Top-tier automation growth paradigms
In past writings I have described the five phases of growth, from startups to $10 billion annual revenues. This particular discussion relates primarily to the fifth stage — growth to $10 billion and beyond — which is not well understood.
Once a company gets beyond about $1 billion, it is very difficult to continue to generate organic growth. At $5 billion, growth rates of at least 10 per cent are required to keep stock markets happy; this means $500 million of increased revenue each year. That’s not easy to achieve in relatively slow growth industrial markets.
Growth by acquisition seems the only alternative. But acquisitions are fraught with problems. The larger the acquisition, the more the danger; one slip and earnings may collapse, causing the acquirer’s stock to dive, and making it a buyout target.
Primarily for this reason, the $1 billion to $5 billion automation majors are vulnerable. They must seek larger consolidations, or stagnate. Maintaining market focus is good during growth periods, but it’s the wrong strategy when the market is flat or declining. Phase five companies often get stuck in the wrong paradigm.
Most of the global automation leaders are parts of companies that are well beyond $20 billion in global sales. At about $114 billion, Siemens is well diversified — energy, industrial and healthcare. Honeywell is $36 billion and Process Systems represents less than 10 per cent of total revenue. Emerson is $25 billion; Emerson Process Management is about 25 per cent of the total. At $33 billion, ABB has eliminated too-broad diversification, and is now split between automation and power.
The only remaining top-tier independents, Rockwell Automation and Invensys, have eliminated diversification over the past few years in order to focus on automation. In declining markets, that is the wrong paradigm. Both companies are stuck seeking organic growth at a company size that makes that difficult. Small acquisitions are simply palliatives.
To grow beyond $5 billion and reach the $10 billion-plus range, ‘bet-the-farm’ decisions must be made. In order to achieve the growth that markets expect, Rockwell and Invensys will either make a major acquisition or themselves be acquired.
Wireless growth and standards
Industrial Wireless is shaping up to generate big new markets, stimulating visions beyond past slow-growth automation trends.
Press releases continue to centre on selected major customers and applications that demonstrate strong viability and fast return on investment. But behind the scenes, a buzzing beehive of brisk brainstorming continues to look for breakthroughs.
The standards committees remain focused on the ‘conservative’ nature of industrial markets, emphasising security and reliability of wireless networks that could replace supposedly secure hard-wired systems. In my opinion, that’s the tail wagging the dog. In fact, the biggest industrial markets remain hidden in plain sight.
There are huge varieties and numbers of things that industrial applications want and need to monitor. Many were previously not accessible because costs were prohibitive – the ‘if only we had this’ measurements. Then there are the vast previously ‘un-measurable’ categories, the unreliable ‘rat’s nests’ in difficult environments.
Millions of unmonitored measurements are waiting to connect wirelessly to industrial automation networks. While wireless monitoring keeps getting cheaper and easier, wired systems keep getting more expensive and difficult to install,
With truly step-change technology like wireless, there’ll eventually be all kinds of new markets that were not initially considered. You don’t know what they are and you can’t think them up. That’s the conundrum.
ISA – International Society of Automation
With strong management, enlightened volunteer leadership and new focus on international automation, ISA is headed for significant new growth and success. Today, one can sense a spirit of new drive and determination within the Society, making it much more than it has been for several years.
Executive director Pat Gouhin joined in January 2006, experienced with the dynamics of volunteer-driven organisations, bringing a new spirit of leadership. Pat Gouhin has clearly developed a strong relationship with the volunteer chain-of-command, which includes past president Steve Huffman and current president Kim Miller Dunn. This group has a consistent vision and leads a unified executive committee and executive board that are focused on the future.
ISA was formed in 1945 as the Instrument Society of America, and the name was changed in 2000 to Instrumentation, Systems and Automation Society. In my opinion, this name was an uninspired, lack-luster acronym which did nothing to promote the society’s ambitions as an international organisation and its championship for the Automation profession.
As a symbol of the new expanded focus, it is anticipated that, subject to review by society delegates, the name will be changed to International Society of Automation. This name reflects two important differences in focus: ‘International’ and ‘Automation’.
While originally an ‘instrumentation’ society, ISA is now focused on the broader aspects of automation and aims to be a catalyst for creation and promotion of the Automation Profession of the future, marketing the society’s core competencies to automation professionals around the world.
Total ISA membership is still about 30,000. The original name was reflected in membership being overwhelmingly American — 65 per cent US, 10 per cent Canada. If ISA is to truly be a successful global organisation the membership percentages should be the inverse of the current ratio, about 75 per cent from outside North America.
If one makes the reasonable assumption that membership has stabilised in North America, then international membership should generate growth of at least 300 per cent, to over 100,000 members. Stimulated and rejuvenated by its new name, ISA expects and intends to expand world membership and become truly ‘international’.
To the many ISA delegates that have been friends and associates over many years, please support the name change. Help make ISA the International Society of Automation.
Jim Pinto is an industry analyst and commentator based in the United States. He can be contacted on jim@jimpinto.com, or visit www.jimpinto.com