SSI’s annual February Business Issue features my exclusive and in-depth interview with Allegion President of the Americas Tim Eckersley to discuss the firm’s spinoff from Ingersoll Rand as an independent, publicly traded company. The scope of the conversation veered wider than what the print space allowed so here is an additional taste of what he shared with me. Be sure to also check out my post featuring leading industry analysts assessing Allegion’s prospects.
I’m sure folks, especially with the new name becoming publicly traded, were taking a hard look at recent financial returns for the business. Could you contrast a bit what the business has seen in recent years and what you’re looking for in 2014 on the growth side of things?
Tim Ecklersley: After several years of declining and contracting markets we’ve all been part of, we see the future of markets that we provide services and products into globally kind of moderating and rebounding. Obviously, the U.S. housing market is showing modest rebound in terms of new construction. The Home Depot commented recently they see an uptick in the renovation of the marketplace on existing home sales, as homeowners are now feeling better about the investments they’ve made, and they’re making investments in their homes. Certainly we expect to see some of that impacting our business. I think we still see pretty strong opportunities for growth in multifamily and the commercial side, as well as the commercial office space sector as big corporations continue to progress in the marketplace on a going-forward basis. The markets have been rather choppy in 2013 and 2012. If some sectors have been up, some others have been down a bit. We fared ourselves pretty well. We have delivered growth through the first three quarters of 2013, as we announced through Ingersoll Rand, and we expect we’ll be able to continue that growth and expect those things to continue on a going-forward basis.
We’ve seen with the way technology is exploited and a lot of these small, innovative companies coming up, it’s become sort of in vogue to see companies partnering on solutions. What is Allegion’s stance in partnering with other vendors for solutions? And, how acquisitive do you see the business being?
Ecklersley: I don’t know that we have made any formal, public announcements about what Allegion’s position is on this but I think I can speak for myself and say I don’t think any one single company can do everything that needs to be done in the industry. I see us providing the opportunity for many different modes of technology coming to the marketplace, be that acquisitive growth through us buying companies or through us partnering with other companies in applying their technology to some of our markets. I think you’ll see us doing a bit of everything there. Obviously, we believe that Allegion is a platform and business opportunity that is poised for growth through acquisition and so we’re definitely looking at opportunities to extend our product and market position through some of those activities. But we will also do a lot of partnering with other third parties in bringing new solutions into our products in the marketplace. You’ll see us doing a bit of everything.
Do you think the business might expand or grow out of access control? What about getting into video, intrusion, other areas?
Eckersley: It’s a good question. We have not actually done a road show on our strategy, but I can tell you at the heart of our business we’re sort of a products company. We do get involved in video and video analytics in some portions of the globe. Our BOCOM business in China does a lot of extensive work in video. We have not been in that marketplace in the Americas as of right now, so I’m not sure directionally whether we’ll go that direction or not. I do believe at the heart of our business we’re a products-based business and we see ourselves as bringing the best-in-breed products to the table, in an open environment, where many people get access to our products, to develop solutions in the marketplace. Our plan now for our business is a pretty aggressive plan to stabilize our business once we’ve now been public and drive a growth plan that will bring us to the marketplace in an aggressive way toward a growth target our board will have established ourselves.
What are some primary drivers on the end-user side in the vertical markets Allegion serves?
Eckersley: You almost have to look at that on a vertical-by-vertical basis. If you go to the corporate market, you see a drive going for efficiency and effectiveness and management of workforce in production environments, and things like that. If you go to the K-12, there’s a lot of focus and emphasis on security and safety for the kids that are going to school. Preventing or limiting access to schools, like preventing the challenges that happened at Sandy Hook and some of the other places, so a lot of energy around that. We have a lot of excitement and interest in school lockdown procedures and ways for us to kind of move from what has been predominantly a focus on perimeter security around a school to now getting inside the schools and getting security inside specific classrooms. Giving more control for lockdown provisions in the classroom, to the teachers themselves. You see a lot of activity around that space. Similar in the higher-education space, a lot of residential life activity going on, giving students and parents more peace of mind on where their kids are sleeping and spending most of their time in their dorm facilities and how schools are protecting their kids once they get on campus. In the case of health care, it’s an interesting mix of compliance issues around JCAHO and some of the other things coming into place for preventing the spread of infectious diseases, as well as providing a very interesting need to provide this open environment thought process, so patients can gain access or people visiting patients have a seamless access and yet providing the security that a hospital needs to have in preventing any kind of major catastrophes happening from hospitals. It’s a mixed bag, depending on the vertical you go into.
What do you think is the best way for security integrators to differentiate themselves from competitors today and for long-lasting relationships with their end-user customers?
Eckersley: It requires that they continue to understand the base-level needs of the end-user base. End-user needs are evolving very quickly. Where we see the biggest opportunity for the integrator and partners we work with, it’s those players that are looking at the industry with an untainted set of eyes, that are not necessarily mired in the history and past of closed-based systems that are connected to standalone access control systems that are in place, and more connected to open platforms, cloud-based services. All of those we believe represent opportunities for more flexible and more cost-effective solutions for end users. One of the things we as an industry have to solve, and we’re going to be working with our integrator partners to solve this, is that we’ve got to bring more cost-effective solutions to the marketplace for end users so that more doors can be controlled in an electronic way. We think that mechanical security has been a good strength of our business, yet we see so much more functionality that can be provided to end users if we can electrify more doors. The only thing preventing doors from being electrified and creating more opportunities for integrators to play is the complexity and value we’re creating. I think there’s still a lot of what I’d call value that needs to be identified to bring to end users and drive the overall cost of an opening down. Right now, if you look at a typical electrified access-controlled opening, it’s in the neighborhood of $2,000-$3,000, and we think that through the entire value stream, from products all the way to the way they’re delivered and supported in the marketplace, we can bring significantly lower cost to end users in each of those openings. Therefore, taking what is now about 10% of the openings in the marketplace secured with electronic access, to something north of 70%-80% of the openings.
How important is it for Allegion to be known for supporting security industry causes and trade groups? The corporate image out there for security, how important is that?
Eckersley: I think it’s very important. One of the legacies of Allegion, and the security technologies business in the past, is we’ve always been actively engaged and participating in the industry trade groups and industry associations that established the standards and codes that we use to govern the way these systems go together. We consider the industry we play in to be a conglomerate of many different expertise that are required to build standards and establish requirements for us to all operate within. We believe open standards and open technologies are better than closed standards and closed technologies. We believe that competing in an open environment makes us all better. And we think one of the opportunities that we have as an industry is to drive toward more openness, so end users get the best in breed that everybody can bring to the marketplace, rather than closed systems that allow legacy existing platforms to continue, just because they’re closed and everybody uses them now.
I’d like to close with something more personal. What would you consider the most difficult aspects of your job and how do you contend with those?
Eckersley: First of all, I have one of the best jobs in the world. Having the opportunity to lead this organization in what will be a great future development of our industry and our company is a very exciting task. I think that this concept of understanding how we, as an industry, accept and drive the moral obligation we have to make sure our employees, our children, our parents, our homeowners, and our workers in the field have the ability to work in a safe and secure environment. One that allows them go to about doing their work in an efficient and effective way; yet protects them effectively from the external environment that’s there trying to hurt them is a daunting task. I wake up every day excited and motivated to challenge my team and our collective organization to get better and better at that. I think as an industry if our sole focus is in allowing the world to be as efficient, effective, and safe as it can possibly be, while enabling people to do their jobs necessary to continue to drive the growth of both industry and allow parents to raise their families in an effective way. It’s an exciting opportunity, and we’re glad to be right in the crosshairs and forefront of that opportunity.