By : Jim Pinto,
By : Jim Pinto,
Large companies seem unable to generate organic growth, leading to mergers and acquisitions in related areas with accompanying divestiture or elimination of duplication. I have already forecasted that the industry Big-10 will reduce to the Big-5 - this is the year in which that prediction will be realized.
Who will survive? How will they thrive? Here I present my outlook for industrial automation at the start of the new millennium.
This article was first published in
The new business environmentIn the fast moving decade ahead, the significant competitive value today is Time. With accelerating technology, many products are obsolete within months and market share is going to smaller and more agile competitors. Larger companies are under pressure with declining sales and profit causing a wave of mergers and consolidation that will continue to change the landscape.
Almost universal business e-mail provides colleagues, channels and customers with closeness that breeds startling new effectiveness in the global village. The old, bulky snail-mail catalog is becoming obsolete and most companies are now providing access to product and pricing information on the web, with many going beyond to allow on-line purchasing and true B2B interaction. But still, the specialized requirements of industrial automation seem to demand personal relationships beyond eBusiness mechanics.
The waves of changeThe new age has arrived with a broad-based recognition that business is different today. The waves of change brought fear at first - the initial “deer in the headlights” syndrome. But, this has given way to healthy action by survivors who have recognized that business in the industrial environment has indeed changed. But, many are still uncertain about the directions of change.
Dotcoms : fizzle not sizzleAt the turn of the century, dotcoms were the in-thing and all the large automation companies rushed in to finance their own version of eBusiness and B2B marketing. Distributors and Sales Representatives became nervous, and even paranoid, about the encroachment on their turf. Most were pacified with token commissions or discounts on web-sales. However, there was a clear, but unspoken, understanding that if direct sales growth came, disintermediation would occur.
The real benefits - new customers and new sales growth - failed to emerge. As a result automation dotcoms have mostly fizzled. The promising new start-up, IndustrialVortex.com failed to raise venture financing and simply pulled the plug. VerticalNet, the promising B2B star, is trying quickly to reposition itself as a software vendor. SourceAlliance.com, with backing from Rockwell, has been forced into budgetary cutbacks to match sales results that are consistently behind rosy expectations. B2B startups by large end-users like Dupont (Industria.com) are faltering with flatness. Honeywell, Foxboro and all the industrial automation majors hastened to open new web store-fronts - all were underwhelmed.
Everyone keeps wondering - if Cisco and Dell can generate significant sales through the Internet, why can’t we? Perhaps they forget that industrial automation has several inhibitors - low volume, lack of market growth and highly customized products and systems.
Growth by acquisition is elusiveIn the fast moving new environment, large companies seem unable to move rapidly enough. Bureaucratic project management does not stimulate innovation and creativity. With insufficient organic growth, the industry majors are all seeking to acquire growth, but even that is elusive - few can match the CISCO track-record of retaining talent after acquisition. Industrial automation acquirers show miserable results, by comparison.
Segment spin-offsIn recent months many are seeking to spin off dissimilar businesses, perhaps to generate higher market value for each segment, but also to give the more-focused pieces better acquisition potential. Rockwell is spinning-off Collins (Avionics) from its base industrial automation business centered around Allen-Bradley, making the industrial segment more acquirable by someone like Siemens. Similarly, Invensys is spinning off a growth segment - its Power Systems Group - hoping to generate the value that eludes its primary stock, but at the same time decreasing the value of the remaining industrial automation segment and making it more vulnerable to acquisition.
Consolidation the only alternativeUnable to generate organic growth, the industrial automation majors are all flailing around, looking for consolidations which generates short-term results through divestment of duplicated resources.
In this environment, Honeywell was acquired by GE, which will now split the segments and sell off the low-growth unwanted pieces. We wait to see whether the industrial automation & controls (IAC) business survives - the fallout will occur within the next few months. Similarly, look for Invensys to be acquired by Tyco, while Rockwell (Allen-Bradley) is acquired by Siemens, or Emerson. Substitute the names of the majors and the game is still the same - consolidation in a non-growth business.
At the lower levels, companies like Nematron keep merging and consolidating with no real growth results. They will eventually be acquired unwisely by a mid-sized mini-conglomerate like Ametek or Fairey. Or perhaps, like Xycom, they might find a foreign buyer to buy the pig-in-a-poke.
Be first, run fast!The companies that are succeeding are doing so by creating and structuring their own markets, offering customers innovative new ways to receive value. E-commerce provides only the technological means, the delivery mechanism - the good companies are using it creatively, in ways that generate new value for all the parties involved.
The successful companies of tomorrow are not simply providers of traditional goods and services. Electronically linked networks of supplier and sales-channel alliances - the "infomediaries" - are rendering traditional manufacturing and marketing obsolete. The winners are those who create innovative new transactions for their customers and make them come back to a “sticky” business portal. Those that deliver the best total package will prosper.
With poetic privilege :
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