All right, so we're going to get started again. We are really excited to have Fortive Corporation with us. We've got Jim Lico, who is the President and CEO. I see in the audience Chuck McLaughlin, who is SVP and CFO, and Elena Rosman, who is the VP of IR. As I walk over to you, Jim, let me just ask you, just to start with a quick update on sort of what you're seeing out there, particularly short-cycle businesses. Actually, if you do have any prepared remarks, why don't you go ahead and say it? I'm getting too excited.
Well, maybe I'll weave in maybe that question.
Thank you.
Yeah, I think as we articulated on our earnings call, we really are excited about the position we're in right now relative to 2024. We finished the year strong, but I think what you see in 2024 for us is going to be the manifestation of the strategy that we've been really continuing to build over the last several years in terms of building a growthier company, more durable. And you see that play out in the different segments, and I'm sure we'll talk about that. But we feel really good about the position we're in relative to what we're seeing. I would say very consistent with what we talked about in the earnings call.
We think this year, North America is probably going to be our best growth market, Europe probably in the low single-digit range, a little bit less, and Asia will be depending on the parts of the world. China may be a little bit slower. We think probably down mid-single digit this year. But I think indicative of a very strong early part of last year in China, multiple-year growth rates still look pretty good. And what we were excited about in the fourth quarter was the fact that despite maybe some the PMI being down for a while, things like Fluke point-of-sale around the world was still growing mid-single digit. So I think it was just emblematic of the things we've done strategically to reposition the businesses around some durable growth initiatives that sort of transcend what maybe happens in the broader macro.
Jim, do you still think that Tektronix's book-to-bill could turn positive in Q2? And you mentioned enduring strength in Fluke. That continues?
Yeah. So what we've seen in Tek, if I step back in the segment at PT, right, Precision Technologies segment, which will be our lowest growth segment for the year, on the backs of really strong growth over the last several years in both Tektronix and in Sensing. But both of those segments have seen five-ish quarters of negative order growth. We've been working off backlog. And I would say in Tektronix in both businesses, we think starts to turn in the second quarter, so to book-to-bill to one, and that's what we would see. In the case of Sensing, two of the businesses are probably going to grow orders in the quarter. So it'll be the other two parts in the second.
Q1?
In Q1, yeah. So we'll start to see some of that transformation in the Sensing businesses. Tek, which has been on a roll, had a record 2023 and is in a good position relative to the business and needs to get through a little bit of, I think, a little bit of what we're seeing now. There, customer funnels are starting to expand. Conversations are accelerating. So I think that speaks to the fact that we think the book-to-bill starts to change in the second quarter.
As you've talked to customers, Jim, anybody worried about the elections this year is just another thing in North America.
We're getting used to well, I would say we're getting used to uncertainty. Last year had lots of uncertainty too. So I think maybe the constant might be the uncertainty. And Andy, I would just say we've got elections all over the world, right? Half the world is going to have an election here this year. But no, I would say most people are thinking about their markets and their customers, thinking about what they need to do to invest in the future. I wouldn't say the uncertainty of the election is dominating the conversations these days.
Right. And then on China, anything change as Chinese New Year ends here, anything that you're seeing? And it's such a focus area for you. So maybe talk about how do you see it going forward.
Yeah. It's about 10% of sales now. So that number is as North America our higher growth businesses from an acquisition perspective, most of our software businesses are in North America. So we're mixing up towards a little bit towards North America and Europe here over time. I think what we've heard it's still early. So to answer your question, we'll be with those teams next week in a number of conversations as we get out of the New Year. As I always say, you got to get to March to really know where China is going to be for the year. We feel we said we think China is probably down mid-single digit. Now, we got a tough comp in the first quarter.
I think we grew 30% last year in the first quarter. So the overall number is not going to tell us a lot. It's really going to be more about customer conversations. I would say on the ground, business is actually decent. What we've seen is project delays. And so I think the conversations we'll be having with our team here next week and in the next few weeks is, how are those projects progressing, and where do we see that landing as we get through the year?
Jim, again, because high-growth regions are a good focus, I'm intrigued. At this conference, I'm hearing a lot about India. I know it's small for most companies, but it seems like it's the fastest-growing area. Maybe talk about what you got.
Yeah. We grew over 20% there last year, as you said, on a small number. I'm actually going there a week from tomorrow. We'll be in the country. We've actually got a big continuous improvement Kaizen event that week. It'd be exciting to be with all of our operating businesses there. We think the opportunity is really big, but it's off a small base. We do think, and maybe more broadly, some of what will be to India's benefit probably means some China manufacturing, some China design work might be moving to India. I think one of the things we've tried to do is the world globalizes and thinks about where their supply chains might be, where their design efforts might be, that we'll follow customers wherever they go.
We're seeing some customers wanting to invest more in India. We're certainly responsive to those needs and feel good about our position there. We've got a great team there, and we're well positioned to take advantage of the opportunity.
Jim, I wanted to ask you about maybe a little bit longer term. It looks like you're going to beat your margin target of 26.5% in your investor day a full year early. But you were asked on the call, you still need a pretty big jump next year to get to your sort of 450 target, right? And you said you're still very confident of that. Obviously, you're going to conduct incremental M&A. Now, I know we'll talk about that. But maybe talk about sort of what's gone right on the margin side and what opportunities still are ahead of you there.
Well, when we get above that mid-single-digit growth rate, the incrementals tend to be a little higher, right? So I think it starts with the fact that growth has been a little bit better over the last few years, and that's led to better margin expansion. FBS, as you know, has always been about continuing to improve the quality of the business. And our innovation efforts tend to have higher almost absolutely have higher gross margins. So I think what's gone right, innovation's gone well. We've grown a little bit more. Our gross margin strategies, whether it be pricing or some of these others, have gone well. That gets you to the 25 number. In 2021, we put out some targets around free cash flow and margins.
As you described, we're ahead of those targets. Last year, we sort of re-upped them with some EPS numbers. 450 is the number that we've obviously discussed relative to your question. When we look at mid-single digit growth in 2025, if we look at 75 basis points or maybe a little bit better margin expansion in Health next year, we'll pay down some debt, which is going to have some headwinds or tailwinds as well. So we feel like when you sort of look at a number of those things, we're in a good position. It's not a guide. It's in any way, shape, or form. We'll get to the end of the year. As I say, we got a season to play before we get to the next season.
But we wouldn't have put those out there if we didn't see a path. We'll work every day towards the exit rate. We think that when we look at the long-term growth, one of the things we did on the earnings calls, you know, is we tried to show the five-year growth trajectory, the performance in EPS growth and free cash flow growth and what we've done from a core growth perspective and total growth perspective. If you just fast forward those percentages in terms of improvement forward, that you get to those numbers without any big leaps of anything, so.
Let me just follow up on the margin question in one different way. And that's you've been drifting up since you've been public, basically, right? And your algorithm now is 40%, but I think your guidance is 45% for 2024. So I'm left to think with more recurring earnings, all that kind of stuff, that 45 is a new 40. Why shouldn't I think like that? I guess that's what I was saying.
Well, if I think if you took a longer-term view, you'd probably start to that probably becomes even more. The interesting thing about our businesses is that we have very profitable franchises. And our hardware franchises are incredibly well run and profitable as well. So it also just stands to reason that as we continue to if we grow a little bit more, we're probably going to be at that higher rate. So that's probably true. The incrementals, as an example, in IOS and in Health this year, are a little bit above that. I think they're in the 50 range because of that.
So if we beat the if we end up growing more organically, you might start to see that. And over time, given the strategies we've had and the organic growth rate moves up, you might start to see a 45 number. I don't think that's next year or anything like that. But we're in a great position, as you said, to be able to add to profitability. I think the other thing, we want some degrees of freedom to continue to invest in the business, perpetuate the growth rate, continue to take advantage of the opportunities that are available. Sometimes we could fall through at 50% or 60%, but we're going to take some of that money.
We created ours, just as a side, you know, our centralized machine learning and AI effort that we call The Fort was basically created out of those incrementals. So we could have fallen through at a little higher number, but we've accelerated the investments in building out that capability. I think we're well served five years ago to have done that. We want to also maintain some degrees of freedom to continue to invest in the business.
I'll just ask you about that, Jim, because you don't get asked about that very often nowadays on The Fort. How much is it helping sort of the algorithm, whether it's margins or growth? Yeah.
Yeah. But certainly, a lot of the early effort was to build out the capability and to do some things internally. We're going to start to see some solutions. Generative AI is a next phase. We've got robotic process automation working in our back offices today to improve productivity and to, quite frankly, make work better for our team members around the world. We've had that for a few years. That's been accelerated by The Fort. Our engineering, a number of the things we talked about from an engineering acceleration in the call are really started with The Fort. And we're just starting to get to those solutions that we can monetize from a customer perspective.
And we're in the early days of that, but feel like those opportunities are very much in front of us. All of that is because we've built this scalable foundation of expertise at The Fort.
Jim, you're probably aware that a lot of your industrial peers have what I would call backend-loaded guides. So I think you suggest in your fourth quarter and it's called that you don't need a big uptick in second-half sales and hardware, nor do you need significant improvement in China to make your annual sales EPS forecast. But you signaled we talked about book-to-bill sort of improving in Q2 in Tek. Is there anything else that you sort of need to sort of make that 2%-4% organic growth guidance that you have as an improvement?
Yeah. I mean, when we look first-half, second-half, we're 48%-52%, roughly. And that's really what we've bet historically. Second-half is always a little bit better than the first-half. So when we look at the traditional sequential move, first-half to second-half, we're talking about what we've typically done. So that wouldn't. That first gives me some comfort, gives us some comfort that there's nothing extravagant that needs to happen. As you mentioned, the book-to-bill, as I described, is certainly part of what we're confident will happen, but it needs to happen. And that's certainly out in the future.
But in terms of extravagant things or anything like that, nothing in particular that stands out there that would say absolutely has to happen. I would say, and as you said, China we've moderated our expectations for China. We'll see how, as I mentioned in the China question, we'll see how that plays out.
Got it. And then you mentioned Sensing. I want to talk about the couple of businesses that are starting to turn. But let me do it in a bigger form with just, I think, on the call, you mentioned some green shoots in the form of semiconductor customers at least beginning to have conversations. So maybe talk about that. Are these conversations ramping up at all, or is it just conversations?
Yeah. Well, conversations are sort of an aggregated discussion that we have with our segment leaders. But we are seeing the sales funnel start to move. So as we think about a five-stage sales funnel, the first thing is sort of the first conversations around projects. What we're starting to see is things progress through the funnel. So I think those are the facts that would give us some confidence that things are progressing and consistent with all of that consistent with how we anticipated. So I wouldn't say anything's necessarily accelerating or anything like that. I just think it's a conversation where we've consistent with what we've been talking about.
Got it. And then I want to shift to healthcare, AHS. So your ASP business really does seem to have turned a corner. You've transitioned now to the direct selling model here in North America. I think consumables were up 7% in Q4, 4% rest of the world. You're expecting ASP to grow mid-single digits in 2024. So maybe update us on where you are in your efforts to transform AHS because that was a segment that you kind of struggled in a little bit over the last couple of years. So how do you look at it going forward? And do you anticipate a meaningful difference in the growth rate of consumables versus equipment in 2020?
So number one, when you look sort of post-2020, the healthcare business has been in the time of pandemic, we've grown at about mid-single digits. And so just as a context of that, but there have been some fits and starts, as we know, that we have to work through, like the Elevate program that we did last year. We're in a really good position. I think when you look at where the year is going to play out, ASP, which is the largest part of the business, as you said, had good growth in consumables in sort of its first pure quarter of selling direct in North America.
We were with the business a month or so ago, and they feel they're really understanding the power of that direct model in North America and the opportunities that are available to them. So we feel good about the transition, and it's in a good place. I think more broadly around health, that roughly $1.4 billion in revenue, half of that revenue is consumables, whether it be at ASP or in Landauer. So we've got half the business is consumables. Consumables will grow more than we had a really good capital year last year at ASP. So capital will be a little slower this year. At least that's how we're looking at it right now. But consumables will be the growth determinant for the and that's half the business.
With the software businesses, obviously, we'll do well as so we feel like we said a few years ago that 2022 was the hardest year for hospitals, particularly in North America. 2023 would be better than 2022, and 2024 would be better than 2023 from a market perspective, electives, and those kinds of things. That's certainly what we're seeing.
Jim, I think when you and I were together not so long ago, we talked about you've done the heavy lifting in terms of restructuring in ASP. But is there anything still more to do there? What's in the future?
Yeah. Well, for sure. Well, I think we would say we can always our continuous improvement philosophy would always say we can do better. But Andy, when we carved the business out of J&J, what sometimes gets lost is the fact that we carved it out during COVID. So some of the things that we did to carve it out may have been easier and convenient as opposed to the best, most productive way or the best way. And so Elevate was a big part of that, the go-to-market piece. But there's still a number of productivity things. AI is going to play a role in this and back-office processes that we can do. And we still see lots of opportunity in the business to continue to build productivity initiatives.
And quite frankly, the business is very much on top of it. They're really driving their own future here.
Got it. And to that point, in terms of margin, this segment, you're still farthest from your 28 goal, right? But it seems like you've restructured. And as we talked about, you're focusing on productivity. As we just said, you're going 125 basis points of margin improvement in 2024, which is what you said you'd do on an annual basis. But it seems like you're taking a step up this year. So why could you do better than that? I'm always trying to.
Maybe we will. But I think at the end of the day, I think it's a good starting point in which to come to. We think the margin structure that we've got for the business this year is a very good margin structure. I think, first of all, 30% is certainly in scope for the future. We will have probably faster margin expansion in health, maybe than the greater portfolio. And we just talked about 75 basis points for Fortive. And let's see how the year plays out. Really very good opportunities for continued margin expansion.
Got it. I want to open up to the audience for questions in a second. But let me ask you about Intelligent Operating Solutions. That segment just doesn't look like it wants a cycle. Maybe a little bit of a slowdown versus the outsized growth in 2021 and 2022, but still mid-single digit rates is not a slowdown at all. You mentioned increased levels of innovation at Fluke, customer adoptions of your technology and key verticals. Maybe elaborate on the sustainability of Fluke's outperformance going forward. Then we can talk about a couple of other things in that.
Well, certainly, when you look at this segment, I always think of it as eight years ago, when we talked about the strategic plan for the company and to build this business out, we really had some simple principles around durable growth, more recurring revenue. We had some principles around safety and productivity solutions and hardware and software and growth platforms that would fundamentally allow it for us to build a growthier company. Where that strategy is most evident is in iOS. We've deployed the most capital from an M&A perspective. And it really is the hard intentional work that we've done for a number of years.
And that's why I think you see both within our traditional businesses like Fluke, as you pointed out, where we've repositioned around things like the energy transition to help the business grow differently or add recurring revenue and software to Fluke. But then, more broadly, what we've built on with some of the other businesses in Environmental Health and Safety and Facility and Asset Lifecycle. So yeah, I mean, what I like to think of is you see that play out fully, the strategy playing out fully. You see it in healthcare. We get post-COVID. You'll see that play out in healthcare. And then with the EA acquisition, you're really going to start to see that in PT.
And so I like to think of all three segments are in this evolution with iOS being the most developed in that sort of intentional strategy around growth.
So I wanted to ask you about ARR because, again, you're kind of alluding to it. So maybe give us more color on you've built this Facility Asset Lifecycle platform. You've got all this other good stuff. So talk about sort of anything, how do I say this, the positives of having that platform now and the go-forward strategy.
Well, certainly FAL, which is our largest software business and obviously in iOS, that's just coming together. We highlighted ServiceChannel on the earnings call and where they're at in their evolution for the last two years. We're starting to see Accruent start to change. Their growth rate, Gordian's been just an unbelievably star performer since we bought the company. So that set of businesses, when you look at the number of facilities and assets that we monitor is in the billions. And the ability to monetize that sort of coverage, customers are looking for solutions that give them more productivity, understand their assets better. And that's an advantage even in maybe a little bit more challenging macro because people are really trying to understand those cost structures.
So the secular drivers around that business are in a good place. And FBS has really driven some real performance there, made ServiceChannel dramatically more profitable. Net dollar retention across the board is continuing to improve. And I think that speaks to how we think about software more broadly as to how do we continue to build. We did two bolt-ons for that business in the fourth quarter from a software standpoint to add either data or expansion of SaaS. And we're going to see we'll see high single-digit growth in that business this year. Software more broadly is going to continue to grow well. So I think it just speaks to the fact that our hardware software strategy is working.
Any questions from the audience? Anybody have a question? So maybe we turn to cash flow, Jim. So working capital management has been a good contributor, solid free cash flow conversion. You finished 2023 with net working capital 7.5% of revenue. So can you talk about how you see working capital evolving from here and whether you continue to see incremental opportunities for working capital improvement?
In the business, in our operating businesses, and I think people know our operating model, we have four what we call core value drivers that we measure in every business: organic growth, margin expansion, free cash flow, and return on invested capital. So every business is watching Chuck and I do an operating review with every business every month. We go through the working capital. It's in their incentive compensation. So there's short-term compensation targets. And so working capital and free cash flow, I just think it's in many respects, it's the power of FBS. I always say if there's one metric that you can really look at from a working capital that really speaks to the quality and productivity of a business, it's working capital.
I think Tektronix has improved working capital 12 years in a row as an example. So we think this is just an ongoing aspect of the business that responsible operators will continue to run their business more effectively. Now, if you're growing 15% or 20% or something like that, then maybe you can't necessarily move working capital down. But that's where we'd look at free cash flow. So I think we're just in a great position to continue. I think we're at 7.5%, as you said. And a lot of people think that's all our software businesses. But the reality is our hardware businesses are in the 9%-ish range. So I think if you took that number and compared it against peers, I think that number would stand out exceptionally well.
So I think it speaks to the importance of free cash flow in the company. We find that is our currency for continued growth. And we've managed it incredibly effectively.
So I wanted to ask you, moving on to M&A, but let's start with EA, right? So EA has been part of the portfolio within PT for a couple of months now. So give us an update on the initial integration, how the early days are unfolding. You've got a 100-day plan. How's it going through that? And you already told us it's going to be accretive versus not accretive. So that's good. So what's gone right so far?
Well, I think it starts with on January 3rd, when we closed the business and found out that the largest order in the history of the company had happened in December. So that's pretty good. That's a good start. And so I would say two things that we really feel good about. We had our leadership conference last week. A number of the key EA leaders were with us, had a chance to sit down and have dinner with the president. And he's incredibly excited, was really excited that Fortive and Tektronix were the buyers. So the team's excited. That's a good starting point. We had our sales meetings at Tek already. And our broader Tek team is really excited about joining the EA team to sell these solutions into customers.
So I would say those are two things that we're really excited about in the first 60 days. As you said, it's now accretive, given both the jumping-off point from a margin perspective as well as the tax benefit, now to the extent of about $0.08. So we're off to a good start. But a lot of work ahead. Probably most of the synergies on the sales side probably don't happen until the tail end of the year, given the sales cycle and things like that. But we feel really good about the business. And as you said, it's accretive to growth and margins. And it's going to be, we think, a great addition to Fortive.
Jim, that's a huge part of the story, right? Scaling EA to leverage your sales force, right? So how will that work? You mentioned it'll happen, start to happen as we get to the end of the year. But for instance, what would EA look like three years from now? What's the vision for you guys?
Well, I mean, it's going to be very much an integrated solution with Tek. We'll sell independent EA solutions where customers want to do that. We'll see integrated solutions when possible. That business, probably, given its growth rate in the sort of double-digit range, is going to be increasingly a bigger part of Tek. If it were core this year, it would be about 200 basis points of core to Tek, as an example, about 100 basis points of PT. So it's got a dramatic effect to terms of transitioning the segment and Tek to even growth here.
And the last thing I would just say is we really, when we see the business the way it is, it's very complementary to the power strategy that we've had at Tek for a while. That would be the other part of what's gone well is I think as we dug under the hood, now that you own the business, the consistency of what they're trying to do and what we're trying to do is really high.
Jim is obviously pretty exposed to the EV space, as Tektronix is. Do you worry at all about sort of what's going on, or?
Well, that's why we tempered the growth number down. It was 40% for three years. And so we did take it to double digit. And so we sort of anticipated that EV wouldn't be as big a deal. But there's other pieces that are going to take over. Data centers and power storage and data centers and the efficiency of power into data centers is going to be a huge deal. There have been some estimates that 10% of energy in the world will go to AI data centers in the next five years. So the opportunity for us to be able to work with customers who are designing components and equipment for those places is really high. So EV is not going away by any stretch of the imagination. It's going to continue to grow.
The order I described in December was from an EV player. So we're seeing EV customers continue to invest, maybe not exactly at the rate of what we're seeing. But that's okay because these other aspects of the business are going to take over.
Can you remind me, Jim, just in terms of power supply, EA's market share? Because, again, data centers are a huge thing, obviously. It's NVIDIA day, after all.
Yeah, it is NVIDIA day. That's probably true. I think it's Fortive day, too.
It's definitely Fortive's day.
All right. So every day is Fortive day. By and large, when we think about power supplies, where EA really is, is in that high-power, bidirectional part of the market. It's probably the fastest growing part of the market. But it's not the broader power supply market. There's lots of players who play within the broad range of power supplies. We like the place where oscilloscopes play as well. That's really the power alley for us.
Got it. And then you seem very positive on the overall M&A environment during your Q4 call. So maybe talk about any changes you've seen with respect to the pipeline or valuations. Would you say you're just your normal optimistic self when it comes to getting M&A, or is it more of a target-rich environment?
Well, we just did 5 deals in the last few months. So it would be hard for me to sit and not be optimistic, given 4 bolt-ons in the EA deal. So Andy, you know this well. We are always busy. What we found, and we said, Chuck and I were, I think, said a couple of years ago that we thought the M&A market needed 12-18 months for bid asks to get kind of in alignment, sellers start to sell. And that really was more about seller expectations coming down than anything else. We started to see more of that. We're really busy. And I do think there's plenty of opportunity.
That said, given what we've just done and the opportunity to integrate those businesses and do that well, we would be fine if we didn't do something for 12 months, that wouldn't make me feel bad at all either, given the number of things we've just consummated over the last several months.
As far as valuations go, PE, what's going on?
Yeah. I was talking to some folks over the last few weeks who were speculating that with maybe the potential opportunity maybe to raise money, that you might start to see some sales. We've seen some of that. So I think that's probably true. Still, maybe early days to find that as a trend. But I do think that people are starting to see things. Most prognosticators think that this will be a better M&A market this year than next year or last year, excuse me. And that would suggest that I think that's more seller expectations than buyer expectations.
Got it. Then there's always a bit of a debate on what type of deal you should or will do, right? So in thinking about your 45%-50% recurring revenue target, you're 40% today. You got a 20% software revenue target. I think you're at 16% today. How are you thinking about M&A and sort of achieving these targets?
It starts with accelerating strategy for us. We talk about these five growth platforms, which are connected workflows. All of our M&A is going to go into that. When you look at what we just did, not to say past is always prologue, but if you look at what we just did and the deals we just did, we did two software deals. We did a data deal. We did two hardware deals. A good mix, all in our connected workflows, all in those growth platforms that are at higher growth rates, great, better margin potential in the future. For us, that feels like a that is exactly right down the middle of our strategy.
I think there's always sometimes when you do an EA deal and people say, "Oh, you're going to do hardware." But then in the earnings call, I think we showed Provation and ServiceChannel. And everybody said, "Wow, those deals, those are great. You should do more of those." So I think what I would just say is when you look at what we just did, that really feels like it's right down the middle of what we want to try to do. And we feel we're advantaged to do that because it's within the construct of what we do well already today. We have great franchises from a brand perspective. We have deep domain expertise relative to customers.
And that really is how we get to higher returns and ultimately to really getting a better business over time.
Is there any difference in the valuation that you see out there? I mean, obviously, software is usually more expensive. But I'm talking about relative to sort of your targets and stuff.
There's always a mix. What's more important for us is can we get to the return hurdle? And is it accelerate strategy? Does it improve the metrics that are important to us around growth rates and margin expansion? Does it give us the returns we want? You're going to pay more for a recurring revenue software business. And I sort of harken back to a business like eMaint, which we bought when it was making no money. So it was a small deal. But that business is a 20%+ return invested capital now, 8 years into the deal. So sometimes you pay a little bit more, as an example, for a software business. But ultimately, the returns in years 5, 6, and 7 are higher.
Maybe they are in a hardware business where you're reinventing more of the revenue every year. So we have to really be about value and the expected returns. And the multiple what we pay for may move around a little bit based on that theory. But I think what we've demonstrated now and what you're starting to see, I think now, after being out eight years and certainly doing a lot of things four or five years ago we showed this at the Investor Day. But I think people are getting a better sense is that we're getting to those investment targets that we had said three or four years ago. And so as the ROICs keep moving up for the business, we're seeing those strong returns.
You're seeing our ability to run the business as well. And I think investors get excited about that when they see those two things happen.
For sure. So you mentioned at your recent earnings call that the Fortive opcos are using AI to accelerate software development by 20% and that AI could have a greater impact on your core businesses as early as late 2024. A lot of your peers, they talk about AI, but it's more generic. You guys seem to actually, as we talked about a little bit with The Fort earlier, be more focused. So maybe talk about how your opcos are more able to quickly incorporate AI. And what could that really mean for growth rate?
Well, I think it starts with what you said, which is, given that we've had The Fort for so many years, we're not jump-starting any of this. We're sort of in. Generative AI is relatively new. But the machine learning and other aspects of data analytics have been part of our workflow for a number of years. We've been doing machine learning, as an example, on churn in our software to look at customer churn in an effort to improve net dollar retention. So three years ago, we developed those models. And then we applied that same model to our different software businesses. So our businesses are used to The Fort developing a model and then applying it in other businesses.
That said, there is a new game in town with generative AI. And it's still very early days. Product development is one of the places, particularly in software development, where a number of players have put out tools that can help accelerate those things. So we're probably earlier. But we think of it in four blocks. We think about it in innovation acceleration through product development. We think about it in back-office productivity. We think about it in deeper relationships with customers. So as an example, at Tektronix, we've got chatbots that are doing customer relationship work without a person involved. It allows for our customer service people to be more focused on bigger customer improvements, customer service improvements. And then finally, is product acceleration.
How do we put it into products? That's where we're just starting, right? Censis has got a solution. Accruent got a solution. We're helping customers use some of these tools in AI to really use our software better. That's where the growth the first three are more productivity and engagement. The fourth one is really growth-oriented. Very early days on that. But we're excited about it. We think there are real opportunities across the board to help Fortive become more give us more growth, but also help us give more innovation, deeper customer interaction, and ultimately do that more productively.
Does it do it in a way where because you've had the same growth algorithm since you went public? Do you start seeing that maybe it can actually move the growth algorithm?
Well, I mean, the growth algorithm was GDP plus 2 to mid-single and 30-50 basis points of OMX to 75.
I guess it's already done.
Well, and I think no. But I mean, no. I mean, I think the one we've had has been around for a little bit. And I do think if you go out long enough, it is going to certainly start to have impact on those things as well. Too early days to sort of extrapolate what that might be. But it's certainly going to be positive, for sure.
Okay. Last question from me. I asked this of you last year and of all companies. So what are the top two or three innovations and structural changes affecting your company over the next five years? And are there any emerging industry trends that are perhaps being overlooked in the current discourse?
Well, I would say, broadly, the five growth platforms are really our way of trying to articulate to the market that these are the places where we think are going to drive growth for the business. And I won't go through all five because they're pretty well documented. The secular drivers that are attached to those: automation and digitization, labor shortages, productivity to deal with labor shortages, whether that's in the hospital, whether that's with electricians, broadly defined, and then the energy transition. And I think those three are really the three things that you combine that with the growth platforms, connected workflows we have. That is front and center where we're deploying our investments, both organically and inorganically, to build a premier company.
Awesome. Well, Jim, we very much appreciate your time. Thank you.
Thanks, Andy.
Take care.
Thanks.