We last interviewed Robert J. Pagano Jr., CEO, president and chairperson of the board, Watts Water Technologies Inc., back in 2015. He’d just been at the helm of Watts for a year after spending a long career at ITT Corp.
When Pagano joined the company, Watts gained a seasoned executive with more than 25 years in the flow-control space and a proven track record of growing businesses through strong customer focus, new product development and strategic acquisitions.
Pagano’s first priority included a tour during which he met with the company’s leadership team, employees, customers and investors to identify needs, gaps and opportunities for the business. From there, Pagano moved quickly to develop a cohesive strategic plan that integrated a bottom-up and top-down approach focused on five key pillars: growth, operational excellence, commercial excellence, One Watts and a diverse talent and performance culture.
“It was critical from the outset to establish a clear plan and vision for the company to ensure that the entire organization was on the same page and focused on the same mission,” Pagano told us then.
He had his work cut out, not the least of which was shedding the company’s “non-core” products.
“I want Watts to be known for more than just being a producer of widgets,” he told us at the time. He ultimately eliminated around $175 million of sales related to these non-core products.
“The transformation isn’t just about selling off business though,” Pagano added. “The next part of the transformation is be known as a company that provides real solutions to its customers.”
Last August, as the company prepared to celebrate 150 years in business in 2024, we stopped by his office for an update on where he sees Watts now.
PHC News: Let’s cut right to the chase. I know one of your big goals was to ensure that Watts earns 25% of its revenue from the sale of smart and connected products by 2023. How is that going?
Pagano: The growth of smart and connected enabled products is an important part of our strategy and key to our future growth. In 2022, we ended the year with approximately 19% of total sales generated by these solutions, with 20 new products introduced. We committed more than half of our $59 million in research and development spending to expand these offerings and enhance their functionality and security. And while all our 2023 financials aren’t completed yet, I think I can say that we will achieve that goal when those numbers are finalized.
We see tremendous opportunity to enhance these efficiency and safety benefits by transforming traditional mechanical products into smart and connected solutions. Using IoT technology and cloud computing, we are giving customers new monitoring and control capabilities.
Smart and connected enabled products is just one way that we can offer solutions and not just products to our customers.
PHC News: When we interviewed you in 2015, you noted that while Watts was a great organization, it was trying too hard to be “everything to everybody.” Can you bring us up to date on where Watts is now?
Pagano: We’ve been on a journey for a while. And one of the first things we did when I got here was to develop the strategy for the company on where we’re going, what we’re doing to get there, and then I made sure I had the leadership team to implement that strategy.
When I started, I think Watts may have been too focused on the next acquisition, and as a result, lost a little focus on the customer. We’ve always been a leader, but I think we needed to put our main focus back on the customer. The customer is number one.
When I first began traveling to talk to our customers face-to-face — and believe me, I did a worldwide tour — one of the first things I learned was most of our customers didn’t know the breadth of the Watts products and brands. I’ll never forget talking to one of our major distributors, and he didn’t even know that the Powers brand was one of ours. Now certainly our wholesalers are important customers, but in the end the installer is the most important customer. But if the wholesalers who stock our products didn’t know about Powers, I doubt all of our installers knew that either.
Which is why all of our messages, whether it’s our website, signage or letterhead, now say, for example, Powers, a Watts Brand. We needed to make that connection with all our many products that they are a part of Watts.
We’re a family of brands with a huge portfolio of products that we need all our customers — wholesalers; contractors; engineers; and building and homeowners — to understand. Once they understand the breadth of the products, they’ll understand that those products offer real solutions from the time the water enters and exits a property and everything that takes place as water flows in between.
PHC News: We know from following Watts news since you arrived, that you did offload a number of product lines. Can you tell us more about what didn’t fit and at the same what does fit within your strategy?
Pagano: We began by really examining what products added value. Think of two types of products: undifferentiated and differentiated.
We used to sell hoses for washing machines. Well, that’s an undifferentiated or a commodity item. Nothing wrong with the product itself; people need them. It’s a good business but wasn’t for us. Instead of just that hose, for example, we sell a differentiated product called the IntelliFlow, which is smart enough to detect the flow of water to the washer and opens up the inlet valves. Once the washing machine completes its cycles, IntelliFlow closes the water inlet valve. Plus, it comes with a floor-mounted leak sensor if a catastrophic leak were to occur from a burst hose.
Differentiated products should form the core of Watts. We protect that core and then identify ways to expand on that core for the future.
PHC News: Now you did say that Watts, at one point in time, was a little too focused on its next acquisition. Which is not to say you are adverse to acquisitions since Watts has made many under your watch. What are you thinking about when it comes to making acquisitions?
Pagano: I’m certainly not against acquisitions. When I was at ITT, I did about a hundred of them. Again, it comes down to protecting our core; that’s the foundation of everything we do. Protect that core, be innovative and then grow. Whereas I think before we were milking the core products and using that money for the next acquisition — all while losing market share on those core products. That doesn’t make any sense. (EDITOR’S NOTE: A couple of weeks after our interview, Watts announced its acquisition of Bradley, the well-known maker of commercial washroom and emergency safety products as a strategic addition for front-of-the-wall applications.)
PHC News: What more can you tell us about the One Watts philosophy?
Pagano: The concept of One Watts was here when I arrived, but we’ve just fleshed it out. Basically, we want to align our culture, in others words, how we act, with our strategies, or, how we win, with our process, or, how we work — and with the customer always being in the center.
If you think about Watts history, it is a formation of a bunch of acquisitions that I don’t think were fully integrated. Our missions were different from brand to brand, maybe, from building to building. It didn’t feel like the One Watts culture that we have today.
So that’s what we’ve been doing — driving one consistent culture by developing a set of tools, processes and capabilities that all our 5,000 people around the world know. We have understood methods for many tasks, whether you want to enter a new market; implement lean techniques or do a turnaround. All with clear milestones, clear accountability, and you don’t move forward without the next step.
We have operating plans, business reviews, strategic plans, again, all consistent and everybody’s doing the same thing, and talking about the same things. And it’s defined by what the customer wants.
I brought some of this with me, but we’ve also taken the processes of the best of many companies, world-class companies, and we’ve made it ours.
Now we’re all talking the same language.
It can sound cliché to talk about clarifying your mission, vision, values and behaviors, but it was very important to get everybody aligned on the same page.
PHC News: So where does all this put Watts today as you prepare for 2024 and mark 150 years of the company’s history?
Pagano: Above all, we have the right team and we have the right products that offer the right solutions.
And we are making huge strides in product innovation. We used to think innovation was the next size of something. Now our smart and connected products are a great example of the kind of breakthrough innovation that can change the world. And those products will only get better as we ourselves understand them and better consider all the data that this solutions offer to our customers.
Don’t get me wrong. We have more work to do. But it’s exciting to see the progress. It’s been exciting for me to see how people have grown and how I believe we’re making this world a better place. (EDITOR’S NOTE: Others have taken notice too. Watts announced that it was recognized as a 2023 Top Place to Work in Massachusetts. The recognition is determined by a survey measuring employee opinions about their company’s direction, execution, leadership, values, pay and benefits, training and engagement.)
On a related note, our new product development is centered on three themes that the world needs: Safety and regulation; energy efficiency; and water conservation.
You can’t get through our process unless you hit one of those three. And some of them hit two of them and some hit all three. If they hit three, we call it a triple play.
Those things are so important to the world. And I think it’s just important to everybody to think about that and understand the value. When we first started our ESG [Environmental, Social and Governance] initiative, it was really focused on how we could cut carbon emissions and how do we save water.
But then, we quickly moved it to how can we help other companies on their ESG journey. And because our products save all three of those things that I just talked about, they’re really important.
PHC News: And what about that wholesaler you mentioned who didn’t know Powers was a Watts brand?
Pagano: Oh, he knows it now.