The S4 Group invited Pat Cronin, President of Anam Consulting LLC to discuss the trends and issues in the international building automation market. Steve and Pat have been colleagues for more than a decade. We hope this is the first in a series of articles that provide our readers with insight into global issues and trends in the ever changing BAS market. The remainder of this article is written from Pat's first person perspective.
I recently reached out to my network of professional contacts in the building automation systems (BAS) business worldwide with two questions:
Not surprisingly, their feedback was quick – indicating either urgency or frustration, and responses to both questions appeared interconnected. For the first 40 years or so of the ‘building energy controls’ market, customers were generally tied to one supplier, either in North America or Europe. These systems may have been large pneumatic installations, with maintenance dependencies back to the bigger manufacturers, or simpler electronic systems by smaller, niche manufacturers who somehow knew the ‘key’ to making it work. Of course, DDC changed all of that, and made the playing field a lot more level relative to what can be controlled, how, and by whom. Fast-forward to 2015, and you have systems integration possibilities that boggle the mind, data collection & analysis methods that can easily overwhelm building operators, and provide control of virtually any commercial or institutional building from virtually anywhere in the world, via a Smartphone. Which leads to a similar challenge for both end-user and supplier.
Consulting engineers, mechanical / electrical contractors and facility managers – the specifiers, purchasers & end-users of BAS - are asking the same question now that they’ve been asking for years – ‘what’s new?’ By that they mean ‘what’s the difference? What makes each manufacturer unique, and in what meaningful way for me?’
Professionals I’ve known in the BAS market for years, many of whom have spent decades in the business, have long struggled with essentially the same issue – how can I be meaningfully different? In an unusual way, the large and complex US & Canadian markets for BAS and integrated systems actually make this challenge a bit more manageable. Certain regulations and customers’ business-driven performance metrics (e.g., healthcare, pharma, labs and telecom segments, among others) increase the cost of participation, hence forcing many BAS manufacturers into niche vertical markets defined by building type or specific performance outcomes. Many of these are value-based segments, versus competitive price-driven ones, and afford the larger BAS companies the opportunity to maintain branch offices to support and service such customers.
However, this challenge of competitive differentiation is more acute for BAS manufacturers doing business outside of North America. When a customer doesn’t see any meaningful differentiation among suppliers, in any competitive market in the world the default selection will be the lowest price for perceived equal value. The economic slowdown in Europe has pushed many building operators to ‘what is the best I can get for the least expenditure?’, and even ‘what is the least I can get for the least expenditure?’ A value-based sale in Europe has always been difficult in the BAS market, and even more difficult now to rely on specifying consultants to promote the technological or performance-based advantages of a particular BAS manufacturer.
An additional challenge for BAS manufacturers marketing in Europe stems from the reality that a large percentage of their business is delivered thru independent installers and systems integrators. Most of these integrators are very competent and well-respected, typically supported by the BAS manufacturers. However they also represent a filter between the BAS manufacturer and the end-user, sometimes transparent, though often opaque. The ever-important relationship with the end-user – the source of customer intimacy and control of your perceived brand value – is often one step removed. The major BAS firms in Europe have been focusing their efforts on larger, more complex projects, usually where they can leverage their investments in complementary systems like fire detection & control, access & security, CCTV, lighting control, etc., even including water. The result is the major BAS firms in Europe have direct influence on their brand identity only with a smaller segment of the market, and rely on channel partners and integrators for their ‘brand promotion’ with a large portion of the commercial & institutional market, including specifying consultants, contractors and end-users.
The feedback from Asia Pacific was highly anticipated, though not entirely upbeat. The mature, stable BAS markets in Tokyo, Hong Kong, Singapore, Kuala Lumpur, Sydney, Melbourne, and to an extent, Jakarta, regularly feature building automation systems in new projects and major retrofits. In general, however, the systems being specified and users’ performance expectations haven’t changed much in the past 10-15 years. Are BAS manufacturers at fault for not effectively promoting the newest developments, and benefits therein, to specifying consultants? Or are consultants easily overwhelmed by rapidly changing technology, sometimes not too interested in new technology, or simply putting more of their time & attention on the more extensive & expensive mechanical / electrical / plumbing specs? Probably ‘Yes’ to both.
Yet the end-user is left to wonder ‘how do I benefit from this’? Admittedly, the propensity to pinch training funds and skim on regular maintenance has been endemic to Asia Pacific for years. Regardless, managers and BAS veterans from whom I am hearing are saying it’s still an uphill battle to grow their margins, and the capabilities of their systems are vastly underappreciated. The key issue here, and in many of the mature markets of North America and Europe, is a perceived commoditization of BAS and the technology underlying it.
China has been a rapidly growing BAS market for years, and there is still an aura around a ‘Siemens system’, or a ‘Johnson Controls Intelligent Building’. Many of these systems tend to be significantly under-utilized or under-specified, limiting the latent performance benefits built into the latest generations of these systems. China has become an incredibly important market for many BAS firms, albeit a frustrating one. Not only because of the myriad of rules & regulations that seem to differ by province, or even by city, and not even due to a slowdown in large project approvals as China implements certain austerity programs. Many large building owners or property portfolio managers in China want the best, in appearance certainly, though often in performance only on paper. Securing a preventive maintenance agreement in China has always been difficult, despite the relatively inexperienced levels of building operating staff. Even in large, prestigious buildings, the end-user practice regarding building control systems is typically ‘run it until it breaks.’ An underperforming non-critical system in a Chinese building is likely just to be turned off. Unfortunately, this all reflects poorly on the BAS manufacturers and their technologies.
In Latin America’s two biggest markets, Brazil and México, the tangible benefits of systems integration have been driving growth, and driving the hopes of BAS manufacturers and controls integration firms for the past 5-10 years. Reality is becoming a stronger driving force, specifically as it relates to energy and water. Energy conservation in Brazil has been a mandate for years, and only slightly less in México, although meaningful investments in the commercial and institutional sectors thru BAS and related technologies have been viewed as almost ‘discretionary’. This is changing, as both energy price inflation, and real-time issues such as a close-to-home drought effecting São Paulo State in Brazil have brought a new sense of urgency. In México, there has been a steadily growing trend toward sustainability, and the concepts surrounding green buildings are becoming reality more often. This market’s ongoing challenge is finding qualified building staff with the skills to put technology and best practices around sustainability into practice.
Condensing this feedback, it sounds like life has been unfair to the BAS manufacturers. Yet, many system integration firms and independent controls contractors are prospering. Many of these latter firms serve small and mid-market building owners, and are in a position to understand and address their needs. The larger BAS firms have the pressing challenge, especially in markets outside North America, of finding ways to get closer to, and to positively influence, building operators and specifying consultants on not only what is new, but what is meaningful to them. What is new, creative and innovative, though to what end-user benefit? What is understandable, and of benefit to specifying consultants, so they can represent a value-added service to building owners? If the BAS manufacturers want to grow not only sales but also margins, particularly in the commodity-mindset of the international markets, what are they going to do to earn them? What is the industry going to do to promote its ‘brand’ as technology innovators and providers who can make a meaningful impact on building performance, and get the deserved credit for it? This is going to require closing the gap between the BAS manufactures and end-users. In most cases the BAS manufacturers created this gap, and they will have to figure out how to overcome it.
Patrick Cronin is the principal global business consultant with Anam Consulting LLC, a firm he founded in 2014 in Milwaukee, Wisconsin USA. Pat has over 16 years of global sales management, North American & international marketing management, and business unit management experience, including a long tenure with Johnson Controls, Inc. and with Reliable Controls Corporation. He has extensive experience throughout the developed and developing markets worldwide, including Europe, SE Asia and Latin America. Pat was part of the team that developed and supported JCI’s strategies for China and India, and led the team to establish JCI in Russia. Pat can be reached at 262-391-5406 or firstname.lastname@example.org.