Top-tier automation growth paradigms
In past writings I have described the five phases of growth, from start-ups 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% are required to keep stock markets happy; this means $500 million of increased revenue each year. That is 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 is the wrong strategy when the market is flat or declining. Phase 5 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% of total revenue. Emerson is $25 billion; Emerson Process Management is about 25% 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.
Bailout nation
Wall Street’s credit catastrophe has dealt America’s status as the global leader a serious blow.
All this time, brazenly and in plain sight, greedy Wall Street financiers have been selling and re-selling loans to each other, with immediate income and bonuses linked to each transaction. The failed financial giants had debt/assets leverage of more than 35:1 – something even Superman cannot sustain. The dominoes had inevitably to fall.
Most top-level executives (Fannie, Freddie and all the rest) have exit contracts (golden parachutes) which will withstand any legal challenge. So, as they get fired, they wll walk away with millions. Congress balks, but cannot do anything about it, short of new laws which will take years to pass. Meanwhile, middle-class America foots the bill.
American bankers have been begging for new capital from sovereign wealth funds in Asia and the MidEast. The Big Three automakers are lobbying for federal loan guarantees. The 'ownership society' has become the 'bailout nation'.
Just weeks ago, even while Freddie and Fannie and Lehman and AIG were being bailed out in quick succession, G.W. Bush kept insisting, “America’s fundamentals are sound”. Now he threatens 'dire consequences' if something is not done immediately. What do the 30% of Americans who still think he is doing a good job say about this?
The next president of the United States has a tough job on his hands. One wonders what he can do, after all the empty election promises. The solutions will not be delicate; hammers and shovels will be needed to rebuild America’s broken capital infrastructure.
Now a populist backlash will change America’s political climate. Inflamed by the financial crisis and bailouts, a form of class warfare will haunt business leaders for years to come.
Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. His popular e-mail newsletter, JimPinto.com eNews, is widely read (with direct circulation of about 7000 and web-readership of two to three times that number). His areas of interest are technology futures, marketing and business strategies for a fast-changing environment, and industrial automation with a slant towards technology trends.
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