by dr. jesse yoder t - flow research · disadvantages. the cultures of the ... then by abb...

With mergers and acquisitions continuing at an unabated pace, what

are the successful companies doingto marry a potential witches brew

of disparate corporate cultures,product lines and branding

issues? What should you beaware of if your company isinvolved in this transition?

32 September, 2002 Flow Control

Today’s process control mar-ket is undergoing change.Competition for marketshare exists across the boardamong instrumentation andcontrol companies. Many

companies seek to increase marketshare by going the acquisition route,while others choose organic productdevelopment. Both choices have plus-es and minuses — which course is bet-ter often depends on details about theproduct or company involved.

One major force that has causedchange for instrumentation compa-nies in the past 10 years is globaliza-tion. Globalization refers to the factthat the companies must now com-pete on an international playingfield, rather than simply withintheir country or region. Even com-panies that prefer to maintain adomestic focus may find businesstaken away from them by interna-tional competitors.

Globalization is made possible by avariety of technological changes.Advances in communication make itpossible to instantly correspond by e-

mail or phone with virtually anyoneworldwide. Advances in transporta-tion make it feasible to travel almostanywhere on the globe to discussbusiness or promote products. Today,it is also much easier to ship goodsalmost anywhere on the planet than itwas 10 or 20 years ago.

As a result of the demands of glob-alization, many companies are underpressure to expand their reach and tocompete in broader markets. Oneway that many companies choose toexpand is through acquisition. Byacquiring a company that alreadycompetes in a market and alreadyhas distribution channels, the acquir-ing company can potentially savemillions of dollars in research anddevelopment investment. This is alsoa way to save time, since developinga product through organic growthcan take years.

While going the acquisition routehas its advantages, it also has somedisadvantages. The cultures of thetwo companies may differ.Distribution channels may not mesh.Product lines may not be complemen-

tary, or may even be competing.Customers of the acquired companymay resist buying from the new com-pany. Overlapping departments mayrequire layoffs, potentially generatingmorale problems.

The focus of this article is on strate-gies that companies can use to insurethat potential problems that may ariseduring the acquisition process do notundermine the success of the acquisi-tion. It especially focuses on the impor-tance of integration as a way to ensureharmony between the two companies.This concept also applies to creatingharmony within divisions or depart-ments of an existing company.

The concept of integration refers tothe extent to which the components of acompany and organization are playingthe same tune, or on the same page.Companies who are in the business ofexpanding by acquiring companies runthe risk of creating a collection of incon-sistent, and in some cases, incompatibleproduct lines. An analysis of processcontrol companies finds that thosecompanies that integrate their diversedivisions and acquired companies with

COVER STORY

By Dr. Jesse Yoder

LANES

Company Ownership Change Year CommentABB Process Automation (OH) Bought by ABB of Norwalk, CT 1990 Was a subsidiary of

Combustion EngineeringAEG Automation Systems Taken over by Cegelec 1996AEG Schneider Automation Bought by Groupe Schneider 1996ARI Industries Operating Unit of Okazaki Manufacturing in Japan Manufacturer of

temperature sensorsBadger Meter/Ultrasonic Flowmeter Division Bought by Eastech Flow Controls 2001Brooks Instrument Bought by Emerson Electric 1996 Manufacturer of thermal,

variable area, magnetic, Coriolis and other types of flowmeters

Combustion Engineering Bought by ABB (Norwalk, CT) 1990Daniel Industries Bought by Emerson Electric 1998 Manufacturer of ultrasonic

and turbine flowmeters

Dieterich Standard Bought by Emerson Electric 1996Direct Measurement Corp. Bought by FMC Corp. 1996Eckardt Bought by Siebe 1994Elsag Bailey Bought by ABBEMCO Bought by Applied Energy 2001 Manufacturer of vortex,

ultrasonic, turbine and positive displacement flowmeters, and mass flow controllers

Fischer & Porter Bought by Elsag Bailey, then by ABB Instrumentation supplierFlow Research (Florida) Bought by Peek Instruments/Polysonics Manufacturer of impeller

type meters; Polysonics also manufactures ultrasonic and other types of flowmeters; Not the market research co.

Foxboro Owned by InvensysGas Measuring Technology Bought by The RMG Group of Germany GMT was a manufacturer

of turbine gas flowmetersHartmann & Braun Bought by Elsag Bailey 1995HG International AS Now integrated into Brunata A/S Brunata specializes in

district heatingIn-Line Measurements Bought by Honeywell 1996Intellution Bought by Emerson Electric 1995Josef Heinrichs GmbH & Co. Messtechnik Integrated into Bopp & Reuther 1955Leeds & Northrup MAX DCS Bought by ICS 1994Measurex Bought by Honeywell 1997Milltronics Bought by Siemens 2000Moore Products Bought by SiemensMTI Agilent Technologies MTI was a gas chromatograph

manufacturerProfimatics Bought by Honeywell 1995Setpoint Bought by Aspen Technology 1996TI Process Automation Bought by GSE Systems 1994Triconex Bought by Siebe 1994Universal Engineered Systems Bought out by Neptune and liquidated by Willibrator 1968-1982 Open channel flowmeter

and telemetry manufacturer;Made Palmer Bowlus flume

Universal Flow Monitors/Vortex Flowmeters Bought by Asahi/America 1997Water Specialties Bought by McCrometer 1999

Data compiled by: Walt Boyes, Al Pawlowski, Kevin Marsh and Ian Gibson

www.FlowControlNetwork.com September, 2002 33

Merger ManiaHere is a partial list of key mergers and acquisitions in the fluid handling industry in the past decade or so.

MERGE AHEAD


the rest of the company will be in amore favorable competitive position.By contrast, companies that fail to

absorb newly acquired companies ordivisions into the company as awhole will struggle to compete intoday’s globalized marketplace.

Specialization of KnowledgeOne reason it can be difficult for

companies to offer solutions in a wide

variety of areas, such as refining,wastewater and food processing, isthat knowledge has become so highlyspecialized. This specialization leadsto fragmentation rather than integra-tion. The medical industry is a goodexample. Doctors today specialize innarrow areas like eyes, heart, feet,bones, etc., but may have very littleunderstanding of how to treat ail-ments in the rest of the body. Theyalso may not fully understand whatimpact their treatment has on the gen-eral health of the patient. This is theresult of specialization.

Of course, no one wants to havetheir heart surgery done by a generalpractitioner. One good reason forspecialization is that our medicalknowledge base is always expand-ing, and it takes a great deal of effortto come up to speed even in one nar-row area. In addition, experience isimportant in treating patients, andsomeone who doesn’t specialize maynot get enough experience in onearea to do a good job.

Clearly, there is a need for special-ization. However, specialization mayhave some unintended consequences.In the case of medical knowledge, itmeans that our knowledge of how totreat illnesses is highly fragmented.The knowledge exists in the minds ofthousands of doctors who specialize invery narrow areas. These doctors forthe most part talk to their colleagues intheir same profession. The knowledgealso exists in textbooks, but theseagain are a large collection of booksabout highly specialized topics.Nowhere is all this detailed knowl-edge put together into a system. Inaddition, there is no guarantee that allthese knowledge items are consistentwith each other, or that treatments pre-scribed in one area will not have a neg-ative impact on another area.

Specialization in Process Control

The situation is almost exactly par-allel in process control. Just like themedical profession, the process con-trol industry has spawned a group of

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COVER STORY


highly specialized engineers andmanagers who mainly focus on a nar-row area of expertise. This is true forboth supplier companies and usercompanies. However, it is especiallytrue for user companies. For example,the Chem Industry Web site atwww.neis.com lists 28,274 sites in 56categories under Chemical Suppliers.Categories include ceramics, coatings,cosmetics, dyes, detergents, plastics,etc. Clearly, the chemical industry hasbecome very highly specialized.

As a result of the specialization,process engineers need to becomehighly specialized in their knowl-edge. Just as medical doctors haveto specialize in a very narrow areato be proficient in that area, sochemical and other process engi-neers end up specializing in a verynarrow portion of their industry.This means that knowledge aboutthe chemical industry exists in smallpieces in the minds of thousands ofspecialists who know a lot about avery narrow area. This knowledgealso exists in textbooks that are justas narrowly defined.

This specialization is not neces-sarily a bad thing. Anyone whowants to do chemical research orwho is involved in the manufactur-ing process has to have both theknowledge and experience to do agood job. And with the amount ofknowledge that is required today toexcel in one area, it may be very difficult to become an expert inmore than a narrow field withinchemistry or some other industry.Chemical companies are not goingto hire generalists to perform highlyspecialized functions.

Achieving IntegratedKnowledge

While specialized knowledge canbe very desirable, it can also be bene-ficial to link different “islands ofknowledge” together into a system.When this is done, a much more pow-erful structure emerges. Instead of afragmented collection of isolatedpieces of knowledge, a system of

knowledge exists. Instead of a collec-tion of addresses, there is a database.Here are some of the steps involved inbringing together a fragmented bodyof knowledge.

1. A common set of definitions isadopted.

2. Underlying assumptions in dif-

ferent areas are reconciled.3. A common methodology is

adopted.4. Similar values are imposed on

the different areas.5. The consequences of treatment

or action taken in one area forother areas is taken into account.

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Integrated CompaniesCompanies who are seeking to

integrate their different divisions, orwho are trying to absorb an acquiredcompany into an existing frame-work, can take a similar set of stepsto promote internal integration.Some of these steps are as follows.

Adopt a common set of defini-tions for key terms within thecompany. Having a common set

of industry and product definitions isessential in order to compare datameaningfully among divisions of thecompany. For example, in segmentingthe world for sales purposes, it isimportant that a common definition of“Europe” is used.

Reconcile key assumptions,especially hidden ones. Certainkey decisions may be based on

hidden assumptions. For example, ifthe vice presidents in a company havedifferent ideas about how to carry outthe CEO’s priorities, or if they havepriorities of their own, conflict occurs.A good example is conflicts that occurbetween the U.S. presidents and theirCabinet members. Reconcilingassumptions is one way to avoidthese types of conflicts.

Adopt a common method-ology for different divisions.This has to do with strategies

across divisions, with product devel-opment and with how customers aretreated. Customers may become con-fused, for example, if different divi-sions of the same company have dif-ferent methods for resolving prob-

lems. It is also important to under-stand how the strategy of one divi-sion can affect another division.

Impose similar values ondifferent divisions. This has todo with the value placed on

keeping customers versus findingnew ones, the amount of moneyspent on research and development,whether new products are devel-oped organically or acquired anddistribution channels. Of course,some companies may choose tofocus their research and develop-ment efforts in a single area if this isthe most promising one.

Take into account the conse-quences of treatment or actionin one area on a different area.

For example, how sales in one divi-sion might affect sales in another divi-

3.

4.

5.

1.

COVER STORY


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sion. If a company has two divisionsthat sell competing products, it isimportant to find a way to harmonizethe goals and activities of the twodivisions. This is a familiar problemfor flowmeter companies that sellboth new technology and traditionaltechnology flowmeters, for example.

A company that has competingproducts should ideally find a way forboth product lines to live happilytogether. This can be done by coordi-nating the strategies and marketingfor both product areas. Even if thedecision is just to let the two divisionscompete, this works best if both divi-sions are aware of this policy.

Find a satisfactory way to dealwith the issue of brands. Somecompanies choose to eliminate

brand names that customers have devel-oped loyalty to. While customers may

eventually develop loyalty to a newbrand, this is a process that can takeyears. Companies that keep the brandnames of acquired product lines haveoften been more successful in retainingmarket share than companies that doaway with existing brand names. Marketresearch may be required to determine

brand loyalty in a particular case.If the above steps are taken, the compa-

ny has created a single, integrated point ofview that serves as the operating basis forthe divisions of the company. Doing thisis a very important step towards creat-ing a single, unified company, wherebefore there was a fragmented groupof companies or divisions.


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6.

FC

About the AuthorDr. Jesse Yoder is president of Flow

Research (www.flowresearch.com), whichhe founded in 1999. He has been a writer andanalyst in process control since 1986. Yoderhas written over 40 market studies, and iscurrently completing a 12-volume series ofstudies on the worldwide flowmeter market.Flow Research (Wakefield, MA) has recentlyintroduced a new quarterly update servicecalled the Worldflow Monitoring Service.You can contact Dr. Yoder at 781 245-3200,or [email protected].

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While customers

may eventually

develop loyalty to a

new brand, this is a

process that can

take years.

by dr. jesse yoder t - flow research · disadvantages. the cultures of the ... then by abb...

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