Insights into the forces shaping our industry.

For those who do believe in facts, it’s well proven that genetic robustness is strengthened through diversity of genetic attributes. Said another way, the narrowly bred species is seldom capable of managing extrinsic challenges; climate change, food availability, even competition for suitable mates. The ‘strongest that survive’ isn’t necessarily physically strong, but diverse enough to adapt to changes within their environment. The junk yard dog analogy is very apt; not the fastest, not the prettiest but agile and mean enough to survive all challenges.

In a recent McKinsey study titled, Why Diversity Matters, the researchers analyzed hundreds of publicly held corporations across the globe. They assessed the levels of diversity talent on the payrolls; from board members to named executives and calculated the percentage of diversity and then compared that to their financial results. The results were impressive; Diversity Matters when you look at the financial success of publicly held corporations. The key points from the survey are as follows:

• Companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians.
• Companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians.
• Companies in the bottom quartile both for gender and for ethnicity and race are statistically less likely to achieve above-average financial returns than the average companies in the data set (that is, bottom-quartile companies are lagging rather than merely not leading).
• In the United States, there is a linear relationship between racial and ethnic diversity and better financial performance: for every 10 percent increase in racial and ethnic diversity on the senior-executive team, earnings before interest and taxes (EBIT) rise 0.8 percent.
• Companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians.
• Companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians.
• Companies in the bottom quartile both for gender and for ethnicity and race are statistically less likely to achieve above-average financial returns than the average companies in the data set (that is, bottom-quartile companies are lagging rather than merely not leading).
• In the United States, there is a linear relationship between racial and ethnic diversity and better financial performance: for every 10 percent increase in racial and ethnic diversity on the senior-executive team, earnings before interest and taxes (EBIT) rise 0.8 percent.

For ten years, Egret ran an informal study of gender diversity in the industry, based upon a simple analysis of the attendees at the NAED National Conference. Since it’s relatively easy to identify female versus male first names, we counted all registered attendees and calculated an annual percentage of total women for both distributor and manufacturer attendees. In the final two years of the study, we added a narrower focus by also calculating the percentage of the female attendees who had a listed title of VP or above. The average female attendance across the life of the study is as follows:

Female Distributor attendees: 6.9%,          Executive distributor females: 5.7%

Female Manufacturer attendees: 7.7%.     Executive manufacturer females: 3.4%

Since the McKinsey report was recent and the National NAED is fast approaching… we thought we’d take one more peek at our industry’s growth in diversity. Here are the numbers:

2015 Distributors: 16/283 = 5.6%                Executive females= 12/283= 4.2%

2015 Manufacturers: 29/293= 9.9%          Executive females= 8/293= 2.7%

Looking at the results, it appears we’re backing up. In many ways it’s not a surprise to me, but it’s certainly a disappointment. The industry is changing very rapidly; technology is largely taking over our industry. From LED lighting to DC power distribution, Solar and Wind power, smart buildings, wireless controls, Big Data and the Internet of Things. Channel partnerships are changing just as fast: from direct Internet sales to Amazon, ESCO solutions, Solar ‘distributors’, LED ‘distributors’ and 100’s of new entrants into the US market. The need for a broader, more diverse perspective on both current technologies and future opportunities requires attracting talent that isn’t constrained by 50 years of legacy practices.

We’ve seen the industry change quite a bit; the sheer addition of hundreds of electrical and electronic engineers into R&D departments has been impressive, the commitment to R&D at senior levels is equally impressive as the number of CTO titles has increased significantly. So the industry is changing, adapting and evolving. But the future of the industry lies largely outside the legacy policies and financial relationships that built it. The vision for the future will require adding the talent that can clearly see the confluence of events that have never happened to any legacy industry person before.

This isn’t an industry move to premise wire or selling to Home Depot. This is the creation of the new order of how to sell electrical products; controlled by electronics, with requirements for integrated software. Channels of distribution, installation practices, training of rep and customer service personnel, warranties, manufacturing processes; all are changing overnight.

And then there’s the Pyramid of Profits: the rep’s commission, the distributor GM, the contractor mark-up, the rebate program, the co-op advertising, the overage policy of spec reps, the cash discount, the extended terms, the direct billing by reps, the spec and destination split commissions, the slotting fees paid to retailers, etc. Or more simply called: The Value Added Tax of the industry.

There are thousands of new industry participants who don’t quite ‘get it’ and they will find a way to circumvent many of the profits listed above. Margins will erode, product complexities will increase, R&D expense and warranty accounts will grow. Creating the strategic plan that encompasses all of the new variables will require people who didn’t create those variables in the first place.

The industry of the future will be far leaner, maybe a little meaner, too. But what an exciting time it is to be in the industry.