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Invensys appointment signals shift of emphasis to services

March 14, 2007
Here are excerpts from the February 2007 issue of Andrew Bond’s Industrial Automation Insider, a monthly newsletter covering the important industrial automation news and issues as seen from the U.K.

By Andrew Bond, Industrial Automation Insider

     Paulett Eberhart
 

"It's all about helping customers to do a better job."

Invensys has appointed Paulett Eberhart as CEO and president of Invensys Process Systems (IPS), the division which includes Foxboro, Triconex, SimSci-Esscor and Avantis. The move has wrong-footed the majority opinion within the company and among its competitors that Ken Brown, who had been holding the fort since the departure of Mike Caliel in June of 2006, was a shoe-in for the appointment.

Brown, or “KB,” as he is known throughout the company, now resumes his former position as general manager of the IPS Measurements & Instruments business unit. However, as Eberhart told Insider in a three-way telephone conversation which also included Brown, “KB and I have got off to a good start together,” and one of her first moves has been to give him additional responsibility for IPS’ global manufacturing and supply chain activities. In that role, he takes over from manufacturing and supply chain vice president Jeff Greene who has been appointed president of Eurotherm in succession to Peter Tompkins, who is to step down on March 31after 34 years with the company.

Outsider
Commentators have been quick to point out that Eberhart comes not just from outside Invensys, but from outside the industry, having spent her entire career since 1978 with IT consultancy and services group EDS where, most recently, she was president of the group’s largest operating unit, EDS Americas. Her appointment has triggered a predictable reaction that by appointing a “bean counter” Invensys top brass are reverting to type.

She, however, argues that she brings skills and experience that are particularly appropriate to IPS. “I come from a similar background. Like EDS, IPS has a proud heritage and culture. EDS was about helping customers to use technology and IPS does the same thing. It’s all about helping customers to do a better job.”

As a qualified accountant, she has clearly taken a long, hard look at Invensys’ current financial position. In her view, “The restructuring is behind them. They’re making the turn. They’re poised to take off in the future,” and, most significantly, she sees one of the key questions being, “Where do we need to invest?”—not something that has concerned Invensys much recently.

So what of the suggestion in at least one quarter that she’s been recruited in order to prepare IPS for sale or indeed as part of preparations for the sale of the whole group? It’s not an idea which meets with much enthusiasm.

“I’ve been brought in to be CEO of IPS,” she says pretty sharply. “We’re going to move down this path together. I’m here to do a job, and people can speculate about what that job might be.”

Whither KB?
Meanwhile what of Brown, who would have been less than human if he had not been hugely disappointed at being passed over, and who must now be a prime headhunter target? As far as one can tell over the phone, he and Eberhart do get on well, and at this stage, she clearly values his deep knowledge of the company and the industry. She is, she says, “a huge believer in diversity. We need a team with different backgrounds and experience.”

 

More from the February Issue

  For his part, Brown says he remains “absolutely committed” and, in an extraordinarily magnanimous tribute to his new boss, explains that, “Clearly Paulett’s experience comes from a different perspective. From my perspective, her skill base makes it clear to understand what has happened.”

Eberhart believes that one of her key strengths is her ability to manage complexity, developed and honed as EDS grew from a $200-million to a $20-billion company. It’s that ability which she believes Invensys CEO Ulf Henriksson identified as what is required as IPS transitions from a product-and-systems provider to a deliverer of services and solutions, epitomized by the launch of InFusion nearly 12 months ago. She says that in her conversations she “hit it off with Ulf,” while Henriksson is quoted, in the official announcement of her appointment, as saying that, “Paulett has been very successful in growing similar businesses within EDS …”

That doesn’t necessarily mean that the ultimate aim is to convert IPS into a pure services play. “Our customers are asking for more,” she says, so it’s a question of “How do we develop our capabilities and how do we package them together and spend more time with the customers to meet their needs.”

That, according to Brown, means that “There’s a requirement to have a base foundation in place” in terms of products and systems and that “All the elements are required.”

Baker Report Shines Spotlight on Standards Compliance
Increased investment in safety and safety systems right across the global refining industry can be expected following last month’s publication of “The Report of the BP Refineries Independent Safety Review Panel,” more commonly known as the “Baker Report” after the Review Panel’s chairman, former U.S. Secretary of State James Baker.

The review panel was set up by BP following the accident at its Texas City, Texas, refinery in March 2005 that killed 15 people and seriously injured more than 170 others, making it one of the worst industrial accidents in the U.S. in the past 20 years. However it was not part of the panel’s brief to investigate that incident or to apportion blame. Rather it was charged with conducting “a thorough review of the company’s corporate safety culture, safety management systems and corporate safety oversight at its U.S. refineries.”

Despite that, even the introduction to the executive summary leaves the reader in little doubt what the panel believes was the root cause of the accident. “Preventing process accidents requires vigilance,” it says. “The passing of time without a process accident is not necessarily an indication that all is well, and may contribute to a dangerous and growing sense of complacency.

When people lose an appreciation of how their safety systems were intended to work, safety systems and controls can deteriorate, lessons can be forgotten, and hazards and deviations from safe operating procedures can be accepted. Workers and supervisors can increasingly rely on how things were done before, rather than rely on sound engineering principles and other controls. People can forget to be afraid.”

As has been widely reported in the general press, Baker puts the responsibility for BP’s deficiencies in process safety fairly and squarely on the company’s management, with the greatest blame accruing to the highest level. But it makes it equally clear that it does not believe that the problems in BP’s U.S. refining operations were or are unique to the company or indeed, by implication, unique to the refining industry. Just a few lines earlier it says, “We are under no illusion that deficiencies in process safety culture, management or corporate oversight are limited to BP … We urge these other companies to regularly and thoroughly evaluate their safety culture, the performance of their process safety management systems and their corporate safety oversight for possible improvements.”

But if the report focuses primarily on the issue of safety management and, specifically on the failure of BP management to ensure compliance with its own declared standards and best practices, there is plenty for the more technically minded to get their teeth into as well. Arguably most important, it will remind operators, suppliers, regulators and observers that while the development of new standards may make the plants of the future safer, they can do nothing for existing plants, which particularly in Europe and North America, means the majority, unless they are applied retrospectively. It is all too easy to gain the impression, for example, that because IEC 61508 and 61511 have been in existence for some years and are frequently referred to by vendors, regulators and commentators, they have been universally adopted within user industries. However, both the report itself, and the consultants’ report which is attached to it as an appendix, reveal that a full 10 years after ISA 84.01, the US equivalent of IEC 61511, with which it is now effectively merged, was first published, “… none of BP’s five U.S. refineries had a comprehensive plan for conforming to ISA 84.01, and only Toledo and Cherry Point have implemented it for recent projects.”

Moreover, it adds, “… one refinery (Whiting) did not implement ISA 84.01 for its newest process … unit scheduled for startup in 2006” while “discussion with BP refinery instrumentation subject matter experts indicated that it might be another 10 years before ISA 84.01 would be fully implemented in the BP U.S. refineries.”

Even at this distance it’s possible to hear the sharp intake of breath as the consultants add, “The PSM (Process Safety Management) Review Team believes that it is feasible and reasonable for BP to expedite ISA 84.01 implementation and complete it at a much faster pace.”

After that, and given the emphasis of 61511 on the entire process safety life cycle and, for example, the requirement for regular proof testing in order to maintain SIL ratings, it hardly comes as a surprise, but is nevertheless deeply shocking to read that “BP did not properly bypass or test some important alarms and shutdown devices.” That comment might be considered fairly mild, given that it is based on data which includes “226 critical alarms and ESDs … overdue for testing” at Carson, “Four instrumented shutdown systems … past due for testing” at Cherry Point, “a written procedure had been developed to support periodic testing for only one of seven critical alarms that were selected randomly” at Toledo and “Several critical alarms were improperly (permanently) bypassed” at Whiting.

Not only that, but where deficiencies which might compromise process safety were identified, they were by no means always rectified immediately. Thus “all five refineries over the past few years had (1) significant numbers of action items that were not completed within a reasonable period of time, and (2) backlogs of overdue action items—some as long as many months or years overdue.” In fairness it does add that more recently, “All five refineries had made reduction of action item backlog a priority” and that at Cherry Point “an intense focus in 2005 reduced the action item backlog to zero.”

Investment
One result of Baker will almost inevitably be increased investment in new generation control and safety systems as companies move rapidly to bring their existing operations in line with IEC 61508 and 61511. It is however a sobering though that underpinning the new standard, and the new systems which have been developed under them, is an even greater requirement for the correct identification and assessment of potential hazards, for the detailed design of the systems to reduce the risks posed by such hazards to acceptable levels and an absolutely religious devotion to ensuring that those levels are maintained throughout the life of the plant. Sadly the message of Baker is that, even in the largest companies that cannot be assumed. We all need to remember to be afraid.

UGS Acquisition Extends Simatic IT Beyond the Plant
Rumors that Siemens was planning a major acquisition were confirmed last month when the company announced that it had reached a definitive agreement, subject to regulatory approval, to pay a consortium of private equity investors $3.5 billion for Plano, Texas-based UGS Corp. The company was sold to the private equity investors by Electronic Data Systems (EDS) in 2004 for just over $2 billion.

UGS is widely recognized as the leader in product life cycle management or PLM technology and is to be integrated into Siemens Automation and Drives (A&D) which, it claims, will become “the first supplier for the manufacturing industries to provide an end-to-end software and hardware portfolio encompassing the complete lifecycle of products and production facilities.”

Extending Simatic IT
In effect UGS will extend the Siemens Simatic IT concept beyond its current focus on the manufacturing supply chain to embrace the entire life cycle of the products being manufactured. To that extent UGS complements rather than overlaps the current Siemens portfolio which should ease the deal’s passage past the European and U.S. competition authorities. However, UGS had to some extent been moving towards the manufacturing automation world itself with its relatively recent acquisition of Tecnomatics, which had in turn comparatively recently acquired SCADA pioneer US Data. As a result, the UGS acquisition will not be entirely free of integration challenges as Siemens seeks to integrate yet another set of legacy SCADA and MES applications into its portfolio and to provide their users with ongoing support and a credible migration strategy.

UGS has a global workforce of 7,300 and claims more than 46,000 customers in 62 countries across the automotive, aerospace and defense, consumer goods, electronics and machinery industries. It claims particular strength in what are said to be the fastest growing sectors of the PLM market—collaborative product data management (cPDM) and digital manufacturing simulation or the “digital factory.”

In 2005 it had revenues of just under $1.2 billion and in the third quarter of 2006 reported its thirteenth consecutive quarter of year-over-year revenue growth. In the best tradition of venture capital-backed high-tech companies, that does not, however, mean that it actually makes profits. It lost $22 million in 2005 and a further $7.4 million in the quarter to September 30 of last year. Siemens’ profits fell 16% year on year in the quarter to December 31,  2006, as a result of having to pay a $517 million fine to the European Union relating to price fixing on heavy electrical equipment. Without the fine, profits for the quarter would have been up 51% to $2.1 billion.

“With the acquisition of UGS, we combine its competence in the sector of digital factories with our leading know-how in industrial automation,” said Siemens president and CEO Klaus Kleinfeld. “This combination makes our customers’ processes faster, better and more cost- efficient. With the unique combination, we underscore our position as a trendsetter in automation systems and bring this business into a new dimension.”

Siemens will not necessarily have it all its own way in the PLM market, however. UGS’ chief competitor is Dassault Systemes (DS) which is Europe’s third biggest software company. DS recently signed a major new partnership agreement with IBM. Blue chip IBM/DS clients include Ford, Boeing, BAE and Toyota.

Rockwell embarks on an Irish adventure
Further evidence that acquisitions are very much back on the automation industry agenda comes with the news that Rockwell Automation has acquired Cork, Ireland-based system integrator ProsCon Holdings. Although no price has been officially disclosed, the word on the Cork street is that Rockwell paid “20 million,” although whether that was euros, sterling or U.S. dollars isn’t clear. If euros, that puts the price at approximately USD $26 million or just over £13 million, which suggested to at least one observer that Rockwell was paying at the top end of the price range.

ProsCon’s particular area of expertise lies in the pharmaceutical and biotechnology sectors where it has built up a considerable reputation for helping companies comply with regulatory standards and manage the associated business risk. It has also developed a range of modular solutions designed to deliver faster and more cost-effective implementation both of new facilities and retrofits of existing plants.
Rockwell says that ProsCon’s existing management team and employees will join its global solutions team, serving customers locally and around the world.

Rockwell vice president for life sciences, Bob Honor, described the deal as giving Rockwell “critical mass and increased presence in Ireland, one of the fastest growing life sciences markets, as well as in Europe, one of the largest life science markets in the world.” That may well be true, although observers of the Irish scene suggest that the motivation behind the deal has more to do with Rockwell’s need to demonstrate an Irish presence in order to clinch a major relationship in the pharmaceutical sector.

Precedents
The acquisition of system integrators by automation hardware and software vendors is not a class of deal which has a particularly happy history; witness for example, Siemens’ acquisition of the UK’s then largest integrator, Dickinson Control Systems, back in 2001. In general, the effect is to scare other integrators into the arms of other vendors while simultaneously upsetting those former customers whose allegiances are with other vendors’ hardware or software. Potential for nose dislocation as a result of this particular acquisition may exist at Emerson, who used to be represented in Ireland by ProsCon; Hanley Controls, Rockwell’s sole agent in Ireland, who played a major role in the Rockwell University event there in 2006; Pfizer for whom ProsCon recently completed a major Siemens-based project; Siemens itself for the same reason; and ONG Automation, which has had a close relationship with Rockwell in recent years. Companies hoping to benefit from the resultant fallout of former ProsCon customers could include Zenith Automation and PM (Project Management) Group.

Signs of a Slowdown
Signs of a slowdown in the North American automation market may be discerned in Rockwell’s results for the first quarter of 2007 which showed sales in the U.S. increasing by just 2% although total sales were up 7% at $1,146.3 million. International sales were up 9% with continued strength in Europe and Latin America, but weaker results in Asia Pacific and Canada.

Following the divestiture of the Power Systems business completed last month, the former Control Systems reporting segment has been replaced by two new segments, Architecture & Software and Control Products & Solutions. Architecture & Software, which contains all elements of the company’s integrated control and information architecture, saw sales increase 6% in the quarter, with the Logix platform business growing 11%. Segment operating margin was 27.8%, down from 29.1%. Control Products & Solutions quarter sales were up 8%, but segment operating margin was just 12.9% although that was an improvement on last year’s 11.7%.

  About the Author
Andrew Bondis Editor ofIndustrial Automation Insider (UK) and can be reached at Tel +44(0)1622 858251, or by e-mail at[email protected].

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