Emerson Pushes Boundaries Of IT

You usually don't hear executives at Oracle talk about taking outside advice. But the hard-charging company has solicited some feedback on a new round of products from an unlikely source--Emerson, a 114-year-old conglomerate that makes everything from industrial controls to power systems for phone companies to closet organizers.

Oracle's latest sales and service software includes pop-up screens that prompt service representatives to sell to customers based on what they own--and can afford. That concept was developed by Emerson, an Oracle customer that's pushing the boundaries of what business applications can do, Oracle president Safra Catz says.

Manufacturing software in the works also borrows ideas from Emerson, which is in the midst of a huge Oracle installation project as it expands its operations in Asia and moves into new markets at home. "The types of things they do are so far ahead of what most companies are dealing with," Catz says. "For them, it's absolutely critical to have the best information. They want to have better systems that cost them less to operate and that give them better data."

That kind of thinking is important to Oracle, as it tries to expand beyond the market for database software into customer-relationship-management and other business apps. "They share with us things we should put in our systems," Catz says. "It's a benefit to us both."

Emerson, the No. 2 company on this year's InformationWeek 500 list, has been transforming itself from a supplier of electrical components into a vendor of sophisticated product suites such as industrial-control systems that can sense their surroundings, air conditioning equipment with energy-efficient and environmentally friendly technology, and power networks for data centers and telecom companies. At the same time, it's capitalizing on the Asia boom, investing in China and moving operations there and to other countries, made possible partly by technology. The company invested in computer systems and technology through the industrial recession of the late 1990s and early 2000s to globalize its products, engineering, manufacturing, and brand name. That technology also has helped it aggregate and understand data from a vast worldwide network of customers and suppliers.

"This is a company that's very IT sophisticated," says Nicole Parent, a director at Credit Suisse First Boston, who covers Emerson and other electrical-equipment companies such as General Electric, Honeywell, and United Technologies. "Emerson continues to plow R&D into the company," she says.

Emerson generated nearly $14 billion in revenue last year and reported $1.09 billion in profits. For its third quarter ended June 30, sales grew 13%, to $4.04 billion, driven by 20% growth in Asia, Latin America, and Eastern Europe. Growth in China alone was more than 40%, and U.S. sales grew 12%. Three years ago, Emerson bought the power-supply unit of Huawei Technologies Co., China's largest telecom equipment maker. It paid $375 million this year for the power business of telecom equipment maker Marconi Corp. to expand its business selling to regional Bell phone companies. And it bought Metran Industrial, a big supplier of instruments to Russian oil and gas companies. Asia "is a very dynamic area, and we're rapidly trying to invest," says Charlie Peters, senior executive VP at Emerson.

To better understand what kinds of products its far-flung customers want to buy, keep operating margins high and manufacturing lean along with increased outsourcing to Asia, and combat higher materials costs for steel, aluminum, and copper, Emerson is undergoing a wholesale upgrade of its enterprise-resource-planning systems. It's also making improvements to its material information network, a suite of data-analysis software that combs through some $5 billion in purchases, 1 million part numbers, and 400,000 suppliers. Two years ago, the company started replacing more than 100 ERP systems from 45 vendors with a companywide rollout of Oracle software. "We quit counting," Peters says.

The series of 50 projects has cost nearly $40 million so far and still is only 15% finished. One benefit has been simplifying shipments from Asia as manufacturing there ramps up, so it takes an average of a month to move goods from China or other countries to the United States. That's down from a month and a half, and Peters says he wants to shave even more time off the process.

By investing in technology that lets it sell "platforms" of instruments, software, and services instead of just industrial components, Emerson has taken market share from competitors such as Honeywell, according to analyst Parent. Peters, CEO David Farr, and the rest of Emerson's management team also have invested in technology that's helped the company's customers learn how to build lean-manufacturing operations to increase productivity and profits. "Few companies in this space have a management structure like Emerson. Someone like a Charlie Peters is a competitive advantage. ... Charlie was talking about E-commerce before the bubble of the '90s," Parent says.

It's a new frontier for Emerson, which began in 1890 selling electric fans, supplied gun turrets for bomber planes during World War II, and expanded into Europe in the '80s. About half of Emerson's products wind up in consumer appliances such as air conditioners and tools, but nearly all its business is selling to other companies. Its customers include Home Depot, Maytag, and Whirlpool.

Interestingly, it's not industrial controls or phone-company power systems that motivated Oracle to reshape its upcoming products. "Even though Emerson distributes through resellers, they speak directly with customers and are very focused on sales and service," Oracle's Catz says. "When you call about repair of your broken garbage disposal, they know that you'll be calling a plumber anyway, so they try to sell you a new disposal rather than just the repair. They're innovative and sensible, which is unusual."