TransDigm: Value-Based Pricing Strategy | In Practise

TransDigm: Value-Based Pricing Strategy

Former President at TransDigm

Learning outcomes

  • Why TransDigm's culture is unique
  • How TransDigm streamline inventory of acquired assets to increase capital efficiency
  • Two-tiered OE pricing strategy and how OEM's view TransDigm
  • Aftermarket pricing and value-based pricing logic
  • How OEM's suck margin from the supply chain
  • Risks for TransDigm's pricing and M&A strategy

Expert profile

Yusuf Muhammad

Former President at TransDigm

Yusuf is the Former President of CEF Industries, an operating group of TransDigm where he had full P&L responsibility leading over 200 employees. He joined TransDigm in 2000 as a Senior Design Engineer before moving into product marketing in the ADS/Transicoil division. Yusuf became a vital employee within TransDigm as someone who would lead integrations of acquired businesses. From 2017-19, Yusuf spent 2 years as VP at Triumph Group where he competed with TransDigm on various platforms. Read more

Yusuf, a pleasure to have you with us. Could you just provide some context to when you first joined TransDigm and the responsibilities that you had?

I joined TransDigm back in 2000. Prior to that, I worked with DuPont, in their aerospace division, the Vespel group and I worked with General Electrics, so I’ve had experience with large organizations, prior to joining TransDigm. I was just finishing my master’s degree, when the opportunity to join TransDigm, as a senior design engineer, came up. I was actually a part of the AeroControlex group and as TransDigm went from being a privately held organization, going into their IPO, it was around the 9/11 time frame and just after those years, there were a lot of consolidations and things. It afforded me the opportunity to move from the engineering role into a product management marketing role.

From that point, my career expanded, going from product line management to director of sales and marketing of some of the most recent and early acquisitions. Then, ultimately, to president of one of their operating groups, CEF Industries. It really afforded me an opportunity to grow with the culture and to be one of the ambassadors of the TransDigm culture and bringing that into new acquisitions. It was a very interesting time and I’m really grateful for the opportunity that I had, to work with that team.

So you were part of this integration team, SWAT team, that goes in and embeds the culture on these new acquisitions?

That’s correct. One of the first things that people aren’t really aware of when you think about TransDigm and their culture and their acquisition strategy and model, that all starts before they actually purchase the company. When companies are fed into that acquisition funnel, meeting certain criteria around particular markets, meeting certain criteria around financials and intellectual property or technology, those fall into the funnel. But then there’s other aspects of the business, where doing that initial due diligence and interaction with either bankers or some other executive team of those potential acquisitions, we’d start to determine and develop an understanding of whether or not that company really could fit within TransDigm’s overall culture.

It’s really interesting. They almost have this strategy of a private equity team, building out various portfolios and various platforms. You will hear that a lot, in private equity and at TransDigm, probably one of their keys to success is that they behave in a very disciplined and almost, I would say, unemotional way, in a lot of their acquisition.

Can we walk through the process, from start to finish then? Assume that we’ve acquired a business. How exactly does TransDigm approach introducing the culture to the new acquisition?

Two things. Number one, they do a very thorough review of the incumbent leadership. There are product line acquisitions and there are company acquisitions. On a product line acquisition side, they will identify an internal team that will, subsequently, absorb that product line. That product line may come with an operating location, that was part of another organization and they identify people, within that operating location, such as shop supervisors, people that are in materials or inventory, those sorts of things that they view as key to helping to usher the culture within that product line.

In an organization, they will do a very similar thing. They will review the operations manager, engineering manager, the accounting team or financial controller, HR, and they will look at that team and say, okay, does this team buy into our kind of vision, which is pretty simple. They really have a very simple vision for how they want their companies to operate. They want companies that are very customer-centric, in terms of understanding the needs of their customers. They want people that are going to, basically, act as owners. The third thing is, they want people will take risk, but measured risk. They’re going to take risks, in terms of technology, new market share and those sorts of things. If people who are on the existing team exhibit or seem to be aligned with those sorts of operating modes, then they will keep them on.

One of the key things about TransDigm culture is that it’s really more about decentralized leadership, versus centralized leadership. As I said, I’ve worked with DuPont, GE and even, more recently, working with Triumph Group and that’s one thing that became very noticeable about the difference in culture. TransDigm will have an operating company president or a site leader, that has a lot more authority than in other organizations, like GE or DuPont or United Technologies, where they understand the concept of a reversible decision, versus an irreversible decision. They make it pretty clear that, if you’re doing something that’s going to damage the intellectual property ownership of the company, if you’re doing something that is going to change the overall contractual relationship with a major customer like Boeing or Airbus or General Electric, those things need to be discussed up the chain, all the way, sometimes, to the CEO level.

Other decisions around pricing, around particular business programs or particular aircraft programs, those are reversible decisions, so the local people have a lot of autonomy, in terms of the ability to decide what new business they are going to take on and what new business they aren’t. It’s interesting, because that even plays a role in how TransDigm operating companies do work with each other. There isn’t a corporate mandate to say, we have an electric motor company, so all of our companies that need electric motors will buy from our own internal suppliers. You may buy from a competitor, to one of the other TransDigm divisions, because that competitor has a technology or a solution that doesn’t exist, internally. Or maybe the two align, where an internal group wants to enter into a particular technology and the other group has an enabling program that allows that to happen. Those things happen organically and naturally and it’s not a forced sort of decision making. That’s really the underlying culture.

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