Now three months into his new role as president and chief operating officer at Milwaukee-based A. O. Smith,
Stephen Shafer has had time to familiarize himself with the unique challenges facing the water technology industry.
Shafer, who was previously the president of the Automotive and Aerospace Division at 3M, is now tasked with leading A. O. Smith’s global business units.
In a recent interview with BizTimes, Shafer discussed how
A. O. Smith is navigating a changing regulatory landscape and striving to keep pace with ever-evolving technologies. Below are portions of the interview.
How has your past work experience helped you in your new role at A. O. Smith?
"There are elements of A. O. Smith that are very familiar to me. It's a company that does business the right way... A company that likes to make things and innovate through technology and manufacturing, and it's evolved. We're now focused on water and water technology, so that is part of the market I'm learning. But the idea of how we go to market and what kind of company we are is one that's familiar with me, having worked with other iconic American companies like Ford and 3M."
What’s the most surprising thing you’ve learned about the industry?
"I came to A. O. Smith excited about the new opportunities that are in front of the company. Lots of changes are happening as consumers are looking for technology and more efficient products. Regulation changes are happening in the United States and all around the world. The space of water treatment is evolving very quickly, but having been here for the last few months, I'm getting a better appreciation for how dramatic some of those changes are going to be."
What are some of those regulations and trends impacting your industry?
"Water technology has been on its own journey of becoming more efficient. We've been the leader in pushing for more efficient solutions in water heating. We've been leading some of those innovations for many decades. Many of them are driven by regulations as the government and policy makers look to move technology forward. Some of them are just driven by our own advancements and our own investments. There are big changes coming. We know that for sure. We don't always know exactly what they'll look like. There are regulations changes ahead – one change in 2026 relates to the commercial market and another in 2029 is related to the residential market. Those will require, again, another change in efficiency relative to water heating. The one in 2029 is really a step towards more heat pump technology, which is a big technology change that can help improve efficiency. We look at those as opportunities."
How are the company’s recent acquisitions supporting these changes?
"The reshaping of A. O. Smith over the last few decades has been a combination of getting out of certain businesses and technologies and getting into others. We've exited places like automotive and electric motors. Doing that has allowed us to really double down on water and build out a strong water technology portfolio. We've been in water heaters for a long time, but we've been able to add new businesses to expand our capacity. We've also stepped into water treatment, much of that through acquisitions initially. Acquisition has helped us reshape our portfolio, but at our heart, we're still an innovation and technology company. We still look to drive innovation and technology through what we do organically, and we look to make acquisitions to strategically enhance that, either by giving us more market coverage or adding new technologies."
What innovations is the company focused on right now?
“We're looking at how we can drive efficiency in our products going forward and how we can integrate the technologies we think are going to be part of the future. We're looking at heat pump applications and pushing that technology forward. On the water treatment side, we're trying to understand new contaminants that people are mindful of, such as PFAS. We've built this incredible corporate technology center (in Milwaukee) where we think about the next wave of things that are coming so that we can feed that into our businesses and then commercialize them.”
What role will Milwaukee play in the company’s continued success?
"We will invest in our business and roles as the company grows. We'll let those business outcomes dictate what our level of investment here is, but Milwaukee is an important part of our history. It's where our executives sit and it's an important part of our company because it's where our technology center resides. I think the role it plays going forward is very much dependent upon the future outcomes of how our portfolio continues to evolve...how our businesses form new businesses and the new acquisitions we might make. I think all of those offer opportunities to continue to invest in this community.”
How does the company continue to navigate doing business in China?
"Right now, there are some challenges that I think all companies are facing relative to the Chinese consumer and where they're at. There is still a geopolitical overhang, but at the end of the day, what we see is Chinese consumers still aspire to great brands, and we have a premium brand position there. Chinese consumers aspire to the A. O. Smith brand. They seek great new features in their products. They seek a compelling value proposition. All those things that we think about our consumers here still resonate for the Chinese consumer."
How is A. O. Smith building up its business in India?
"I'd say we're working on it and we're building it. It's not the size of our business in China today, but we see the potential of India. It has its own complexities, separate from China. It's a very different type of marketplace to navigate. We're laying the foundation and building a presence there. I'm very proud that about a month ago, we announced our intent to acquire Pureit, a Unilever water treatment business. That will really help us scale and bring us more talent capabilities in the area. At the end of the day, India has huge market potential and it's developing. I think what will help us be successful in developing and building our business in India is having the patience to build that out."
What is the company’s biggest immediate challenge?
"There's a lot of change and some uncertainty on the horizon. We need to make sure we're ready and I'm confident that we have the necessary capabilities. While we don't have all the answers, we're ready, and we must be agile to make sure we can respond to how things play out, whether that's on the regulation side, or the consumer trends, or even some of the geopolitical risks that are out there. I think companies today, they have to be agile. They have to be ready to respond."
