Ladies and gentlemen, please welcome Head of Investor Relations, Rockwell Automation, Jessica Kourakos.
Hey. Thank you very much. Welcome. This is going to be a great day. Good afternoon. We have a great event here today and have a lot of material to go through. Unfortunately, my voice is not going to make it through all of it. Before we get into the agenda, let me just take the obligatory pause for our safe harbor. There we go. Now for the real meat of the day. In addition to a terrific guest panel we've lined up, we're going to do a segment on how we are differentiated today, followed by what markets we're actively pursuing. We have our strategy to accelerate. Here, we'll give you our execution plan to how we're going to accelerate our top-line growth in a highly profitable way. Excuse me.
You're going to hear about real roadmaps of our most needle-moving offerings and exciting changes to our go-to-market strategy. With that, let me introduce Blake Moret, our Chairman and CEO. Blake?
I'm thrilled to be with you this afternoon, and we're going to take the next little bit to talk about what we're doing, as Jessica said, to accelerate profitable growth. I've been in the role for a little over three years now, and we have come a long way, but underpinning all of that is a company that's over 100 years old and has lived in industrial processes, and that continues to be, even though the tools to provide that productivity change. What hasn't changed is our fundamental mission to integrate control and information to help industrial companies and their people be more productive. We're a pure play. All of our 23,000 employees and all of our tens of thousands of partners are singularly focused on doing that, and we think that that's contributed to our success over the years. What are we doing going forward?
When I came into the role, we introduced a framework that talked about what it is that we're going to provide of increasing value to customers, how that's going to show up in increased revenue, and then what kind of financial performance and returns that would result in. I'm happy to say that we've made really good progress. Three years on, the things that we said were important feel right to us, and in particular, the information solutions and Connected Services, sometimes we'll call it IS and CS, as a proxy for new value from the Connected Enterprise, continues at a double-digit clip of profitable growth, and you see the numbers that we've accomplished and where we're heading there. In terms of acquisitions, we said that we were going to do more inorganic investment to be able to use all of our strengths to profitably grow.
This year, primarily from the Sensia joint venture that we talked about this morning with Olivier from Schlumberger, we'll see four points of inorganic growth with the activities that we've announced. We're accelerating what we're doing, and here we show some of the specific areas that we think are going to be most important for us to be able to grow at a higher rate. When we look at our core, in particular, increasing our process capabilities, process is a big part of the market and with acquisitions like Sensia, with Maverick and acquisitions, joint ventures like Sensia, with acquisitions like Maverick, that's put us into process and added that expertise in a bigger way. It's also the organic work that we're doing to invest in process technology, increasing share in Europe and in Asia. Those are all parts of the plan.
When you bring that together, when we take the things that we've been talking about in our core, with information solutions and connected services, with inorganic investments that fit a rigid financial criteria, as well as a well-defined framework for how the strategic rationale is clear to see, then you can see that we have every expectation of increasing profitable top-line growth. The conversation that will take place and the customers that you'll hear from on the panel will all support this conviction that we're in the best place that we have ever been in to provide expanded value to customers and to outperform the market. With that, I'm going to ask our Chief Technical Officer, Sujeet Chand, to the stage, and he's going to convene a panel to talk about issues near and dear to our hearts. Sujeet, come on up. Thank you.
We have a great panel lined up this afternoon. We have industry leaders from our end users, OEM, and a global professional services powerhouse. What we're going to focus on is really three major areas. One is we talk a lot about digital transformation. Where are we at in digital transformation, and who is driving this digital transformation? Is it IT, is it OT, or is it the C-suite? The second set of questions we will focus on is investments in digital transformation through economic cycles. How does our panel see that over time? The third area that I'm going to focus on is what's the role of Rockwell Automation in the digital transformation journey that our customers are undertaking? You'll have the opportunity to also ask questions. On the tables, there's a little card which has Wi-Fi on one side.
On the other side, it tells you how to download an app to ask questions. That's the only way you can ask questions of the panel. Please take a moment to download the app to ask questions a little bit later on. At this point, I'm going to ask our panelists to join me up here. Mike, Kevin, Tristan. Okay. Let's try Kevin, David, Mike, Tristan, and me. Tristan, come. We'll line up according to the pictures here. Okay, we're going to get started. We'll start out with first talking about where we are in the digital transformation journey, and I'm going to start with David. David gave a great talk this morning about Pfizer's digital transformation journey. David, you used the term pilot's purgatory. Are we out of it now? Where do you see Pfizer in the digital transformation journey today?
Yeah. I think in context, we tried everything we could not to get in it at first to begin with, I think is the first piece, right? I think you have to look at the foundation, and if you create the right foundation, you avoid it altogether or minimize the impact. For us, it really started with business alignment and vision, much of which I talked through this morning. Understanding the end to begin with. That business engagement was absolutely key because we really wanted the business to understand that the data is the ultimate truth. You're going to find things you may not like in this journey, but the reality is we'll be better for it at the end. It starts with the business engagement and then standard enterprise systems, single sources of data around the world, right?
Getting into the technological vision that we took you through today. If you have each one of those, it helps avoid the pilot purgatory to begin with. Let's just for say you're in it, right? At the end of the day, the end state in mind shouldn't be to actually get the deployment actually done. What we look at is outcome metrics, the number of patients served, increasing revenue, et cetera. As long as that's your guiding light, I think you can even pull out of the pilot purgatory.
Great. As an end user, you have pretty clear metrics. Kevin, from an OEM perspective, what is driving digital transformation and how is Harpak-ULMA approaching digital transformation?
Sure. We're a packaging machine OEM. We deliver packaging lines, automated packaging lines. We're taking a look at it from a different end, which is from our equipment. We have a multi-step journey that we imagine will take about five years to execute.
We're just about two years into it. Our first driving factor was to build a foundation in our equipment that would enable the Connected Enterprise and to support digital transformation. We've re-platformed all of our equipment with Rockwell controls, PLCs, integrated motion safety software, the whole thing. That offers a lot of benefits for us, but it gives us that foundation, not unlike if you think of a Tesla, where the foundation was the car, but it continues to get better. It's a smart, connected vehicle. We're building out smart, connected machines so that our customers can continue to get more and more benefit over time. That was our first layer, and now we're moving into several others that I'll discuss later. We're trying to enable a foundation to enable digital transformation for our customers and for our equipment to live in non-homogeneous environments.
Our customers use lots of different types of equipment. We don't supply everything. We need to make them play well with others so that we can contribute to the fabric of a Connected Enterprise.
Okay. Christian, I know Fonterra has been on this journey for some time. Where did you start, and how do you characterize where you are at Fonterra in the digital transformation journey?
I think in our case, we've been on the journey for a while, and like everyone, we've had some learnings along the way. We are moving into the rollout phase now. We've done some pilots, we've had some learnings, and we've got a really clear view now on how the technologies can really unlock value for us, manufacturing both within our factories, our operations, and across our supply chain. We're really excited. We're gearing up, and really moving into that deployment, that scale stage.
Great. Mike, how does Accenture see this digital transformation journey evolving, and who do you see driving it? Is it IT, OT, or the C-suite?
Yeah, it's a great question because I think there are a couple learning curves going on in parallel. There's the technology learning curve in terms of the digital tools and techniques, and there's a combinatorial effect of those as the tools mature and people learn how to use them. At the same time, a lot of people started thinking digital was about digital channels, digital markets, or digital marketing, and then they talked about mobility and how connected products and connected devices were going to impact their business. As they continue to think through how to create better experiences, better value propositions in the business, this becomes more of a C-suite issue, because they have to weave together the technology, the business model, the commercial models that they're using and try and think about what the future of the industry is going to look like.
We're seeing a lot of activity on the technical side of the business as we continue to learn the tools and the tools continue to evolve fairly rapidly. This is now much more of a C-suite topic on how we're actually going to drive value at the enterprise level.
Christian and David, do you agree that this is a C-suite topic now?
It's absolutely a C-suite topic. I look at it this way, is what I liked about our digital journey is we really started with the shop floor, and then we added in a Rockwell partnership that allowed us to go really horizontally across the plant and then across the network. We have that engagement at a plant and operating unit level, and then we then went top-down and said, "This is the engagement we need from the C-suite." Right? It's also, it's been quite popular, as everyone in the room knows, to be, quote, "be seen as digital." It was this perfect combination of we have this ground-up capability, this end-to-end strategy, the right partnership, and now we've got the backing and interest of the C-suite to help knock down any barriers towards getting towards that journey.
I think it's a ripe time to be in this space, quite honestly.
Kevin or Christian?
Yes. Also, our directors came from the C-suite, the idea of improving productivity, improving our efficiency, and really continuing to drive competitiveness. It came down, I think, in my space, to the OT team and the IT team, to identify how. The what, the ambitions were quite clear, it came down to how, and that's where we looked to our partners in the OT space and also working closely with IT on how we can align our efforts to really drive that value.
Now that we have quite a bit of momentum around digital transformation, Christian, your company, how do you see the investments over the economic cycles?
We've invested quite consistently in technology over a number of years. For our earlier days, it was connectivity, it was networks, it was fiber rings, and then it became servers and HMI layers. Now we're really looking at those advanced tools and the analytics, the digital infrastructure. We've definitely seen the value of those investments. In fact, actually, we're accelerating our investments now. We're ramping up our spend because we're seeing the value coming on through, and we want more of that.
What's an example of value you've seen from digital investments?
For us, it's been a big focus a number of years ago on yield maximization, particularly in large factories. More recently, we're looking at how can we bring together data from various disparate systems and contextualize it to really give us good insights of additional opportunities. With the line of sights, how do we move into actionable So we're interested in prescriptive and predictive opportunities to really start to drive closed-loop solutions where we're continually optimizing.
David, how about at Pfizer? How do you see the investment in the digital transformation evolve through the economic cycles?
Yeah, absolutely. We just concluded, when I talked about our overall technological journey, as we completed enterprise and standardized systems, what we had said is, "Let's continue to actually build upon that investment," so it's not something that goes away, first of all. Secondly, what we're seeing over time in our longer-range plans is to actually increase more proportionally into this area because what we're recognizing is tangible business benefits. The enterprise systems and previous investments, if you think of those are almost table stakes, maybe a little harder to quantify. What I like about this kind of digital revolution that we're in is the ability to clearly quantify a good return on investment, impact of throughput in plants, et cetera. We're using that as a case to actually see an increased investment over time.
As I mentioned this morning, I believe in my heart that it's something that's not necessarily even cyclical. I think these tools build upon themselves more than the past generation of tools.
Okay. Kevin, how about at Harpak-ULMA? How do you see investments in digital evolving?
We serve a pretty wide array of size customers from quite small to global multinationals. I would agree with the gentleman that it is being driven by the C-suite. The way that it manifests itself to us is in the form of equipment specifications. It's a long lead time cycle to put in new lines. A lot of the, I would say, larger and more advanced companies that are more mature in their digital transformation, they're making in their specifications it clear about the type of data you have to create, the type of control systems, the type of connectivity that is required. We're seeing that from our larger customers. The smaller ones really will follow, and they're, I would say, quite a bit behind the larger customers from a digital transformation perspective. We've been investing in the foundation.
We like to think that the machine itself is often the birthplace of data.
It's often where the highest fidelity of information exists, and preparing that in context to be consumed and turned into information is really important. That's where we're investing, and again, we're seeing from the C-suite, it pushed down into machine specifications.
Mike, from your perspective, how is Accenture approaching digital transformation? What are you guys doing? Can you also talk about the strategic partnership we just announced with Rockwell?
Sure. The interesting thing is that we get to work across industries, so we're quite active globally in most of the major industries, both process and discrete. What we see across all of those industry is almost an insatiable demand. We've invested dramatically to pivot Accenture into the digital space. Now more than, I think, 65% of our revenues are digitally related. What we're seeing is that clients are moving past the initial pilots and the prototypes and the learning processes around the technologies, and they're getting to the point that they're ready to invest and scale. There's a competitive dynamic that's existing because the basis of what good looks like from a competitive standpoint has changed.
Right. You have to run faster to keep up with the crowd. What they're asking is, "Can you make it simpler for me? Can you make it faster for my team to take advantage of the products that are out there to try and catch up with the movements in our markets?" We see major investments. I know Blake talked about the work that you've been doing with Microsoft, which is going to make a $5 billion investment in their tool set around IoT and edge-based architectures. You talked about PTC, what PTC is doing and the investment that they're making. You talked about what you're doing with your InnovationSuite and all of the technology that you bring to the table.
What we're going to see is more and more productization, where those things get brought together, they get packaged, and they get targeted at very specific value propositions. That makes it easier for the clients to consume it. We see an accelerating path as these things get brought together and packaged effectively because more clients then have a clear understanding not only of what the value proposition looks like, but how to get there. We actually do see an acceleration. We expect it to continue.
Why Rockwell Automation for partnership from an Accenture standpoint?
Well, it's interesting that Rockwell Automation seems to be the clear leader in industrial automation in terms of depth of skill and capability. You've adopted an open architecture and an open innovation approach to the market, you've clearly started collaborating with multiple people in the ecosystem to talk to clients about how to bring together the prior investments they've already made with some of the emerging technologies that can give them a leapfrog. We think you're taking the right approach to the market. We think you bring the deepest expertise in the area that you've grown up with, we also see that you're partnering with the right people, as you go industry by industry, we think you're going to make very rapid progress.
Okay. Christian, Rockwell and your company, Fonterra, have an alliance. Why did we form this alliance? What's Rockwell's unique role in the alliance?
We've been, I guess, collaborating with Rockwell since, actually since the 1990s. When we were preparing to embark on a large-scale FTPC MES deployment around about 2011, we saw an opportunity and a value to really formalize that relationship and allow us to actually innovate, co-innovate to a greater degree. The alliance was actually negotiated and signed in 2011 to allow us to really raise the level of engagement to really accelerate our MES deployment. We've leveraged that now in a number of other technologies that we're working on and that we purchased from you. It's working very well.
David, let me come back to you. You mentioned the partnership with Rockwell.
A question that comes up is, as you put in more of the software infrastructure, what impact does it have, if any, on the hardware? As you've got hardware that's going to approach end of life.
DCS systems, controllers, non-Rockwell systems, Pfizer has a lot of those. What will happen to those as you're implementing the Rockwell PTC infrastructure on top?
What's unique about the industry is, quite honestly, the investment we'd like to make over time is somewhat dampened by the fact that we have to make the product exactly as it's registered. If it's registered with someone else's technology at the time, that could be 10 years ago, that's what we generally, as much as we can, have to stay with. What I like, and I think is clearly unique about Rockwell and why we selected you in this space, is because it gives us the best of both worlds. It gives us the ability to tie into a very diverse set of both plants and technology, and frankly, providers at the plant level, but also it allows us to name and declare a platform that we desire to have going forward.
I think that, to be honest with you, is equally as important because when we talk about novel manufacturing, not just around biologics, but even gene therapy, having a visionary and a partner and a platform that's going to evolve with us going forward, I think is every bit, if not more important, than how do we handle some of the legacy technologies.
Sure. Kevin, you've selected Rockwell for your new line of machines. Why did Harpak-ULMA pick Rockwell?
We selected Rockwell as a partner for two reasons. One, from our perspective as a machine builder, the tool sets and the integrated architecture allow us to build machines rapidly, allow us to provide great diagnostics built into the machines for our customers. From a shelf perspective, we're able to build more effectively, more efficiently. From our customers' perspective, they absolutely want Rockwell as the control system and the infrastructure to be able to create the Connected Enterprise. We have a lot of pull from our customers saying, "This is what we want you to do." I know that these same customers use our competitors, and they've asked a lot of our competitors to do the same, and many have not. Many have reluctantly done small things, maybe threw a PLC in, but not really built a Rockwell machine.
We're building Rockwell machines because it has so many advantages for our customers, which in turn gives us an advantage in the selling space.
You mentioned that you have long lead times for your customers requesting your service. Do you think that because you're adopting this architecture, they'll be able to reconfigure more quickly as the factory needs to be reconfigured for new product introductions?
We absolutely think that having a digital-based system is going to allow them to configure much more quickly.
Lead times, or for NPIs, new product introductions, are always trying to be shrunk.
Yes.
That is going to be a key enabler to allow them to do some of that.
Well, the reason I ask the question is because as we see more connected products coming to market, the cycle time for product refresh is shortening.
Shrinking.
Right.
We're going to need more agile factory environments with more agile reconfiguration capabilities, and it sounds like you're planning on that being a core part of what you're offering.
Yeah, and if we deliver a building block that plays well in a non-homogeneous environment, it further enables that adaptation to new SKUs or new configurations or speeds or lines or product mixes.
Like I said, we actually have seen that, and I referenced this briefly this morning, is that if you think about what we did, and we finally got end-to-end across a whole factory with Rockwell as the base to do so. We then went back and said, "How do we do it faster?" We're now seeing 75% reduction in end-to-end creation time in these tool sets and capabilities.
That's great.
which is tremendous.
We're going to open up questions from the audience, so if you have any questions, please use your app. While we're waiting for questions, I'm going to ask you a question around as a service model in the OT space. As a service is fairly well accepted in the OT side today, what do you think the acceptance is in the OT domain?
I can offer some. We've been evaluating machine as a service, which is not brand new, but it's relatively fresh. The traditional cycle is you buy the capital equipment, it's depreciated over time, you own it, and you take care of it. What's interesting about that model, in some ways, it puts the end user and the OEM actually at odds. They're not aligned for the same goals. An OEM is very eager to build a machine, do an FAT, get it installed, and get paid and move on to the next one. That's what we do. We build systems. Of course, we support our customers, but just the nature of buying a machine and then owning it causes us to want to get it done and move on to the next.
From an end user perspective, they're not motivated always to maintain it perfectly. If a machine was a service and we were responsible for that machine, and we charged for the machine based on performance, it could offer a lot of benefits to both parties. It would better align the OEM and the end user, where we are motivated to make sure that we equip the machines with the very best features that deliver the very best OEE, that we have online monitoring and diagnostics to make sure that we're anticipating problems and keeping production up. Of course, the end user wins as well because every point of OEE, depending upon the line, is worth several hundred thousand dollars a year.
Yeah, I think what I would expect is, as we see the collision of operational technology and information technology, we'll see a bleed over effect.
Most people on the information technology side have become very comfortable with virtualizing their cost base around storage, compute, transmission, et cetera. What we are now seeing clients ask us for is data science as a service and insight as a service.
as part of their core process. The expectation is they have to keep getting better over time. They might not want to invest in kind of the world-class capabilities that are required to do deep data science around one particular problem set. We do see them starting to ask us for more continuous service as part of their core operation.
Perfect. I'm not seeing any questions on my computer here. I know this is not a shy audience, so maybe you're having some trouble downloading the app. I'm going to continue. Let me ask you a question about cybersecurity. This comes up a lot. OT-level cybersecurity and IT-level cybersecurity, how do you see these evolving? Is IT taking responsibility for cybersecurity in your companies? Is OT cybersecurity going to remain separate from IT?
Well, my context, obviously, Fonterra, we have separate cybersecurity teams, IT and OT, but we collaborate. I'm on the joint Fonterra cybersecurity group, for example, with my IT colleagues. The tools and requirements, the CIA, AIC, the viewpoints are a little bit different, but it's really important and I think the joint vision where we're aligning to a shared ambition, even if the technologies that we're using are a little bit different, I think that's really becoming really important.
I have a question from the audience. Why is Rockwell's open architecture an advantage versus closed or more integrated systems, say from Siemens, as both automation models seem to be successful?
Well, I can tell you from my perspective, just broadly, not just within the world of automation, but much more broadly, what we've seen is unless you have an incredible continuous investment in a closed architecture, the architecture's likely to fall behind the open source and the open architecture libraries and ecosystems that are out there. I mentioned earlier the $5 billion investment from Microsoft on IoT and the investments that PTC is making, the investments that Rockwell is making, the investments that Accenture is making, which will be well more than $1 billion in this space. It's hard for one company to continuously invest in a proprietary system at that scale and speed to keep up with the breadth of innovation that's occurring in a more open environment. I think Blake said earlier, Rockwell doesn't assume that every good idea will originate inside Rockwell Automation.
We share the same view, is we don't think Accenture is going to have every good idea. We just believe that open systems and open environments and collaborative architectures are likely to move faster on the innovation side than proprietary ones.
And I-
Just an assumption.
If I could build upon that, I completely agree, by the way, and I would just add this, not only is it a matter of investment, but I look at it this way, quite candidly, is this open architecture gives me, in my business, an opportunity, which I wouldn't have before, to actually control the destiny ourselves. You get the best of both worlds. You get the larger cross-industry thinking and the ability to move in an agile fashion within our own. My concern is what I've experienced over the closed networks is it actually forces us, from a customer perspective, to go back into that customer, that closed network, and to try to influence change, and it can be very difficult to do.
Do you also see a difference between hardware and software? In the hardware space, it's us and our friends strategy, but in the software space, the more open, the better, because there are so many options in the software space.
I do.
I agree.
I have another question from the audience. What has been the impact on your digital transformation regarding spending on security software, in particular, on-premise firewalls? Spending in security software, has it gone up? What are your thoughts on security software spending?
Yeah, I can start. Yes, it absolutely has gone up. What we did want to do, though, rather than just say this is an investment in cyber, we actually took the time to actually do some replatforming ourselves overall in our infrastructure and to get a little return on investment with that because it was the opportune time, not only just to lay our controls as we unleash the data, but frankly, to look at our infrastructure within the plants and increase uptime. Standing alone, cyber protections are certainly nice and somewhat mandatory, but we actually found a way to add some incremental business benefit by replatforming more broadly as well at the same time.
Kevin, here's a tough one for you. How have your customers that have large installed bases of non-Rockwell respond to your alignment with Rockwell?
With applause. They do. The primary market I'm focused on is North America. There's almost no customers that don't literally love what we're doing. As I mentioned, we're seeing the push down from the C-suite and machine specifications to accomplish this, to help them accomplish their digital transformation.
Great. Here's another one. Given trade friction with China, how do you see China as an evolving threat or potential opportunity as a market?
We're quite active in China. It's a very different ecosystem. Moving at speed, learning very, very quickly, with massive aspirations to compete on the global market. I note there are, I think, seven electronic vehicle manufacturers that didn't exist last year that do exist this year in China. Each of them plans to sell more cars than BMW does this year, right? There's a very, very rapidly moving market that's investing billions and billions of dollars to try and catch up with what they've seen internationally. It's a very, very interesting space, very tough market.
David, here's one for you. How far away are we from continuous manufacturing processing in biologics, and will Rockwell be the controller of choice for biologics?
Yeah, great question.
Yeah, it's an excellent question. The reality is it's too early in this journey to declare victory or declare a concrete strategy, but here's what we can say so far, right? If you look at biologics en masse, absolutely Rockwell's been a strategic partner to us and will continue to do so absolutely in this space, especially around vaccines and some of the novel products that are forthcoming. You get into continuous and portable continuous manufacturing, we absolutely have worked with Rockwell on some of our early pilots in this stage. If it's really a completely different class of medicines, you're starting to get more towards personalized medicine. Quite honestly, if anyone knows exactly where that's going to go in the years, I'd love to talk to you during a break. Why we've chosen Rockwell in general in these platforms is because of that agility, right?
No one knows exactly where that's going to go.
Here's one for you, Kevin. How is digital making plug-and-play possible for non-programmers? Programmers used to take a lot of time programming systems, but with digital technologies, is plug-and-play becoming possible?
I would say it's not there yet 100%, but it certainly lends itself to more rapid reconfiguration.
Building the context into the controller, into the birthplace of the data where it later wants to become useful information, is very important. I think that enabling layer helps with that. We are working on some things where we have, and they're not done, but plug-and-play OEE, so that you can put a machine, again, in an environment with our competitor's equipment and have it be enabled for upstream and downstream OEE to be able to collect the information that it needs to so that you can get line OEE without a lot of hand mashing and custom code. Those are the types of things we're working on to make them more plug-and-play and to allow the reconfiguration of lines to be much more rapid.
Maybe I can just add to the question on the hardware controller level side versus what we're trying to do to optimize across ecosystems or supply chains or bigger pieces. We are seeing the adoption of microservices and API architectures, and even the application of analytics apps, artificial intelligence modules that you can just pull down and use. We are seeing libraries start to get built. We're starting to see standardization occur.
It is allowing people to go much more quickly through the technical work that we used to have to code. In many cases, we're not coding anymore. We're letting the machine learning figure out what the logic is. We don't have to code it.
Perfect. We're out of time, so I want to thank our panelists for some great insights this afternoon. Thank you very much.
Thank you.
Thank you.
Thank you, David. Now I'm going to move on to the next segment of the presentation, and this segment is on highlighting Rockwell's differentiation. I'm going to ask Frank Kulaszewicz and Fran Wlodarczyk to join me for this segment. We heard about some of Rockwell's differentiators from the panel discussion. We heard about technology, open architecture, domain expertise. In the next few minutes, we're going to do a deeper dive into some of these topics. Frank, Fran, and I will cover technology differentiation, domain expertise, and partnering, and then we'll have some of our colleagues come in and talk about operational excellence, cybersecurity, and culture. With that, let's dive into technology differentiation. I'm going to turn it over to Fran.
Thanks, Sujeet. Good afternoon, everyone. I'm not sure I need to do my slides anymore. Between this morning and just now, I think they covered everything, but I'll do my best. I'm going to talk a little bit about technology differentiation, and I'll start with our multi-discipline platform. We're the only automation vendor in the world that deploys one platform to control applications across our customer enterprises. Why is that important? I think you heard a little bit about that. Standardization, it saves our customers money. When they're thinking about funding for training, competencies, spares, even entering part numbers into their purchasing system, they do it on one platform. It's really important. For us, it actually makes our development dollars much more efficient.
When we want to bring a feature to market, we do it in one platform, not two or three like some of our competition. Then we've also decided to create an open architecture, so you just heard about that. We decided to do that because we know we can't out-innovate the world. There's just no way. We're going to focus our dollars on where we want to lead, then we'll develop open interfaces to other best-in-class products and technology to really fill out that world-class architecture. One area where we want to lead is independent cart. In the past few years, we did two acquisitions, and we're now the market leader in that technology. We'll continue to invest there because it makes machine builders better at what they do, so they can actually create faster, more flexible machines for their customers, our common customers.
The next area where we wanted to lead was an Industrial Internet of Things platform. A little different tack there. We partnered and collaborated with PTC to create FactoryTalk InnovationSuite. We have a market-leading platform, and you heard David talk about this this morning. We want to light up our customer's enterprise, let them visualize where they have issues. Once they're identified, give them analytics applications to optimize, and you heard what the most important one was, predict events, prevent unplanned downtime. That's a big cost for our customers. We'll continue to build out that platform and particularly build out applications that scale within a customer. Again, David talked about that, right? They get it. They want to be able to scale throughout their enterprise, and then we also want to scale across an industry, so much more efficient on our development dollars again.
Sujeet, anything you'd like to add there?
Just to add to what Fran said, our IoT platform is differentiated in the market because it starts bottom-up as opposed to cloud down. When you toured the show floor, you must have seen some demos on how we can take raw data at the lowest level, organize the data, structure the data, and drive business value faster by tying the data together with powerful modeling in ThingWorx. You overlay Microsoft on that. You've got the most powerful IIoT platform in the industry. Gartner just published their review of IIoT platforms, and Rockwell PTC IIoT platform ranks among the best in the industrial space.
Thanks, Sujeet. The next slide, we actually picked three customers to put in a spotlight highlighting where they're deploying our technology to drive differentiation in their machines and processes. I'm going to focus on the middle one, we've talked about this in the past. KUKA, they're actually a robotics manufacturer, and they're a line builder for the automotive market. Few years back, they came to us, they were designing their next generation body assembly line. They wanted to disrupt it a little bit, they selected Independent Cart Technology and MagneMotion. We're happy to say we're starting to see this technology wind up in automotive manufacturers, KUKA can report that the lines are running 45% faster. There's a lot less mechanics. What does that mean?
Less maintenance costs, less probability for failures, and then for you mechanical engineers out there's a lot of losses in mechanics. It's inherently more energy efficient. We're saving money by using less power. Now, I can't do that justice in 30 seconds, but if you really want to take the time, go out on the internet, search KUKA PULSE, and you'll see some great technology in action. I'd like you to see you do that. Thanks.
Now move on to domain expertise and turn it over to Frank.
We talk a lot about technology and domain expertise, and the two go together. What I'd like to do is tell you a little bit of story and a customer example that kind of pulls those things together for you. This is a customer called Ahlstrom-Munksjö. They're basically a paper and fiber manufacturing company. You say, "Well, what does that mean from a domain expertise?" They had a couple things happening in their operations. First, it's important to understand that when we talk about this thing called a batch digester, that's at the front of their operations. If they're building products for consumer products and life sciences and the building industry, it all starts at the front end. They call it the wet end of their process.
If there's problems there, it impacts the entire supply chain going down through their operations. Basically the situation was, they had a legacy DCS system that was unreliable. They weren't able to produce new product lines with it, and it wasn't IoT ready. We talked a lot earlier about digital. We took some of our domain experts in this industry, spent time with their process engineering team, not only redesigned the process, but the control and information scheme that would go along with that. Brought that process up and running, and here you see some of the results there. First, the yields increased downstream on all of those product lines, imagine if you can get 13%, 15% more out of your existing assets. Huge impact on their bottom line.
The second thing that happened is we were able to move them into a new set of technologies which allowed them to produce different products. All right? Expand their market a bit. The third thing that happened was their operators who were having problems maintaining the old system, we spent a lot of time on simplification here and trying to make that workflow easier for them. Not only could they move to the new system, but they could operate it more effectively. It's really a great example of technology, domain expertise, and simplification all rolled into one. This story also repeats itself out of various industries in all the regions around the world. It gives you an example of what good domain expertise, process knowledge, and the great technology platforms Fran talked about can do for a customer.
Our partnership model, our partner program, this is truly one of our crown jewels in our differentiation. We partner with a large number of companies, the best-in-class partners, and they leverage our open architecture and our collaborative go-to-market approach. I'll highlight a couple of these partnerships. Distributors, that continues to be a unique partnership for Rockwell. This is a market-making team for us. They're customer intimate, and they're continuing to evolve with Rockwell Automation. We're growing our strategic alliances. You heard about Accenture. We announced a strategic partnership at Ansys at Automation Fair. This is pretty interesting and important because Ansys is perhaps the best software for building physics-based digital twin models. In the past, this was not possible to bring Ansys in with OT because there was no compute power in the OT.
When I started using Ansys out of college, we used to run it on Cray computers. Now with cloud, it's a whole lot easier to build digital models, digital twins, connect it to the OT layer, and drive more actions at the OT layer. Our partnership with equipment and machine builders, we are working with a lot of machine builders to help them build smart, connected machines. When they use Rockwell Automation to build these smart, connected machines, that creates a lot of differentiation as well as a certain amount of stickiness in the machine for them to make a change to a different machine because now it's both the hardware and software that's integrated with the smart, connected machine. In summary, Rockwell partners for technology innovation and market access.
What I'm going to do next is invite Kevin Roach to come back up here and give us a quick summary of how Harpak-ULMA is utilizing Rockwell Automation. Kevin is, as you know, president of Harpak-ULMA. He has a long history of applying contemporary technology to real business problems. In the next couple of minutes, Kevin will highlight his journey with Rockwell Automation and what his plans are for digital transformation. I would like to invite Kevin Roach to come back up here.
Thanks, Sujeet. Thank you
Hello again. I'm going to take about five or seven minutes and tell you a little bit about our business and our digital transformation. We've covered bits of it during the panel. I'm going to start with a video and then talk about our multi-year journey. We've outlined four major phases of what we're working on. We've completed phase 1, and now we're in phase 2. First, we'll start with a video, a little bit about our company. Maybe. As you can see, we're a machine builder and a line builder. We have a vast array of machines. We're about a billion-dollar company, a little over, 4,700 employees, 8 business units, one of which is packaging, which is about $300 million. One of our big differentiators is the portfolio that we offer.
As you saw, from flow wrapping to stretch wrapping to thermal forming, tray sealing, cartoning, sleeving, palletizing, and all of the automation and integration in between those elements is what we supply. We have parts and services availability all over the world, and we have a very distinct philosophy that we should use commercial off-the-shelf components wherever possible, and not obfuscate their origin, so that our customers can get them wherever they want from a network of global suppliers. We have strategic partners. Of course, we're talking about Rockwell today. We continually try to innovate, and you'll hear where we're trying to go with the innovation next. We focus on food, medical, and industrial markets primarily. The packaging industry reflects a lot of the same challenges and opportunities that most manufacturing sectors are seeing.
One of the big things we see is a big demand to drive shorter product cycles. Our customers, especially in CPG, are looking for shorter and shorter cycles to get to the market first to capture that market. That puts pressures on us, and as I talked about it, we're able to do a better job with our equipment, with the platform that we've selected. Sustainability is a big pressure point for the packaging industry. As you can imagine, there's a lot of plastic in the packaging industry, and plastic is a problem for the environment. We and others are working on both plant and paper-based solutions, and you'll see a lot of those coming out in shows from various folks, including ourselves.
There's a lot of technology opportunities for our customers, but they are suffering from a massive challenge, and that is labor availability and the scarcity of talent in technology. As the machines and the systems get more complex, they get more difficult to support. Our customers have as much as 40%-60% turnover per year. If you have a 1,000-person plant, you got to hire 400 to 600 just to stay even. This is a massive challenge. Our systems need to get simpler and smarter. Our digital transformation roadmap has four steps. The first step is to platform our equipment with a complete Rockwell solution, that as the foundation of our digital transformation. Next, augmented reality workflows, followed by IoT, where we integrate the controls and the AR with the digital twins, and finally, building out the ability for predictive analytics and performance benchmarking.
As I said, this is a three-to-five-year journey, and it's our initial journey. We will refresh this as we continue to make progress. As I mentioned, the first part of our journey is over. We've completed it, and we did it very quickly. We did it in a little over a year, where we re-platformed our major product lines with complete Rockwell controls. This is not just the PLC, but all the components and software. Massive benefits to our customers from a standpoint of labor, as I mentioned. Most of our customers already know Rockwell controls, so it lessens their challenges around the scarcity of technical labor. Augmented reality, you saw a little bit in the video. Again, with the FactoryTalk InnovationSuite, we're using the first phase of augmented reality to deliver workflows and work instructions rather than just manuals or videos and that sort of thing.
We have the ability to, with a phone or a tablet, just look at one of our machines. We pull up its digital twin, and we can overlay workflows and work instructions. In this photo here, someone's looking at the machine. It identifies the machine, and then it pulls up the digital twin, and then it goes through an animation sequence to show them how to change a tool on this tray sealer. The productivity is massive. We see 30%-50% productivity improvements when using these types of tools. This is the phase we're in right now. We are currently piloting with a few customers, and we're establishing pricing and value props and things like that through some partnerships that we have with our customers. This, again, is being driven from the top and presents some challenges.
Some of our customers are wondering, "Well, if all of the OEMs have a digital twin and an AR solution, how do we work together with those?" Again, I think it goes back to having an open architecture gives our customers a better solution. This is the phase we're in right now. The next phase is bringing in IoT and ThingWorx and tying these things together. The AR experience today are not connected to data. They're not connected to the control system. We've done prototyping and demos, but this will be the next phase, where we tie these two together. I'll give you an example. You could take an iPad or a set of goggles or glasses. You could look at one of the machines, and it could give you a fault indication. "Hey, you've got a fault on this machine.
Something's the matter with it." You walk around to the back of the machine, and without opening the control cabinet, just taking a look at it with an iPad or with glasses, and seeing right through the control cabinet and seeing the status of the controls, every single digital I/O point, messages on drives, circuit breaker status, things like that. Actually looking right into it and having that information being driven by the real-time control system and then visualized through the AR through IoT. You could further then see that this particular drive has a fault. Drive number three has a fault. Okay, well what should I do? It looks like it has an encoder problem. You look at the machine, and it shows you the path that the cable is run through the machine over to the motor.
When you get over to the motor, it tells you the parts you need, and it walks you through the work instructions of how to change out the encoder and bring the machine back up and running. We think this is going to address some major challenges that our customers face. The next, as we build out our fleet of smart connected machines, is to build data lakes and to apply machine learning and AI to do predictive analytics, as well as performance benchmarking, and maybe even machine-as-a-service, where we are in control of trying to optimize the capabilities and the performance of the equipment through a real-time control center. That's our fourth and final phase of this initial set of our phases. Kind of why the partnership, why we found Rockwell to be our best partner.
I mentioned this. This is huge to our customers. A competitive maintenance model. People do not want to be held hostage for spare parts, and OEMs shouldn't base their business on that. They should deliver machines that deliver performance and make parts available globally at fair prices. We do that. Accessible and secure information is critical to allow the system to birth that high-fidelity data and to enable the building out of a Connected Enterprise. Simplified integration, I think you've heard on the panel several times. The ability to reconfigure and change things is important, and an open architecture delivers that. Embedded intelligence. Having the machines get smarter so that operators, maintenance people, and technicians will have to have less familiarity with that equipment, but still be capable to work on it, support it, set it up, change it over, that sort of thing.
Finally, agility. The ability to reconfigure the systems, to be able to bring in new pieces of equipment, and to be able to quickly do that using digital twins, so that you can test out ideas, see how things work before actually implementing them physically in the plant. Thank you very much. Sujeet?
Thank you, Kevin. My pleasure. In the differentiation chart, we had six elements. We covered three. Now I'm going to invite my colleagues, Ernest, Becky, Chris, and Karen to join us up here on the stage, and they will be talking about three additional elements of differentiation, operational excellence, cybersecurity, and culture.
Take a step back. Think we're okay. Look, there's a lot of similarity that I've heard when I think about our own operational excellence journey, how we think about the end-to-end supply chain, and what I've heard throughout the day here. The reason behind that is, at a high level, we're all trying to solve the same problems as manufacturers. I mean, the reality for me is we're trying to digitally transform to drive some agility in our supply chain to ultimately overcome macroeconomic uncertainty that we have to deal with. For us in particular, FactoryTalk InnovationSuite, FTIS for us, is just one of several actions that we've taken. FTIS for us sits on top of our FactoryTalk ProductionCentre manufacturing execution system.
We've got a core of centralized manufacturing engineers that have been working feverishly since the last year when we announced the partnership with PTC to really gain and gather the right domain knowledge so we can prioritize opportunities across our facilities. We've been very explicit about how we're going to approach that. That for us in particular means that we're going to think about quality, and we're going to think about on-time delivery. We'll pivot to thinking more about productivity in our own facilities. You'll hear a little bit more from Becky very shortly about our security solutions. That has enabled us to have the right network infrastructure to layer on ThingWorx.
ThingWorx has allowed us to look at our OT environment and realistically think about how we're going to capture a lot of insight that we weren't able to capture before. What you see off to the right on the screen are application-specific business outcomes. In these cases, these are across individual manufacturing locations. It's not widespread yet. What I think is great about this is that we have a few examples where we've seen visibility into work in process that we didn't have before. That visibility has allowed us to better utilize our indirect material handling and quality resources in ways we haven't before. At the same time, we've been able to intelligently sequence through our manufacturing shop in areas that vary significantly from a routing perspective. They're not as consistent, they don't flow through the shop as we traditionally would.
All in all, I think that's very positive, and we're excited about it. When I think about the next phase, and the next phase for us is going to be to deploy across more plants. We are at six plants already. We're going to think about how we're going to approach the balance of our operation locations. The reality for us is there's quality that we're looking to do to be more predictive. There's AR and virtual reality scenarios that we're looking at. What we're considering there is, quite honestly, there's a war for manufacturing talent. How can we reduce the time it takes to onboard our manufacturing employees? This is becoming very important for us. We'll see. We're excited. We're going to expand upon the early wins, and then we'll move forward, and we'll look for other opportunities and other use cases.
Thanks, Ernest. One of the areas of operational excellence that Ernest and his team are leading includes a specific focus on cybersecurity. My team, which includes our Chief Information Security Officer, is really focused on risk, compliance, and keeping our company safe, secure, and resilient in what is an ever-changing security environment, and that includes on our plant floors. We take a holistic approach to cybersecurity, really, that reflects the connections that we see across our entire Connected Enterprise ecosystem. It starts down at our supply chain, all the way through our plant floors that Ernest talked about, as well as our development environments and our enterprise IT systems, all the way through to the products, services, and solutions that we're delivering to our customers.
It also has to take into consideration the external threat environment, which, as we all know, is constantly evolving and changing, as well as the risks that are presented by insiders. Given the connectivity that exists in manufacturing environments today, cybersecurity truly sits at the intersection of IT and OT for industrial companies. Our domain expertise and knowledge of the plant floor allows us to effectively leverage and deploy the right IT tools and techniques in the right way to protect not only our own operations, but also the operations of our customers. We're measuring ourselves against and are designing our products and solutions to meet international standards that our customers look to as they are making their purchasing decisions.
As thought leaders in OT cybersecurity, we are engaged with customer security officers at some of our largest customers from global companies as we're developing industrial OT cyber solutions. This really is a growing market, and we're seeing increased demand from customers around the world, including in the area of managed services. The products and solutions that we offer truly cover the entire cyber continuum from before, during, and after an event. Chris is going to talk in a little bit more detail about some of the solutions that we're deploying for customers. Put simply, we really are helping customers in all aspects of their OT cybersecurity, identifying critical OT assets and risks, helping maintain environments. We're involved in managed services engagements where we're monitoring and detecting industrial network activity, and we're also engaged in large-scale, complex network and security infrastructure deployments.
We're packaging our cyber services to make sure we can enable our sales and distribution ecosystem to effectively promote and sell our offerings. Again, our domain expertise, knowledge of the OT environment, and our ability to execute consistently and at scale really positions us well in this fast-moving market.
Thank you, Becky. I'm going to talk about one such success story that we've had in the food and beverage industry in a moment. First, though, I think it's important to set some context around our typical customer profile. You heard from David McGettigan earlier today in Pfizer in the complexity of his manufacturing network. That's 40 sites. In this case, we had 130 sites to deal with, and that's a typical customer for us, is they have plants that have been built up over time. They generally operated autonomously, and within that, there is a decentralized operating model, so there's lack of standards. With that lack of standards, you tend to get a lot of things hanging off your network that turn out to be unidentified assets, and legacy Windows-based machines. This can lead to an attack vector that's really unknown.
If you really don't know what's out there on your network, you can't patch it, and if you're not secure in these manufacturing operations, you're not safe. Furthermore, if you want to leverage data, that data integrity becomes important if you don't have the security in place. In the success story depicted on the screen here, we assisted a large global food and beverage company in a ransomware incident response and recovery effort. The customer immediately recognized that due to the scale of the effort, they determined they couldn't restore their operations alone in the time needed. They contacted our Connected Services Group, and we conducted an asset inventory and recovery operations.
As has been mentioned earlier, our differentiation here, our domain expertise, our capabilities for 24 by seven by 365 monitoring, our capabilities with our partners on network design and characterizing the network through some of our partnerships with Claroty and Cisco, provide a unique offering for a proactive remediation of cyber risks in the OT environment.
An important part of our ability to bring the Connected Enterprise to life is through our people and our culture. We believe it's critical to have an organization that's built on the ability to allow employees to want to and do their best work. As we think about our organization, it was built on a foundation of strong values, and those values allow us to attract and retain talented employees. Our reputation is what gives us an advantage in the marketplace. On a personal side, when I joined Rockwell Automation less than a year ago, it was some of these factors that solidified my decision to come, and I can tell you I have not been disappointed.
As we look to the future, we understand that culture will continue to be a fuel to our growth and success. Blake's going to take a minute to talk about some areas of key focus.
Yeah. Thanks, Karen. We've always been seen as having a strong culture, but I want to talk about some of the particular aspects of it that we continue to evolve. A culture is a living thing, and it needs constant care and feeding and demonstration of commitment to it from the top of the organization, from a board of directors, me and my team, and throughout the organization. You can do absolutely amazing things when you're aligned around that. We've talked for the last few years about an outside-in approach, being willing to compare ourselves against the very best choices that our stakeholders have. Those are stakeholders that include our customers, who see from a wide variety of suppliers, our traditional competitors, as well as brand-new potential suppliers from totally different industries.
We have to be able to take a cold-eyed view of the very best choices that they have. Our employees, they can work wherever they want. We've got great, talented, highly skilled employees, and we have to be the winner when they can compare all the places that they could potentially lend their talents to. Obviously, our investors. It's an outside-in approach. We have to increase the speed of decision-making. It's one of the other things that comes along for the ride as IT and OT converge. In addition to the technology, the business models, there's a certain pace, a cadence of change that's faster in the IT world. The OT world has been slow for a long time, if we just say it. The pace is picking up, and we're right there with it. A steady stream of new ideas.
You've seen a lot of new faces, and that's just at the top of the organization. Throughout the organization, we're adding new talent, new innovation, fresh ways of looking at things with diverse viewpoints. Acquisitions also lend that. We learn a lot every time that we make an acquisition with people who've grown up in a different world who have great ideas that can be brought to bear on our problems. What's not changing is the continued commitment to a culture of inclusion and integrity. We're just ramping that up because we're about winning the right way, and it is a strategy that's working. Culture is the key underpinning of it, but then the areas that we choose to focus on are important, and I'm happy with our progress in addressing the areas that are going to be important to us for a long time to come.
Quite simply, nobody is better positioned at the convergence of IT and OT. OT is our home field advantage. It's where the data is born. By bringing together the skills and the understanding of what it is that customers are trying to get done as we add IT capabilities with our own organic efforts, with the inorganic moves that we make, and with the partners, there's nobody in the world better positioned at this juncture. Talent is absolutely key here. It involves a meeting in the middle. What do I mean by that? It's taking those of us who have grown up in an OT world and to understand the needs of a world where the productivity that we seek to provide has an increasing amount of software content. The hardware is still every bit as important as it's always been. It's where the data is born.
It's what's actually solving the logic. That doesn't change. By adding software and high-value services to increase the magnitude of the outcomes, we can do some pretty extraordinary things. It's taking those of us who have grown up with that understanding of what happens in industrial processes and adding the appreciation for the immense value that additional software and analytics can provide, but also bringing in people into the organization who have grown up in that IT world and bringing them into the organization at all levels so that they have the runtime to develop, likewise, the appreciation of what it is our customers need to do. To gain productivity and how it is different than the carpeted part of the enterprise, As we bring those two worlds to meet in the middle, all guided by the right culture, we can do some really extraordinary things.
What are the markets that we choose to pursue here? What are the ones that are most accessible based on the direction that we're going? If we look at the total electrical, automation, and information market, it's big. Just being bigger doesn't mean that you're better in terms of your ability to effectively serve those customers or to grow and perform, quite frankly. We start with the core, the traditional strengths of Rockwell Automation. We add the information solutions and the connected services, and then we look at what we address with partners and with acquisitions, and we provide an unmatched portfolio of solutions. Why don't we do it all ourselves? Because it's an approach that, as you heard earlier from customers who should know, it doesn't recognize that every customer is at a different place on their journey.
They have massive installed bases of hardware and software, and they're not going to rip out their investment just to create a totally homogenous solution all at once. They're on a step-by-step journey. It also recognizes that when we choose to play in the areas that we can differentiate, we can get higher margins. It's that simple, because we're not an also-ran player in many of these areas. By weaving together that consortium and having those partners, then we can move quickly, and we can provide the most profitable way to serve those customer needs. We introduced at the earnings release, a little bit of a different way to think about our markets, and again, I'm very happy that trends in these different verticals are really moving in a direction that favors us.
We've talked about electric vehicles, we've talked about biopharma and the move to smaller, continuous processes, and you've heard far more eloquently than I can describe some of the things that make us fit to serve that area. Eco-industrial. We talked a lot about oil and gas this morning, but we're also heavily involved in sustainability. The fundamental job of a variable speed drive is to vary the speed of an electrical motor, where an enormous amount of energy is wasted by turning that motor on and off without being able to vary the speed. The inherent ability of our offering to be able to provide energy savings and contribute to the sustainability of our customers has been there for a long time. We're also very active in the renewables, solar energy, wind and so on.
The next video is going to highlight an interesting area where we've lent our expertise to an emerging and extremely important aspect of the industries that we serve.
There are 400,000 people right now on waiting lists for organs. What if you could make lungs, livers, corneas? What if we create a scalable capability to do that? It is unprecedented.
This is about solving problems that will impact every disease.
It's not regenerative medicine that we're trying to create here. It's the manufacturing of replacement human organs. Having Rockwell in has been an enormous catalyst that allowed me to help bring the rest of the world to the table.
The bridge really is between the automation and the scientist, to scale it from doing a few things in a lab to doing tens of thousands of tissues per year, and that's what we're doing.
This is a real large collaboration across the industry that's going to have potentially large impacts on healthcare. The idea was that we would gather off-the-shelf technologies and integrate them into a cohesive system that we could do scalable, modular, automated, enclosed manufacturing.
Now we're sitting in a room with the first complete system that you put in a vial of cells at one end, and 45 days from today will come a completely final product ready to implant. This system, it's nothing but Rockwell Automation boxes tying all of this together.
We talked about 140 companies being involved. It is definitely about a team. This is about teamwork, and it's about changing healthcare and how we're going to go forward.
We're trying to build things that cure disease, not just treat symptoms.
I do this because it's important, and I want when I look back at my life, to be able to say, "I made a difference.
You may have heard of Dean Kamen. He's done a few other things in his amazing career of innovation, and he'll probably do a few more going forward. So we were thrilled to have the opportunity to be a part of this with him. Here's another example of where the markets are moving in a direction that really favors us. You probably heard of Rivian, an electric vehicle manufacturer. They've benefited from some recent investment from companies like Ford and Amazon. They have a really innovative design of electric vehicle powertrain and an approach, a no-nonsense look at the market that is going to do some amazing things. The new factory that they're outfitting, old factory that they're retrofitting in Illinois is going to be completely full of Rockwell hardware and software.
It begins with the foundation of the basic control equipment, the stamping presses, the different applications that it takes to build a vehicle. On top of that, software, including FactoryTalk InnovationSuite, and that was one of the differentiators against all the usual suspects to win this business, to be able to tightly integrate the basic control and the information, as well as obviously our expertise and our reputation into the industry. We're thrilled to be a part of this journey. We talked last year about some of the grand challenges across multiple industries for the next decade. Agility, and you've heard about some of the things that we can do to provide agility to our customers, but it starts with ourself, and we're taking a lot of steps to pick up the pace within our own organization.
Connectivity and security, the cybersecurity that Becky talked about, the pervasive connectivity with industry standards. Cyclicality. It's something that I think about a lot within our own organization, but our customers are also thinking about it and moving more of their spend to level cost and to OpEx and to as-a-service models. We endorse that move, and we're full speed at retooling our organization, and Patrick and I will talk about that a little bit in a minute, to help ourselves and to help our customers in that respect. Then complexity. We've talked a lot about our approach to bringing the Connected Enterprise to life, understanding, combining innovation and expertise, and simplification. Simplification cannot be overstated in its importance. The technology, the business models, all of that contributes to reducing the complexity in automation and in information and industrial processes.
As we talk about specifically the things that we're doing to accelerate that strategy, I'd like to call Fran and Frank and Tessa Myers up once again to give a little more detail into some of these areas. We put this slide together to give you a view of what we're going to do to unlock our future growth potential.
I think the one takeaway that I want you to gather here is that the innovation machine is in high gear. Blake talked about it, agility and accelerating. We are accelerating. First, take a look at information solutions. We're going to expand our MES capability to better serve the hybrid market. We're also going to modularize that platform to actually help our customers adopt it. Their return on investment is faster, their time to value. Those are two things we're doing in the IS space. Maybe the one more interesting thing that I'm involved in is we're actually going to expand and enhance our Logix capabilities for process control. When we're done this enhancement, we believe we're going to double our served market for process control. What goes along with that Logix's expansion is a brand-new software platform or portfolio.
We've been working on this brand-new automation software portfolio for a little bit of time now. We're building it on contemporary modern technologies, and that's going to enable us to increase what we do from recurring revenue, so be able to deliver cloud-based software services. That's really important. I can't wait to see that product out in the market, but we've been working on it a while. We've got a couple more years till the first release. Finally, we'll continue to build out and expand our core platforms. One thing I'd like you to notice is we're doing this to capture global market share. I'll look at our motion control kinetics platform. We're actually releasing products specifically designed to capture market share in China, and then another set of products to capture market share in Europe.
We're going to continue to expand that core platform, build that base, but we're really going to look to expand and capture global market share. I hope this gives you a good view, and as well as the technology and the services that you saw out on the show floor, kind of the vision of the future that we're creating with our portfolio.
Just like Fran talked about expanding our technology portfolio, we're expanding our domain expertise and our professional service capability as well. I thought I'd highlight a couple of the new areas of value that we're driving for our customers. The first group is our Connected Enterprise Consulting organization. That group managed by Bob Murphy, one of my peers, really helping customers define their digital journey, and they're helping them find those best places for productivity that we talk about all the time. They're also the primary source of us working with partners to pick the best partners to help customers deliver that best solution. The second area is our analytics solutions group. These folks really implement the Connected Enterprise and help bring the Connected Enterprise to life at our customers. They're a group of professional architects, designers, and program managers.
As we help customers on that digital journey, these are the folks that work hand in hand with their teams to make sure it comes to life. The third area that we want to talk about is our expansion into process. Fran talked about the technology and roadmap and the investments we're making there. We continue to make investments in domain expertise as well. That helps us with new applications, it helps us with market access, and it brings different ideas into our organization. There's a couple great examples of that. The first example is MAVERICK Technologies. Paul Galeski, who is sitting here right in the front. Paul is the President of MAVERICK Technologies. He's on my team now. The second one is Sensia. Allan Rentcome sitting over in the side there. Allan is the CEO of Sensia. That's our new joint venture.
The third is MESTECH Services. MESTECH Services is really going to help both our information solutions group and our Connected Enterprise consulting group, bring that capability to life. Last but not least, we talk about connected services. Connected services is simply bringing IT concepts and capabilities like cybersecurity into the OT space. You heard that talked about in the panel a little bit, how we come in, we assess, we design, we remediate, and we manage that company's infrastructure through a managed service offering. The other thing about that is once we're done with that capability, that plant, that infrastructure, is really IoT ready and can be built on with our digital solutions. This is an example of how we're not only updating our technology, but expanding our domain expertise in these new spaces as our customer needs evolve.
I think one of the important things of the managed services is that we're expanding our recurring revenue capabilities as we build out and expand that portfolio.
Right. These are all good examples in that space as well. Blake mentioned Sensia a little earlier. You heard this morning Blake and Olivier, the CEO of Schlumberger, talking about Sensia. This is our new joint venture in oil and gas. I mentioned that Alan is here and his team. I'd encourage you to go see a little bit of Sensia out on the floor if you haven't already. We've got a video here we want to play that'll talk a little bit more about what specifically Sensia does and the value it brings to our customers.
Sensia is a team of over 1,000 experts serving customers worldwide, working tirelessly to overcome oil and gas challenges one by one. We unify sensing, intelligence, and action to transform the production, transportation, and processing of oil and gas. Using one secure, open technology platform, we connect and automate distributed assets to bring the advantages of seamless plug-and-play automation and industrial-scale digitalization to every oil and gas and pipeline operator at any scale, wherever they are in the world. Working with Sensia, operations become simpler, safer, more productive, and better understood. From reservoir to refinery, issues that once took months and days to diagnose can now be resolved in minutes and seconds. Building on the combined strengths of Rockwell Automation and Schlumberger, Sensia represents the best of the best.
In one place, customers access a unique combination of petrotechnical domains, digital solutions, artificial lift, and automation expertise, delivered through an unmatched portfolio of leading product brands, packaged systems, and engineered scalable solutions, backed by a global service organization. Work with Sensia to reduce risk, drive efficiency, optimize performance, and achieve the full potential of your oil and gas assets.
We're also accelerating our inorganic growth. I just want to kind of reaffirm a few of those areas that you see. The first one is we have a full pipeline of activities that we're looking at. You can see here the history of our inorganic growth activity. We talked a little bit earlier about that impact on our performance, especially in a performance year like we're in right now. It's material. Four points of growth based on the acquisition pipeline that we generated and acted on.
I think one of the things you notice under Blake's leadership, that acceleration of that inorganic activity.
Yeah. I would say that the work we're doing here is far more extensive than we've done in our past.
Yeah.
Quite honestly, it's bringing those new capabilities we talked about, both from a technology standpoint and a domain expertise, to life inside our portfolio.
We've shared with you before our approach with customers in bringing the Connected Enterprise to life and helping them on their digital journeys is really about starting with a first use case and a first application where we can demonstrate value and then help them scale it across their enterprise. We're starting to see that scale-out and that expansion now, and it's helping to drive our significant growth in information solutions and in connected services. With Ford, our focus with them on a first use case around production line efficiency has gone from one to five plants with a global rollout planned. With Stanley Black & Decker, our first use case around workflow optimization started in one plant is planned for a more than 10-plant rollout and then global expansion beyond that.
With Pfizer, you heard from David earlier today on the work at Pfizer around electronic batch record that started in one plant, is moving to their 10 most important plants, and then planned for a global rollout. With Metso, we help them monitor globally complex mining equipment. It started with one piece of equipment. It's now more than 50 pieces of equipment globally and growing. With Shell, we're helping them to monitor liquid natural gas at retail stations. It started with one installation, has moved to five, and is planned for a global rollout. We're also taking steps in a number of transformations in our commercial go-to-market to expand our ability to help our customers find their best opportunities for productivity and that ideal first use.
We're scaling up our selling and domain expertise resources so that we can engage even more customers to support them on their digital journeys. We're investing in technology and people so that we can help our customers move along that journey faster. We're amplifying our reach by offering our new capabilities like our information software through our distribution channel, which we just did this year, and creating new digital partnerships like what you've heard about with Accenture. This is a really exciting new relationship that we've launched. It's a great example of our expansion with digital partnerships. Rockwell and Accenture are leading providers of digital manufacturing transformation. By combining our information and control technologies and expertise along with Accenture's enterprise business and technical capabilities, together, we can globally deliver scalable end-to-end supply chain optimization solutions to our clients.
We're winning not just in the U.S. or in North America, we're winning around the world. This is a really good example with a company called 3V, based in Asia, of where we're winning with indigenous customers outside of the U.S.
3V Automation is a global engineering company. We're a startup company, start from $1 million and it grow to $100 million in the last five years. We specialize under new energy process automation, such like electrical vehicle, battery cooling, battery productions.
I'm very excited that 3V, one of the leading machine builders in the automotive industry, is responding by using IIoT technology. They decided to partner with Rockwell Automation and utilize Visionary 777 delivery on augmented reality. By utilizing information solutions, analytics, and augmented reality, they will be able to improve production, reduce downtime, and lower maintenance costs and risks.
In the next three to five years, 3V position ourselves transforming from a hardware company into a full digital software and hardware, combining together full solution companies to meet the challenges and the requirement of the IIoT market growth. We want to focus on to provide a solution on battery cooling, battery production, automotive lighting, and a smart transportation system. This is our main focus.
Patrick and I are going to talk a little bit about the impact of the final element of our strategy to accelerate that we're going to touch on, and then talk a little more specifically about some of our business resilience and then a recap of our financial framework. New business models and the demand to create new business models has to start with the core offering. It's all well and good that we might want to reduce our cyclicality and to do certain things that are attractive financially, but there has to be real customer value that's provided as the starting point. You can't ever lose that customer-centric view of the world. Some of the new offerings that we're talking about, simulation that lends itself well to cloud-based solutions and as-a-service business models, remote monitoring, augmented reality services, code conversion services.
Those are all examples of the demand that we're creating for new business models, and obviously, as we move more into the information software space, there's a understanding and a comfort on the part of customers to acquire the technology and the services in something other than just a perpetual license with added service on top. To do it well, it has to include a commitment to building the infrastructure. The infrastructure involves everything as fundamental as having a network so that you can do concurrent engineering and that you can respond to the service level agreements that are required by our customers, the understanding of how to move the cycles from the time that the order is received to being able to act on it in a quicker and quicker way.
We're making those investments in terms of the equipment, the processes, and the people who have been there before and understand that journey and can help us move there at speed. Recurring revenue, the way that we offer this to customers, and we'll talk about some of the specific things that we're doing to increase our recurring revenue that contributes to our business resilience.
Okay. Thank you, Blake. Good afternoon, everyone. Over the last year or two, you've heard us talk a little bit more about business resiliency and our objective to increase it. The main metric we're looking at when we discuss resiliency is free cash flow. We want our free cash flows to grow. We want them to become more stable. Of course, we want them to be also more predictable. There are three levers we're going to go through next that we're focusing on to achieve that. The first one is the top line. Our recurring revenue stream today is a little over $400 million and has been growing double digits. The growth in information solutions and connected services is clearly fueling that growth. On the left side, you see some of the opportunities we have to further increase it.
Blake just talked about some of the new business models. As you've heard earlier today, we're also continuously looking to drive deeper into more verticals and deeper into more geographies that will continue to drive diversification of a revenue stream. On the right side, you see the specific actions that we're taking. I'll cover a few of them. Over the last 12 months, we've made every software that we have available on a subscription. That's new. Over the last 12 months. Some of the new software that we develop is available only on a subscription. In addition, today still the vast majority of our software is sold on a perpetual license basis. We try and attach, of course, maintenance to that. We have the option to move all of that over time to subscription, depending of course, on customer adoption.
We're also changing some of our incentives internally to achieve that. For example, a salesperson today, if they sell the same software on a subscription basis, they'll get a higher bonus or higher commission than if they sell that same software on a perpetual basis. If a salesperson today sells a three-year subscription, they will get paid more than if they sell three one-year subscriptions. Another example is that many of our salespeople today, a part of their sales incentive is based not just on overall sales, but also on what are the specific sales growth on information solutions and connected services. We're incenting our salespeople and sales management to drive overall sales growth, but also specific sales growth in areas that are incremental value and provide us more recurring revenues.
Another thing we're looking at, every time we look at an acquisition candidate, when we analyze that opportunity, we determine how and whether this acquisition candidate can help us increase our recurring revenue streams. It's not a requirement, but clearly, we're adding some value to that.
Yeah. Patrick, just to put a fine point on some of these areas. The value of increasing resilience of subscriptions is obvious because it provides evergreen contracts that allow you to start the year with a stream of recurring revenue. Being able to expand into additional verticals and specifically in process, provides a better balance between early cycle vertical markets and later cycle markets. Then lifecycle services gives us a reason for being in those customers and to be able to monetize the installed base for many years after the initial project installation.
We've talked about the top line. Let's talk about cost. Cost management and the agility thereof, clearly is another driver of business resiliency. Over the last decade, we've made tremendous improvements in terms of gross profit margin increases and efficiency of SG&A as measured by percent of sales. We see continued opportunity to improve this, particularly on the G&A side of the equation. Some examples on how we're driving this. Every single supporting function within the company is expected to self-fund its merit every year. We target every function to continue to drive efficiency, including through the use of technology. If we go back over the last 10 years and we continue on this trend every year, is we have a higher level of flexible resources now than we had in the past.
If you look at our employee base and the mix and what % of our employee base is located in lower cost locations versus higher cost locations, we have increased the mix tremendously towards a number of employees in our lower cost locations. All of that will help in terms of agility and the speed at which we can adjust our cost basis if needed. Another example I'll mention is incentive compensation. Our incentive compensation is very broad-based. Almost all of our employees participate in it, and it's very variable. It's very dependent on the financial performance of the company, and it has provided us with a significant buffer, if needed, to adjust our cost basis quickly with basically no cost to implement. We've talked about the revenue, we've talked now about the cost basis.
We also believe that our asset-light business model is a source of increased resiliency. Again, if you look on the chart, I'll start on the left side, you'll see that we've made tremendous improvement over the last 10 years from a working capital efficiency point of view. Again, I would also say that we see continued opportunity for improvements there in years to come. Capital expenditures also have been lower as a % of sales. We do expect, however, that they would continue to be in the 2%-2.25% of sales going forward. Of course, it's not only the balance sheet efficiency that's important when you look at resiliency, it's also about how quickly can we adjust if we need to.
We believe that we have shown in the past, and we're confident that if needed, we'll be able to flex up and down our working capital and our capital expenditures as needed to increase our resiliency going forward. With that takes us back to free cash flow. I think it's fair to say that by any measure, our free cash flow performance has been very strong for a long period of time. It's our objective to continue that trend, and for that trend to be more resilient and that cash flow stream to be more predictable going forward. With that, I'll move over to the financial update. I will start with looking back to our performance over the last 10 years or so. On the left side of the slide, you'll see that we have a history of very strong financial performance.
I talked earlier about our gross profit margin improvements, our SG&A improvements, working capital improvement, very strong free cash flow performance. All of that has also helped with attractive return on invested capital, about a 30% over that period. It has also enabled us to return significant amount of capital to our share owners through dividends and share repurchases. If you look at our more recent performance in 2019, and you look at all of these metrics, I believe you'd agree that that performance fits very well with our strong history of financial performance. How are we going to continue that trend of superior financial returns? This is our framework, and you may notice that it remains unchanged. Our framework is working.
We affirm that this is the framework we will be using going forward, and it starts with our target of 30%-35% earnings conversion, assuming mid-single digits of organic growth. We're continuing to target 100% FCF conversion, and we continue to target a strong balance sheet that provides us with plenty of flexibility. You also see here what we continue to target in terms of EPS growth and return on invested capital. If we look back at our performance over the last two years, I think you'll agree that we hit the mark on every single one of those elements of our framework. Moving from our framework for superior financial returns to capital deployment. Again, I would say here that we're consistent and we keep the framework that we've had for the last few years.
Above all, we remain a company that's focused on organic growth. That is our priority number 1. We focus capital deployment on inorganic activities. You saw on an earlier slide what our priorities are for inorganic growth. We focus on capital returns, a dividend, and then share repurchases. If you look back the last two years where we deployed the excess cash we had and that we could redeploy as a result of tax reform, I think you'll agree that that cash was redeployed very much aligned with the priorities that are on this slide and that we shared with you back in 2017. Capital structure, we continue to target at A credit rating. We believe we can run the company with $500 million of cash or hopefully less. Obviously, that's always our objective.
For FY 2020, our intention is to redeploy about $1.6 billion of capital. We have a placeholder of about $700 million for acquisitions. That includes the $250 million transaction we did with Schlumberger earlier in the year. We expect dividends to be a little bit less than $500 million. We target share repurchases for about $400 million. Importantly, our capital structure framework and the deployment plans we have provide us the plenty of flexibility to redeploy even more capital, including for larger strategic acquisitions if we see that opportunity. Finally, a reminder of what our guidance is for the fiscal year. We shared that with you a couple of weeks ago. No surprises here. There is no change. This is back to what we said a couple of weeks ago.
The only thing I will add here is that in the appendix of the presentation, you'll notice that we provided more detail on the year-over-year impact of Sensia, including the geography of that impact on the profit and loss statement. With that, Blake, I'll turn it back over to you.
Great. Thanks, Patrick. We hope that over the course of this day, we've clearly identified our execution plan for accelerating profitable growth. We also hope that you've seen demonstrated on the show floor and by customer testimonials and by our plan, the correctness of the strategy to achieve that. We don't believe that there's anybody better positioned to be able to benefit from the convergence of IT and OT as industrial companies seek to become more productive, as they need to become more productive. We have the financial strength and the flexibility to carry this out. We thank you very much for your attention, for your interest, and now we'll open it up to a question session.
Patrick and I will be up here, obviously, we've got a lot of the subject matter experts in the audience, and we'll call on their expertise if we need to. Thanks for that.
Thanks a lot.
Yes
Patrick. Maybe just the first question around the competitive environment, the extent to which you've seen or you come across newer competitors today than sort of five or six years ago, and what sort of verticals are you seeing that new competition, in most clearly?
Yeah. I think the primary vector from which the meaningful new competition is coming from are IT companies that are coming into this space and recognizing that manufacturing or the industrial sector is a rich opportunity for that technology. Some of those companies are our partners as well. In the world today, there are not bright lines between partners and others who could potentially become competitors. That's why we have to focus so much on our differentiation to be a good partner, but also to do things that not even they can do as well. By working and starting with that home field advantage, it's a little bit of what I was getting at when I talked about nobody is better positioned. Nobody's better positioned because we understand how our customers need to increase their productivity in what they're doing.
I don't want to play someone else's game by saying that we're going to become a software company. We remain an industrial technology company that is focused on bringing productivity to our customers, but software and high-value services are more a part of the equation. The problem set remains very similar. By sticking to not ceding that heritage and that ability to be there and that credibility, I think we can do something really unique.
Just a quick follow-up. I think in the fourth quarter, you had a good automotive swap out of a competitor, in terms of some installed base being turned over. Maybe just give any color you can at all, as it is unusual for that to happen.
Well, as this particular customer was retooling that facility, there was a legacy line that had some competitive equipment in it. As they looked at a homogeneous facility, and also with adding some of the new value that comes from the higher-level software, they were interested in converting it out. We had done a very good job for them, supporting their worldwide system, and so we were the choice there. It's nothing fancy, quite frankly. It's a lot of hard work and a legacy of being dependable in that customer's operations. Yes, Rob.
Hey, Blake. I guess the first question on PTC, maybe you could just expand upon kind of what you've seen there from their ability to penetrate with your customers first, and then maybe just talk about the co-branding and how kind of a postmortem or ongoing postmortem as to how things are trending and how you're feeling about it qualitatively.
Yeah, I feel really good about FactoryTalk InnovationSuite and the joint value proposition that we're bringing. It's clear that PTC did not have the access to a lot of the customers that we're winning at. It's customers that were looking for that additional value. They needed it quicker. They were looking for augmented reality, for additional software to connect up various parts of their enterprise. They were customers that already trusted us. By bringing that to them at speed, it really was a good match. Jim talked on his earnings call a little bit about the rapid uptick in Q4 of new deals and the bright outlook going forward.
Importantly, and we've talked about this before, and it was maybe a little bit of a surprise, a pleasant surprise for us, a large number of these wins are on top of someone else's control system. It's not just building on customers that have standardized on our controllers. It's a new way to win by putting this information software and a new way to be really important part of their digital transformation.
Yeah. The second question is around the metrics, I think Patrick put up around organic growth. I think you talked about over the last 10-year period, about $2 billion in organic growth, if memory serves with the slide. I think that was peak to peak, so obviously off the trough, you could even have a larger opportunity for organic growth because I'm thinking in the earlier slides, I think you talk about a $9 billion kind of entitlement longer term. Is that right? Could it be even bigger than that in terms of how big you think the company could ultimately get through a cycle? Does that $9 billion entitlement that you had, how do we think about in the context of how you think about intrinsic value for the company, particularly with the share repurchase?
One point I might make on some of the numbers is that's ex currency effects, right. Of course, we've seen over a period of time, a significant strengthening overall of the U.S. dollar, which is our reporting currency. I believe that we are seeing areas of faster growth, and information solutions and connected services are one, and there are certain vertical industries that we're going to see faster growth. Part of this is not just serving blindly the markets that happen to need automation, but doubling down in the areas that show the greatest opportunity for profitable growth. EV, life sciences are a couple of examples that we pointed at where five years ago, they weren't the biggest verticals in automation, but we have selected to pursue those based on our offering and based on secular trends. The digital oil field would be another one.
I think it's on us to make sure that we're carefully choosing where we place those bets, both in terms of the technology, things like Independent Cart and information software, as well as vertical industries.
Hi, right over here. I guess going back to the kind of competitive landscape, it seems to be a debate that arises every couple of years, but are you seeing anything different playing out between customer choice of a PLC versus an industrial PC as we shift more to these IoT-enabled solutions?
I think there's a blend. Most of us have a blend of custom appliances, if you will, of PLCs, and those that are based on more of a COTS or consumer off-the-shelf platform. The functionality is very similar between the two. You're still interpreting inputs, solving logic, and changing the state of outputs. The basic function to solve real-time logic is the same. We have an open platform controller that's based on consumer off-the-shelf technology to complement the largely application-specific controllers. Some of our competitors, particularly some of the smaller ones, are going to market with a pure open controller or a COTS-based system. To be able to serve the entire scope of what customers are looking for, there's a lot of detail that goes into a safety controller, for instance.
There's a difference between a general purpose controller and being able to have the offerings that meet very specifically some of the applications. I haven't seen a big change, and I certainly haven't seen a move to the notion that this logic is going to be solved in the cloud, for instance, or it's going to fundamentally change the need on a machine like at Harpak-ULMA or on a line to be able to have an on-premise controller that's reliable and able to solve logic in real time.
Great. Maybe just as a follow-up, one of the things that we certainly saw going through the floor tour, I guess maybe we didn't appreciate the power of the deal when you did it, but Emulate3D, there were at least 10 instances that we saw going through the floor. One, was that in line kind of with your expectations of what you thought the acquisition would bring? Is this kind of more of what we should expect, these kind of smaller things that you can really scale through what you offer as Rockwell?
I'll use maybe a colloquial expression, but Emulate3D punches way above its weight. This was a small acquisition, and they had been a partner for us, and so we grasped the possibilities that it could really fortify so many parts of our solution. I'd say we were even surprised by the degree in which a pull was created from not only various business units within Rockwell, but by our partners to say, "Hey, I got to talk to you about this Emulate3D and how we can work together." We've talked to Ansys about it. We've talked to PTC, and stay tuned because you're going to see that throughout our offering going forward. Do we want to do more like that? Yeah. Oh, yeah. ACP and their ThinManager offering is another one that we did a relatively modest investment. It's grown profitably really well over the last few years.
We're looking for those, but we're also looking for substantive acquisitions and that they'll have existing meaningful revenue and profit as well. It's that balanced pipeline that we think we've achieved and that we'll continue to nurture.
Hey, good afternoon.
Hi.
Post PTC, what are some of the primary gaps, if any, that you would want to be filling versus your largest competitor or even versus where the industry is headed?
I feel really good about our positioning today, particularly with a couple of additional pieces that we announced this week, with Accenture and you heard from Mike, as well as with Ansys. As we're getting called to solve enterprise-level solutions at some of the most demanding customers around the world, as they're looking to create their digital twin architectures, as they're looking to make long-term decisions about who are the partners who get what it is they're trying to get done, I'll match up against anybody out there.
A quick follow-up on partnership. You've been announcing increasingly larger number of high-profile partnerships, which appears to be good on the face of it. Is this the new industry norm as the IT and OT increasingly converge? What really surprises me is none of your competitors, the larger ones at least, seem to be announcing nearly anywhere near the kind of partnerships that you've been announcing.
Well, I think it's starting from a point that we wanted to pick up the pace. I will say that, as IT and OT come together, the pace of change is something that comes with that convergence. Manufacturing is moving faster, and one of the things that we're also getting from the IT/OT convergence is the most successful IT company's commitment to ecosystem. How many times does Satya talk about the importance of ecosystem? Here's a company with almost limitless resources if they wanted to buy everything, but they recognize, and they're humble enough to recognize, that all the great ideas don't come within the four walls of one company. Marc Benioff talked about something very similar, that to be able to take advantage of all the great ideas that are out there, you have to build an ecosystem.
I like to think that Rockwell was a little bit ahead of the game, even before IT and OT converged at this pace. We've always talked about partnering and that we don't have to own everything, and that to be able to keep our high margins, we want to focus on the areas that we differentiate in, that we were a little bit ahead of the trend.
Blake, down here.
Yeah. Josh.
One thing that really struck me walking the floor this year versus past was how everything felt more integrated. Software wasn't kind of its own discreet bucket. PTC wasn't kind of a standalone discussion. It was all in one place. Is there kind of a known attachment rate that you guys have been able to identify with software? You gave the example with Rivian that you were able to kind of supply the whole plant because you led with software. Is there kind of a scaled-up version of that where you can say, "This is what the tip of the spear on software brings us from a hardware perspective"?
We talked, I'm going to ask Fran and Frank for a little bit of additional comment on this as well. We talked last year about a case where a large customer, more than doubled the revenue to us based on their base, plus the information solutions and connected services. That was a mix of the software and the services, but most everything is where that's bundled together. We do track formally attachment rates going all the way back to when we were offering preferential compatibility for the smart devices connecting up to Logix. While that, I think everybody pretty much understands the benefits of that, as we look at attachment of software, we've employed some of the same rigor to be able to look at kind of the connectivity there.
Yeah, and I'll take my mic.
Maybe if you can hand him the microphone.
I'll move in.
I'll comment to the.
Right
how the architecture looks more integrated, so that was purposeful, right? We spent a lot of time with PTC making sure the software integrates, pulling Emulate3D into it, so we're trying to make sure it's one portfolio. The attachment rates, I don't know if I can think of the ratio, but one thing I would point out is a lot of the IS opportunities that we're getting, it's on top of other people's products and automation, right? I think, and David talked about that gives us the opportunity in the future. We do spend a lot of time ensuring that it's easy to buy our software and it integrates well with our hardware. There is a focus within the business unit to make sure we drive that attachment, but I don't have the rates. Let me mention something else, Josh.
Organizationally, we made some changes to take the development of that information software and put it in the same business that's charting the roadmap for our controllers as well. That is, again, that's our home field advantage. Being able to take the same tags that are used for the basic automation and to have that be reused easily than anybody else at the information layer to reduce those keystrokes is a way that we provide design productivity. We brought the organization together with the same leadership to ensure that those roadmaps benefited from that entitlement as we go forward. That's an important concept as well.
Just to follow up, kind of zooming out on the macro, if I think about this current slowdown versus past ones, your customers were quicker to react in other slowdowns with kind of hard cuts to CapEx, and maybe that created this pent-up demand. How would you view kind of 2015, 2016 versus now in terms of what you guys hear or see in terms of project activity where someone just taps the brakes and says, "Call us next year"?
Yeah. In Q3, we called out some specific delays. We said that the delays, especially in industries that were a little bit more short cycle oriented, were a little bit higher, and we were going to be watching Q4 very closely to determine what paradigm, what archetype of slowdowns this most fit. We didn't see continued acceleration in push outs in Q4. To be sure, CapEx is still suppressed in a lot of verticals, but we did continue to see double-digit growth in some of the process areas. As is well known now, automotive had some pickup, not only in MRO, but also in project spend in select locations. Yeah. Thanks.
Hi. If everyone could just limit their number of questions to one, we appreciate it.
Blake and Patrick, thanks for taking my question. Josh Ike, good morning. Sorry. In the past, your FCF conversion has averaged 110%, if I'm remembering your slide correctly. Yet you're targeting greater amount of recurring revenue. Presumably, that raises your contract liabilities and brings down working capital requirements and CapEx has gone down. Isn't it reasonable to expect that your future FCF conversion will be appreciably greater than the 100% floor you just gave?
That is clearly our objective, to do more than 100%. Our framework is 100% or more. We try to do more, and we will do our best to do more.
One.
Thank you. Here.
Yeah.
I'm going to turn the partnership question hopefully into something that you can talk about as a strength. Has there been any situation, in the past five or 10 years, where you've had to compete for partnerships with other competitors? When you're looking to do a partnership like you've done in oil and gas and Internet of Things, you've basically been able to go out and seek out your preferred partner because your competitors are not pursuing the same strategy.
First, we compete with every partnership we have, whether there is the formative stage where we're working with a partner that we have selected that we want to work with and to talk about a clearly defined value proposition, or whether it's a long-time partnership that we've had that we have to keep vibrant. There's no guarantee that once you have a partnership, you're set for life. I think to part of your point, do we have an easier time of it because some of our competitors try to do it all themselves? They like having partnerships as well.
It's just their commitment to it sometimes isn't at the same level. Some people that already have had partnerships, maybe in the industry, have looked to turn to us because we have a great reputation as having the most impactful partnerships in the business, and that we're committed to it, and we really believe in the value of those partnerships. John.
All right. Yeah, sorry. This might be a question through Sujeet, but the word software has come up every second sentence, and I think pure software, we were talking, Patrick, it's just over 5% of the company's sales. I wanted to ask you about the risks to the PLC architecture. People we've taken to historically have talked about it being somewhat more cumbersome versus cleaner architecture solutions. I guess the genesis of the question is, are there risks to ultimately the core competence and cash cow of Rockwell from competition, from different architectures, from commoditization of the hardware? Just how are you guys thinking about that? Because it hasn't been much of a focus or topic of discussion at this automation conference.
John, that's a great question. I think if you look at what's impacting PLC architecture, it's not the hardware or software shift. The PLC architecture continues to do what it does really well, which is closed loop real-time control and safety. That functionality is not going to change going forward. Where it gets done may change. As Blake said earlier, we may have COTS, commercial off-the-shelf platforms, or dedicated platforms where you may be running PLCs, so that functionality remains. What has changed, though, is the integration between what the PLC does and what the software does, and there's more tie-in between software applications and the core PLC functions, and that's kind of the area that Rockwell is very focused on optimizing, and that's the area where our architecture is evolving into.
What about speed of the PLC architecture?
The question was what about speed of the PLC architecture? Today, the execution speed of the PLC is generated through special custom chips, but as commercial technology advances, we may add chips to the commercial off-the-shelf technology for accelerating PLC execution.
Just an additional comment about PLC. I mentioned before, we were showing on the floor a COTS-based PLC that gives the ability to solve logic, in a dependable, deterministic way, but also additional user cores to be able to add additional programs that lend themselves more to an industrial PC platform. We've had, for many years, rack-based solutions of compute surfaces that coexist and share data back and forth with the programmable controller. There's a variety of ways of doing this, and we're not worried about the compute surface being scalable from the unit programmable controller, which we believe is going to have value for machinery builders and many applications for many years. Also emerging compute surfaces, servers, and so on, where we can move that value in a scalable fashion up and down.
Chance, it's Cliff Ransom, straight in front of you, I couldn't see. You used the word continuous improvement. You've used the word lean. I'm not asking this question to embarrass either of you, but can you give us an example of one or two things that you've done in the last week that tell us your commitment to that thinking?
One or two things that we've done in the last week.
Well, I lead the finance function within Rockwell Automation. We have a price and an incentive that we hand out for simplification efforts through everything we do within the function. We have 600, 700 people within finance. We have many processes that are too complex or take too much time, may take too many steps to execute. We challenge the organization. We actually have many of our finance employees have Yellow Belt training. It goes back to some of the lean that you were referring to. All those people need to come up with a project to certify, and ultimately, we celebrate some of the projects that come to fruition because we know it makes their job more attractive, and frankly, it frees up some resources that we have within the company to focus on other things.
Cliff.
The reason I ask. Didn't want to embarrass you. I'm looking for something that either of you, as two of the very senior executives in this organization, implemented, did, or thought that demonstrates, in your personal pursuit of your professional objectives. I'm trying to see what you guys have done.
Yeah. Let me give one additional business example, and then I'll give a personal example as well. Patrick, on Friday, when we had our meeting with our quarterly operations review with our top executives, we celebrated the implementation of robotic process automation within the finance world, where Patrick has taken one of his key team members and tasked that person with finding additional targets for being able to implement RPA to increase velocity and efficiency within the finance organization. We celebrated the progress there in front of all of the leaders of the company.
I would say that in terms of a personal commitment to it, today, was a little bit of an example of spending a lot of time and effort to boil down the essence of our strategy to something that was simple to understand and to be able to be delivered with an economy of slides and be able to show the essence of what it is that we're doing in a way that can be amplified throughout the entire company. When we talk about our strategic framework and our approach to bringing the Connected Enterprise to life, the company knows that it's all centered on an understanding of our customers, the combination of innovation and expertise, and simplification. It's a core part of our strategy, and it's something that I talk about every time that I'm with employees. Okay.
You did not embarrass us, by the way, Cliff.
Last question.
Blake, I'm going to ask a holistic question about automation in general. You and your competitors have talked for some time about this being sort of a mid-single digit, four to five through the cycle growth, secular is the whole thing. We walk out onto the automation floor and we see all of these different individual solutions that can be packaged together or bought separately with clear returns on investment for a customer. Why do you think the growth rate of the category is not faster than that? What's holding it back, in your opinion?
When I was talking to the board about this job, they asked me that question, and I spent a lot of time thinking about it, and already I had 30 years in with the industry. What I felt at the time, and what I believe here, three and a half years on, it's the complexity of automation, and it's the ability to provide technology that integrates easier to be able to meet a customer where they are in their journey, to acknowledge their installed base, to have the ecosystem that encompasses many of their key partners, and to be able to build on that in a step-by-step fashion. To be able to have a customer-centric view, and to be able to create business models that make it as easy as possible to design and to operate and to maintain that equipment.
Simplification is going to sort out the winners and the losers over the next decade.
Okay. I think that's it, Blake.
Great. Hey, again, we really appreciate the time that you spent, appreciate all of your questions, and we look forward to seeing you in Anaheim again next year, and a few of you sometimes in between. Thank you very much.