JimPinto.com - Connections for Growth & Success
No. 109 : January 20, 2003
Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.
- The world's conscience awakens
- Automation commentary:
- When will Eaton buy Rockwell?
- Emerson: Strong management drives performance
- Yokogawa strategy: Good products + low price
- Peter Drucker book: Managing in the Next Society
- Pinto's List - 10 Technologies for Automation Success
- New Year's thoughts from Dick Morley
- The quest for continued growth - to what end?
- Insights on Groupe Schneider in Germany
The world's conscience awakens
Heading to war with Iraq is a grave mistake. It can only lead
to catastrophic consequences around the world. There must be
other ways to eliminate Saddam Hussein, if that is the objective.
Bombing Iraq, just like bombing Afghanistan, is not going to
protect us from further terrorist attacks; indeed, it will inflame
millions more around the world against us and guarantee further
terrorism. There are a dozen more countries that could erupt
into violence and precipitate an ever-larger global war.
War is not moral strength. It is violence and destructive brutality.
It is a symptom of human selfishness and fear. It can and must be
abolished by a change of spirit. The US must be defined not by the
wars we start, but by the peace we embrace.
Thousands of protesters around the world took to the streets to
demonstrate against war in Iraq. The biggest demonstrations took
place in the US, UK, Japan, Russia, Germany and Pakistan, all
protesting the buildup of US military forces in the Gulf region.
At the two largest peace rallies (Washington, DC and San Francisco)
the speakers were from many different groups - international peace
activists, religious leaders, members of Congress, actors and
At least tens of thousands of people rallied at the Mall in Washington
and followed with a march through the streets of the capital. The
"silent majority" is starting to recognize that the right questions
need to be asked, and shouted out until answers are given.
Peace is the natural and sincere wish of every normal man and woman,
something that comes equally from the heart and the mind. The world's
conscience is awakening to make a universal appeal in this hour of
the world's dilemma.
War is not inevitable and we must not acquiesce to it. Every living,
thinking human being has a duty to do what they can to STOP it!
I have one simply thought-of-the-day for you:
"What does it take for MY conscience to awaken,
for ME to break my routine and DO something?"
CNN - Anti-war protests sweep the world
The world's conscience
Make Noise Now: War is Not Inevitable!
When will Eaton buy Rockwell?
We had previously announced that Eaton would buy Rockwell sometime
this month. Still, a week or so remains.
Eaton recently announced the appointment of Tom Gross (a 20 yr.
Rockwell veteran) to the newly created position of VP, Eaton Business
System, effective Jan. 6, 2003, reporting directly to Alex (Sandy)
Cutler, Eaton Chairman and CEO, located in Cleveland. This made some
people even more certain that Eaton was moving to acquire Rockwell.
"This appointment has got acquisition written all over
it! If Tom Gross has made this jump from Danaher, where he sat on the
board and was instrumental in the creation of their motion division,
you can feel pretty certain he's been brought on to provide the
valuable insight needed to run Rockwell, along with the other
ex-Rockwell high-ups that call now Cutler-Hammer home."
Then came a Rockwell weblog:
"The Eaton deal is going to happen -
but not until June 2003, in that the tax liability is in effect from
the original Collins sale date, which according to Rockwell insiders
was final in June 2002. So, the deal will go through in June 2003."
This brought the response:
"If indeed the deal won't be done till the
date you suggest, then Eaton would not have brought Tom Gross on board
six months earlier than needed. Tom doesn't move until all the chips
are in place. If they are not, he would not have moved. It's that simple."
As of the time this eNews was clicked off to you, I have not had any
confirmation (or denial) from either Eaton or Rockwell management.
For acquisitions like this, nobody from either side wants to talk.
They keep stalling - saying it may happen, it's possible, etc.
And then boom - the announcement is made. So, stay tuned.....
Emerson - strong management drives performance
In a flat market, Emerson continues to show good profit, and even some
growth. With revenue of $13.8b, profit 7.7% (operating margin 11.3%),
consistent growth rate of 5-7% and current market-cap of $21.4b, this
is consistently the best-managed industrial automation leader.
The primary segments of Emerson's business are: Process Control 24%;
Industrial Automation 18%; Appliance & tools 24%; Electronics &
Telecomm 18%; HVAC 18%. The process controls & industrial automation
segments are expected to decline slightly (2-3%) during the next year
(2003) though they will remain profitable (about 11%) - a sign of
strong management. In an uncertain and even turbulent economy,
where all others are showing poor performance, Emerson continues
to demonstrate excellent strategic planning strengths and strong
At an Emerson meeting in in St Louis on January 16, 03 to review
Q1 03 (fiscal year Sept.) analysts came away fairly impressed.
In the near term, Emerson continues to focus on restructuring, margin
improvement and improving ROTC (return on total capital).
Highlights of the analysts meeting:
- Emerson remains very cautious on the economic outlook and expects minimal revenue growth in 2003.
- Transforming from components to solutions supplier.
- With no economic recovery, Emerson remains focused on "self-help" for growth. During 2003, profit will be driven by restructuring, new products, and re-location to low-cost countries.
- Aggressive investment continues despite the downturn. This will bring gains over competitors (many are distressed) when the recovery eventually comes.
- Target 5-7% organic growth.
- Strategic themes - technology investment to drive growth, driving sales by creating more value for the customer.
- Increasing proportion of global manufacturing base will be in low cost countries, especially China.
Emerson was run for 27 years by Chuck Knight, legendary for his tough
management style (striking terror into managers who were not prepared;
he admits he was "carried away" sometimes). But he is most remembered
for his leadership in maintaining Emerson's remarkable record of 43
straight years of earnings increases. At 66, he remains Chairman and
has handed over the CEO reins to David Farr, 47, previously COO, 22
years with Emerson.
Emerson is the quintessential management-driven company. Key people
always have direct operating background and hands-on experience.
David Farr has been VP planning & development, president of the
Ridge Tool subsidiary, group VP for the industrial components and
equipment business, president of Emerson Electric Asia-Pacific,
CEO of Emerson's Astec joint venture and executive VP for the process
control business. He's a good manager, not just a bean-counter.
Many people have asked me, "Emerson is strong - so why don't they buy
Rockwell, or Honeywell IS, or Foxboro?"
My response, "Strategic business management. Emerson is not interested
in growth for its own sake. They divest when profit is poor (eg:
Intellution). They don't buy into declining businesses or markets,
and only acquire pieces that represent a strategic fit."
Emerson comfortable with estimates
Send me your Emerson weblog comments
Yokogawa strategy: Good products + low price
With revenues of about $ 2.8b (automation about 50% of that) Yokogawa
is one of the automation majors. Although there is a weblog on
Yokogawa and the Japanese automation companies (Omron, etc.) and
we have already published some articles on the company (see weblinks
below), there have been many requests for Pinto commentary - beyond
the polite, parroting press releases that proliferate in the trade
About 70% of Yokogawa's total revenues are from Japan. Market segments
are 50% industrial automation, 20% test & measurement (including a
recent acquisition of Ando Electric), 10% information processing and
20% miscellaneous. With slumping demand in domestic Japanese markets,
the company shows slim growth in foreign markets, though this seems to
be generated through significant price reductions, contributing to
losses (Y/E March 03). Yokogawa's market cap is $ 1.6b, about 60% of
sales; its poor performance would not support its stock price in any
other market than Japan.
Here are some objective Pinto business comments:
Yokogawa's products are good, especially the field instruments; but
in a flat market there is little or no real product differentiation.
So, Yokogawa's strategy seems to be to market penetration through
low-price. In selected target geographies (including the US) they cut
prices (often as much as 75-80% off list), and certainly not based on
lower costs. Their aggressive pricing is far below the level of any US
or European competitors, who simply cannot offer comparable discounts.
For selected products, this makes operating profits woefully
inadequate and ruins the market.
Recall that America was once the leading supplier of automotive,
steel, radios, television sets, shoes etc. The reputedly
'long-sighted' Japanese approach then (and now) was (and is) to
come in low, eliminate the competition and then slowly raise prices.
Historically, Japanese tactics have been helped by two factors:
It must be recognized that it is illegal to sell imports below cost -
that's called "dumping"! However, punitive action is always difficult
to accomplish and slow in coming; it seems as if the complaints are
simply about superior Japanese prowess. The steel industry was the
only industry that ever got some action over price-dumping, but it
was too little and too late; the steel business was already destroyed
for US competitors.
- The lower profit expectations of Japanese stock holders and banks,
with tolerance for losses - even extended losses. The Japanese
government supports these tactics as long-term business wisdom, to
counteract (in their view) American business short-sightedness.
- There is a price differential between products sold in Japan vs.
the price outside Japan. For example, it seems clear that control and
measurement products sold by Yokogawa in Japan have been priced as
much as 2-3 time higher than those same products sold outside Japan.
This price difference has been reduced somewhat because Japan itself
is in an economic slump and the safety-net of high priced domestic
sales has dwindled.
Yokogawa will continue to be a major automation player, though their
strategy is flawed. They still suffer from the outdated and mistaken
perception that good products and low pricing is all that is needed.
In a fast-moving new-age environment, that may be a very bad mistake.
Industrial Automation players - Yokogawa and others
Yokogawa's home page
Weblog - Yokogawa & the Japanese players
Peter Drucker book: Managing in the Next Society
Peter Drucker is 93 - born 1909. Since his first book ("The End of
Economic Man", 1939) he has been recognized as the world's foremost
management guru. Many of the 30 or so books he has written on
management, economics and trends in society, are still best-sellers
in their umpteenth printings.
In Managing in the Next Society, perhaps his last book ever, Peter
Drucker covers technology and society trends, emerging industries,
management and sociological changes. He tracks US business movement
away from manufacturing to service and distribution, with new
discussions on emerging biotechnology and knowledge management.
Drucker provides valuable insights into a fast-changing society,
and his depth and wisdom shine through.
The book is a collection of interviews and essays, all of which have
appeared within the past few years in well-known journals and
magazines. It's an easy read - like talking personally with the guru
himself. Read it to gain a broad perspective on the changes that are
flooding over this new century.
Drucker's other recent book (Managing in the 21st Century, 2000)
includes new and revolutionary ideas and perspectives on the central
management issues of the new century. In that book he incisive,
challenging and mind-stretching, forward-looking and forward thinking,
more than ever. This book is for those who wish to prepare themselves
for today's tough challenges, to be the new leaders of tomorrow.
If you are in management of any kind, you must read this book!
You might also like to listen to the audio-cassettes that are based
on these books. I listened to Drucker's Managing in the 21st Century
tapes repeating in my car for a month, which helped me to give some of
my best speeches on the subject.
Business 2.0 - Peter Drucker interview
Drucker - Managing in the Next Society
Drucker - Management Challenges for the 21st Century
Pinto's List: 10 new technologies for industrial automation
Most new technologies originate from developments in the military
(low volume, high cost) or commercial (high volume, low cost) markets.
For industrial automation markets, products typically involve medium
volume and medium cost. Hence, automation products should take
advantage of new technology from both military and commercial markets
to utilize in industrial applications.
From a review of various forecasts, here is my list of 10 technologies
that industrial automation products and systems could and should
InTech News: Technologies to watch in 2003
- Wireless networks: Lots of small, cheap, low-power wireless devices proliferating in the plant and connecting all traditional "field" instruments.
- MEMS-tiny, low-cost, low-power sensors: Battery-powered sensors that (coupled with wireless networks) monitor products, processes, machines, and almost everything else in the factory.
- Wireless PDAs: For everything in the factory, plant, or process - communications, calibration, diagnostics, maintenance, windows to the plant network.
- RFID: Physical items with cheap chip labels you can read from up to 60 feet away, used for all kinds of factory ID, inventory tracking, logistics.
- Robotics and mechatronics: Labor-saving mechanisms for the factory and plant environments, cheaper and more affordable.
- Displays: More LCD displays in automation products of all kinds for easier programming and user diagnostics; built-in HMI.
- Lighting: LEDs producing more and purer light, changing color, using a tenth as much power, and lasting thousands of times longer than incandescent lights. Many more applications in sensors, actuators, and a variety of automation products.
- Telematics: Some automobile gadgets extending to automation products in the factory and process plant.
- Peer-to-peer and grid computing: Sharing unused computing power, significant growth of peer-to-peer I/O.
- Solar power: Organic compounds that mix up and spread out like paint-used in tank farms and outdoor equipment.
Information Week's Outlook 2003
Red Herring's Top Ten Trends 2003
Most people know me as a wild optimist. My "best I can muster"
New Year wish was uncharacteristically negative, and many friends
rallied to point out the good things that are happening.
I'd like to share with you the response from someone whose
optimism and insights have helped me greatly over the years -
my friend Dick Morley [firstname.lastname@example.org]:
"It is not what others do, but what we ourselves do, that counts.
We're alive, I've plowed some snow. I am happy to have three
9-year-old children circling the barn and staying with us, one
of them for a week over the holidays. I will continue to support
children, start companies, make jobs, spread the word about
technology benefits and try to make the technology beneficial.
Rather than complain, let's change the world!
Neil Taylor [email@example.com] gave us his view of these uncertain
"History says that all of the ages could be looked at negatively,
but evil does not persist. The natural corrective process works.
The fascist liberals and the ultra conservatives are both extremes
that seem to have circled around to meet each other.
"I tell people I'm a Harley guy and they always think of me as a
'Hell's Angel'. In reality, most Harley guys are engineers and
accountants. One wonders whether a lawyers convention is more
dangerous than a meeting of motorcycle riders. I would choose the
bike guys over the lawyers anytime. The Harley web site used to sell
a rifle sheath for your motorcycle - it gave the illusion of power.
Now, they have a laptop sheath. I have one, and it fits on my bike.
That's where the power lies today."
"Your 'philosopher's corner' message was interesting, this time
particularly. I just went with my daughter to see and listen to Dr.
http://www.davidsuzuki.org, talking last night
with a message not unlike yours.
I have indeed received some commentary on Groupe Schneider and the
weblog is still brewing. Some people pointed out that I really do
not have enough background knowledge on the French group, which I
admit. Steve Jennings [firstname.lastname@example.org] from Rexroth
Indramat in Germany sent these valuable insights:
"Something that I have been feeling for a long time is the
un-sustainability of our social and economic model. The myth of the
our business world is that we should work hard, make as much money
as we can, accumulate stuff and then retire to enjoy it. During
retirement I guess we are supposed to regain our damaged health,
after working too hard, and then reconnect with family and friends?
"The premise of the economy is that a country had to grow each and
every year to be successful. In the chase for GDP growth, not much
concern is given now to physical and mental health of the population.
Have any of our leaders figured out that we can't have continuous
growth of economy, population and manufactured goods for much longer?
I have a feeling that the general population is indeed beginning
to understand that."
"The Schneider operation in Germany (the old AEG) has been going
nowhere for a few years now. It has reached such a low ebb that they
don't even release the sales figures to the internal middle management
anymore. Schneider doesn't want to be seen to be pulling out of the
world's third biggest automation market, so they just carry on
carrying on. The question is: How long can the French organization
finance the failed German one?
Send me your Schneider weblog comments
"Schneider bought SIG-Positec for a wildly-over-the-top-price
recently, in an attempt to get some motors & drives and create some
internal competition. Unfortunately, SIG-Positec (Berger Lahr) is a
stepper motor manufacturer with no servo business worth mentioning,
no controls business and no market outside Germany. So there is no
fit. Those responsible for orchestrating the debacle were quickly
promoted to senior positions in the USA. If you think that the
Germans are bad at integrating companies, then you should take
a look at the French!
"Schneider may be in a strong position in switchgear and automation
in France, but that's it. Dick Caro is correct in his analysis of the
automation industry; it is looking old and tired, and suffers from an
overwhelming surplus of mediocre management. The whole industry looks
like a cash cow for senior management. All the good guys have gone to
where the growth is - telecomms."
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