Podcast #140 Inorganic Growth

Good day, and welcome to edition 140 of our Digital Industry Leadership series. Today it is a great pleasure to welcome Jerry O’Gorman, Vice President of Industrial IoT Advantech North America. Advantech is a nearly $2-billion global industrial intelligence leader, headquartered in Taiwan. Prior to his acquisition by Advantech, Jerry served as CEO of B+B SmartWorx US, a Managing Director of B+B SmartWorx EMEA, located in Ireland. Jerry has over 30 years of experience in business leadership, general management, and international sales and marketing for a variety of technology-based companies across industrial automation, and IoT-related industries. He has been particularly active in mergers and acquisitions with a strong track record of success, through technology and channel development, as well as new business case initiatives.

Jerry, welcome to our Digital Industry Leadership Podcast.

1:31

Hi Ken, how are you?

1:33

All well and so good to have you on this.

1:35

Thank you.

1:37

We always like to start these interviews with a little bit of understanding of your own digital industry leadership journey. What would you consider to be the digital thread of your leadership journey? 

1:53

I suppose there’s a couple of common threads, some of which I could now look back and relate to the digital experience. So, common threads for me are, I’ve almost always worked for companies with a solid technology base, where usually I would say one common theme that crops up a lot in digital industry, and has occurred many times in my career, is the whole concept of added value and mission criticality; working in applications that have a mission-critical element, or a business-critical element, and therefore levels of service and added value become very-very important.

One that really strikes me, the name of the first company I worked for was called Laboratory Data Control. We now look to the digital age, we look to IoT and the importance of data in the business context for applications business solutions. At Laboratory Data Control we were the back end, data-crunching for a very important emerging technology and application in the area of high-pressure liquid chromatography, and it’s the kind of analyses that you use routinely these days for determining for example, what’s the constituent and concentration of various drugs in somebody’s system, and things like that. So, we were doing the data side and we were manipulating the data, these devices delivered a graph or a curve, and we were integrating the area under the curve that was proportional to, let’s say the quantity of the substance you were measuring. So that data theme is very important, and I suppose in addition to data for technology, what I found over the years is the importance of good solid accurate data for good business decisions. I would say they are some of the foundational elements when I look back now.

Another very interesting one which kind of surprised me many years later when I joined B+B, was in the laboratory industry at that time, even though you look back on it now with ethernet connectors and Wi-Fi, a laboratory environment being more like an office environment; but many-many years later when I joined B+B I noticed that serial interfaces, or S232, or S422 or S485 were still very common communications technologies, and that’s what was being used in the laboratory industry way back at the beginning of my career. These communications methodologies were at the foundation of what was a very newly emerging laboratory information management system back then. So even though my initial work and journey with that company were very involved with laboratory analytical instrumentation, it exposed me to a lot of the technologies, concepts, communications technologies that became extremely relevant later on in my career, for machine-to-machine communications, IoT, and digital industry. 

5:16

You’ll recall we had KC Liu who is your CEO and founder at Advantech on a podcast not that long ago, and it was very interesting to understand the journey Advantech went through, which started off in the very same kind of Limbs area that you mentioned, especially around GPIB and the use of PCs for laboratory animation. Strangely enough, it is also my background and where I came from, it is less of an IT evolution as you say, less about the office environments and comparable to let’s say IT solutions, than it is really more OT, so not surprising to see B+B also have some of the same elements of it later-on in that regard.

You’ve already started to mention some of your early experience as such, so I’d say firmly seated in industrial companies; you mentioned you’re mission-critical as a key element, what were some of the early lessons learned during that time?

6:21

One thing when I look back on it now that stands out, and maybe I got a lot of exposure to the whole area of mergers and acquisitions at a very early stage, that company I mentioned, Laboratory Data Control went on to become part of Fisher Scientific, it was acquired by them. I stayed with the parent company which was called Milton Roy, and we pivoted the business in Ireland that I was involved with into electronic control of dosing pumps for water treatment. Again, the common theme for me, my background, my training was in chemistry, and that was the linkage between the laboratory instrumentation, and then water treatment obviously has a lot of chemistry involved. I found myself invoking many different technologies and learning many different technologies at that time.

But the interesting thing again relating to organic growth and acquisition is, Milton Roy was subsequently acquired by a company called Sundstrand, which led to a situation where I relocated to France to move the business unit, to become part of a larger business unit there. It was very fundamental to my development and experience I would say, working in another country, managing sales team and channel in many different countries, and a sales team in France.

So, the influence of mergers and acquisitions from a variety of perspectives at that time was being acquired later on, which led to making acquisitions and using that experience of being acquired to hopefully do the right things when you’re acquiring a business. Again, the theme of mission criticality; in water treatment, you have to have many-many layers of resilience. We hear stories these days about cyber-attacks on municipal water treatment plants, but in general, there are many layers of resilience and those controlled systems that you learn from that situation.

I think the other aspect that came to bear through the various mergers and acquisitions, there are always some issues with channels that need to be resolved, and I generally found myself involved in channel development, and then when you had a merger you had a number of channels in the same region, in the same country. It led sometimes to some difficult decisions to decide what was the optimum channel for us going forward in the new environment with the new company, you had to learn that. A really common lesson learned I would say throughout my career, which maybe is independent of the digital journey, and is one that is very common across all industries is when it comes to the area of customer service, it’s really translating all this great technology, and I’ve been involved with a lot of companies with some great technology, Advantech is right up there in terms of technology and product offering. But ultimately, it’s about understanding applications, and particularly the customer’s pain points; how can we translate the wonderful technology in terms of how it can address those pain points, how can it bring that level of convenience, that added value element to enable your customers business to thrive?

I think that’s the real standout key lesson I would take from all the aspects of my career and experience.

10:01

And really drilling down on that, and our earlier conversations before this podcast, we talked a lot about your work in the Precision Tool Group. So, you became VP of Global Sales & Marketing for them, a manufacturer of precision tooling for fasteners and metal forging. No pun intended, but I understand that you actually forged some of the early outcome-based solution and pricing models that they enjoyed. Can you talk a little bit more about these models and the resulting wins?

10:31

Yes, I think there are two key elements of my experience in the tooling industry. It was somewhat of a diversion for me from the other industries I was involved with, but early on I learned that to understand tooling and then the benefits – and we were involved in high-precision tooling for critical applications like thread tools for rolling threads on very critical fasteners, like the once that hold the engine onto an aircraft wing, or the very important safety Conrad bolts, etc. in automotive, so very critical ultimate application areas.

But a couple of things from a business point of view, for most items that you end up involved in, sales and business, and you’re promoting your products, and you encounter professional purchasers on the other end of the table, and of course, they’re doing their job, they’re always fighting for value, they’re always fighting for the best price and value for their company. But specifically in tooling and it's true in many industries, but very particularly so here, the value in the tool is basically the lifetime value. You really need to understand the processes of that customer, the tool is being used and the cost of the machine turnover can be magnitudes of the cost of the tool. So, achieving long life in a tool, not having that as the critical point that causes a machine chip turnaround, that’s really really important. Sometimes it was a difficult value to sell if you didn’t get the right audience.

So, because of our knowledge in tooling in general, first of all, we had to understand what are the tool technologies that we’re really best in class at, ones that we’re world leaders in, and we obviously promoted those to the maximum. But it was equally important for us to understand that whilst we had a great knowledge of other forms of tooling, we had ceased to be maybe the most competitive in the world at making those, but we knew enough about them and we knew what constituted great tools to understand that if we were involved in brokering those, in finding the best sources for them, we had a key role to go offer in terms of the management of that tooling.

Putting all those issues together we came up with the concept of what we call forming tool management, where we engaged with companies at a high level, we had a deep understanding of the metrics that drills, tooling in an industry, what should your average tooling cost be in proportion to your output, or to your sales. And by going open book with these customers and understanding where they were at, we would make a really strong commitment to them over a number of years program, maybe a 3- or 5-year program, to achieve the optimum level of tooling cost as a percentage of output.

On the journey to get there we provided them with our world-leading best-in-class tools, and we set up sourcing organizations in Asia, the US, and Europe, to acquire other tools from best-in-class companies but manage that whole process in an efficient manner. Thereby we would make commitments to those companies that they would achieve their goals, and if they didn’t, we would actually write them a cheque for the difference between what their tooling cost was, and what we projected it should be.

I keep thinking about that one in recent years when we talk about new business models being derived from IoT, and ways of thinking, and that was back in that time a very forward-thinking methodology in terms of bringing pure customer value in a way that was very-very much results-based. So that was one very important element of that.

14:54

Yes, and you hinted to kind of reinforce the outcome-based part of that, many times we’ll call that outcome-based now, GE of course talked a lot about always focusing on the outcomes versus the technology enablers of those. So, it’s interesting how we’ve translated that as we come forward in the digital journeys there.

15:14

Yeah, and I think the second important part of that journey for me was, I joined the company at a time where we had a very specific strategy to grow through acquisition. By its nature, the tooling industry had a lot of small companies, some of them very closely linked to major industries and major companies in their location, and they grew up around those companies, but they developed a lot of skills and a lot of confidence. Our concept was to marry together a professional channel development program so that as we acquired these smaller companies, we could very quickly take their value to other regions, through our channel, through a competent channel that we were developing.

We started out with what was a strategy to grow inorganically through acquisition but doing so in parallel to the development of a channel strategy. I found this to be a really interesting phase for me personally with some of these acquisitions, I was very involved in the case of one we met in Milan. I ended up going there to work there for most of the first year while we were searching for a new general manager for that location and got a lot of insights into those businesses. Very often we acquire them from a family, they were a family-owned business. We wanted to make those acquisitions in a way that involved those people’s experiences, their skill sets, and kept them very involved in the business with their contacts, etc. So, a lot of lessons learned there that I was able to apply later when it came to organic growth.

17:12

Yes, very much so, a very solid if you will, focus that carried that forward.

In 2006 you joined B+B Electronics Group Company with a 25-year history of delivering rugged and reliable wireless connectivity solutions in the machine to machine. You expanded that business early on with a first acquisition, not surprising given our conversations. What was the reason for resorting to inorganic growth so early, and what did you have to do to prepare the organization for this?

17:45

Yes, I think it’s interesting and I suppose the first surprise for me in joining B+B in 2006 was, understanding that a substantial amount of their business and the B+B business was with various types of serial communications interfaces, serial protocol converters, serial to Ethernet, serial to USB, serial to serial. And for me, the shock was re-engaging with serial interfaces after my first role many years before in the company and understanding that it was still a very important communication.

So going beyond that, I think the first thing at that time was to understand the B+B business model had developed, mainly in the US as a catalog company, and B+B was one of the first companies to adopt eStore sales, web sales, online sales in this industry, and that derived from the catalog foundations. A consequence of the catalog approach is that we look like an attractive channel for many other companies, some of whom we would have some competitive products with, but we were very successful in introducing some other brands, particularly into the US market and growing that business.

When I joined B+B I was working in Europe and I was leading the European organization, and it was an early stage. That direct catalog model for a variety of reasons, language being one, culture another, European countries in that industry tended to do business with locals, so, therefore, building a channel might have been a more relevant approach. So, working with that model, and I suppose taking into account some of my earlier learnings around added value, mission criticality, understanding the customer's pain points, and addressing those, I started to develop some business in the EMEA region, that was more key account focused, it was more project-oriented rather than your typical transactional catalog sale. Therefore, we started looking, how could we create more value? We started to produce a number of custom products, especially designed, designed to order type products using our engineering teams, to provide customers with that 100 percent solution, that final piece to give them the added value that really worked for them, that optimized the solution, made the price of the product less relevant because of the value being delivered. So that was the early stages in that.

I would say the reason why inorganic growth then became very important is, as we wanted to become less reliant on the resale of other brands and depend more on the development of our own technology, we had some gaps to fill; trying to fill that technology gap with organic growth and development would have taken some time. At this stage, we were also private equity-owned in private equity companies, and we’ve had some good owners willing to invest in the company, but there’s a limit to the amount of investment that a private equity company wants to do in terms of R&D. It’s probably more in the model to acquire a company with that technology that also brings revenue, business and customers along with it.

So, we embarked on some bolt-on acquisitions, leading to the acquisition of a company called Quatech in Ohio. We were a reseller for Quatech, we understood a lot of the value they brought to the company that was based in Ohio; we were in Illinois, and that acquisition was quite easy to integrate. We then acquired the company called IMC in California whose specialty was in fiber media conversion; they had a really strong business with government agencies. And one that I was particularly pushing, and driving was ultimately our acquisition of Conel based in the Czech Republic, mainly for the technology of cellular routers. They were a really solid company, great engineering foundation doing really well in Europe, and we saw the opportunity to bring on this technology. We had been reselling some other brands of cellular technology at that time, we understood the value where this could go in terms of remote connectivity, machine to machine communications, etc.

But an interesting common theme amongst all the acquisitions we did is, they were doing business true to more traditional channel routes to market, and they all sold with channels. So, a lot of added value that came our way were these channel relationships, but it posed an interesting question for us, the foundational business was built upon direct selling, direct marketing models, internal customer service, internal technical support, supporting that business; to one where it was predominantly through the channel. I think for the international markets and particularly for Europe that model worked better, and I think we faced some challenges in integrating and altering that approach in North America, which we ultimately did successfully, whilst maintaining a certain direct presence through the web. Obviously, the catalog is no longer a feature of that model, but certainly, eStore selling is definitely part of it.

24:04

The strategy must have worked well because I think in 2013 you went on to become President CEO of B+B SmartWorx, a new name for the next phase of that company’s growth. How did you evolve the focus of the company and continue to drive the growth trajectory?

24:22

That brand change was quite important, I think. First of all, the whole issue and topic around IoT were emerging very strongly at that stage, it was around 2013-2014. We felt we had changed a lot as a company, we were more reliant on the development of our own technology, our own technology foundations, our own solutions, and what we could bring to the table. It was less about transactional selling, commodity selling, and more about offering solutions. We had some interesting thoughts in terms of development at that time, so we embarked on a major R&D push to a technology we had done some work with a number of years previously; maybe the market wasn’t ready for it, so we were involved with Dust Technology as they were known then, with their SmartMesh IP, very low-power wireless technology, which we felt had a lot to offer in the market for these emerging thoughts around sensors, wireless sensors, low energy sensors, and we developed the Wizard product line which was a real advance for us into the southbound side of the communications, really get out to the Edge.

At that time, we had a lot of gateways, we had a lot of products that could be considered Edge, but really getting to the Edge and measuring data with some intelligence, right out at the Edge of the network. We saw rollers gathering that data, and reliably and securely transmitting that data to some higher authority, whether that was a back-end cloud management, a back-end sophisticated control system to make those types of decisions, but to do so with a lot of intelligence built-in. So that was a really important development at that time, and we felt that our brand needed to change to reflect that deeper dive into technology, to distinguish ourselves more in terms of what we were doing at that phase.

Our ownership at that time greatly supported the idea that with private equity ownership, everyone knows that at some stage the company will probably be sold. There were options, we were already in the second phase of private equity ownership, and the feeling amongst the management team and myself at that time was that the next exit would be better for the company overall if it could be to a strategic owner. It was good that our ownership at that time was open to all possibilities, maybe a financial buyer but also a strategic buyer, and understood that we needed to have a deeper bench in terms of technology, product confidence, skillsets in that direction, to be attractive to a strategic buyer. So, we made those kinds of investments and the branding change was a reflection of that.

27:43

Well, all of it aligned, including the strategic buyer, because in 2015 you sold your company B+B SmartWorx to Advantech for a reported near $100 million. From all the external indicators this has really proven to be a successful acquisition and integration, at least from our perspective looking outside–in. What do you believe made it so?

28:11

I think a number of things. First of all, B+B SmartWorx had a long-standing relationship with Advantech, back in the days of our catalog we featured a number of their products widely, we were extremely successful in selling the Advantech range of ADAM I/O modules, I think it fitted very well with our product line. So, there was that internal existing communication and knowledge that was there. We were huge admirers of Advantech in terms of how they had grown and developed in the marketplace, led by KC. I think KC’s influence, for a company that’s become quite large it still had that entrepreneurial spirit. So, amongst our leadership team at the time, and these issues are never resolved by one person, there’s usually a team involved, and our team was well-aligned and with the options available to us at that time, we found that this was an attractive option.

Probably on the Advantech side, maybe what they saw more than what we were looking at was, less on the technology and more on what we had achieved through the channel relationships we had developed, and therefore access to those channels, access to that revenue was also an important point to them along with selective technologies that we had. So, I think they were the factors that helped the decision.

Maybe my own experience over the years in both being acquired and making acquisitions, played some role in helping the subsequent successful integration, along with the committed team we had in place at that time, and the open-mindedness of the team to new things, to change. I suppose being owned by private equity for a number of years exposed everybody in the leadership team to the reality that ownership changes will occur, can occur. So, it’s not like a great shock to the system, people are ready for it, and we felt through the process we went through that our management team had a large say in how the future would go. We were obviously very-very involved in all of the due diligence and evaluation processes that took place, so we were very much pivotal in that whole situation.

30:52

It’s a post-integration, certainly, the business has continued to strive to do extremely well. So, you’ve led Advantech’s industrial IoT efforts in North America; what are some of the key trends that you’re tracking relative to the industrial IoT, and where do you see the opportunity spaces in North America, and perhaps even in Europe? 

31:16

I think obviously everybody had huge hopes for industrial IoT, digital industry, this migration, this explosion that everybody was expecting, and I suppose up to a year or two ago there was a certain level of disappointment in terms of the reality of that. I think what we’re seeing today very much, are a lot of the themes coming to fruition. We’re seeing huge interest in everything to do with Edge computing, bringing intelligence to the Edge, computer platforms that are quite powerful at the Edge, ones that can run sophisticated machine learning and AI algorithms. We’re seeing a very strong emergence of video-based, particularly video-based AI in a lot of application areas that we’re involved with. Newer technologies that are emerging around communications like 5G, we have a lot going on to be part of that migration, we think the 5G one is particularly interesting. We’re seeing a lot of growth in private cellular networks, but the promise of low-latency wireless communication for industrial controlled processes is very-very interesting.

I would say for us to encapsulate the real excitement that’s going on right now is around Edge compute. This brings in another very interesting aspect to the business, and for many years people have talked about eco-partnerships, partnership programs. But we’re really seeing some of these coming to fruition right now, a lot of great emerging software, early-stage companies with really nice applications delivering a lot of value. We feel we can be a really stable partner for those companies, we have an enormous range of hardware platforms to host that software on. We’ve got a lot of the market penetration and contacts to help them grow, and therefore you’re getting to the point of what constitutes a great partnership commercially, where there’s mutual commercial success. Some great projects we can participate in and win together. So, I see that as a really strongly emerging area as well, particularly because of our strength in hardware platforms; I think we can have really interesting partnerships with a lot of these emerging software companies, and solution companies.

We think in overall trends as part of the division, obviously, a huge amount of the value in the future market will be delivered through solutions and services, partnering with the right types of system integrators. There’s a need, and maybe some of the slowness and the adoption of industrial IoT was the lack of maybe system integrators that needed to make that migration from being purely OT, or being purely IT, to that combined domain focused system integrator type of company that we believe is key to growing this market. We’re seeing the emergence of some interesting system integrators there and solution companies, ISVs, that understand that to win in this market requires a mixture of thinking, a mixture of technologies, this long-discussed migration of IT and OT that needs to happen. We feel that a lot of companies are really getting that now, understanding it and what it means.

So, a lot of opportunities in this marketplace at the moment, for us we would say really led by a huge interest in Edge compute.

35:28

And you guys are clearly well-positioned for that because of course Edge is based on Edge hardware, and Edgeware, and moving completely up the stack as you say into solutions as well.

I think equally well-placed is your past experience at B&B and B+B, given the learnings you had in both cases, and the value that you saw really coming out of the work with Advantech, especially as you say on the commercial and channel side. It’s a part of that business that people probably underrate a bit compared to they’re a great technology provider, and I agree with you that in our experience with them as well, that is probably the hidden jewel in terms of working Advantech.

So, in summing up your experience inorganic growth, you’ve been on both sides of the table in terms of being an acquirer and acquiree; what are some of the key considerations a potential acquirer should consider, and conversely what a potential acquiree should consider in some circumstances?

36:35

Obviously from the acquirer’s side, understanding the strategy; the reason to make this acquisition is very important. I suppose though everyone’s career we have seen some bad examples of acquisitions that didn’t work out, and I think sometimes it comes down to the simple fact that the acquirer forgets the reason why that company was a great company, they wanted to acquire anyway. That sounds simple but it’s so true sometimes, is that you buy the company because it has these outstanding features, and then you do things that ignore those features! So that can be the bad side.

I think having a strategy, having worked out what the post-integration is going to look like and be ready to communicate and execute on that. Execution integration can vary, there are times when you want to go softly-softly slowly, and there are times when it makes sense to move more quickly depending on what the strategy is. But I think the important thing to do at all times is to maintain strong, open communication, because you want to bring people with you, there are important skillsets, there’s important industry knowledge in the company you’re acquiring. You don’t want to lose that, you want to encourage it, you want to look for opportunities for people to advance in the new reality. So, I think spending the time to understand the business.

In the case of when we were acquired by Advantech, we were already a company that was professionally managed. I think you face other challenges when you acquire a company that’s a family business; the original founders are still there, their passion for the business and how they went about doing that business is very strong. I think you need to adopt some additional tactics there, you need to really get a deep understanding of what drives those individuals because usually, they’re very important to the success and the post-acquisition phase. So, you need to understand their drivers, you need to understand a lot about them, develop the right kind of relationship with them because otherwise there’s a lot more emotion, I think in an acquisition that is made directly with founders, or with family companies, compared to a professionally managed company. But they can all be successful.

I think you’ve just got to adopt and adapt your tactics, but it always has to be founded on the right strategy to start with, you’ve got to see what the synergies are going to be. Obviously, synergies that are based on driving lots of growth are always the best and most exciting for everybody. The reality is there are also acquisitions that leverage synergies on the cost side, they’re difficult to manage, again communications is important, you need to be very fair to team members who have given good service, etc., but they can be more difficult to manage, but nonetheless they can also be very important to the long-term sustainability of the business. So, I’ve encountered all sides; again, obviously, ones founded on a strategy for going after significant growth is very exciting, and usually, the acquired company sees the acquirers coming with the right resources, strength, and capability as we saw with Advantech, to help us grow and develop in that way.

40:27

Yeah, truly revenue agreed on event and in the short term those are always the best acquisitions where you can see the very strong, as you say, growth-oriented synergies in that regard.

Finally, and briefly, just curious, where do you find inspiration personally, thinking books, people, online, etc.?

40:48

I would have been a great admirer of some books like Good to Great, or 7 Habits of Highly Effective People, but I think for me the more inspiring scenarios have been some of the great mentors and business leaders I’ve encountered through various businesses I’ve worked in. I think that’s where I’ve gotten most of my inspiration.

On a very broad, general basis, I’m constantly inspired by great sportspeople. When you analyze and look at the psychology of sport, and you look at the amazing efforts that sportspeople make to reach that pinnacle, it’s always inspiring. But from a business perspective, I would say again, it’s mostly people, other business leaders, and mentors, some had a great significance for me.

41:46

And clearly the art of the inorganic growth option!

41:51

Yeah.

41:52

So, Jerry, thank you for spending this time with us today.

41:56

Ken, it was a pleasure, thank you.

41:59

As well. So, this has been Jerry O’Gorman, Vice President of industrial IoT Advantech North America, and if I may, an inorganic growth practitioner. Thank you for listening, and please join us next week for the next episode of our Digital Industry Leadership Series. Thank you and have a great day.

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