AUTOMATION 2010: Perspectives on a key industrial sector C O N F I D E N T I A L www.oliverwyman.com
Future Business design for automation companies were the core of the study Scope of the Study Remarks Services Products MES-Level Application software Controls (PLC, IPC, embedded) Hardware Software Field Level (Sensors, actuators, other) Industrial Communication HMI (Hard- / Software) The focus of the study is placed on the industrial automation sector (e.g. building automation and other adjacent automation sectors is only to covered to some extent) Discrete Automation Process Automation Interviews conducted reflect the interaction (channel structure) among players in the automation field, e.g.: Final customers: End users, OEM, Channel intermediaries (e.g. System Integration, EPC, Other) Customer priorities are considered as main drivers of strategic challenges / opportunities for automation companies (Oliver Wyman outside-in-approach) Hardware Software 1
The objective of the study was to identify strategic challenges and winning business designs for automation companies Strategic challenges for automation players Key questions of the study Customer Requirements Structural changes (consolidation, globalization) In- / Outsourcing... Technology Trends Communication Standards Convergence Software Safety Structural Shifts Consolidation New growth regions Redistribution of added value What are future profit zones / growth areas in the automation industry? Which business designs are suited to capture these growth areas? What does that mean for the respective players in the automation sector? Value Business Design Innovation What strategic and operational changes have to be initiated? Current business design Future business design t 2
The automation market had a volume of appr. 128,2 bn in 2005. Process industries represent over 70% of the total market Manufacturing Execution System (MES) 100% (1.1%) External services (22.8%) Internal services (28.4%) Standard software (3.0%) Communication buses (3.8%) Controls (9.7%) Human Machine Interface (HMI) (7.1%) Actuators (10.9%) Scales (1.1%) Process analysis machinery (2.2%) Sensors / instruments (9.9%) 80% 60% 40% 20% 20.,1 12.6 6.5 11.1 8.7 6.7 4.3 8.5 3.2 4.7 4,8 15,3 6,8 8,2 2,4 1,3 Process Industry 91.3 bn Discrete Manufacturing 36.9 bn Source: ARC, INTECHNO, Oliver Wyman Analysis Development of the automation market (2005; in bn ) Total volume: 128.2 bn Euro (externally accessible: 91 bn ) 0% 20% 40% 60% 80% 100% Chemicals Power Metals Petrochemicals NUG Pharma Automobile Engineering Packaging Textile plants Environment Gas Oil & Paper Mining Oliver Wyman Automation Study 2010 Rocks & soils Plastics Electronics Service = work performed internally and externally (installation, operation) Share of total market 51% Business with parts / products (hardware, software) Share of total market 49% Wood 3
Growth driven primarily by capital investments in the respective end user industries. Above average growth in process industries to be anticipated Market Development Industrial Automation By End-User industry, in bn, 2005-2010 Comments 128.2 150.6 Others Electronics / Semicondutor General Machinery Automotive Environment Energy Food&Beverage CAGR 3.3% 2.2% 3.2% 2.3% 2.4% 3.6% 3.1% 3.7% Process industry with above growth rates (%), due to: Growth of the underlying end user segments Regional growth impulses (green field or replacement investments) Productivity gains through automation (e.g. pharma) Factory Automation in general with lower growth rates, due to: Already higher automation level Lower growth rates auf end user segments Petrochem Pharma Chemicals Metals Oil& Gas 4.0% 3.9% 3.7% 4.2% 4.6% Differences across product types (sensor, drives versus controls/plc) can be observed driven by e.g.: Substitution / Migration Technological development (convergence) New Standards Source: Market Studies, Analyst Reports, ARC, INTECHNO, Oliver Wyman Analysis 4
Growth impulses from regional shifts (Asia) to be expected: Biggest absolute growth in established markets (NAFTA, Western Europe) Volume in bn 56.3 49.3 CAGR: 2.7% NAFTA Growth in key industries, moderate growth in other segments Impulses primarily by growth industry sectors as pharma / NUG Current positive impulse from positive CapEx investment versus structural development 39.7 34.9 CAGR: 2.6% West CAGR: 4.5% 4.4 5.5 East Europe CAGR: 8.0% CAGR: 10.0% 9.7 6.1 China 1 CAGR: 1.9% 15.1 16.6 Despite shift to China sufficient value generation remains in NAFTA Replacement investments primarily in order to increase productivity level In order to develop the market sustainably, significantly simpler automation solutions are necessary CAGR: 4.2% 4.6 5.7 South America Summary: Regional market development Established markets Future markets 28.9 38 5.6% 9.1 1 Growth currently even higher Source: Intechno, ARC, Oliver Wyman Analysis 2005 99.3 2010 112.6 Growth CAGR 2.5% Abs. 13.3 2.0 2.9 India CAGR: 3.7% 14.1 11.8 ROW Japan Strongly investments across many segments although different solutions: International customers (MNC) maintain accepted automation solutions and focus on quality Local Players for various reasons with simpler solutions International automation manufacturers dominate, but Chinese manufacturers become more important in the medium- & long-term 5
The automation is sector is facing several rather fundamental developments / trends with regard to products and technology Excerpt Underlying Trends in the Automation Sector (illustrative) A B C Low Cost Products Product to System New System Architectures ERP MES Past Future Products (e.g. drives) Systems / Solutions Control systems Field devices Equipment Emergence of low-cost-products Designed for simpler applications / new customer segments Tailored to price sensitive customers Additional impulse through low cost competition from China (component level) Source: Oliver Wyman expert- and client interviews Customers no longer only refer to simple components, but want to buy systems Defined, preconfigured interfaces Test, operational guarantees System kits Selected segments such as: Machine Tool Packaging Printing Future increases in productivity to be realized primarily on MES- and field-level Intelligent field devices (engines, sensors, etc.) / mechatronics Communication standards (e.g. industrial ethernet) and break with proprietary systems facilitate shift Gradual dilution of profitable system components (risk for full liner) 6
Low cost trend will receive an extra impulse from the current emergence from Chinese competitors. Long-term upgrade of technology to be expected Excerpt Emerging Chinese Competitors (illustrative) PLC / Motion Control Drives (Frequency Converter) Sensors (primarily process industry) Shanghai Capital Bejing KND Bejing Aerospace Huazong Nanjing Washing KND GSK Dalian Dasen Chengdem Great Industrial Teco (Taiwan) Delta (Taiwan) Huifeng Continental Hope Ambition Chinese Mid-Level Players (in total more than 170 players) Tian Cheng Suzhou Shihlin KeLi First MENS Zhonghang Shanghai Dongke CTS SAIS Goodsky Primarily on the component level (still with low technological competence, but improving) Heavy M&A activity in China as Western Players see China as an opportunity to jumpstart growth Source: Oliver Wyman research 7
Need for action of automation companies on different levels Level Elements 1. Business design Customer selection Value Proposition Profit model / Strategic control Scope 2. Specific optimization levers Sales effectiveness / Channels Procurement / Sourcing Product portfolio / Innovation 3. Infrastructure and systems Organization Processes HR systems Tools Source: Oliver Wyman interviews (automation providers, customers) 8
Oliver Wyman is perfectly positioned to support automation companies to master the strategic challenges 1 Industry Expertise Thorough understanding of the automation industry as well as of essential purchasing industries Manifold project experience and references Studies and IC development 2 Innovative Strategy Approach Tried and tested approach for strategy development ( value driven business design ) Differentiated methodology and procedure Hypothesis driven approach, quantitative orientation 3 Comprehensive Tool Kit Comprehensive tool kit / methodology for challenges of the automation industry (employed successfully in many projects) Comprehensive benchmarking database (best practice data) 4 Global Presence Worldwide > 2,500 employees in in 40 countries (global presence) International network of experts Access to local information / studies 9
1. Oliver Wyman has gained substantial and manifold project experience with leading automation companies Oliver Wyman Automation Experience (examples) Project content (examples) Portfolio strategy for a worldwide leading automation provider Growth strategy for a internationally leading provider in the area discrete control systems (PLC) Growth strategy for a internationally leading provider in the area process automation Growth strategy for a full liner with respect to the introduction of a new product / technology Project in the area supply chain management for a leading provider in the area industry automation Divestment of a material handling provider Market entry strategies China for component players and system suppliers Growth strategy for a medium sized player specialized on sensors, vision, RFID Screening project for a full liner in the area of vision, RFID 10
1. Oliver Wyman has profound knowledge of the industrial sector Selection of Oliver Wyman s client list Tools / Components Machine Tools Production Systems Engineering Construction Equipment Packaging High Tech Materials Industrial Services Trucks & Components Building Components Consumer Products Transportation Equipment 11
2. Oliver Wyman s research has led the thinking on how firms can achieve sustained value growth 2003 2007 2000 2002 1999 1997 1996 1995 Re-engineering is dead. Focus on the customer Value flows to the business design best matched to customer priorities Reinvention and profit-centric thinking are the keys to sustained value growth Pattern thinking helps executives see tomorrow s profit zones before the competition Explore the many ways that profit Winning business happens designs in the next economy will be dynamically assembled around customer priorities To renew growth, shift from product innovation to demand innovation Strategies for Turning Big Threats into Growth Breakthroughs 12
3. We ensure tangible results and efficient change by a balancing rigor analytics and sensitive process coaching Oliver Wyman as the analytic consultant Content Thought leadership Rigorous and fact based Best practice / benchmarks Deep understanding of clients business Modeling of options and decision support Pragmatic and results driven Value based approach Oliver Wyman as the coaching partner Process Structuring, work planning Applied from best practices (process / Do's and Don ts) Process management, team building and sub-team management Support in communication and change process Challenging the option, watch-dog role Attention to Labor Relations issues Know-how transfer Source: Oliver Wyman Management Consulting 13
4. Oliver Wyman is a global consulting company and a part of Marsh & McLennan Companies Revenues 2006: 12 bn. US-$ Employees: 55.000 Offices in more than 100 countries Marsh Guy Carpenter Kroll Mercer Oliver Wyman Risk management, consulting and transfer Design and administration of insurance programs Managing general agency Claims management Risk and insurance services Reinsurance placement risk quantification and assessment Run-off administration Risk consulting and technology Legal technologies Background screening Credit screening Corporate investigations Competitive intelligence Forensic accounting restructuring advice Security consulting and training Human Ressource Consulting HR Strategy HR Systems Compensation Benefits Communication Top-Management Consulting Strategy Organization Operations Efficiency, cost reduction Risk Management Leadership Transformation Revenues 2006: ~ 5,5bn US-$ Employees: 32.400 400 offices in 100 countries Revenues 2006: 980m US-$ Employees : 3.600 65 offices in 23 countries Revenues : ~ 3,0bn US-$ Employees : 13.000 150 offices Revenues : ~ 1,3bn US-$ Employees : 2.500 40 offices 14
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