Analysts Assess the New Face of UTC Fire & Security
The September issue of SECURITY SALES & INTEGRATION features my in-depth interview with United Technologies Corp. (UTC) Global Security Products President Kelly Romano. To add some balance to that piece with an objective, outside perspective of UTC, post its acquisition and consolidation of GE Security into its Fire & Security division, I spoke to three of the industry’s top analysts. Following is what Sandy Jones, principal of Sandra Jones & Co. in Chardon, Ohio, Bill Bozeman, president/CEO of Westminster, Colo.-based PSA Security Network, and Walter Bailey, CEO and senior managing director of New York-based Focus Consulting Partners LLC had to say. Jones and Bozeman are both members of SSI Hall of Fame and Editorial Advisory Board.
What are UTC Fire & Security’s chief strengths, weaknesses and challenges?
Sandy Jones: Their sheer size makes them a market leader, but in my opinion there are three things that really do set them apart and make them successful. The first is their well-established relationship with the partner channel. Some of the industry’s leading systems integrators are loyal UTC and Lenel resellers, and to UTC’s credit it’s a relationship they continue to nurture. The second area is brand recognition at the specifier and user level. Long before GE, UTC and other well-known brands became familiar to users, Lenel invested in building their brand. That was unusual in the market at the time, and now gives them such a well-established base that even more advanced technology providers find it hard to penetrate. The third area is that the acquisition of GE gave UTC the well-established and respected Edwards fire product line. With the UTC and GE products combined, the blend gives customers access to an end-to-end solution for intelligent buildings, and a path to economies, efficiencies and measurable ROI [return on investment]. Some products still need to be sorted out and others upgraded but that is an ongoing activity for any successful business. The challenge for UTC remains the same as for any publicly held business. In addition to providing end users great products and systems, they have to also generate stockholder value. Organic growth is often too slow to have an impact or move the needle on a stock, so the only way to add significant growth quickly is through acquisitions. This is not a bad thing as not only does it move the needle, it allows UTC to augment their current product line with technology that further rounds out their offering or adds other value.
Bill Bozeman: UTC is a financial powerhouse that has the resources to become one of the dominating players in our space if they choose to pursue our space actively and aggressively. Of course, GE had the same opportunity and we all know what happened with GE’s security vision.
Walter Bailey: One of the challenges they face is establishing themselves as the No.1 firm in emerging markets like China, India, Brazil and the Middle East. These regions currently represent 20 percent of sales, but this is a figure they need to increase over the next few years. The lack of existing infrastructure in these regions means there’s huge potential for fire and security new sales versus markets like the U.S. where it’s primarily upgrades and add-ons. Related to the upgrades and add-ons, UTC must ensure they’re still innovating and bringing products to market to drive growth organically. I know earlier in the year UTC said they’re investing $150 million in R&D in 2011. Obviously, cash is a key strength for UTC, meaning they’re ready to push the button on an acquisition if and when the right one comes along. UTC’s strengths remain size, position, resources and an outstanding installed base.
Will UTC have better success with the GE Security portfolio than GE did? If so, why?
Bozeman: I think UTC can and will do a better job than GE did. But let’s face it; GE did not exactly set the bar at the highest level. So a UTC improvement would be an easily achievable goal.
Bailey: UTC are rebranding under the Chubb name and, together with the acquisition of GE, they’re well placed to drive the market. Will they make more of a success of the GE portfolio? Probably yes, UTC are a dedicated fire and security firm, they know the market and they’re well established. As part of GE, security was just one of many branches; there wasn’t the same industry expertise on hand as there is at UTC where they’re making a concerted effort to be No. 1.
Jones: I can’t predict the future, but it is a good fit with UTC as they are predominantly a hardware business that flows well through multiple channels in the market. The acquisition instantly increased the topline and allowed overhead and redundant costs to be cut. There is still work to be done, but they are on the right track. Those who understood GE’s business knew that a high percentage, more than half, became service. That made the GE security business along with other pure hardware businesses no longer a good fit. They also realized, like so many companies that entered the security business after 9/11, it was and still is an expensive market to service. This is especially true as products commoditize and the channel consolidates.
Do you believe UTC Fire & Security faces any channel conflicts, and if so what are the issues and challenges?
Bailey: Anyone and everyone experiences channel conflicts when having competing product lines, a mix of services and hardware platforms, as well as being an integrator. UTC can learn from their own and others’ mistakes — do not become like Otis or Tyco/ADT. In both of these cases, the customer market would prefer to deal with just about anyone else possible. In each case, it appears the scale and scope of the businesses grew large enough that the companies believed they could dictate market without providing adequate customer service and client customization. One possible way to avoid this is to drive the integration business off a completely different P&L so that they are incented to deliver customers the best solution, which may or may not involve the entire UTC product suite.
Jones: The company has already made some changes that eliminated channel conflicts, and I believe long-term they will create policies and practices that eliminate any remaining channel conflicts.
Bozeman: Most of the international power players in the security space are neck-deep in the channel conflict game. Tyco, G4S, Stanley, Schneider, Diebold, Niscayah and others all compete in one way or another with the integrators they provide products and or services to. This is the nature of the beast and something the independent security integrator community needs to intelligently manage. The integrator community can no longer boycott manufacturers that compete with them as too many of the best products are owned by these large corporations that do in fact compete with them at some level. I have studied the subject and know there is a way for the independent integrator and the large manufacturers to work together for a mutually beneficial future.
What is your opinion of Kelly Romano and other UTC Fire & Security leadership?
Jones: What I really like about what UTC is doing — especially by naming Romano as president — is they are putting people in leadership positions who already understand the industry. She is the right leader, as before her current role she had been the senior vice president of global sales and marketing at UTC where she gained firsthand knowledge about the needs and expectations of dealers and integrators. But one person does not make a company and at UTC there is a depth of industry knowledge at every level — people who not only understand but who are empowered to refine services and support, and develop new products.
Bozeman: I like what I see; however, I have only spent one hour with her. The fact she was a successful UTC executive with Carrier bodes well for UTC Fire & Security as she has already proven herself, and has the respect of senior executives at UTC.
What is your sense of UTC Fire & Security’s perception in the integrator/dealer marketplace and what should they do to enhance it?
Bailey: Feels like early days as an integrator, they have been working it pretty well but over time they seem to drive their platforms into an insular one-stop shop perspective. I believe they are best served by relentlessly focusing on best-of-breed products and services for clients; when either the product or the service is not theirs, recommend and integrate it regardless. If you make the customers happy, the business will do fine.
Jones: I have heard the major existing Lenel integrators praise UTC’s management and positive attitude toward the channel. Edwards’ ESDs like the brand but believe there needs to be more investment in the product line. And the GE dealers, some recent converts from other companies, look forward to growing together. My guess is they will continue to invest in listening and learning from the channel, and by doing so can refine their products and services. They will probably also do more partnering with the channel to help close more sales and learn more about end-user goals.
Bozeman: They have the financial resources, a very strong existing network and excellent products. Of course even these positive attributes do not guarantee success. In many similar situations in the past “having it all” has led to complacency and worse yet, an attitude problem. I have seen this time and again in my 31 years in the security trenches. The big guys buy out the small integrator or manufacturer and the big company attitude kills the entrepreneurial spirit that made the smaller company so successful. Kelly Romano’s No. 1 challenge is not necessarily bits and bytes or even managing the balance sheet, it’s leadership for UTC Fire & Security. Getting everyone back to the basics of blocking and tackling, it sounds easy but it is not. Change is painful and winning going forward is all about managing that change. This will take strong leadership from Romano and her management team.
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