JimPinto.com - Connections for Growth & Success™
No. 54 : July 27, 2001

Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.
Stay e-tuned....

  • ABB in trouble - big layoffs
  • Invensys after Yurko
  • Automation in decline
  • eFeedback:
    • Clarifying Pinto Agenda
    • "Project Unity" delayed or dead
    • GE-Fanuc : Cimplicity Growth

All you technology-trends mavens, please bear with me. Lots of time-sensitive news-and-view in industrial automation in this issue of eNews.

Because our eNews list is growing rapidly, I'll be putting out a feedback form shortly. Is your bias for industrial-automation news? Or, technology trends? Or both?

Meantime, feel free to send email with your preferences. Click Jim@JimPinto.com

ABB in trouble - big layoffs

ABB has just posted a 76% drop in first-half profit. The Swiss-Swedish group has announced that it will slash 7% of its 163,000 global payroll (12,000 people) over the next 18 months. This will bring annual savings of $ 500m ($40K average per employee).

Management has "not yet finalized where the cuts will be" - which probably makes worldwide employees feel like they are ALL being considered. ABB is "hoping to achieve a third of the job reductions by natural wastage"; does that mean when the good people (the ones who can easily find other jobs) leave? Will the cuts (of those who don't leave voluntarily) come at the bottom, middle or top?

Recently appointed ABB president and CEO Jörgen Centerman said the group is scaling back its performance targets, cutting its earnings expectations. Centermann says sensibly, "I want to break away from the image of ABB having high targets and not meeting them."

The mounting problems at ABB have some investors wondering whether the electrical-engineering giant - long considered one of Europe's best-run companies - has lost its way. ABB stock has fallen more than 50% over the past year and the bad news has kept the shares sliding in recent months, despite a stock-buyback program.

Analysts have been speculating recently that ABB would cut jobs after rivals such as Emerson Electric Co. and Rockwell International Corp. announced layoffs and lowered profit forecasts due to the slowing world economy.

One ardent eNews reader asked, "Has the whole Automation Industry gone mad? Or did all the CEO's go to the same "How to restructure" seminar earlier in the year?"

Pinto Prognostications :

ABB is a good company, the second-largest in industrial automation (after Siemens) struggling with decline of the worldwide automation business. As well, they are digesting Elsag Bailey and other relatively unhealthy previous acquisitions, made unwisely without a balanced market perspective.

They are now paying the piper for outdated business planning methods and marketing vision with a rear-view mirror.

Click Previous eNews when Centermann was appointed: ABB blahs

Click Guardian UK - July 25, 2001: ABB to Cull UK factories

Click July 24, 2001 : The Wall Street Journal Online

Invensys after Yurko

After the Wednesday (July 25, 2001) Invensys annual meeting, The UK Times wrote (summarized here) - read the complete article for yourself.

Either the global economic scene is worsening at an alarming rate, or some executives are clutching at the R-word as a justification for abysmal performance on their part.

Invensys profits are a 30% less than forecasted just 3 months ago, and the fact that the CEO is resigning indicates an acceptance that the short-fall may indeed be Invensys’s own making. Although that was not what Chairman Marshall or the departing Allen Yurko were saying.

As if the merger of Siebe and BTR had not been unfortunate enough, bundling Baan into the group compounded the problems. It may be that within Invensys there is a strong, specialist automation business just waiting to storm ahead as soon as the market improves, but Yurko failed to convince anyone of that.

The new CEO Rick Haythornthwaite (45) was introduced to Marshall by Yurko himself, just two weeks ago - there was no waiting-line for the role. The remuneration package that he is still negotiating will hopefully tie his rewards firmly into what he can achieve. Sticking to a one-year contract will be evidence of his determination to avoid any charge of "fat-cattery".

How can Haythornthwaite realize some shareholder value out of this sorry tale? A break-up of the business would certainly be tempting were it not for the fact that prices at the moment would be of the knacker’s yard variety. So he will try to impose new leadership and focus, while the company goes through another miserable round of job cuts.

Yurko, although he leaves "without a cheque to ease his ignominious departure", is hardly being consigned to poverty. A pension of close to $500,000 a year for a man not yet 50 should provide a cushion of comfort. If he opted to take a cash payment instead, he could be banking more than $7 million - not bad for eight years’ work and the achievement of reducing Siebe, once one of the great names in British engineering, to the muddle that is now Invensys.

Pinto Prognostications:

"Lord Marshall of Knightsbridge" who chaired the birth of Invensys, remains as chairman. One wonders how long he will continue to oversee this debacle? It will be interesting to see how he exits. If he had any class, he'd recognize the part he played in the whole ignominious BTR-Siebe linkup and remove himself. But, he is now busy pointing the finger at departing Yurko, so perhaps that is too much to ask....

Invensys is in bad shape. Most analysts think the net asset value is far below the already low stock. They expect Yurko to have taken a lot of financial short-cuts, which the new CEO will quickly disclaim, to make himself look "clean".

The major controls/automation companies are all interested - Emerson, Tyco, Siemens, Schneider are capable of doing a deal of this size, but they will NOT want all of Invensys, won't want to be doing the divesting of unwanted pieces, and won't want to take the write-offs.

So, the only acquirers left are the "vultures" - the people who will buy Invensys for the assets, and sell off piecemeal. Alchemy (who bought ICS, failed bid for British Rover) is on the list - but there are others. And, as the UK Times suggested, they'll pay "knacker's yard" prices.

Click Read for yourself : The Times (UK) dated July 25, 2001

Click Read the complete Invensys background analysis

Automation in decline

Yes, the world is in a recession, and industrial automation is in decline. But, this is where well-managed companies show their worth.

Good managers (in any type of business) are conservative with their resources and do NOT box themselves in by making fancy forecasts that they cannot meet. A modicum of marketing vision would have seen this decline coming and allowed balanced managers to act wisely, starting years ago.

There are cutters and there are builder; cutters are typically financial wizards (like Allen Yurko of Invensys) with a good memory for facts, figures and faces, who immediately tune in to stupidity and waste. But, there is just so much waste you can cut, before you run out and start cutting into the bone. A financially-orientated cutter does not invest in R&D for the long-haul; compensation and bonus - and the kudos that come with "instant results" - cannot wait for a fuzzy, long-haul payback.

You cannot cut your way out of a decline - you need to build, with a different set of tools : employee ownership (to keep the best people); a sensible level of R&D to generate new products for a new age; conservative financial management accruals which anticipate a worst-case scenario with a realistic plan; no short-run financial fiddling; long-haul commitment to survival and success.

Those who know me, know that I am naturally a positive and enthusiastic person, not one given to nay-saying and doomsday forecasting. My published articles on "Automation in Decline" were intended to ring the bell on changes that were occurring, starting years ago. I listed 6 specific, important strategic factors that have changed over the past decade, causing the automation market to decline. Not wishing to remain negative, I also offered positive perspectives for growth and success - new technology, new markets, new marketing and sales methods in a new millennium.

I believe - I KNOW - that management in Emerson, Siemens, Schneider, TYCO, ABB and other excellent IA companies have read my stuff. I have discussed (personally and via email) these things with them; indeed, some of the ideas have come out of those discussions. But, the strategic marketing people at some of the troubled companies have been strangely silent. It's almost like a radar - one can actually sniff out stupidity by the lack of noise.....

Someone told me recently - Marketing is talking with your customers; strategic marketing is talking with your customers' customers. Sadly, in the industrial automation business, there is very little strategic marketing being done.

You might like to review some of my past articles.

Click Why is industrial automation declining?

Click The Urge to Merge : 2000

Click Companies in Trouble

Click 2001: Industrial Automation Outlook


My friend Jack Grenard [Jgrenard@aol.com] experienced editorial guru, suggested :
    "Jim, some of your readers may know of your previous connection with Invensys through Eurotherm. You might want to clarify your present status. Does either company owe you money? Did you get stuck with a lot of Invensys stock? These things might be seen as coloring your comments, but - whatever it is - I think you owe it to your readers to make it clear."
Pinto clarifies :

I was founder and CEO of ACTION Instruments for 30 years. I sold it to publicly-held Eurotherm (UK) in March '98. This was my choice - I knew and respected the people and the company for many years, and would have taken an active role. In July '98 - just a few months later - Eurotherm (then about $350m annual-sales) was acquired by (then) $ 6b Invensys - NOT my choice.

Interestingly enough, during my time at Action after acquisition, I (personally) had no contact with anyone at Invensys, or gained any inside-knowledge of the company whatsoever. Indeed, I have had more contact and exchange with other major companies. I don't own any stock in Invensys, my 3-year employment agreement was completed in March '01, and obligations on both sides have been fulfilled, with goodwill and friendship.

Of course, over my many years in industrial automation, I have developed many contacts at Foxboro, Eurotherm, Wonderware, APV and other companies now part of Invensys, as I have at Emerson, Honeywell, Rockwell, ABB and others in the industry. I continue to develop and cherish the friendships that have developed over the years.

I have received a lotttt of feedback from Invensys employees - with appreciation for my reporting of items that they would never otherwise be told. Apparently, eNews has a "cluetrain" (forwarded email) circulation of many, many times its growing subscriber list.

One Invensys IT employee asked :

    "So now that Yurko is heading out, do you think that PROJECT UNITY will be affected by the change of leadership at Invensys? This project seemed to be Yurko's pet project, supported by all his senior management. It would seem that if Invensys is to be sold off as pieces, sensible management would take a different strategy on outsourcing to IBM or anyone else."
Pinto Pointer :

I have heard directly from senior people within Invensys (post Yurko) :

  1. The IBM contract has not yet been signed, and will NOT be signed;
  2. The BAAN people are pleased, of course, about the BAAN software push within Invensys companies, but they realize that this will probably become more of a sales drive, rather than a demand;
  3. The outsourcing programs (Deloitte & Touche, etc.) will be "placed on hold" indefinitely (which I take to mean "cancelled").
Gene Post [Gene.Post@gefanuc.com] Strategic Accounts at GE Fanuc Automation gave this positive perspective :
    "Jim, Amongst all your general info about industrial automation etc I don't recall seeing much about CIMPLICITY automation software, products or usage. We have had double digit growth in sales and orders for the last several years. The first half of this year saw over 20% growth in sales and almost 40% growth in orders, and we did this in a market that is realizing a 20%-30% down year, and while our competitors are shrinking."
Pinto Praise : Hooray ! Someone is growing !

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