The beauty of the electrical industry is that life as we know it is completely reliant on an adequate supply of electricity. Whether that ‘electricity’ is in the form of wireless communications or in the form of 760KV utility power; electricity is ubiquitous. Electrical manufacturers are assured of an infinite need for their products. So the challenge becomes more of meeting competitive needs and providing a reliable supply of products. Those issues rely heavily on the ability to plan and forecast. Long range planning in the electrical industry rarely ‘sees’ out much beyond a few months, but here’s a snapshot of macro influences that will shape many manufacturers’ businesses in the years to come.
Global warming. Whether you believe the science beyond global warming or choose to dismiss it as politics, one thing is fairly certain; weather plays a huge role in electrical transmission and distribution. The sheer number of violent storms we’ve seen over the past 3-4 years has grown to scary levels. Climate scientists are predicting that this trend is just the early stages of global warming and that violent weather will become far more frequent. The combination of rising sea levels and the frequency and violence of sea-borne storms will lead to far more frequent instances of wiping out coastal sand barrier islands or man-made storm suppression systems. From New Orleans levees to New Jersey sandy shores and New York City’s Battery Park, the probability of more damage is rising. The electrical industry has always profited from nature: tornados, hurricanes, floods, thunderstorms, ice storms, etc. The annual toll of property damage caused by storms continues to rise, which is very good business for manufacturers of transformers, wire/cable, power poles, street lighting, reclosers and general construction related equipment. The challenge, of course, is building that into your production schedule to ensure you have sufficient inventory to be able to react to immediate surges in business. And, in response to the rise in storms, many municipalities are budgeting for large infrastructure improvements to raise levees, expand sandy shores and move mission critical equipment farther from harm’s way. All of this is good for the future of our industry.
Alternative energies. Solar power has ‘arrived.’ Consumers have adopted the belief that it is an attractive solution to their rising power bills and it has been well established throughout most of the US. The growth of solar has been so rapid that it now faces backlash from the utility industry. IOU’s have begun to lobby their utility boards for rate adjustments targeted directly against solar users. Solar users have become a large enough presence that the IOU’s deal to buy back power from them has begun to distort the financial realities of transmitting and distributing power. We’ve seen attempts to directly bill them for monthly carrying charges, with the thought being that solar homes use the services of the IOU without actually paying for them; and in fact may even profit while using the utility’s infrastructure for free.
And then there’s Wind energy. Wind holds tremendous promise for achieving our quest for energy independence, but it is heavily reliant on tax policies to support the high capital expense of constructing a wind farm. Wind is purely in the power transmission side of the industry with little presence in commercial applications due its complexity of variable generation and power qualities. Wind has a two-year queue to receive approval to hook up to the grid in the Midwest. Commercial construction models can’t support building wind farms with their returns held hostage for an additional two years after construction. It is very difficult for a manufacturer to forecast market conditions for any product that relies extensively on tax policies; especially in a Congressional environment that is hostile to passing any legislation. Wind is an important part of the power solution, but it’s fraught with significant challenges that make it very difficult to invest heavily based on outcomes that are unpredictable.
Electronics and software. Electronics has completely infiltrated the electrical industry. The advent of controls has pushed manufacturers to have controls logic and software built into most of their products now. While electronics may appear to be good for the electrical industry, the risk is that electronics are far more susceptible to intrusion: hackers, power surges, electronic/electrical interference, etc. The future for electronics has to focus on more security features. The recent Target Stores hacking incident is illustrative of the needs for improving electronic security. Moving away from antiquated card swipes is far easier than developing sophisticated security systems that will thwart security intrusions from a broad array of intruders. The electronic security of power generation, transmission and distribution is worthy of a startup industry on its own.
I read a lot of annual reports and I’m regularly bemused by the section that talks about threats to their businesses; most are boilerplate items: Loss of talent; Rise in commodity prices; Unexpected legal actions; etc. I doubt most CEO’s ever read the threats section of their annual report, yet it would be refreshing to see a company report their strategic plans for more (or less) storm impacts, their security threats of IT hacking, IP defense, or legislative inactivity. The challenge of creating a business plan is to generate a reasonable assumption of revenues into the coming years to enable demand planning, or establish contingency plans for ‘unforecastable’ events such as weather or security breaches. While disaster planning is reasonably commonplace, it’s never part of strategic revenue planning; i.e. how much business will we get based upon the increase in thunderstorms, hurricanes or ice storms?
Our industry tends to focus on generalities like GDP growth and market share guesses; as if either of those events have a controlling impact on any one company. How about some reality estimates? Mega-trends can add value to business planning and lead to innovation in supply chain, operations, cash management and even product development.
Ted Konnerth, Egret Consulting Group’s founder and CEO, recruits on a retained basis, helping leaders in the electrical and lighting industry identify their next C and V-level hire. He is also the executive director for the International Retained Search Associates, allowing him to liaise with skilled recruiters around the globe. To learn more about how Ted can help your company attract talent view his biography, check him out on LinkedIn or email him at email@example.com.