Consolidation and Innovation

Consolidation and Innovation

It has been a while, but as many of you know there are too many projects and not enough time.

One of my many projects has been to identify new sources for technical upgrades, and it is not a pretty picture. In the past, you always had many choices for hardware, software and motion control components, but that is rapidly changing — at least as far as motion control and technical software are concerned.

It started a few years ago when one of our motor design software packages was sold from a consortium to a large modeling and simulation tool vendor. During this transition, the key technical support individuals were lost and the company that acquired the software did not really know what to do with this tool. In some cases, it was offered as a freebie to accommodate the sale of their (expensive) flagship software and otherwise left to die a slow death.

Then we were looking to upgrade our magnetic FEA software. We evaluated all the major vendors worldwide and then narrowed our selection to two choices by comparing the simulation and test results using these vendors. One of these two vendors then announced that they had been acquired, and within a few months the software had disappeared and was now integrated with many other simulation tools. The support and focus suffered, which was very detrimental to the usefulness of an excellent software tool.

Earlier this summer, we were looking to upgrade our IC design software, as we are planning to move back into designing custom motion control-related IC solutions. The first limiting item was that our new design effort was ITAR-restricted — which effectively eliminated a majority of software vendors and silicon processes.

Our current software was made by a small U.S.-based company which has now been acquired by Mentor Graphics and, subsequently, by Siemens. We had considered upgrading our software, but with every acquisition the cost of the software increased dramatically. Needless to say, the software that we had previously used was no longer affordable for our company since it is now priced to support and subsidize the EU economy. We are still looking and hoping that we can find a way to locate a pre-acquisition version of the software on the secondary market that is affordable and that will support our current requirements.

We then tried to renew our FEA software license — only to be told that the company had been sold to another Siemens-owned company. Great surprise — the cost of the maintenance skyrocketed and it was virtually impossible to even purchase support, as the new owners were targeted towards very large businesses and their licensing model did not support the needs of a smaller company like ours. We will see how the sale impacts the technical quality and support, but I do not expect a positive outcome.

Then I was looking at motor vendors for a project for the first time in many years, and I realized that everybody in the U.S. is now owned by two or three companies. Many products have been consolidated and the choices are streamlined and less differentiated.

Having talked about consolidation, let us shift to the innovation aspect of all of this. What is the impact of all of the above trends?

They will make our economy less competitive in the long run.

Working for the defense industry and in many sectors of the industrial market, I see that innovation is largely driven and supported by small companies and entrepreneurs. Large businesses may make strategic investments, but they will be narrowly focused. The mindset is: Let us wait and see; and if something interesting comes up we will just buy the company or the technology. In fact, this may well be a cost-effective strategy; but it also bears significant risks.

First and foremost — we are operating in a global economy and we are seeing more and more targeted buying of companies and technologies by Asian (Chinese) companies, which in turn lessens competition and raises the prices — which can make this strategy less cost-effective — or potentially even more expensive in the long run.

Secondly, we are now seeing world-leading research and innovation coming out of China for the first time, and the technology developed there will not be for sale. Rather, it will serve to strengthen the Chinese dominance and give Chinese products a technical advantage.

Lastly, consolidation has erected barriers for new companies that want to enter the market. In the 70s – 00s, many independent and smaller suppliers successfully competed for an emerging customer base with innovation and customized support. This base is now maturing and the smaller suppliers are now parts of a few large companies. For the potential buyer, the IBM effect now enters into the purchasing decision, i.e. — the proposed product may not be the best or technically most advanced product, but it is “brand X” and you cannot go wrong with that company. This leaves the new, innovative entrant at a competitive disadvantage. The end result is that it will stifle competition and innovation which, in the long run, will as a result make our products and the economy less competitive.

As more and more consolidation is occurring via acquisitions by companies not located in North America, we also see our purchasing dollars diverted to support the growth and technical dominance of other economies. This will hurt not only our own business environment, but also deprive us of tax revenues that could be used to lower business taxes for all U.S. businesses, which helps our company’s profitability and creates employment and investment that are beneficial for our company’s future growth potential.

So I am still looking for new development software solutions and some hardware products. I am with a small company (as long as they can compete on technology and features) and I prefer to spend our company’s funds where they boost the North American economy which, in turn, will then benefit our company’s business and will typically save the business a lot of money.

In case you are wondering, yes — I look at the airplane manufacturer when making an airline reservation, and I prefer to fly a North American-made brand whenever possible.  And yes — my cars are either U.S.-made or made by one of our Asian customers that typically offer lower cost and better value, rather than a fancy EU-made brand. And yes — my social status and reputation may suffer for driving that 10-year-old car; and 24-year-old, low-cost and virtually repair-free U.S.-made trucks (made by a customer); or the 18-year-old, very inexpensive and virtually repair-free sedan made by a then-emerging Asian competitor (and customer).

But I can live with that because they were the best product, they have proven suitable and reliable, and they have saved me a ton of money over the years.

About Author

George Holling

With over 70 publications and 9 U.S. patents on sensorless and efficient motor controls and low-cost power circuits to his credit, George Holling (PI) is an in-demand consultant to many major U.S. and International corporations for motors and drives. At present he holds significant influence in two companies — as technical director of Electric Drivetrain Technologies (2011– present) Moab, UT and as CTO of Rocky Mountain Technologies (2001– present), Basin, MT. Holling is a graduate of the University of Aachen, earning his B.S. (1974), M.S. (1978) and Ph.D. degrees there, while picking up his MBA here at the University of Wisconsin. His career has spanned both the commercial and academic arenas, the latter including stops at (Dean, Computer Science & Engineering) Utah Valley University, 2001 – 2003; and (Adjunct Professor), Western Michigan University, 1997 – 2002. From the commercial side, apart from his current positions, Holling has served as Project Engineer and Product Line Manager, UNICO; Franksville, WI (1978-1981); Project Engineer, General Electric, Medical Products Division, Milwaukee, WI (1981-1983; Manager R&D, Pacific Scientific/Honeywell Motor Products, Rockford, IL (1983-1985); Vice President of Engineering, Regdon Solenoid, Brookfield, IL (1988-1990); President, Advanced Motor Controls, Sun Prairie, WI (1990 – 1999); and Vice President of Engineering, Cordin Company, Salt Lake City, UT (1999 – 2000). Holling has also spearheaded projects for the development of high-efficiency motors and drives up to 400 kW, and has successfully negotiated licensing agreements with U.S., Chinese, Japanese and Indian customers for the licensing of motor and drive technology.

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