Big Bets on the Energy Future

Source: Accenture Energy Consumer Values survey

Joe Hogan, CEO of ABB Group, is a smart guy.  His company produced $31 billion in revenue in 2010 so he knows something about the sweet spots where big bets produce big returns.  ABB’s business is infrastructure and the engineering, construction, operation and services to keep it running smoothly. So why would ABB spend $1 billion to buy a software company called Ventyx?

Ventyx, my former employer (Division President, Ventyx/Global Energy Advisors, 2000-2008), is a new way of thinking about integrated energy solutions.  Its foundation was the focus on assets and the IT and OT requirements to operate them profitably. The Ventyx strategy of ‘best in class’ solutions integrated around a common data framework proved the ‘secret sauce’ in scalable growth providing reliable, consistent, independent, transparent solutions acceptable to operators, regulators and investors.

Ironically, ABB divested it’s wholesale software division to Global Energy Decisions, one of the predecessor companies rolled up to form Ventyx.  Once ABB saw how those products and others ‘morphed’ into the Ventyx suites to provide solutions across the energy infrastructure stage—the mating dance was on and in May 2010 ABB bought Ventyx for $1 billion. So it was interesting to hear Joe Hogan recite his list of “sweet spots” for ABB’s future and to see how Ventyx figures into where he expects to place even more big bets.

Joe Hogan used his client conference to talk about his view of where ABB would make money in the future and the big bets he was making to position his company to grow market share including:

  1. Automation and the IT/OT Convergence.  New infrastructure and better control over costs requires leveraging new technology in a machine-to-machine (M2M) world will require companies like ABB to integrate the technologies, optimize the systems, and deliver the results technology promises to deliver whether it is from the smart grid, information networks and communications. One of the fastest growing areas for automation growth in the energy sector is distribution automation and operations control to provide utilities with better insight into demand, usage and outages turning smart meter data into operational actions.
  2. High Speed Rail.  Not too far from my home in California, the California high Speed Rail Authority plans to spend billions of dollars on bullet trains running from Northern California to Southern California.  Almost no one here believes this is a good investment since the ticket prices required to service the debt even after the huge Federal subsidies will be higher than buying a Southwest Airline ticket to cover the same distance in half the time. But in Europe, Japan, China and elsewhere nations are build high speed trains to carry people and cargo. ABB thinks it will make big money building the systems to run the trains. What are we missing?
  3. Renewable Energy.  Renewable energy is a big source of growth for ABB with sales of $350 million in 2010 but he expects dramatic growth second only to wind energy in years ahead as solar costs fall and demand continues to grow especially in China. ABB likes wind too since revenues grew 40% in China due to increase demand and falling prices for wind turbines ABB uses around the world.
  4. Security.  Getting a virus on your home computer is a hassle. Getting one on the computers that run nuclear fuel processing in Iran was either a wonderful coincidence or just the latest incident in the growing prospect of cyber wars in our future.  Everything we do from banking to traffic lights control to national security depends upon computer networks at risk.  ABB sees security as an area of substantial organic growth in the future. Does anyone doubt that?
  5. Infrastructure.  The common denominator for these big bets is the demand they create for large scale infrastructure projects which remain the bread and butter of ABB growth.  The demand drivers in automation, rail, security and renewable energy keep the infrastructure pipeline full.

When you build infrastructure, you build wealth,” said Joe Hogan at the ABB conference hoping ABB has a good 2011. Hogan strategy for growth began to take shape as the conference speakers rolled out their vision of how the M&A spending ABB has done would position them for scalable growth.

“Today we are presenting the benefits of ABB’s acquisition of Ventyx, and subsequent acquisitions of Insert Key Solutions (IKS) and Obvient Strategies, Combining ABB and Ventyx created a deep source of industry solutions for both enterprise information technology and power systems, bridging the gap between operations and IT platforms. The addition of advanced equipment reliability and business intelligence tools to the portfolio further affirms ABB’s position as the premier solution provider for optimal management of physical and human assets in power utilities.” —Anders Sjoelin, manager, ABB Power Systems division-North America.

What was obvious from this roll-out was that ABB had learned a valuable lesson from its decision to sell its wholesale software division to Global Energy Decisions.  That lesson was ABB was a great infrastructure company but not very good as a software developer and integrator.  So in acquiring Ventyx, ABB is using it as the software solution platform for ABB and reverse integrating into Ventyx tuck-under acquisitions and software products that enhance the growing collection of “ABB Suites” or solutions that work across the lines of business ABB services.

Steve Carpenter, CEO of Ventyx, told the crowd: “The solutions presented today are the first of many new advances in our product development. Our Product Management structure aligns complementary solutions (eg, Service Suite and Network ManagerTM DMS) organizationally as well as technologically, helping us to deliver real-world value for our customers with combined solutions that meet their needs from a single source.”

It was not quite the same as Steve Jobs showing off a new product like iPad, but for the energy crowd anyone who can pull together all the pieces that make utility operations faster, easier, better integrated and always in compliance is music to the ears of the geeks and engineers assembled as the new solution offerings were announced:

  • Business intelligence for the smart grid – FocalPoint Suite business intelligence (BI) tools integrated with Network ManagerTM distribution management system (DMS) and Service Suite mobile workforce management software, enables utilities to more effectively monitor and manage their distributed assets on a real-time, near-real-time and event-driven basis. Click here for full release.
  • Complete asset health solution for generation – Comprehensive solution combining Asset Suite Enterprise Asset Management (EAM) software, IKS equipment reliability (ER) systems and eSOMS plant operations management solution. Click here for full release.”

By charging forward with the seamless integration of operations technology and the evolving information technology needed to meet the business needs of the energy sector, ABB positions itself as a leading player in the global fight for market share with its giant rivals for control over the energy future.

The other lesson is that in less than ten years the rudimentary building blocks (Henwood Energy Services, New Energy Associates, Indus Int’l, MDSI) grew into Ventyx and are being integrated with Obvient, IKS and other acquisitions to create a global scale ABB IT/OT Solution Warehouse for the energy industry.

Fish or become Fish food. That’s how fast things are changing, but change is only just beginning for the fragmented utility, renewable energy, cleantech, smart grid, and software, sensor and data management product companies that seek to serve the energy future. Scalable growth through consolidation, IT/OT convergence and leverage across the supply chain is the tsunami looming off-shore and the vendors are unsure whether it is safe to fish or will they end up fish food!

The customer is Always Right!  But who is the Customer? For many vendors seeking to serve a smart grid–enabled energy future conferences like ABB’s Automation & Power World 2011 Conference in Orlando was a warning shot across their bow. Yet even for giants like ABB there is uncertainty.  All of the work done to date to assemble this B2B colossus barely scratches the surface of the potential that IT/OT convergence has to transform the end user customer relationships as energy becomes just one of the commodities bundled along with communications, broadband, security, entertainment and information services for mobile customers. The very technology that ABB is using to scale its business can also be used and useful to end use customers to turn data into information that offers insight that reveals options to make choices that offer more control for these end use customers.

Surveys like Accenture’s of the views of new energy customers reveals a startling truth—customers are getting smarter about their energy use and the information services needed to take more control over them.  Today the customers of ABB are utilities and other major corporations seeking to retain control over their customer relationships.  But It/OT convergence and the power of cloud-based services, mobility, and falling barriers to entry mean that ABB and its competitors must go beyond these transformational approaches to product management to focus on the changing needs, wants and demands of end use customers and their substitution potential.

The relentless pace of technology advancement can be a wonderful and terrifying thing at the same time and no giant corporation even one as big, powerful and good as ABB can be complacent.

Disclosure:  My working relationship with Ventyx ended prior to its acquisition by ABB and I have no financial position in either Ventyx remaining or in ABB.