Service-based Approach to Stay Competitive
Editor / Provider: a&s International | Updated: 11/23/2011 | Article type: Hot Topics
The past 10 years of security have been predefined by Sept. 11, 2001. A tremendous boom with double- or even triple-digit growth took place until the recession dampened the market's giddiness. With market uncertainty, what's next for the coming 10 years? We find out more from Security 50 participants, along with industry players who are not at liberty to disclose physical security sales.
Change . Convergence. Customers. When considering the future of security, these three C's figure prominently in the conversation.
The impact of 9/11 is immeasurable. As the attacks spurred a flurry of activity, security experienced meteoric growth. Strong sales and margins were achieved by security players who listened carefully to their customers and delivered solutions tailored to their needs and concerns. The growth potential of a “pro customer” approach attracted a number of traditional building or IT/IP players to the physical security space, such as Cisco Systems, Johnson Controls and Siemens Building Technologies. However, the “Great Recession” slowed growth, creating tougher competition. The surviving companies have had to adjust and restructure; while large companies can afford to acquire, smaller companies have relied on organic growth.
Our annual Security 50 coverage examines industry trends, with the customer coming up again and again in our interviews. We found that the successful companies managed to achieve 50- or 60-percent growth, even in dire market conditions. These industry leaders beat the market by targeting core needs and delivering value to their customers. While security is important, companies that went the extra mile to provide business benefits guaranteed their survival.
There may be a smaller playing field in security, but it continues to beat the market. Component maker Texas Instruments (TI) started investing in dedicated security chips in 2005, which has paid off. “When the economy is taken into account, the growth of security versus the overall market is faster,” said Cyril Clocher, Business Manager for Video Surveillance. “It's still a healthy, high-growth market for TI.”
Growth has slowed in security, but not stopped. “Growth rates are still robust, and the security market still presents a strong opportunity for the manufacturers, systems integrators and service providers that focus most on better understanding end users' challenges in a truly intimate way,” said Kevin McCaughey, VP of Security Solutions, Buildings Business, Schneider Electric. “It may sound old hat, but there's nothing old or tiring about knowing a customer's business so well that you are in a position to make valuable recommendations that positively impact that customer 's bottom line. The next 10 years are all about harvesting ROI from the investments made in security in the 10 years since 9/11 — for customers first and providers second.”
Emerging regions and IP solutions will drive this growth. “While there is no doubt that global economic uncertainty has slowed the security market in some segments and regions, we continue to be bullish about overall prospects,” said Warren Brown, Director of Product Management, Enterprise Commercial Solutions, Tyco Security Products. “We see the IP video market — cameras, NVRs and VMS — continuing its strong doubledigit growth, with wireless intrusion solutions and managed security — access control and video — showing significant growth opportunities as well.”
Emerging markets will see strong growth, particularly in the Middle East, China, India and Latin America. “Key to our success is building a powerful, unified solution, with thoughtful localization for regional and national needs,” Brown said.
A major component of growth is listening to customers. “Global organizations need to truly immerse themselves in the various markets they serve, whether it is geographic regions or vertical markets,” said Steve Gorski, GM for the Americas, Mobotix. “The key to success in the security industry is to understand the needs of the partners and customers in their specific markets.”
Distinguish Your Brand
Standing out in a crowded playing field is hard, but not impossible. A savvy solution provider should conduct market analysis to identify its position, and then improve internal processes to get to that desired position. If this is not done, companies will be eliminated for not being sufficiently competitive.
A comprehensive service approach is one way to go to market. “In this competitive environment, companies can stand out by delivering an integrated, end-to-end solution that removes risk and complexity,” said Mabel Ng, VP and GM of APAC, Honeywell Security. “Of course, quality and reliability are always essential, and companies are also looking to work with a stable partner, one that they can count on being there in the future to support their system.”
Focusing on customer business needs also sets a company apart. There is nothing but pressure on revenue models that see security as an overhead and not a business benefit. “Solutions that add considerable efficiencies, reduced costs and eliminate the need for rip-andreplace are growing faster than other segments of the security industry,” said Adlan Hussain, Marketing Manager of CNL Software.
Education and customer service are essential for manufacturers to maintain relationships with resellers and users. “Manufacturers need to invest in the success of their resellers through educational seminars, training, service offerings and comarketing opportunities,” Gorski said. “We live in a world where one bad experience can be immediately broadcast through social media or other publicity channels, and therefore, we need to make sure we are providing the support, training and service necessary to ensure a customer's commitment to our technology.” [NextPage]
Security has experienced the natural boom-bust cycle of all industries, when investment capital pours in and companies develop new products. One way to get growth in a slow market is to acquire it, resulting in a number of companies ending up in the hands of a few.
For security, reliability is a key benchmark. Larger companies may have some advantages in providing a complete end-to-end solution, but ultimately, scale is not the deciding factor. “There may be some consolidation, but this is a strong and dynamic industry and one that will likely always attract new players and ventures,” Ng said.
While some level of consolidation is expected, security is unlikely to be dominated by a handful of players. “A handful sounds very low in a market that is today very fragmented,” said Ray Mauritsson, CEO of Axis Communications.
Other observers felt that the number of security players will only increase, not diminish. “A few factors are essential for companies to have staying power, such as having a sound understanding of the marketplace and a strong vision to grow regionally, and eventually globally,” said Toby Koh, MD of Ademco Security Group, a Southeast Asian system integrator. “As technology continues to advance, what will also set a successful company apart from the rest is its progressive approach to achieving breakthroughs in building more powerful and effective security systems at lower costs that will deliver a more competitive solution to that of the incumbent.”
One of the key elements for companies to survive is to keep moving.” Looking back at security history, at every stage we've created lots of security companies,” said Tony Yang, International Marketing Director for Hikvision Digital Technology. “There was a boom in compression cards, then DVRs. But over time, many companies merged and integrated. I don't know if the overall number of security players will decrease, but what's for sure is the next stage will have another crop of players.”
Finding the right people is crucial for companies to compete on a global level. “It is critical that companies invest in employees — from executives and salespeople to marketing and technical development professionals,” Gorski said. “Your employees are the face of your organization, and it is critical to hire an experienced and professional team.”
Innovate or Diminish
Once a company knows the market and has identified a niche, it has to develop solutions that address customer needs. This means that R&D spending should be immune to budget cuts for a company to have an edge. “Companies should continue to invest in down times,” said Marc Holtenhoff, CEO of Aimetis. “If you can execute to have the resources to survive and be successful, you will come out stronger if there's a downturn.”
Apart from consolidation, being a technology “fast forwarder” or innovator is the way to survive, said Simone Santambrogio, Product Management for Security Systems, Promelit.
Other companies are confident they have a manageable and sustainable model. “Milestone Systems will be one of the consolidators,” said Lars Thinggaard, President and CEO. “We invest 16 to 22 percent of revenue in R&D, and our product portfolio is being strategically expanded to compete, grow and attack all market segments.”
Solutions must provide flexibility for end users to adapt to their future needs. This could be a migration path to increase or decrease the size and scale of the solution or to enable the addition of new technologies as they emerge, Hussain said.
Quality technologies should meet user needs, rather than launching a new product each month that has no real value. “This is one thing to build a camera; it's really another type of activity to have a whole system work together and provide value to the end user,” Clocher said. Solution providers have the differentiation to combine all security applications — video surveillance, access control and intrusion — into a single integrated system, thanks to IP technology.
Covering All Bases
Market pressures have resulted in Tier-1 brands moving from large projects to the midmarket. This year, Bosch Security Systems launched an “engineered software and solutions” division for highly complex projects requiring tailored project management, said Gert van Iperen, Chairman of the Board of Management. “At the same time, we are expanding our portfolio in the lower price segment for customers who aren't looking for holistic security systems. Those products are easy to understand, to use and to maintain. Quality and reliability always remain the same.”
Honeywell has also launched a new line for small security sites. It is not positioned to compete with bargain-basement products but offers a simple yet integrated solution for smaller projects. “The new line is to tackle the APAC region,” said Sufan Kan, Senior Manager of Line of Business Marketing for APAC, Honeywell Security. “In 2011, it's achieved three times of sales growth. We project the aggressive growth to continue in the next couple of years.”
Economic uncertainty isn't always bad, as it can become an opportunity to speed up time to market. “Strategic outsourcing can not only stretch the dollar in tight budgetary environments, but also create incremental sales opportunities with which Honeywell can pursue other pressing initiatives,” Kan said. “Global sourcing efforts can help Honeywell realign the current market realities.”