growth and how confident are you in achieving these goals?
[00:06:27] Speaker C: I'll start by saying we are very confident in achieving these goals. We gave these goals out about two years ago in December and since then we have already had to revise it upwards so the number was lower and we had to revise it upward because we were way ahead in just the first year itself. So we remain very confident on reaching that goal. The key initiatives is kind of very straightforward. It's a three phase transformation plan.
The first phase of that, we call it self help. That had everything from fixing distressed factories to getting our pricing right to making sure our business culture becomes more focused on customer experience and quality. I would call it challenges, blocking and tackling. Right?
But self help second phase for us was growth acceleration.
We are the smallest of the top four H Vac manufacturers in US and there's a big opportunity for us to gain share.
And for many years we just couldn't gain share because we were either out of capacity or were not distributing products properly. So I think the current phase where we are is just accelerating growth.
Ideally we'll get to a double digit growth with pricing power, with looking at inflation, looking at some regulatory changes that increases our mix. That'd be our goal. And the third phase for us is about expansion where we start going into adjacent areas, try and get greater share of wallet, enter new products that we have not been before.
Within those three phases there's a bunch of detail which I won't bore you with but needless to say we're very confident, very confident of getting the long term goal.
[00:08:19] Speaker B: And what is it about Linux, the way you set up this program, the culture maybe within the company that has allowed you to be so wildly successful already in your approach?
[00:08:29] Speaker C: A lot of it. Lennox has had good rules, it's always been a successful company.
So this is more about taking a good company to greater greatness, taking to be easier, which I'd always heard even in McKinsey we used to talk about like, you know, if you have a company, you already have a good position.
It's much easier to take them from second quartile to third quartile or third quartile to four quartiles. I think that's what we are working through, sound strategy, right? I mean strategy and focus is important. A lot of times I've seen companies used to have good strategy but they won't focus on it. They're very narrowly focused. We live and breathe H Vac. Our leadership meeting, we talk about H Vac, we talk about our Dealers, we sold businesses in Europe because we said if you get on a plane to go to Europe, why don't you just go to Florida? We have greater growth opportunity in Florida versus what we can get in Europe. The fact we are so narrowly focused is one of our greatest strengths. Our dealers like the fact that the CEO goes and visits them where if you're a bigger company or a conglomerate or more diversified, you just can't do that. So from our perspective, focus, if you pick one word, we'll be focused.
[00:09:47] Speaker B: All right, that's very interesting coming to some of the risks that we see or at least we have seen in the industrial sector. Right. So supply chain disruptions has been a big one across industries. Actually Post Covid Linux, 10K itself mentions the risk tied to single location production facilities and reliance on key suppliers. How are you navigating these challenges to ensure operational resilience and meeting your customer demands?
[00:10:11] Speaker C: Sure. Listen, the supply chain thing is getting better, right? I mean think about where we were in Covid and where we are now. We are all preparing to make sure that we don't suffer the same pain that we suffered during COVID So that's why to go from single source to dual source is a big initiative for us. One of this dual source, we want to have it near shore. So if you have one in Asia, we try to move them from China to a Thailand or a Vietnam or India.
And second source, we want either in US or Mexico and try and balance that. But we're also doing that to our own factories. We had commercial business only at one factory. We are setting up one more and this one in Mexico. Fairly parallel operation. So that way, I mean, God forbid, but earthquakes, fires, tornadoes, any of those things, we would still have resiliency. At the end of the day, customer doesn't care. They just want the product and they want it. So we put a lot of investment and things are getting better. This is not a situation where I tell you things are getting worse. Despite all the noise about tariffs and everything else, most of us manufacturers are feeling things have gotten better and now we're just preparing for the next thing to go wrong and wanting to make sure that we fare that with the position of strength versus in Covid, we were all just caught short handed.
[00:11:33] Speaker B: Yeah, talking about the other things that can go wrong. Labor shortages have been the top of the town. So employee retention has remained a critical focus issue for many of industrial companies, especially in the manufacturing distribution space. So how is Linux addressing these challenges to stay competitive?
[00:11:53] Speaker C: Yeah, good question. You know I think this is again a universal problem. I think earlier we used to call it war for talent. That's probably a term from 15, 20 years ago.
You address the core aspects of it. So first of all we focus on retention. You know, we want to make sure the employees we have, we are able to retain them. And we've done a good job of retention, whether it's for hourly or salary.
It's not perfect, but it's better than most of our peers. So that comes down to we in stressed area pay people above average, we give them good benefits, we treat them well, we don't force them into mandatory overtimes every weekend, things like that. So we're just known as a good company to work for. But then we still lose people just like everybody else does. So then we focus a lot on recruiting and investing more in recruiters and recruiting department. Building a digital network. A lot of people now look for jobs through digital media. Putting that all together and that's kind of the addressing the labor. But the long term solution is also where we are focusing on these are shorter term actions. It's a lot about automation. If you go to factories, we are constantly taking processes and automating them. On the office or the HGNA side, I'm very excited about AI, what AI can do to make our tasks more automated, more efficient. AI is good for growth as well, things like sales and pricing. But that's where think of it.
Manufacturing type automation gets done with robots and SGA type automation is getting done with AI now. So you're putting it all together in general. Again, some of the tough times are behind us. A year or two post Covid, we had greater labor challenges. Now just the pace of the economy, everything makes it feel like you're in a much better spot.
[00:13:52] Speaker B: That's great to hear. I think one of the other things many companies also struggle with, right. So apart from their direct folks. Right. There's a dearth of talent at the middle level. Right. What we call the leadership bench strength. And how do you develop those people and get them attracted to the industry? How's Lennox faring in that? Right. Like what's your perspective there on attracting enough talent at that middle to senior level?
[00:14:16] Speaker C: We grow our own talent a lot, lot more than others.
Average tenure in my leadership team is probably 15 years. From that perspective, we grow our own talent, but you know, that's a constant challenge. A lot of that is also we do bring in talent at manager and executive level that we need to populate more. We have a corporate initiative group Bring a lot of people from BCG, Bain, McKinsey, who typically have good leadership skills in that. And we do a lot of training, we're investing a lot in training called LDP Leadership Development Program. We recently started an SLDP Senior Leadership Development program.
We find in a way you gotta find people with the right values, people who believe in our core values and then we train them. So there's a lot of internal focus and it's working well. We spend a lot of training. Not necessarily dollars, but those are easy. It's more the leadership time. The entire leadership time spends a lot of time. I have one on one with every VP in the organization once a year. That's a lot of time invested. But everybody in the company does that and we keep going that to one level below, two level below and in overall we are pleased with how much talent we can grow in house as well.
[00:15:33] Speaker B: That's very interesting. I think one thing that you've emphasized is the importance of aligning strategic objectives with long term value creation. So can you share some specific examples of how Linux is achieving this balance?
[00:15:46] Speaker C: Yeah, that question is a good question because you guys know this. Some of us being there, it's not that hard. I mean long term value creation is npv, right? So NPV is all about value of free cash flow to whatever ratio. So you've got to take risk, adjusted returns, all that's basic. But sometimes you forget that one thing we do and everybody in the team, all my finance people, I give them a book, it's called the Outsiders about long term value creation and the McKinsey book on valuation too, by the way. So everybody, we go through that and remind ourselves about the basics because sometimes between accounting and adjusted earnings and all that, you forget that we don't adjust our earnings, we just present the earnings as it is and we are one of the unique companies to do that. I'm saying all that because you've got to remove the fogginess which often creeps in and then once you have the fogginess removed and you can see strain and work with the core premises, it's very simple. Increase your growth rate, that will give you higher npv, higher valuation and then we put growth initiatives underneath that have higher margin and make sure they're resilient. So resilient and higher margin is important because obviously that gives you a safety net and based on your industry position and you want to avoid cyclicality. So we start doing level loading, production and being in business aspects that avoid the cyclicality and then it's straightforward. I mean, it's really not that complicated. One thing I've learned is you just have to talk about it multiple times. If you think we said it once and showed it once to the team, it doesn't work. And you kind of make it simple.
We use acronyms. I always talk about, hey, it's growth acceleration, it's resilient margin, it's execution consistency.
It's about advanced technology, and it's about talent. G R E A T so we call it a great framework. Every town hall, I will show it. Every leadership meeting, I do it every board meeting. And we show how each initiative fits under that.
We use it with the investors. We use the exact same framework with the investors. And town hall and the board keep showing all our initiatives. So people get it. It's kind of simple. It's not that hard. I think the hard part is getting the fogginess out and getting away from the flavor of the day concept.
At the end of the day, that's all it matters.
[00:18:17] Speaker B: So I think as you were talking about that, I was thinking about the earlier point you made about focus, that this again is somehow getting your team to focus in again and again.
[00:18:25] Speaker C: Right.
[00:18:25] Speaker B: Because we've seen it time and again, Right. When you're running on that treadmill, right. You just get lost in the minutiae. It's always so important to just keep coming back to the basics. Right. The framework that you mentioned, just make sure that the team is aligned. Right. Everyone's working from the same swamp. So. Yeah, that's great to hear.
[00:18:42] Speaker C: Yeah. I mean, you hear it, everybody says it, right? You got to focus. The question is, are you getting rid of the stuff where you're not supposed to focus, or do you just keep them on the side and hope it goes away? I think that's what we have found is stuff that you can focus on, get rid of it, that helps focus on the stuff that you really need to focus on.
[00:19:04] Speaker B: It's very interesting. Thank you for sharing the perspective. So I think we also want to get some perspective on your own leadership journey. Alok Right, So I think I start off with this question to everyone, right? So what's top of mind for you? Right, as a leader, as the CEO of Linux, what keeps you awake at night? What are the things that you think about?
[00:19:24] Speaker C: You know, as Lennox we are doing well, so I sleep very well at night.
As a CEO, if you don't sleep well at night and stress kills you, you're probably in the wrong job. When our jobs are stressful, Our jobs are about balancing different priority.
So I see that. But I think the spirit of your question, which I'll answer is I worry about competition always. If you think about it besides things like natural disasters, you worry about competition. That's the stuff you don't know. I don't know what they are working on. I tell my team, imagine a similar room in a different location filled with similarly smart people who are trying to take share away from Lennox. What are they thinking? What are they doing? I mean, that's what it keeps me awake at night is how do we win against competition and how do we fight the fair fight and make it grossly unfair in our favor, right? I mean, how can we make sure that we are winning unfair share and what are the pieces we need to do? So that's what keeps me awake at night is competition. So getting market intelligence, following things on social media, asking our customers the NPS score and competitive NPS score, those are things we focus on and say best way is not to give your customer a reason to leave.
Got it.
[00:20:46] Speaker B: And what about some industry or technological trends, right, where you feel bullish or it stop. It's. It's taking a lot of mind space for you that hey, this is where you probably want to go or this is the next frontier. But where, where do you spend your thought and your mind space?
[00:21:01] Speaker C: You know, some of it's. We are old school manufacturing, right? So when you think of things like AI, we learn a lot, we experiment a lot. I probably have 10 to 12 AI learning labs going on in the company call it showcases that could be about pricing, that could be in the legal language. There's AI driven chatbot for asking ask HR benefits question.
We do that so that employees are learning, employees are embracing new technology. It doesn't move the needle so far, right? Then you get to go to the next stage and say, okay, how do I really move the needle with this?
And I think a lot of companies are in that phase of AI, just like when the web came out, people used to be just happy having a website and then they're like, oh, how do I make money off it? They are in the same stage with AI and other technology. We stay abreast with the latest compressor technology, cooling technology, motor technology, which is not rocket science. And then we look at futuristic stuff. One thing that helps us is going back to the fact that we are direct to the dealer. We monitor data, data from thousands of thermostats that are connected to the Internet, data from warranty data from this. So we have an old data lake. And being as simple as we are, we are single erp. Everything is connected. We get a lot of insight just using that data and that's exciting for us. And using that data with new tools like large language models and pulling insights out of that, that's kind of exciting to us. But this is an old school manufacturing company. We bend a lot of metal, we weld a lot of metal, make a lot of money doing that too. So keeping abreast with the latest welding technology, the keeping abreast of latest robotic automation and things like that, that's important to us too.
[00:22:56] Speaker B: All right. You also serve on the board of Franklin Electric. You've helped roles across diverse sectors in advanced materials, water solutions. Right. How have these experiences influenced your leadership at Lennox or your leadership style in general?
[00:23:09] Speaker C: Sure. I'll tell you. First of all, Franklin is a great company. Thanks for bringing it up. It's got such a great, rich history and so much potential for it to be climbing up both from a growth acceleration and resilient margin. So I'm super excited about that and I'm grateful to be on that board. My experience sitting on a board makes me a better CEO because now I can see the, the board's perspective and interact better with my own board and see what else am I missing? Because you sometimes you get tunnel vision. You're focusing on a day job too much, so that really helps. But overall, being different companies, different industries, it helps us identify best practices and also not so good practices. So then what I learned and what I try and do is we say bring the best, but not the rest. So you guys have to work through that. And sometimes I catch myself making mistakes or thinking of doing things that I know I've seen others do poorly.
But I've had so many bosses that have a list of all the things bad bosses do. So sometimes I can't. Oh, shit. No, no, don't say that. Because that's what bad bosses do. You don't want to be a bad boss. I think that just makes you richer. I'm a lifelong learner. I like learning. So all of these experiences are just great to learn. And the keys to apply them back to what I said earlier, bring the best, not the rest.
[00:24:40] Speaker B: Yeah. All right. I think balancing long term strategy with short term operational demands is a challenge many leaders face as well. Right. So how do you approach this balancing act in your role?
[00:24:54] Speaker C: You know, CU's job is all about balance, right? You balance shareholders versus customers, you balance investors versus board members, you balance short term versus long term. But I think that's the job of a CEO to make those decisions. I think again goes back to long term value creation. What we talked about earlier, if we are focused on the North Star being long term value creation, the short term, long term is just math. It's more about if I invest now, is my payback two years or four years or seven years. And you just go through that as a public company, I try my best not to get caught in the quarterly earnings situation. A lot of companies, they do heroics at the end of the quarter. We do the opposite. We tell people close the quarter as if it's just another day in the business. Don't disrupt the day to day business. That's probably the one short term thing I want to avoid is not get overly focused on the quarter quarter at the end of every day. But beyond that, operational demands. You just have to have good people running it. They're KPIs. You work through that. And for long term objectives, you still have goals and objectives that you need to keep hitting. You have to do both.
[00:26:07] Speaker B: It's a very interesting perspective. You mentioned earlier, right, that you and your team spend a lot of time talking to your folks, keeping them focused, etc. Right. So in your organization or even you personally, how do you stay connected with your teams and foster this culture? Right? A focus of collaboration across the organization.
[00:26:25] Speaker C: Yeah, I think staying in touch is important. Right. So I mean personally I have an internal, we used to call it Yammer. I think it's called Viva Engage. I have a channel there, it's called Ask Alok. Anybody can get on and ask a question. Right. So then just give an example of that one on one with the VPs. Actually I fairly got to see a lot of work on Even things like LinkedIn because I realized half the employees are spending a time on LinkedIn and if they are, I would rather they focus on Lennox versus other companies might be trying to recruit them. So we do a lot of that intentional pieces. I hold town halls. I visit every location at least once a year. Every year I go to the cafeteria and stand in line and get my own food. I learn a lot by the way in those standing in line. And people just come to chit chat with you. So you gotta be accessible, open door accessible. Be a leader who's approachable.
Collaboration across the organization. First of all you got to have the right mechanism, right? You got to make sure the incentive structure does not disincentivize collaboration. Often companies have found that incentive structure was to disincentify collaboration. So you got to work through that. There's no easy answer, but there are lots of good answers. So you kind of work through that and then you just have the opportunity to rotate people around if within the organization. If you can move people from residential to commercial, commercial to corporate, corporate to services, that helps too because you just gotta get people more familiar.
Now fortunately, this relatively small company, we don't have to deal with million employees and 100,000 employees. For us, the fact that we are all co located in the leadership team, that helps a lot. You know, we are old school, we all have offices next to each other, we meet each other four or five times a day, just going and running between meetings. Those things all help.
[00:28:23] Speaker B: All right, and then I think to one thing that I'd really wanted to ask you was you're the 8th CEO in Linux long history as you mentioned, 150 year old company. What legacy do you hope to leave behind at the company? Right.
What would you imagine your legacy to be?
[00:28:39] Speaker C: You know, we say this in our town halls as well and I say I only have one job which is to leave the company better for the next generation. If you think about, you can't define that better, but I'll try and define it for you if you're interested. But all we have to do is leave the company better for the next generation.
It has to be that our growth prospects are better when I leave. It has to be that our market share is better. It has to be that we have better talent. Just think of better in every aspect. Did I leave it in a better spot than I would have found it for? And as the ninth CEO of the company, whoever comes in, are they going to look at it saying wow, I have a good foundation. It's so much easier for me to take it to the next level. I admire the seventh CEO of my predecessor because he left us in a great spot. I had a solid, solid foundation to build future success. I hope to do the same thing for the ninth CEO.
We're never going to reach perfection, but let's make it better every day.
[00:29:42] Speaker B: All right. On that note, Alok, I really want to thank you for your time. Right. This is a very interesting observation. Good learning opportunity for me as well. And we got to hear some great perspectives from you on your leadership as well as Linux as a company. So I really appreciate your time.
[00:30:00] Speaker C: Thank you. It was a pleasure to be on the podcast and congratulations on everything that you're doing and look forward to staying in touch.
[00:30:08] Speaker B: Of course. Alok, thank you so much.
[00:30:16] Speaker A: Thanks for listening to INA Insights. Please visit INA AI for more podcasts, publications and events on developments shaping the industrial and industrial technology sector.
