imark now summer leds and the future
TRANSCRIPT
VOLUME 7 • NUMBER 2 SUMMER 2016www.imarkgroup.com
PLUS
Preparing the Sales Execs of Tomorrow
Advances In Wiring Devices
Co-op Marketing Yields Results with Proper Planning
Bring Back Old-School Service
52 I M A R K N O W S U M M E R 2 0 1 6
By Ted Konnerth
FEATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEDs & THE FUTURE OF LIGHTING
LEADERSHIP STRESSORS
Age
Globally, we are experiencing a talent
shortage in the majority of countries
around the world, with the largest
losses occurring in China, Germany,
Japan, Korea, Singapore, Italy and
much of the Euro zone. The major
contributing factors to the loss of
talent are global aging, as well as
global slowing of population growth
rates. The percentage share of the
over-60 demographic is accelerating
in all of the referenced countries and
is a significant concern about access
to labor to support economic growth.
China has the added burden of its
decades-long one-child rule and
will be saddled with labor shortages
beginning as early as 2030 and well
beyond 2050. In fact, China’s total
population is projected to decline by
more than 200 million citizens.
The United States has seen an
increase of 8 million recently retired
citizens due to the Baby Boomer effect.
Coupled with the Great Recession,
many Boomers opted to retire early
with a subsequent impact on social
programs such as Social Security,
Medicare, Medicaid, etc.
The United States is actually well-
positioned to largely mitigate the
aging effect due to its relatively
young average age and ability
to quickly increase immigration
(depending on the current political
climate, of course). However, its
short-term challenges will be the
Baby Boomers as they increasingly
become eligible for retirement. The
biggest challenges for the United
States is to replace 30-40 years of
seniority and expertise and to hand
that off to a populace that is poten-
tially two generations younger and
therefore less experienced, due to
the relative paucity of the following
GenX population with a deficit of
approximately 10 million people.
LED represents a unique dynamic to
the United States market; it attracts
young, culturally diverse people at a
pace that exceeds the traditional draw
into a relatively staid electrical mar-
ket. We have seen significant growth
in diversity hiring and an interest to
attract “young” people to replace an
aging company leadership structure.
As LED becomes more of a software
and tech market, the population
dynamics will change rapidly, bring-
ing with that an interest in changing
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEADERSHIP IN A STORM
The attributes of Light-Emitting Diodes (LEDs) are remarkable—from efficacy, optical
control, weight, color rendering index (CRI), color flexibility and dimming performance to
their environmental and global impact on energy, carbon reduction and oil reliance. And
accretive to those impressive attributes is LEDs’ future as a Trojan Horse of Big Data and
the Internet of Things (IoT). It’s difficult to imagine a technology with a broader impact
on the world than LEDs. And with the weight of massive expectations resting on the
shoulders of LED manufacturers, it’s easy to see that leadership talent will be greatly tested
over the next couple of decades.
w w w . i m a r k g r o u p . c o m 53
continued on page 55
w w w . i m a r k g r o u p . c o m 55
our traditional business
practices of legacy
relationships, legacy
work hours and legacy
expectations for dress and
attitude. The past history of
“paying your dues” and slowly
climbing a corporate ladder will be
redrawn into a picture of innovation,
fast career movement and flexible
approaches to working for a living.
The lighting leaders of the future will be
forced to embrace diversity, innovation,
retention and training in aggressive and
novel ways.
Technology
In less than 10 years, lighting manu-
facturers have adapted to a complete
renaissance in manufacturing and
operations practices, engineering tal-
ent, marketing concepts and channel
relationships. Remarkably, most have
survived the transition, although many
have incurred margin declines. The next
evolution for lighting will be software,
previously an anathema to lighting
manufacturers who have never had
software engineers for anything other
than IT infrastructure and controls (and
the vast majority of lighting fixture
manufacturers didn’t build their own
controls). Let’s review each discipline:
From an operational standpoint, the
shift to LEDs introduced manufacturers
to clean manufacturing environments
with anti-static assemblies, clean air
filtration and reverse barometric rooms
for certain operations. The legacy prac-
tices of a press room with 1,000-ton
presses stamping out steel bodies have
changed dramatically as the reliance
on old form factors has changed. Addi-
tionally, the changes impacted balance
sheets, with the declining reliance on
large, massive pieces of tooling and
the increase in extending long-term
warranties. The talent for these changes
required training and an emphasis on
documentation and lean processes.
In addition, the operations side had
to identify new vendors with new
specifications that represented new
technologies and new terminology (CRI,
binning, LD-70, Department of Energy
(DOE) requirements, etc.)
As LED enters the next phase of software,
the engineering talent will change
anew; as quickly as manufacturers
changed from mechanical engineers to
electrical engineers, the changes will
now require more expertise in software
and wireless communica-
tions and IP protection.
LED has changed the legacy
channel relationships. Electrical
distributors are optimized when
they supply products to their cus-
tomers that their customers want
and need. When the LED was new, the
opportunity to train electrical contractors
and industrial MRO customers required
significant training and expertise to
embrace LED. Electrical distributors
represented one of the last bastions of
change in accepting the LED. As the
manufacturers were producing LED
equipment, they needed an outlet for
that production and the market for ren-
ovation and energy reduction exploded,
which meant a rush to end-user pre-
sentations. The end-user market was
the earliest adopter of LED technology
and represented a significant launching
pad for many manufacturers’ product
innovations. Sales and marketing teams
have struggled with the conflicts of new
technology, new customers and declin-
ing margins. The LED is redefining the
roles for channel partners.
New channels
The LED unearthed the energy reduction
market, which has resulted in the
renovation emphasis by most LED
manufacturers. The renovation market
was never fully developed in the legacy
continued on page 56
FEATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEDs and the Future of Lighting - continued from page 53
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .FEATURE
LEDs and the Future of Lighting - continued from page 55
56 I M A R K N O W S U M M E R 2 0 1 6
days, largely because there wasn’t
a well-defined energy story for metal
halide versus high pressure sodium
(HPS). The T-8 introduction helped
strengthen the energy service company
(ESCO) channel to change out T-12
lamps, but that was never an emphasis
by the fixture manufacturers and even
most distributors ignored it unless their
local ESCO was a customer. As such,
energy reduction was never a clearly
defined channel role for
any channel player. In fact, it
was largely abdicated by the
manufacturer to the distrib-
utor and the distributor abdi-
cated it to an ESCO or asked
their maintenance, repair and
operations (MRO) sales team
to focus on selling T-8 lamps
by optimizing the value of the
utility rebates.
The new LED leaders will
have a robust sales and mar-
keting organization focused
on relighting the existing
manufacturing and com-
mercial office footprint of
the entire country. It’s a huge
market and ripe for the taking.
There are estimates that the
retrofit market in the United
States is 10 times the new construction
market. But it has to be done in a man-
ner that doesn’t conflict with the legacy
partnerships, which means a lot of
tough conversations. Legacy practices
came with well-defined rules of engage-
ment and layers of incentives. That
market was also characterized by high
barriers to entry. As a “closed society” it
was profitable for all the players. That
market has changed forever.
Look at the newest channel partners
available to most lighting manufacturers:
Amazon, business-to-consumer (B2C)
and business-to-business (B2B) direct
internet strategy, ESCOs, HVAC dealers,
data/com dealers, security installers,
solar installers, Custom Electronic
Design and Installation Association
(CEDIA) dealers, electrical contractors,
etc. The opportunity to partner with
novel and innovative companies that
have a direct relationship to a customer
base is unlimited. There are sign dis-
tributors selling lighting packages from
one of the largest manufacturers in the
world on an exclusive basis. The growth
of new channels is expanding as rapidly
as cable channels did in the 1990s.
New ideas
LEDs will spur a new business climate
that includes: IP rights (and fights),
software solutions with new revenue
streams (software as a service (SaaS),
licensing, service, etc.), Blue Ocean
markets and new entrants into lighting.
The talent challenges are immense and
they start at the top. The current leader-
ship structure in lighting is largely made
up of Baby Boomers. And Boomers
believe and know everything that they
know, but are not prone to volunteering
what they don’t know. They have a ten-
dency to be reflexive in their
approach to management and
risk-averse since they’ve had
plenty of experience with new
ideas that failed.
New markets are risky. IP
fights are risky and expensive.
And now the challenge is the
intimidation of software that
is largely out of the scope of a
Boomer’s concepts if he/she’s
spent his/her career in legacy
lighting equipment. The lead-
ership talent of the future will
require an understanding of
the processes, complexities
and cultural requirements of
software development and
implementation.
New entrants
Anyone that has ever been to a Light-
fair convention has recognized the
incredible growth in the number of LED
suppliers available to U.S. customers.
In fact, the U.S. LED market has created
more than 600 new startups in the past
10 to 12 years alone. Many of these were
venture capital or private equity financed
companies that were rushing to enter a
new market and capture a foothold in a
continued on page 58
LEDs and the Future of Lighting - continued from page 56
FEATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
large market that had been difficult to
enter due to the legacy channel support
systems. Many of those 600-plus new
companies have failed or reorganized
or changed strategies. All have had an
impact on the U.S. lighting market in
the sense that the U.S. lighting market
has materially changed forever.
Leaders of lighting companies today
face a barrage of competitors that never
existed before. The channel partnership
strategies have weakened; the breadth
and pace of innovation has enabled
small companies to carve out small
niches and succeed profitably. When
hundreds of manufacturers have been
created and enjoy success of anywhere
from $5 million to $50 million, the mar-
ket share claims are suspect for any
company to substantiate. In the legacy
days, market share was estimated
based on the shipment of ballasts to
the fixture manufacturers; since there
were very few ballast manufacturers
and all were required to report to the
U.S. government, “share” was a reason-
able topic. Those days are gone. The
sourcing of components is no longer
a reliable metric since most LED com-
ponents are sourced offshore and the
complexity of what is even deemed
“lighting” has grown exponentially
(modules, assemblies, arrays, linear
arrays, replacement modules, packages,
etc.) The market size expressed in
dollars has changed dramatically due
to the price points of LED versus legacy
equipment. The U.S. lighting market is
largely an undefined morass of players
competing for unique solutions to old
problems.
Five years ago there were fewer than
12 lighting manufacturers with revenues
in excess of $100 million. That number
may now be closer to 25.
Alternative entrants
And then there’s the newest threat.
With the LED being recognized as a
tech product and with its geographic
hegemony, it is now positioned as the
premier control point to enable the new
technology of IoT, Big Data and security.
While this will elevate lighting to levels
never before experienced, it will also
enable a litany of new industries to
enter the lighting market.
HVAC manufacturers, sensor manufac-
turers, building automation, security,
access control and even pure tech
players like Cisco are analyzing their
approach to a lighting value proposi-
tion. It is inevitable that many of these
industries will participate in lighting in
the near future.
But how does a lighting leader define
the company sales strategy when the
offerings are bewildering, recognizing
that selling lighting requires technical
training? Does a lighting manufacturer
have the resources to train 150 HVAC
dealers, Amazon buyers and Johnson
Controls’ 200 sales offices?
The new entrants are ignorant about
lighting and the key reason why
lighting exists; i.e. to enable sight.
How does the lighting industry garner
control over the quality of light as a
professional practice? And what role
will the 1,500-plus lighting manufactur-
ers take to ensure that their products
are properly deployed? We are rapidly
approaching the day when an electrical
distributor will call a lighting manu-
facturer and demand that the lighting
system be controlled by a proprietary
communication protocol inside of an
industrial environment, and then there
are security clearances that require the
security installer to install the lighting.
It’s a brave new world, with tremendous
potential… but potential is realized
through talent.
SUMMARY
Lighting is in transition. What we
identify as lighting in the future may
be significantly different than we know
now. The challenges facing lighting
leaders over the next few years can be
summarized as follows:
1. Profit and loss changes. Margins
will likely decline as tech consumes
more research and design expenses
and niche players compete aggres-
sively for their share. Legal costs will
rise as IP battles increase. Marketing
dollars will grow as the breadth of
channel strategies expands. Sales
expenses will grow in tandem with the
expansion of channel participation.
58 I M A R K N O W S U M M E R 2 0 1 6
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
w w w . i m a r k g r o u p . c o m 59
2. Balance sheet changes. Warranty costs
will rise, tooling and research and
design capital expenses will increase
and IP valuations will grow. Write-offs
of legacy equipment will accelerate.
3. Channel partnerships will change.
New rules of engagement will need
to be written and adopted as the new
code of behavior unfolds.
4. Innovation will evolve at a furious
pace, requiring investment in talent
to create software solutions and IP
assets.
5. The lighting market will splinter into
dozens of channel strategies. The rate
of success for small companies to
enter and dominate a small niche will
increase.
6. Acquisitions will increase as the
historically dominant legacy manu-
facturers acquire niche
players to maintain
their growth.
7. Talent will become more and more
reflective of the tech world, with the
young, smart and upwardly mobile
eager to move on. Retention strate-
gies and engagement recruitment
strategies will grow rapidly.
8. The current popularity of non-com-
petes employed to retain top talent
will ultimately fail under the weight
of enforcement expenses. If you have
to legally restrain your employees,
then you’ve stepped over the bond of
mutual loyalty into fealty.
9. The strategic plan will become a bat-
tlefield. With legacy leaders relying
on new tech employees, the strategic
direction of the company will require
deft talent.
10. Legacy leaders will change or
disappear.
11. The availability of talent will remain
restricted for decades as the lighting
market will be competing with tech
companies for the next wave of
innovation. Tech companies line up
outside colleges to recruit the best and
brightest with top dollars. That is foreign
to lighting companies and legacy
channel partners.
12. Diversity of talent will grow rapidly.
13. Change will be exhilarating to
an industry that had a nice and
comfortable 100-plus-year run of
insulated, close-knit relationships.
Enjoy the ride!
Ted Konnerth is president/chief executive officer of
Egret Consulting Group, a professional, executive
search firm since 1999. Egret is uniquely specialized
in the electrical industry. Previously, he was global
vice president of sales at Cooper Lighting, where he
managed a diverse channel strategy to position Coo-
per as the industry’s most profitable market leader.
He holds M.S. and Ph.D degrees in psychology from
Tulane University and a B.S. from Ohio State. He is a
member of IES, IEEE, EmergeAlliance, Human Centric
Lighting and a contributing writer and guest speaker
throughout the industry.