Consolidation doesn’t have to damper development
My what a difference a few years makes! At this time in 2000 I wrote a similar article highlighting the changes I saw happening in the water industry. Based on what I said then, the future is upon us now.
First, the Internet has changed our industry. Following the general business trend, most suppliers are using some form of online business. Product selection is a mouse click away, frequently asked questions (a.k.a. FAQ’s) are handled 24/7 and many products can be ordered through e-business portals. Suppliers have been able to cut front-end costs, and purchasers have more information available. For standard products and applications, this trend to “automate” has improved business processes and saved money for everyone. The discipline has forced suppliers to better define products and users to better understand need vs. want.
However, if your need isn’t “cookie-cutter,” then the new online world lacks that personal touch. Distributors and dealers have stepped up to offer broader service to a larger area. They have increased their lines and services to offer the customer more. The changes have driven distribution channel consolidation, but many are finding ways to offer that added customer service relationship.
Consolidation has hit the water industry in a big way. General Electric acquired Glegg, BetzDearborn and Osmonics to form GE Water Technologies under a new GE Infrastructure group, while maintaining the SmartWater products under GE Appliance. GE Water Technologies is organized around industries, offering complete water care such as contractual services, mobile water, water treatment systems and chemical management. Pentair has consolidated many companies such as K&M, Plymouth Products and Everpure into its water group to offer a one-stop supply of components and systems. USFilter, a unit of Veolia Environmental, has shed certain assets to focus on turnkey solutions for major industry and infrastructure. Ondeo combined Degremont and Nalco to form a global equipment and services company. ITT Industries acquired several businesses to combine with its strong pump group, focusing fluid technology solutions on a large customer base.
The big corporations will continue to pursue additions to offer broader solutions to their customers. Industrial pure water will become an outsourced utility of sorts in most industries. The packages offered will include benefits never offered before by the smaller independent companies. Customers will be able to pay by the gallon, finance capital costs and gain operating and maintenance services. Consumer water treatment will continue to become an appliance with ease-of-use and purchase a primary driver. The bigger corporations will offer standardization, scale and improved distribution to lower costs.
But where is the innovation?
Innovators created the water industry. The companies that were consolidated were mostly first generation businesses where the operations grew beyond the founders or the sale price was too attractive to turn down. As small businesses, they were willing to take chances and nimble enough to move quickly. Yes, the new larger consolidators have provided needed discipline to a maturing industry. However, by their very nature as larger enterprises, they have more difficulty driving the same level of innovation our industry has become accustomed to and even expects.
These entrepreneurs drove exciting technologies such as reverse osmosis, ozone and electrodionization, which changed water treatment forever.
Many companies still exist that still have passionate entrepreneurs at the helm. Koch Membrane Systems is rumored to be investing heavily in research and development with many Asian companies starting up or following suit. In fact, western companies had better look out for the innovation and speed of the new Asian competitors.
As consolidation has happened, many people have left the larger companies to join smaller firms or start their own. PentaPure is a perfect example of 4X growth business under new innovative leadership. There are many more examples including new distributors and dealers.
Consolidation and Innovation Can Coexist
As the next wave of entrepreneurial companies drives for their brand of change or innovation, the larger consolidated solution providers will not stand still. They may not be as nimble or daring, but their processes and resources will allow them to follow with comparable or improved technology. We need both kinds of companies in our ever-maturing industry. Change drives change and standardization will create demand for more innovation.
In the end, the customer will continue to benefit with new technologies, a broad array of services, and lower prices. The years ahead will be exciting and I hope to be around to participate in the change and innovation process.