The transformational impact of tech
As technology continues to reshape large industrial companies, M&A activity in this sector is on the up. It brings with it a transformation of global workforces and a shift in national identities. With a move towards tech-driven processes transforming the factory floor, to what extent can these businesses still be deemed ‘traditional’?
Technology is transforming the business world in a revolutionary way, and traditional sectors such as manufacturing, construction, chemicals, automotive and energy are no exception. Tech related M&A in the industrial sector is buoyant, with an increase in the automotive sector of 60% since 2015 indicative of the strong performances, according to a recent report by Ernst & Young.
Historically major industrial companies were a part of the very identity of a country with significant influence over large-scale employment and national infrastructure. In recent years, however, the increasing impact of technology has dramatically altered the way these companies operate. “The convergence of tech and industrial players is pervasive.” according to Mark Bulanda, Senior Vice President of Planning and Development at Emerson, “It started 15 years ago in manufacturing with the move from analogue to digital on the factory floor, and it’s been a significant journey since then”.
Given the influence of these industrial giants on a national scale, and in particular the strategic impact on employee populations, scrutiny from regulatory and governmental bodies when it comes to M&A deals is inevitable. “These businesses are regarded as national treasures,” confirms Jannan Crozier, M&A partner at Baker McKenzie, “and there’s definitely more of a political feel to M&A currently”.
This broader impact to deal making means that players are mindful of nationalistic feeling when looking at M&A. The opening of large plants, establishment of R&D centres and a drive towards streamlining processes have all had a substantial impact on national workforces. “There has been a transition of the employee population towards a much more tech savvy worker with a very different set of skills,” says Crozier. “A job that would have required 50 people on a factory floor is now done by a robot. But someone still needs to build, program and operate that robot. There is a drive towards education and the growth of a new workforce generation.”
The era of traditional jurisdictional growth still exists, but given that tech developments have lessened the need for vast factories with massive global footprints, the drive now is to become smarter with more agile processes, supply chains, and a reskilled workforce. Manufacturing doesn’t necessarily require the same amount of space for a large scale operation, and, as Bulanda puts it, “an enormous series of belts and pulleys”. Industrials are instead looking to a different kind of operating pattern.
“We are seeing a transformation of our workforce, largely in terms of demographics,” says Bulanda. “The baby boomers who stayed in one industry for life are retiring and tech has allowed the younger generation to move more seamlessly from company to company. We use VR for training and have turned towards technology to complement the knowledge in people’s heads. It’s all about increasing the productivity and efficiency of our people and operations.”
Along with streamlining operations, tech is also allowing companies to address the big issues, such as sustainability strategies. With business models being adapted to address concerns from shareholders and management boards, industrial players with new found tech acquisitions are increasingly able to update their processes in a way that is in keeping with sustainability agendas.
Major industrials have long contributed to the fabric of national infrastructure, and along with large-scale employment, inevitably formed part of the national brand. As these players transform their businesses through acquisitions and JVs with tech companies, tech driven automation and a workforce with 21st century skills will be the new hallmark of the business. However, it is important not to “dismiss or diminish” the traditional aspect of manufacturing and industrial companies, says Crozier. After all, it is the very spine of the organisations which has allowed them to flourish. “Without these achievements the world would be a different place. But this is a new era of business with a new set of challenges and opportunities. Industrials utilising and investing in tech are future proofing their businesses.”