Raytheon CEO Gregory Hayes: How Ukraine Has Highlighted Gaps in US Defense Technologies

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0:57Welcome to the new world of work. I'm Adi Ignatius, Editor-in-Chief of Harvard Business Review, and each week on this show we talk about the changing world of business in these challenging times. We have a great guest today, although before I introduce him, let's hear from our friends at Unisys. Your employees went from working in one place to working in so many places. Our digital workplace solutions can help them all create and collaborate seamlessly. We're Unisys, and we do digital workplace solutions really well. All right, so thank you all again for joining us. Our guest today is Gregory Hayes, the CEO and Chairman of Raytheon Technologies, the aerospace and defense giant.

1:42Greg was originally a trained accountant and served for six years as CEO and Chairman of United Technologies. When that company merged in 2020 with Raytheon, Greg became CEO of the combined entity. Welcome, Greg. Good afternoon. Hello, everyone. I appreciate you being here. And there's a lot of things I want to talk about. But you know, I probably make sense to talk about what's happening in the world. And given that you're, you know, being part of a defense company, what's happening in Ukraine. So tell us, you know, what does it mean to be running at a defense company at a time when the whole world is fixated on this war?

2:18You know, it's an interesting time in which we live. And I would tell you that, you know, while we are a defense company, our goal is to provide our country and our allies with the most effective systems, weapon systems, defensive systems, to try and prevent just such a conflict that we're seeing in Ukraine. Nobody actually wins in a war. You might gain territory or whatever, but the fact is the idea of having a strong defense and providing this high technology is to try and prevent something like this from ever happening. When bad things do happen, like Putin's invasion of Ukraine, it's great to see that we have weapons and systems that can help in the fight for democracy and i think that's what keeps our people coming to work every day this the singular mission around defending democracy and connecting the world uh well i appreciate that and if if you're watching this if you have correct uh questions of your own for gregory hayes please put them into the comments we'll try to get to some audience questions later um you you know you made some public comments a while back about how how the conflict would likely result in an increase in your business.

3:30Some took issue with that. That seems like a logical consequence of what's going on, right? Yeah, that's fair enough. Look, we don't apologize for making these systems, making these weapons. The fact is they are incredibly effective in deterring and dealing with the threat that the Ukrainians are seeing today. The Javelin anti-tank weapon system is a modern marvel. It can take out a main battle tank from two and a half miles away. The Stinger anti-aircraft missile, which frankly has been around since the late 70s, is incredibly effective in targeting low-flying aircraft, helicopters, and even jets and other missiles coming in at less than 10 ,000 feet.

4:14So I make no apology for that. I think, again, recognizing we are there to defend democracy. And the fact is, eventually, we will see some benefit in the business over time. Everything that's being shipped into Ukraine today, of course, is coming out of stockpiles, either at DOD or from our NATO allies. And that's all great news. Eventually, we'll have to replenish it and we will see a benefit to the business.

4:51from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18 plus. Teens share everything. That may include the bacteria that can cause meningococcal disease known as meningitis. Even if your teen's been vaccinated in the past, they could still be missing meningitis vaccinations. Ask your teen's doctor or visit meningitis.com today. sponsored by GSK. ...over the next coming years.

5:23We don't make a huge margin on these products. This is all cost-based pricing. But again, the idea here is to make sure that you have the capabilities to deal with whatever threat might be out there. And that has been the mission of Raytheon Technologies since our inception. And Adi, please call me Greg, not Gregory. Only my mother and father still call me Gregory. All right, I appreciate that. Well, Adi's my nickname, so let's go with that too. so i'm interested in how a company like raytheon technologies thinks about esg environmental social governance you know for those who who don't play around with with that acronym you know investors increasingly look at esg ratings for companies to to as part of their assessment of their investment worthiness i would imagine some of the rating companies are not particularly generous in their evaluations given the business you're in so i guess my question is you know do Do ESG Raiders get your company?

6:22Yeah, I think for the most part, they do. And I think, again, it's the story that we need to be telling. As a defense contractor, there are certain investors that just don't invest in us. You know, in Norway, the Sovereign Wealth Fund will not invest in defense companies. That's fair. That's completely up to them. But as you think about ESG and the various pillars of a good global citizen, I think Raytown Technologies is doing many, many things to improve our standing in the community. I think about what we're doing from a diversity, equity and inclusion standpoint. I think about what we're doing from terms of community reinvestment.

7:02We've committed to spend$500 million over the next 10 years on underserved communities and providing opportunities. what we're doing to educate our employees, what we're doing in our suppliers in terms of promoting supplier diversity. There are many different pillars of ESG. We're just about to put out our first ESG report. And I'm actually very proud of the accomplishments that we've made in these last couple of years since we brought the two companies together. We're not perfect. We have a ways to go from a diversity standpoint, but we have published real goals and we are holding people accountable.

7:39We've made part of our executive compensation tied to diversity goals. And so I won't shy away from DE &I. On the environment side, I think what's important to remember is jet fuel, unfortunately, does contribute to global warming. So what we're doing about it is we developed the gear turbofan engine, which has reduced NOx emissions by 50 percent. It reduced fuel consumption by 15 or 16 percent. And we're going to develop and we're in the process of developing the next generation of that engine called the Advantage, which will be able to operate on 100 percent sustainable aviation fuels. So we take these goals seriously.

8:18we realize climate change is not a myth. It is a reality. And we're going to have to do whatever we can to support our customers and their journey to this net zero target in 2050. That's great. I know you have a number of employees in Central Europe, in Eastern Europe, you know, in terms of employee relations. How are you handling and managing the workforce there on the ground at this point? Yeah, you know, it's interesting. We actually had operations that in Russia until the 24th of February. And upon the invasion, we closed our businesses in Russia. We've pulled all of our engineers out that were supporting the development of a Russian aircraft, a commercial aircraft.

9:02We have stopped servicing all of the Russian civil aircraft that are in country. It's unfortunate. We're talking about less than a thousand people out of a workforce, of around 180 ,000 people. So not a huge impact. I would say more importantly though, we have about, excuse me, 10. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50 page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it.

9:39Ready to make anything online make sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18+. Teens share everything. That may include the bacteria that can cause meningococcal disease known as meningitis. Even if your teen's been vaccinated in the past, they could still be missing meningitis vaccinations. Ask your teen's doctor or visit meningitis.com today. Sponsored by GSK. 1 ,000 employees in Poland. And about 5 ,500 of those employees are in one of our most advanced manufacturing facilities in a place called Zhezhov, which is right on the border with Ukraine in the south of Poland.

10:16And I can remember visiting there several years ago when one of the first questions I got asked in a town hall meeting is, will America protect us when the Russians come? And I kind of laughed it off saying, guys, you don't understand. That's not the world we live in anymore. You're a NATO country, NATO ally. Of course, America will defend you. But I said, you're not going to see the Russians coming across the plains of Ukraine in our lifetime. Obviously, I was wrong, as were many others about that. What's most heartwarming, though, talking to some of those folks in the last few weeks of those 5 ,500 people, more than a thousand of those folks have opened up their homes to the refugees coming in from Ukraine, providing them food, shelter, everything that they need.

11:02And it is a human tragedy what's going on in Eastern Europe today with all of these refugees. We're, of course, providing financial support. We've contributed over a million and a half dollars, most of that coming from our employees to provide humanitarian relief. But I think more importantly, all of our employees in Poland have opened up their homes and their hearts to these poor people that have been displaced by this atrocity of war. Yeah, it's really it's a tragic moment, an incredible moment. If you're watching this, if you have questions for Greg Hayes, CEO of Raytheon Technologies, please put him into the comment box.

11:38We'll try to get to some later. So business for all of us has changed profoundly in the past few years for a number of reasons. I'm interested in how, you know, for you, particularly in the R &D sphere, you know, how have things evolved for you? And whether it was the pandemic or just kind of over time, how are you thinking about R &D now that might be different from how you did in the past? So it's an interesting journey that we've had over these past two years. We actually brought the two companies together on April 3rd of 2000, about two weeks into the nationwide lockdown because of COVID. Commercial aircraft were not flying anywhere.

12:22our commercial aerospace business, which was really about 60 % of the business got cut in half. We had to go from having, we had roughly 200 ,000 people today to the merger, 100 ,000 of them were essential coming to the office, but 100 ,000 had to be working from home. And the challenge became, how do you continue to innovate and collaborate over Zoom? And that has proven to be an incredibly effective tool. The idea of video conferencing has been around for a long time. I was never much of a fan. I always thought you had to be in the office working together every day to get things done. But I give credit to our organization.

13:00We figured out how to move 100 ,000 people to work remotely within two weeks of the merger. And so we were able to continue to innovate, continue to invest. We spend roughly$7.3 billion a year on R &D. About half of that comes out of our own P &L, the other half comes from customers. And the question is, can you do that effectively? We've actually found that with the different video systems, whether it's Zoom or whether it's Teams, whether it's the Cisco system, we can work together and we can be very effective. What was amazing to me is productivity actually improved in our first year of working remotely.

13:46Some of that we attributed to people not standing around the water cooler talking, but more importantly, people were able to focus on their work in their own environment in a comfortable way. And so as we think about the roughly 60 ,000 engineers that we have out there, they've really done a tremendous job of continuing. This episode is brought to you by Google Chrome. You think you know a browser, But Gemini and Chrome? That's new. It can help you with practically anything on the web. Like restoring a vintage motorcycle from a 50-page restoration block. Or finally break down that long article you've had open for weeks.

14:19Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies 18+. Teens share everything. That may include the bacteria that can cause meningococcal disease known as meningitis. Even if your teen's been vaccinated in the past, they could still be missing meningitis vaccinations. Ask your teen's doctor or visit meningitis.com today. Sponsored by GSK. To find ways to connect across the businesses. And keep in mind, when we brought these businesses together, one was a commercial aerospace business, the other was a big defense business.

14:53But a lot of very common technology and finding ways to work together across the enterprise is absolutely essential to make this deal work. And we've actually realized over a billion dollars of synergies in these last two years. But more importantly, we have also identified about$12 billion of additional revenue opportunities by working together. And it's all been done remotely. So kudos to the team. There was no playbook, certainly, when COVID struck. So I imagine, particularly with a kind of hybrid and remote work aspect, you must think about cybersecurity issues a lot. I'm wondering if you have had to do more than maybe others of us would, given the industry you're in, in order to make sure everything is secure.

15:39Yeah, look, we spend roughly a billion dollars a year on IT, and a big chunk of that is for cyber. Actually, just to be fair, one of our businesses, our information and space business, our INS, actually has one of the largest cybersecurity operations in the world. We provide cybersecurity through the Department of Homeland Security to most of the.gov organization. We also have what I would consider to be some offensive cyber capabilities. So we have some unique capabilities within the four walls of Raytheon that allow us to do a really good job of, I would say, protecting the four walls of Raytheon, as well as all the way down on our suppliers.

16:22That's not to say we haven't been hacked. We get about 2 million attempts a week, 2 million intrusion attempts a week that we have to deal with. We certainly have had our share of miscues, especially, I call it, it's kind of the one-off server that might be in some remote location somewhere around the world. It's not part of our network that gets hit by a zero-day attack, some ransomware from some small business. But for the most part, it is a full-on team effort to make sure that these intrusions never amount to anything. And so far, so good. But it is constant, constant vigilance. There is no other way around it.

17:02You have to stay one step ahead. You've got to do your, we call it your daily hygiene. You've got to make sure your employees are aware of these phishing attacks. You have to be constantly vigilant. Well, talk more about that. So for viewers who maybe don't have the sophisticated systems that you have in place, and maybe who are increasingly worried about cyber attacks, given what's happening in the world right now, what's your advice? How do they, what do they need to do first? Well, I think the first thing I would say is, you know, there are always vulnerabilities in any software package that's out there.

17:35And the idea is, you know, the Microsofts of the world, the Oracles, SAPs, they find these things. and the question is how quickly can you install these patches we have a goal of you know we've got over 300 000 devices around the world that we monitor on a daily basis we try to within seven days make sure all of those patches are put in place also if you don't have the the capabilities in-house you really need to get help externally and there's plenty of companies out there that that provide these services. But first and foremost, it is making sure that you're following kind of that daily hygiene of making sure your patches are put in place, monitoring what's coming in, making sure your firewalls are in place.

18:20And no firewall is perfect. I still remind people that the biggest cyber threat doesn't come from Russia or China. It comes from our employees every day and the access to the data that they have. And so making sure that you have a robust process to monitor employee activity. And I don't mean big brother. I just mean the ability to see if someone's taking more data than they're entitled to or looking in systems. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks.

19:00Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required. Compatibility and availability varies 18+. Teens share everything. That may include the bacteria that can cause meningococcal disease known as meningitis. Even if your teen's been vaccinated in the past, they could still be missing meningitis vaccinations. Ask your teen's doctor or visit meningitis.com today. Sponsored by GSK. They're not supposed to be in. You've got the ability to monitor that on a real-time basis. Not easy and not cheap. So let's go back a second ago when we were talking about R &D.

19:36You have mentioned in the past that hypersonic weapons may be particularly critical in the maybe not so distant future. There's evidence that Russia is already using those. Is that the future of defense technology? So hypersonics are an interesting concept. And again, just to kind of level set the audience, we're talking about our weapons that fly somewhere between Mach 5 and Mach 20. And really three different platforms. Some of them would be launched ballistically. This is a hypersonic glide vehicle that goes up into the atmosphere, comes down, much like a ballistic missile, with a big difference that it doesn't follow a ballistic trajectory.

20:22It actually is maneuverable in the atmosphere, which makes it very, very difficult to defend against. Typical ballistic missile, we have something called the THAAD that we work with Lockheed on that can actually take out a ballistic missile. Hypersonic glide vehicles, very, very difficult to hit just because they have the maneuverability. The same with hypersonic air-breathing missiles. These are typically fired off of a fighter jet. They could also be fired as a cruise missile from a submarine, perhaps. These will not be nearly as fast. The glide vehicles, Mach 20, 17 ,000 miles an hour. Hypersonic air breathing, Mach 5, call it 3 ,500 miles an hour.

21:05Again, they all represent challenges in terms of how do you defend. I would tell you right now, we last year for the first time successfully tested an air breathing hypersonic weapon system with the DOD, but we're a long way from being in full rate production. Chinese, on the other hand, are way ahead of us. And even the Russians are ahead of us in terms of having capabilities today to launch hypersonic missiles. For many years in the defense industry, the whole idea was stealth. How do you protect your air assets or your ships from enemy radars such as you can complete a mission without endangering the crew.

21:47I would tell you that hypersonics speed overcomes stealth. Because of the speed of these systems and the range of these systems, the real question is how do you now defend the homeland against these weapon systems? And we're working very closely with the Department of Defense to come up with multiple ways in which we can deal with them. It is a huge technical challenge. I would tell you as we think about this probably and i know this may sound like a sci-fi but literally a high-powered microwave for a millisecond can literally fry the electronics in one of these things if you hit it and that might be our best bet and again we are that is one of our core businesses is microwaves high-powered energy but it's only one answer and we're working with dod on coming up with what would be a layered defense but i would tell you right now we're behind it's a it is one of the key technologies that we're investing in ourselves and the government is investing in but this is going to be a 10 or 15 year process to to catch up to where the chinese are today yeah that's that's really interesting thank you for sharing that the um all of us in business are facing a battle for talent these days i'm wondering what what that looks like for you and your industry what are the what are the skills that you are trying to bring in and and perhaps struggling to bring in enough of.

23:10So last year we hired 19 ,800 people across Raytheon. We have been relatively successful in attracting talent and we're hiring out everything from coming out of college to people with advanced degrees to people. Ryan Reynolds here for Mint Mobile with your summer price forecast. Now, unfortunately, we're seeing rising costs across the country with possibility that big wireless hates you 100%. Now over here at Mint Mobile, we're seeing sunny skies and dropping prices every plan to just$15 a month. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for 12 month plan required$15 per month equivalent taxes and fees extra new customer offer for initial plan term only greater than 50 gigabytes may slow and network is busy.

23:55See terms. people with the 20 years of service. But the hunt for talent is real. It is a challenge for all of us. What's interesting is I think about those 19 ,800 people that we hired last year. Almost half of them haven't been to the office yet. And we're just in the process of reopening our offices around the world. And it will be great to see these people in person and actually get them to feel like they're part of the Raytheon Technologies team. If you think about what talent we're after? Well, obviously it's engineering talent, program management talent, it's supply chain talent, operations talent, specifically around AI and machine learning.

24:39Really, it runs the gamut. And I say, we get our fair share. People look at Raytheon Technologies as a place they want to work because they believe in our mission of defending democracy and connecting the world. So it's real. You know, I think our attrition rate, again, this is all public data is about 6%. So that means we, you know, out of 180 ,000 people every year, you know, we're placing about 11 ,000 and we're still growing. So it's a challenge. It's not going to get easier, especially with the demographics that we see here and in Europe. So I want to turn to the first question from our audience.

25:16This is from Jesse from New York, who says many leaders cite culture as a reason for a full return to the office. So the question is, how has the hybrid remote model shaped your culture at Raytheon Technologies? So interesting, you know, since we have been working remotely for these two years, this idea of how do you develop a single culture for Raytheon Technologies has been first and foremost in our minds. And as we thought about culture, it really goes to values. And so as we have been communicating with our folks and I've been doing videos on a regular basis, probably more than our people want to see, we have always gone back to values, dignity, respect, trust, innovation, collaboration.

25:59And those are the values that we hold firm. I think culture is really a culmination of learning over time. And we are still, I would say, in the infancy in terms of developing our culture. I would tell you, having high integrity is absolutely essential. We always tell people, We got a code of ethics as does most organizations. I like to boil it down to some very simple phrases like we don't lie, we don't cheat, we don't steal. And we always try and do the right thing, even when nobody is looking. And if you can follow those simple rules, you can be part of Raytheon Technologies. And that reinforcing those values, reinforcing that culture is absolutely essential.

26:41And again, an organization as large as Raytheon Technologies, it's not like we all come to a single office and spend all day together. We have over 200 operating sites around the world. We operate in countries from Australia to Japan to Singapore to Poland to the UK, you name it, US, Mexico, Canada. So having a single culture across the globe is not easy. Having shared values, though, I think is the key to that culture. So we're also getting some questions about just the volatility of this period. And there's a question from a YouTube viewer, Gordon, who's asking, you know, how has your leadership adopted new ways of working to respond to this crazy volatile world now?

27:25Yeah, it's interesting when, again, I go back two years ago in April when we brought these companies together. And I always tell people, you know, I couldn't even spell Zoom. I had no idea what Zoom was. I had no idea how this worked. And the ability to adapt to these changing technology, to the changing conditions, to all of the change that's going on in the world, I think is absolutely essential. And I know change is difficult for people. I had this conversation. I was at a town hall meeting in Texas a couple of weeks ago, and someone said, when's the change going to end? And my answer was pretty simple.