In the latest step in a multi-year effort to become more global, efficient, and customer-centric, French automation giant Schneider Electric has announced a new internal governance structure and a new chief executive who is expected to take office in May.
Jean-Pascal Tricoire, 42, is expected to become chairman and CEO of Schneider at the company's shareholder meeting on May 3. Tricoire, currently chief operating officer, will take over from Henri Lachmann, who will move up to become chairman of a new Supervisory Board that will govern the company.
What Schneider is doing organizationally is similar to a structure that is already in place in other European corporations and is starting to appear in American companies as a consequence of a tougher regulatory environment spawned by the Enron scandal and others like it. By creating a Supervisory Board, Schneider will separate day-to-day management from oversight. Tricoire, as CEO, will head a new Management Board, which will run day-to-day operations of the company.
German-based software provider SAP, for example, has had separate boards for supervision and management for many years. SAP's Supervisory Board chairman is Hasso Plattner, its former management chairman and CEO. The company's current management chairman is Henning Kagermann. In the U.S., some companies are beginning to separate board chairman and CEO roles.
Schneider is now adopting a similar structure. "The governance structure today is: board of directors, committees, and general management," explained Veronique Moine, a Schneider Electric corporate spokesperson in Paris, in an e-mail interview. "The new structure will differ because the people who supervise belong to a different structure from the people who manage."
Schneider's corporate redistribution, however, is just one of a number of initiatives the company has undertaken as part of a long-term improvement plan. The first phase of the plan, announced in March 2002 and called NEW2004, set a three-year timeframe for achieving a set of results based around growth, efficiency, and people. In January 2003, Schneider executives provided New York financial analysts with an update on the NEW2004 program, saying that it was making headway in Six Sigma, lean manufacturing, and other programs in its 206 factories.
In January of this year, Schneider announced the next phase of the program, calling it simply new2, which set a four-year timeframe for further improvements. Schneider said new2 has two main objectives: continue to leverage NEW2004 and drive "the company's indispensable transformation."
"The development strategy is to become an innovative, growth-oriented solution provider with a balanced portfolio of business, a culture of innovation, entrepreneurship, cost-efficiency, optimization of capital employed, and superior execution," Moine said.
But while many companies have similar long-term agendas, the Schneider Electric plan is particularly aggressive.
"They've raised the bar high," said Chantal Polsonetti, vice president of manufacturing advisory services at ARC Advisory Group (Dedham, MA). "They want to stimulate organic growth of greater than 5% increases per year. And they want to sustain profit margins of between 12.5% and 14.5%. Those are aggressive goals in this industry." Furthermore, in 2004, emerging countries accounted for 27% of sales, but the company intends to raise that to 40% by 2008. "That's quite a shift for new business," Polsonetti said.
As part of the plan, the company has been making targeted acquisitions. In the last few years it has acquired TAC, Andover Controls, Abacus Engineered Systems, and MGE UPS Systems, the last of these to address issues of energy management for customers.
Last year, Schneider Electric Australia Holdings Pty Ltd. (SEAH), a subsidiary of Schneider Electric, began courting Citect, an MES vendor headquartered in Sydney. The deal, which looked like a slam-dunk, was almost derailed by a cash offer of $1.70 per share made by Thoma Cressey Equity Partners, a private equity firm in the U.S. But in late January, SEAH entered into an amended merger implementation agreement, increasing the payment to $1.85 per share, in a deal worth about $100 million. Citect shareholders were expected to vote on the acquisition agreement last month.
Careful not to concede a bidding war, Schneider Electric officials noted that, "the increased consideration reflects the improvement in Citect's recent results... and Schneider Electric's confidence in its ability to leverage the integration of Citect's SCADA and MES software suite as a core component of its present Industrial Automation offering, and to capture growth opportunities with an integrated solution approach."
Industry analysts concur that the results of such a merger would be complementary. "This would provide Schneider Electric with additional expertise for some key process and hybrid vertical markets where Citect is strong, such as mining and metals, water and waste, food and beverage, utilities and gas pipelines," said ARC analyst Craig Resnick, in a research note.
All in all, the initiatives Schneider has been undertaking since NEW2004's announcement seem to be producing results, even though they may have been off from original NEW2004 targets. NEW2004's three-year revenue target was Û12 billion. But in fiscal 2004, the latest full-year results available at press time, Schneider's sales rose 18% to Û10.3 billion, from Û8.7 billion the year before. Net income jumped 30% to Û565 million, from Û433 million. Automation and Control, representing about 26% of sales, grew at 1.7% on a current basis and at 9.4% based on constant exchange rates.
This article originally appeared in the March 2006 issue of Managing Automation magazine.