21 June 2007

Tomorrow's leading automation companies

By Jim Pinto

In the industrial automation business, you can count the amount of $1+ billion companies on the fingers of your two hands. Then count the independent companies between $100 million and $1 billion; you won’t get more than just a few. All the others who seem to be in that range are simply divisions of larger conglomerates. So, who are the leaders of tomorrow?

The problem with industrial automation is it is not one market, but rather a loose conglomeration of specialized applications and vertical market segments. You will find lots of engineers, with all kinds of gadgets and instruments—sensors, displays, recorders, and actuators—and everything else is an adjunct.

Many instrument companies start with a good idea. Once they expand beyond the natural volume of applications, they top out. There are very few requirements in automation for tens of millions of a product, even a million of anything. Because they cannot get much beyond $10-100 million, most automation companies seem to get acquired when they approach that level.

There are quite a few systems integrators. They look like they are serving big markets and can grow. But it takes good systems experience to expand beyond a home territory without running out of talent or money. Go to the Control and Information System Integrators Association (www.controlsys.org) website, and find out how many systems integrators there are beyond $10 million. Not too many.

The only growth is through new products, or new markets, on a much broader scale. For new products, it takes development talent, which is seldom replicated. (Few company founders come up with more than one good idea.) For new geographical markets, it takes international marketing experience, which few can muster.

Now things have changed. Technology is driving exponentially forward to nullify all the old rules. Growth will come from innovative marketing in the global marketplace. Expect directions to shift as old dinosaurs die and new leaders emerge.

Here are the characteristics will differentiate the leaders of tomorrow:

• Proprietary technology that generates revolutionary advantages. PLCs and DCS are a legacy of the past. Instruments, controls, software, and systems will be orders of magnitudes better than anything seen today.
• Products will develop locally for local markets, taking into account local preferences, service requirements, and pricing structures. The companies that will win will develop abilities that assess correctly the local needs for many different markets in the global arena.
• Automation customers buy solutions, not just products. The leaders of tomorrow will have high-value-added services offered through effective local service providers.

Larger automation companies will need to minimize domination of central corporate cultures and maximize responsiveness to local customer needs. Those who cannot will lose market share to those who can. Happily, there are visionaries who recognize the possibilities. Those are the people that will become the new leaders of tomorrow.

Related links:

• Automation futures–not just extrapolation of the past:
  http://listpilot.net/c/ISA/S4D0/w/isa.org/intechnews.cfm?id=5521
• Tomorrow’s Automation Leaders:
  http://www.automation.com/sitepages/pid1401.php
• The Leader of the Future
  http://www.fastcompany.com/magazine/25/heifetz.html

Behind the byline

Jim Pinto is an industry analyst and founder of Action Instruments. You can e-mail him at jim@jimpinto.com or view his writings at www.JimPinto.com. Read the Table of Contents of his book, Pinto’s Points, at www.jimpinto.com/writings/points.html.