Driving Sustainable Growth with Alcoa’s Kevin Kramer

September 21, 2011

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JOHN SHEGERIAN: Welcome back to Green is Good, and we’re super honored today to have our friend, the President of Alcoa Growth Initiatives, Kevin Kramer, on with us at Green is Good. Welcome to Green is Good, Kevin Kramer. KEVIN KRAMER: John, thank you very much. I’m really happy to join you. JOHN SHEGERIAN: Kevin, besides knowing that you’re a Buckeye, your bio would take me the whole 23 minutes to get through it, and I don’t want to do that. I really want you first to share, though, your journey from a young man to where you are today. How did you evolve into becoming the President of Alcoa Growth Initiatives? Explain that first to our listeners, and then we’ll get into some other questions. KEVIN KRAMER: Sure. Great. No, I’m from Akron, Ohio originally, and I was born and raised there. I went off to school at the Ohio State University, and then joined the Goodyear tire and rubber company. I spent 21 years at Goodyear. I worked on a lot of different locations and operating plans for any regions running businesses working overseas, and then really had the good fortune of joining Alcoa about seven years ago, eventually, as the President of the Wheel and Structures Division. About two years ago, our CEO, Klaus Kleinfeld, had asked me to take on the role of President of Growth Initiatives. JOHN SHEGERIAN: Well, President of Growth Initiatives. We know that you represent the miracle metal, aluminum, and the amazing 123-year-old brand, Alcoa. Can you share a little bit about, though, what does that mean, President of Growth Initiatives, and what are you tasked with? KEVIN KRAMER: Sure. What really Klaus wanted me to do and the team that I represent, was really do some internal things to develop the language of growth, but just as importantly, work with the business units and make sure we’re driving organic growth and inorganic growth, but we’re tying together the great story of sustainability, and what we’re really trying to do is find great innovative ways to drive sustainable growth for Alcoa globally. JOHN SHEGERIAN: Got it. We’re talking a little bit about sustainability, and aluminum really touches so many products that we all interact with on a daily basis. Can you talk a little bit about some of the more interesting and exciting projects you’re working on, like in going green building with LEED certification? KEVIN KRAMER: Yeah. We’ve had a great business in our Kawneer business and our architectural products business with Alcoa for many years. We also supply primary metal into a lot of other companies that produce products that we may not make. In every case, with the special focus on commercial properties, we’re looking at reducing the greenhouse gas footprint. By more of an aluminum-intensive building, we can reduce that by 20%. LEED has also been very important in trying to drive the cradle to cradle methodology, so as much as we’re interested in the first application of aluminum in building construction, it’s really the unique aspects of aluminum that is infinitely recyclable. 95% of all the aluminum in commercial buildings and factories began with no downcycling. Beyond just applying the base needs, we also drive a lot of innovation. Recently, we’ve introduced a very unique and exciting product called EcoClean, and what it does is it takes building facades to a new level. JOHN SHEGERIAN: I want you to share with our listeners the amazing qualities and what it really does for our environment. KEVIN KRAMER: It’s really been a great partnership with a specialty chemical company called Toto in Japan, where they have helped us incorporate titanium dioxide in a proprietary coating process that, acting as a photocatalyst when the sun hits and when rain actually hits the façade or the exterior of the building, it actually cleans itself. Even more amazing is that EcoClean actually consumes smog. Just as a frame of reference, for a 10,000-square foot building, that would be the equivalent of planting 80 trees. So, if you look at 10 gas stations, 10 canopies, that would be about 10,000 square feet, so we have a great functional benefit of maintenance-free. They’re not using chemicals and detergents to clean the buildings, but more importantly, it’s acting to help eliminate smog. JOHN SHEGERIAN: Unbelievable. That’s going to set Alcoa apart from all your competitors for years to come, I take it. KEVIN KRAMER: We certainly hope it will. MIKE BRADY: Hey John and Kevin, can you build cars out of that stuff? KEVIN KRAMER: You might be able to, Mike. We haven’t quite gotten to that phase of the conversation, but it has come up, I can assure you. JOHN SHEGERIAN: Talk about cars a little bit, sustainability cars and the role that Alcoa plays with regards to reducing fuel consumption and other roles that aluminum takes with regards to car production and the use of cars. KEVIN KRAMER: What’s really exciting, John, about the auto industry, literally since the beginning of the industry, Alcoa has played a role, whether it’s been the aluminum blocks and heads that went into the early engines, to aluminum wheels, to other structural components. But just as a framer for our friends, in the last 30 years, there has been an annual compounded growth of about 4% more aluminum content as a percent of the weight of the vehicle. So, we’ve got, really, a great track record to go back on, both the industry and especially Alcoa. But what’s really exciting is we’re working with every automotive and commercial truck company around the world to take additional weight out, and what we’re looking for are new unique opportunities to bring both aluminum and innovation to help reduce the body weight and the mass of cars and trucks. As a frame of reference again, we have shown a number of examples, and again we’re working on many projects, where we can take as much as 40% of the body structural weight out of the vehicle. For every 10% of weight reduction, that equates to 7% improvement in fuel economy, which is significant. JOHN SHEGERIAN: And Alcoa’s working with all the greatest brands in the world, such as Ford, GM, and all of them in this type of initiative. KEVIN KRAMER: Well, we’re working with everyone, quite frankly. There isn’t an automotive OE in the world, whether they’re a true revised CAFE standards here in the U.S. or further expansion of the Euro standards, the standards in China, Japan, really everywhere where autos are being made and used, there’s very active conversations going on. JOHN SHEGERIAN: Let’s switch from cars to the other mode of transportation that we’re all very used to using now around the world, planes. I’ve heard some recent news about Alcoa’s innovation in aerospace, and again, helping planes to fly faster and with less fuel. Can you share your thoughts on that and what you’re innovating in that sector? KEVIN KRAMER: You bet. And again, in the case of automotive, we were literally there with the Wright brothers. The first engine the Wright brothers used had aluminum castings in the engine from Alcoa, so when we start from literally 1903 in Kitty Hawk and fast-forward, 95% of all the aluminum patents in the aerospace industry started with Alcoa. But while the history is nice, it’s the future that’s so exciting. When you look at fuel cost in the airline industry, year to date it’s up 49% and represents $61 billion of cost to the global airline industry. Our ability to continue to innovate new aluminum lightweight solutions, and just as importantly, integrating both the heat and plates and extrusions and fasteners, the high-performance blades and veins from our Howmet business, really provides both the airline industry and also the engine and airline manufacturers a greater way of solutions that Alcoa can provide. JOHN SHEGERIAN: I don’t want to breach any secrets or anything, but I know you recently, at the Paris Air Show, you signed a real amazing landmark deal. Do you want to share a little bit about what you signed over there? KEVIN KRAMER: Sure. We really had a great program and successful Paris Air Show with Airbus. They committed to a contract of $1 billion over the next few years, and it’s all about building lighter, stronger, more fuel-efficient, and always safety-critical products for all of our partners. We’re real proud of that contract that was secured recently in Paris. JOHN SHEGERIAN: Keeping in the transportation mode, one of your most famous, iconic brands is your Alcoa Wheel brand. You’re doing some very innovative things there with the Calculighter and other things Do you want to share a little bit about sustainability and Alcoa Wheels? KEVIN KRAMER: Sure. As much as I love all of our businesses, I must admit I probably love the wheel business just a little more. I had the good fortune of running that business for five years. Again, as I say, we can’t take credit for inventing the wheel, but we did invent the first forged wheel in Cleveland, and since 1948, we continue to drive innovation. We’ve really come out in the last couple of years with another great product called Level One, where we’re taking additional weight out, we’re adding additional strength, we’re improving the aesthetics, which do matter in the trucking industry. These wheels look great, but what it does is continue to provide better fuel economy, better heat resistance, and the thermal properties actually extend the life of tire wear. It’s infinitely recyclable. It’s really been a great program, but the Calculighter is also something we’re proud of. It’s a software program that we go to the suites and we show them the value, the long-term return on investment, of going with Alcoa forged wheels. Quite openly, John, they are more expensive initially than steel wheels, so we need to have a validation that the fleets can put in their own variables. How do they drive? How far do they go? What’s their fuel economy? Can they increase their cargo load? What is the CO2 cost, possibly, that they might incur, especially in Europe with the fleets there? So, it’s a very comprehensive software program that we let the fleets decide how can they justify and quantify the first upfront cost that’s offset with really a better return on investment long-term. JOHN SHEGERIAN: Just as a basic blocking and tackling with regards to Alcoa and aluminum wheels, you are the global leader in aluminum wheels, and the fact that aluminum is a very lightweight property, it’s all about sustainability, energy reduction, reduction of carbon footprints, and things of that such. Am I on the right track there? KEVIN KRAMER: Yeah, you sure are. We are the largest supplier, and quite frankly, there’s still a lot of additional market share we’re going to continue to grow into. There is an upfront cost, as I mentioned before, to offset, that as fuel costs go up, as regulatory mandates become tougher on whether it’s CO2 emissions or improved fuel economy, you really have a continued great story to tell. What, quite frankly, was relevant in 1948, is going to be a lot more relevant even going forward. JOHN SHEGERIAN: You know, Kevin, I travel a lot to do my regular business duties, but you have me far outstripped in terms of your travel schedule and how much you do. I know last week you were on the road again in China, and you have a lot of exciting things going on in China. We talked a little bit about planes, cars. Talk a little bit about buses and what you’re doing with Yutong bus and the China involvement. KEVIN KRAMER: Right. About three years ago, we started a program with Yutong bus, which is the world’s largest bus manufacturer, in developing a lightweight structure for them. We were successful in both designing and co-developing with them an all-aluminum structure that took approximately 44% of the weight off the bus, improved the fuel economy by 12%, and really spoke to their way to brand a sustainable product for their municipalities and their transport companies. Even after Yutong, it has extended into a company called BYD, who, in fact, I visited last week. It’s Build Your Dreams. It’s a unique company based in Shenzhen that started off as a cell phone battery company, and as I say, only in China can you make cell phone batteries and eventually start making buses. But they also have embraced their view of lightweight buses with electric buses. So, the extension of the great work we’ve done at Yutong has been further complemented at BYD. JOHN SHEGERIAN: For our listeners out there who’ve just joined us, we’re so honored to have our good friend, Kevin Kramer, on. Kevin’s the President of Growth Initiatives at Alcoa. To learn all about the amazing things that Alcoa is doing in sustainability, you can go to www.alcoa.com. Their website is robust with tons of information in all the verticals that they get to touch around the world. Kevin, let’s stay on China. I also know you’re working on some consumer electronic issues in China, and I know we have a great relationship because of consumer electronics and the great work that Alcoa is doing, and the forward thinking that Alcoa has done with regards to consumer electronic manufacturing. Share a little bit about your China experience and consumer electronics. KEVIN KRAMER: You know, we met with a couple of customers in China that both fabricate, design, and build various elements within the consumer electronics market, and again, like other customers, they’re looking for sustainable solutions. But what’s different with consumer electronics is somewhat akin to the wheels that we talked about. Aesthetics really matter. They need to have a great-looking product that clearly functions, that has great sustainability, and also thermal properties. The lighter weight, thinner aluminum solution versus other materials can actually allow, especially laptops, to run cooler, so there is added efficiencies, not just recycling, not just great looks. So, there’s a functional benefit that we’re working with, again, every major consumer electronics OEM, plus we have a unique adjacency, and that’s our fastener business. Alcoa Fastener Systems is world renowned and world class in everything that flies and in multiple industrial applications, and we have found some great ways to add value to consumer electronics because of the fastener business and the screws that actually go in the laptops and TVAs. It’s another great way to extend the conversation about Alcoa. JOHN SHEGERIAN: That is just great. I want to now go backwards in time a little bit. One of the really amazing things that you helped me participate in, through your wonderful invitation, was the Corporate Eco Forum that we both were at earlier this year, back in Washington, DC. You are a Board member there and one of the leaders at the Corporate Eco Forum. Can you share a little bit with our listeners what is the Corporate Eco Forum and what are you doing there in terms of leadership? How is that organization really helping to change the world? KEVIN KRAMER: Well, we were very fortunate. We were invited to be a founding member — it’s an invitation-only member organization — about fours ago, and it has about 75 member companies, represents 18 industries, and has combined revenues exceeding $3 trillion. It’s really a safe place to come and talk very openly in a non-competitive setting of all things relating to sustainability. It is a very, very energizing organization. I know P.J. Simmons, one of the founders, has also been on the radio program, and M.R. Rangaswami, are the two founders of the Corporate Eco Forum, and they just embody everything that makes sense in finding that great balance around both sustainability and sustainable growth, so I’ve really been fortunate to have been involved in this organization. JOHN SHEGERIAN: I’m now going to jump from China and the United States, and I know you travel the world all the time, but sustainability and Brazil seem to always go together. Everyone thinks, because of the rainforest, that Brazil is an amazingly green country with lots of sustainability going on, and I know that Alcoa has a massive footprint with regards to sustainability and the commitment in Brazil. You are the largest American-based investor in Brazil. Can you talk a little bit about your growth initiatives and all the great work you’re doing in Brazil? KEVIN KRAMER: Right. We really do have a pretty proud history of both growth and sustainable growth in Brazil that goes back close to 60 years. We’re the largest American-based investor in Brazil, almost $5 billion of investment over the last 10 years. 95% of the energy that we use is hydro, and that’s always important to us. We have very, very active social sustainability programs with $50 million invested in the last 20 years. There’s 1,900 organizations. There’s over a million hours of volunteer work, so it’s really, I think, a great example of where we have to have social responsibility. We have to have the ability to continue to expand in a responsible way, and really have a license to operate in very sensitive parts of the world, and specifically in the Amazon. We have built a bauxite mine called Juruti a number of years ago, and I’ve had the good fortune to visit Juruti to see what we’re doing to drive jobs, to improve the community, and yet also being responsible in the fact that we have a very well-established and well-recognized reforestation program, the treatment of indigenous plants and animals, the treatment of water, and we’ve been recognized both locally and globally with that kind of responsibility. JOHN SHEGERIAN: You know, you had, though, a very unique opportunity to go with the Corporate Eco Forum leadership over to Brazil and do a fascinating trip earlier this year, and one I want you to share with our listeners because I think you have a new appreciation and understanding for the rainforest. Can you share what you did and what the whole mission of the trip was about? KEVIN KRAMER: Sure. I, again, was very fortunate to have been invited, because of being on the leadership council by M.R. and P.J., to travel to Brazil for a week’s immersion, first starting in Sao Paulo, where we spent the day with Walmart in Brazil. They really have done some fabulous things with their own sustainability practices, so we got a deep dive with the Walmart team. We met government officials, NGOs, but really the trip centered around Camp 41. Camp 41 was established by Dr. Thomas Lovejoy. His first trip to the Amazon was in 1965, and he really is an inspiring person. He joined us as well on the trip, but there were eight member companies, like CA Technologies, Deutsche Bank, HP, Deloitte, just to name a few, and so we all went together, and we literally lived in the Amazon for four days and three nights, and we slept in hammocks and mosquito nets and outdoors in Camp 41. What was so amazing was literally every morning, walking, and every afternoon, through the rainforest and stopping and talking about the interrelationships between the plants and the animals and the water flows and the impact of the Amazon, not just locally, but really globally. It really heightened my appreciation of how precious the Amazon is, and it really heightened and I’ve shared with my colleagues the importance of Alcoa to not just continue our stewardship, but find other ways to even add more value as we talk to other people that have to operate sustainably in the Amazon. JOHN SHEGERIAN: You know, it’s so fascinating to me, Kevin. One of the reasons you continue to inspire me as a friend and a business colleague is because of your willingness to continue to try new experiences and learn, but the flipside of that is that you’re also a teacher. I want you to share a little bit about your teaching of the next generation, as you call it, the Sustainnovators behind this at your alma mater, Ohio State because I know you love this part of your mission and part of your professional life, that you also are a teacher. Can you just share a little bit with our listeners because we have so many young listeners who are always e-mailing us A) how to become the next Kevin Kramer, but also where do they get this knowledge from? And you’re doing great things at Ohio State, so please share some of that experience with our listeners. KEVIN KRAMER: Sure. A number of years ago, Alcoa had asked me to the executive sponsor for Ohio State, and Alcoa does this with the key universities that we recruit from for both full-time employees and interns. In working with the Fisher School of Business and meeting Christine Poon over the last few years — she’s the new Dean there — she wanted to start doing something she called a cluster program, and she wanted to focus first on sustainability in healthcare. The premise of the cluster program was to have Ohio State full-time professors teach the curriculum during the day, and then myself and a woman from Accenture would do a rotating lecture on Wednesday nights, and talk about, in our case, energy and sustainability, and why aluminum and why Alcoa, and everything that we face around the world with sustainability issues. So, I did that all last year, and I’m doing it again this year. In fact, my first lecture is coming up the second week of October. But it really has been a great experience, because not only do I get to get the feedback and the understanding of how the younger generation looks at a company like Alcoa, and quite frankly, there’s some tough conversations, but important conversations to have. They want to know how can you be a mining company and be sustainable? When you talk about recycling, why does that matter? Where do your products really do have a benefit, and how do you make that work? It was really, really great, and so I’m fortunate that Alcoa encourages a lot of us to do community service and to try to give back. We have to balance all of that with our families and our work life, but it has just been great fun. I will also add, when I first agreed to do this, I had no idea what I was doing, and I had no idea how much work was involved. But it’s been worth it. It really, really has, and hopefully I’ll be a little bit better this coming year than last year. JOHN SHEGERIAN: I’m sure you were great last year, and you’re even going to be greater plus this year. Kevin, we’re down to the last two minutes or so, and typically what I love to do here, because there are so many, as I said, young listeners that listen to this show, share a little bit about now the flipside of your journey, where you sit today, where you see the future going, not only for Alcoa, and I want you to share that, but for the next generation coming behind us, and any advice to them to become the next Kevin Kramer. What should they be doing? How should they be preparing themselves? KEVIN KRAMER: Well, I think the advice I try to provide folks, and it’s not meant to sound trite, but you need to find something that you love to do, and that’s awfully easy to say and sometimes difficult to get in your head. If you don’t love what you do, you need to do something else. The fact that we’re excited about the future of Alcoa, but also making sure that that combination of really loving what you do and understanding the responsibility you have, and in the case of Alcoa, of making great products and solving lots of problems for consumers and customers and keeping people safe, but it also goes back to the environment, and it goes back to the license to operate, to keep our facilities safe, clean, and our giving back to the community is an important combination. Big companies like Alcoa have the benefit of having something like the Alcoa Foundation, which for the last 60 years, continues to do great work, but that doesn’t mean you have to only be with a big company. All of us have a role to play, but it all boils back to you have to find something you really, really love to do. JOHN SHEGERIAN: You know, Kevin, that’s a great place to end today. I just want to say thank you again for coming on our show. You’re always welcome back here. You have always so much to teach both Mike and I and all our listeners here in the United States and around the world. For our listeners out there, to learn more about Alcoa, please go to their amazing website, www.alcoa.com. Kevin Kramer, not only are you a good friend and a sustainability leader and a sustainnovator, you are truly living proof that green is good. KEVIN KRAMER: John, thank you very much. It’s been great spending time with you, and I look forward to having another opportunity to catch up.

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