Insights into the forces shaping our industry.
The Electrical Industry is on Fire!
Congratulations to all! The electrical industry is officially sexy!
Over the past 10 years, we have seen a huge increase in technology in our industry. At D-Tech last month, it was apparent that software companies are far more prevalent than hardware manufacturers. And the hardware manufacturers have similarly moved into software as well. There is significant value to a manufacturer of MV equipment to also sell the sensing and data aggregation support systems for the equipment. Many manufacturers are now selling SaaS systems along with their hardware. SaaS enables the manufacturer to provide a level of service to their utility, muni or large industrial customers that benefits both parties.
With the advent of IoT, more and more manufacturers will begin to offer services as an adjunct to their equipment sale. One logical extension for a manufacturer is to get to a leasing strategy; where a large industrial would never ‘own’ their switchgear or lighting or drive systems; the OEM vendor would install, maintain and replace the equipment as needed on a service contract for the life of the equipment.
The advantages to the customer are numerous: predictive maintenance can virtually eliminate downtime for the operation; large municipalities that have 100,000’s of light fixtures can now have an asset management tool that easily identifies exactly where all of the equipment is located, plus the age and condition of those assets; the equipment will continually be updated with software updates to optimize performance; and the tax benefits of a lease versus a lengthy depreciation of assets can be appealing.
The advantages to the OEM supplier are also numerous: monthly cash flow is a beautiful thing compared to a spike-ridden MTO production cycle; forecasting is more accurate; the relationship with the customer is strengthened as a true partnership; live, real-time performance information from your equipment will add to reliability of designs and updates; and the opportunity to expand your product line within a close partnership relationship is optimized.
So while the growth in technology has significant benefits, there are some concerns:
• Channel expansion. Hardware manufacturers are best at hardware; but as they displace the software manufacturers, the software companies are moving into hardware. It’s doubtful that a software company would move easily into larger equipment like power distribution; but it’s far easier for a software company to feel they can move into lighting… it’s ubiquitous, it’s a growing market and it’s now a semi-conductor product, with ample opportunities to add firmware and software capabilities to it.
• Margin erosion. The one thing software companies have a strong knowledge of is margin erosion. As such, their expectations of margins are far more limited than traditional hardware manufacturers. While many hardware manufacturers have successful histories of 40-55% gross margins as an assumed basis of their business… software manufacturers don’t share the same philosophy, based on their business model of fast product changes and decreasing costs of goods.
• New entrants. We see a large infusion into our own industry; recruiting. Most of the new entrants are generalists, or tech recruiters that have no core electrical industry knowledge. As such, their business model reflects a history of searching for a range of skills that are basically tech based; programming languages, chip architecture, and a pure OEM customer experience (i.e. chip companies use an OEM customer model to promote their products; or sell through an intermediary distributor of discrete components). Our clients tell us they have experienced a sizable increase in new introductory calls from recruiters from outside of the industry; largely tech, generalist or staffing firms. All of them offer low fees and fast results. None of them offer the core insight into how our industry functions through a construction mindset.
Our clients are experiencing competition from new companies that are offering products and solutions that don’t conform to the traditional solutions or value proposition of the past. While LED lighting got most of that press over the past 8-10 years, it’s been similarly developed in support of the Smart Grid and now IoT. The pace of technology will only quicken as many more minds connect globally with the expansion of education and computer access to areas that have never even had electricity.
So the requirement remains to continue to promote your unique value proposition; reliability, experience, quality, and the expansion of services into what was formerly a pure hardware solution. There’s still significant value in knowing that your supplier of quality hardware solutions can also offer software solutions and help their customers enter the IoT world that faces us all.
Meanwhile, our value proposition has remained intact; we’re industry experts who understand the difference between Graybar and Grainger; OEM and MRO; and how a product gets specified and installed over dozens of buying influences. And our value to our clients includes the ease of communications with someone who ‘gets it’ and a firm that prides itself on knowing that our candidates ‘stick’…we’re proud of our retention statistics and enjoy watching our candidates get promoted.
It took a long time, but it’s kind of cool to be working in such a sexy industry!