The Emerson Difference

The Emerson Difference, Published February 22, 2006

Click for Jim Pinto Biography

 
Emerson has been in business for 115 years. Now with 115,000 employees, the company is one of the world's leading manufacturing companies with operations around the globe. Emerson Process Management is a leader in process control and automation. Emerson is an achievement-oriented culture, which seems to attract some of the best people in the industry.
 
Background
 
Chuck Knight ran Emerson for 27 years. He joined his father as a management consultant and became CEO in 1973, when he was just 37 years old. With consistent, tough-minded management, he led Emerson’s revenue growth from under $1 billion to $15 billion.
 
Chuck Knight is legendary for his tough management style. He was known to grill top managers mercilessly, often using harsh language that strikes terror into managers who are not prepared; he admits to being "carried away" sometimes. But he was most admired for his leadership in maintaining Emerson's remarkable record of 43 straight years of earnings increases, until 2002, when Emerson’s string was finally broken by that year’s devastating economic plunge.
 
At 69, Knight remains as Chairman Emeritus, and he has handed over the Chairman & CEO reins to David Farr, aged 51, previously COO. Farr has been with Emerson for 24 years. The transition from Knight to Farr was seamless. The basic strategies and corporate process continued, and all the key managers stayed to contribute.
 
The Chuck Knight culture remains and is still one of the key things that differentiates Emerson. For all their companies, as well as acquired businesses, Emerson’s management simply does not accept poor profitability. It acts very quickly to keep and expand profitability when markets decline, and when changes or problems arise.
 
Emerson is the quintessential management-driven company. Key people always have direct operating background and hands-on experience. Chairman and CEO David Farr has been VP planning & development, group VP for the industrial components and equipment business, president of the Asia-Pacific group and executive VP for the process control business. He's known as a good manager, not just a bean counter. John Berra, president of Emerson Process, has spent 36 years working in the process automation industry, first at Monsanto as an end user and then as a supplier. He is well known and respected in the instrumentation business for his strong involvement and consistent contributions.
 
The primary segments of Emerson's $17.3 billion business (Fiscal year 2005) are:
  • Process Management 24%;
  • Industrial Automation 18%;
  • Appliance & tools 22%;
  • Network Power 19%;
  • Climate Technologies 17%.
2005 sales by geography:
  • US 53%
  • Europe 22%
  • Asia 14%
  • Rest-of-world 11%
Emerson continues to demonstrate excellent strategic planning strengths and strong tactical implementation. The company remains strong, and expects strong revenue growth to $ 22-23 billion in 2010. Strategic themes include investment in technology to drive growth, and cost reduction through moving an increasing proportion of global manufacturing to low cost countries, especially China.
 
Emerson Process Management
 
Emerson Process Management was formed with the combination of Fisher Controls (leader in the valves business – flow controls) and Rosemount (best known for its differential pressure transducers and flow measurement products). Both these significant industry leaders were acquired by Emerson and were operating until just a few years ago with the name Fisher-Rosemount.
 
With sales of about $4.2 billion in 2005 and about 21,000 employees and 55 global manufacturing facilities, Emerson Process Management includes several other Emerson-owned companies related to process control. Together they offer virtually all of the devices, systems, software, and services that process end-users need to automate their plants. Products segments are: Measurement Instruments (44%); Systems, Solutions & Services (26%); Valves and Regulators (30%). The best know systems are PlantWeb and DeltaV, generating leading market-share for distributed controls.
 
One of the key recent Emerson initiatives has been to manufacture products in China and completely handle project management there. The Chinese engineering center there has the capability to stage and test systems, giving them a significant advantage in China and for many Far East projects.
 
Like others who have seen no growth in the products business, Emerson Process is working to transform from a components to a solutions supplier. Emerson is well suited to doing this, because it has always been involved with systems integration through its involvement in control system and its history with the “Fisher Reps”.
 
Emerson has never been interested in growth for its own sake. It divests when profit is poor. For example, when HMI software leader Intellution became unprofitable, visionary founder Steve Rubin exited, a new turnaround CEO was installed, and the company was sold to GE Fanuc. Emerson doesn’t buy or keep declining businesses. In addition, it only acquires pieces that represent a strategic fit in target markets.
 
What does it mean to be Emerson?
 
This is the title of the latest Emerson annual report. It's a good lead in to this description of the key points of the corporate culture, "The Emerson difference":
  • Results, not politics
Emerson is an achievement-oriented culture. Delivering results is valued far above personalities or internal politics. Large egos with no results don't last long. High value is placed on getting things done, making decisions and taking ownership.
  • Open Communications at all levels
At many companies, people really don't know how parts of their own businesses are performing. That just doesn't happen at Emerson. All Emerson divisions have quarterly employee communication sessions where division performance is openly communicated, along with strategic goals and how that division is doing relative to the goals. All managers and supervisors know the full P&L, down to individual product lines.
  • Strong commitment to technology
Emerson invests strongly in engineering and development in good times and in bad. Critical programs are considered vital to the business. Funding is simply not pulled away in bad times, for any reason.
  • Customer Commitments are "sacred"
Emerson stands behind its commitments. Customer problems are fixed as a high priority. People who go beyond the call of duty to satisfy customers are honored and celebrated. Emerson people are empowered to make decisions, which benefit the customer, without going through endless chains of command.
  • Accessible Management
Top leaders, like CEO David Farr, are very accessible. David Farr, John Berra and others return virtually all e-mail in a matter of hours, certainly no more than a day. They don't seem to insist on following every rung of the hierarchy. Front line sales people communicate directly with the top, especially when it relates to customers.
  • Legendary Emerson Planning Regimen
Emerson takes planning very seriously. Every division presents a full and detailed plan every year at Emerson's HQ conference center. The full executive staff is there, and fully engaged. The strategy is examined in excruciating depth. Plans are compared to the previous years, as well as YTD accomplishments vs. plan. A full president’s council review is held every 3 months for every division. At this review, actual quarterly results are compared with the plan, prior year's performance, market activity, plus competitive analysis and performance for each division. Opportunities and challenges are discussed and appropriate actions determined. Future forecasts are updated; if at variance, then the actions to be taken are presented. There is always a thorough reasonability check.
  • Emerson Division Board Reviews
Every Emerson Division has a full board meeting every three months. The Division Board reviews customers and competitors, markets and new market opportunities, sales and bookings, forecast results, year over prior year and quarter over prior quarter. Technology, products and new product development status are discussed at length and analyzed against current technology developments. Emerson prides itself on technology leadership and this is tracked by the quality of new products, uniqueness and percentage of new products in the sales mix.
  • Emerson Acquisition Record
Acquisitions are taken very seriously. When a company is acquired, Emerson knows exactly how they will be using the acquired capabilities to get full results on the investment. Perhaps the best Emerson acquisitions are the ones they didn't make. This can be measured by the disasters that competitors have had with acquisition screw-ups - usually resulting from poor analysis of strategy and prior development of tactics needed to make the acquisition a success.
  • People Ethos
One might expect a successful company like Emerson to be ruthless - but they are not. The company goes well beyond any normal expectations to take care of individual needs. At a time of uncertain situational ethics, treatment of Emerson people goes well beyond legal or operational demands. Emerson is compassionate in a way that is not seen at most other companies. Says one long-term employee, "When Emerson makes a commitment, it's a bond of steel!"
  • Leadership development
Emerson selects the best "high potential" people, and makes development plans for each individual. "Hi-pots" are identified, developed and tracked early to ensure that there is always a crop of leaders. Many companies have a revolving door; that simply does not happen at Emerson. The company is well known and sought after as a training and development ground, resulting in a constant inflow of excellent new management. Emerson seems to attract some of the best people in the industry, and keeps developing the next wave of leaders.
 John Berra, President of Emerson Process Management has been with Emerson since 1976; he was at Rosemount when it was acquired by Emerson. John provided some of these insights. He is passionate about Emerson:
 
"Jim, my comments may sound like an unabashed sales pitch, and I guess they are. This is not hype – we really live this way. I have worked at other companies and have seen hundreds of others. Emerson is the genuine article!"
 
Chuck Knight's new book: "Performance without Compromise"
 
In August 2005, Chuck Knight published a significant new book: "Performance without compromise - How Emerson Consistently Achieves Winning Results".
 
The former Emerson Chairman and CEO offers detailed insights into the management process that achieved legendary performance over several decades. His book was co-authored by Davis Dyer, and includes back cover kudos from the likes of Louis Gerstner, Clayton Christensen and August Busch III.
 
Several specific topics are covered in depth:
  • Key businesses: Good review of major Emerson business segments.
  • Acquisitions: How Emerson completed and integrated more than 200 acquisitions with investment of over $10 billion and an exceptional degree of success.
  • Global expansion: Transforming the company from a domestic US manufacturer into a leading global technology and solutions provider.
  • Restructuring: Responding to emerging trends, and cultivating new strategic growth opportunities.
 There are several practical checklists, which help to summarize the content. The book closes with an important discussion of leadership succession and an Epilogue by CEO David Farr – a nice touch to show how Emerson's good performance continues beyond the Chuck Knight era.
 
Appendix B1 is valuable – the template for Emerson's famed "President's Report", used monthly to assess the reasonableness of each Division's quarterly and annual expectations.
 
Related links:
 
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Jim Pinto is an industry analyst and commentator, writer, technology futurist, angel investor. You can email him at: [email protected]. Or review his prognostications and predictions on his website: http://www.jimpinto.com/ . Review the contents of his new book “Pinto’s Points – How to Win in the Automation Business” at: http://jimpinto.com/writings/points.html