A revolution in the industrial-automation market is forcing electrical distributors into software. Matt Hartman started up FESTech Solutions to teach them how to sell the stuff.
It was decision time for Matt Hartman. The president of Findlay Electric Supply, Inc., Findlay, Ohio, a distributor of Allen-Bradley products in western Ohio, had to either invest in the new staff, computer equipment and improved training facilities that the automation market now required, or cash out and sell the company to a larger electrical supply house.
This dilemma was forced upon him because the open-architecture, PC-based control systems with "plug-and-play" hardware components instead of the preprogrammed, proprietary systems of the past were fast becoming the automation systems of choice on the factory floor. The move was eliminating many of the automation products and systems that electrical distributors had sold for the past 15 years, and electrical distributors would have to either get on this new bus or soon be run over by it.
Hartman chose an unconventional but intriguing third path, an idea grounded in experience he had as a sales engineer for Findlay Electric Supply. His wasn't your average son-of-the-boss career track of working in the warehouse or office since puberty and spending college summers with the company until being anointed the heir-apparent. He went away to college to pursue a degree in electrical engineering at the University of Toledo. But in his first year he realized that he had been learning more about the automation and electrical fields in his job as a sales engineer with the company than he was in his engineering courses.
With the help of his father, Martin Hartman, he selected a mix of business-oriented courses at the University of Findlay that they believed would help him most in the distribution business.
Although Hartman doesn't consider himself a "techie," he does like to tinker with computers, and while a sales engineer, he figured out how to program a 286 computer with 4MB of RAM with customized spreadsheet applications for bidding lighting and power distribution jobs. He also sold PLCs for the company, although he readily admits this wasn't one of his strengths. But this experience with programming and industrial-automation products gave him a familiarity with how computer power could be harnessed that would prove useful down the road. It also showed how much customers rely on distributors' salespeople for application advice, troubleshooting tips and technical product information.
Because the control-related products were changing so fast on the factory floor, electrical distributors' salespeople constantly required retraining, but it was an expense that some could just not bear. With the help of Greg Myers, a sales engineer at Findlay Electric Supply (FES), Hartman developed a business plan for a company that would use state-of-the-art "Software Technology Centers (STCs)" strategically located around the U.S. to provide other Allen-Bradley distributors with survival training for the new automation market. The name "FESTech" blends the acronym for Findlay Electric Supply with the technical orientation of the company Hartman envisioned. Unlike some other generic training programs on the market for students who needed to learn more about factory-automation systems, Hartman and Myers used their background in the electrical wholesaling industry to develop a concept that would focus specifically on the needs of electrical distributors' sales engineers.
This plan had a few other major market trends going for it. After years of promoting a solution based on proprietary programming of its automation products, Rockwell Automation/Allen-Bradley, Milwaukee, Wis., was now fully committed to an open-architecture solution, and was ready to do battle with competitors such as Wonderware Corp., Irvine, Calif., that specialized in automation software for open-architecture industrial environments. The company also wanted to provide consistent training on the application of its stable of automation products. Rockwell Automation provided training on all of its own products, but was looking for a way to train its distributors on how to sell and apply these products in the market.
The company's upper management was also ready to put some muscle behind a demand that its distributors recommit themselves to the automation world by hiring software specialists and training them on the latest generation of Rockwell Automation software that would drive the company's factory-automation products.
When the company formally announced its demands for this commitment at a March 1996 meeting of its distributor principals, FESTech took a major step toward becoming a reality.
"Steve Szamocki, now Rockwell Automation's channel manager, gave a talk to all of the distribution management about the evolution of the software business, and what every distributor was going to have to do to change their business--the types of tools that they will need to support the software end of it, and the people they will have to hire. All the time he was giving this speech I was saying, 'Right on. These are the same things that I came up with.'
"Every other distributor principal in the room, except me, was saying, 'Who the hell is this guy telling me how I am going to change my business?' That was really the meeting that set the tone for FESTech's business. After his presentation I pulled him aside and said, "I would really like you to take a look at what we are doing at Findlay Electric because I think we have a model that works and fits what I just heard you say."
After a year of planning, the two men negotiated a one-year contract where FESTech would provide training and support services for Rockwell Automation distributors in the state of Ohio. That contract has since been expanded into a five-year exclusive contract to provide training on Rockwell Automation software for the entire U.S.
At last year's Allen-Bradley Automation Fair, distributors learned this training would be part of some strict new guidelines that the company would be asking of distributors. By February 1, 1998, distributors had to commit to hiring a software specialist and having him or her trained and certified in the FESTech curriculum. They also were required to have an on-site training facility; to hire a software specialist; and to have Internet access for downloads of Rockwell software updates.
"At that time they were told if they did not support it, they would no longer be able to buy software from Rockwell Automation," says Hartman. "Ninety percent of the channel thought they were blowing smoke. Rockwell Software was famous for developing programs and not following through. In the past, they had not been able to develop a program that the senior management level of Rockwell would stand behind, endorse and support. But this program had the top-down support it needed. On Feb. 1, 90% of the channel realized that they couldn't order software anymore. They were given an extension until the end of February."
Hartman says about 80% to 90% of the locations throughout the U.S. now have agreed to fulfill this commitment by the end of this month. "If they didn't meet one of the milestones, they were shut off again. Rockwell has been very stringent on that," he says.
"The program is definitely a success from Rockwell's standpoint," says Rockwell Automation's Szamocki. "The channel is being trained in software technologies, they are being provided the resources to use, and consequently software sales are up."
Hartman decided FESTech would be most effective if it operated as a separate company, and not as a subsidiary of Findlay Electric Supply, and in October 1997 he sold the electrical distributorship to McNaughton-McKay Electric Co., Madison Heights, Mich. A key reason behind the sale was that he did not think the culture and environment of a small electrical distributor would mesh very well with that of a company focused on automation training and application assistance. One major problem he saw was compensating highly skilled industrial-software specialists. If he had kept the two companies together, he believes he would have soon run into problems with the difference in pay scales of an automation specialist and that of the software specialist that electrical distributors now had to hire because of Rockwell's new demands.
"I saw a problem merging those two businesses together, and having people who may have been there eight-to-10 years not understanding that you have to bring someone in who is going to make $20,000 a year more than them, and in their first year on the job."
FESTech now has training facilities in Findlay, Cleveland and Milwaukee, Wis., and plans to open up one new STC in each quarter of 1999.
FESTech's training facilities must be equipped with the latest in training equipment and communications resources to accomplish its mission. To realize his dream for the first of these training centers, when building the company's headquarters, Hartman gutted an existing health club and built a master training room that offers networked computers for student lab team projects; fractional T-1 connections to the Internet; a 15-ft. front projection video system; tiered- seating and a kick-ass 600W, surround-sound audio system. The building, well-lit and professionally decorated with rich earth-tone woods, also offers students two smaller training facilities; the Cyber Cafe, a snack bar with Internet connections and an assortment of specialty coffees; and a health club.
The curriculum proves just how much training electrical distributors now need to compete in the automation market. FESTech has 14 instructors certified to train students in a broad range of Microsoft and Rockwell Automation software. To keep these instructors current in the field, they teach a week or two a month and spend the rest of the time out in the field working with distributors and end users on new applications.
The seven-week course, developed by Greg Myers, now the company's vice president of technical sales and support, and Tom Wylie, FESTech's director of training, covers industrial computing, networking and software programs such as Visual Basic 5.0 with RSTools; SQL Server 6.5 with RSSQL 2.0; RSView32; Internet/Intranet Enterprise Strategies; RSWire and RSFrameworks. FESTech provides the training for six of the course's eight modules; Rockwell Automation does the training for the other two modules. Hartman says students all have different timetables and learn in a different manner, so the curriculum is offered in a variety of media. Students can either take the training in two-week segments or arbitrarily go through the classes at their own pace. FESTech is working on an initiative to do Web-based training or distance learning, too. Most students opt to travel to one of the company's three training centers for the training, but distributors can also have a FESTech instructor conduct the classes at their place of business, or buy the course materials and conduct the training themselves.
Certification is a key part of the training. "There is a certification process, and every six months or every year they will have to take a test to recertify to make sure that they have stayed up to date with technology," says Hartman.
He says the product training he endured while a sales engineer for Findlay Electric Supply did not include certification, and as a result students did not always take the coursework seriously. "Students were not held accountable for going away for a week or two of training," he says. "They learned where the best bar was. As a distributor principal, that's not what you are investing your money in."
The program costs $1,200 for each of the seven modules, and Rockwell picks up $300. It's not cheap to send someone through the training, says Steve Ludwig, the company's manager of commercial marketing, especially when one factors in the additional expense of travel and lodging and time spent away from the office, but he says it's investment in a company's future.
"This is a program that requires some vision on the part of the distributor to commit to this," he says. "This is their way of committing that they are going to do battle in that marketplace."
Hartman says even a training program this extensive doesn't turn distributors into instant market leaders in the automation business. "The reality is that this training program gives them the ability to begin to compete," he says. "It gets them to the level where they have the ability to grow and develop their organization. It's a baseline. There's lots of new products coming out from Microsoft."
The students that complete this course are a select group, and at press time, 29 had completed the entire course. Along with the technical knowledge they acquire at FESTech, these sales engineers must have the personalities to go out on sales calls and interact with customers to be successful. That's not a personality trait found too often with engineers, says Steve Ludwig.
Another financial challenge for distributor principals who send their sales engineers through this training is keeping them satisfied at their jobs so they won't be as vulnerable to offers from competitors looking to steal an employee who has just completed an expensive training course on the latest in factory-automation technologies.
"Techies want to have all of the toys that they can play with," says Hartman. "Electrical distributors, because of the tight margins and tight budgets, are just not set up to say, "Okay, Mr. Specialist, you want to put four or five file servers in and a couple of play computers? Here is the money to do that."
These types of potential employees may often be looking for a piece of the action, as stock options in new start-ups are common in the software field. Another reason Hartman started FESTech as its own entity is that he believed he could entice software engineers with stock options more easily than he could attract them to a family-run electrical supply house that was structured differently financially.
"I needed to be able to entice people to come to work for FESTech and give them ownership initially, and to maybe get them from a job and not pay them as much as they were making but long term, there would be higher opportunity. That's what you have to do to attract people like that. I couldn't do that within the existing organization."
In the future, the electrical distributors that manage to thrive in the automation market will be doing so because they realize their only reason to exist is to develop solutions to customers' automation problems. A warehouse full of inventory doesn't really enter into the equation, says Steve Ludwig.
"This market is not inventory-based, and it's not a commodity," says Steve Ludwig. "It's being able to help your customer find a solution to a problem. That's what you are selling. Somebody doesn't call up and say, 'Do you have 5,000 of these?' That's not the way it works. They have to find what the application is, and what it will take to solve that problem. If you are going to stay in high tech, you are going to go software. Most people that currently distribute software are software specialty houses. That's all they do. They don't distribute pipe and wire.
"It's very different from what most distributors do, because when you are talking about hardware, you are talking about how much you have in stock at each location and where your trucks are running. With software, you can't keep anything in stock because the revisions change too fast. You are selling the resources your company has, not what you are keeping on your shelf."
As FESTech evolves, Hartman and Ludwig see the company taking on more application services for distributors in a consulting type of arrangement where for a fee the company will provide basic technical assistance to distributor's customers so a distributor's sales engineers can spend more time locating new sales opportunities.
"As any kind of a technical specialist at the distributor level, you are not spending most of your time proactively selling stuff," says Ludwig. "You are spending most of your time handling first-level technical-support calls. That's not gaining anyone any revenues. You obviously have to do it as a customer-support mechanism for maintenance of business, but it's not going to support anyone long-term. Salespeople have to be out there spending as much time as possible proactively selling to new and repeat customers, not doing technical support. We can offer a means to them of providing technical support that they wouldn't otherwise have or that their competitors offer."
Hartman says it's less expensive for the distributor to rely on a company that provides a centralized resource for technical support and has engineers hired for this task, than it is for them to have highly-paid sales engineers spending their time on customer-service calls. In his concept for application services, FESTech acts as a virtual extension of a distributorship.
"Let them maintain the order processing, shipping, accounting, collections, relationships and other things that they are good at," he says, "Let's just figure out what they need to support the software side of the business, and we will provide that for them. We will provide a pool of resources to lots of distributors in a non-competitive fashion."
Down the road, Hartman says providing training for end users will be an even bigger part of the company's focus than providing distributor training because of the need for people on the factory floor who understand how to apply and maintain software-based control systems.
We haven't even tapped our biggest market," he says. "We are training salespeople who will sell software and these technologies to the entire market. In our eyes, we are training our own salespeople. These people will have to go out and sell the products into the market. Every customer that buys this product is going to have to have this training because you are going to be now taking plant maintenance electricians who have had PLC5 programming. When they go out and they have had a problem on the plant floor, they will have to know the networking, the programming languages and the technology around the product."
Just to give you an idea of what automation distributors must compete with, let's take a look at Wonderware, Irvine, Calif., one of Rockwell Automation's biggest competitors. The strategies Wonderware used to develop a distribution channel to market its industrial software products is a good example of how much the market has changed from the early days of the PLC distributor.
After it was founded in 1989, Wonderware, began building its distribution channel by partnering with many different electrical and automation distributors, some of whom were Allen-Bradley distributors. The company, headed by Roy Slavin, a former top executive with Siemens Energy & Automation, Inc., Alpharetta, Ga., soon realized that their best-of-class distributors weren't hardware and electrical distributors, but instead were specifically focused on software products. "Standard Automation (Houston, Texas) was Wonderware's flagship distributor-the creme de la creme of automation distributors," says Matt Hartman. "Wonderware soon realized that the reason that Standard Automation was so successful was that they had a large geographic area, a central team of application engineers and a training group that fed and supported a lot of auxiliary smaller distributors' sales offices. They took what was successful with Standard Automation and rolled it out across the country."
Wonderware, which had $82.5 million in 1997 sales, now has 12 to 14 regions, and since the beginning of this year all areas have regional support centers that provide application services, support services and training. The company doesn't take any support calls at the corporate level, instead it directs them through these support centers. "It's very similar to what we began to talk about 2-1/2 years ago," says Hartman.
One industry trend shaping Wonderware's strategy is that in the industrial-software market, a handful of large distributors control large regions of the country. In contrast, although Rockwell Automation's network of Allen-Bradley distributors is seeing a lot of consolidation, he doesn't expect it to come down to a few large distributors controlling the whole market because of the fragmented nature of the market. "Because the channel and relationships are so old we would never get to the point where there is one distributor per region. I don't think they will ever get to that level."
In a market where history is measured by the latest software release, the days when electrical automation distributors' biggest competitors were other electrical distributors or specialists in automation hardware seem positively prehistoric.
Automation-software specialists are now key players in the factory automation world now that the move to open architecture has transformed the systems that control the manufacturing processes.
Fifteen years ago, programmable logic controllers (PLCs) were driven by a manufacturers' proprietary software to direct the flow of information to and from the sensors, motor starters, control panels and other control products that managed the manufacturing and assembly processes on the factory floor. Today, the "brains" of these PLCs often reside on Windows NT computers linked from the various control devices on the factory floor to corporate offices so company executives can get real-time reads on production status.
Engineers who programmed the PLCs of the past speak as lovingly of these devices as do mechanics who worked on the Chevy straight-six cylinder engine. Allen-Bradley's PLC5 is one of the PLCs that has changed with the times by "going soft," says Steve Ludwig, who programmed these devices in a previous life as a PLC engineer for an electrical distributor.
"The brains of a PLC5 have been replaced by Softlogic5," he says. "It's what they call the engine. They use existing I/O structure within the plant, but the brains reside on an NT server. Now all the data that you collect on a plant floor level is accessible to Word, Access and Excel instead of being logged into a proprietary PLC product. It used to be when you bought a PLC, there was $25,000 worth of hardware as a bare minimum, all the I/O, the processor itself and a dedicated man-machine interface of some kind. Now you might buy some flex I/O that sits on a DIN-rail in a cabinet and network it over to a PC."
This move to soft PLCs is so recent that when Hartman first started FESTech two years ago, no manufacturer had rolled out or announced plans for a soft PLC, and automation distributors were still focused on collecting data on the plant floor.
"We would write custom applications to pull data out of the PLC5 and put it in a database and give customers the ability to do custom reporting or live monitoring of that data," says Hartman. "We believed the NT platform would overtake the existing networking platforms that existed in the automation world.
"A lot of people said we were nuts, and that Microsoft would never come up with a product that would be solid enough that it would replace the PLC5. That product is just a workhorse. An automation engineer can install that product and know once he has got it working, he walks away and it's going to run forever."
Hartman says the automation world is typically about five-to-seven years behind the commercial world in computer-based technology. That's because the sometimes-hostile industrial environments demand more of computer equipment. The systems that work there must be even more reliable because customers can't afford the expense of a manufacturing line that's at a standstill just because the software has a glitch in it.
"You can tolerate system crashes in the office more than if you have a line go down on the plant floor," he says. "In the automation environment, most of the hardware platforms are proprietary by manufacturer, whereas in the software market everything is plug-and-play on the Windows platform. The open architecture of the office environment makes it a lot easier for new technologies to be implemented."